French v NPM Group Pty Ltd[2008] QCA 217

SUPREME COURT OF QUEENSLAND

1. THE COURT:  By a written agreement dated 24 June 2003, the respondent (which carried on business under the name "Ark Homes") contracted to build a new homestead for the appellants on their property west of Townsville.  The agreement contained what the learned trial Judge described as:

"an unusual term, whereby the plaintiffs could require the [respondent] to remove the house, restore the land to its unimproved state and repay in full the price if the plaintiffs were 'not happy that [the respondent] had met and exceeded the specifications [the respondent] agreed on in full …'". 

This term was referred to by the parties and by His Honour as "the guarantee" (French v NPM Group Pty Ltd [2008] QSC 48 at [3]).

2. After the appellants took possession of the newly constructed house from the respondent, they complained of a number of defects. Some were structural. The appellants demanded that the defects be rectified. The appellants were not satisfied with the respondent's response to their demands and commenced proceedings in the Commercial and Consumer Tribunal ("the Tribunal") in December 2004.

3. The principal relief sought by the appellants in those proceedings was an order, under s 77(2)(g) of the Queensland Building Services Authority Act 1991 (Qld) ("the Act"), that the respondent take steps to remedy the defects.  In the alternative, the appellants sought a declaration that the agreement had been terminated, an order for the repayment of moneys paid to the respondent on account of the work, and an order for the payment of damages to be quantified.  As was noted in the decision of the Tribunal, the appellants did not pursue the alternative claim for relief by way of an order for the repayment of the moneys paid by them to the respondent.

4. In May 2006 the Tribunal ordered the respondent to carry out rectification work in order to remedy a number of defects in the work. The Tribunal also ordered the appellants to pay to the respondent the balance of the purchase price.

5. The appellants were not satisfied with the respondent's attempt at performance of the rectification work ordered by the Tribunal. They then commenced a proceeding in the Supreme Court seeking specific performance of the guarantee. Prior to the commencement of that proceeding, the appellants obtained an order from the Tribunal staying the orders made in their favour.

6. The learned trial Judge dismissed the appellants' claim, upholding the respondent's contention that their contractual rights under the guarantee had merged in the orders of the Tribunal ([2008] QSC 48 at [27]). This conclusion made it unnecessary for His Honour to rule upon other grounds on which the respondent sought to resist the appellants' claim.

7. The appellants appeal on the basis that His Honour erred in holding that their contractual rights in respect of the guarantee had merged in the orders of the Tribunal. It is necessary now to summarise the relevant terms of the agreement, the material provisions of the Act and associated legislation, and the reasoning of the learned Judge.

The relevant terms of the agreement

8. The principal obligation of each party to the agreement was stated in cl 1 of the agreement:

"Builder's obligation

1.1The builder must:

(a)complete the works in accordance with this contract; and

(b)comply with all laws and lawful requirements of any

statutory or other authority with respect to the carrying out of the works.

Owner's obligation

1.2The owner must pay the contract price, adjusted by any additions or deductions made under this contract, in the manner and at the times stated in this contract." (emphasis in original)

9. The "works" were particularised in Item 4 of Sch 1 to the agreement, by reference to an identified plan and a list of "inclusions".

10. The term "statutory or other authority" as used in the agreement was defined to mean: "a person authorised under the Building Act or the Local Government, State or Federal Government or any government agency that has power to affect the works".  It may be noted here that by cl 38.4 of the agreement, it "is to be construed under the law of the State of Queensland".  Accordingly, as was common ground, the Tribunal falls within the definition of "statutory … authority". 

11. Clause 10.1 obliged the appellants to give the respondent possession of the site. It provided:

"Owner to give exclusive possession

10.1The owner must, as soon as practicable after the date of this contract, give the builder exclusive possession of the site to carry out the works."

12. Clause 25 dealt with the topic of practical completion in terms which show that the builder's entitlement to be paid the price in full is dependent upon the rectification of defects. It was in the following terms:

"Builder to give estimate

25.1The builder must, at the owner’s request from time to time, give a non-binding estimate of when practical completion will be reached.

