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[2023] NSWSC 178
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Parkview Constructions Pty Ltd v Futuroscop Enterprises Pty Ltd [2023] NSWSC 178 (2 March 2023)
Last Updated: 6 March 2023
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Supreme Court
New South Wales
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Case Name:
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Parkview Constructions Pty Ltd v Futuroscop Enterprises Pty Ltd
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Medium Neutral Citation:
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Hearing Date(s):
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29 August 2022, 1, 5, 6, 8, 15 September 2022; last submissions 14 November
2022.
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Date of Orders:
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2 March 2023
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Decision Date:
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2 March 2023
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Jurisdiction:
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Equity - Commercial List
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Before:
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Rees J
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Decision:
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Plaintiff entitled to damages and return of bank guarantee. Defendant
entitled to liquidated damages and rectification costs. Parties
to bring in
short minutes.
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Catchwords:
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BUILDING AND CONSTRUCTION — design and construct contract AS4902-2000
— contractor to construct two buildings —
airport hotel and long
stay carpark — to be completed in September 2017 —principal wishes
to use hotel rooftop for tenants
— development consent does not approve
this use — hotel and carpark tenants commence operations in September 2017
–
occupation certificate limits use of rooftop terrace to maintenance only
– principal maintains practical completion yet to
be
achieved.
PRACTICAL COMPLETION — superintendent to issue
certificate of practical completion — ‘conditional’
certificates
issued for each building — retrospective date of practical
completion on satisfaction of conditions — whether
‘conditional’
certificates comprise a certificate of practical
completion — case law review at [205]-[209] — whether can give a
retrospective
date at [212]-[213] — ‘conditional’ certificates
have no contractual force.
DETERMINATION BY COURT— whether
Court can determine date of practical completion — consideration of
Abergeldie Contractors
v Fairfield City Council — does not depend on
Superintendent having been “manifestly unreasonable” –
contractual
standard is ‘reasonable’ — whether Court can
determine liquidated damages.
LIQUIDATED DAMAGES —
superintendent’s certificate did not comply with the contract —
whether Court can ascertain
liquidated damages — liquidated damages
calculated using objective criterion — Court can determine correct
sum.
DAMAGES — contractual regime for notifying and remedying
defects — whether contract ousts common law damages — caselaw
review
at [248]-[253] — contract created exhaustive code governing parties’
rights regarding defects — common law
damages not available —
contractual regime not followed — unnotified defects apparent on
reasonable inspection —
not entitled to costs of rectification for such
defects.
BUILDING AND CONSTRUCTION — security —
contractor substitutes cash retention for bank guarantee — whether
principal
entitled to retain GST on cash retention until bank guarantee returned
—GST payable on release of retention.
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Legislation Cited:
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Cases Cited:
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Texts Cited:
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Goods and Services Tax Ruling GSTR 2000/29, Goods and services tax:
attributing GST payable, input tax credits and adjustments and
particular
attribution rules made under section 29-25 (11 December 2013) A New Tax
System (Goods and Services Tax) Act 1999 (Cth); Goods and Services Tax Ruing
GSTR 2006/1, Goods and services tax: guarantees and indemnities (11 December
2013) |
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Category:
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Principal judgment
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Parties:
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Parkview Constructions Pty Ltd (Plaintiff)
Futuroscop Enterprises Pty
Ltd as trustee for Mascot Regal Holdings Unit (Defendant)
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Representation:
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Counsel:
Mr M Ashhurst SC / Mr A Vincent (Plaintiff)
Mr IGB Roberts
SC / Mr H Pintos-Lopez / Mr J Pen (Defendant)
Solicitors:
Salim
Rutherford Lawyers (Plaintiff)
William Roberts Lawyers (Defendant)
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File Number(s):
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2018/380964
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JUDGMENT
- HER
HONOUR: The defendant, Futuroscop Enterprises Pty Ltd (the
Principal), owns a site in Mascot near Sydney International Airport. The
plaintiff, Parkview Constructions Pty Ltd (the Contractor), was engaged
by the Principal to construct two buildings on the site, being a
“Travelodge” hotel and offices (Building
A) and a “Wilson
Parking” long stay public car park (Building B). The Contractor now seeks
to retrieve the security which
it provided, whilst the Principal seeks
liquidated damages and damages for defective building work. The issues in these
proceedings
are:
(a) When a Contractor substitutes the form of security from cash retention to a
bank guarantee, is the Principal entitled to retain
GST on the cash retention
until the guarantee is returned: see [34]-[42]; the answer is no.
(b) Was the Contractor obliged to construct the Works to enable the Principal to
use the building in a manner not then approved by
the Council: see [186]-[203]; the answer is
no.
(c) Did two “conditional" certificates of practical completion comprise a
certificate of practical completion under the Contract:
see [204]-[218]; the answer is
no.
(d) Can the Court determine the date of practical completion, where the
Superintendent contends it is yet to be achieved: see [219]-[224]; the answer is
yes.
(e) Can the Court ascertain liquidated damages, where the Superintendent has
certified liquidated damages, albeit not in accordance
with the Contract: see
[231]-[242]; the answer is
yes.
(f) Does the Contract oust common law damages for defective building work: see
[248]-[260]; the answer is yes.
- In
what follows, I have omitted claims not referred to by the parties in closing
submissions, which I take not to have been pressed.
Whilst I have been greatly
assisted by the parties’ written submissions, I have, by and large, not
repeated those submissions
here.
WITNESSES
- The
Contractor relied on the evidence of its director and construction manager,
Emile Tabet, together with commercial manager Vladimir
Baltovski and plumbing
subcontractor, Dimitri Stassos. Mr Tabet and Mr Baltovski were cross-examined.
Both were straightforward and
knowledgeable. Mr Baltovski was loathe to accept
that Parkview was responsible for any defects.
- The
Principal relied on the evidence of its sole director Richard Andary, plumber
Adam Tacuri and solicitor Carlos Jaramillo. Mr Andary
was cross-examined. His
evidence was not entirely satisfactory. Mr Andary initially denied drafting
material to be sent by the Superintendent,
then said he did not recall preparing
the document, then accepted that he prepared a direction to be given by the
Superintendent
to the Contractor. It was obvious from the contemporaneous
documents that the Principal’s solicitors were preparing the documents
to
be issued by the Superintendent at the time.
- Whilst
Mr Andary gave short and emphatic answers, I was not particularly confident that
I could place much weight on those answers.
Mr Andary deposed that he had
“observed in each of the 209 [hotel] rooms that rubbish has not been
removed from the ceiling
space.” Mr Andary ultimately agreed that he had
not, in fact, put his head into the ceiling space for each room; “I put
[my head] into a lot of them”, although he could not recall how many. Mr
Andary accepted that his affidavit was “not
totally correct ...
technically ... in the way it’s written.”
- Overall,
this project was and is likely of enormous significance to Mr Andary. This may
explain the intensity and, on occasion, ferocity
of his communications with the
Contractor as the project neared practical completion and thereafter. Mr Andary,
however, did not
profess any particular expertise in construction and I have
deferred to the more dispassionate views expressed by the experts and
consultants.
- Both
parties submitted that the other should have called a representative of the
Superintendent of the Contract, being MMD Construction
Consultants Pty Ltd, as a
witness. Neither party asked me to draw an Jones v Dunkel inference and I
have not done so.
- A
large number of expert witnesses gave evidence in conclave. It was not
ultimately necessary to resolve points of difference between
most of them. Of
the building consultants, Stephen Iskowicz and Steven Abbott, I preferred the
evidence of Mr Iskowicz, who appeared
sensible and knowledgeable. Mr Abbott
tended to add wide-ranging, negative remarks, for example, that an alleged
defect was a common
problem throughout the development, or that he had been told
there were 180 instances of the defects. Mr Abbott was given a defects
list and
assumed that the particular defect existed in the number of instances
instructed; Mr Abbott found one defect and assumed
that the other instances were
the same. Further, whilst Mr Abbott gave evidence in very emphatic terms, in
some cases he may have
spoken beyond the areas of his expertise.
- Mr
Abbott also gave evidence on the cost of rectification in a conclave with
quantity surveyor David Madden. Mr Abbott was unqualified
as a quantity surveyor
but had worked in the building industry generally as a contract manager.
Ultimately, these experts largely
agreed on the items which it was necessary to
decide.
PREPARATIONS FOR DEVELOPMENT
- From
2012 to 2014, the Principal prepared for the development of the site: finalising
drawings, assembling consultants and reports,
seeking development approval and
obtaining finance. The drawings were prepared by the Principal’s
architect, Skematics.
- The
Principal retained a project manager, who later became the Superintendent of the
Contract, being MMD Construction Consultants.
The principal of MMD Construction
Consultants was Mr Andary’s cousin, Michael Dakhoul. This later gave rise
to controversy,
where the Contractor complained – with some foundation
– that the Superintendent was simply conveying the Principal’s
dictates.
- The
Principal retained a fire engineer, AE&D Fire, to carry out a fire safety
analysis and assessment of the proposed development.
The fire engineer
circulated its first report in February 2014, and a series of revisions in the
ensuing years to address various
issues raised by Fire & Rescue NSW.
- In
2014, the Contractor engaged in a tender process. As part of that process, the
Contractor assisted the Principal by engaging in
“value
engineering”. This involved an audit of plans and specifications in
conjunction with the client to see whether
changes could be made to save money
without taking away the design intent or compromising any compliance issues. The
product of this
exercise was a “Value Engineering Register”
produced by the Contractor, which later became part of the Contract.
- In
June 2015, the City of Botany Bay issued the necessary approval, being a
modification of an earlier development consent. The Principal
Certifying
Authority (PCA) was the Council.
THE CONTRACT
- On
4 September 2015, the Principal and the Contractor executed a contract (the
Contract) being, essentially, Australian Standard AS4902-2000 General
conditions of contract for design and construct as amended by special
conditions.
- Various
reports and specifications also formed part of the Contract, including the
development approval, the “Value Engineering
Register” and the
Principal’s Project Requirements Document Register. The Principal’s
Project Requirements Document
Register listed tender documents and
“CC/Contract Documents” including architectural specifications and
drawings prepared
by Skematics, structural engineering specifications and
drawings prepared by AECOM Pty Ltd, electrical, mechanical, hydraulic and
fire
drawings prepared by Abacus Engineering Pty Ltd, stormwater and civil drawings
prepared by S&G Consultants Pty Ltd and a
landscape design prepared by
Isthmus Pty Ltd.
- The
order of precedence of the Contract Documents was set out in Schedule 1, which
was to be used to resolve any ambiguity or inconsistency
between the Contract
Documents: clause 6.2, Formal Instrument of Agreement; preamble, Special
Conditions of Contract. Relevantly,
special conditions had precedence over
general conditions, which had precedence over the development approval, which
had precedence
over the Value Engineering Report and so
on.
Contractor’s obligations
- Under
the Contract, the Contractor was obliged to carry out and complete WUC
(work under the Contract) in accordance with the Contract and directions
authorised by the Contract: clause 2.1. Clause 29.1 obliged
the Contractor to
“use suitable new materials and proper and tradesmanlike
workmanship”.
- The
Contractor warranted that it was suitably qualified and experienced and would
exercise due skill, care and diligence in carrying
out and completing WUC:
clause 2.2(a). The Contractor warranted that it would carry out and complete WUC
in accordance with the design documents so that the Works, when
completed, were fit for their stated purpose and complied with the requirements
of the Contract: clause 2.2(a)(iv).
- Although
the plans and drawings had been prepared before the Contractor was retained, the
Contractor warranted that it had examined
and checked the design of the Works,
the drawings and documents provided by the Principal and the preliminary design
and considered
these suitable for the Works: clause 2.2(a)(ii.a).
- The
Contractor agreed to carry out and complete the Contractor’s design
obligations to accord with the Principal’s project
requirements: clause 2.2(a)(iii). The Principal’s project
requirements were described in the Principal’s Project Requirements
Document Register. The Contractor’s design obligations comprised
all tasks necessary to design and specify the Works required by the Contract,
including preparation of the design documents (the drawings,
specifications and other information required by the Contract and created
(including those to be created by the Contractor) for the construction of
the Works) and developing the preliminary design in the Principal Project
Requirements
Document Register.
- Special
Condition 52 provided, “The Contractor must at its own cost ensure that
the WUC is executed in such a way as not to
breach the Development
Approval.” “Development Approval” meant any applicable
development approvals granted by
the relevant Authority in regards to the Works:
clause 1. As a special condition, this obligation prevailed over the general
conditions
in the event of ambiguity or
inconsistency.
Superintendent
- The
Superintendent was conferred with an extensive role and powers under the
Contract, including approving variations and extensions
of time, giving
directions to the Contractor, approving progress claims and – critically
in this case – certifying practical
completion and liquidated damages.
- Directions
were to be given orally and confirmed in writing: clause 20. The Superintendent
could direct the Contractor to rectify
defective work on becoming aware that
work done by the Contractor did not comply with the Contract and at any time
before the expiry
of the last defects liability period: clause 29.3.
- Clause
20 provided: (emphasis added)
The Principal shall ensure that at all times there is a Superintendent,
and that the Superintendent fulfils all aspects of the role and functions
reasonably and in good faith.
- The
Contractor contends that the Principal failed to ensure that the Superintendent
fulfilled its role reasonably, to which I will return at [243].
Practical completion
- Clause
34 of the Contract provided:
34 Time and progress
34.1 Progress
The Contractor shall ensure that WUC reaches practical
completion by the date for practical completion.
- The
parties agreed that, taking into account extensions of time (EOT), the
date for practical completion was 4 September 2017. As amended by the
Special Conditions of Contract, practical completion was defined
as:
Practical completion is that stage in the carrying out and completion of
WUC when:
a) the Works are complete except for minor
defects:
(i) which do not prevent the Works from being reasonably
capable of being used for their stated purpose;
(ii) which the Superintendent determines the
Contractor has reasonable grounds for not promptly rectifying; and
(iii) the rectification of which will not prejudice the
convenient use of the Works;
(b) those tests which are required by the
Contract to be carried out and passed before the Works reach
practical completion have been carried out and passed; and
(c) documents and other information required under the
Contract which, in the Superintendent’s opinion, are
essential for the use, operation and maintenance of the Works have been
supplied;
(d) the Contractor has done all things that it is
required to do under the Contract to enable the Principal to
obtain a certificate of occupation from the applicable Authority;
(e) the testing and commissioning of all electrical plant and
equipment, electronic devices, light fittings and the like have been
completed;
(f) the Contractor has provided to the
Superintendent one pdf electronic copy and two hard copies of the
completion folders including all certificates, as-built drawings, manuals,
warranties,
keys and the like to the satisfaction of the Superintendent.
- A
central issue in this case is whether practical completion was reached and, if
so, when. This largely turns on whether the Superintendent
gave a certificate of
practical completion in accordance with the Contract. In this regard, Clause
34.6 provided:
34.6 Practical completion
The Contractor shall give the Superintendent at least 14 days
written notice of the date upon which the Contractor anticipates that
practical completion will be reached.
When the Contractor is of the opinion that practical completion
has been reached, the Contractor shall in writing request the
Superintendent to issue a certificate of practical completion.
Within 14 days after receiving the request, the Superintendent shall give
the Contractor and the Principal either a certificate of
practical completion evidencing the date of practical completion or
written reasons for not doing so. ...
- The
primacy of this obligation is highlighted by clause 39.7(b), which specified
that a substantial breach of the Contract by the Principal –
entitling the Contractor to issue a notice to show cause – included
“the Superintendent not giving a certificate
of practical completion or
reasons as referred to in subclause 34.6”.
- To
facilitate the achievement of practical completion, clause 35
provided:
Clause 35 Defects liability
The following method and procedures for rectifying defective work immediately
prior to practical completion shall be incorporated
by the Contractor into the
master programme so as not to affect the date for practical completion:
(a) within 14 working days of the Contractor submitting to the
Superintendent a notice of final inspection prior to practical completion
for
Building B and then for Building A, the Superintendent will inspect the Works
and provide to the Contractor a list of defects;
(b) the Contractor will be given a reasonable period after
receipt of the defects list from the Superintendent to rectify all defects
...;
(c) the Superintendent shall reinspect the Works when advised
by the Contractor that the listed defects have been rectified and
subsequent
periods of 2 weeks and one weeks will be given if further defect rectification
is required; ...
- Clause
35 also dealt with the rectification of defects after the date of practical
completion, to which I will return at [256].
Disputes
- As
soon as practicable after a party became aware of any claim in connection with
the subject matter of the Contract, other than a
claim for payment, the party
was obliged to give the other party and the Superintendent written notice of the
general basis and quantum
of the claim or a notice of dispute under clause 42.1:
clause 41.1.
UNPAID GST
- Pursuant
to clause 5.1 of the Contract, the Contractor was obliged to provide
security in the form of cash retention or an unconditional bank guarantee
for 5% of the contract sum: clause 5.1, Item 14, Annexure Part A. The
contract sum was $37.6 million plus GST: clause 1, Special Conditions of
Contract; clause 48.2.
- Security
was initially provided in the form of cash retention, with the Principal
withholding 5% of the contract sum, or $1.88 million, from progress
claims.
- The
Contractor was entitled to change the form of security: clause 5.3. In November
2016, the Contractor provided two bank guarantees
to the Principal, each for
$940,000 and together $1.88 million. On 13 December 2016, the Contractor issued
a tax invoice to the Principal
for “Retention Release in lieu of Bank
Guarantee” in the sum of $1.88 million plus GST, totalling $2.068
million.
- On
22 December 2016, the Contractor received $1.88 million. The GST was not paid.
Mr Tabet discussed the matter with Mr Andary, who
said “the GST is not due
until I have to release the bank guarantees”. Mr Andary maintains that the
Principal does not
have to pay any GST until such time as all the bank
guarantees are returned.
- The
Contractor submitted that, where the Principal had retained
“security” from progress payments to the amount of 5%
of the
“contract sum” plus GST, the Principal was required to pay
the GST on the retention moneys which it was no longer entitled to retain. The
Contractor relied on clause 48.7, which provides that, where a party is required
under the Contract to pay or reimburse an expense
or outgoing of another party,
the amount to be paid or reimbursed is the amount of the expense or outgoing
and, if the payment or
reimbursement was subject to GST, an amount equal to that
GST: clause 48.7. The Principal maintained that the Contractor was only
entitled
to be paid this sum once the Contractor was entitled to make a final payment
claim.
- I
do not consider that clause 48.7 applies to security, which is neither an
expense nor outgoing. Rather, the obligation to pay GST on retention amounts is
governed by legislation. Section
99-1 of A New Tax System (Goods and Services
Tax) Act 1999 (Cth) provides:
GST does not apply to the taking of a deposit as security for the performance of
an obligation (unless the deposit is forfeited or
is applied as consideration).
GST is not attributable prior to forfeiture.
- That
is, GST was not payable on the cash retention when provided by the Contractor.
GST became payable when the retention amounts
were released to the builder, in
the same way as it applies to progress payments under the building contract:
Goods and Services
Tax Ruling GSTR 2000/29, Goods and services tax:
attributing GST payable, input tax credits and adjustments and particular
attribution rules made under section
29-25, (11 December 2013) at
[172]-[189].
- Nor,
as I understand it, was the Contractor obliged to pay GST on the bank guarantee.
