Michelsen v Pivovarova[2017] QCAT 235

This matter was heard and determined on the papers pursuant to s 32 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) (QCAT Act).

REASONS FOR DECISION

1. [1]
   This domestic building dispute has been returned to the Tribunal following an appeal. Ms Tatiana Pivovarova is a homeowner, who contracted with Mr Peter B Michelsen t/as Peter Michelsen Building Service, to build a new house located at Brookwater.
2. [2]
   Mr Michelsen applied in the Tribunal for Orders requiring Ms Pivovarova to pay the final/practical completion stage payment he said was owing under the contract, in the amount of $49,500.00. Additionally, Mr Michelsen requested interest on the payment, at the contractually agreed amount of 15% per annum, from the date of the final inspection, which occurred on 12 July 2012.
3. [3]
   Ms Pivovarova disputes that practical completion had been achieved, and says that Mr Michelsen’s entitlement to payment has not arisen.
4. [4]
   Ms Pivovarova did not make a counter-claim in these proceedings. Although Ms Pivovarova argued on appeal that the Tribunal failed to deal with her claim for liquidated damages against the builder, the Appeal Tribunal dismissed this ground of appeal, finding that this was not surprising in circumstances where ‘there was no clear evidence for the learned Member to rely upon to make a finding that liquidated damages were payable’.
5. [5]
   On 11 October 2011, the parties entered into a Master Builders June 2010 edition residential building contract, and general conditions. Under the contract, the practical completion stage is defined to mean:

That stage of the Works when the Works are completed in accordance with the Contract and all relevant statutory requirements, apart from minor omissions or minor defects, and the Works are reasonably suitable for habitation.

6. [6]
   As this was a contract for domestic building work, some guidance can also be taken from the Domestic Building Contracts Act 2000 (Qld) (DBC Act)^[1], s 67(6) which defined the practical completion stage to mean the stage when:

1. (a)
   the subject work has been completed in accordance with the contract and all relevant statutory requirements, either ––

1. (i)
   without any omissions or defects; or

2. (ii)
   apart from minor omissions or defects; and

2. (b)
   the detached dwelling or home is reasonably suitable for habitation.

Possession of the property

7. [7]
   It is not in dispute that on 7 April 2012, Ms Pivovarova took possession of the property. Ms Pivovarova’s taking possession followed an exchange of emails between the parties.
8. [8]
   On the morning of 4 April 2012, Mr Michelsen sent an email to Ms Pivovarova, advising that:

You can move in your house on 4.4.2012, subject to final payment is transferred into our account not later than Thursday, 5.4.2012.

I will see you 4.4.2012 5:30pm with the keys.

9. [9]
   On Thursday, 5 April 2012, Ms Pivovarova emailed Mr Michelsen and said:

As discussed yesterday the house has not been completed and I am not making the final payment until the house will be completed.

Yesterday we agreed that I can move into the house on 5 April 2012, you will complete the house within next week, your contractors will have a full access to the house and I will instruct my bank to make the final payment within 3 business days after completion.

We can schedule the final inspection on Monday 15 April 2012 or earlier. Would you please confirm this agreement in writing. I do not want any misunderstanding in future.

As advised yesterday I am not refusing to pay. I will pay when the house will be completed according to the building contract. This is my right. You have to complete the house and I have to pay the final payment there is no other option.

In a case if you changed your mind and are not allowing me to move into the house, please confirm this in writing by close of business 10 April 2012.

10. [10]
    Mr Michelsen responded on 10 April 2012, and emailed Ms Pivovarova and told her that:

As agreed you can move into the house on the 5^th of April 2012.

We will be at the house on Wednesday 11.4.2012 to carry out more work.

We will let you know if all work is done by Monday 16.4.2012.

We have to check up with the sub-contractors kitchen, carpets, painter.

11. [11]
    Thereafter, on 5 July 2012, Mr Michelsen gave Ms Pivovarova a practical completion stage claim for $49,500.00, and a practical completion stage notice. The Practical Completion Stage Notice stated that the works had reached practical completion on 15 June 2012; provided for a final inspection of the works with Ms Pivovarova or her agent at 10:00am on 12 July 2012; and attached a copy of the Form 21 Final Inspection Certificate issued by the certifier.
12. [12]
    At 10:00 am on 12 July 2012, the parties attended the final inspection, at which time, Ms Pivovarova denied that the practical completion stage had been reached, and refused to accept, complete or sign a defects document provided to her by Mr Michelsen.
13. [13]
    Clause 17.7 of the contract states:

Practical Completion Stage Claim Payable by Owner upon achieving Practical Completion Stage

On giving the defects document to the owner, and notwithstanding the practical completion stage may have been reached with minor omissions or defects, the owner must pay the practical completion stage claim to the contractor in accordance with the contract.