Builder to give notice and claim

25.2 On reaching practical completion the builder must give the owner:

(a) a notice of practical completion stating the builder’s opinion of the date of practical completion; and

(b) the final claim.

Final claim

25.3Subject to subclause 25.4, the owner must, within 5 working days of receiving the final claim, pay the amount of the final claim to the builder.

Final claim due

25.4 The final claim is not due until the builder:

(a) gives the owner a defects document signed by the builder listing minor defects and minor omissions:

(i) that are agreed to exist and the time for when those items will be completed or rectified; and

(ii) that the owner claims to exist but the builder does not agree with; and

(b) makes all reasonable efforts to have the owner sign the document to acknowledge its contents.

Owner's notice

25.5If the owner believes that practical completion has not been reached the owner must, within 5 working days of receiving the notice of practical completion, give the builder a written notice stating:

(a) the owner’s requirements for the works to reach practical completion; and

(b) the provisions of this contract that relate to each requirement.

Builder's response

25.6The builder must, on receiving the owner’s notice, complete those requirements that, in the builder’s opinion, are necessary to reach practical completion.

Further notice by builder

25.7On completion of those requirements the builder must give a further notice of practical completion stating the new date of practical completion and subclause 25.3 applies.

Payment is evidence

25.8The owner’s payment of the final claim is conclusive evidence of the builder’s satisfaction, and discharge, of the builder’s obligations in connection with the subject matter of this contract except for:

(a) fraud, dishonesty or fraudulent concealment relating to the works; and

(b) the builder’s liability under subclause 27.1.

Date of practical completion

25.9The date stated in the last notice of practical completion is deemed to be the date of practical completion unless within 5 working days of receiving the last notice of practical completion the owner gives the builder written notice:

(a) disputing the date; and

(b) detailing the reasons why the date is disputed." (emphasis in original)

13. Clause 26 dealt with the topic of the appellants' entitlement to take possession of the contract works:

"Illegal early possession

26.1 The owner is not entitled to:

(a) take control of, possession of or use the works or any part of the works; or

 (b) receive the keys for the works,

until the builder has been paid the contract price, adjusted by any additions or deductions made under this contract.

Agreed early possession

26.2The builder may by written notice to the owner permit the owner to:

(a) take control of;

(b) take possession of; or

(c) use,

the whole or any part of the works prior to practical completion but such possession does not reduce the owner’s liability to pay the outstanding balance of the contract price, adjusted by any additions or deductions made under this contract.

Consequence of taking possession

26.3 If the owner breaches subclause 26.1 then, unless such possession or use is with the written consent of the builder under subclause 26.2 or after the owner has lawfully ended this contract under Clauses 28 or 29:

(a) the owner must, in addition to the builder’s other rights, immediately pay all money then payable under this contract to the builder;

(b)the owner is deemed to have accepted the works in satisfaction of the builder’s obligations under this contract;

(c) the builder is deemed to be discharged and released from:

(i) carrying out further works including any defects liability on the incomplete part of the works; and

(ii)all liabilities, costs, losses or damages which the owner may suffer or incur which in any way relate to the non-completion of the works or any defect in the works due to the non-completion; and

(d) the owner indemnifies the builder against all liabilities, costs, charges, losses, damages, expenses or fees (including legal fees on a full indemnity basis) that the builder may suffer or incur arising out of or in anyway related to:

(i) the owner’s breach of subclause 26.1; or

(ii) any direction to rectify or complete incomplete parts of the works issued by the Queensland Building Services Authority or Queensland Building Tribunal.

Risk

26.4The works are at the risk of the owner on and from the owner taking possession of the works or any part of the works.

Continuing rights

26.5The rights of the builder and obligations of the owner under this Clause 26 continue in effect after the ending of this contract." (emphasis in original)

14. Clause 27 dealt with the defects liability period:

"Builder to fix defects

27.1 The builder must rectify any defects or other faults (except for minor settlement or minor shrinkage) due to the works not being in accordance with this contract that appear and are notified in writing by the owner to the builder within 6 calendar months after the date of practical completion." (emphasis in original)

15. The topic of termination of the agreement is dealt with in part in cl 28. The material provisions are as follows:

"When builder is in substantial breach

28.1 The builder is in substantial breach of this contract if the builder:

(a)suspends the carrying out of the works, otherwise than under Clause 19;

(b)has the builder's licence cancelled or suspended; or

(c)is otherwise in substantial breach of this contract." (emphasis in original)

16. The effect of cl 36 of the agreement was that the respondent warranted that "the works will be carried out in an appropriate and skilful way and with reasonable skill and care … in accordance with the plans and specifications to this contract."

