Scarano v Palm Pools and Spas NSWCATAP 79 04/04/2019)

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Scarano v Palm Pools and Spas NSWCATAP 79 04/04/2019)

April 10, 2019

Medium Neutral Citation: Scarano v Palm Pools and Spas Pty Ltd [2019] NSWCATAP 79

Hearing dates: 13 December 2018 Date of orders: 04 April 2019 Decision date: 04 April 2019

Jurisdiction: Appeal Panel Before: S Higgins, Senior Member Dr J Lucy, Senior Member

Decision: (1) Leave is refused to raise a new ground on appeal. (2) The appeal is dismissed

Catchwords: HOME BUILDING – Whether the Tribunal erred in failing to find that an agreed damages clause is a penalty clause – Whether the appellant should be granted leave to raise a ground on appeal which was not argued before the Tribunal –– Whether the Tribunal should have considered the appellant’s claim under the Australian Consumer Law instead of the Contracts Review Act

Legislation Cited: Australian Consumer Law Civil and Administrative Tribunal Act 2013 (NSW) Competition and Consumer Act 2010 (Cth) Contracts Review Act 1980 (NSW) Fair Trading Act 1987 (NSW) Home Building Act 1989 (NSW) Home Building Regulation 2014 (NSW)

Cases Cited: Collins v Urban [2014] NSWCATAP 17 Coulton v Holcombe (1986) 162 CLR 1 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 Esanda Finance Corp Ltd v Plessnig (1989) 166 CLR 131 Gan v Shop 3, 228-230 Hanvaylee Parade Kensington Pty Ltd [2016] NSWCATAP 210 Pholi v Wearne [2014] NSWCATAP 78 Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69

Texts Cited: Nil

Category: Principal judgment

Parties: Andrew Scarano (Appellant) Palm Pools and Spas Pty Ltd (Respondent)

Representation: Solicitors: A Scarano (Self Represented)(Appellant) Mr Awadallah (Respondent’s General Manager) (Respondent)

File Number(s): AP18/41100

Publication restriction: None

Decision under appeal: Court or tribunal:

NSW Civil and Administrative

Tribunal Jurisdiction: Consumer and Commercial

Division Citation: N/A

Date of Decision: 31 August 2018

Before: P French, General Member

File Number(s): HB 18/18200; HG 18/18982

REASONS FOR DECISION

This is an appeal from a decision of the Tribunal requiring a home owner, who terminated a pool contract, to pay the pool builder 25% of the contract price. A clause of the contract provided that, if the home owner terminated the contract before work commenced then, in the absence of agreement about the pool builder’s expenses and loss of profit, 25% of the contract price would be payable to the pool builder.
The home owner appealed on a variety of grounds, including that the Tribunal erred in failing to find that the clause requiring him to pay 25% was unfair under the Australian Consumer Law and that the clause was a penalty clause.
We found that the Tribunal did not make any error in its consideration of the fairness of the clause. We refused to grant the home owner leave to raise the argument that the clause was unfair under the Australian Consumer Law, as it was not raised before the Tribunal and would have required evidence. We were not persuaded that the home owner had identified any other errors made by the Tribunal.
For these reasons, we dismissed the appeal.

Background

The parties entered into a contract for the construction of a pool at the home of the appellant (“the home owner”). The home owner paid the respondent (“the pool builder”) a deposit of $8,500 upon entering into the contract.
The home owner decided some time later that he did not want to proceed with the contract.
The pool builder brought proceedings against the home owner in the Local Court, seeking an order under s 48O of the Home Building Act 1989 (NSW) requiring the home owner to pay him 25% of the contract price for the construction of the pool. These proceedings were transferred to the Tribunal pursuant to s 48L of the Home Building Act.
The home owner applied to the Tribunal for an order under s 48O of the Home Building Act requiring the pool builder to pay him $7,000, being a part-refund of the deposit. He claimed he was entitled to this refund because, amongst other reasons, he terminated the contract prior to the commencement of the work for a permissible reason, being the failure of the pool builder to construct the pool within the agreed time frame or a reasonable time thereafter.
Both proceedings were heard and determined together.
The Tribunal found that the home owner terminated the contract without any reasonable cause. It found that, in such circumstances, the contract required the home owner to pay the builder 25% of the contract price. The Tribunal ordered the home owner to pay the difference between 25% of the contract price ($21,250) and the deposit already paid ($8,500), being an amount of $12,750.

