Bitannia Pty Ltd v Parkline Constructions Pty Ltd

[2009] NSWSC 1302

CITATION:	Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	2 and 3 September 2009
JUDGMENT DATE :	30 November 2009
JURISDICTION:	Equity
JUDGMENT OF:	White J
DECISION:	Refer to paragraph 112 of judgment
CATCHWORDS:	PROCEDURE – adoption of referee’s report – principles applicable to adoption of report – whether referee made errors of law – construction of clause 10.14 of JCC-D 1994 when staged Practical Completion not being used – construction of schedule inconsistent with general conditions for payment of liquidated damages – whether proprietors who had not validly terminated contract could recover costs of rectifying defects where they prevented builder from making good defects in accordance with contractual procedures – where alleged works of rectification not done to contractual standard and record of alleged defects not kept – whether onus on builder to establish extent of betterment where works of alleged rectification were the result of proprietors’ repudiation – no substantial damages for cost of rectification of proven defects established – referee’s report substantially adopted
LEGISLATION CITED:	Home Building Act 1989 (NSW)
CATEGORY:	Principal judgment
CASES CITED:	Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 Turner Corporation Pty Ltd v Austotel Pty Ltd (1994) 13 BCL 378 Hughes v Dormley Pty Ltd [2001] WASC 83 Gilbert Ash (Northern) Ltd v Modern Engingeering (Bristol) Ltd [1974] AC 689 Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 Vines v Djordjevitch (1955) 91 CLR 512 Bellgrove v Eldridge (1954) 90 CLR 613 Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 Monroe Schneider Associates (Inc) v No. 1 Raberem Pty Ltd (1991) 33 FCR 1 Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443; (2005) 12 BPR 23,923 Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1
TEXTS CITED:	Kim Lewison, The Interpretation of Contracts, 3rd ed 2004
PARTIES:	Bitannia Pty Ltd (1st Plaintiff) Rossfield Nominees (ACT) Pty Ltd (2nd Plaintiff) Parkline Constructions Pty Ltd (1st Defendant) S & S Quirk Pty Ltd (2nd Defendant)
FILE NUMBER(S):	SC 55072/05
COUNSEL:	Plaintiffs: M Christie with Ms V Culkoff & L Shipway 1st Defendant: M Dempsey SC with Ms A Arunothayam 2nd Defendant: J A Gracie
SOLICITORS:	Plaintiffs: JPR Legal 1st Defendant: Massey Bailey 2nd Defendant: DLA Phillips Fox

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
TECHNOLOGY & CONSTRUCTION LIST

WHITE J

Monday, 30 November 2009

55072/05 Bitannia Pty Ltd & 1 Or v Parkline Constructions Pty Ltd & 1 Or

JUDGMENT

1 HIS HONOUR: This is a building dispute. On 30 June 2008 the whole of the proceedings were referred to the Honourable Mr Robert Hunter QC for inquiry and report. The defendants seek the adoption of the whole of the referee’s report. The plaintiffs seek orders that certain conclusions of the referee’s report not be adopted, and that in lieu thereof the court make findings and give judgment in favour of the plaintiffs.

Nature of Proceedings

2 In 2003 and 2004 the plaintiffs, in partnership, redeveloped the Ettalong Hotel at Ettalong on the Central Coast of New South Wales from a hotel to a mixed hotel and residential apartment complex. The first defendant (“Parkline”) was the plaintiffs’ builder. The second defendant (“Quirk”) was the plaintiffs’ architect and superintendent for the project.

3 The plaintiffs alleged that Parkline breached the construction contract. They alleged delays and defects in the works. They sought liquidated damages for the delays in the works being brought to practical completion. They claimed damages for the cost of rectification of alleged defects in the works.

4 The plaintiffs excluded Parkline from the site from 14 January 2005. They claimed that they were entitled to do so and claimed the costs of completing the construction works and other damages arising from Parkline’s alleged repudiation of the construction contract.

5 The plaintiffs alleged that Quirk was negligent in issuing a certificate of practical completion when the works were not practically complete. They alleged that Quirk ought not to have accepted alleged variations claimed by Parkline and that if they were liable to Parkline for the variations, Quirk was liable to compensate them in respect of that liability. The plaintiffs alleged that if it were found that they had repudiated the agreement by wrongly purporting to terminate the agreement on 14 January 2005, Quirk was liable to compensate them for the consequences of their repudiation by not providing appropriate warnings and advice. They alleged that Quirk was liable to them for wrongly recommending payment of progress claims. None of these claims against Quirk is now pressed.

6 The plaintiffs also pleaded that if, as Parkline contended, the whole of the works were deemed to have reached a state of practical completion on 23 August 2004 because the plaintiffs took occupation of the hotel on that day, Quirk was liable for the plaintiffs’ being unable to recover liquidated damages against Parkline after 23 August 2004 because it was obliged to serve a notice under clause 9.10.04 of the agreement so as to avoid that consequence. Clause 9.10 is set out later in these reasons. The claim against Quirk, as ultimately pressed after the referee’s report, was not the claim pleaded. Rather, the plaintiffs allege that Quirk was obliged to advise them that they would be exposed to a claim that the whole of the works were deemed to have reached the stage of practical completion if the plaintiffs took occupation of the hotel if they did not reach and document an agreement with Parkline as to the consequences of early occupation which covered the various matters dealt with by clause 9.10.04.02.

7 By its cross-claim Parkline alleged that the plaintiffs had repudiated the agreement on 14 January 2005. By its amended cross- summons filed on 16 June 2008 Parkline purported to accept that wrongful repudiation and terminate the agreement. It claimed $525,669.10 being the amount of unpaid progress claims and claimed variations and half of the retention fund, plus a further sum of $174,029.05 for the balance of the retention fund, plus interest.

8 The referee found that the plaintiffs had not established any entitlement to damages against either defendant and that Parkline was entitled to $485,203 plus interest.

9 Parkline seeks an order that the referee’s report be adopted in whole. It seeks judgment in the sum of $485,203 plus interest as determined by the referee and costs. Quirk also seeks an order that the referee’s report be adopted in whole. It seeks judgment and costs.

10 The plaintiffs seek the following orders:

“ 1. The following parts of the Referee’s Report of the Honourable Robert Hunter dated 30 April are not adopted, namely the conclusions that:
(i) deemed practical completion took place on 23 August 2004.
(ii) In the alternative to (i), the First Defendant reached practical completion on 12 November 2004.
(iii) The Plaintiffs were not entitled to liquidated damages for the period between 30 July 2004 and 23 August 2004, or alternatively between 30 July 2004 and 12 November 2004, or at all.
(iv) The purported termination of the Contract by the Plaintiffs on 14 January 2005 constituted a repudiation of the Contract by the Plaintiffs.
(v) The Plaintiffs were not entitled to recover any monies from the First Defendant referable to the Plaintiffs’ costs of completion of the works and of rectification of defects.
(vi) Nothing flowed from the conclusion that in August 2004 the Second Defendant had an obligation to advise or alert the Plaintiffs to the mechanism and operation of clause 9.10 of the Contract.
(vii) For the purposes of section 18B Home Building Act 1989, the apartments the subject of the Contract do not fall within the definition of a dwelling by reason of the exclusion in clause 6(f) Home Building Regulation 1987.
(viii) In the alternative to (vii), the availability of the implied warranties in the contract in terms of s. 18B of the Act does not advance the case of the Plaintiffs.
2. In lieu thereof, the Court makes the following findings:
(i) Deemed practical completion did not take place on 23 August 2004.
(ii) The First Defendant did not reach practical completion on 12 November 2004.
(iii) The Plaintiffs validly terminated the Contract on 14 January 2004.
(iv) The Plaintiffs were entitled to recover the cost of completion of the works under the Contract and of rectification of defects, such cost to be calculated as follows:
the sum of $1,153,824.72, being the cost of work carried out by Sapphire Projects Pty Ltd, less any part of such cost which the First Defendant has proved did not form part of the Plaintiffs’ reasonable costs of completion of the works and of rectification of defects.
(v) The First Defendant has not discharged its onus of proving the amount of any part of the sum of $1,153,824.72 which did not form part of the Plaintiffs’ reasonable costs of completion of the works.
(vi) In the alternative to (iv) and (v), the Court remits for further consideration by the Referee, doing the best that the Referee can do, the Plaintiffs’ reasonable cost of completion of the works and of rectification.
(vii) The Plaintiffs were entitled to liquidated damages;
(a) at the rate of $10,000 per week for the period from 30 July 2004 to 23 August 2004; and
(b) at the rate of $5,000 per week from 23 August 2004 to 12 November 2004 or 14 January 2005.
(viii) For the purposes of section 18B Home Building Act 1989, the apartments the subject of the Contract fall within the definition of a dwelling and the Plaintiffs are entitled to damages for breach of the implied warranties under the said Act.
(ix) If deemed practical completion did take place on 23 August 2004, the Plaintiffs are entitled to damages as against the Second Defendant:
(a) at the rate of $10,000 per week for the period from 30 July 2004 to 23 August 2004; and
(b) at the rate of $5,000 per week from 23 August 2004 to 12 November 2004 or 14 January 2005.
3. Costs reserved. ”