17. The respondent's guarantee was contained on a sheet of paper executed and bound with the agreement. It was in the following terms:

"        Ark Homes

'We'll build you a great home at the agreed price,

or you don't pay a cent'

Guaranteed

As the builders of your new Ark home, we respect the trust you have placed in us, and we offer you a genuine commitment to deliver on every promise we make to you.  We want your new home to be 100% worry free.  That's why we offer you this iron-clad, money back guarantee.

We guarantee that we will manufacture and deliver

your new home as specified in our initial contract,

at the price we agreed

If you wish to make modifications to the specifications after we have commenced the project, these modifications will be quoted to you in writing before being done, and will only proceed after your signed approval.

At the time of hand over to you, you will be given the opportunity to inspect your new home and confirm it has been manufactured and installed exactly to the terms of our written agreement.

If for any reason your new Ark home does not meet the specifications defined in writing in our initial agreement, we commit to make any necessary repairs or modifications to your new home at our expense.

If after making these modifications, you are not happy that we have met and exceeded the specifications we agreed on in full, we commit to remove the building in question (including any other additions eg carports), dig out the stumps, and return your home site to its original, unimproved condition before we commenced work, and to refund any monies paid in full.

We guarantee to perform, or you will not pay a cent – guaranteed"

(highlighting in original text, italicised emphasis added)

18. Of course, the parties might have different views as to whether the respondent had, in truth, "met the specifications" for the appellants' new home. A mechanism was necessary to resolve such a dispute. Clause 37 of the agreement dealt with the topic of dispute resolution:

"Reference to Queensland Building Tribunal

37.1 If any dispute or difference between the owner and the builder arises in connection with the subject matter of this contract then either party may give to the other party written notice of such dispute or difference and such dispute or difference may be referred for determination to the Queensland Building Tribunal." (emphasis in original)

The Act

19. The Tribunal is established by the Act. It may be doubted whether cl 37 of the agreement was necessary to enable the parties to have recourse to the Tribunal to resolve their disputes in relation to the work. Statutory authority to decide a building dispute is conferred on the Tribunal by s 77 of the Act, which is in the following terms:

"Tribunal may decide building dispute

(1) A person involved in a building dispute may apply to the tribunal to have the tribunal decide the dispute.

(2) Without limiting the tribunal’s powers to resolve the dispute, the tribunal may exercise 1 or more of the following powers–

(a) order the payment of an amount found to be owing by 1 party to another;

(b) order relief from payment of an amount claimed by 1 party from another;

(c) award damages, and interest on the damages at the rate, and calculated in the way, prescribed under a regulation;

(d) order restitution;

(e) declare any misleading, deceptive or otherwise unjust contractual term to be of no effect, or otherwise vary a contract to avoid injustice;

(f) avoid a policy of insurance under the statutory insurance scheme;

(g) order rectification or completion of defective or incomplete tribunal work;

(h) award costs."

20. By s 93 of the Commercial and Consumer Tribunal Act 2003 (Qld), a party may register a decision of the Tribunal by filing a copy of the decision and an affidavit of non-compliance in a court of competent jurisdiction.  By s 94(2), upon registration of the decision "a proceeding may be taken on the decision" as if it had been originally given as a judgment and entered on the day of registration.  It may be noted that in this case, the orders of the Tribunal were not registered.

The decision of the learned trial Judge

21. His Honour noted that, in the proceedings before the Tribunal, "in all respects what the plaintiffs sought was that work … be done towards rectifying the house, rather than that it be removed pursuant to the guarantee" ([2008] QSC 48 at [12]).

