The Victorian Civil and Administrative Tribunal (VCAT) case of Mikhali v Soliman (Building and Property) [2024] VCAT 616 focuses on the entitlements of parties following the termination of a domestic building contract under section 41 of the Domestic Building Contracts Act 1995 (Vic) (‘the Act’). This case determines what is owed and to whom under the terminated contract, such as compensation for completed works, alleged delays, defects, and extra costs.
Background of the Case
This case involves a dispute between the respondents (the ‘owners’) and the applicant (the ‘builder’) over a domestic building contract entered into for the construction of a two-storey house and associated works on the owners’ property. Problems arose during construction, including progress of works and payment issues. Ultimately, this led the owners to terminate the contract under section 41 of the Act due to delays beyond 1½ times the agreed completion period, which were unforeseeable by the builder.
Following the contract termination, the builder claimed they were entitled to $195,568.15 for the work completed before termination, including extra work. The owners argued they had already overpaid for the work done and sought $209,999 in refunds and damages, citing overpayments, costs to fix defects, and penalties for delays. Both sides also sought additional costs and interest from each other.
Decision
The Tribunal ruled that the owners owed the builder for rectification costs and the builder owed the owner for damages (including liquidated damages) and defects. Key points from the Tribunal’s decision included:
- Rectification Costs: The Tribunal allowed specific amounts for rectification of various defects identified in the builder’s work, which included costs for tasks like installing timber skirting and applying self-levelling compound.
- Defects Claimed by Owners: The Tribunal acknowledged the total amount claimed by the owners for additional defects yet to be rectified. However, due to the owners’ failure to sufficiently prove all defects during the hearing, only the amounts for proven defects were accepted as damages.
- Liquidated Damages: The Tribunal allowed the amount claimed by the owners in liquidated damages for delays in completing the construction. This was based on the builder failing to complete the work within the agreed time frame, despite some extensions granted for certain variations (agreed extensions/variations reduced the period eligible for liquidated damages).
- Overpayment Claim: The owners sought a refund for alleged overpayment. However, since they did not pay more than a reasonable price for the work done (considering defects), and as they had a counterclaim for defective work, the Tribunal did not award a separate refund.
The decision reserved judgment on any claims for interest or costs associated with the hearing, allowing parties to make further submissions on these matters.
Key Lessons for Builders
- Contractual Compliance: It is important to understand and adhere to the contract terms regarding price adjustments and completion deadlines. In accordance with section 41 of the Act, ensure clarity on termination triggers like cost increases over 15% or delays beyond 1½ times the agreed completion period before signing.
- Quality Assurance: To mitigate liability for possible damages and rectification costs, ensure delivery of high-quality work and promptly rectify any defects.
- Evidence-Based Claims: Owners must provide evidence to support their claims for any defects and damages. Therefore, it is crucial for builders to document project progress and defect rectification to defend against unsubstantiated claims.
- Managing Timelines and Payments: Adhere to project timelines, effectively manage and negotiate extensions where necessary, and maintain transparent pricing to avoid claims of overpayment.
- Documentation and Communication: Maintain clear records of project communications, changes, and agreements to substantiate claims or defences should future disputes arise.
Conclusion
The VCAT case of Mikhali v Soliman highlights the importance of strict adherence to contract terms regarding costs and completion times to avoid disputes following the termination of a domestic building contract under section 41 of the Domestic Building Contracts Act 1995 (Vic). By delivering high-quality work, promptly rectifying defects, practising transparent communication, and documenting the progress of works and changes, builders can minimise potential liabilities and avoid costly litigation.
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