Guarantees are ‘financial supplies’
and treated as input taxed
supplies on which no GST is payable: section 40-5, A New Tax System (Goods
and Services Tax) Act 1999 (Cth); sub-regulation 40-5.09(3), A New Tax
System (Goods and Services Tax) Regulations 2019 (Cth). Similarly,
should the Principal call on a guarantee, any money paid by the surety is not
subject to GST as is not a taxable supply
for consideration to which GST
applies: section 9-10(4), A New Tax System (Goods and Services Tax) Act
1999 (Cth); Goods and Services Tax Ruing GSTR 2006/1, Goods and services
tax: guarantees and indemnities, (11 December 2013) at [74]-[78].
- As
such, once the cash retention was released to the Contractor, GST applied to the
cash retention in the same way as other progress
payments made under the
Contract. The Principal is not entitled to retain GST on the cash retention
until it returns the bank guarantee.
The Contractor is entitled to the damages
it seeks in respect of unpaid GST, being $188,000. Interest is to be paid after
the date
of default in payment at the prescribed rate provided in section 101(7)
of the Civil Procedure Act 2005 (NSW): clause 37.5, Item 35, Annexure
Part A.
PROBLEMS POSED FOR PRACTICAL COMPLETION
- Work
began on 1 March 2016. Before considering the evidence in respect of practical
completion, it is necessary to describe three
substantive problems which were
said, at the time, to stand in its way. In addition, a further difficulty was
posed by a last-minute
variation and EOT.
Rooftop terrace:
Building A
- Building
A is a 12 storey building. The ground floor and levels 1 to 6 is a hotel. Levels
7 to 12 are office space and associated
facilities for commercial tenancies. The
plans for Building A included stairs from Level 12 to a sliding glass roof
hatch, giving
access to the rooftop. According to the roof plan, the rooftop was
to contain various infrastructure, including water tanks, hot
water and outlets.
- Whilst
the original development consent is not in evidence, I infer that it did not
permit those occupying the building to use the
rooftop area. I say this as, some
years later in 2020, the Principal lodged an application to modify the
development consent by “the
addition of roof top deck area”. The
attached submission stated: “it is the applicant’s view that making
provision
for the roof terrace within the development is an important ancillary
use that would complement the approved uses under DA#12/087/07.”
- As
earlier noted, the Principal had retained AE&D Fire to address fire safety
in respect of the development. In May 2016, the
fire engineer proposed
Alternative Solution 11 (AS 11) to enable the safe egress
from the “rooftop plant area” on Building A, together with
Alternative Solution 12 (AS 12) to enable the safe egress from the
“rooftop entertainment area”. Fire & Rescue NSW sought further
details on these
proposed solutions.
- In
March 2017, AE&D Fire provided Revision 14 of its fire engineering report,
from which it is clear that the Principal then intended
to delineate the rooftop
of Building A into an area for plant (accessible by two fire stairs) and two
public terraces – on
the eastern and western side of the building –
described in the report as “rooftop entertainment area”. According
to diagrams included in the fire engineering report, access to the “Public
Terrace” was via “Public Stairs”.
- The
Principal contended that the diagram was submitted on the instructions of the
Contractor, pointing to a table towards the end
of the fire engineering report
which listed stakeholders, in which Phil Agius of the Contractor as referred to
as the “Client”.
I note, however, that the title page for the fire
engineering report stated that it was prepared for the Principal. The opening
words
of the report stated that AE&D Fire “have been commissioned by
Futuroscop”. Whilst Mr Baltovski accepted that Mr
Agius was the
person within the Contractor who was instructing on this issue, Mr Baltovski did
not join the Contractor until six
months after the report: see [94]. Who commissioned the
diagram is unclear.
- In
any event, in Revision 14, the fire engineer explained that AS 11 addressed the
problem that the fire stairs terminated at Level
12 and rooftop access and
egress to the rooftop plant area was via a steel ladder and a manually operated
access hatch. The hatch
needed to remain closed in order to maintain stair
pressurisation. AS 12 was designed to address the problem that occupants of the
rooftop entertainment area did not have direct access to fire stairs but needed
to pass down a non-fire isolated stair to reach Level
12, from where they could
access fire stairs.
- In
March 2017, the Contractor retained a fire engineer, Olsson Fire & Risk Pty
Ltd, to undertake a peer review of the fire engineering
report. Olsson Fire
& Risk generally supported AS 11 and AS 12, suggesting that a restriction be
placed on the maximum number
of occupants on the roof, say, 50 people. The
Contractor must have then been aware that the Principal wished to use the
rooftop area
in this manner.
- In
June 2017, AE&D Fire produced a further report, Revision 15, which was
submitted to the Council in support of a Stage 6 Construction
Certificate,
presumably to effect the work referred to in the report. On 4 August 2017, the
Council issued a Stage 6 Construction
Certificate in respect of the fire
engineering report prepared by AE&D Fire, Revision 15. The roof plan the
subject of Stage
6 Construction Certificate was further revised. The Contractor
constructed the roof area in accordance with Revision 10. I will return
to
the Contractor’s obligations in respect of the rooftop terrace at [186].
Carpark crash rails: Building B
- Building
B is a 5-storey carpark. The 2014 drawings for the carpark included crash rails
on the perimeter of the carpark, together
with a façade as follows:
- The
Façade Legend for “CRL-06” was “Safe Erection P/L or
similar carpark crash rails. Rhinostop, fixing to
manufacturer’s details.
Refer to plans and specifications.” The Façade Legend for
“FCD-01” stated
“Cantilevered balustrade with perforated &
corrugated metal panels” fixed to a galvanised frame. That is, the plans
proposed a crash rail and a separate façade structure, with the
façade extending to cover the slab edge.
- In
the Value Engineering Register, the Contractor proposed an integrated crash rail
system with composite cladding, that is, one system
to act as a crash rail
and façade structure. As I read the drawing, corrugated metal
panels would be attached to the crash rail. Revisions were made
to the carpark
drawings in October and November 2015. On 10 December 2015, the Contractor sent
an email to the architect confirming
the different types of crash rails proposed
for Building B.
- Revised
carpark plans were issued on 15 January 2016 and 22 April 2016. The
Façade Legend for “FCD-01” became:
(emphasis added)
SAFE DIRECTION P/L RHINO-STOP ‘ELITE’ SYSTEM OR SIMILAR CAR PARK
CRASH RAILS, COMBINED WITH CANTILEVERED BALUSTRADE WITH PERFORATED &
CORRUGATED METAL PANELS FIXED TO 150x50 G AL. M.S. R.H.S FRAME AT 2500mm
NOM. CRS. (TBC).1 500mm NOM. 0/A HEIGHT 1100mm A.F.L. REFER TO SPECIFICATION
&
STRUCTURAL ENG. DETAILS
- The
Façade Section detail, now “29/AT11” had also changed as
follows:
- That
is, the crash rail and façade were now integrated into a single
structure, as had been suggested by the Contractor during
the “value
engineering” process. Based on these drawings, the Contractor awarded the
contract for the work. The sub-contractor
installed RhinoStop with hand rail and
anti-climb mesh, RhinoStop sky edge with hand rail and anti-climb mesh and
RhinoStop Elite
in accordance with the manufacturer’s recommendations and
the Building Code of Australia. The crash rails are shown here:
- On
23 May 2017, the Superintendent advised the Contractor that the crash rails had
not been installed correctly and were not the specified
design as per the
architectural drawings. The works would not be accepted until rectified. The
Contractor disagreed. The Contractor
advised that, in December 2015, the
architect was consulted and issued floor plans indicating the proposed crash
rails and façade
treatments. The architect provided a hand sketch
identifying a mesh screen fixed to posts as a suggestion. The Contractor had
installed
a similar looking product, together with Armco railing for crash
resistance, a hand rail along the ramps and anti-climb mesh similar
to the
drawing provided by the architect. The Contractor referred to the updated
Façade Legend for “FCD-01” and
advised “Parkview have
provided a compliant integrated crash rail and façade screen system from
Rhino (in accordance
with value engineering), and in the colour required to meet
DA drawings. The PCA has inspected these works and [is] satisfied with
the
construction.” The Contractor would be painting the slab edges in green.
“The end result will be as per DA colours
and in accordance with our
D&C obligations.”
- The
architect was most displeased, suggesting that what had been installed was
“totally incorrect and wrong” and never
approved by him. The intent
in the contract documentation detail was to produce single coloured bands along
the façade, with
perimeter bands to cover the slab edges. Painting the
slab edges green was a “cheap fix”.
- On
28 May 2017, the Superintendent instructed the Contractor to rectify this matter
as soon as possible, where the Superintendent
had not approved the use of a
similar product, “It is not for the Contractor to decide which product is
similar.” On
28 June 2017, the Contractor sent a detailed email to the
Superintendent, outlining the history of the contract drawings in respect
of the
crash rails, including the revisions of the Façade Legend for FCD-01. The
Contractor considered that it was obliged
to install one structure which acted
as a crash rail and façade, and had done so within the description of
FCD-01. The Contractor
had painted the external slab edges to provide a finish
in line with the “DA documentation”.
- The
Superintendent did not agree, where the section drawings showed the perforated
and corrugated screen covering the slab edge, and
the type of crash rail used.
The Contractor was asked to rectify the defect. This debate continued (to this
day). The architect complained
that the crash rail / balustrade detail installed
was incorrect, of “lesser extent, value & detail than contract
documents”.
I will return to whether the Principal is entitled to the cost
of rectifying this alleged defect at [287].
Concrete finishes: Building
B
- In
January 2014, the Principal’s architect, Skematics, and structural
engineer, AECOM, prepared specifications in respect of
concrete. Neither
document was in evidence (or, at least, not the correct revision) but the
requirements were recounted by concrete
experts, David Mahaffey and Dr James
Aldred.
- In
short, the columns in the carpark were to comply with a “Class 2”
finish in accordance with Australian Standard AS3610.1,
having “uniform
quality and texture over large areas”.
- The
underside of the carpark slabs (the soffit) were to comply with a less onerous
“Class 3” finish, being “good
visual quality when viewed as a
whole”.
- Complaints
were made about concrete finishes when Building B was nearing practical
completion. On 15 June 2017, the Superintendent
wrote to the Contractor
following a site visit by Mr Andary, who had “provided some alarming
points which require your immediate action.” Amongst the issues
identified, numerous leaks throughout the carpark were said to be causing
notable discolouration
to the carpark soffits, “When will this issue be
rectified and confirmed as a class 3 finish.” The Contractor’s
comments were sought by close of business. On 1 August 2017, the architect wrote
to the Superintendent following an inspection of
the concrete works in Building
B. The architect considered that the concrete finishes failed to meet the
specification for class
2 and class 3, recommending inspection by a structural
engineer or specialist in concrete works.
- At
trial, Mr Mahaffey and Dr Aldred agreed that the finishes met the required
standard.
Second pump room
- Turning
to the late variation, under the Contract, the Contractor was required to
construct and commission one pump room. In June
2016, the engineer who was
designing the fire hydrant system for the carpark suggested that a pump also be
installed for Building
B, particularly if the building was to increase in height
by two levels. If a pump was installed, then a compliant pump room would
also be
needed.
- The
Contractor issued a variation to supply and install a hydrant pump set to
Building B “to allow sufficient water flow rates
for futureproofing of
additional carpark levels proposed.” The variation set out two options,
being provision of a full hydrant
pump room or provision of the hydrant pump
only. On 31 August 2016, the Principal approved the second option less a few
items, “Approved
with NO further variation to this item.”
- The
water pressure and flow relied upon to identify the need for a pump for Building
B was based on simulated tests conducted by Sydney
Water, where the water main
had not then been constructed and permanent water had yet to be connected. Once
water was connected,
the need for a pump – and a pump room – became
clear. After Sydney Water tested water pressure to Building B for hydrant
services on 14 June 2017, Mr Tabet met with the certifier and Mr Andary
concerning a pump room in order for the Principal to obtain
a ‘sign
off’ from the certifier. The Contractor was instructed to price
construction of a pump room with the details
requested by the certifier,
including lodgment of a Stage 7 Construction Certificate.
- On
26 June 2017, the Contractor issued a variation claim in relation to the
construction and commission of the second pump room. This
was rejected by the
Superintendent on the basis that it was not necessary, albeit later accepted. Mr
Tabet said he was becoming concerned
about how the Superintendent was doing its
job.
NEARING PRACTICAL COMPLETION
- As
the construction manager responsible for the project, Mr Tabet attended the site
twice a week, together with site meetings and
inspections as needed. From early
August 2017, Mr Tabet observed people engaged by Travelodge installing
equipment, such as computer
systems and furniture. Travelodge commenced its fit
out.
- It
will be recalled that, under clause 35 of the Contract, the Contractor was to
submit a notice of final inspection to the Superintendent
prior to practical
completion, so as not to affect the date for completion: see clause 35 at [30]. The minutes of a
site meeting held on 7 August 2017 record that the Contractor had submitted
their status of defects rectification
works for levels 1 to 6 of Building A.
The Superintendent had attended the site for a defects inspection of the
commercial levels
7 to 11 of Building A on 14 July 2017, but the levels were not
ready to be inspected. Whilst the Contractor advised that the carpark
was also
ready for a defects inspection, the Superintendent was “not confident it
is”; the Principal had retained a consultant
to inspect the concrete and a
report was expected shortly. The fact that the Contractor and the
Superintendent were engaged in the
process specified by clause 35 suggests that
construction was now nearing completion.
- On
8 August 2017, the Principal’s concrete consultant, John Worthington,
issued a preliminary report in respect of the concrete
finish on the carpark,
following an inspection accompanied by the Superintendent and the
Contractor’s project engineer. Mr
Worthington considered that the finishes
were not acceptable as they did not meet the relevant Australian Standards. The
Contractor’s
engineer advised that it was a work in progress and agreed
that further works were required. Where ‘hand over’ of the
project
was to occur on 1 September 2017, Mr Worthington recommended that the Contractor
provide a schedule for the completion of
the works, following which he would
inspect the completed works and provide a second report.
- Perhaps
somewhat ambitiously, on 9 August 2017, the Contractor gave notice pursuant to
clause 34.6 of the Contract that it anticipated
achieving practical completion
by 28 August 2017. The pump room for the fire hydrant in Building B had then yet
to be designed, this
being the late variation earlier described. The
Superintendent pressed the Contractor to identify where the pump room would be
located,
suggesting that the obligation to design a pump room compliant with
Australian Standards and the Building Code of Australia fell
on the Contractor.
The Contractor disagreed, “Our scope included what was on the tender
drawings which form part of the Contract.
... We provided you a variation many
months ago for approval in which you partially approved ... this remains a
variation under the
Contract. We will be submitting a revised variation for your
approval.”
- A
report prepared by the Contractor for a Project Control Group meeting on
14 August 2017 advised that documentation was currently
being sourced from
all trades to support an Occupation Certificate. ‘As built’
documentation was in the final stages
of submission. Handover manuals were being
prepared for practical completion. ‘Red flags’ then noted included a
delay
in completion due to an upgrade in the water main, said to be the
responsibility of the Principal. Further, the Contractor had informed
the
Principal that a hydrant pump was required to Building B, as indicated by the
results from the simulated flow and pressure test.
A proposed pump room was
currently being modified, “however these costs will be chargeable to the
client.” Approval of
a construction certificate and building certificate
associated with the new pump room was awaited. The PCA had commenced regular
inspections of the hotel and commercial floors, with rectification lists being
provided on a per visit basis, “minimal issues
have been raised.”
- On
21 August 2017, the parties held a site meeting. The Contractor was then
rectifying the ceilings on levels 10 to 12 of Building
A. The Contractor was
“to proceed with providing a compliant pump room in Building B as per [the
Superintendent’s] instruction”.
The Contractor was to begin works
once the construction certificate had been obtained. The Contractor confirmed
that it would require
up to two weeks to finalise provisions for the pump room
after receiving the construction certificate. Hydrant testing had been booked,
although the PCA advised “he will not notify Fire Brigade if the site is
not accessible”.
- As
for the carpark, the Superintendent noted that the carpark “will require
extensive cleaning and works to rectify concrete
finish. [The Contractor] to
attend to rectification ASAP.” The Contractor was to review the report
obtained from Mr Worthington
and complete rectification work accordingly. The
parties remained at odds in respect of the crash barriers in the carpark. As for
the construction program, the Contractor confirmed that the corridors and
commercial levels 7 to 12 of Building A were ready for
defects inspection to be
conducted by the Superintendent. Building B was also ready for defects
inspection.
- On
22 August 2017, the Council issued a Stage 7 Construction Certificate for the
construction of an additional fire hydrant pump room
on the ground floor of
Building B. The Contractor submitted a variation to the Superintendent in
respect of installation of the fire
hydrant pump and builder’s works to
Building B, seeking an extension of time of two weeks. The Contractor proceeded
to construct
the pump room in accordance with the variation.
- On
28 August 2017, a site meeting was held. A fire engineer inspection was
scheduled for the next day, with commissioning of the pump
room in Building B to
commence on 30 August 2017. The Superintendent conducted a site inspection and
sought advice from the Contractor
pursuant to clause 34.6 of the Contract as to
when practical completion would be reached, “In light of today’s
inspection,
it is evident that you are behind the current program.”
- On
29 August 2017, the Contractor reminded the Superintendent that a Notice of
Delay had been issued by the Contractor in respect
of the pump room, with 12
days required to complete this item from approval of the construction
certificate. The Contractor intended
to achieve practical completion on or
before 5 September 2017. Presumably, this was intended to be a notice under
clause 34.6 of
the Contract, as had been sought by the Superintendent.
- On
31 August 2017, Mr Andary expressed concern to the Contractor that outstanding
works and the state of the site might delay practical
completion, where the PCA
was concerned that the fire brigade “may turn up to the site but refuse
inspection”. On 1 September
2017, the PCA submitted a Request for a Final
Fire Safety Report to Fire & Rescue NSW. The Contractor responded to Mr
Andary,
advising that the PCA was not concerned with the construction
works and had submitted the necessary application, “We have done
everything we can to expedite
the final testing and commission so the PCA can
notify Fire & Rescue NSW since the permanent water issue was
resolved.”
On 2 September 2017, Mr Andary replied, advising that he
had insisted that the PCA book the fire brigade irrespective of the condition
of
the site, but the PCA had “clearly stated that should the fire brigade
choose to come to site and see it in its unfinished
state they may choose not to
inspect hence delaying [practical completion]”. Mr Andary was “very
concerned about the
lack of trades and more so the lack of urgency to finish for
Monday”, pointing to various parts of the works which remained
incomplete
and attaching photographs. A “defective external driveway” had still
not been rectified.
- Mr
Tabet recalls that the certifier was undertaking inspections in the preceding
weeks in order to determine if the works were at
a point when application to
Fire & Rescue NSW could be made for them to inspect the building. On about 4
September 2017, the
certifier told Mr Tabet that he was confident that the fire
brigade could be called for an inspection. At a site meeting on 4 September
2017, the Contractor confirmed that the pump room had been built, with signage
to be installed. Landscaping would be completed by
5 September 2017. The new
anticipated practical completion date was 8 September 2017.