11 At the hearing the plaintiffs did not press their claim in para 2(ix)(a) against Quirk.

Principles on Adoption of the Referee’s Report

12 It is common ground that the approach to be taken to the adoption, rejection or variation of the referee’s report was as described by McDougall J in Chocolate Factory Apartments Pty Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784. His Honour said (at [7]):

“ [7] The relevant principles, distilled from those decisions, can be stated as follows:

(1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing.
(2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised.
(3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest.
(4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh.
(5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report.
(6) If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than ‘unsafe and unsatisfactory’.
(7) Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence.
(8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based.
(9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire.
(10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.
(11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise.
(12) The right to be heard does not involve the right to be heard twice.
(13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised ‘by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it’. The real question is far more limited: ‘to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence’.
(14) Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence.
(15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified. ” (See Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2008] NSWCA 228 at [46]).

Plaintiffs’ Claim

13 The plaintiffs contend that the referee made errors of law. They contend that on the basis of the referee’s findings of fact, but after correction of the alleged errors of law, they are entitled to judgment for the sum of $1,153,824.72, being the cost they incurred in what they say was rectification of the defective work, together with liquidated damages from 30 July 2004 to 12 November 2004. The only claim they seek to maintain against Quirk is for liquidated damages from 23 August 2004 to 12 November 2004 in the event that it be held that they cannot recover such damages against Parkline.

Relevant Provisions of the Contract

14 The construction contract was entered into on 19 May 2003. It is a standard form contract described as:

“ Building Works Contract
JCC-D 1994
Without Quantities
When Staged Practical Completion is
not being used
(Second Edition of JCC-D - August 1994) ”.

15 The plaintiffs were the Proprietor. Parkline was the Builder. Quirk was Architect. Clause 1.03 provided:

“ The Builder shall:
1.03.01 Upon the Site being made available by the Proprietor commence the execution of the Works;
1.03.02 thereafter regularly and diligently proceed to execute and complete the Works in accordance with this Agreement; and
1.03.03 in doing so bring the Works to Practical Completion by the Date for Practical Completion. ”

16 “The Works” were defined as “The whole of the work to be executed in accordance with the Agreement ... including all Variations provided for by the Agreement”. The scope of the work was not described in the agreement itself but was to be found in specifications and drawings. Essentially the work involved the demolition of the existing hotel and the construction of a four-storey building with a basement car park. The ground floor comprised the hotel and associated facilities. Fourteen residential apartments were to be constructed on the upper three levels.

17 “Practical Completion” was defined as follows:

“ Practical Completion – The state of being substantially complete and fit for use and/or occupation by the Proprietor, all tests required under the provisions of this Agreement having been satisfactorily completed and omissions or defects being limited to items:
.01 The immediate making good of which is not practicable;
.02 the existence of which and/or the making good of which will not significantly inconvenience the Proprietor, taking into account the use or intended use of the items concerned and of the areas in which they occur; and
.03 which do not cause any legal impediment to the Proprietor’s use and/or occupation. ”

18 The contract provided that the date for practical completion was 24 May 2004. The referee found (at [260]) that:

“ It is not in dispute that the date for completion of the works was extended to 30 July 2004 and in final submissions Parkline did not press its claim for an entitlement of further extension of time from that date. ”

19 Clauses 3.04 and 3.05 provide:

“ 3.04 POSSESSION OF SITE
The Builder shall, upon the Proprietor making the Site available to him, have legal possession of the Site for the purposes of carrying out his obligations under this Agreement until Practical Completion of the Works or until the Proprietor takes possession of the Works, whichever is the earlier.

3.05 ACCESS TO MAKE GOOD
After taking possession of the Works the Proprietor shall allow the Builder reasonable access to the Site and the Works for making good defects as required by Clause 6.11 provided that in carrying out any such making good the Builder shall take all reasonable measures to minimise inconvenience to the Proprietor or those then authorised by the Proprietor to occupy the Works. ”

20 The position of Quirk as architect was described in Section 5. That section includes the following clauses:

“ 5.01 ARCHITECT AS AGENT
The Architect shall act for and on behalf of the Proprietor as his agent where this is so provided for or required by this Agreement and:
5.01.01 The Proprietor shall not act contrary to that authority and the Builder shall be entitled to disregard any contrary action by the Proprietor; and
5.01.02 all things done and all actions taken by the Architect pursuant to this Clause 5.01 shall, subject to Clause 5.02, be deemed done and taken by the Proprietor for the purposes of this Agreement and are hereby agreed by the Proprietor as ratified and confirmed as such.
5.02 ARCHITECT’S AUTHORITY
The Proprietor and the Builder expressly agree:
5.02.01 That the Architect is hereby authorised to do all or any of the following acts:
.01 To issue instructions to the Builder in respect of any of the following matters:
.01 the Works;
...
.02 To supply to the Builder copies of any documents pursuant to Clause 2.05 and to furnish setting out information to the Builder pursuant to Clause 6.06.
5.02.02 That the Architect is hereby authorised to act as the assessor, valuer or certifier in respect of the following matters:
...
.02 the proper execution and completion of the Works (Clause 6.01);
...
.04 defects to be made good (paragraph 6.11.01)
...
.08 Practical Completion (Clause 9.09);
...
.11 liquidated and ascertained damages (Clauses 10.14 and 10.15);
5.02.03 Either the Proprietor or the Builder may refer to dispute resolution under Section 13 a decision made by the Architect as to any of the matters referred to in paragraph 5.02.02.
...
5.04 WRITTEN INSTRUCTIONS
Any instruction or notice which the Architect is obliged to give or chooses to give pursuant to this Agreement shall be given promptly and in writing. No instruction shall have any force or effect under this Agreement unless given by the Architect.
5.05 COMPLIANCE WITH INSTRUCTIONS
The Builder shall comply promptly with all Architect’s instructions. Should the Builder consider that any such instruction is given in error or, although not stated to involve a Variation, in fact involves a Variation then the Builder shall notify the Architect in writing.
5.06 EMPLOYMENT OF OTHERS ON BUILDER’S DEFAULT
If the Builder does not comply with an instruction given by the Architect under any provision of this Agreement then:
5.06.01 The Architect may issue a notice to the Builder requiring compliance within a reasonable time to be stated in the notice;
5.06.02 if the Builder does not comply therewith the Proprietor may employ and pay others to execute any work whatsoever which may be necessary to give effect to such instruction of the Architect;
5.06.03 subject to paragraph 5.06.04 all costs properly incurred by the Proprietor in so doing may be recovered by the Proprietor as a debt due to the Proprietor by the Builder or may be deducted by the Proprietor from any moneys which may then be or thereafter become payable to the Builder by the Proprietor (including any retention moneys then held by the Proprietor) and if such moneys are insufficient for this purpose, the Proprietor may claim the amount due or the balance thereof under any security furnished by the Builder to the Proprietor pursuant to Clauses 10.20 and 10.21;
...
5.07 REPLACEMENT OF ARCHITECT
Should the Architect for any reason cease to act as such then the Proprietor shall:
5.07.01 Promptly notify the Builder in writing; and
5.07.02 promptly appoint another architect, having first ascertained that the Builder has no reasonable objection to the appointment of the other architect, and then promptly notify in writing the Builder of that appointment.
... ”