22. He noted that the orders made by the Tribunal in May 2006 operated by reference, inter alia, to the "agreed defects listed in schedule 'C'", and that the extent of the respondent's obligations was fixed by reference to assessments by nominated individuals. He said ([2008] QSC 48 at [10] – [11]):

"In paragraph (a)(v) of [the Tribunal's] orders, the 'agreed defects listed in schedule 'C'' were the undisputed defects. The reference to a schedule C as attached to the applicant’s written submissions was an intended reference to the present respondent’s submissions. That schedule described some 30 items. It included four items respectively described as 'foundations', 'chassis', 'wall framing' and 'roof trusses', for each of which, by the terms of the schedule which became part of the orders, the order made was as follows:

'(The [respondent]) will supply written engineering certification of the building to C2 (W50C). Certification of the building will be provided by Steve McKenzie Consulting Engineers Pty Ltd after an inspection of the completed works. Where required, works are to be undertaken [by the respondent] to allow such certification.'

The reference to 'C2 (W50C)' was to an engineering code or standard for structural stability in cyclonic wind conditions. It was a term of the contract that there would be an engineer’s certification about that but the identity of the engineer was not there agreed. It was by these orders that Mr McKenzie became the engineer whose certification was both necessary and sufficient.

For a number of other defects within this schedule 'C', the [respondent] was ordered to repair or replace things as required by a Mr Jorgensen. There was no provision of the contract to the same effect, whereby some third party, Mr Jorgensen or otherwise, was to decide what had to be built or rectified. For these items, the Tribunal’s orders thereby went beyond the terms of the contract, and depending upon Mr Jorgensen’s opinion, had the potential for the work required by the orders to differ from that required by the contract. Further, by item 28 of the schedule, it was ordered that Mr Jorgensen was to conduct a final inspection of the rectification of all items and certify that they had been completed to his satisfaction. The evident intent of these orders was the avoidance of further disputes."

23. Referring to the language of the guarantee, His Honour said ([2008] QSC 48 at [17]):

"The [respondent] was entitled to the opportunity of rectifying the defects before being required to remove and repay. In my view the words 'if after making these modifications' were intended to provide that opportunity, and not to deprive the plaintiffs of the benefit of the guarantee, should the respondent do nothing. Otherwise the effect of the guarantee, and in particular the words 'we guarantee to perform, or you will not pay a cent – guaranteed', would be considerably eroded: the builder could deprive the owner of the benefit of the guarantee by refusing to do the rectification work required by the contract."

24. The learned Judge found that, by the time the appellants commenced proceedings in the Tribunal, there were defects in construction in respect of which the appellants were entitled to invoke the guarantee. He said ([2008] QSC 48 at [18]):

"Accordingly, by the time of the Tribunal hearing, the plaintiffs had become entitled to require the respondent to remove the house and repay in full. At that stage they could have sought orders for rectification or instead orders for removal and repayment as they pleaded in their statement of claim in the Tribunal. Orders of either kind were within the powers of the Tribunal. In particular, the Tribunal was empowered by s 77 of the Queensland Building Services Authority Act to order 'restitution' or 'rectification or completion of defective or incomplete ... work'. By seeking, as they did, orders for rectification, the plaintiffs were precluded from obtaining at the same time an order for restitution under the guarantee. However, the question is whether they were thereby precluded subsequently from enforcing the guarantee, in the event that the respondent failed to remedy the defects after being ordered to do so." (emphasis in original)

25. The primary Judge then considered whether the appellants had thereby bound themselves to an election which precluded the possibility of their later invoking the guarantee. His Honour said ([2008] QSC 48 at [19]):

"In an action for specific performance of a contract for the sale of land, a plaintiff may alternatively claim damages but must elect between those remedies at the hearing (Johnson v Agnew [1980] AC 367 at 392). But having made an election to seek specific performance, a plaintiff may thereafter terminate the contract and seek damages for a subsequent repudiation by the other party (Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444), even after having obtained a decree for specific performance for repudiatory conduct subsequent to that decree (Johnson v Agnew [1980] AC 367). So in a case of that kind, a plaintiff’s election for specific performance at the trial will not preclude the pursuit of the alternative remedy upon the basis of circumstances subsequently arising. That is because where a plaintiff is granted a decree of specific performance of a contract for the sale of land, the contract does not merge in the order (Johnson v Agnew [1980] AC 367). The court, by its decree, enforces the contract so that the contract remains on foot. To say then that the plaintiffs here were put to an election at the Tribunal hearing does not answer the question of whether their restitutionary right was later exercisable. Instead, it is necessary to consider the effect of the Tribunal’s orders upon the contract." (citations footnoted in original)