- On
6 September 2017, the Superintendent informed the Contractor of points of
concern noted by Wilson Parking that day, including that
signage, lighting and
painting and line marking had not been done. The Contractor updated the
Principal and the Superintendent that
final commissioning of
“Skidata” would be completed by 8 September 2017. (Skidata are the
machines used to access and
pay for parking.)
- On
the evening of 5 September 2017, the Superintendent sent the Contractor and the
Principal a Notice of Assessment of Practical Completion
pursuant to clause 34.6
of the Contract, following a site inspection on 4 September 2017. I take
this to be “written reasons”
for not giving a certificate of
practical completion as requested by the Contractor: clause 34.6
(“Within 14 days after receiving the request [for a certificate of
practical completion], the Superintendent shall give the
Contractor and the Principal either a certificate ... or
written reasons for not doing so.”) The Superintendent advised that
practical completion had not been achieved on 4 September 2017 and listed ten
items “which do
not constitute the development being Practically
Complete” being:
1. Ponding at the Eastern and Southern Driveways.
2. External Façade (Painting/Cladding) not complete.
3. Driveway asphalt/stencilling not complete.
4. Major water leaks within the kitchen and lobby male
bathroom.
5. Skidata commissioning.
6. Security Cameras installation.
7. Item “f” within appendix 1.
8. Internal Works within Hotel Lobby.
9. Landscaping Works.
10. Wheel stops which do not prevent collisions with barriers
or other vehicles.
Appendix 1 to the letter set out the definition of practical completion in
the Contract, accompanied by 15 photographs taken in Building
A and Building B
in respect of the items listed in the letter.
- On
6 September 2017, the Contractor advised the Superintendent that practical
completion would be achieved by 8 September 2017. Mr
Tabet inspected the project
shortly before 8 September 2017 and observed that the works were complete other
than minor issues that
needed to be addressed, such as minor cleaning and
painting. He formed the view that these issues were minor defects or omissions
and did not prevent practical completion from being reached. The works at the
carpark had been completed other than some cleaning.
The crash barriers, wheel
stops and louvres had been installed, the lines had been painted for the carpark
spaces and the bathroom
had been painted. Landscaping had yet to be mulched.
Wilson Parking’s fit out had yet to be completed. Wilson Parking had an
issue with its payment system that was being installed at the carpark, although
this did not form part of the Contractor’s
scope of works. (Mr Andary
maintains that the machines were part of the Contractor’s works
under contract.) Mr Tabet observed that people engaged by Wilson Parking
appeared to be working
on the wireless operation of the boom gate, which he
understood was the issue with the payment system. Mr Tabet determined that the
Contractor should proceed with obtaining certification from the Superintendent
that practical completion had been achieved.
- On
7 September 2017, Fire & Rescue NSW inspected the project. On
11 September 2017, Fire & Rescue NSW sent a letter to the
certifier,
advising that it had not been provided with the fire engineer’s most
recent report. Fire & Rescue NSW had the
Revision 13 report issued in
February 2017, which is not in evidence. Fire & Rescue NSW recommended that
the occupation certificate
for the building not be issued until it was supplied
with the report. Further, “The access and egress provisions of the rooftop
of the commercial part of the building are not suitable for members of the
general public. Access to the rooftop should be restricted
for maintenance
purposes only.”
- The
obvious first step to resolve Fire & Rescue NSW’s concerns was to
supply AE&D Fires most recent report, Revision
15, together with the peer
review undertaken by Olssen Fire & Risk. Presumably, AS 11 and AS 12 had
‘moved on’ since
the Revision 13 report considered by Fire &
Rescue NSW. It would appear, however, that neither the Contractor nor the
Principal
wished to take this step for fear of thereby accepting responsibility
for this part of the works.
- On
11 September 2017, the certifier advised the Contractor of the matters which
needed to be attended to following Fire & Rescue
NSW’s report, in
particular:
Certification
Item 2 - a statutory declaration from the builder stating that the locks to the
rooftop access panels have been removed and are now
unable to be locked.
- The
Contractor promptly provided a statutory declaration, together with photos,
confirming that the access hatches to Building B rooftop
were no longer
lockable, “locks have been removed/cut entirely”. As I understand
it, this meant that no one would be
trapped on the roof in the event of a fire.
- Mr
Baltovski said that all items in the letter from Fire & Rescue NSW that were
the responsibility of the Contractor had been
completed. Mr Baltovski was of the
view that the Contractor had done all it was required to do in order for the
Principal to obtain
a final occupation certificate for the roof terrace; the
remaining items that were incomplete were the responsibility of the Principal.
- On
11 September 2017, the architect issued a report following a site inspection on
4 September 2017, listing various items which required
attention, including a
number of concerns with “stairs to private roof space”. The
Superintendent also advised the Contractor
that Wilson Parking had inspected the
site and raised issues regarding carpark safety “which are worrying at
this stage of
the project ... They will NOT take possession of the carpark due
to these issues.” This was said to be a matter of extreme
urgency. The
Contractor was to action these items as soon as a list of issues was provided by
Wilson Parking.
Travelodge opens
- On
12 September 2017, the Council issued an Interim Occupation Certificate
“excluding public access to the roof top terrace
– access for
maintenance only”. According to a letter from Travelodge, the hotel opened
its doors. Mr Andary agreed that
Travelodge commenced operations that day.
- Also
on 12 September 2017, the Contractor submitted a payment claim and issued As
Built drawings, certificates, manuals and warranties.
Some of the paperwork
obtained by the Contractor’s plumbing subcontractor cannot be found. Mr
Stassos is the general manager
of Pipeline Plumbing Services and said that, in
about September 2017, he observed his supervisor undertaking flow testing of the
fire hoses to the carpark. This process involved engaging a testing contractor
to do the test and send the results to Pipeline Plumbing,
which then prepared
the certificate for the certifier. These results are needed to obtain an
occupation certificate. Although Mr
Stassos has been unable to find a copy of
the certificate provided by the testing contractor, he is confident that the
information
set out in the occupation certificate in respect of the fire hose
wheels came from the information provided by the testing contractor
to Pipeline
Plumbing and forwarded to the certifier. Mr Stassos was not required for
cross-examination and I accept his evidence.
- Mr
Baltovski also started working for the Contractor on 12 September 2017 and went
to the site, although at that stage he was not
familiar with the contract
documents. Before joining the Contractor, Mr Baltovski had worked in the
construction industry as a contracts
manager for several years. On observing the
construction work, Mr Baltovski understood that the work was complete save for a
few
minor defects such as paint touch ups. The Travelodge hotel was operating.
The construction of the commercial spaces on levels 7
to 12 was, as he
understood it, complete save for minor defects. Mr Baltovski also inspected the
carpark: all crash barriers, louvres
and wheel stops had been installed and the
lines for the car spaces had been marked. The bathroom was painted. The
landscaping had
been mulched. A final clean was required. The carpark operator
was finalising its fit out, including installing and commissioning
pay machines.
- From
what he observed and based on his experience, Mr Baltovski understood that the
works were complete save for a few minor defects.
Thereafter, it became Mr
Baltovski’s job, as part of the Contractor’s client services team,
to manage the post-practical
completion defects management process.
Mr Baltovski agreed that he has been sending people out to the site to
undertake work from
time to time to rectify suggested defects ever since.
- On
13 September 2017, the architect issued a further report based on a site
inspection on 8 September 2017. The architect identified
problems in respect of
the driveway, façade blades, driveway line marking, sliding glass doors,
ground floor hotel walls,
the hotel lobby ceiling, restaurant dining room,
ground floor aluminium screens and a range of other matters. On 15 September
2017,
the Superintendent asked the Contractor to urgently apply the approved
finish to the carpark entry.
- On
18 September 2017, Travelodge announced that the hotel had officially opened for
business “this past week”. The hotel
had 209 rooms and offered
all-day dining and a late night bar, together with an 800-bay carpark. According
to an email from the Contractor
to the PCA, copied to the Superintendent and the
Principal, the PCA “advised that no further [occupation certificate] will
be issued ... the interim [occupation certificate] ... should be treated as
FINAL.” The Contractor sought confirmation of this
in writing.
“Conditional” notices of practical
completion
- It
will also be recalled that clause 34.6 of the Contract provided that, within
14 days of receiving a request from the Contractor
to issue a certificate
of practical completion, “the Superintendent shall give the
Contractor and the Principal either a certificate of practical
completion evidencing the date of practical completion or written
reasons for not doing so.” Here – somewhat curiously – the
Superintendent issued two “conditional”
notices of practical
completion to the Contractor: one for Building A and one for Building B. The
proper construction of these notices
and their contractual effect, if any, was
the subject of extensive debate.
- As
to the first of these notices, on 20 September 2017, the Superintendent issued
the Contractor with a “Notice of Practical
Completion (Conditional)
– Building A”, which stated: (emphasis in original)
Pursuant to Clause 34.6 of the ... Contract the Superintendent hereby issue a
Conditional Notice of Practical Completion for Building
A and External Areas
only. This notice is to take effect as of the 12th of September 2017.
For clarity, this is not Notice of Practical Completion for Building B
(conditional or otherwise). The tenant for Building B has
not taken possession
of Building B on the 12th of November 2017 (sic) due to major unfinished
construction items and safety concerns.
There are many items outstanding to achieve full completion for Building A and
the external Areas. However, as the Tenants for Building
A have taken occupation
(excluding the roof terrace due to noncompliance by the Contractor) and the
Interim Occupation Certificate
has been received from Council (received 12th
September 2017), this Practical Completion Notice will be issued
Conditionally.
This Notice of Practical Completion being finalised and serving its full purpose
under Clause 34.6 (being the full project completion),
is dependent, but not
limited, on the conditions that the Contractor complete, rectify or otherwise
fix the Works noted within Appendix
A to the satisfaction of the Superintendent.
- It
is not entirely clear what the Superintendent had in mind when referring to
“full completion”, but in any event, the
notice concluded,
“The Works are to be completed by the 30th of September 2017.”
Appendix A listed 29 items, being: (emphasis
added)
1 Clean and seal external hardstand
2 Replace rain water tank with Slim Line Tanks
3 Awning above common lobby to be finished as per design
4 Finalise cladding to the south façade of Building A
5 Finalise columns on south entry port cochre
6 Render block work around substation
7 Render wall and paint between site and Jet Pets
8 Finish roof awning on Building A West elevation
9 Install missing Louvres to west wall Building A ground
floor
10 Replace all mulch with that which is fit for purpose
11 General finalization to café
12 Stairs to mezzanine café needs cleaning and light
missing
13 Unisex toilet on the mezzanine level need to be cleaned
14 Complete the waterproofing in the mezzanine plant room
15 Install detail around letterboxes
16 Finish porte cochre kerb rectification
17 Finish column skirtings in lobby
18 Install floor mat on entry from courtyard to lobby
19 Seal courtyard
20 Clad courtyard parapet
21 Install missing kick plates to kitchen
22 Epoxy lift landings on commercial levels
23 Clean and finish off bathrooms on commercial levels
24 Protection to commercial lifts and plasterboard on
commercial floors to remain
25 Lobby to pass acoustic reverberation test as required by
Toga
26 All items highlighted by Skematics within their site visits
and reports including all future issues
27 Solution to allow access to roof terrace
28 All defects highlighted by [Travelodge] during their
defective inspections and all future issues
29 All defects highlighted by [the Superintendent] during their
defect inspections and all future issues
Items 26, 28 and 29 referred to items to be identified by Skematics,
Travelodge and the Superintendent “including all future
issues”.
- Mr
Tabet was shown some of the photographs accompanying the notice and agreed that
one of the entries to the hotel was not completed,
where the final cladding had
yet to be installed and an electrical cable was dangling down. However, he said
these could be minor
works which did not prevent the use of the building as
intended, particularly where Travelodge had opened the hotel to the public
as
soon as the interim occupation certificate was issued. There were a number of
access points to the hotel, of which this was but
one, “Travelodge were
very thorough in how they operated and they wouldn’t have opened to the
public if they ... deemed
it to be unsafe to the public.”
- Also
on 20 September 2017, the Superintendent provided the Contractor with a carpark
defect report, noting that Wilson Parking had
advised that it could not operate
the carpark in its current state. The Contractor was requested to note that
“liquidated damages
will continue as [practical completion] for this
building has not yet been issued.”
- Also
on 20 September 2017, the financier’s quantity surveyor recommended
payment of the Contractor’s progress claim of
12 September 2017 save for
some $3,000 (being provisional sum adjustments for section 73 works and
signage). Whilst the quantity
surveyor understood that practical completion had
not been reached due to a number of defects to Building A and Building B,
“We
understand these defects to be minor and once completed by the
Contractor, practical completion to both Buildings A and B will be
issued by
yourselves [the Superintendent] and a final occupation certificate will also be
issued.” On 22 September 2017, the
Superintendent recommended payment
accordingly.
Wilson Parking opens
- Wilson
Parking commenced operations on 25 September 2017. The Contractor also wrote to
the Superintendent, confirming that the PCA
had advised, “NO further
certification will be issued and that the Interim Certificate provided is to be
treated as final certification
for the project.” The Superintendent was
asked to discuss the matter with the PCA and advise “how this is to be
closed
out for all stakeholders involved.”
- On
26 September 2017, the Superintendent provided the Contractor with the
architect’s site inspection report, conducted on 15
September 2017. The
Superintendent noted a “number of worrying issues” which required
immediate action, albeit noting
that some of the items may have been attended to
since the date of inspection. Comments were sought on all items by close of
business.
- Later
that day, the Contractor advised the Superintendent that all outstanding and
rectification works for the carpark had been attended
to, “We understand
that the carpark is now in operation”. In accordance with clause 34.6 of
the Contract, the Contractor
was of the opinion that practical completion had
been reached for Building B and requested the Superintendent to issue a
certificate
of practical completion.
- On
29 September 2017, the Superintendent sought comments from the Contractor as to
how it proposed to correct two carpark defects,
where the crash rails were not
in accordance with approved documentation and the sofit and columns did not
comply with the specified
concrete finishes.
- On
6 October 2017, the Superintendent sent a stern email to the Contractor,
advising that the current rate of defect rectification
was considered
“unprofessionally slow and grossly unacceptable” where two labourers
were on site rectifying “the
enormous amount of defects” without the
assistance of professional tradesmen or contractors. The Superintendent advised,
“We
have fire alarms still going off, there are water and FUEL leaks
occurring, guests are complaining, Travelodge are complaining, the
Client is
complaining. You have failed to achieve the PC date, you have failed to then
meet the 4th of September date and now you
have again failed to meet your self
imposed date of the 30th of September.” The Superintendent advised that,
if the remaining
defects were not completed by 13 October 2017, the Principal
would begin engaging contractors to complete the works at the cost of
the
Contractor, pursuant to clause 35 of the Contract.
- This
brings us to the second notice. On 10 October 2017, the Superintendent issued
“Notice of Practical Completion (Conditional)
– Building B” to
the Contractor, which followed the format of the first notice. The notice was
said to be given pursuant
to clause 34.6 of the Contract. The notice was to take
effect as of 25 September 2017. Many items were said to be outstanding to
achieve “full completion”, however, as the tenants had taken
occupation, and
an Interim Occupation Certificate had been received on
12 September 2017, the practical completion notice was issued
“Conditionally”.
Further:
The Notice of Practical Completion being finalised and serving its full purpose
under Clause 34.6 (being the full project completion),
is dependent, but not
limited, on the conditions that the Contractor complete, rectify or otherwise
fix the Works noted within Appendix
A and those noted within Aconex
correspondence MMD CC-GCOR-OOO579 dated 22nd September 2017 [not in evidence] to
the satisfaction
of the Superintendent. In addition, The Contractor is to note
that the concrete finish across the whole carpark is not the class
finishes as
specified within the contract (refer to report within appendix B). The
Contractor is to provide a report on completion,
confirming that the concrete
finish meets the specifications as outlined within the Contract.
- These
works were to be completed by 13 October 2017. Attached to the notice was a
report by the Superintendent detailing 65 items
requiring attention in the
carpark, together with a list of defects and Mr Worthington’s report of
8 August 2017, referred
to at [73].
- On
11 October 2017, the Contractor replied to the Superintendent, suggesting that
the Superintendent’s Notices of Practical
Completion dated
20 September 2017 and 9 October 2017 evidenced that practical completion
had been achieved on 12 September 2017
for Building A and 25 September 2017 for
Building B, presumably relying on the retrospective dates in each notice. The
Superintendent’s
suggestion that the Contractor had failed to achieve
practical completion and that liquidated damages were ongoing was said to be
nonsensical, where both the hotel and the carpark had been in operation for a
number of weeks. The Contractor advised that it would
review and respond to the
consolidated defects list in due course.
- The
Superintendent responded that the practical completion notices issued were
conditional only, where the roof terrace for Building
A was non-compliant and
not legally accessible. Building B was not fit for purpose until certain defects
were rectified and the tenant
confirmed its acceptance to take over the
building. The Superintendent provided a calculation of liquidated damages, being
until
25 September 2017 for Building B, “When Wilson’s confirmed
acceptance”, and continuing for Building A, but only
in respect of the
roof terrace.
- On
13 October 2017, the Contractor responded to the Superintendent and the
Principal, advising that there was no mechanism under the
Contract for the
Superintendent to issue a conditional notice of practical completion. Rather,
the notices issued evidenced that
the Contractor had achieved practical
completion for both buildings. I will return to the meaning and effect of the
“conditional”
notices at [204].
Request for partial return of
security
- Clause
5.4 of the Contract provided:
5.4 Reduction and release
Upon the issue of the certificate of practical completion a party’s
entitlement to security ... shall be reduced by [50% of amount held], and
the reduction shall be released and returned within 14 days to the other party.
- On
16 October 2017, the Contractor requested return of 50% of the security, on the
basis that the two “conditional” notices
of practical completion
comprised, in effect, a certificate of practical completion under the Contract.
The first bank guarantee
was not returned.
- On
23 October 2017, the Principal, the Contractor and the Superintendent met to
discuss remaining issues. A note of the meeting was
circulated by the
Contractor, on which the Superintendent provided its response. The parties
disagreed on a number of matters: whether
roof access to Building A was
compliant; whether responsibility to obtain a final occupation certificate
rested with the Principal;
whether practical completion had been achieved; and,
whether the Contractor was entitled to the return of 50% of its security.
- Following
the meeting, Mr Andary emailed the PCA requesting confirmation as to why the
roof terrace was not approved as part of the
interim occupation certificate and
what was required to remedy this. On 24 October 2017, the PCA advised that the
internal stairs
providing access to the rooftop terrace were unsafe given the
potential for occupants to be trapped on the rooftop. Alternate access
down the
maintenance ladder in the case of an emergency was not practical and was also
unsafe. Fire & Rescue NSW did not consider
the access to the rooftop to be
suitable for members of the public. On 25 October 2017, the Superintendent
provided the PCA’s
advice on the roof terrace to the Contractor and asked
how the Contractor would rectify the issue, suggesting that financial losses
were being incurred by the Principal due to the reduced value of the building
and the income which would have been generated by the
area, “This matter
is critical as it is a clear requirement under the contract to have this area
accessible by tenants.”
The Contractor disagreed, stating that it had done
everything it was required to do to enable the Principal to obtain an
occupation certificate.
