Bedrock Construction and Development Pty Ltd v Crea

Case [2021] SASCA 66

SUPREME COURT OF SOUTH AUSTRALIA

(Court of Appeal: Civil)

BEDROCK CONSTRUCTION AND DEVELOPMENT PTY LTD v CREA

[2021] SASCA 66

Judgment of the Court of Appeal  

(The Honourable Justice Doyle, the Honourable Justice Livesey and the Honourable Justice Bleby)

25 June 2021

APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES

CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - PERFORMANCE OF WORK

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - JUDGMENTS AND ORDERS - INTEREST ON JUDGMENTS

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - JUDGMENTS AND ORDERS - SATISFACTION AND SET-OFF OF JUDGMENTS

PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS

In late December 2015 or early January 2016, the appellant building company (Bedrock Construction and Development Pty Ltd) (Bedrock)) and the respondent restaurateur (Mr Crea) entered into a contract (the Contract) for Bedrock to undertake a renovation and fitout of a restaurant in the Adelaide CBD (the Site). 

The Contract provided for Bedrock to carry out the relevant works in accordance with, and to the standard set out in, construction drawings provided by Mr Crea.  The Contract contained a clause which provided that the contractor was required to correct any defects, or finalise any incomplete work, within 10 days after receiving a written instruction to do so.

Mr Crea, through the contractually-appointed superintendent (the Architect), issued three defects lists to Bedrock, dated 12 April 2016 (Revision A), 20 April 2016 (Revision B) and 13 May 2016 (Revision C).  By 3 May 2016, Bedrock had rectified a number of the defects on the Revision A and B defects lists.  However, from 11 May 2016, Mr Crea effectively refused Bedrock further access to the Site, and on 19 May 2016, the Architect purported to issue a notice of termination pursuant to the Contract.  Bedrock did not undertake any further work.

Mr Crea issued proceedings in the District Court, seeking damages in contract and tort for the allegedly defective work.  Bedrock subsequently filed a cross-claim, seeking damages on account of the balance due to it on progress claims, and in respect of variations and delay costs.  The trial of the claim and cross-claim occurred over several days commencing in December 2019.

In August 2020, the trial judge published his reasons.  Mr Crea was largely successful in his defects claim, and Bedrock enjoyed partial success on its cross-claim.  In relation to the defects claim, the trial judge accepted that Mr Crea had refused Bedrock access to the Site from about 11 May 2016, but found that this prohibition was reasonable and declined to disallow or reduce the claim on this basis.  His Honour also found that the notice issued on 19 May 2016 did not effect a valid termination pursuant to the Contract, but that the Contract had been validly terminated at common law on this date.

After hearing submissions from both parties, the trial judge awarded interest on the claim and cross-claim, and ordered that Bedrock pay 60 per cent of Mr Crea’s costs.…

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Bedrock Construction and Development Pty Ltd v Crea [2021] SASCA 66
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[2021] SASCA 66
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CaseChat Overview and Summary

Bedrock Construction and Development Pty Ltd (Bedrock) appealed a decision of the trial judge concerning a building contract with Mr Crea for the renovation of a restaurant. The dispute centred on claims for defects in the works performed by Bedrock and a cross-claim by Bedrock for outstanding payments.

The appeal required the court to determine several legal issues. Firstly, whether the trial judge erred in awarding damages to Mr Crea for defects without adequately considering Bedrock's contractual right to a period of at least 10 working days to rectify any identified defects. Secondly, the court needed to consider the appropriateness of awarding interest on Bedrock's cross-claim, particularly in light of the timing of the claim and the nature of the debt. Finally, the court was asked to reconsider the order for costs, given the potential alteration of the parties' respective success at trial.

The Full Court of the Supreme Court of South Australia, allowing the appeal, held that the trial judge's award of damages for Mr Crea's defects claim should be reduced. This was because the contract provided Bedrock with a contractual opportunity of at least 10 working days to rectify defects, and the evidence did not establish that this entitlement had been afforded to Bedrock. The court found it unnecessary to determine the validity of the contract's termination, as it held no practical significance for the parties. Regarding interest, the court determined it was appropriate to award Bedrock interest on its entire cross-claim from the same date Mr Crea was awarded interest on his defects claim, as a significant portion of the cross-claim was an agreed liquidated sum due before the claim was instituted.

Consequently, the court ordered a reduction in the damages awarded to Mr Crea for defects. The court also ordered that Bedrock be awarded interest on its cross-claim from the same date as Mr Crea's interest award. The court further directed that a balance judgment be entered, reflecting the net entitlement between the parties, and that the issue of costs be reconsidered due to the altered assessment of the parties' respective success on appeal.

Orders

Orders of the court

Held, per Doyle JA (Livesey and Bleby JJA agreeing), allowing the appeal:

1. In circumstances where the Contract provided Bedrock with a contractual opportunity of at least 10 working days to rectify any defects, and the evidence did not permit a finding that this entitlement had been given, the trial Judge’s award of damages for Mr Crea’s defects claim should be reduced.