14. [14]
    In the appeal decision, the Appeal Tribunal specifically finds that there was no demonstrated error in relation to the Tribunal’s earlier finding that all of the items complained of by Ms Pivovarova as being defective or incomplete were ‘minor in nature’. That finding was not disturbed on appeal.
15. [15]
    The contract provided:

The Owner must not take Possession of the Works….prior to payment to the Contractor of the final progress claim unless the Owner had obtained the Contractor’s written consent…

If the Owner takes Possession of the Works, or any part of the Works, when not entitled to do so under the Contract, the Works are deemed to have reached Practical Completion Stage on the date of Possession.

16. [16]
    It has now been more than 5-years since Ms Pivovarova moved in to the house. A search of the property address on realestate.com.au reveals that the property was listed for rent on the open market in June of 2015. It is difficult to see how, at least from a practical perspective, a finding can be made after this length of time that practical completion had not been reached. 
17. [17]
    In any event, the focus of the Tribunal in this decision is in relation to whether practical completion had been reached, given that Ms Pivovarova asserts that some of the work performed was not in accordance with the contractual plans. The Appeal Tribunal has asked for a fresh determination in this respect, for the reason that it was not clear earlier whether deviations from the plans (although not defective building work) might still be a basis to find that the contract was breached and therefore practical completion had not been reached. Ms Pivovarova asserts the minor deviations from the plans and specifications mean that the contractual entitlement to payment arising under the contract is not due, as practical completion has not been reached.
18. [18]
    The Tribunal has been asked to explain why strict compliance with the plans and specification was not required in order to reach practical completion in this matter. There are several issues raised about minor deviations from the plans. Essentially, the Tribunal’s view is that the concerns raised by Ms Pivovarova are so trifling that they do not have any bearing on whether practical completion was reached. If I am wrong about this, then I consider that the contract was substantially performed by Mr Michelson, such that he is entitled to payment, less the reasonable costs of rectifying and completing minor defective and incomplete work. The Appeal Tribunal has not disturbed the earlier finding that the sum of $1,680.00 is appropriate in relation to these costs.
19. [19]
    It is common ground that there are no signed variations. Whilst the lack of signed variations might affect Mr Michelson’s entitlement to payment (and I note that he has not sought payment in relation to any unsigned variations), it does not mean that the parties did not vary the contractual terms.
20. [20]
    Ms Pivovarova complains that there were to be changes to the size of roof overhangs from 300mm to 600mm, and that this in in breach. The evidence before the Tribunal is that Mr Michelsen agreed that the overhang would be increased to 600mm ‘wherever possible’. Given that the agreement left this decision subjectively to the builder, the Tribunal does not consider that there has been any breach to the contract by virtue of the fact that some of the overhang remained at 300mm.