- On
26 October 2017, Mr Baltovski circulated an updated defects list, advising that
the last few outstanding items would be completed
the following week. Mr
Baltovski said all items were completed by 1 November 2017. The Contractor had
then addressed all of the defects
set out in the two “conditional”
certificates of practical completion for which it was responsible.
- Wilson
Parking served a notice of default on the Principal in respect of the carpark.
The Superintendent forwarded the notice to the
Contractor, requesting that the
list of defects in the notice be rectified within 14 days. On 30 October 2017,
the Contractor replied,
having inspected each of the listed items, with comments
and actions against each item which was the responsibility of the Contractor.
The Contractor also followed up its request for release of 50% of the security,
suggesting the Principal was now in breach of contract.
- On
2 November 2017, the Superintendent advised the Contractor that, following an
inspection that day, the Superintendent was not satisfied
that the Contractor
was rectifying defects satisfactorily. Major defects included the crash rails,
concrete finishes within the carpark
and “slurry, rubbish and marking
which has been sealed over”. The Superintendent also advised that Wilson
Parking had
been notified that five cars had been damaged by leaking water and
calcification falling onto cars. The costs in respect of the cars
would be
passed on to the Contractor, “All car spaces under the expansion joints
need to be barricaded off to avoid people
parking there”.
- The
Superintendent also provided photographs following an inspection of levels 7 to
11 of Building A, “Note that within the
commercial levels defects are
general across all floors.” Mr Tabet was shown some of these photos, but
did not agree that the
photographs recorded major defects. Although some of the
concrete floors on the commercial levels were uneven, this was a “base
building” handed over to the commercial tenants for fit out. Any floor
undulations would be corrected by a floor topping laid
to suit whatever floor
covering the tenants required.
- On
3 November 2017, the Contractor advised that it did not accept the suggestion
that cars were damaged by reason of any defect, absent
further evidence, noting
that it had not rained recently and so the joints would not have leaked. A
waterproofer was inspecting the
joints that day with a view to commencing
rectification the following week. On 6 November 2017, the Contractor sought
access to the
carpark for its sub-contractor to carry out rectification works on
leaking joints on level 5 of the carpark. The sub-contractor would
saw cut the
joints to 25mm, apply a water based epoxy membrane and sealant to complete the
works.
- The
Superintendent confirmed access but noted “it is NOT only the level 5
joint which requires rectification ...but it is in
fact ALL
levels.” The Contractor did not agree, noting that “driving rain
which enters the sides of the carpark (being an open
carpark) and rain that
comes in through the opening in the middle of the carpark is not the
responsibility of Parkview.” The
Superintendent did not agree, stating
that the Contractor was responsible for ALL of the expansion joints leaking,
irrespective of
where the water came from.
- On
10 November 2017, the Contractor submitted a progress claim for $217,920 and the
unpaid GST of $188,000. The Principal submitted
that the issuing of a further
progress claim was inconsistent with the suggestion that practical completion
was achieved in either
September or October 2017. If such works only related to
defect rectification, then the Contractor was not entitled to claim for
them.
- The
Contractor did not address this submission, which had merit. Perhaps, where the
Superintendent had disclaimed that practical completion
had been achieved, the
Contractor took the opportunity to recoup some of the expenses being incurred in
remedying defects. Ultimately,
the Contractor’s action in this regard does
not assist greatly in determining whether practical completion had been reached,
where the critical opinion on this subject under clause 34.6 of the Contract is
that of the Superintendent. The Contractor’s
state of mind is not
particularly relevant. In any event, the progress claim was assessed at
nil after deducting liquidated damages of $177,767 as calculated by the
Superintendent,
and given the Superintendent’s advice that practical
completion had not been achieved due to defects and incomplete works.
A further
$45,000 was deducted for incomplete works associated with the roof terrace.
- On
10 November 2017, the Superintendent provided the Contractor with photographs
and videos of the carpark and expressed concern that
cars were being damaged due
to calcification. The Contractor was requested to provide comments as soon as
possible “with this
issue constantly compounding at a rapid rate”.
On 13 November 2017, the Contractor advised that all movement joints on level
5
of the carpark had been remedied. The photographs and videos provided by the
Superintendent showed ponding on the slabs of each
floor, said by the Contractor
to be due to rainwater entering the open sides of the carpark or through the
main void which ran the
entire height of the carpark. The Contractor did not
accept responsibility for the ponding.
- While
the Contractor and Superintendent had been exchanging and updating defects
lists, on 15 November 2017 the Contractor provided
the Superintendent with a
compilation of all defects lists, which the Contractor aimed to have completed
by 24 November 2017. This
‘master defects list’ was updated from
time to time thereafter.
- On
25 November 2017, the Superintendent forwarded a number of invoices rendered by
NSW Fire Brigade for attending to false alarms
at the hotel. The Contractor
advised that it was working with its fire engineer, Precision Fire, to find a
solution to the problem.
Meanwhile, the Superintendent pressed the Contractor to
pay the invoices, said to be the Contractor’s responsibility. The
Contractor
did not agree, advising that the fire services and mechanical
services on the project had been constructed and were operating in
accordance
with the contract documentation.
- On
7 December 2017, following a meeting with the Council, the Superintendent
reported that any solution for the roof terrace should
not require a new fire
engineering report, as this would mean that the proposal would need to go
through Fire & Rescue NSW again.
The Council was happy to review any options
and advised that the solution did not need to go back to the fire brigade if the
following
was implemented:
● Stairs to roof top to be made compliant. This includes,
width, head heights, hand rails, landing, etc.
● Enclosure of the stairs and inclusion of a door to the
stairs. This will provide the new barrier for the pressurisation
instead of the
hatch.
● Step caused by hatch frame when exiting onto the roof
terrace removed.
Where the Principal had advised that “tenants are moving in within the
month”, the Contractor was asked to provide sketches
and options for
review.
- On
8 January 2018, the Contractor was asked to advise when it would “start
sealing the concrete cold joints ALL Levels”,
as the issue was affecting
numerous bays which were still being blocked off by Wilson Parking. The
Contractor advised that all joints
which had previously leaked had been
waterproofed and sealed. The Contractor was provided with photographs,
“the leaks are
clearly still there.” The Contractor advised it would
inspect the leaks shown in the photographs and the remainder of the carpark
and
rectify accordingly.
- The
Contractor also followed up its request for return of 50% of the security,
“On any view, the project has reached practical
completion. Parkview
maintains that practical completion was achieved by no later than
4th September 2017. We do not accept that
practical completion was achieved
on 10th October 2017, but even if it were, the release of the 1st 50% of
security is still months
overdue.” The Contractor advised that it would
continue to carry out its obligations under the Contract by closing out defects.
- On
10 January 2018, the Principal replied, suggesting that the conditional notices
of practical completion issued by the Superintendent
did not evidence the
Superintendent’s opinion that the works had reached practical completion
at the date of each notice. Rather,
the notices appeared to evidence that the
Superintendent had formed the opposite opinion, namely, that practical
completion had not
been reached. As such, the Principal did not agree to release
the security. Further, “It would appear that all parties would
benefit
from the Superintendent clarifying matters raised in the Conditional PC Notices.
The Principal requests that the Superintendent
clarify and confirm their opinion
as to whether Practical Completion ... had been reached for the Works ... at the
time the Conditional
PC Notices were issued.”
- To
this, the Contractor replied that it was “absurd” to suggest that
practical completion had not occurred. Further, “Parkview
no longer has
possession and/or control of the site. The Principal has taken possession of the
site and given occupation to its tenants.
The tenants are operating their
businesses with full use of the property and the Principal is receiving a rental
income ...”.
Further, the Contractor complained that the Principal now
appeared to be performing the role of the Superintendent, contrary to clause
20
of the Contract. (As far as Mr Baltovski recalls, the Superintendent had not
attended a site inspection since December 2017, although
he has continued to
receive emails from the Superintendent raising alleged defects based on the
advice received from the Principal.)
- On
12 January 2018, the Superintendent provided a “Notice of Project
Status” advising that, at the time of issuing the
“conditional” notices, “We did not hold the opinion that the
works had reached Practical Completion”, having
regard to the Contract,
site inspections and that Works and certification necessary to enable the roof
area of Building A to be suitable
for use as a roof deck by the public had not
yet been completed. Further, some of the defects mentioned in the
“conditional”
notices had yet to be rectified being, most
significantly, the class of finish to the concrete soffits within Building B and
–
due to smoke detectors in the hotel rooms being set off by bathroom
steam – the hotel had multiple false alarms and associated
charges from
the fire brigade. The Contractor did not agree.
- On
16 January 2018, the Superintendent gave approval to the Contractor to commence
rectification of the smoke detector issue by moving
the smoke detectors. I will
return to the claim in respect of this alleged defect at [273].
- On
17 January 2018, the waterproofing contractor attended at the carpark and
completed its work on leaking joints. However, the Superintendent
advised,
having confirmed the matter with the Principal, that “only 2 of the
5 levels have been partially rectified.”
The Contractor disagreed but
advised it would re-inspect after the next rain event to see if any more joints
were leaking. The Superintendent
disagreed, providing photographs, “I am
stating the obvious but the works carried are not of appropriate
standard.” Where
the Contractor had previously provided drawings to
rectify level 4 joints using a folded gutter, the Contractor was asked to
rectify
the defect as soon as possible.
- The
Contractor replied that the “dish drains” earlier suggested were a
secondary measure in case the water could not be
stopped from level 5. As the
joints on level 5 had now been treated and had stopped leaking onto level 4,
there was no requirement
for dish drains to be installed on level 4. While the
Contractor could not see any water leaks on the photographs sent by the
Superintendent,
the Contractor would inspect following the next rain event.
Following heavy rain on 3 February 2018, the Superintendent requested
the
Contractor to treat deteriorated joints on level 4 of the carpark and to install
dish drains for each joint on all levels.
- On
30 January 2018, the Superintendent required the Contractor to provide a program
outlining when the works in the defects list would
be rectified and imposed a
deadline for defect rectification by 28 February 2018. Rectification of the
commercial defects was said
to be increasingly urgent due to the current fit out
and imminent tenant arrival. The Principal had advised that, if these dates
were
not met, it would undertake the rectification and back-charge the Contractor.
The Contractor maintained that the master defects
list which it had been
circulating from time to time already captured the information sought by the
Superintendent. The Contractor
would not accept any back-charge from the
Principal.
- The
Superintendent did not agree, requesting the Contractor to respond to the
Superintendent’s defects list, failing which, the Superintendent would
ask the Principal if it would like to proceed to engage contractors to rectify
the defects, pursuant to clause 29.3 of the Contract. The Contractor rejected
the Superintendent’s notice, to the extent that
it was considered a
defects notice under the Contract. The Contractor rejected the notion that the
Principal was entitled to engage
other contractors and deduct amounts from the
Contractor. Rather, “Parkview has been more than reasonable. We have done
everything
required under the Contract, and then more.” The Contractor
suggested that the Superintendent was not doing its job under the
Contract in
managing the defects process, including by failing to inspect all defects
identified by the tenants and forming its own
opinion as to whether they were
actually defects.
- On
12 February 2018, the Superintendent rejected this suggestion, maintaining that
it has approached its responsibilities with independence.
The Superintendent
considered that the Contractor was “trying to discredit our firm out of
spite for not having your way in
this project.” The Superintendent
maintained that the conditional notices of practical completion were not defined
or recognised
within the contract, “It is therefore void with no impact or
[e]ffect under the contract. It does not default to you having
obtained
PC.”
- On
28 February 2018, the Superintendent made a site visit and circulated a list of
remaining items for action by the Contractor. The
Contractor pressed for return
of 50% of its security. On 12 March 2018, the Superintendent advised the
Contractor, “There seems
to be ongoing defective works in water retention
and slab cracking” for the carpark. The Contractor was asked to provide QA
documentation for concrete pouring, pre-pour inspection signoffs, slump test
results, photographs and crush test results.
- On
17 March 2018, the Contractor pressed for return of 50% security. The
Superintendent replied that this would not be done as the
site still had not
reached Practical Completion as “the roof terrace still remains as
unusable for its intended purposes.”
Until this matter was rectified, the
security would not be released.
- On
21 March 2018, the Superintendent informed the Contractor that Wilson Parking
had not paid the Principal any rent since moving
into Building B due to ongoing
defects, being the concrete finish, constant leaking on each level and ponding.
A mediation was scheduled
between the Principal and Wilson Parking. The
Principal had advised that, unless these defects were completed within the
month, the
Principal would undertake the works itself and back-charge the
Contractor.
- On
26 March 2018, the Contractor maintained that its obligation to maintain the
landscaping was now complete. The Principal disagreed.
Mr Baltovski
explained that the landscaping specifications in the Contract provided that the
Contractor was responsible for the maintenance
of the landscaping works for 26
weeks after completion of the landscaping works and 12 weeks for the public
domain street trees.
As such, the Contractor’s obligation to maintain the
landscaping works expired in March 2018 and its obligation to maintain
the
public domain street trees expired on 27 December 2017.
- On
24 April 2018, the Contractor proposed to reseal the contract slab in specified
areas on levels 2, 3 and 4 of the carpark, to be
completed in one day on 26
April 2018. The Superintendent considered this a “band-aid solution”
which was unacceptable.
The Contractor was asked to rectify the carpark once and
for all using appropriate methodology. The Contractor did not agree.
- On
14 May 2018, the Council issued an occupation certificate for the development
excluding access to the level 12 rooftop. On 18 June
2018, Mr Baltovski
provided the Superintendent and the Principal with a further Fire Engineering
Report (confusingly, also described
as “rev 15”). The fire engineer
had modified AS 11 and AS 12 to clarify access and egress to the roof of
Building A to
obtain a final occupation certificate. The PCA was asked to issue
the report to the fire brigade for their review, “Should
[Fire &
Rescue NSW] opt to carry out an inspection and raise any other matters during
their inspection, Parkview will remedy
or respond to those matters as obliged
under the D&C contract”.
- On
3 July 2018, the Superintendent advised that, while the Principal considered
that the Contractor should send the fire engineering
report to the PCA, the
Contractor considered that the Principal should do so, “To overcome this I
will send this through myself
to move things along.” The Principal had
also advised that, should there be any issues arising from the PCA or the fire
brigade
with respect to the report which adversely affected the building, the
Principal reserved its rights. There was clearly disagreement,
and some
confusion, between the parties as to who was responsible for gaining approval
for rooftop access, and the process which
should be followed. The Principal
suggested that the Contractor should apply for another construction certificate
to deal with the
new fire engineering report. The Contractor disagreed and
pressed for the release of 50% security.
- On
10 July 2018, Mr Baltovski sent an email setting out the issues identified by
FRNSW during its inspection (in italics) and then
explained what the Contractor
proposed to do to address these issues, including:
2. The access and egress provisions in relation to the rooftop of the
commercial part of the building are not suitable for members
of the general
public. Access to the rooftop should be restricted for maintenance purposes
only. FRNSW recommend SafeWorkNSW be notified
in relation to locked access
panels from the rooftop.
With regards to item 2 above, the locked access panels have been rectified (just
like any other defect on any other project) and
the access and egress provisions
in relation to the rooftop are dealt with in the FER revision 15 (being AS11 and
AS12).
I do not understand why the PCA would suggest on starting the FEBQ process
again. This does not make sense. We only need to close
out the 2 incomplete
matters raised in the Fire Brigade defects report (refer above).
Mr Baltovski went on to explain that the Contractor had made minor amendments
to AS 11 and AS 12 in the fire engineering report revision
15.
- On
9 July 2018, the Superintendent provided the Contractor with a structural survey
report obtained in respect of the carpark. The
Superintendent advised that the
report reflected instructions earlier given to the Contractor, where the
construction joints had
not been constructed in an adequate manner and water was
flowing through them. Further, the finishes did not comply with the specified
design. The Contractor was asked to review the report and provide comments,
advise of the proposed rectification method and when
the works would be
complete. On 20 August 2018, the Contractor obtained its own report on the
structural condition of the carpark.
The Contractor’s consultant disagreed
that the workmanship of the building was poor.
- On
12 September 2018, the Superintendent informed the Contractor that the Principal
wished to enforce its right under clause 35 of
the Contract to undertake
rectification work and recover the costs from the Contractor through the
retention. The Contractor was
not entitled to the return of security where
practical completion had not yet occurred. The Principal would also be pursuing
liquidated
damages, then being $297,459. The Contractor did not agree.
Request for return of balance of security
- Clause
5.4 of the Contract provided:
... A party’s entitlement otherwise to security shall cease 14 days after
final certificate.
Upon a party’s entitlement to security ceasing, that party shall
release and return forthwith the security to the other party.
- On
9 October 2018, the Contractor sent a letter of demand to the Superintendent,
asserting that the project had reached practical
completion by 5 September 2017,
such that the defects liability period expired by 5 September 2018. The
Contractor was now entitled
to the release of the entire security. The Principal
was said not to be entitled to undertake rectification work itself, nor to seek
liquidated damages. Each of the remaining alleged defects in the project were
addressed in detail. The Contractor sought release
of the first 50% of security
immediately to avoid litigation.
Final payment claim
- Clause
37.4 of the Contract provided:
37.4 Final payment claim and certificate
Within 28 days after expiry of the last defects liability period, the
Contractor shall give the Superintendent a written final
payment claim endorsed “Final Payment Claim’ being a progress
claim together with all other claims whatsoever in connection with the
subject
matter of the Contract.
- The
defects liability period was 12 months commencing on the date of
practical completion: clause 35; Item 32, Annexure Part A. The
Superintendent could specify a separate defects liability period in any
direction to the Contractor to rectify a defect, but had not done so: clause 35,
see [256].
- On
23 October 2018, the Contractor issued a final payment claim. The amount claimed
was $188,000, being the GST on the retention,
together with interest, totalling
$289,790.
- On
30 October 2018, the Principal obtained two reports from JHA Consulting
Engineers. One report considered post-construction issues
for the Travelodge in
relation to hot water valves, tempering valves, the fire hydrant and the fire
sprinkler system. The second
report considered acoustic commissioning. On 31
October 2018, the Principal obtained three reports from Gess Group in respect of
the concrete in the carpark.
- On
5 November 2018, the Principal issued a notice to show cause pursuant to clause
39.2 of the Contract, together with a prescribed
notice pursuant to clause 41.1
of the Contract and a notice of dispute pursuant to clause 42.1 of the Contract.
Amongst the matters
in dispute, the Principal maintained that the Superintendent
had given written directions to the Contractor under clause 29.3 of
the Contract
on 21 occasions from 20 July 2017 to 17 September 2018, which the Contractor had
failed to implement. Attached to each
notice was a schedule of defective work,
with 150 defects in total. (The Contractor says the Principal is not entitled to
claim defects
which were not in this schedule, relying on clause 37.4(d).)
- Also
in evidence is a draft “Notice of and direction to rectify defective
work” together with a draft schedule of defective
work, each headed
“To be issued by the Superintendent.” The schedule of defective work
was the same as that attached
to the notices issued by the Principal. The font
and format of the draft letter “To be issued by the Superintendent”
was the same as Principal’s letters issued that date. It would appear that
both documents were prepared by the Principal’s
solicitor.