Grounds of appeal

The home owner contends that the Tribunal erred in law by:
Failing to correctly determine the pool builder’s claim or entitlement to damages (Ground 1);
Construing the standard form contract between the parties by reference to irrelevant evidence (Ground 2);
Failing to give adequate reasons (Ground 3);
Failing to determine the correct damages by making findings in the absence of evidence (Ground 4);
Ordering damages based upon construing the contract that puts the pool builder in a better financial position than had the contract been performed (Ground 5);
Awarding reliance damages in circumstances where the pool builder failed to establish any expectation losses, was not entitled to reliance losses and with reference to irrelevant matters and contrary to legal principles of quantification (Ground 6).
The home owner says that the Tribunal also erred in the following ways:

“The Tribunal applied the wrong law and asked itself the wrong questions. Rather than use the Contracts Review Act 1980 (“CR Act”) it should have used the Fair Trading Act 1987 (“FT Act”) which incorporates Australian Consumer Law (NSW) (“ACL”) 2010. Whereas the CR Actis focused on classical contract and procedural injustice, the ACL is focussed

[sic]

on inherent substantive unfairness of terms found in standard form contracts. The changes to the FT Actreflect modern community values about unfair business to consumer contracts, especially standard form consumer contracts which is a central issue in this case. In applying the FT Actas the right law and not misdirecting itself, the Tribunal would not have found terms of cl 15.4(b) a fair and just term and is voidable because it is unfair within the meaning of the ACL. This is because that term acts at the discretion of the builder to derive a greater amount that would have be [sic] available to it under the contract as a whole and under the general law on a case by case basis and without putting the builder to proof. It thus operates as an unfair penalty and not as a mechanism to protect the legitimate interests of the pool builder. [Ground 7]

The Tribunal erred because it did not take into account cl 15.6 … that permits the home owner to terminate the contract in circumstances provided by the general law and from which damages flow to be nil or significantly less than that ordered by the Tribunal on the evidence provided by the pool builder. [Ground 8]”

Nature of an appeal

An appeal may be made as of right on any question of law or with leave of the Appeal Panel on any other grounds (Civil and Administrative Tribunal Act 2013 (NSW) (“NCAT Act”), s 80(2)(b)).

A question of law

The Appeal Panel considered a number of questions of law which would give rise to an appeal as of right in Prendergast v Western Murray Irrigation Ltd [2014] NSWCATAP 69 at [13]. These include:
whether the Tribunal provided adequate reasons;
whether the Tribunal identified the wrong issue or asked the wrong question;
whether it applied a wrong principle of law;
whether there was a failure to afford procedural fairness;
whether the Tribunal failed to take into account a relevant (that is, a mandatory) consideration;
whether it took into account an irrelevant consideration;
whether there was no evidence to support a finding of fact; and
whether the decision was legally unreasonable.
The Appeal Panel stated that, in circumstances where an appellant is not legally represented, it is appropriate for the Tribunal to look at the grounds of appeal generally, and to determine whether a question of law has in fact been raised (subject to any procedural fairness considerations that might arise to the respondent) (Prendergast at [12]).

Leave to appeal

For the appeal grounds which do not raise errors of law, leave to appeal is required. In appeals from a decision of the Consumer and Commercial Division, an Appeal Panel may grant leave only if the Panel is satisfied that the appellant may have suffered a substantial miscarriage of justice because:
the decision of the Tribunal under appeal was not fair and equitable, or
the decision of the Tribunal under appeal was against the weight of evidence; or
significant new evidence has arisen (being evidence that was not reasonably available at the time the proceedings under appeal were being dealt with) (NCAT Act, Sch 4, cl 12).
The principles to be applied by an Appeal Panel in determining whether to grant leave to appeal are well settled. In Collins v Urban [2014] NSWCATAP 17, an Appeal Panel of the Tribunal conducted a review of the relevant authorities at [65]-[79] and concluded at [84](2) that:

“Ordinarily it is appropriate to grant leave to appeal only in matters that involve:

(a) issues of principle;

(b) questions of public importance or matters of administration or policy which might have general application; or

(c) an injustice which is reasonably clear, in the sense of going beyond merely what is arguable, or an error that is plain and readily apparent which is central to the Tribunal’s decision and not merely peripheral, so that it would be unjust to allow the finding to stand;

(d) a factual error that was unreasonably arrived at and clearly mistaken; or

(e) the Tribunal having gone about the fact finding process in such an unorthodox manner or in such a way that it was likely to produce an unfair result so that it would be in the interests of justice for it to be reviewed.”

Even if an appellant establishes that he or she may have suffered a substantial miscarriage of justice within cl 12 of Sch 4 to the NCAT Act, the Appeal Panel has a discretion whether to grant leave under s 80(2) of that Act (see Pholi v Wearne [2014] NSWCATAP 78 at [32]).