26. He proceeded to make the point that the orders made by the Tribunal went beyond merely declaring or enforcing the appellants' rights under the agreement ([2008] QSC 48 at [20]):

"If the present case is analogous, in that the Tribunal was ordering the specific performance of this building contract, then a subsequent default by the respondent could have grounded the present claim for restitution. However the Tribunal’s orders were not of that kind. Rather than ordering the specific performance of the contract, the Tribunal made various orders, some of which corresponded with the respondent’s contractual obligation, and others which did not. As already discussed, the obligations under the orders requiring the direction and approval of Mr Jorgensen were not identical with the contractual obligations. Those orders were intended to provide the plaintiffs with a result, in the sense of a building, which was equivalent to that which they were to have had by their contract." 

27. His Honour noted that the powers conferred on the Tribunal to decide a building dispute are more extensive than those ordinarily exercised by the courts, in that the Tribunal may make orders which involve some variation of, or departure from, the rights and obligations of the parties under their contract ([2008] QSC 48 at [21]).

28. The learned Judge concluded that the appellants' contractual rights became merged in the Tribunal's orders ([2008] QSC 48 at [27]). In reaching this conclusion, His Honour reasoned as follows ([2008] QSC 48 at [22] – [25]):

"Thus as the parties accept, the Tribunal was empowered to make the orders made in this case. In particular it was empowered to make orders which diverted from the contractual obligations by ordering that such work be done as required and approved by Mr Jorgensen. The plaintiffs’ argument accepts that the Tribunal has ordered something different from simply the performance of the contract. Still they argue that their right to restitution under the guarantee remains exercisable, because they are not satisfied that the [respondent] has met and exceeded the specifications within the contract. Their argument expressly distinguishes that contractual obligation from the [respondent’s] obligation to comply with the orders. On their case then, the [respondent] became subject to two parallel sets of obligations. The [respondent] became subject to the Tribunal’s orders and it remained subject, at least if it wished to avoid having to make restitution under the guarantee, to its contractual obligations. So in several respects, it became simultaneously obliged to repair certain things to the satisfaction of Mr Jorgensen and to repair the same things to the satisfaction of the plaintiffs.

The plaintiffs do not argue that they are entitled to restitution if dissatisfied with the [respondent’s] compliance with the Tribunal’s orders. Their case is that it is their dissatisfaction with the respondent’s contractual performance which entitles them to restitution. Their case is premised upon the contractual obligations continuing to exist after the Tribunal’s orders.

In my view the [respondent] was not under such parallel obligations. The Tribunal’s orders became the source of any obligation of the respondent. They resolved the dispute by comprehensively defining what had to be done by each party. The Tribunal did not simply order that the contract be performed. Rights under the contract merged in the Tribunal’s decision.

A cause of action is merged into a judgment where it was a cause claimed in that proceeding (Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 at 597). For the purposes of this rule, as Giles J said in Onerati v Phillips Constructions Pty Ltd (in liq) (1989) 16 NSWLR 730 at 746, 'there is but one cause of action for breach of contract founded upon breach of a promise such as to carry out the work in a good and workmanlike manner. There is not a number of causes of action according to particular defects or classes of defect resulting from the breach' (See also Ebber v Isager [1995] 1 Qd R 150 at 158 per White J citing Conquer v Boot [1928] 2 KB 336 at 342, 344-345). So it does not matter that the plaintiffs’ present complaints do not precisely restate those made in the Tribunal. The cause of action was the plaintiffs’ right to performance of their contract, including the guarantee, so that the restitutionary entitlement under the guarantee merged in the Tribunal’s decision. Alternatively, if the cause of action was the right to have the house built according to the contract, then the merger of that cause of action put paid to the guarantee, because (as the plaintiffs accept) the plaintiffs could call for restitution only if (in their view) the [respondent] was not performing the contract, and by the time the plaintiffs called for restitution, they were no longer entitled to that performance but instead to compliance with the orders." (citations footnoted in original) (emphasis in original)