- On
the evening of 5 November 2018, Mr Andary sent an email to the Superintendent,
being “Email to the 2 of 2.” Mr Andary
provided a link to a share
file held by the Principal’s solicitor. Apparently, the link had various
files to be attached by
the Superintendent to a notice to be sent to the
Contractor. According to Mr Andary’s email, the link contained concrete
defects
reports, door reports, tax invoices for false fire alarms and a letter
to Travelodge, “Please do NOT give the share link to
Parkview but MAKE A
NEW CCPM dropbox. i.e. Download the 11 relevant attachments, and create a NEW
CCPM share link.” As I read
it, whilst the Principal was providing the
attachments to the Superintendent, the attachments were to be saved by the
Superintendent
so that this fact was readily apparent to the Contractor when the
attachments were served.
- On
6 November 2018, the Principal also instructed the Superintendent to send a
Notice to Rectify Defective Work Landscaping Defects
under clause 29.3 of the
Contract, a draft of which was attached and, it would appear, prepared by the
Principal’s solicitors.
The Principal also issued a notice of dispute in
respect of landscaping.
FINAL CERTIFICATE
- As
mentioned, clause 37.4 of the Contract provided that, within 42 days after
expiry of the last defects liability period, the Superintendent
shall issue a final certificate evidencing the moneys finally due and
payable between the Contractor and the Principal on any account
whatsoever in connection with the subject matter of the Contract.
- On
6 November 2018, the Superintendent issued various documents as prepared by the
Principal’s solicitors, including a tri-fold
response to the final payment
claim, being: (emphasis in original)
(a) Superintendent’s Primary Position –
“Final Payment Claim” is not a final payment claim.
This response is contained in Schedule 1.
(b) Superintendent’s Alternative Position – if the
“Final Payment Claim” is a progress claim under clause
37.1 of the Contract. This response is contained in Schedule 2.
(c) Superintendent’s Further Alternative Position –
if the “Final Payment Claim” is a final payment claim.
This response is contained in Schedule 3.
- That
is, Schedule 3 set out the Superintendent’s “Further Alternative
Position” if the Contractor’s final
payment claim was a final
payment claim. In that event, Schedule 3 stated that the Superintendent’s
response would serve as a final certificate
under clause 37.4. The
Superintendent certified that $3,080,120 was due and payable from the Contractor
to the Principal for the
reasons detailed in Appendix A. Appendix A accepted the
Principal’s claim for $188,000 unpaid GST and interest but deducted
various amounts for estimated rectification costs and liquidated damages then
calculated to be $2,015,013. The Superintendent enclosed
various expert reports
concerning concrete defects in the carpark and further expert reports concerning
fire seals. Annexed was the
same schedule of defective work, comprising 150
items.
- The
Superintendent also issued two notices of and direction to rectify defective
work pursuant to clause 29.3, being in respect of
the sprinkler and fire hydrant
together with landscaping.
- On
7 November 2018, the Contractor disclaimed the Principal’s notice of
dispute as defective and denied all allegations of defective
work. The
Contractor sought an undertaking that the Principal would not have recourse to
the security, failing which injunctive relief
would be sought from the Court.
- On
8 November 2018, the Principal issued a Notice of Dispute to the Contractor and
the Superintendent in respect of further defective
work. The pressurisation fan
unit on the rooftop of the hotel was said to be out of position. Room 409 of the
hotel was said to have
water ingress. Water was leaking from the restaurant high
ceiling. The Principal also provided the Superintendent with a draft Notice
to
Rectify Defective Work in respect of same defects and directed the
Superintendent to send the notice to the Contractor.
- On
9 November 2018, the Principal provided the Superintendent with a draft letter
“To be issued by the Superintendent.”
The letter was to attach a
report obtained by the Principal from JHA Consulting Engineers in respect of
hydraulic services concerning
the Travelodge, identifying defective work in
respect of the hydrant and sprinkler systems. In the draft letter, the
Contractor was
asked to confirm, as a matter of urgency, that it would redesign,
reconstruct, replace or correct the defective work by 12 November
2018. Although
the letter sent by the Superintendent is not in evidence, an email from the
Contractor confirms that the Superintendent
requested that all items in the JHA
report be actioned by 13 November 2018.
- On
13 November 2018, the Contractor advised that Pipeline Plumbing had attended the
site to inspect the issues raised in the report
and would respond and rectify
works raised by 19 November 2018. The Contractor disputed that the Principal had
any right to recover
any costs in respect of the matter. The Superintendent
advised that this was not acceptable and the Principal would be attending
to the
works if not completed that day. The terms of the Superintendent’s email
suggest that it was also prepared by the Principal’s
solicitors.
- On
13 November 2018, the Contractor issued a notice of dispute to the
Superintendent. On 16 November 2018, the Contractor responded
to the
Principal’s Notice to Show Cause, including a response to the schedule of
defective work.
- Also
in evidence are a number of emails at this time of flooding on level 7 of
Building A which “has seeped through the external
walls and hobs into the
newly completed fitout.” The urinals in the commercial levels of Building
A were not flushing and the
sensors to the basin taps were inactive. Tenants
were said to be having to use the hotel amenities. The Principal complained that
the knobs on hose cocks were missing. Toilets and urinals were blocked. This
correspondence largely emanated from Mr Andary’s
brother, Daniel Andary,
who appears to have been appointed as building manager. On inspection,
however, the Contractor reported that Prime Water was testing the fire systems,
which led to the flooding. The facilities
did not appear to have been cleaned
or maintained. Apart from one leaking tap on level 9, all bathroom taps were
functioning properly.
The Contractor also queried the building manager’s
standing to report such suggested defects. Mr Baltovski considered that
many of
the matters raised related to ordinary maintenance issues or matters which
related to other contractors engaged by the Principal
and were not the
responsibility of the Contractor.
- On
16 November 2018, the Contractor responded to the Superintendent’s
direction to rectify defective landscape, disclaiming
the requested replacement
of trees and mulch as a maintenance issue and not the responsibility of the
Contractor, given the passage
of time since the works were completed. In
addition, the Contractor complained:
Your purported notice demonstrates that you have been, and continue to, act as
an agent of the Principal. You have not considered
the issue of the landscaping
or any other matter in administration of the Contract, impartially or
objectively. This is evidenced
by the fact that you have not even bothered to
issue the purported notice on your own letterhead, and the purported notice
still
contains the Principal’s instruction “To be issued by the
Superintendent”.
- On
23 November 2018, the Contractor responded to the Superintendent’s Notice
of and Direction to Rectify Defective Work, suggesting
that the allegations were
fanciful and constituted “clear evidence of the coordinated attempt by the
Superintendent and the
Principal” to establish a basis for the Principal
to continue to unlawfully hold the Contractor’s security. Where the
notice
had clearly been prepared by the Principal, the Principal was said to have
failed to comply with its obligations under clause
20 of the Contract to ensure
that the Superintendent fulfilled all aspects of its role and functions
reasonably and in good faith.
THESE PROCEEDINGS
- On
11 December 2018, the Contractor commenced these proceedings, seeking to
restrain the Principal from having recourse to the security.
The Contractor
sought the return of the bank guarantees and damages, being loss of profits or
the lost opportunity to utilise the
funds secured by the guarantees. The
Contractor contended that practical completion was reached on 5 September
2017. The Superintendent’s
“conditional” certificates of
practical completion were said to be certificates of practical completion. As
such, the
Contractor was entitled to the return of 50% of the security within 14
days of 20 September 2017 and/or 9 October 2019. In the event
that the
“conditional” certificates of practical completion were not valid,
then the Superintendent should have issued
certificates of practical completion
by 5 September 2017 or, alternatively 20 September 2017 and 9 October 2017, such
that 50% of
the security was returnable. Further, the Principal was obliged to
ensure that the Superintendent fulfilled its role and functions
reasonably and
in good faith; the Principal should have ensured that the Superintendent did so
by certifying practical completion
on the said dates.
- Despite
demand, the Principal had failed to return one of the bank guarantees. Further,
where the Contractor had issued its final
payment claim on 23 October 2018, the
Principal was not entitled to liquidated damages, nor to have recourse to the
security in respect
of those damages. Rather, the Principal’s entitlement
to security ceased 14 days after the final certificate ought to have
been
properly issued such that the Principal was required to release the second bank
guarantee. Further, the Superintendent was said
to have issued notices prepared
by the Principal and contrary to the Superintendent’s obligation to act
reasonably and in good
faith, resulting in the Principal having breached the
Contract for failing to ensure that the Superintendent discharged its
obligations
in this manner.
- The
Principal denied that practical completion was reached on 5 September 2017
or at all, where the work was said to be incomplete
and defective. The
conditional notices of practical completion were not certificates of practical
completion in conformity with the
Contract. In the circumstances, the Contractor
was not entitled to the return of either the first or second bank guarantee. Nor
was
the Contractor entitled to issue a final payment claim. Rather, the
Superintendent had issued three Notices of and Directions to
Rectify Defective
Work, which gave a direction in accordance with the Contract. The notices had
not been complied with such that
the Superintendent was not obliged to issue a
final certificate under the Contract, nor was the Contractor entitled to the
return
of the remaining security. In the alternative, the Principal claimed to
be entitled to set off any monies or damages due from the
Contractor by reason
of the Principal’s cross-claim seeking liquidated damages and damages in
respect of defective work.
- In
response and reply, the Contractor contended that the Superintendent’s
response to the final payment claim, and its directions
to rectify, were issued
on the direction of the Principal as provided by the Principal such that both
were invalid and of no effect.
Where the Principal was said to have failed to
ensure that the Superintendent fulfilled its role and functions reasonably and
in
good faith, the Principal was not entitled to claim that the Contractor could
not rely on clause 37.4 of the Contract. In the result,
it was said that, from
the date when the final certificate ought to have been issued, there was accord
and satisfaction such that
the Contractor’s obligations were discharged
save for any defects or omissions which were not apparent at the end of the last
defects liability period, or which would not have been disclosed upon a
reasonable inspection at the time of the issue of the final
certificate.
- In
reply, the Principal maintained that, to the extent that building defects
specified in a Scott Schedule had not previously been
specified in the notices
issued by the Superintendent, the defects were not apparent nor would they have
been disclosed upon a reasonable
inspection by the end of the defects liability
period for which the Contractor contended (which the Principal denied had either
commenced
or ended).
RECTIFICATION CONTINUES
- As
expert reports were served in these proceedings, the Contractor accessed the
site from time to time to remedy the matters raised
by the experts. The
Principal permitted access for this purpose whilst reserving its rights. The
Contractor, on the other hand, advised
that the works were being undertaken on a
commercial basis “as it will cost less to do the works than to argue with
you about
it and to put it well beyond doubt that you have no entitlement at all
to hold Parkview’s bank guarantee.” The Principal
later complained
that the Contractor was not rectifying defects or incomplete works but
“trying to determine which contractor
is at fault to pass [on] liability
[and] avoid utilising its own monetary resources.” Some of the
correspondence was unhelpful.
- On
8 March 2019, the Contractor wrote to the Superintendent and the Principal in
respect of an issue with fresh air to the hotel rooms.
The Contractor stated
that the original design for mechanical services provided fresh air to the hotel
rooms by openable windows,
which the Contractor had implemented. On a
‘without admissions’ basis, and simply to “put this to
bed”, the
Contactor offered to implement an alternative proposal to
install a fire damper to each room through the wall in the ceiling void
above
the hotel room door, so that fresh air could come from the end of the corridors.
Mr Baltovski said the proposal adopted the
methodology proposed by the
Principal’s consultant, Credwell Consulting Pty Ltd.
- On
23 May 2019, the Superintendent advised the Contractor that a car had crashed
into a barrier at the carpark, causing louvres to
shoot off the building and
land in the neighbour’s property. The Superintendent maintained that the
crash barriers were not
as per the original design and no approval had been
given to change them. The Contractor replied that the crash rail system had
performed
as it was supposed to. The Superintendent was asked to administer the
Contract rather than simply forward the Principal’s requests.
- On
15 April 2020, the Principal lodged an application with the Council to modify
the development consent by “the addition of
roof top deck area”.
The estimated cost of works was $60,000. The Council issued consent on
22 October 2020. Mr Andary said
the work referred to in the consent has not
been undertaken.
- In
January 2021, the Contractor commenced works at the Travelodge to improve the
fire rating of the hotel rooms and fire stairs. This
work took longer than
expected and it is apparent from the numerous emails that passed between the
parties that tempers were fraying
by this time.
- On
31 May 2021, Mr Baltovski arranged for contractors to carry out works in the
carpark, patching concrete beams at the tower crane
infill on the ground level
and levels 2, 3 and 4 and removing small formwork pieces left on level 2 and
level 4.
- On
10 September 2021, Mr Baltovski attended the site to investigate a number of
items raised by the report of Credwell Consulting.
Mr Baltovski measured the
treads and risers of each of the fire stairs said to be defective and observed
no non-compliance on various
items. On 13 September 2021, Mr Baltovski arranged
for contractors to carry out rectification works in respect of other items in
the report, being items 333, 393, 394, 407, 411 and 414.
- The
Contractor was continuing to attend the site and rectify defects during the
course of the hearing. This had the consequence that
the scope of defects which
ultimately called for a decision on my part were significantly reduced in
number. Further, the experts
were able, by and large, to agree on a large number
of defects, and also that many of those defects had since been rectified. I
express
my gratitude to the parties in this regard.
ROOFTOP
TERRACE
- The
first issue is whether the manner in which the Contractor constructed the
rooftop terrace of Building A prevented – and
continues to prevent –
the achievement of practical completion. It will be recalled that the definition
of practical completion
provides:
Practical completion is that stage in the carrying out and completion of
WUC when:
a) the Works are complete except for minor
defects:
(i) which do not prevent the Works from being reasonably
capable of being used for their stated purpose;
...
(d) the Contractor has done all things that it is
required to do under the Contract to enable the Principal to
obtain a certificate of occupation from the applicable Authority;
- As
earlier mentioned, I infer that the development consent in force at the time of
the Contract and construction did not permit commercial
tenants to use the
rooftop area. Notwithstanding this, the Principal pointed to several features in
the drawings that would only
be necessary if the roof terrace was intended to be
accessible to such tenants:
(a) the drawings show separate stairs providing roof access for each of the
eastern and western sides of the building, allowing level
12 to be divided into
separate tenancies, each with a stair access to the roof;
(b) access to the roof on the north-western side was provided by stairs located
within the commercial office space on level 12, rather
than located within a
common area;
(c) parts of the roof deck in the north-western and north-eastern corners were
to be segregated from the southern half of the roof
by screens, to shield
mechanical plant from view;
(d) a cutaway section was to be cut in the roof parapet to permit views of the
city; and
(e) the roof slab accessed by the glass hatch was to have a trafficable
membrane, although there was no plant or equipment located
in that area that
would require maintenance personnel to walk there.
- Against
this, based on his review of the plans, Mr Baltovski could not identify anything
to suggest that the roof area was intended
to be used by the general public. Mr
Tabet said he did not believe that the roof was to be used for public access,
but for maintenance
only. Mr Tabet maintained that the Contractor had
constructed these works correctly, “If there’s a different use for
the rooftop and that’s what this is addressing that’s got nothing to
do with our contractual obligation.”
- The
Principal submitted that the development approval did not preclude the
construction of the physical works in a way that would
permit access by tenants
of the commercial tenancies. Regulation 145(1)(a) of the Environmental
Planning and Assessment Regulation 2000 provided that a certifying authority
must not issue a construction certificate for building work unless “the
design and construction
of the building (as depicted in the plans and
specifications and as described in any other information furnished to the
certifying
authority under clause 140) are not inconsistent with the development
consent”. Had the proposed works been inconsistent with
the development
approval, the PCA could not have approved them. Assuming that to be so, the
question remains whether the Contractor
was obliged under the Contract, viewed
objectively, to the build the rooftop in accordance with that use.
Principles
- The
meaning of the contract is determined objectively by reference to what a
reasonable person would have understood the contract
to mean having regard not
only to the text of the document but to the surrounding circumstances known to
the parties and the purpose
and object of the transaction: Pacific Carriers
Ltd v BNP Paribas (2004) 218 CLR 451 at 461; [2004] HCA 35 at [22] (per
Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ). The context includes the
entire text of the contract as well as any contract,
document or statutory
provision referred to in the text of the contract: Mount Bruce Mining Pty Ltd
v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at 116; [2015] HCA 37
at [46] (per French CJ, Nettle and Gordon JJ). The Court interprets
commercial contracts objectively “by what a reasonable businessperson
would have understood [the] terms to mean”: Electricity Generation
Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at 656; [2014] HCA 7
at [35] (per French CJ, Hayne, Crennan and Kiefel JJ). The actual subjective
intentions of the parties are irrelevant: Mount Bruce at [50].
- A
contract is interpreted as at the date on which it was entered into: Ecosse
Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544 at
551; [2017] HCA 12 at [16] (per Kiefel, Bell and Gordon JJ), [77] (per
Nettle J). Generally, it is not legitimate to use as an aid in the
construction of a
contract anything which the parties said or did after it was
made: Agricultural & Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR
570 at 482; [2008] HCA 57 at [35] (per Gummow, Hayne and Kiefel JJ), citing
Whitworth Street Estates Ltd v Miller [1970] AC 583 at 603 (per Lord
Reid); Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR
353 at 446; [1973] HCA (Gibbs J).
- Post-contractual
conduct may, however, be relied on to prove what the terms of the contract were,
albeit not what the terms mean:
Lym International Pty Limited v
Marcolongo [2011] NSWCA 303 at [124] (per Campbell JA with whom Basten JA
and Sackar J agreed). By such conduct, a party may make an admission against
interest as to
the terms of the contract: JR Consulting & Drafting Pty
Ltd v Cummings (2016) 239 ALR 625 at 637; [2016] FCAFC 20 at [54] (per
Bennett, Greenwood and Besanko JJ). Subsequent conduct may also indicate what
was important or essential to the transaction
and indicate the parties’
contractual intention: Queensland Phosphate Pty Limited v Korda (as joint and
several liquidators of Legend International Holdings Inc (in liq)) [2017]
VSCA 269 at [37] (Per Tate and Beach JJA, Sifris AJA).
Consideration
- It
does appear that the Principal wished to further develop or use the site beyond
what was initially approved by the Council. I note
that the carpark was
constructed to support the future addition of two further levels: see [67]. Over the various
iterations of the fire engineering report, the Principal’s ambition to use
the rooftop of Building A as
an entertainment area for commercial tenants became
clear and would have been clear to the Contractor, even if it was not clear from
the plans: see [50]. Less clear is the contractual obligation on
the Contractor to construct the rooftop terrace to fulfill that intended
use.
- The
Contractor was obliged to complete WUC in accordance with the design
documents so that the Works were “fit for their stated
purpose”: clause 2.2(a)(iv). As to what was the “stated
purpose” of the rooftop,
the Contractual Documents in Schedule 1 to the
Contract and the design documents, including the various drawings, shed
no light on the matter, save that various plant and machinery was to be
installed there.
- It
may well be that the features of the drawing referred to by the Principal point
to the Principal wishing to make the rooftop available
for the use of its
commercial tenants, but the drawings do not make this plain. Nor was I taken to
any particular detail or specifications
which required access to the rooftop to
address such a use. To use the language of the Contract, the drawings do not
specify that
this was the “stated purpose”. The
parties’ subjective intentions as to how the rooftop may be used are
irrelevant to the interpretation of
the Contract and the parties’
obligations.