Whether Tribunal erred in finding termination unreasonable (Ground 8)

The home owner argued, at the hearing of the appeal, that the Tribunal erred in finding that he had unreasonably terminated the contract. The home owner submitted that he was entitled to terminate the contract under cl 15.6. That clause provided:

“15.6 The Owner may terminate this Contract in the circumstances provided by the general law however this does not prevent the Owner and Builder from agreeing to additional circumstances in which the contract may be terminated.”

Ground 8 in the Notice of Appeal alleges that the Tribunal member failed to take this clause into account. As we understand the home owner’s submissions, he is contending that the Tribunal made a factual error in finding that he had “terminated the contract without any reasonable cause” and was not entitled to terminate the contract under the general law. This does not raise a question of law and the home owner therefore requires leave to appeal on this ground.
The home owner submitted that he was entitled to terminate the contract because the pool builder unreasonably delayed the commencement of construction. There was evidence before the Tribunal that, shortly after entering into the contract in mid-December 2017, the home owner asked for a significant number of amendments to the contract. The pool builder’s business was closed over the Christmas/New Year period, then there were two weeks in January when Mr Awadallah was on leave.
At the end of January 2018, the home owner sent Mr Awadallah an email expressing concerns that building had not started. He referred to some of the variations he had proposed. He then wrote:

“January has already passed and Palm Pools has not fulfilled the contract that we entered into, I do not feel comfortable going ahead with Palm Pools, it would seem you are too busy and you will NOT be completing the pool by the end of February as we were assured.

…

Due to the fact that you have not fulfilled the contract that we entered into I am prepared to pay for the reasonable cost that your company has incurred to modify the plans.

I would ask you to refund the remainder of the deposit directly into my account immediately.”

Mr Awadallah replied the same day, stating that the pool builder was waiting on the home owner to approve the changed plans and to sign the certifier’s forms and asking the home owner to do so.
Over the next week or so there were further email exchanges between the home owner and the pool company in which the pool company asked the home owner to return the certifier’s forms and the home owner refused to do so until certain matters raised in his email had been addressed.
In mid-February 2018, the home owner suggested to Mr Awadallah that a different chlorinator be used, having been advised by another pool builder that the proposed chlorinator was not adequate. Mr Awadallah replied stating that this could be sorted out once the application was lodged, and again requested the home owner to send back the forms to enable his company to start the approval process with council.
In March 2018, the home owner sent the builder a letter which he described as a letter of demand. He referred to what he described as his “direct request” on 30 January 2018 to terminate the contract. He said that “this request is both reasonable and lawful and it is directly in line with item 15.4 of the signed Contract Terms and Conditions.” He then offered the pool builder $1,500 “with item 15.4 of the Customer Contract in mind.”
At the end of March 2018, the pool builder served a statement of claim upon the home owner in the Local Court proceedings referred to above.
In response to the home owner’s claim that the pool builder breached the contract by unreasonably delaying commencement of the works, the Tribunal found that:
the home owner’s change of mind required engineer’s plans, completed before Christmas, to be re-done;
the pool builder sent revised plans to the home owner for approval on 22 January 2018;
there was no evidence that the home owner communicated his approval of those plans to the builder;
the home owner repeatedly refused to complete the certifier’s instructions after the form was sent to him to complete on 22 January 2018;
there was no breach of any obligation on the part of the pool builder to submit the plans for building approval within about two weeks, in these circumstances;
the Tribunal did not accept that Mr Awadallah represented that the works would or could be completed within a 6 to 8 week timeframe from the date of entry into the contract, as the home owner claimed;
at all material times, the pool builder was ready to perform its obligations and did not breach the contract;
there was therefore no basis upon which the home owner could rely upon any breach by the pool builder to justify his decision to terminate the contract.
We can see no error in this reasoning.
At the hearing of the appeal, the home owner submitted that his termination of the contract was not unreasonable because he gave the pool builder “plenty of opportunity to respond back” to his emails and “lost confidence in” the pool builder. When asked to point to a specific error made by the Tribunal, he identified a paragraph of the decision which sets out in full the email he sent to the pool builder on 30 January 2018. The home owner said that, after sending this email, he gave the pool builder enough notice to decide whether he wanted to build the pool or deal with the issues.
The home owner has not identified any factual or legal error made by the Tribunal.
We are not satisfied that the home owner may have suffered a substantial miscarriage of justice because the Tribunal’s decision was not fair and equitable.
Leave to appeal on this ground is therefore refused.