21 Clause 9.11 provides:

“ The Defects Liability Period shall commence on the date on which the Works reached or were deemed to have reached Practical Completion according to any of paragraphs 9.09.02, 9.09.04 and 9.10.04 and shall subject to paragraph 6.11.06 continue for the period stated in Item H of the Appendix. ”

22 The period stated in Item H of the Appendix was 52 weeks. Retention moneys were to be released after 26 weeks.

23 Clause 6.11 provided for the giving of instructions by the architect to the builder to rectify defects during the Defects Liability Period. It provided:

“ 6.11 MAKING GOOD DEFECTS
If at any time during the Defects Liability Period referred to in Clause 9.11 any faults, omissions, shrinkages or other defects in the Works are apparent then:
6.11.01 The Architect may issue an instruction to the Builder during the Defects Liability Period which shall state in what respect there are defects in the Works and may state a reasonable time within or at which the Builder shall complete the making good of those defects.
6.11.02 The Builder shall promptly make good such defects by appropriate rectification work and shall complete the same within or at any time stated in such instruction.
6.11.03 Where such defects are due to materials and/or workmanship not being in accordance with this Agreement, such making good by the Builder shall be at no cost to the Proprietor.
6.11.04 Where such defects occur notwithstanding that materials and/or workmanship are in accordance with this Agreement such making good shall be dealt with as would a Variation and in accordance with Clause 6.10.
6.11.05 If any defect is not made good within or at the reasonable time as may be so stated by the Architect or otherwise within a reasonable time the Proprietor may have the defect made good by others pursuant to the provisions of Clause 5.06.
... ”

24 Clause 9.10 dealt with the situation where the proprietor took occupation of the works or part of them prior to practical completion. It provided:

“ 9.10 OCCUPATION BEFORE PRACTICAL COMPLETION
Occupation of the Works prior to Practical Completion thereof shall be dealt with as follows:
9.10.01 Should the Builder fail to bring the Works to Practical Completion by the Date for Practical Completion then the Proprietor may with consent of the Builder and after issue by the Architect of the notice of occupancy hereinafter referred to occupy the whole or any definable part of the Works prior to Practical Completion.
9.10.02 In any such case the Architect shall after agreement between the parties as to the matters contained therein issue both to the Builder and to the Proprietor a notice of occupancy stating:
.01 That the whole or certain stated parts of the Works may be occupied prior to Practical Completion;
.02 the date or dates upon or after which such occupation may take place;
.03 the Date for Practical Completion; and
.04 the effect of such occupation upon the provisions of this Agreement relating to insurance, liquidated and ascertained damages, security and the Defects Liability Period.
9.10.03 The provisions of such notice shall take full effect notwithstanding any provisions of this Agreement to the contrary or inconsistent therewith.
9.10.04 If the Proprietor occupies and/or uses the Works or part thereof prior to Practical Completion in the absence of any such agreement and notice or of other written agreement between the Proprietor and the Builder then the whole of the Works shall be deemed to have reached Practical Completion on the date of commencement of such occupancy and/or use. ”

25 Clause 10.14 provided:

“ 10.14 LIQUIDATED AND ASCERTAINED DAMAGES
If the Builder shall fail to bring the Works to Practical Completion by the Date for Practical Completion:
10.14.01 The Architect may give notice in writing to the Builder and to the Proprietor that in his opinion the Works ought reasonably to have been brought to Practical Completion at some earlier date to be stated in that notice, not being earlier than the Date for Practical Completion.
10.14.02 If such notice is given the Builder shall pay or allow to the Proprietor a sum calculated and certified by the Architect at the rate stated in Item O of the Appendix as liquidated and ascertained damages for the period (commencing from the date so stated) during which the Works shall remain or have remained not brought to Practical Completion.
10.14.03 In the event of no further moneys being payable to the Builder or in the event of the sum calculated in accordance with paragraph 10.14.02 exceeding the amount remaining payable by the Proprietor to the Builder, the Proprietor shall be entitled to recover the same, or any such excess, as a debt due to the Proprietor by the Builder. ”

26 Item O of the appendix, which had a cross-reference to clause 10.14.02, stated:

“ O. 10.14.02 Rate for Liquidated and At cost at common
Ascertained Damages law (Maximum
$10,000 per week) ”

27 Clauses 12.02 and 12.03 provided:

“ 12.02 PROPRIETOR’S NOTICE OF BUILDER’S DEFAULT
If the Builder shall make default in any one or more of the following respects:
12.02.01 If he, without reasonable cause, wholly suspends the carrying out of the Works before Practical Completion thereof;
12.02.02 if he fails to proceed with the Works regularly and diligently;
12.02.03 if he fails to proceed with the Works in a competent manner;
12.02.04 if he refuses or persistently neglects to comply with written notice from the Architect requiring him to remove defective work or improper materials or goods; and
12.02.05 if otherwise he is guilty of a substantial breach of the provisions of this Agreement
then in any such case the Architect may deliver by hand to the Builder or send by certified mail addressed to the Builder a written notice stating the intention of the Proprietor to determine the employment of the Builder under this Agreement. That notice shall specify the default and, except for a default as referred to in paragraph 12.02.01, provide details of the default.
12.03 DETERMINATION BY PROPRIETOR FOR BUILDER’S DEFAULT
If the Builder fails to remedy in terms consistent with this Agreement a default of which he had been given notice under Clause 12.02 within ten (10) days of receipt of such notice then the Proprietor, without prejudice to any other rights or remedies, may within a further period of ten (10) days, by written notice delivered by hand to the Builder or sent by certified mail addressed to the Builder, determine the employment of the Builder under this Agreement. ”

Deemed Practical Completion on 23 August 2004

28 The plaintiffs took possession of the ground floor hotel on 23 August 2004. The referee found that pursuant to clause 9.10.04, as the plaintiffs occupied and used part of the Works from that date, the whole of the Works were deemed to have reached Practical Completion on that date. No notice was issued by Quirk under clause 9.10.02. Nor could Quirk have issued a notice under clause 9.10.02 because no agreement had been made between Parkline and the plaintiffs in respect of the matters in clause 9.10.02.04.