- The
Principal relied on three instances post-contractual conduct in support of its
position that the contract required the rooftop
to be developed for public use.
As already observed, post-contractual conduct cannot be relied on to aid in the
interpretation of
a contract. However, such conduct may amount to an admission
against interest as to what the terms of the contract were: JR Consulting
at [54].
- First,
it was said that the Contractor produced a further fire engineering report in
June 2018 because the Contractor plainly understood
that the works would need to
be consistent with access to the rooftop for the commercial tenants. I note,
however, that the report
states that it was “commissioned by
Futuroscop”. Mr Baltovski’s email providing the report was
careful not to accept any obligation beyond that imposed by the Contract: see
[146].
- Second,
the Principal relied on Mr Baltovski’s email of 10 July 2018 as evidencing
the Contractor’s understanding that
the roof terrace was for public use:
at [148]. The
Principal submitted that, if access to the roof by commercial tenants was not
required by the Contract, the Contractor would
have said so and there would have
been no need to make further changes to the fire engineering report. I
do not read Mr Baltovski’s email to acknowledge such an understanding.
Rather, Mr Baltovski was drawing attention to the fact
that the matters which
Fire & Rescue NSW had sought to be addressed in September 2017 had been
attended to at the time: see [88]-[89]. In any event, as Mr Baltovski did not join the
Contractor until two years after the Contract was entered into, when
construction
was nearing practical completion, his understanding is of little
moment.
- Third,
the Principal relied on photographs of the finished stairs from the Level 12
commercial tenancy to the rooftop, which indicate
that the Contractor intended
that the stairs would be used by the public. I agree that the level of finish
of the stairs exceeded
that needed by maintenance staff. This may be regarded as
an admission against interest, being evidence that the Contractor thought
it was
obliged to provide public access to the rooftop in order to perform its
contractual obligations.
- The
admission against interest, however, is not dispositive. It is evidence to be
considered together with the Contract, the documents
referred to in the
Contract, the surrounding circumstances known to the parties and the purpose and
object of the transaction. Where
there was no variation of the Contract in
respect of the rooftop terrace, the focus is on the circumstances when the
Contract was
entered into on 4 September 2015 rather than how the parties may
have perceived their obligations two years’ later. In the
intervening two
years, the Principal’s plans to use the rooftop terrace for its commercial
tenants had evolved through various
fire engineering reports. The Contractor may
well have come to think it was obliged to build to that standard.
- The
Contract incorporated, by reference, the development approval. It will be
recalled that Special Condition 52 obliged the Contractor
to “ensure that
the WUC is executed in such a way as not to breach the Development
Approval”. I consider that a reasonable
person would have understood the
Contract to mean that the Contractor was to construct the works in accordance
with the development
approval, and not to go beyond what had been approved,
noting that doing so may have exposed the Contractor to criminal prosecution:
sections 4.2 and 4.3 and Division 9.6, Environmental Planning &
Assessment Act 1979 (NSW).
- Having
regard to the terms of the Contract, in particular, clause 2.2(a)(iv), the
design documents including the drawings, Special Condition 52 and the
fact that the development approval in force at the time of entry into the
Contract
and during the build did not permit the rooftop terrace to be used by
commercial tenants, I do not consider that a reasonable person
would have
understood that the Contractor was obliged to construct this part of the
building in accordance with the Principal’s
wish to use the rooftop in
this manner in the absence of clear drawings and specifications. The plans and
specifications do not make
this clear.
- In
the result, I consider that construction of the rooftop terrace sufficient to
enable maintenance staff to access the rooftop sufficed
to enable the Works to
be “reasonably capable of being used for their stated purpose” and
to enable the Principal to
obtain a certificate of occupation consistent with
the terms of the development approval which applied during the build. Practical
completion was not deferred until an amended development approval was obtained
for an enhanced use.
EFFECT OF ‘CONDITIONAL’
NOTICES
- The
second issue is whether the “conditional” notices issued by the
Superintendent comprised a certificate of practical
completion, as required by
clause 34.6 of the Contract.
Principles
- Unless
a contract specifically provides for a certifier to issue a
“conditional” certificate, the issue of such a certificate
may be
ineffective. For example, in Official Assignee of Hutson v The New Zealand
Antimony Company (Ltd) (1890) 10 NZLR 143, payment for the erection of
furnaces was to be made on the presentation of an inspector’s certificate.
The inspector was to
certify that, after 12 days of operation, the furnaces were
“in good working order, and to the full satisfaction of the ...
inspector”. The inspector certified that the furnaces were working
satisfactorily but had cracked and required a repair. The
Court of Appeal held
that the certificate could not be treated as a final certificate, as “it
expresses not the satisfaction
of the inspector but the absence of that
satisfaction:” at 148 (per Denniston J, Conolly J agreeing).
- In
Kenneth McMahon & Partners Pty Ltd v Domain Investments Pty Ltd
(1973) 47 ALJR 240, the contract provided that the architect, if reasonably
satisfied that the works were practically complete, should issue a notice
of
practical completion fixing the time on which the works were practically
complete. The architect issued a notice that the work
had reached the stage of
practical completion but added that it was subject to the completion of a number
of listed defects and the
completion of certain work. Barwick CJ queried whether
the notice was an unqualified notice of practical completion for the purposes
of
the contract, where it was expressed to be subject to performance of additional
work, albeit that the work was said to be of a
minor nature; “The notice
might well be regarded as conditional and not unqualified”: at 243. A like
view was expressed
in Re Arbitration between CME Contractors Pty Ltd and
Redcliffe City Council (Unreported, Supreme Court of Queensland, Dowsett J,
8 September 1987), when considering whether the Superintendent had granted an
extension of time where the extension was subject to conditions, including that
no further requests for extensions be made or granted:
at page 10.
- Similarly,
in Ian Delbridge Pty Ltd v Warrandyte High School Council [1991] VicRp 91; [1991] 2 VR
545, the Court considered this problem where an architect issued a final
certificate certifying the amount payable to or by the builder.
The certificate
was accompanied by a letter stating that adjustments to the final balance would
be paid when the builder had submitted
various information. The letter also
referred to the completion of rectification works which had not yet occurred. A
contract summary
accompanying the certificate also contained various statements
indicating that the architect contemplated a further review of the
builder’s claim for payment. Murphy J noted, “The finality and
consequences of a final certificate are such that it is
not possible to have a
reviewable or variable balance stated in such a certificate”: at 550.
Whilst the document, on its face,
purported to be a final certificate, it was
clear that the architect did not intend it to have the effect of a final
certificate
under the contract; the document was not in fact a final certificate
as contemplated by the contract: at 553.
- As
will be apparent from these cases, much turns on the particular contractual
provisions and the content of the certificates. The
principles concerning the
construction of commercial contracts have already been stated, and apply in like
fashion to notices issued
under a contract: Mannai Investment Co Ltd v Eagle
Star Life Assurance Co Ltd [1997] UKHL 19; [1997] AC 749, 771; followed in MLW Technology
v May [2005] VSCA 29 at [78]- [82] (per Gilliard AJA). As Lord Steyn
concluded in Mannai Investment at 771:
In determining the meaning of the language of commercial contract, and
unilateral contractual notices, the law therefore generally
favours a
commercially sensible construction. The reason for this approach is that a
commercial construction is more likely to give
effect to the intention of the
parties. Words are therefore interpreted in the way in which a reasonable
commercial person would
construe them. And the standard of the reasonable
commercial person is hostile to technical interpretations and undue emphasis on
niceties of language. ... After all, there is no reason whatever why such a
document must be drafted by a lawyer. ... Such notices,
even if they entail the
exercise of important options, are habitually drafted by commercial men rather
than lawyers. It would be
a disservice to commercial practice to classify such
notices as technical documents and to require them to be interpreted as such.
...
- Similarly,
in National Roads & Motorists’ Association v Whitlam (2007) 25
ACLC 688; [2007] NSWCA 81, Campbell JA observed, “The principle of
construction whereby a commercial document that is elliptical or ambiguous
should
not be given a construction that is commercially unlikely is well
established”: at [58].
Consideration
- Turning
to the “conditional” notices in this case, on receiving a request
from the Contractor for a certificate of practical
completion, “the
superintendent has two options [under clause 34.6], either to issue a
certificate or to give written reasons
for not doing so. One or other of those
steps must be taken ...”: Abergeldie Contractors Pty Ltd v Fairfield
City Council [2017] NSWCA 113 at [32] (per Basten JA, when considering an
identical clause 34.6).
- I
do not consider either “conditional” notice to be “written
reasons” for not giving a certificate of practical completion as
requested by the Contractor. Both notices were quite unlike the “written
reasons” issued on 5 September 2017: see
[84]. Neither notice
sought to engage with the date of practical completion proffered by the
Contractor, nor to identify items of work
which prevented practical completion
being achieved on that date. Nor did the Superintendent ask the contractor to
provide an alternative
date on when practical completion would be reached.
Rather, each “conditional” notice tantalisingly suggested that
practical
completion would soon be reached or had already been reached.
- Each
“conditional” notice gave a retrospective date for practical
completion in the event that the conditions were satisfied. Whilst a certificate
can specify a date prior to its issue as being the date of practical
completion, much turns on the definition of practical completion
in the
contract: Metro Edgley Pty Limited v MK & JA Roche Pty Limited [2007]
NSWCA 160 at [81]- [82] (per Hodgson JA). In Abergeldie, Basten JA
construed an identical clause 34.6 and concluded that the issue of the
certificate records practical completion and, therefore, provides the date on
which practical completion is achieved: at [34]-[36].
Further, the certificate
of practical completion cannot be backdated, where a number of contractual
provisions depend upon the date
of practical completion. Backdating the
certificate would give rise to commercial uncertainty and place the parties in
breach of
other contractual obligations: at [41]-[46]; see likewise Meagher JA
at [69].
- In
Abergeldie, Basten JA treated the specification of an earlier date as
ineffective, where the certificate was otherwise consistent with an
understanding
that the Superintendent had satisfied himself that practical
completion had been reached on the date that the certificate was issued:
[54].
If that were the only problem with these notices, then the retrospective date
could be treated as ineffective such that the
date of practical completion would
be the date on which the notices were issued. But that is not the only problem.
- The
first “conditional” notice in respect of Building A can be readily
dispensed with. Clause 1 defined practical completion as that stage in
the carrying out and completion of WUC when the Works are complete
except for minor defects. WUC meant the work which the
Contractor is required to carry out and complete under the Contract. The
Works meant the whole of the work to be carried out and completed in
accordance with the Contract. Building A and Building B were not
“separable
portions” such that the Superintendent might issue a
certificate of practical completion in respect of one building or the
other,
rather than the Works as a whole. Rather, the Works were not complete until
both buildings were completed in accordance with the Contract.
- Whatever
may be said about the first “conditional” notice in respect of
Building A, the Superintendent was perfectly plain
as to the state of completion
of Building B: “For clarity, this is not Notice of Practical Completion
for Building B (conditional
or otherwise). The tenant for Building B has not
taken possession ... due to major unfinished construction items and safety
concerns.”
Where the Works comprised both Building A and Building B, on no
view was the first “conditional” notice a certificate
of practical
completion of the Works.
- The
items and list of defects in the second “conditional” notice were,
by and large, minor and would not prevent Wilson
Parking using the carpark for
its stated purpose: small items were missing, paint touch ups and cleaning were
needed. Indeed, Wilson
Parking had been operating the carpark for two weeks when
the second “conditional” notice was issued. More significant
were
the ongoing issues about crash rails and concrete finish. But neither of these
issues prevented the carpark being used as such.
There was no suggestion that
the crash rails installed were unsafe but rather that the crash rails did not
realise the architect’s
aesthetic vision. Whether the concrete finish was
“Class 2” or “Class 3” did not prevent people parking
their
cars there.
- The
second “conditional” notice, however, did not advance matters where
it made no reference to Building A at all. Whether
the Superintendent then held
an opinion as to whether the list of “Outstanding Matters Affecting
PC” attached to the
first “conditional” notice had been
remedied such that the Superintendent then regarded Building A as practically
complete
is unstated. All that is known is that the Superintendent considered
that there were “many items outstanding to achieve full completion
for Building B”, where I take “full completion” to mean
something other than “practical completion”.
No opinion was
expressed about the state of completion of Building A.
- I
do not consider that the two notices can be construed together in order to
arrive at a ‘composite’ certificate of practical
completion within
the meaning of clause 34.6 the Contract. Where the Contract did not identify
“separable portions”,
clause 34.6 – and the other contractual
provisions which turned on practical completion – were premised on
practical
completion being achieved on one date. Here, the Superintendent
issued two notices, each of which specified a different and retrospective date,
and neither of which
expressed the contemporaneous satisfaction of the
Superintendent as to the elements of the defined term, practical
completion: Abergeldie at [48] (Basten JA). In the result, I consider
the “conditional” notices to be without contractual
effect.
DATE OF PRACTICAL COMPLETION
- Having
concluded that the “conditional” notices were neither a certificate
of practical completion, nor written reasons
for not issuing such a certificate,
the third question is what the Court can, and should, do given the
Superintendent’s failure
to perform a critical function under the
Contract.
- The
date of practical completion means (clause 1):
(a) the date evidenced in a certificate of practical
completion as the date upon which practical completion was reached;
or
(b) where another date is determined in any arbitration or
litigation as the date upon which practical completion was reached, that
other date
- When
construing relevantly identical clauses in Abergeldie, Basten JA
concluded that the definition of practical completion called for the opinion of
the superintendent in respect of each of
the requirements of the definition: at
[37]-[40]. In forming this view, Basten JA drew an analogy with administrative
law principles.
Where a jurisdictional fact is the formation of an opinion of
the original decision-maker, the Court is limited to determining whether
that
opinion was formed. The Court may then be asked to conclude that the opinion so
formed was not an opinion of the kind required
by law as it was arbitrary,
capricious or manifestly unreasonable: at [38]. Contrary to the
Principal’s submissions, however,
Basten JA was not stating that the Court
must always treat the opinion of a party vested with contractual decision-making
authority
as determinative unless it is “arbitrary, capricious or
manifestly unreasonable.” Rather, the starting point of any analysis
must
be the language of the contract: Walton v Illawarra [2011] NSWSC 1188 at
[39] (per McDougall J).
- Clause
20 provides guidance as to the way in which the parties to the Contract expected
the Superintendent to carry out its obligations
and whether, in carrying out
those obligations, the contracting parties got what they were entitled to
receive: Walton v Illawarra at [40], [42]; Republic of Turkey v Mackie
Pty Ltd [2019] VSC 103 at [75] (per Bell J). The parties were entitled to
expect that “the Superintendent fulfils all aspects of the role and
functions reasonably
and in good faith”.
- Here,
the Superintendent failed to perform its function under clause 34.6 at all. The
“conditional” notices were neither
a certificate of practical
completion nor written reasons for not issuing such a certificate. No
certificate of practical completion
has been issued in the ensuing five years.
Where the moment of practical completion is of great significance under a
building contract,
the Superintendent has failed to identify that moment with
precision, or at all. I do not consider that the Superintendent acted
reasonably
when discharging its role and function in certifying practical completion.
- Subparagraph
(b) of the definition of date of practical completion makes clear that
the parties did not intend the Superintendent’s decision to be the sole
means by which the date would be determined.
The definition does not accord
primacy to the date in the Superintendent’s certificate, nor does it make
the Court’s
determination of the date dependent on the Superintendent
having first issued a certificate. Instead, where the date of practical
competition is subject to litigation or arbitration, the Contract provides a
mechanism for the Court to determine “another”
date on which
practical competition was reached. In the circumstances at hand, it falls to
the Court to determine the date of practical
completion.
- As
earlier described at [71]-[151], by 7 August 2017, the Contractor had submitted a
notice of final inspection to the Superintendent under clause 35 of the
Contract,
at least in respect of Building A. By 14 August 2017, the ‘hand
over’ documents were being assembled. The Contractor
advised that it
anticipated achieving practical completion by 28 August 2017, but moved that
date back to 5 September 2017 and then
8 September 2017. On 7 September 2017,
Fire & Rescue NSW inspected the site.
- On
12 September 2017, an interim occupation certificate was issued and the hotel
began operations; the Contractor handed over As Built
drawings, certificates,
manuals and warranties. On 22 September 2017, the Superintendent accepted the
quantity surveyor’s recommendation
to pay the Contractor’s progress
claim of 12 September 2017 on the basis that the defects preventing practical
completion were
“minor”. Wilson Parking commenced operations on 25
September 2017.
- On
11 October 2017, the day after the second “conditional’ notice, the
Superintendent calculated liquidated damages on
the basis of “Full
LDs” from 5 September 2017 until 12 September 2017, when the interim
occupation certificate was received.
Thereafter, liquidated damages were
calculated for the roof terrace portion of Building A only, together with
liquidated damages
for Building B, until 25 September 2017, when Wilson Parking
commenced operations. Thereafter, liquidated damages were only charged
for the
rooftop terrace. What these calculations reveal is the Superintendent’s
opinion that Building A reached practical completion
on 12 September 2017 (save
for the roof terrace, which I have concluded also reached practical completion
on that date) and that
Building B reached practical completion on 25 September
2017.
- Considering
each element of the definition of practical completion, I consider that the
Works were complete save for minor defects
on 25 September 2017. Having
reviewed each of the defects identified in the two “conditional”
notices, I do not consider
that these items prevented the hotel or car park from
being reasonably capable of being used for their stated purpose, as evidenced
by
the fact that Travelodge and Wilson Parking were doing just that. I accept that
the definition of practical completion did not
depend upon occupation of the
building: Stuart Pty Ltd v Feteni Pty Ltd; Coogee Sands Apartments Pty Ltd v
Stuart Pty Ltd [2004] NSWSC 237 at [276]- [279], [298] (McDougall J) cf
Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302,
where the contract provided that practical completion could be deemed to have
been reached through occupation and/or use of the
building works. But the fact
that experienced commercial operators saw fit to commence operations in Building
A and Building B is
evidence that the defects which then existed were
“minor [and did] not prevent the Works from being reasonably capable of
being
used for their stated purpose” and rectification of defects would
not prejudice the convenient use of the Works.
- The
Superintendent does not appear to have turned its mind to whether the Contractor
had reasonable grounds for not properly rectifying
the defects listed in the
“conditional” notices. So far as the evidence reveals, the
Contractor was in the process of
attending to the specified defects. To
the extent that the Superintendent had raised substantive matters in respect of
rooftop access,
crash rails and concrete finishes, the Contractor did not
consider that it was obliged to remedy those defects in order to discharge
its
contractual obligations. As it turns out, the Contractor was correct in
respect of at least some of those matters.
- The
evidence does not suggest that rectification of the defects prejudiced the
convenient use of the hotel or car park. The requirements
of subparagraphs (b),
(c), (e) and (f) were satisfied by 25 September 2017. As to subparagraph (d),
the Contractor was required
to have done all that it was required to do under
the Contract to enable the Principal to obtain a certificate of occupation from
the Council. When the Principal obtained an interim occupation
certificate which permitted maintenance staff to use the rooftop terrace, this
discharged
the Contractor’s obligation where development approval did not
then permit use of the terrace by the public. In the result,
I determine that
practical completion was reached on 25 September 2017.