Substantial performance of the contract

21. [21]
    That is not the end of Ms Pivovarova’s concerns. She also raised concerns in relation to the installation of downlights and power outlets not being in accordance with the contract specifications. Although strictly speaking this was the case, the Queensland Building Service Authority (QBSA)^[2] inspector’s report makes it apparent that the reason for this was that the contract specifications were actually unsuitable for the application. For example, the contract called for downlights in some areas where a hanging light was used instead. The QBSA report expresses a view that a down light would not have suited the application.
22. [22]
    Further, although the contract called for double GPOs in certain locations, the QBSA report indicates that a double GPO would have been unusable in those locations, as they would have been located behind appliances fixed in position.
23. [23]
    Ms Pivovarova also complained about the use of 90mm scotia in some areas, where 55mm was used instead. The QBSA report makes it clear that where this happened in the laundry, it was done because it would not have been possible to utilise 90mm scotia given that the laundry was square set, and was done in order to maximise ceiling height due to the pipe work servicing the ensuite above. I accept the evidence of Mr Michelsen that it became necessary to make this adjustment, and the adjustment to the height of the laundry, in order to accommodate the service pipes in the ceiling above. In other words, it would not have been possible to strictly comply with the contract. The evidence before the Tribunal is that the plans did not take into consideration the requirement for service pipe work in the laundry ceiling. Had Mr Michelsen presented Ms Pivovarova with a variation document in this respect, it would have been unreasonable for her to refuse to sign it.
24. [24]
    Ms Pivovarova complains that the width of the stairs was changed. The contract documents indicate a structural opening of 1000mm which the QBSA report indicates would be expected to diminish by the width of the plasterboard linings. The actual width of the stair opening width is 930mm wide. The QBSA did not consider this to be defective, and considered that it complies with the Building Code of Australia (BCA). As to whether it complied with the contract, I accept the evidence of Mr Michelsen that it became necessary to change the fridge box size in the adjoining area, following Ms Pivovarova’s request to accommodate a refrigerator capable of providing water and ice. When this dimension changed, it then became necessary to change the dimension of the structural opening of the stairs.
25. [25]
    The window dimensions, as set out in Complaint Item 12 from the QBSA report, are not as per the contract documentation in that the lower window in the front façade wall has been installed as a sliding window in lieu of a fixed panel window. Mr Michelsen says that this was done at the direction of Ms Pivovarova. I accept that evidence.
26. [26]
    Next, Ms Pivovarova complains that the door sizes were not in accordance with the contract specifications. I accept the evidence of Mr Michelsen that it became necessary to adjust the door sizes as depicted in Item 13 of the QBSA complain in order to accommodate a change made by Ms Pivovarova to the size of a basin bench top from 300mm to 500mm, and additionally to accommodate the layout of the hallway according to the plan.
27. [27]
    There is a complaint that the balcony area has not been completed according to plans, in that the floor area has a different shape. The QBSA report indicates that ‘when taking into consideration the non-structural building elements to the adjoining walls, are generally in accordance with the contract plans’. As this is the only expert evidence before the Tribunal in relation to whether the building was completed in accordance with the plans, I accept the QBSA’s report, and do not consider that the contract was not complied with in this respect.
28. [28]
    Next, there is a complaint that there is no spoon drain at the end of a footpath located to the right of the dwelling. Whilst the contract does show a spoon drain, it does not show a concrete path. I accept the evidence of Mr Michelsen that this change was made in consultation with Ms Pivovarova, or her partner, Mr John Francis, and the contract was varied, although there is no signed variation.
29. [29]
    The law relating to substantial performance was set out in Thompson Residential Pty Ltd v Hart & Anor [2014] QDC 132 at [65]:

The position in relation to building contracts was summed up recently by Bathurst CJ, with whom the other members of the court agreed, in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [94]:

“In the case of contracts which at least on their face appear to be entire contracts, particularly lump sum building contracts, courts have been reluctant to construe complete performance of the works as an essential pre-condition for payment. Rather, in circumstances where there has been substantial performance they have treated a failure to complete as a breach of a non-essential term of the contract not disentitling the builder to contractual payment for the work done but, rather, giving the proprietor a right of setoff or claim for damages for the cost of completing the work or rectifying any defects.”

30. [30]
    This work was performed pursuant to a lump sum building contract.  Not all breaches of a contract are actionable. Mr Michelson has substantially performed his obligations under the contract, with only minor flaws and incomplete work, and as such, should not be found to be in breach on the basis of the minor deviations from the strict terms of the contract.
31. [31]
    Ms Pivovarova has also complained that Mr Michelsen has not provided her with all of the documents required according to the contract. This is a non-specific complaint, which does not identify exactly which documents she believes are missing. Given that Mr Michelsen’s evidence is that he has provided her with all of the documents in his possession, and there is no specific evidence before me that supports any documents being missing, I do not consider this a basis for a finding that the contract has been breached by Mr Michelson. This is also consistent with the evidence that the certifier has issued the final inspection certificate. Even if Mr Michelsen did not provide every certificate, the fact that the property has been certified supports a finding of substantial compliance with his obligations.
32. [32]
    Mr Michelson has sought payment of $49,500.00. The Appeal Tribunal has not disturbed the finding that a figure of $1,680.00 was reasonable for the costs of rectifying and completing minor defective and incomplete work. Additionally, the $6,830.00 that Mr Michelson concedes Ms Pivovarova paid for Prime Cost items supplied by her should be deducted from the payment.

Orders

1. The Respondent, Ms Tatiana Pivovarova, to pay the sum of $40,990.00, together with interest from 12 July 2012 at the rate of 15%, to the Applicant, Peter B. Michelsen t/as Peter Michelsen Building Service ABN 84003506297, no later than 1 August 2017.