29 The referee found that at the time the contract was entered into there was no agreement in writing for a staged completion of the project to permit early trading of the hotel portion prior to completion of the project (at [36]). This finding was not challenged. The referee found (at [40]) that:

“ No objection was taken to the Principals’ occupation of the hotel in August 2004 nor did either party allude to the operation of clause 9.10 of the Contract. ”

30 The referee said of clause 9.10:

“ 15. The general intent of the clause, I think, is clear. It sounds as a plain warning to the parties that premature occupation of part of the Works has the capacity to seriously disrupt the nature and intent of the Contract especially in areas of commencement of the defects liability period, the provision and withholding of security, the effect on liquidated damages entitlements or exposure, responsibility for liability for damage to property and the insurance to cover such contingencies – all matters of basic importance in the administration of and performance under the Contract.
16. In order to prevent unintended disruption of performance and responsibilities under the Contract, a particularly strict code is laid down to cover occupation of part of the Works prior to completion of the whole. I think that strict regime applies especially to non-consensual occupation of that kind by the Proprietor, but also extends to a consensual occupation.
17. While the occupation by the Principals of the hotel and related works prior to Practical Completion of the whole of the project was consensual, I am satisfied that the consensual arrangement did not effectively cover any of the essential ingredients of the notice of occupancy required pursuant to clause 9.10 prior to occupation by the Principals. The question then arises what ‘other written agreement’ is sufficient to entitle the Principals to occupy part of the project prior to completion of the whole without triggering the deemed Practical Completion operation of clause 9.10.
18. In the absence of some ‘other written agreement’ there is no ambiguity in the intended operation of clause 9.10. Before partial occupation may be taken by a proprietor there must first be agreement between the parties to the building contract on the four matters referred to in subparagraphs .01-.04 of clause 9.10.02, that is, agreement on the particular portion of the Works to be occupied; on the date upon which that occupation may take place; identifying the Date for Practical Completion and the effect of the occupation upon the provisions relating to insurance, liquidated and ascertained damages, security and the Defects Liability Period. Once agreement on those matters has been reached as between the parties to the building contract then and only then will the architect be entitled to give a notice of occupancy stating the substance of the agreement reached on each of those matters. It is only after such an agreement has been reached and the notice of occupancy given that the proprietor may take occupancy of part of the Works without triggering the deemed Practical Completion provision in clause 9.10.
19. In those circumstances, given the stringency of the provisions of clause 9.10, I think one is entitled to look for a clear intention of the parties to address the stringencies of these provisions by recourse to some ‘other written agreement’ to avoid triggering the deemed Practical Completion provisions of this clause. I think the ‘other written agreement’ should evince an intention to do so and generally that will only happen where the contractual implications of partial occupation highlighted by clause 9.10.02 have been dealt with, or at the very least adverted to. The consequence of not covering those matters in a consensual partial occupation runs the serious risk of voiding the related provisions of the Contract concerned with the enumerated matters in clause 9.10.02. That consequence will necessarily vary from contract to contract, depending upon the circumstances and any special conditions amending the JCC-D form of contract.
20. In their absence it is difficult to see how a liquidated damages clause could survive and agreement that did not address the operation of a [liquidated] damages clause post partial occupation. Not necessarily so, but almost invariably, an agreement, particularly relating to commercial premises, which does not address the effect of partial occupation on liquidated damages, will expose that provision to the construction of being a penalty. Similarly, the security provisions relating to the retention fund run the risk of dislocation as do, I think, the provisions relating to the commencement of the defects liability period, insurance and the Practical Completion contemplated under the Contract.
21. Unless the defects liability period is addressed, how is the architect to administer the Contract? Where is the justification for treating the defects liability period as dating from the completion of the whole of the Works reached at a point, for example, well after partial occupancy has occurred? In addressing those questions it is well to keep in mind the very particular provisions of the Contract setting down the regime for the notification of and rectification of defects. There should be little or no room for uncertainty in the operation of those provisions. Similar observations are equally applicable to the enforcement of the insurance provisions and security retention.
22. It does not follow that the ‘other written agreement’ must mirror the terms of the agreement contemplated in clause 9.10.02. While that is so the clear intention I have spoken of as required of the other written agreement will usually at least advert to the subject matters of the clause 9.10.02 agreement. However, there may be circumstances where the parties are content to leave the General Conditions unaffected by the partial occupation of the proprietor and may do so in clear terms. However, short of that, it is difficult to identify a written agreement which would satisfy the requirements of clause 9.10.04 such as to avoid triggering the deemed completion provision. For instance, a bare agreement consenting to partial occupation prior to completion of the Works would rarely, if ever, satisfy the requirements of clause 9.10.04.
23. I think it is to avoid such a dislocation of the operation of the General Conditions that the Joint Contracts Committee has opted for certainty where for whatever reason in the case of partial occupancy, be it consensual or otherwise, the parties will be required to strictly adhere to the mechanism of clause 9.10 or, in some equivalent way, avoid the triggering of the deemed Practical Completion operation of the clause by an entering into a written agreement that appropriately addresses the operation of provisions including 9.10, effected or potentially effected by a partial occupation of the Works prior to completion of the whole. ”

31 The referee concluded:

“ 89. ...
(d) In the absence of an architect’s notice of occupation, there should be, in my view, an evinced intention by written agreement of the parties to address expressly or by necessary implication the fundamental implications of a major departure from contractual obligations and entitlements implicit in occupation of portion of the project prior to achieving practical completion of the project. I am satisfied that no such written agreement was brought into existence to satisfy that concept of ‘other written agreement’ in clause 9.10.04.
(e) The effect of the Principals going into occupation and using the hotel portion from 23 August 2004 prior to practical completion of the project in the absence of a prior agreement or notice of occupancy within the meaning of clause 9.10.02 resulted in deemed practical completion occurring on 23 August 2004. ”

32 The plaintiffs challenged this construction of clause 9.10. They submitted that the referee erred in concluding that clause 9.10 applied to a consensual occupation. Alternatively they submitted that provided there was a written agreement between the Proprietor and the Builder in relation to the Proprietor’s occupying the works or part of them before Practical Completion, Practical Completion was not deemed to occur on the date of commencement of such occupancy. The plaintiffs submitted that there was nothing in the text or context of the clause to support the referee’s interpretation that an “other written agreement” in clause 9.10.04 had to deal with all the implications of the proprietor’s taking early occupation of part of the Works. If there were such a comprehensive written agreement it would operate as a variation of the contract and it would be unnecessary to refer to such another written agreement in clause 9.10.04. The deemed consequences of early occupancy would be dealt with by the agreement itself. Counsel for the plaintiffs submitted that the referee’s construction could lead to absurd results. They posited an example of a shopping centre with 100 shops being constructed and the date for practical completion having passed, practical completion being still some months off, the builder being very late, and the owner approaching the builder to have one shop occupied prior to practical completion being achieved. The plaintiffs submitted that clause 9.10.04 put beyond doubt that an agreement to such an effect would avoid the absurd consequence that deemed practical completion for the entire shopping centre took place merely because one shop was occupied.

33 Counsel for the plaintiffs submitted that if a proprietor failed to ensure that any agreement as to partial early occupation expressly dealt with liquidated damages, the proprietor would run the risk that a liquidated damages clause would become a penalty. Counsel submitted that there would not be uncertainty in relation to matters not dealt with by an agreement under which the proprietor took early occupation. The contract would operate in accordance with its terms on the basis that practical completion did not occur on the date of early occupation but only when all of the Works were practically complete. If this were harsh on the builder, the remedy was in its hands. It could insist upon terms dealing with the consequences of the proprietor’s early occupation and the condition of its consent.

34 Counsel for the plaintiffs submitted that the phrase “other written agreement” in clause 9.10.04 referred to an agreement between the proprietor and the builder recorded in writing in relation to the proprietor’s early occupation or use of the works. Counsel for the defendants did not dispute this. There was no requirement in clause 9.10.04 that the written agreement be signed by the parties. The plaintiff relied upon a number of minutes of site meetings and facsimiles which recorded the parties’ agreement that the plaintiffs would take occupation of the hotel prior to practical completion and that they would take possession of the hotel area and associated areas on 23 August 2004. Only one such document arguably dealt with the consequences of early occupation. The minutes of the site meeting of 21 June 2004 purportedly recorded an agreement that:

“ Liquidated damages would be imposed after the following revised contractual practical completion dates;

* internal hotel area and courtyards – 23 July 2004

* apartments and external areas – 30 July 2004. ”

35 However, the referee did not accept that the minutes were accurate in recording such an agreement (at [49]). The referee held that none of the documents said to contain the written agreement under clause 9.10.04 dealt with the “fundamental implications of a major departure from contractual obligations and entitlements implicit in occupation of portion of the project prior to achieving practical completion of the project.” It was for this reason he found that there was no “other written agreement” which displaced the operation of clause 9.10.04.