2. It is unnecessary to reach a final view on the issue of whether the Contract was validly terminated, as neither party suggested that the trial judge’s conclusion in this regard was of any practical significance.

3. As a significant proportion of the cross-claim was an agreed liquidated sum that fell due before the date the cross-claim was instituted, it is appropriate to award Bedrock interest on the entirety of its cross-claim from the same date Mr Crea was awarded interest on his defects claim.

4. There was no good reason to depart from the usual approach of entering a balance judgment.

5. As the grounds on which the appeal has been allowed will both alter the assessment of the parties’ respective degrees of success below, and result in the substitution of a judgment with a net entitlement in favour of Bedrock, it is appropriate that the Court reconsider the issue of costs.

Background

Background to the litigation

In this appeal, Bedrock relies upon several grounds of appeal challenging the trial judge’s awards of damages, interest and costs.Factual background In late December 2015 or early January 2016, Mr Crea and Bedrock entered into a contract (the Contract) for Bedrock to undertake a renovation and fitout (the Works) of a new restaurant on Morphett Street, Adelaide, known as Antica Pizzeria e Cucina (the Premises or the Site). The business name Antica Pizzeria e Cucina was owned by C & N Group (Aust) Pty Ltd (C&N), which also operated the restaurant. Mr Crea is the sole director and shareholder of C&N. Mr James Henderson is the sole director and shareholder of Bedrock. The form of the Contract was a standard form “Simple Works Contract – ABIC SW-2008”. Under clause A6 of the Contract, Mr Ryan Genesin was appointed the superintendent, or ‘Architect’, to administer the Contract on behalf of the owner, Mr Crea. Mr Genesin is an interior designer from the firm Genesin Studio. Mr Genesin and Mr Crea communicated with Bedrock through Mr Henderson. The Contract provided for Bedrock to carry out the Works in accordance with, and to the standard set out in, the construction drawings. The contract sum was initially $381,337, but was subsequently increased by reason of variations. Bedrock commenced the Works on about 7 January 2016. The Contract called for weekly progress payments. Mr Crea made progress payments totalling $429,115, the last of which was made on 14 April 2016. The date for Practical Completion under the Contract was 12 March 2016. There were some delays which resulted in Mr Genesin granting an extension of time for completion. Bedrock was still carrying out the Works when, on 22 April 2016, Mr Crea took possession of the Premises, and commenced operating the restaurant. No notice or certificate of Practical Completion was issued by Mr Genesin. However, by reason of clause M8, the Works were to be treated as having reached Practical Completion on 22 April 2016 (being the date the owner took possession of the Site). Pursuant to clause M13, there was a defects liability period of six months commencing from this date of Practical Completion. Clauses M11 to M14 addressed the parties’ rights in respect of the correction of defects in the Works. They provided as follows:M11 Contractor to correct defects and finalise necessary work1.The contractor must correct any defects or finalise any incomplete necessary work, whether before or after the date of practical completion, within the agreed time as stated in an instruction or if no time is stated, within 10 working days after receiving a written instruction from the architect to do so.M12 If the contractor fails to correct defects and finalise necessary work1.If the contractor fails to correct a defect or finalise any incomplete necessary work within the time nominated under clause M11 or fails to show reasonable cause for the failure together with a timetable for correcting the problem that is acceptable to the architect, the owner may use another person to correct the problem at the cost of the contractor. 2.If the owner is required to use another person to rectify a problem, the owner is entitled to make a claim to adjust the contract.3.If the owner makes a claim to adjust the contract the architect must promptly assess the claim and may issue a certificate under clause N4.M13Defects liability period1.The defects liability period is shown in item 25 of schedule 1 and commences on the date of practical completion of the works.2.The architect may notify the contractor that, in respect of any part of the works that has undergone significant correction within the first defects liability period, a further defects liability period of equal length to the first defects liability period may run for that part. The notification must be given at the time of acceptance of the corrected necessary work.M14Contractor’s obligations during and after defects liability period1.If there is any remaining defect or incomplete necessary work, or the contractor becomes aware by instruction from the architect or from its own observations of any defect or incomplete necessary work during the defects liability period, it must promptly return to the site and correct the defect or finalise the incomplete necessary work. This obligation continues until the defect is corrected or the incomplete necessary work is finalised, and does not come to an end when the defects liability period is over.2.The architect cannot give the first instruction to correct an outstanding defect or to finalise any incomplete necessary work after the end of the defects liability period, unless it is for the rectification of a latent defect and the final certificate has not been issued.

