Catchwords

Whether party entered into contract as agent – whether party acting as undisclosed principal – Home Building Act 1989 (NSW) – statutory warranties – whether defendants were 'developers' within the meaning of section 3A – whether defendants were person 'on whose behalf' building work was done – whether the defendants were party to the building contract – admissibility of evidence – business records

Significance

The court has held that where an agent purports to enter into a contract on behalf of another, without the consent of the other contracting party, in breach of a contractual restriction on assignment without consent, that purported agency is ineffective.

Facts

Mr David King, the third defendant, and Mrs Gwendoline King, the fourth defendant, (together, Kings) owned real estate upon which a mixed residential and commercial development took place. They were also sole directors of the fifth defendant, a developer, Meridian Estates Pty Ltd (Meridian). Meridian engaged the second defendant, a builder, Beach Constructions Pty Ltd (in liquidation) (Builder) to construct the development. The first defendant, Suncorp Metway Insurance Pty Ltd (Suncorp) had provided home warranty insurance under Part 6 of the Home Building Act 1989 (NSW) (HBA) in respect of the development. The owners corporation of the development (Owners Corporation), the immediate successor in title, brought a claim for various defects that exist within the development against Suncorp.

The original dispute between the Owners Corporation and Suncorp was resolved during the proceedings but on terms which meant Suncorp's actual liability depended on the court's findings in respect of a number of defects.

The two questions before the court were therefore:

• whether the Kings are themselves liable for the defects that are the subject of the Owners Corporation's claim on the basis that they were 'developers' within the meaning of section 3A of the HBA; and

• whether, if the Kings are liable for the defects as developers, their liability extends to certain defects that are the subject of the claim (the determination of which will have the effect of fixing the amount for which Suncorp is liable).

Decision

The court held that the Kings were not 'developers' for the purposes of section 3A of the HBA and dismissed the claim against the Kings. However, Ball J also specified which defects the Kings would have been liable for rectifying had his Honour concluded that the claim against the Kings succeeded.

Section 3A of the HBA defines that a developer is 'an individual, a partnership or a corporation on whose behalf residential building work is done in the circumstances set out in subsection (2)'.

The Owners Corporation argued that it should be inferred from the evidence, predominantly minutes of site meetings, that the Kings signed the Formal Instrument of Agreement and, by doing so, became parties to the building contract or, in the alternative, that Meridian became a party to the building contract as their agent.

The court found that a contract between Meridian and the Builder came into existence at the time the architect (on behalf of Meridian) accepted the Builder's tender in terms agreed between them. The AS2124 conditions of contract that was signed specifically catered for the possibility that there would not be a 'Formal Instrument of Agreement' and the conditions of tender issued by the architect did not state either way whether a Formal Instrument of Agreement was necessary. Therefore there was no need to sign a formal contract that included a Formal Instrument of Agreement.

The subsequent conduct of the parties was consistent with the contracting party being Meridian and not the Kings. From the time it is said the Kings signed the contract, the Builder issued invoices to Meridian, the architect issued payment certificates which named Meridian as 'The Proprietor' and an occupation certificate was issued in the name of Meridian.

The agency argument failed on two grounds:

  • First, if the parties intended Meridian to act as agent to the Kings when it engaged the Builder, documents such as the tender documents would have said so, but did not.
  • Secondly, if Meridian was acting as agent of the Kings, the agency was not disclosed.

An exception to the principle that an undisclosed principal may sue and be sued on a contract made by the agent on the principal's behalf exists where the relevant contract contains a prohibition against assignment and applies equally where the contract in question merely prevents assignment without consent. The court held that the exception applies equally to undisclosed agencies. The AS2124 contract contains such a prohibition against assignment without consent and the the court accepted that Meridian was not acting as agent for the Kings when it engaged the Builder.