36 I agree with the referee’s view that clause 9.10.04 applies whether the proprietor’s occupation of the works was made with the consent of the builder or without the builder’s consent. Clearly the clause applies if the proprietor were to take occupation of part of the works prior to practical completion without the builder’s consent. But it is not confined to such a case. Clause 9.10.1 requires both that the proprietor have the builder’s consent to occupying the works and that the architect issue a notice under clause 9.10.2. The elaborate provision in clause 9.10.2 would be unnecessary if the clause only dealt with a case of the proprietor occupying the whole or part of the works without the builder’s consent. If clause 9.10.04 were intended to specify only the consequences of the proprietor taking occupation of the works without the builder’s consent, it would have said “if the proprietor occupies and/or uses the Works or part thereof prior to Practical Completion in the absence of such consent” not, in the absence of any such agreement or notice or other written agreement.

37 Clause 9.10 requires that the builder and the proprietor address each of the matters in clause 9.10.02 including those in 9.10.02.04 before the proprietor takes occupation. The proprietor’s right to occupy the works is expressed under clause 9.10.01 to arise only after issue by the architect of the notice of occupancy which notice is to deal with each of the matters in clause 9.10.02. Under clause 3.04 the builder is entitled to possession of the site for the purposes of carrying out its obligations under the Agreement until Practical Completion of the Works or until the proprietor takes possession of the Works, whichever is the earlier. “Works” means the entire works. Accordingly, clause 9.10 is dealing with a situation in which the proprietor is proposing to do that which prima facie would be a breach of the agreement. Occupation by the proprietor of one part of the works might, in the ordinary case, be expected to hinder or delay the builder’s completion of the rest of the works. Hence clauses 9.10.01 and 9.10.02 require specific attention to the consequences of early occupation. The referee’s construction of clause 9.10.04 gives effect to the commercial purpose of clause 9.10 that the parties give specific attention to the consequences of early occupation having regard to the fact that the contract is one where a staged practical completion was not being used. Although there may be a case of hardship on the construction adopted by the referee, as counsel for the plaintiffs sought to illustrate in their submissions, and as the plaintiffs would contend occurs in the present case, that hardship only arises if the parties did not attend to the matters which clause 9.10.01 and 9.10.02 require be attended to. That is to say, in the example given by the plaintiffs’ counsel, it would be no hardship to the proprietor seeking early occupation of one of 100 shops if he sought the agreement of the builder to the defects liability period in respect of defects of that one shop to commence from the time of early occupation and for adjustment in relation to provisions relating to insurance, liquidated damages and security. If agreement was not reached on those matters and the builder’s consent to occupation was not forthcoming, what hardship would it be to the proprietor to be left with his contractual remedies for the builder’s delay in respect of completion of the entire works?

38 It would be open to the parties to make an agreement that varied clause 9.10 by agreeing expressly on some but not all of the consequences of early occupation of part of the works, and leaving other matters to implication. For example, the parties might have agreed that on taking occupation of the hotel area, that that part of the works, and that part only, should be taken to be practically complete. The implication of such an agreement would presumably be that the defects liability period in respect of that part of the works would commence on the date of occupation. A further implication would be that the builder would be required to maintain insurance in respect of damage to that part of the works after the date of occupation (clause 8.09). Ascertaining the implication for the partial release of retention moneys would be difficult, to say the least. If the contract truly provided for the payment of liquidated damages, the implication in relation to liquidated damages would also be difficult. However, if there were such an agreement intended to have contractual effect, effect would have to be given to it irrespective of those difficulties.

39 In my view, clause 9.10.04 recognises that even in the absence of an agreement between the builder and the proprietor dealing with each of the matters in clause 9.10.02 and notice of occupancy being given by the architect, the consequence of which clause 9.10.04 speaks is subject to whatever is otherwise agreed between the proprietor and the builder. The stipulation that such an agreement be in writing cannot preclude there being an agreement on some or all of the matters in clause 9.10.02 which is not in writing. But the clause creates the presumption that the parties do not intend to be bound by what they might agree in respect of those matters unless the agreement is in writing.

40 Subject to this qualification, I generally agree with the referee’s construction of the clause. As there was no agreement between the plaintiffs and Parkline as to the effect of early occupation upon any of the provisions of the agreement referred to in clause 9.10.02.04, this qualification is of no present significance.

41 For these reasons, I do not accept that I should not adopt the referee’s conclusion that deemed practical completion took place on 23 Aug 2004. For the reasons below, it would make no difference to the outcome of this case had I accepted the plaintiff’s submissions in this respect. That is because the damages to which the plaintiffs are entitled for delay in bringing the works to practical completion are not, in truth, liquidated and ascertained damages, but compensatory damages for costs incurred by the plaintiffs by reason of the delay up to a maximum amount. The plaintiffs proved no such damages.

Practical Completion on 12 November 2004

42 Counsel for the plaintiffs faintly argued that the referee ought to have found that Parkline did not reach practical completion on 12 November 2004.

43 On 18 November 2004 Quirk issued a certificate of practical completion certifying that Parkline had achieved practical completion of the works on 12 November 2004. It was submitted for the plaintiffs that the referee ought to have found that practical completion had not been achieved by 12 November 2004 because a defects list issued on 15 November 2004 identified numerous defects which were not limited to items the immediate making good of which was not practicable (clause 1.02.09.01).

44 The point is an arid one because the plaintiffs did not seek liquidated damages beyond 12 November 2004, or otherwise seek damages for delay. The only significance of the point might be in respect of the plaintiffs’ submission that the referee ought to have found that Parkline had repudiated the contract by 14 January 2005. Be that as it may, the plaintiffs’ submission faces two insurmountable obstacles. The first is that the referee found as a fact that the defects list dated 15 November 2004 did not take the condition of the building outside the definition of practical completion under the contract (at [101]). Secondly, the referee found as a fact that the certificate of practical completion was issued on 18 November 2004 with the agreement of the plaintiffs (at [96]). The referee accepted evidence of Mr George Arena, who was employed by Quirk to undertake the project management services for the plaintiffs, and who had the day-to-day administration of the contract. Mr Arena deposed that on 12 November 2004 he, Mr Quirk and Mr Ashton of the plaintiffs (amongst others) carried out a “walk through defects inspection of the apartments”, as a result of which Mr Arena was satisfied that the works were practically complete. Mr Quirk asked Mr Ashton whether he was happy to grant Parkline practical completion. Mr Ashton said that he was and told Mr Quirk to “go ahead and issue Practical Completion”. There was also other evidence that the certificate of practical completion was issued on 18 November 2004 with the agreement of the plaintiffs.

45 There is no reason to reject the referee’s conclusion that Parkline reached practical completion on 12 November 2004.

Damages for Delay

46 The plaintiffs contended that they were entitled to liquidated damages at the rate of $10,000 per week for the period from 30 July 2004 to 23 August 2004, and at the rate of $5,000 per week from 23 August 2004 to 12 November 2004 or 14 January 2005. Having regard to my acceptance of the referee’s finding that deemed practical completion took place on 23 August 2004, if the plaintiffs are entitled to any liquidated damages, such damages apply for the period from 30 July 2004 to 23 August 2004.

47 Clause 10.14.02 contemplates that the parties would insert in Item O of the appendix a sum of liquidated and ascertained damages. The words the parties inserted at Item O of the appendix were not an amount of liquidated and ascertained damages, or a rate at which liquidated and ascertained damages could be calculated. The words inserted, namely “At cost at common law (Maximum $10,000 per week)” established a maximum amount of damages that could be recovered under clause 10.14.02, not an agreed pre-estimate of loss. The words “at cost at common law” plainly mean that the plaintiffs’ damages under clause 10.14.02, that is, damages for the builder failing to bring the works to practical completion by the date for practical completion should be measured at common law as the cost to the plaintiffs for the delay in bringing the works to practical completion. There was a stipulated maximum of such damages.