The appellants' contentions on appeal

29. At the outset of a discussion of the appellants' contentions, it should be noted that the appellants' submissions assume that, theoretically at least, the doctrine of merger may apply to orders of the Tribunal. There is no occasion for this Court to examine the correctness of that assumption. The orders of the Tribunal have not been registered under s 93 of the Commercial and Consumer Tribunal Act 2003 (Qld) so as to be enforceable as if they were orders of the court.  There may be a question whether unregistered orders of the Tribunal are apt to engage the doctrine of merger (which hitherto has been conventionally stated as involving the displacement of the rights initially conferred on parties by contract by the new charter contained in a judgment of the court) (In re European Central Railway Company, Ex parte Oriental Financial Corporation (1876) 4 Ch D 33; Ex Parte Fewings; In Re Sneyd (1883) 25 Ch D 338 at 355; Economic Life Assurance Society v Usborne [1902] AC 147 at 149 – 150).  This is mentioned not to cast any doubt on the correctness of the assumption made by the appellants, but to make it clear that this point was not tendered for determination by the Court.

30. The appellants advance three arguments in support of their submission that the Judge erred in concluding that the guarantee merged in the orders of the Tribunal.

31. First, it is said that the appellants' "cause of action to require the guarantee to be specifically performed by removing the house and repaying the money had not arisen by the time of the Tribunal hearing." The reason advanced is that "right did not arise until Ark Homes made the repairs and modifications. As a result the cause of action based on that right could not merge in the Tribunal's orders."

32. Second, it is said that His Honour erred in treating this case as analogous to a case of breach of promise to carry out work in a good and workmanlike manner, because the appellants enjoyed separate and distinct rights "to have repairs and modifications carried out and a logically subsequent right, if [they] were not happy with the work, to require Ark Homes to remove and repay." In the proceedings before the Tribunal, the appellants did not seek the enforcement of this "logically subsequent right", and so it could not have merged in the Tribunal's orders.

33. Third, it is said that His Honour erred in apprehending that, unless the "logically subsequent right" was taken to have merged in the Tribunal's orders, the respondent would be "under parallel obligations". The appellants argue that the Tribunal's orders did no more than require the respondent to perform its obligations under the contract.

34. For the respondent, it was argued that the appellants' right to enforce the contract had arisen by the time of the proceedings in the Tribunal and that this right included the right to enforce the guarantee. It was said that the appellants chose to seek to have the house completed in accordance with the contract rather than to enforce the guarantee, and the orders of the Tribunal gave effect to that choice. By its orders, the Tribunal was "doing more than ordering things to be done by way of performance of the contract; it was exercising more generally its power to make orders which will resolve the dispute between the parties". Accordingly, the orders of the Tribunal did indeed give rise to parallel and inconsistent obligations. The respondents advanced other arguments pursuant to a notice of contention in support of the decision below.

Discussion:  overview

35. At the heart of all three arguments advanced for the appellants is the proposition that the right conferred on the appellants to removal and repayment is a right which is "logically subsequent" to their right to have repairs and modifications carried out by the respondent in accordance with the contract. On this view, an order for the performance of rectification work does not preclude the possibility that, if that order is disobeyed, the appellants may thereupon require the respondent to remove the house and repay the purchase price, even though the respondent remains obliged by the orders of the Tribunal to rectify its defective work.

36. It may be accepted that the appellants were entitled to require rectification of defects before exercising their right to require the respondent to remove the house and repay the purchase price. It may also be accepted that a court will not be astute to deny the appellants the full benefit of the plenitude of rights conferred on them by their contract with the respondent. But acceptance of these propositions does not mean that the appellants, having obtained an order requiring the rectification of the work, might then exercise their contractual right to require the removal of the house and the repayment of the purchase price by obtaining an order from the court to that effect.