Evidence

Evidence Before The Court

The trial judge also described Mr Henderson as being defensive in his evidence; that his evidence was directed towards justifying his actions. While acknowledging that this was understandable to an extent, the judge considered that it resulted in Mr Henderson engaging in reconstruction on occasions. The evidence relevant to the defects claim By April 2016, the date for Practical Completion under the Contract had passed, but the Works were not complete. On Wednesday, 13 April 2016, Mr Genesin sent Mr Henderson an email attaching the Revision A defects list. It was dated 12 April 2016 and was said to relate to an inspection on 11 April 2016. It contained 157 items. Neither the email nor the defects list made any reference to particular provisions of the Contract. Nor did they nominate any particular date for the defects to be addressed. Mr Genesin’s covering email included:Please see attached the defects list.Generally speaking the level of finish has been rough, rushed and a poor attempt to look at the documentation which is very clear and detailed.…After repeatedly extending the date of completion and promised Saturday 9thApril as your final day, we still have trades installing up till yesterday. We need the remaining works to happen promptly and professionally as the site is getting setup and furnished and food deliveries and kitchen preparation starting today. You need trades to be aware and clean up their mess as they complete this list. …We are happy to run through some key items on site as noted in comments, otherwise works just need to be completed. Mr Henderson responded by email the same day, expressing disappointment at having received the defects list. He said that there had been mistakes in the drawings with which they had been provided, and gave explanations for some of the other difficulties that had arisen with the Works. He concluded by informing Mr Genesin that “[w]e have made a commitment to complete all the defects by the end of the weekend…any extras…most of which have been done will be complete by Sunday as agreed with [Mr Crea].” In his evidence, Mr Genesin said that there was a subsequent Site meeting, following which Bedrock commenced to remedy the defects. The trial judge proceeded on the basis that this meeting occurred, but acknowledged that the evidence did not enable identification of the date of this meeting, or what occurred during the meeting. On Monday, 18 April 2016, Mr Henderson emailed Mr Genesin. He commented upon 11 of the items on the defects list, and said that “all other items were either completed that day or prior to this email.” In referring to this email, the trial judge said that it “clearly shows that Bedrock was prepared to rectify defects at that stage.” Over the balance of 18 and 19 April 2016, there were several further emails exchanged between Mr Henderson and Mr Genesin in relation to the 11 items Mr Henderson had mentioned in his email. In an email late on 19 April 2016, Mr Genesin informed Mr Henderson that “[w]e have gone through the defects list again today and will reissue the list with the remaining items that need to be actioned.”

Decision

Reasons for decision

There was also no suggestion, in the evidence or findings, that Mr Neal (the vinyl layer who gave evidence) was other than competent and willing to carry out rectification work.The trial judge’s factual conclusions The trial judge summarised his factual conclusions in the following terms:[693]It is alleged by the plaintiff that Bedrock had failed, refused or neglected to remedy the defects. I do not accept that is the case and it is quite clear to me that it was at all times prepared to attend the Site in order to rectify any defects. I find that includes incomplete work. [694]I find that leading up to the meeting between Mr Genesin and Mr Henderson on Site on 3 May 2016, the relationship between Mr Henderson and Mr Genesin had deteriorated, but not to the extent it was unworkable. However, after the meeting on 3 May 2016, I find that the relationship had become unworkable. I find that on or about 9 May 2016, Mr Crea, with advice from Mr Genesin had decided to prohibit Bedrock from doing any further rectification work and that as a result Mr Crea sent an email to Mr Henderson on 11 May 2016 asking him to hold off on any further work pending his receipt of advice. [695]I find that Mr Genesin had lost faith in Bedrock’s ability to remedy the defects in a workmanlike fashion. So much so is apparent from Mr Genesin’s evidence that work done to remedy defects had to be re-done, which I accept. [696]Insofar as 9 May 2016 is concerned, there is no doubt that Mr Henderson sent an email to Mr Genesin and Mr Crea at 6.24pm on Friday 6 May 2016, in which he asked for access to the restaurant the following Monday, however I accept Mr Genesin’s evidence that he was not made aware of that email until the Monday morning, and that there was no co-ordination of trades with Mr Genesin. I do not accept that Mr Henderson communicated with Mr Crea and Mr Genesin over the weekend immediately preceding 9 May 2016 advising of the need to access the premises on the Monday. [697]I find that Mr Crea and Mr Genesin were concerned as to whether Bedrock was capable of carrying out the defects rectification work in a competent fashion. That included not just the actual work itself but also the ability to organise the work required to rectify defects in a way that accommodated an operating restaurant. That included liaising with Mr Genesin as the Architect appointed under the Contract.[698]On Sunday 15 May 2016 at 9.26pm, Mr Henderson replied to Mr Genesin’s email sent 13 May 2016, which was copied to Mr Crea, enclosing the revision C defects list advising that:...we will be assigning completion of the remaining defects to a third party and will no longer have any direct involvement.[699]In my view, by this email Mr Henderson clearly recognised the breakdown of his relationship with Mr Crea and Mr Genesin. He explained that he was passing responsibility to a contractor employed by Bedrock, named ‘Andy’ who was Bedrock’s supervisor.The trial judge’s reasoning After setting out these factual conclusions, the trial judge commenced his reasoning in relation to Mr Crea’s defects claim by addressing the question of whether Bedrock had a right to access the Site to carry out rectification work. His Honour referred in this respect to the reasons of Ball J in The Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd.[8] [8] The Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067.

Ratio Decidendi

Legal Principle Established

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