LIQUIDATED
DAMAGES
- The
fourth question is whether the Court can ascertain liquidated damages based on
the date of practical completion determined in
these proceedings. Clause 34.7
provides:
34.7 Liquidated damages
If WUC does not reach practical completion by the date for
practical completion, the Superintendent shall certify, as due and
payable to the Principal, [$12,100] for every day after the date for
practical completion to and including the earliest of the date of
practical completion or termination of the Contract or the
Principal taking WUC out of the hands of the Contractor.
...
- As
earlier described, the Superintendent provided various calculations of
liquidated damages in October 2017. As I understand those
calculations, the
daily amount of $12,100 was apportioned by reference to both the square meterage
of the roof terrace (5.46% of
Building A) and the income expected to be
generated by the respective tenancies (the carpark contributed 39% of total
income). Of
course, this methodology had no basis in the Contract. Presumably,
the Superintendent was trying to be fair to the Contractor where
the
Superintendent was then satisfied that some, but not all, of the Works had
achieved practical completion.
- The
Superintendent provided an updated calculation of liquidated damages to the
quantity surveyor in November 2017, apparently applying
the same methodology.
The Superintendent provided an updated calculation to the Contractor in
September 2018, with the figure now
totalling $297,458.
- On
6 November 2018, the calculation of liquidated damages became further removed
from the Contract, where the calculation was not
even prepared by the
Superintendent, but by the Principal’s solicitor “To be issued by
the Superintendent.” Further,
while the calculation of liquidated damages
for Building A and the rooftop terrace largely followed the apportionment
applied by
the Superintendent to that point, liquidated damages for Building B
now continued beyond 25 September 2017 to date, ‘blowing
out’ the
liquidated damages to $2,015,013. It was this amount which was
‘certified’.
- In
these proceedings, the Principal sought liquidated damages based on the Contract
rather than the amounts previously calculated
by the Superintendent, but on the
basis that the Works had yet to reach practical completion. The amount sought
was demurely described
as $2,235,940 as at 5 November 2018 and continuing. By my
calculations, this was some $20 million.
- The
Contractor submitted that the Contract provided no mechanism for the Court to
step into the shoes of the Superintendent to calculate
liquidated damages
payable by the Contractor, unlike the determination of the date of practical
completion. To this, the Principal
submitted that certification is a contractual
power of the Superintendent under a contract that remains on foot. If the
certification
is invalid, the Principal can ask (and, if necessary, compel) the
Superintendent to certify the correct amount according to law.
- There
is some authority in support of the proposition advanced by the Contractor. In
RCR O’Donnell Griffin Pty Ltd [2015] QSC 186, a subcontract in
relevantly identical terms had no Superintendent in place and thus no
certificate in respect of liquidated damages.
Byrne SJA concluded that
liquidated damages were not payable without the Superintendent’s
certificate. The language chosen
to describe the source of the obligation
– “the Superintendent shall certify, as due and payable ...”
– accorded
with the idea that certification was essential to the liability
to pay: at [38]. Where the Superintendent was empowered elsewhere
in the
Contract, in its absolute discretion, to direct an EOT before issuing a final
certificate, an exercise of that power would
reduce or negate liquidated damages
otherwise payable for delay, “So the assessment is not inevitably a mere
mathematical exercise
based on the number of days of delay after the date for
practical completion fixed by the subcontract:” at [39]-[40]. His
Honour’s
reasoning was upheld by the Court of Appeal: RCR
O’Donnell Griffin Pty Ltd v Forge Group Power Pty Ltd [2016] QCA 214
at [103] (per McMurdo JA, with whom Applegarth J agreed); at [14] (per Morrison
JA).
- Here,
of course, the Superintendent has certified liquidated damages, but in a
manner that bears no relation to the Contract, nor the date of practical
completion as I have
found it to be, nor for that matter without the figures
being first prepared by the Principal. Put simply, the Superintendent’s
certification does not comply with the terms of the contract: Legal &
General Life Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314 at
336 (per McHugh JA).
- The
Court is also able to look at the product of the Superintendent’s labours
to see whether the task was performed in accordance
with the parties’
contractual entitlement, being prepared reasonably and in good faith: Clause 20.
As McDougall J explained
in Walton v Illawarra at [57]:
... it is open to the court to look at the challenged assessments (for
extensions of time and valuation of variations and the like),
to determine
whether or not they equate to the contractual standard of reasonableness, and to
substitute its own determination of
what should reasonably have been allowed if
they do not.
- The
Contractor’s proposed construction of clause 34.7 also leads to disharmony
with other terms of the Contract: Australian Broadcasting Commission v
Australasian Performing Right Assn Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109; [1973] HCA
36 at 7 (per Gibbs J). An input in the calculation of liquidated damages is the
date of practical completion. The parties have conferred
on the Court a power
to determine “another” date of practical completion than the date
determined by the Superintendent.
Clause 34.7 would produce an absurd result if
the Court could adjust the date of practical completion but not the liquidated
damages
referrable to that date. It is improbable that the parties intended to
bring about such a result; such a construction of clause 34.7
should be avoided.
- Rather,
in a situation such as this, the Courts have differentiated between contractual
tasks to be carried out by the exercise of
a broad discretion and those which
are simply mechanical. For the former, a certifier’s judgment will not be
open to challenge
as long as the contractual limits of the discretion entrusted
to the certifier were not exceeded. Where a contract provides detailed,
fixed
and objective criteria as to how the amount to be certified is to be determined,
and the certifier arrives at the incorrect
amount, the Court will set aside the
certificate and order the correct amount to be paid. In doing so, the Court
will come to a
judgment as to the correct amount owing and make an order
accordingly. As Ipp JA explained in WMC Resources Ltd v Leighton Contractors
Pty Ltd (1999) 20 WAR 489 at 495; [1999] WASCA 10 at [18]:
Ordinarily, in cases of this kind, ... there will be only one uniquely correct
value. If the certifying valuer, in these circumstances,
arrives at the
incorrect value, the valuation will be in breach of the contract. It is for that
reason than an incorrect certificate
will also be set aside. The court will then
have the jurisdiction to determine the correct amount owing in terms of the
contract.
- Clause
34.7 sets out an objective criterion for the calculation of liquidated damages,
being $12,100 per calendar day for every day
after the date for practical
completion until (relevantly), the date of practical completion. Once the
relevant dates are determined,
the calculation of liquidated damages is a
straightforward, mathematical exercise. As the Superintendent has incorrectly
calculated
liquidated damages, it is open to the Court to determine the correct
sum of liquidated damages due to the Principal in accordance
with the terms of
clause 34.7. The amount is $254,100.
DAMAGES: RETURN OF
SECURITY
- As
earlier noted, on 16 October 2017, the Contractor requested return of 50% of the
security. The first bank guarantee was not returned
at the time. On 14 February
2020, by consent, Hammerschlag J ordered the Principal to deliver up the first
guarantee. The Principal’s
solicitor explained that his client agreed to
deliver up the first bank guarantee in return for the Contractor’s
agreement
to an extension of time for the Principal’s evidence in chief.
The Principal did not thereby admit that practical completion
had been reached
by agreeing to the return of the bank guarantee. The Contractor did not suggest
otherwise. The Contractor confirmed
receipt of the bank guarantee on
25 February 2020.
- Clause
5.4 of the Contract provided, “Upon the issue of the certificate of
practical completion a party’s entitlement to security ...
shall be reduced by [50% of amount held], and the reduction shall be
released and returned within 14 days to the other party.”
Here, the
Superintendent did not issue a certificate of practical completion at all. I
have also found that, in failing to issue
a certificate of practical completion,
either on 25 September 2017 or in the ensuing five years, the Superintendent did
not fulfill
all aspects of its role and functions reasonably, as the parties
were entitled to expect under clause 20. It was the Principal’s
obligation
to ensure that the Superintendent acted in this manner: clause 20. The
Principal was thereby in breach of clause 20,
entitling the Contractor to
damages equivalent to place the Contractor in the position it would have been if
the Principal had caused
the Superintendent to issue a certificate of practical
completion in a timely manner. If the Principal had attended to its task,
then
the first guarantee would have been returned in a timely manner as well.
- The
bank charged fees for each bank guarantee at a rate of 1.15% per annum. The fees
were charged in advance every six months, in
May and November, at $5,405 on each
occasion for each guarantee. If the Principal had performed its obligations
under Clause 20,
the first guarantee would have been returned before the next
round of bank fees were charged in November 2017. The Contractor continued
to
incur bank fees, charged in advance and every six months, until the bank
guarantee was released in February 2020. The bank fees
incurred between when the
first bank guarantee should have been returned and when it was returned totalled
$27,025. The Contractor
is entitled to damages for bank fees incurred from
November 2017 to date, being $27,025.
- Clause
5.4 of the Contract provided, “A party’s entitlement otherwise to
security shall cease 14 days after final certificate.” Where
practical completion was achieved on 25 September 2017, the final certificate
produced by the Superintendent on 6 November 2018
(at Schedule 3) was valid as a
final certificate served in accordance with clause 37.4 of the Contract. As
such, the Principal was
required to return the second bank guarantee 14 days
later, on 20 November 2018.
- The
Contractor is entitled to the return of the second bank guarantee with interest
under clause 37.5 of the Contract, together with
the associated costs incurred
in maintaining the bank guarantee where it was not returned as required under
the Contract. The bank
fees paid between when the second bank guarantee should
have been returned until now totalled $43,240.
DAMAGES: DEFECTS
CLAIM
- The
fifth question is whether the Contract ousts common law damages for defective
building work. The starting point was explained
by Lord Diplock in
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC
689 at 718:
... one starts with the presumption that neither party intends to abandon any
remedies for its breach arising by operation of law,
and clear express words
must be used in order to rebut this presumption.
... So when one is concerned with a building contract one starts with the
presumption that each party is to be entitled to all those
remedies for its
breach as would arise by operation of law ... To rebut that presumption one must
be able to find in the contract
clear unequivocal words in which the parties
have expressed their agreement that this remedy shall not be available in
respect of
breaches of that particular contract.
Followed in Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693 at 699; [2000]
HCA 64 at [23] (per Gleeson CJ, Gaudron and Gummow JJ).
- In
Turner Corporation Pty Ltd v Austotel Pty Ltd (1994) 13 BCL 378, Cole J
(as his Honour then was) reviewed a standard form of building contract –
not dissimilar to the Contract
at hand – and concluded that the contract
provided a code which established the rights, obligations and liabilities of the
parties, and mechanisms by which completion of the Works was to be achieved to
practical completion and during the defects liability
period: at 394. Further,
at 395:
There is, in my view, no room for a ‘wider common law right’ in the
Proprietor to treat non-compliance with the contractual
obligation by the
Builder as a separate basis for claiming damages ... That is because the
contract specifies and it confers upon
the Proprietor its rights flowing from
such a breach; that is, the parties have, by contract, agreed upon the
consequences to each
of the Proprietor and the Builder, both as to the rights
and powers flowing from and the consequences of, such breach.
- His
Honour acknowledged that whether a contract codified the rights and liabilities
of the parties depended on the construction of
each individual contract,
“If a party’s common law right to sue for damages for breach of
contract is to be contractually
removed, it must be done by clear words. ...
However, it does not mean that express words are required. If on the proper
construction
of the contract as a whole, it can be said that a party has
surrendered its common law right to damages, that construction must be
given
effect to, notwithstanding absence of express words surrendering the common law
right to damages:” at 395.
- Turner
was followed in Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009]
NSWSC 1302, where White J (as his Honour then was) observed that Cole J’s
decision had then stood for 15 years “without adverse
comment”: at
[74]. Further, White J agreed with Cole J’s reasoning: at [77]. More
recently in Bedrock Construction and Development Pty Ltd v Crea [2021]
SASCA 66, Doyle JA (with whom Livesey and Bleby JJA agreed) followed Turner
and Bitannia: at [127]-[128]. Doyle JA observed at [130]:
I do not think there is any room, in the face of the express contractual
provisions for addressing defects, for the existence of
some wider common law
right to recover damages of that nature. Such a right would cut across the
contractual regime agreed between
the parties.
- Turner
was recently distinguished in Hacer Group Pty Ltd v Euro Façade Tech
Export Sdn Bhd [2022] VSC 373, where the subcontract contained broad
indemnities that were not qualified by reference to the defect rectification
provisions: at
[42]. Stynes J concluded at [43]:
In light of such indemnity, and absent clear words excluding [the
subcontractor’s] liability in damages, a more harmonious
construction of
the Subcontract as a whole is one that permits [the builder] to rely on its
common law right to damages even where
it has not complied with the contractual
provisions governing the notification and rectification of defects.
- Her
Honour did not, however, doubt the correctness of Turner and considered
that the concerns expressed by Cole J could be addressed by the principles of
mitigation of loss. If the builder failed
to give the subcontractor notice of a
defect or otherwise failed to provide the subcontractor with an opportunity to
rectify the
defect, the builder should not be able to recover more in damages
than the amount that it would have cost the subcontractor to attend
to
rectification: at [45].
- Accordingly,
the issue is whether the provisions of the Contract which dealt with defective
work, in particular, clauses 29.3, 35
and 37.4, created a code governing the
rights, obligations and liabilities of the parties, such that the Principal may
be taken to
have abandoned its entitlement to common law damages.
- Clause
29.3 of the Contract enabled the Superintendent to give a direction to
the Contractor in respect of defective work both before and after practical
completion:
29.3 Defective work
If the Superintendent becomes aware of work done ... by the
Contractor which does not comply with the Contract, the
Superintendent shall as soon as practicable give the Contractor
written details thereof. If the subject work has not been rectified, the
Superintendent may direct the Contractor to do any one or more of
the following (including times for commencement and completion):
...
(c) redesign, reconstruct, replace or correct the work
...
If:
(a) the Contractor fails to comply with such a
direction; and
(b) that failure has not been made good within 8 days after the
Contractor receives written notice from the Superintendent that
the Principal intends to have the subject work rectified by
others,
The Principal may have that work so rectified and the
Superintendent shall certify the cost incurred as moneys due from the
Contractor to the Principal.
...
29.5 Timing
The Superintendent may give a direction pursuant to this clause at
any time before the expiry of the last defects liability period.
- It
will be recalled that clause 35 prescribed a procedure for rectifying defective
work immediately prior to practical completion,
so as not to affect the date for
practical completion: see [30]. After practical completion, clause 35 obliged the
Contractor to rectify all defects existing at the date of practical completion
as soon as possible. Further, during the defects liability period, the
Superintendent was entitled to give the Contractor a direction to rectify
defects and also specify whether there would be a
separate defects liability
period – not exceeding 12 months – commencing when the
rectification was completed. Further:
If the rectification is not commenced or completed by the stated dates, the
Principal may have the rectification carried out by others
but without prejudice
to any other rights and remedies the Principal may have. The cost thereby
incurred shall be certified by the Superintendent as moneys due and payable to
the Principal.
- Further,
clause 37.4 provided:
37.4 Final payment claim and certificate
... Within 42 days after the expiry of the last defects liability period,
the Superintendent shall issue to both the Contractor and the
Principal a final certificate evidencing the moneys finally due
and payable between the Contractor and the Principal on any
account whatsoever in connection with the subject matter of the
Contract.
...
The final certificate shall be conclusive evidence of accord and
satisfaction, and in discharge of each party’s obligations in connection
with the
subject matter of the Contract except for:
...
(b) defect or omission in the Works or any part
thereof which was not apparent at the end of the last defects liability
period, or which would not have been disclosed upon reasonable inspection at
the time of the issue of the final certificate;
...
(d) unresolved issues the subject of any notice of
dispute pursuant to clause 42, served before the 7th day after the issue
of the final certificate.
- I
consider that, by these clauses, the Contract established a regime
indistinguishable from those analysed in Turner and Bitannia. I
note that, in clause 35, the Principal was entitled to have rectification works
carried out by others if the Contractor did not
rectify a defect by the date
directed by the Superintendent, “without prejudice to any other rights and
remedies the Principal
may have”. However, the Contract envisaged that a
final certificate would be later issued, evidencing the moneys finally due
and
payable “on any account whatsoever in connection with the subject matter
of the Contract”: clause 37.4. Any other
rights and remedies which the
Principal may have against the Contractor for failing to rectify defects in
accordance with the Superintendent’s
direction would surely fall within
this description.
- Unlike
Hacer, the Contract does not contain detailed indemnities which suggest
that the Principal was permitted to rely on its common law right
to damages even
if it had not complied with the contractual regime governing the notification
and rectification of defects.
- As
such, I conclude that, by clear words, the parties to the Contract have
surrendered their common law right to damages. Where practical
completion was
achieved on 25 September 2017, the final certificate produced by the
Superintendent on 6 November 2018 (at Schedule
3) was served in accordance with
clause 37.4 of the Contract. It follows, pursuant to clause 37.4, that the final
certificate constituted
"conclusive evidence" regarding defects, subject to the
exceptions described in that clause.
Reasonable
inspection
- Save
for defects referred to in the notices of dispute “served before the 7th
day after issue of the final certificate”,
clause 37.4 provides that the
Contractor is discharged from any liability under the Contract except for any
defect “which was
not apparent at the end of the last defects liability
period, or which would not have been disclosed upon reasonable inspection at
the time of the issue of the final certificate”. Reasonable
inspection does not involve having to undertake invasive procedures or access
areas that are not readily visible, absent
some reason to suspect the existence
of a defect: Owners Corporation Strata Plan 61288 v Brookfield Multiplex
[2012] NSWSC 1219 at [70]- [71] (per McDougall J).
- The
only expert evidence as to whether the alleged defects were apparent at the end
of the last defects liability period, or which would have been disclosed
upon reasonable inspection at the time of the issue of the final
certificate, was that of the Contractor’s experts, who opined that all
of the defects would have then been apparent. Other than the use
of a ladder,
the experts were able to identify the alleged defects with relative ease.
- The
Principal submitted that the expert evidence on this topic was bare assertion
and the Court would pay it no regard: Dasreef Pty Ltd v Hawchar [2011] HCA 21; (2011)
243 CLR 588 at 604; [2011] HCA 21 at [37] (per French CJ, Gummow, Hayne,
Crennan, Kiefel and Bell JJ). Rather, extensive inspections and investigations
of the building were
undertaken in 2017 and 2018, which did not reveal the
defects identified after the commencement of the proceedings. Therefore, the
Court ought conclude that such defects “would not have been disclosed upon
reasonable inspection” prior to the commencement
of the proceedings in
December 2018.
- I
agree that the expert evidence of the Contractor’s witnesses was simply
stated, but so was the question posed: would this
defect have been apparent to
you upon reasonable inspection? By and large, the Principal’s expert
witnesses also agreed that
the defects would have been apparent at the relevant
time.
- Further,
whilst it is evident that, by the hearing, the Principal and its experts had
gone over the buildings with a ‘fine tooth
comb’, the extent to
which the buildings were inspected for defects in the defects liability period
– between September
2017 and October 2018 – is not entirely clear.
Mr Worthington inspected the carpark in August 2017, referred to at [73]. This was before
practical completion, when the Contractor’s engineer accepted that further
works were required. Where ‘handover’
of the project was then to
occur on 1 September 2017, Mr Worthington recommended that he reinspect the
completed works and provide
a second report. No second report is in evidence. Mr
Worthington’s report was obviously preliminary in nature and not intended
to capture defects in the work as completed.