48 The referee concluded (at [262]) that it was encumbent upon the plaintiffs to establish its damages at common law up to $10,000 per week. I agree. There was a conflict between the words the parties inserted into Item O of the appendix and the provision in clause 10.14.02 that a rate of liquidated and ascertained damages be inserted at that item. That conflict is not to be resolved by rewriting the words the parties inserted in Item O of the appendix, but by treating the words in Item O as prevailing (Kim Lewison, The Interpretation of Contracts, 3^rd ed 2004 at [7.04]).

49 The referee found that the plaintiffs had not established that the delay, even to 12 November 2004, had caused them any loss. In a letter dated 18 November 2004 Mr Arena of Quirk advised Parkline that “Liquidated damages applicable in accordance with clause 10.14 of the contract document and [sic] are calculated at cost, to a maximum of $10,000 per week. The Proprietor advised and can support costs in excess of $10,000 per week. ...” Counsel for the plaintiffs accepted the matter had not been run on the basis that Parkline was bound by this notification by the architect. In any event, the referee found that the assessment referred to in Quirk’s letter of 18 November 2004 was not its assessment (at [267]). The referee found that with the transfer of the hotel business to the site from the nearby premises, there was no loss of business, and that the delay in effecting sales of the units was unrelated to any defective work by Parkline and to delays in practical completion (at [269], [275]). As late as 2008 no strata plan for the building had been registered. The referee also found that the plaintiffs had not attempted to let the apartments, presumably due to their continued efforts to obtain strata title for each of the apartments for the purposes of sale (at [276]). The referee also rejected a claim to recover holding charges.

50 The plaintiffs did not submit that I should reject those parts of the referee’s report in which he found that the plaintiffs had not established that they suffered damage as a result of the delay in the works being brought to practical completion.

51 I reject the plaintiffs’ submission that I should find that they were entitled to liquidated damages.

Repudiation of the Contract on 14 January 2005 by the Plaintiffs

52 The referee concluded that the plaintiffs repudiated the contract by:

“ (a) removing Parkline from the site on 14 January 2005;
(b) depriving it of access to the site thereafter;
(c) preventing Quirk from carrying out its role as supervising architect from 14 January 2005;
(d) taking over Quirk’s role as Architect under the Contract from 28 January 2005;
(e) the giving of a spurious notice pursuant to clause 12.02.04; and
(f) the employment of others to carry out rectification of any defect, each of them represented continuing repudiatory conduct which was accepted by Parkline in its Amended First Cross-Summons in terminating the Contract. ”

53 The plaintiffs submitted that they did not repudiate the contract but that they terminated the contract on 14 January 2005 as they were entitled to do because Parkline had repudiated the contract. The referee rejected the contention that Parkline had itself repudiated the contract (at [191]). The plaintiffs submitted that by 14 January 2005 Parkline had been so dilatory in its performance of the contract that it had manifested an unwillingness or inability to perform the contract substantially in accordance with its requirements, and by its conduct had renounced its obligations (Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115 at [44]).

54 The plaintiffs submitted that even if practical completion was reached on 12 November 2004 (which they denied) Parkline was still 105 days late, as the date for practical completion was 30 July 2004. This was a substantial delay given that work commenced on the site on 16 June 2003. On 15 November 2004 Quirk issued a defects list of 12 pages and containing numerous cleaning and painting items. On 6 January 2005 it issued an updated defects list. The referee described that list as disclosing that some 327 defects previously notified had been attended to, with 137 outstanding. 107 new items were added to the list. The referee observed that amongst defects added to the list on 6 January 2005 were requirements to install wiring for gas meters throughout the project (at [147]). This was not the builder’s responsibility (para [116]). A further defects list was issued on 14 January 2005. This contained an additional 54 items. 152 items were noted as outstanding and 418 had been rectified. The plaintiffs complain that at least 77 defects identified in the list dated 15 November 2004 were still outstanding as at 14 January 2005. The referee said (at [149]):

“ ... the inference is compelling that Parkline had addressed defective work in the period between 24 December 2004 and 14 January 2005. The addition of some 161 items to the list between 24 December 2004 and 14 January 2005, I think, underscores the unreasonableness of Mr Brown’s conduct on 14 January 2005 and the Principals’ ensuing conduct in taking over administration of the project completion. ”

55 The referee found that as at 14 January 2005, when Parkline was removed from the project, it was ready, willing and able to rectify any outstanding defective work and was only prevented from doing so by the plaintiffs’ exclusion of it from access to the project (at [195]). The referee referred to evidence of Mr Arena, which he evidently accepted, that Mr Arena understood and expected that all things being equal, Parkline would have completed all of the defects notified to it within a reasonable period of two to four weeks. Mr Arena considered Parkline’s response to the requirement to rectify defects as reasonable. The referee concluded that Parkline’s conduct did not evince an intention not to be bound by the contract (at [198]).

56 The plaintiffs seek to overcome these factual findings by submitting that the referee’s attention was focused too narrowly on the period from 24 December 2004 to 14 January 2005. On 24 December 2004 Mr Brown on behalf of the plaintiffs, sent a facsimile to Parkline which stated:

“ We refer to S&S Quirk’s facsimile dated 8 December 2004 with regards to final defects and in accordance with the requirements of the facsimile we inspected the site today to check the status of defects completion.
Based on our site inspection no more than 50% of the defects identified as incomplete in the last inspection have been rectified by your Company within the time frame you requested.
This is both disappointing and unacceptable considering the extended time we have allowed for this work to be performed, is within more than a reasonable amount of time for any building company to complete these defects, since practical completion was issued.
As the Proprietor of the building contract we hereby notify you as the builder under the contract that we intend to exercise our power under clause 6.11.05 of the building contract to rectify the following defects and deduct the costs from monies held in retention under the contract.
The defects we are going to immediately rectify are;
1. All and any Painting defects identified.
2. Doors and window hardware fitted in a defect manor [sic].

3. Building quality related issues not completed.
4. All tiling as identified.
Notwithstanding our full rectification of the above defects we would intend to offer you only a further defect rectification period of the following trades to no more than Thursday the 13 ^th of January 2005 to fully complete the following defects.
1. All Electrical works to specifications
2. All fire detection works to specifications
3. All plumbing and Hydraulic works to specifications
4. Lift to be operational to required specifications
5. Mechanical works to specifications
6. Landscaping works as per specifications
A further inspection will be carried out on the 14 ^th January at 7.30am 2005 to check all these defects are complete.
Should you fail to have ALL these defects completed by the above date we will have no other option than to further exercise our power under clause 6.11.05 of the building contract to rectify all and any building defects not completed on your Company’s behalf at these premises and deduct the monies from monies held in retention.
We intend to obtain a quotation for the rectification of the repairs we are undertaking on your behalf and will advise you of the costs as soon as they are available.
Further more after the many discussions and meetings we have had, I cannot express to you any more than this job has gone on well beyond your scheduled building period and the above works need to be completed by your company as per the agreed contract.
A defects list based on yesterdays [sic] electrical inspection and today’s inspection will be issued to you next week. ”

57 The referee said:

“ I do not regard that as a valid exercise of clause 6.11 and as stated have significant reservations about the reasonableness of completion of outstanding defects by 13 January. That view becomes academic in the light of Quirk’s defects list of 6 January 2005. ”

58 The letter was clearly not a valid notice under cl 6.11. It was not issued by the Architect.

59 The referee was critical of Mr Brown’s refusal to accept that it is standard practice in the building industry for construction workers not to work over the Christmas/New Year period. The plaintiffs submit that the referee erred in focusing on the period after 24 December 2004 and that he ought to have found that having regard to the delay in obtaining practical completion and in rectifying all of the defects notified on 15 November 2004, by 14 January 2005 Parkline, whatever it said, by its actions, had demonstrated that it was unwilling or unable substantially to perform the contract in accordance with its terms.