37. The appellants were entitled under the guarantee to call upon the respondent to rectify defective work after the work had been "handed over to them" and assessed by them. These rights were additional to the rights conferred on the appellants by the other provisions of the contract to which reference has been made above. After the appellants had had the opportunity to make an assessment of the works, they were entitled to call upon the respondent to carry out the necessary rectification work and, if not satisfied by the respondent's response to their demand, to then require removal and repayment.

38. By the time the appellants sought orders for rectification in the Tribunal they were plainly in a position to require removal and repayment: the respondent had been given an opportunity to rectify the defective works and had failed to rectify the work to the satisfaction of the appellants. The appellants were also still entitled to have the defective work put right, and, to that end, to pursue their claim for rectification and damages for defective work by seeking orders to that effect in the Tribunal. In terms of the accrual, and enforceability, of the right to require removal and repayment, the right was not logically subsequent to the right to have the defective work repaired. Whether the appellants enforced one or the other of their rights was a matter for their choice, but there can be no doubt that both rights had accrued so as to be enforceable by the processes of the law, either by the Court or by the Tribunal.

39. Once the Tribunal's orders were made, however, these orders constituted the operative charter of the rights and duties of the parties in the events which had happened. The Tribunal's orders were not provisional in the sense that they might be rescinded if not obeyed. If the Tribunal's orders were not obeyed, consequences might follow, but on no view could the respondent be obliged to remove the house and repay the purchase price while the orders of the Tribunal for the rectification of the work stand (cf Johnson v Agnew [1980] AC 367).  As Lord Diplock said in Moschi v Lep Air Services Ltd [1973] AC 331 at 350:  "A legal obligation to continue to perform [a contractual obligation] is inconsistent with the withdrawal of any legal right to do so."

Detailed analysis

40. The grounds of appeal are expressed as follows:

“(a)The learned trial [J]udge erred in law and in fact in finding that the rights of the appellants pursuant to the contract on which they sued merged in the judgment of the Consumer and Commercial Tribunal dated 23 May 2006.

2. The learned trial [J]udge erred in law and in fact in not otherwise ordering specific performance of the contract between the appellant[s] and the respondent.”

41. The learned Judge found that by the time of the Tribunal hearing, the appellants had become entitled to require the respondent to remove the house and make full repayment. That was because the respondent had wrongfully failed to remedy defects notified some eight months earlier. There was no challenge to His Honour’s conclusion that the respondent had “wrongfully…failed to remedy (the) defects” which had been notified to it. That conclusion was amply justified.

42. The appellants took possession of the house on 24 December 2003. As His Honour found, the defects were notified to the respondent in April 2004. Yet the respondent had not rectified them by 14 December 2004, when the appellants commenced the proceeding in the Tribunal.

43. Consistently with that accrued right to invoke the guarantee, the alternative claim for relief included an order that the respondent repay the appellants the amount of $249,925, the total consideration previously paid by the appellants. As Mr O'Shea SC, who appeared for the appellants, rightly acknowledged, the source of any such right to repayment could only be the guarantee. There could be no suggestion, for example, of any total failure of consideration.

44. Mr O'Shea emphasized that before the Tribunal, the appellant did not pursue that alternative relief, as indeed is noted in the Tribunal member’s “reasons for decision”. Yet the primary Judge concluded that “rights under the contract merged in the Tribunal’s decision”.

45. Referring to Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, 597 and Onerati v Phillips Constructions Pty Ltd (in liq) (1989) 16 NSWLR 730, 746, His Honour compared the causes of action asserted in the respective proceedings, that is, the proceeding before the Tribunal and the proceeding before this court.  He found they were the same, as emerges from this passage in his reasons for judgment:

“The cause of action (in each case) was the plaintiffs’ right to performance of their contract, including the guarantee, so that the restitutionary entitlement under the guarantee merged in the Tribunal’s decision.  Alternatively, if the cause of action was the right to have the house built according to the contract, then the merger of that cause of action put paid to the guarantee, because (as the plaintiffs accept) the plaintiffs could call for restitution only if  (in their view) the [respondent] was not performing the contract, and by the time the plaintiffs called for restitution, they were no longer entitled to that performance but instead to compliance with the orders.”