- The
Superintendent and the architect inspected the buildings at about the date of
practical completion – on 4, 8 and 15 September
2017 and 4 October 2017
– presumably for the purpose of ascertaining whether practical completion
had been achieved. Their
reports did identify a number of defects, presumably to
be attended to either before practical completion was considered to have
been
achieved or during the defects liability period.
- Ten
months later, in June 2018, the Principal obtained an engineering report in
respect of the carpark only, concerning concrete finish
and construction joints.
It was then not until four months later – and after the Contractor had
issued its final payment claim
– that the Principal proceeded to obtain a
flurry of expert reports on the building.
- That
is, as far as the evidence reveals, there was no careful or detailed inspection
of Building A and Building B for defects after
Travelodge and Wilson Parking
commenced operations in September 2017, save for a report obtained on the
carpark in June 2018, which
focused on particular concerns. The apparently
fairly limited investigations undertaken by the Principal at the time do not
lead
me to infer that the defects for which damages are now sought were not
apparent at the time on reasonable inspection. Rather, I infer
that the
Principal and the Superintendent may have been proceeding on the assumption that
practical completion had not been achieved,
and would not be achieved, until the
rooftop terrace was approved for public use. Consequently, they may have been
unprepared for
the final payment claim when it came and undertook what
inspections they could in the limited time they had to respond to the claim.
Given time constraints, or a conviction that the final payment claim was
invalid, it appears that only a limited inspection was done
at the time. The
contractual regime for the notification and rectification of defects applied
nonetheless.
- The
schedule of defects served by the Principal on 6 November 2018 listed 150 items.
The Principal’s Scott Schedule served in
June 2020 comprised 382 items. On
the basis of the expert evidence adduced by the Contractor, I am satisfied that
the defects in
the Scott Schedule were apparent at the end of the defects
liability period, being 25 September 2018, or would have been disclosed upon
reasonable inspection at the time of the issue of the final certificate
on 6
November 2018. To the extent that the defects in the Scott Schedule go beyond
the schedule of defects served on 6 November 2018,
the Principal is not entitled
to seek the cost of rectifying such defects, where the contractual regime for
the notification and
rectification of the defects was not
deployed.
Remaining defects
- Many
items in the Scott Schedule had been rectified by the conclusion of the hearing
or were not pressed, leaving about 100 items.
Ultimately, the Principal sought
$1,691,403.90 for acoustic, concrete, fire, hydraulic, mechanical and general
defects.
- The
Contractor accepted 25 items. The parties agreed that $21,872.17 was payable in
respect of these items. The parties recorded their
remaining disagreement in a
Scott Schedule. Most of the remaining items were not included in the schedule of
defects served by the
Principal on 6 November 2018. I did not understand the
Principal to cavil with the Contractor’s categorisation of defects as
to
those which were included in the 6 November 2018 schedule and those which were
not. I have removed the items which were not notified
in accordance with the
Contract and recorded my conclusions in relation to the remaining items under a
further heading “Decision”
in the Scott Schedule, a copy of which is
attached to these reasons. The major items in the Scott Schedule are explained
further
below.
- In
considering the remaining items, I have applied the principle that, where
building works are defective because they are not in
conformity with contractual
requirements, the court will award damages by reference to the costs of
rectification, where this is
reasonable and necessary: Bellgrove v
Eldridge [1954] HCA 36; (1954) 90 CLR 613 at 617-618; [1954] HCA 36 (per Dixon CJ, Webb and
Taylor JJ); Owners - Strata Plan No 74602 v Brookfield Australia Investments
Ltd [2015] NSWSC 1916, [38]-[40] (Stevenson J). The Court may draw an
inference about the existence of defects generally based on the presence of
defects
in samples, particularly where the evidence points to the existence of a
design issue rather than an issue of poor workmanship: The Owners Strata Plan
62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612 at [185]- [191]
(per Ward J).
Item 30: Face plates on ceiling in every guest room
need to be replaced, patched and painted
- Mr
Abbott was instructed that the smoke alarm had been installed in 180 hotel
rooms on the lower ceiling in the incorrect location.
The smoke alarm was moved
and a blank face plate installed in its place. Mr Abbott did not physically
count the number of times
he saw the face plate, but stated “there was
lots of them.” Mr Abbott considered that the use of a face plate was
unsatisfactory;
rectification had not been completed in an acceptable
tradesmanlike manner and to an accepted industry standard. The cost of
rectifying
this visual defect was estimated at $28,662.40. Mr Abbott agreed that
there was no code or specification that prevented blanks being
used for this
purpose, “only good workmanship”, where experts may differ on what
they consider to be good workmanship.
- Mr
Iskowicz observed that the smoke alarm had not been moved in several
rooms and remained in the location identified on the design plans. Where the
smoke alarms had been relocated
from the bulkhead to the room ceiling, he
considered that the work had been carried out in a tradesmanlike manner and any
defect
was aesthetic only. Mr Iskowicz agreed that, “In a perfect
world”, a hole in the gyprock ceiling would be plastered,
sanded and
painted so that the previous hole could not be seen, “that would depend on
the nature of the discussions that took
place”.
- As
far as the contemporaneous records reveal, there was a problem with false fire
alarms. On 12 January 2018, the Superintendent complained
that the hotel had
multiple false alarms and associated charges from the fire brigade, and
suggested that the Contractor was obliged
to pay these charges. On
16 January 2018, the Superintendent gave approval to the Contractor to
commence rectification of the smoke
detector issue by moving the smoke
detectors, “This approval is not an instruction on how to rectify the
issue, only that [the
Contractor] may proceed with the option they see
fit.” Mr Baltovski said that, while the Contractor was not responsible
for
the fire alarms being falsely activated, it relocated the fire alarms and
placed blank plates over their original locations, to assist
Travelodge. The
Contractor also assisted Travelodge to submit a waiver application for
reimbursement of the invoices.
- On
22 January 2018, the Superintendent advised the Contractor that the repair to
the hole following the relocation of the smoke detectors
was “NOT
acceptable. A cover plate was never relayed nor approved by Travelodge. The hole
must be repaired, patched and painted.”
On 13 March 2018, the
Superintendent requested the Contractor to remove the face plates that had been
installed where smoke detectors
had been relocated, and to patch and paint the
area to ensure a uniform finish across the ceiling, at no cost to the Principal;
“This
methodology was never approved by the client nor Travelodge.”
- As
I understand Mr Iskowicz’s evidence, the smoke alarms were installed in
the correct location according to the plans. However,
this location led to a
series of false fire alarms, apparently due to steam from the bathroom or a
nearby kettle. While the Principal
has not established that the smoke alarm was
installed in the wrong location, the fact that the location specified on the
plans proved
unworkable points to a defect, where the Contractor warranted that
the drawings, including those provided by the Principal, were
suitable for the
Works: clause 2.2(a)(ii.a).
- It
is clear from the contemporaneous records that there was no discussion between
the Superintendent and the Contractor as to how
the hole left in the gyprock
ceiling following the removal of the smoke alarm would be treated. Instead, the
Superintendent left
it to the Contractor to “proceed with the option they
see fit”. Presumably, installing a blank over the hole was quicker
and
cheaper.
- I
accept that the blank is less aesthetically pleasing than the treatment now
sought by the Principal. The question is whether the
blank is inconsistent with
the Contractor’s obligations under the Contract. Clause 29.1 obliged the
Contractor to “use
suitable new materials and proper and tradesmanlike
workmanship”. On balance, I consider that using a blank to cover the hole,
rather than plaster and paint did not “use suitable new materials and
proper and tradesmanlike workmanship” in the absence
of the Superintendent
or Principal agreeing that the quick, cheap solution was acceptable.
- Ultimately,
the Principal said the defect was present in 193 guest rooms. Extrapolating from
Mr Abbott’s calculations based
on 180 rooms, the Principal submitted that
the cost of fixing the defect in 193 rooms was $30,067.72. Mr Madden
accepted Mr Abbot’s
calculations (based on 180 rooms) and thus I have
accepted the extrapolated calculations put forward by the
Principal.
Item 35: carpet at doorway not level with
corridor
- Mr
Andary said he had inspected the carpets of each room and observed that the
carpet inside the room is higher than the entry threshold
below the door. Mr
Abbott did not inspect every room and produced photographs of one room. Mr
Abbott added that the fire seal on
the bottom of the door was inconsistent in
that some dragged on the carpet and some sat above the threshold. He considered
this to
be a visual defect which also damaged carpet and was a potential trip
hazard. On the basis that the defect existed in every room,
Mr Abbott
estimated that the cost to rectify this was $16,385.60.
- Mr
Madden agreed with the estimated cost but disagreed as to the existence and
scope of the defect. Mr Iskowicz noted that the specifications
for the carpet in
the room were different to those in the hallways. Underlay was specified for the
rooms but not the hallways. The
threshold for each room and the hallways was
required to have a fire compliant transition, being a gap not greater than 10mm
between
the floor and the bottom of the door. Mr Iskowicz observed the required
clearance had been provided and did not observe evidence
of damaged carpet or
trip hazards. He considered that the transition between the hallway surface and
the room surface was consistent
and compliant and there was no defect.
- Mr
Abbott said that it was typical in any development where different carpets were
being used “to humour one or the other by
way of another topping ... to
bring the two together ... It’s usually a quick swipe of ... another
topping that does that,
it’s not a big deal when a carpet goes
down.” A screen of a cement-based product was used to build one level up
to match
the two carpet heights. Mr Iskowicz disagreed as cut cement-based
products were not used up against the carpet to lay the next carpet.
The
difference between the carpet heights was within a millimetre or two,
“It’s not really something I think that the
people would have
worried about when they were building.”
- Whilst
I accept the Principal’s submission that it may be reasonable to infer
that the difference in carpet heights observed
by Mr Abbott and Mr Andary was
present for all hotel rooms, the evidence does not establish that any difference
in the carpet heights
at the door threshold is a defect, a trip hazard, or was
caused by any breach by the Contractor of its obligations under the Contract.
In
particular, there was no evidence as to what the difference in height between
the two carpets was and whether this posed any particular
problem to hotel
guests or staff. This defect is not established.
Item 149: The
green external barricades were not approved by the client
- Returning
to the carpark crash rails, the Principal submitted that the plans and details
consistently showed the crash barrier extending
to cover the slab edge. The
crash rail system as a whole was required to meet the architectural intent of
the contract drawings.
The crash rail supplied and installed by the Contractor
is fixed to the top of the slab with the slab edge exposed. There is no
evidence
that any variation was sought by the Contractor, or directed or approved, in
order to carry out these works in the manner
it did. The Contractor's response
to the Principal's complaint was to paint the slab edge green. The appropriate
method of rectification
is the replacement of the existing crash rails with a
compliant system, at an estimated cost of $97,238.
- The
Contractor submitted that there was no expert evidence to establish a breach of
contract. The scope of works mentioned nothing
of the screens or façade.
The complaint made by the Principal was said to be new. The Scott Schedule was
said to relate to
a different defect.
- The
history of the development of the plans in respect of the carpark crash rails is
earlier described at [52]-[61]. The design for the crash rails moved from a crash
rail with a separate façade structure to a combined structure following
the “value engineering” process. However, the revised plans and
details continued to refer to crash rails “combined
with cantilevered
balustrade with perforated & corrugated metal panels”. The details
continued to depict the panels extending
over the slab edge.
- I
agree that what has been installed does not comply with this detail and, whilst
the architect appears to have been consulted as
to the crash rails to be
installed, the Contractor does not appear to have sought, or obtained, a
variation from the Superintendent,
as required by the Contract. Clause 36.1 of
the Contract provided that the Contractor was not to vary the works except as
directed
(including, approved) in writing. Installation of the crash rails drew
the immediate protest of the architect and the Superintendent.
I am satisfied
that the Contractor breached the Contract.
- More
difficult is what damages, if any, should be awarded. The Scott Schedule in
respect of this item claimed, “The green external
barricades were not
approved by the client”. Mr Abbott requested more information from the
Principal as to the suggested breach.
Mr Iskowicz agreed that more information
was required in order to assess this item.
- Mr
Abbott’s costing for this item involved removal of the existing green
barricades and replacement by Rhinostop Elite type
1 system and the installation
of a new hand rail. However, the Principal’s complaint is not that the
crash rail does not comply
with the Contract but that the external façade
was not installed in accordance with the plans and details. Mr Abbott has not
costed the installation of this façade. Rectification in the manner
costed by Mr Abbott would not accord with the plans and
details either and,
presumably, would be less satisfactory than the current structure. Thus, the
costings provided do not assist.
- Further,
from the photographs of the crash rails as installed (see [57]), it appears that the
crash rails protrude beyond the slab edge such that it may not be possible to
install corrugated metal panels
on the outer edge of the crash rail to align
with the slab edge.
- Whilst
I accept that the crash rails installed may not meet the architectural intent of
the contract drawings, the costs of entirely
removing the crash rail system and
re-installing a structure which precisely accords with the drawings and plans
may be difficult
to justify, that is, the cost of rectification may not be
reasonable or necessary. In any event, there is no evidence as to what
that cost
may be where Mr Abbott has estimated the cost of rectification in a manner which
is not, in fact, what the Principal wants
to occur.
Preliminaries and Builder’s Margin
- Mr
Abbott allowed 15% for preliminaries. Mr Madden agreed with that figure if the
defects were found to exist and were as extensive
as suggested. However,
if the defects were limited in quantum to $170,000, then it would not be
reasonable to allow a cost for a
contractor to undertake all these works. The
works would most likely be undertaken by contractors already engaged for
maintenance
works. In that event, Mr Madden allowed $18,000 for a facilities
manager to manage the works, being approximately 200 hours. This
represented
preliminaries of about 10.5%.
- The
Principal submitted that it was not a builder nor was it involved in the
construction industry. It would have to appoint a building
or project manager
to administer the work necessary to rectify the defects. Nor was it reasonable
to expect a facilities manager
to undertake the role of builder or project
manager. I agree and will allow preliminaries at the percentage suggested by Mr
Abbott.
- Mr
Abbott also allowed 15% for the builder’s margin. Mr Madden suggested 10%
as, based upon his recent review of tenders, the
normal builder’s margins
were now in the vicinity of 3% to 6%.
- The
Principal submitted that Mr Madden’s view appeared to be heavily
influenced by his experience with greenfield projects,
something that Mr Abbott
identified as a distinguishing feature in the present case. In the
circumstances, the allowance by Mr Abbott
should be accepted. Where Mr Abbott
had no formal qualifications as a quantity surveyor, the Contractor submitted
that the evidence
of Mr Madden would be preferred by the Court. I generally
preferred the evidence of Mr Madden and will adopt his figure of 10%,
noting
that it exceeds the figure he is presently seeing by a healthy margin in any
event.
- The
total of the agreed defects and the defects which I have found to be established
in the attached Scott Schedule total $164,445.
Adding preliminaries and
builder's margin, this becomes $208,023.
ORDERS AND
COSTS
- Whilst
the Contractor is entitled to judgment and orders in respect of unpaid GST and
the bank guarantees, the Contractor invited
the Court to deduct any sums which
the Court determined were payable for building defects. I request the parties to
confer and provide
final orders to reflect the set-off between the
Contractor’s claim and the Principal’s cross-claim, noting (without
including
interest calculations):
(a) the Contractor is entitled to $188,000 for unpaid GST, damages of
$27,025 in respect of the first bank guarantee, damages of $43,240 in respect of
the second bank
guarantee and an order that the Principal release and deliver up
second bank guarantee; and
(b) the Principal is entitled to liquidated damages of $254,100
and rectification costs of $208,023.
- As
to costs, the Contractor submitted that the Principal has had the benefit of the
use of the site since 12 September 2017, more
than 5 years ago, leasing the
premises to lessees including Travelodge and Wilson Parking. Notwithstanding
this, the Principal refused
to concede that practical completion of the works
had been achieved. The Principal maintained a cross-claim for a significant
award
of damages for defective works, initially said to be $8.85 million
but ultimately reduced to $1.7 million. The Contractor contended
that the
Principal was only entitled to a modest award of $72,503. Whilst the Contractor
had returned to perform further works at
the premises over the past five years,
this was done without admission and on a commercial basis. The Contractor was
entitled to
the return of its bank guarantee and damages. Overall, the
Contractor submitted that it was entitled to its costs of the proceedings.
- The
Principal submitted that many of the defects about which it complained were only
rectified after the commencement of proceedings
in December 2018 or after the
bringing of a cross-claim in March 2019. While no damages were claimed for
rectification of such defects,
the scope of the dispute between the parties
would have been substantially narrower if these defective works had been
performed in
accordance with the Contract. Further, the existence of these (now
remedied) defects was said to demonstrate that it was reasonable
for the
Principal to commission experts to undertake relevant investigations.
Irrespective of the final quantum of the unremedied
defects, the Principal
should have the costs of its expert evidence, including in relation to the
hydraulic defects.
- The
Contractor has substantially succeeded in respect of the relief which it sought.
The Principal succeeded on its cross-claim, although
the degree of success may
be described as modest indeed. To some extent, that is because the Contractor
has already rectified defective
building work during the pendency of these
proceedings. However, there is a limit to which I should treat this
rectification as an
acceptance by the Contractor that the building works were
defective and its responsibility. First, the rectification was expressly
undertaken on a commercial and without admission basis. Second, as these defects
were not the subject of contest at trial, I have
not considered the expert
evidence in relation to these defects nor made any findings. Third, a party
should not be discouraged from
rectifying suggested defects on a without
admissions basis. If the court was to proceed to take such rectification work as
evidence
that the defect in fact existed, including by awarding costs in favour
of the other party, there would be little reason to resolve
complaints in this
manner.
- As
to the suggestion that the Principal should, at least, have its costs in respect
of its expert reports, it does appear that the
Contractor reviewed these reports
and proceeded to propose solutions to fix the problems identified by the experts
and to undertake
rectification works. However, if the Principal had used the
contractual regime for notification and rectification of defects by informing
the Contractor of these defects in the defects liability period, then the
extent of defects to be determined in these proceedings may have been far less
or these proceedings may have proved unnecessary.
- Further,
the expert reports also considered a wide range of defects which were not
identified in the schedule of defects provided
by the Principal on
6 November 2018 and thus were not actionable in these proceedings where the
defects were apparent, or would have
been apparent on reasonable inspection, on
that date. The Contractor was put to the expense of meeting that evidence,
including by
commissioning a large number of experts itself. A large portion of
the hearing was devoted to defects which ultimately do not form
part of this
judgement.
- Overall,
I consider that the Contractor is entitled to the costs of its claim whilst the
Principal should receive a portion of its costs of the cross-claim
commensurate with its degree of success. Where the Contractor’s costs of
its claim are likely
far less than the Principal's costs of the cross-claim, a
portion of the latter commensurate with the Principal's degree of success
is
probably roughly equivalent to the Contractor’s costs of its claim. In the
result, I consider it appropriate in the circumstances
to make no order as to
costs.
- For
these reasons, I make the following orders:
- (1) Direct the
parties to confer and, within 14 days, provide short minutes of order,
preferably agreed, which reflect these reasons
for judgment.
- (2) Direct the
parties to notify any errors or omissions within 14
days.
**********
Scott
Schedule (302889, rtf)
Amendments
06 March 2023 - Correction of date on coversheet.
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