The decision
In the recent case before VCAT of Schultz trading as Panther Designer Homes and Ors v Duncombe (Domestic Building) [2011] VCAT 1165, the builder and the owner had agreed in the contract to exclude the foundations from the contract price. The builder subsequently claimed the foundations work as a variation, which the owner paid. However, when the project resulted in litigation, the owner counterclaimed against the builder for, amongst other things, a return of the amount paid for the foundations variation, arguing that the variation was contrary to the Domestic Building Contracts Act.
Under the Domestic Building Contracts Act it is an offence for a builder to enter into a contract without obtaining foundations data. Further, after entering into a contract, a builder cannot seek from the owner an amount of money not already provided for in the contract if the additional amount could reasonably have been ascertained had the builder obtained all the foundations data.
Senior Member Riegler dismissed this element of the owner's counterclaim, finding that "the present case is somewhat different to the mischief sought to be prohibited by the Act". He stated that "the parties were free to negotiate the terms of the contract as they saw fit" and concluded that "the parties agreed to exclude the cost of the foundation variation from the contract price, notwithstanding that this may have left some uncertainty as to the final contract price".
Will the decision be followed?
The decision however, is arguably contrary to the express provisions and purpose of the Domestic Building Contracts Act.
The ruling that parties can agree to exclude foundations from the contract price and then treat the foundations work as a variation, may not ultimately survive any appeal or a more focussed analysis in a future case. In this case neither party was represented by lawyers and the issue was on the periphery of the major issues in dispute.
The facts in the case actually appear to fall perfectly within the prohibition under the Domestic Building Contracts Act. As the foundations work was expressly excluded from the contract price, the variation claimed may well have been "an amount of money not already provided for in the contract" which apparently could "reasonably have been ascertained had the builder obtained all the foundations data required" prior to entering the contract. It would then have followed that the builder would not have been entitled to claim the foundations variation.
Further, the parties to a domestic building contract are not always free to simply negotiate such terms as they see fit since contracting out of the Domestic Building Contracts Act is void unless it imposes greater or more onerous obligations on the builder.
On one view, the exclusion of the foundations work from the contract price is exactly the type of behaviour the legislation is intended to prevent. Contracting in this manner results in an uncertain price for the owners. It also follows that the owners, who have no building expertise, will bear the risks of a cost-blow out for the foundations work because the experienced builder has failed to obtain all the foundations data and assess and price all the works before entering the contract.
Even where builders are prevented from excluding foundations work from the contract price, diligent domestic builders have some protection under the Domestic Building Contracts Act for the cost of foundations work that could not reasonably have been anticipated. The builders have to obtain the foundations data only to the extent of a builder exercising reasonable care and skill. Further, the builders can still claim for a variation if the cost of the foundations work exceeds what could reasonably have been ascertained from that foundations data.
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