46. In Anshun, Gibbs CJ and Mason and Aickin JJ referred (p 597) to the encapsulation of res judicata by Dixon J in Blair v Curran (1939) 62 CLR 464, 532 as:

“…the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence…”

As their Honours observed:

“The rule as to res judicata comes into operation whenever a party attempts in a second proceeding to litigate a cause of action which has merged into judgment in a prior proceeding.”

47. Mr O'Shea referred also to Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543, 558-560 and Republic of India v India Steamship Co Ltd (1993) AC 410.  Mr Morrison QC, who appeared for the respondent, added reference to Honeywood as Executrix of the Estate of the Late Neville Honeywood v Munnings (2006) 67 NSWLR 466, 470.

48. In determining whether the principle operates to forestall a second proceeding, it is necessary to examine the causes of action respectively raised. The learned Judge referred to Onerati principally for the summation by Giles J which appears at p 746:

“The position relevant to the circumstances with which I am concerned appearing from these decisions can be summarised as follows:

1. In curial proceedings, for the purposes of the principle of res judicata there is but one cause of action for breach of contract founded upon breach of a promise such as to carry out the work in a good and workman like manner.  There is not a number of causes of action according to particular defects or classes of defect resulting from the breach.

2. Accordingly, judgment in one proceedings will be a bar to second proceedings to recover damages with respect to defects or classes of defect not the subject of the first proceedings.

3. This will be so even where the defects or classes of defects the subject of the second proceedings were not apparent to the plaintiff at the time of the first proceedings…”

49. Mr O'Shea sought to distinguish the present situation from that confronting Giles J, on the basis the instant contract gave rise to two potential causes of action: for rectification of the defective workmanship, and for enforcement of the guarantee. The primary Judge related both those remedies to a cause of action comprising “the plaintiffs’ right to performance of their contract, including the guarantee”. (There was also his alternate formulation.) Was this a correct approach?

50. In the statement of claim filed in the Tribunal, the appellants alleged defects, and consequent breach of contract. They referred to the guarantee, and attached a copy of it. They sought an order for the rectification of the defects and, among the claims for alternative relief, repayment of the sum of $249,925, earlier alleged in the statement of claim as the total sum previously paid by the appellants to the respondent.

51. Mr O'Shea submitted that to invoke the guarantee, the appellants must have reached a later stage, where the necessary modifications had been at least attempted, yet they (the appellants) remained dissatisfied with the work. But as His Honour found, that stage had already been reached by the time of the Tribunal hearing, in circumstances where the appellants had called upon the respondent to carry out the necessary rectification and the respondent had “wrongfully” failed to do so. The inclusion of the alternative claim under the guarantee is of course consistent with that.

52. In the end, the existence of the defective workmanship and the respondent’s failure to remedy it lay at the base of both the primary, and the alternative claim for relief, and the form of the statement of claim before the Tribunal corroborates that view. The Judge rightly characterized the cause of action as the appellants’ “right to performance of their contract”, including the guarantee. The respective claims, principally for rectification of the defects and enforcement of the guarantee, are properly recognized as alternative remedies arising from the same cause of action.

53. Significantly, on 10 January 2007, upon application by the appellants, the Tribunal ordered that the operation of its previous orders be “stayed pending the resolution of the related Supreme Court proceedings or until further order of this Tribunal”. One infers that the appellants perceived the impossibility of prospectively maintaining two inconsistent sets of orders: the orders of the Tribunal that the respondent carry out the necessary rectification work on the one hand, and on the other, the orders sought from the court, including “specific performance…whereby the respondent is obliged to remove the improvements constructed by it on the plaintiffs’ property and restore the plaintiffs’ property to the condition it was prior to any work being performed by the respondent”, together with repayment of monies previously paid by the appellants to the respondent. It was impossible for the Supreme Court to grant that relief, for the reason that the right to the relief depended upon the subsistence of the founding cause of action, but that had “passed into judgment, so that it (was) merged and has no longer an independent existence” (Anshun, p 597).

Conclusion

54. The primary judgment must be upheld essentially for the reasons expressed by His Honour. In these circumstances, it is not necessary to deal with the matters raised by the notice of contention.

Orders

55. The orders of the court are that the appeal is dismissed, with costs to be assessed on the standard basis.