60 I do not consider that in concluding that Parkline had not evinced an intention not to be bound by the contract the referee asked the wrong question or failed to consider the whole of Parkline’s conduct about which the plaintiffs now complain. Whilst it is true that the referee found (at [195]) that Parkline was ready, willing and able to attend to any outstanding defective work, he also found (at [198]) that Parkline’s conduct did not evince an intention not to be bound by the contract. He did not overlook the delay in the project reaching the stage of Practical Completion. He observed (at [143]):

“ I have little doubt that Parkline had been dilatory in performance under the Contract. As noted earlier in these reasons, in the run-up to the Principals taking early occupation of the hotel portion of the project in August 2004, it was anticipated that completion of the project was expected to coincide substantially with completion of the hotel project. As weeks progressed after occupation of the hotel that gap increased markedly with the certification of practical completion being given for 12 November 2004. ”

61 As to the unremedied defects in the defects list, the referee observed that many of the defects in the list of 15 November 2004 related to painting and cleaning. He said that most of the new items added in the list of 6 January 2005 were of a minor nature. He accepted Mr Arena’s evidence that Parkline had responded to the list reasonably.

62 In any event, the case the plaintiffs sought to advance on repudiation was not the case they pleaded. In their further amended summons the plaintiffs pleaded that on 4 November 2004 they caused to be served on Parkline a notice pursuant to clause 12.02.02 that Parkline show cause why the agreement should not be terminated for its default. They pleaded that Parkline failed to comply with that notice in consequence of which the plaintiffs caused to be served upon Parkline a notice pursuant to clause 12.02.03 (presumably a reference to clause 12.03). They pleaded that they thereby became entitled to the costs of completing the work. The letter of 4 November 2004 required Parkline, within 10 days, to bring the works to practical completion. This was done. Even if it had not been done, the time by which the plaintiffs would have been entitled under clause 12.03 to give notice determining the employment of the builder was within a further period of 10 days after default in complying with the notice under clause 12.02. A notice of determination of the builder’s employment under clause 12.03 would have been required to have been served by 24 November 2004. The plaintiffs made no submission on the present application that they had validly terminated the contract pursuant to clause 12.03.

63 The plaintiffs pleaded in the alternative that if the agreement was not terminated pursuant to clause 12.02.03 (sic), Parkline had repudiated the agreement. The plaintiffs purported to accept the repudiation not by their letter or conduct on 14 January 2005, but by their summons. Parkline’s conduct which was alleged to constitute a repudiation was particularised as:

“ (a) The first defendant by letter of 15 December 2004 stated it intended to suspend the Construction Work without valid cause.

(b) the first defendant thereafter suspended the Construction Work without valid cause.

(c) the First Defendant by its facsimile of 25 May 2005 created unreasonable extra-contractual preconditions to its continued performance of the Construction Work. ”

64 The referee rejected these grounds (at [191]-[194]). The plaintiffs did not seek to rely on those grounds as reasons for not adopting the referee’s conclusion that the plaintiffs had repudiated the contract on 14 January 2005.

65 On the basis of the referee’s findings of fact, it appears to me that he was correct in concluding that the plaintiffs repudiated the contract on 14 January 2005. On that day Mr Brown on behalf of the plaintiffs told Parkline to leave the site and not to come back onto the site. Mr Brown accepted that he probably would have said to Mr Patetsos of Parkline “You’re off this job for good. Don’t come back.” (at [157], [167]). On 14 January 2005 Mr Brown on behalf of the plaintiffs sent a facsimile to Parkline as follows:

“ As notified in previous letters, the work at the Ettalong site that you were required to have finished remains substantially incomplete at today’s date.
We have given you every opportunity to remedy those defects set out in the earlier defect lists.
You have been largely unresponsive in addressing those defects, even allowing for an extension of the contract completion time of almost six months.
As a result, we have taken the step of appointing two independent consultants. An electrical engineer and a building inspector who will compile reports on the building standard as at today’s date.
For the purpose of clarity in those reports, no work will be undertaken on the building site by any of the parties involved until the reports have been completed and we have provided you with a copy of the reports, and then given you the opportunity to discuss the content of these reports.
I am told these reports will take approximately 7 days to prepare.
By any test the building has not reached practical completion as the residential areas which constitute the largest proportion of the building are not inhabitable at today’s date.
I have attached invoices for your attention relating to the assessment of liquidated damages (as set out at point O in the Appendix to Conditions) payable by you for late finishing on the project. Please amend your records accordingly. ”

66 Even if there had been no purported termination of the contract, the facsimile of 14 January 2005 would be a repudiation as the plaintiffs had no right to suspend Parkline’s performance. Pursuant to clause 3.05 Parkline was entitled to reasonable access to the site to make good defects the architect had required to be rectified by clause 6.11.

67 I see no reason not to adopt the referee’s report that the plaintiffs repudiated the contract on 14 January 2005.

Cost of Rectification of Defects

68 Although Parkline did not accept the plaintiffs’ repudiation of the contract as putting an end to it, the plaintiffs prevented Parkline from carrying out after 14 January 2005 any further rectification work of the defects notified by Quirk.

69 Under clause 6.11 the Architect could require the making good of defects whether those defects were due to the materials or workmanship not being in accordance with the contract, or whether the defects occurred notwithstanding that the materials and workmanship were in accordance with the contract. In the latter case, the making good of the defects was to be dealt with as a variation (clause 6.11.04).

70 Where a defect was due to work not being done in accordance with the agreement, there was an existing breach by the builder of clause 1.03.02. That is to say, the builder’s obligation was not simply to ensure that at the end of the defects liability period, or at the end of a reasonable time for making good defects of which a list was given under clause 6.11, the works were executed in accordance with the contract. Rather, the builder had an ongoing responsibility to execute the works in accordance with the agreement.

71 As Parkline did not accept the plaintiff’s repudiation of the agreement, it remained on foot. The plaintiffs claimed they were entitled to damages for the cost of rectifying defects even though Parkline was prevented from completing the rectification of defects notified pursuant to clause 6.11, by being excluded from the site. In my view, Parkline was entitled to make good notified defects in accordance with clause 6.11. The plaintiffs would only be entitled to have the work of making good carried out by others and claim the cost of doing so from Parkline in accordance with the procedures in clause 6.11.

72 Parkline submitted that it was so entitled, and that clause 6.11 was a code determining the rights and obligations of both parties in respect of the making good of defective work (Turner Corporation Pty Ltd v Austotel Pty Ltd (1994) 13 BCL 378). The plaintiffs contended that clause 6.11 does not establish such a code and that clear and express words would be needed to rebut the presumption that the plaintiffs retained all remedies available to them for breach of contract. The plaintiffs submitted that in any event, their entitlement to damages for defective work which was in breach of statutory warranties implied by s 18B of the Home Building Act 1989 (NSW) could not be restricted or removed by such a code. That is because s 18G of the Home Building Act provides that “A provision of an agreement or other instrument that purports to restrict or remove the rights of a person in respect of any statutory warranty is void.” Parkline denies that the Home Building Act applies and denies that to construe clause 6.11 as a code for dealing with the plaintiffs’ rights in respect of defective work whilst the contract is on foot would infringe s 18G.