Whether Tribunal erred in not finding termination clause unfair under the Australian Consumer Law (Ground 7)

The home owner submitted that the Tribunal should have found that clause 15.4, a clause permitting termination without cause, was unfair under the Australian Consumer Law(Sch 2 to the Competition and Consumer Act 2010 (Cth), as applied by the Fair Trading Act 1987 (NSW)). He said that the Tribunal applied the wrong law by considering his claim under the Contracts Review Act 1980 (NSW).
Insofar as this is an allegation that the Tribunal did not consider and determine the case which the home owner put to it, and/or applied the wrong law, this raises a question of law. Accordingly, leave is not required for this ground.
Clause 15.4 of the contract between the parties provided for termination by a home owner prior to work on site commencing. There was no dispute that the home owner terminated the contract prior to the commencement of work on site.
Clause 15.4 relevantly provided as follows:

“15.4 Terminating contract before work on site has started and costs consequences

(a) The Builder may agree to the Customer’s request to terminate, cancel or end the contract prior to work on site commencing.

(b) In these circumstances the Builder is entitled to retain or be paid any expense payable or paid in undertaking work pursuant to the contract prior to its ending pursuant to clause 15.4(a). These expenses and/or costs include administration costs, sales commissions paid or payable, costs of engineer’s drawings, insurance fees and in addition the Builder will be entitled to retain an amount as agreed by the parties or, in the absence of agreement, a reasonable amount in compensation for loss of profit. If no amount is agreed then 25% of the contract sum will be payable.

The home owner said that, had the Tribunal applied the “correct law” (being, in his submission, the Australian Consumer Law), it would have found clause 15.4 to be unfair because it gives the builder a discretion which permits the builder to derive a greater amount than the builder’s loss. He said at the hearing of the appeal that it operated unfairly in this case, because there was no evidence that the pool builder had incurred expenses equal to the money claimed (that is, 25% of the contract price) so that the figure of 25% was a penalty.
The application form which the home owner lodged with the Tribunal refers to the Australian Consumer Law. Under the heading “Dispute details,” the application reads:

“I have been advised that Australian Consumer Law (ACL) states a supplier must not accept payment for goods or services … (they) cannot supply in a timely manner. Further to this, services must be supplied in the time specified in the contract, or if a time has not been specified, within a reasonable time after accepting payment the Contract can be lawfully nullified.”

The home owner did not identify the provision on which he relied, but it appears that he may have been relying upon s 62 of the Australian Consumer Law (“Guarantee as to reasonable time for supply”).
Under the heading “Order/s Sought” in his application form, the home owner sought an order that the pool builder pay him $7,000. Under the heading “Reasons for the Order/s” the home owner again referred to the pool builder’s alleged delay in commencing construction and explained that the $7,000 claimed was the difference between the deposit of $8,500 and the home owner’s estimate of the builder’s expenses (being $1,500).
As can be seen, whilst the home owner referred to the Australian Consumer Law in the application, the claim was framed in terms of the builder’s failure to comply with the contract by not supplying services in a timely manner. The point made on appeal – that the Tribunal, had it considered the Australian Consumer Law, would have found that cl 15.4(b) was voidable because it was unfair within the meaning of that Law – is not a ground on which the home owner sought relief at the Tribunal hearing.
The Tribunal member noted, correctly, that s 89D of the Home Building Act confers jurisdiction on the Tribunal to grant relief under the Contracts Review Act in relation to a contract for residential building work. It then went on to consider whether the contract was unjust under the Contracts Review Act. It did not consider the Australian Consumer Law.
We have reviewed the transcript of the hearing. The home owner described his reasons for making the application to the Tribunal as being that the pool builder had breached the contract. He did not refer to the Australian Consumer Law.
It may be that the Tribunal was in error in not referring to the Australian Consumer Law, and in not considering the home owner’s claim under that legislation, given that it was raised in his application, even though it was not advanced at the hearing. However, even if this is so, we would not allow the appeal on this ground, for discretionary reasons. These are that the Tribunal determined the factual issue on which the claim depended, that the pool builder did not supply goods in a timely manner, adversely to the home owner. It determined, as a matter of fact, that there had been no unjustifiable delay on the part of the pool builder. It follows that the argument that the home owner relied upon in relation to the Australian Consumer Law could not have succeeded.
The Tribunal was not in error in failing to consider the argument articulated on appeal, which was not put to it.
The home owner sought leave, at the hearing, to raise this ground on appeal, even though it was not raised before the Tribunal in this form.
The pool builder opposed the grant of leave. Mr Awadallah, for the pool builder, said that, if this point about the clause being a penalty had been pleaded, the pool builder would have had to bring in an expert to demonstrate loss of profits when the contract was terminated. He also said that, if this point were properly raised in the appeal grounds, the pool builder would have sought legal representation.
The principles governing the question of whether an appeal body should allow a new ground to be raised on appeal were the subject of consideration by the High Court in Coulton v Holcombe (1986) 162 CLR 1. In that case, Gibbs CJ, Wilson, Brennan and Dawson JJ said at 7-8:

“To say that an appeal is by way of rehearing does not mean that the issues and the evidence to be considered are at large. It is fundamental to the due administration of justice that the substantial issues between the parties are ordinarily settled at the trial. If it were not so the main arena for the settlement of disputes would move from the court of first instance to the appellate court, tending to reduce the proceedings in the former court to little more than a preliminary skirmish. The powers of an appellate court with respect to amendment are ordinarily to be exercised within the general framework of the issues so determined and not otherwise. In a case where, had the issue been raised in the court below, evidence could have been given which by any possibility could have prevented the point from succeeding, this Court has firmly maintained the principle that the point cannot be taken afterwards.”

In Gan v Shop 3, 228-230 Hanvaylee Parade Kensington Pty Ltd [2016] NSWCATAP 210 at [55], after referring to Coulton v Holcombe, the Appeal Panel commented that “[t]he considerations favouring finality of litigation are at least as strong, and probably stronger, in the case of the Tribunal given the importance attached to the expeditious and inexpensive disposition of proceedings under the [NCAT] Act.”
The question of whether a contractual term is a penalty, and thus unenforceable, or a liquidated damages clause, which has effect, depends upon whether the amount of damages “is a genuine covenanted pre-estimate of damage” (Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86-88; Esanda Finance Corp Ltd v Plessnig (1989) 166 CLR 131 at 139 and 153). In order to determine this, evidence is required.
The question of whether clause 15.4 was “unfair” within the Australian Consumer Law, more generally, would also have required evidence. Whilst the issue of the builder’s discretion under clause 15.4 was one of construction of the contract, the question of whether it is unfair in the particular context of the contract in question, has factual elements (see Australian Consumer Law, s 24(1)). As the pool builder’s position was that it was in a worse financial position than it would have been if cl 15.4 had not applied (that is, it claimed that its loss was greater than 25%), there would have been a need for evidence on this point. Mr Awadallah did give oral evidence at the hearing about the pool builder’s losses. However, if the pool builder had been on notice of this ground, it may have chosen to provide documentary evidence or, as Mr Awadallah suggested, expert evidence.
This is therefore a case contemplated by Coulton v Holcombe, where, had the issue been raised before the Tribunal, evidence could have been given which could possibly have prevented the point from succeeding.
Allowing this new ground to be raised on appeal would not be conducive to the expeditious and inexpensive disposition of proceedings, nor would it facilitate the just, quick and cheap resolution of the real issues in the proceedings (NCAT Act, s 36(1)).
Accordingly, we have decided not to grant leave to the home owner to raise Ground 7 on appeal.
Ground 7 is dismissed.

Failure to give adequate reasons (Ground 3)

Ground 3, alleging a failure to give adequate reasons, raises a question of law.
The home owner did not make submissions in support of this ground.
We have reviewed the decision and do not consider that the member failed to give adequate reasons. On the contrary, the reasons are thorough and (with the possible exception of the failure to refer to the Australian Consumer Law), address all the relevant issues.
Ground 3 is dismissed.

Other grounds (Grounds 1, 2, 4, 5 and 6)

We do not consider that any of the home owner’s other grounds have any merit. The home owner’s submissions did not clearly explain what he meant by those grounds.
Ground 1 appears to be based upon the argument which we have rejected that the pool builder is not entitled to rely on the liquidated damages clause. It is not clear to us what is meant by “irrelevant evidence” in Ground 2 but it does not appear to raise a question of law. The “no evidence” ground (Ground 4), whilst raising a question of law, appears to refer to the pool builder’s failure to provide any evidence of loss. This is misconceived because, when relying upon a liquidated damages clause, it is not necessary to provide proof of loss. Ground 6 is affected by the same misconception. The pool builder has not provided any evidence in support of his contention in Ground 5 that the damages award places the pool builder in a better financial position than had the contract been performed (a claim the pool builder denies) and, in any event, this is to misunderstand the nature of a liquidated damages clause.
To the extent that leave is required for Grounds 1, 2, 5 and 6, we would not grant leave.
Grounds 1, 2, 4, 5 and 6 are dismissed.

Orders