73 The referee expressed general agreement with the reasoning of Cole J (as his Honour then was) in Turner Corporation Pty Ltd v Austotel Pty Ltd, although he found it unnecessary to decide whether he accepted Cole J’s conclusion in that case that the standard conditions which his Honour was there considering created a code outside of which there was no entitlement on the part of the principal to recover damages for defective work. In Turner Corporation Pty Ltd v Austotel Pty Ltd, Cole J considered a standard form of building contract known as “Building Works Contract – JCCA 1985 With Quantities (Third Print – August 1988)”. That contract contained clauses the same, or materially the same, as the present contract. In particular it included the same provisions as clause 1.03 describing the builder’s obligations, clause 3.05 requiring the proprietor to allow the builder reasonable access to the site and the works to make good defects the architect required be carried out under clauses 5.04-5.06, and 6.11. After discussing the provisions, Cole J said (at [394]-[395]):

“ It follows, in my view, that the contract does provide a code which establishes the rights, obligations and liabilities of the parties, and the mechanisms by which completion of the Works is to be achieved. In summary, the Builder is given possession of the site for the purpose of and with the obligation to bring the Works to Practical Completion by the Date for Practical Completion. The Proprietor has no general right to bring others onto the site to perform or complete portions of the Works. However, if prior to Practical Completion there appears defects or omissions in the Works, the Architect may give to the Builder a notice to rectify those defects or omissions within a reasonable time. If the Builder fails to rectify or complete the defects or omissions as so directed by the Architect, the Proprietor by contractual right, after a further notice from the Architect to the Builder, may engage others to enter upon the site and rectify or complete those defects or omissions.
Once Practical Completion is achieved under the contract, the defects liability period commences and the Builder surrenders possession of the site back to the Proprietor. Although the Proprietor then has possession of the site, the Builder retains the right to enter upon the site to permit it to rectify notified defects, and it has the obligation to rectify such notified defects within a reasonable time as directed by the Architect, and in any event not later than a reasonable time after the expiration of the defects liability period. If it fails to do so, the Proprietor may, after a further notice from the Architect, have the notified defective or omitted works performed by others at the Builder’s costs. Alternatively, by agreement, the omitted or defective works may be removed from the contract works with an appropriate monetary adjustment to the contract sum. A third alternative is that the Proprietor may be able to rely upon the default of the Builder to rectify the defective or incomplete works as a ground for terminating its employment under the contract and thereafter having the works completed by others at the Builder’s cost pursuant to cl 12. However, if none of these three contractual powers is exercised, the Builder may become entitled to a final certificate which will result in it [being] entitled to plead completion of performance of the Works ‘in accordance with the terms of the agreement to the reasonable satisfaction of the Architect’.
There is, in my view, no room for a ‘wider common law right’ in the Proprietor to treat noncompliance with the contractual obligation by the Builder as a separate basis for claiming damages being the cost of having a third party rectify or complete defective or omitted works. That is because the contract specifies and confers upon the Proprietor its rights flowing from such breach; that is, the parties have, by contract, agreed upon the consequences to each of the Proprietor and the Builder, both as rights and powers flowing from and the consequences of, such breach. The word ‘may’ is used because there are alternative contractual rights available to the Proprietor.
It also follows, in my view, that the Proprietor has no entitlement to recover the cost of work performed by others at the request of the Proprietor unless prior to such work being performed the Architect has given the notice required by cl 5.06.01 prior to the Date for Practical Completion, or pursuant to cl 5.06.01 as incorporated by cl 6.11.05 after the Date for Practical Completion. ”

74 In deciding to grant leave to appeal from the arbitrator’s award that the proprietor was entitled to recover costs, complete works and to rectify defective workmanship and materials although it had not followed the procedural steps and notice provisions for the rectification of defective workmanship and materials by the builder, Cole J said that the issue raised was an important question of construction of a standard form contract and that “the determination of the issue ... will add substantially to the certainty of the commercial law”. So far as the researches of counsel went, his Honour’s decision on this point has stood for 15 years without adverse comment. It was distinguished in Hughes v Dormley Pty Ltd [2001] WASC 83 in a case where the builder was not capable of remedying the defects (at [39]), but that is not this case and in such a case the proprietor would be entitled to terminate the contract.

75 Nonetheless, counsel for the plaintiffs submitted that Cole J’s decision in Turner Corporation Pty Ltd v Austotel Pty Ltd should not be followed on this point. Counsel submitted that where a builder was in breach of its contract, clear and express words would be required before the principal became disentitled from recovering damages for the cost of others rectifying the defects. Cole J dealt with that argument at 395. His Honour held that whilst clear words were necessary before a party’s common law right to sue for damages for breach of contract could be contractually removed, express words were not required. Counsel for the plaintiffs submitted that this was an error. They referred to the speech of Lord Diplock in Gilbert Ash (Northern) Ltd v Modern Engingeering (Bristol) Ltd [1974] AC 689 at 717 where his Lordship said:

” It is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law or such remedy may be excluded by usage binding on the parties (cf Sale of Goods Act 1893, s 55). But in construing such a contract 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. ”

76 Cole J accepted that clear words were necessary but did not accept that express words were necessary for this purpose. Later expressions of this principle at the highest authority (Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at 585; Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 at [23]) are in accordance with Cole J’s approach, namely that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law.

77 As a decision intended to give certainty to the construction of a standard form of building contract, I would follow Cole J’s decision in Turner Corporation Pty Ltd v Austotel Pty Ltd, unless satisfied that it was clearly wrong. So far from thinking the decision clearly wrong, I agree with Cole J’s reasoning.

78 However, this result is a restriction on the rights of the proprietor which would be rendered ineffective by s 18G of the Home Building Act in the case of the statutory warranties under s 18B of the Home Building Act, if that Act applies.

79 The referee found (at [250]) that:

“ Given the comparative paucity of evidence on the matter, I favour the conclusion that the apartments do not fall within the definition of a dwelling by reason of the exclusion in clause 6(f) of the Regulation. If that conclusion is wrong, I am of the view that the availability of the implied warranties in the contract in terms of s.18B of the Act does not advance the case of the Principals. ”

It is clear from para [249] of the referee’s reasons that he intended to refer to reg 6(b) which excludes from the definition of dwelling “ all residential parts of the hotel ... ”.

80 The plaintiffs submitted that Parkline failed to discharge an onus of proof of showing that the exclusion applied and referred to Vines v Djordjevitch (1955) 91 CLR 512 at 519. The question is not one of onus. The question is whether the apartments are residential parts of the hotel. The hotel is a public house for the consumption of alcohol. It has no residential accommodation. With respect to the referee, I consider he was in error in concluding that the apartments are residential parts of the hotel such that the implied warranties under s 18B of the Act are excluded in relation to the apartments. I do not adopt the last two sentences of para [250] of the report.

81 Even though it was open to the plaintiffs to seek damages for defective work which was the result of the breach of statutory warranties, notwithstanding that they did not pursue the procedures for rectification under clause 6.11, it was still necessary for the plaintiffs to show that the carrying out of rectification work by a third party was necessary and reasonable (Bellgrove v Eldridge (1954) 90 CLR 613 at 619; Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 at [45]). Moreover, if the defective work was included on one of the lists given by the architect pursuant to clause 6.11, Parkline was both obliged and entitled to do the work. It is one thing to say that s 18G precludes the plaintiffs from being compelled to follow the procedures in clause 6.11 in the case of a breach of a statutory warranty. It is another to say that the section enables the plaintiffs to ignore the procedures in clause 6.11 once they have been invoked.

82 Parkline gave evidence which the referee accepted that its subcontractors would have rectified the notified defects at no or minimal cost to it. Parkline was entitled under clause 3.05 to reasonable access to the works in order to make good the defects. If the plaintiffs were otherwise entitled to damages for the cost of having third parties carry out the work which, but for the plaintiffs’ breach of contract, Parkline or its subcontractors would have carried out at no cost to the plaintiffs, then the loss Parkline suffered from the plaintiffs’ repudiation of the contract would include its liability to pay damages, which liability would not have been incurred had the plaintiffs honoured the contract. To avoid circuity of action, the plaintiffs would not be entitled to recover such damages if they could otherwise be established. Because the plaintiffs did not establish the precise nature and extent of the defective work for which Parkline was liable by reason of a breach of statutory warranty, they did not show that any such defects were not covered by the lists issued by Quirk on or before 14 January 2005. Hence, no damages were established.

83 If these difficulties were overcome the plaintiffs would still be faced with the problem that they did not prove what would be the reasonable cost of rectifying the defects for which Parkline was liable.

84 As the plaintiffs claimed damages for the cost of having a third party remedy defective work attributable to Parkline’s breach of contract, one would expect the plaintiffs to have adduced evidence of the reasonable cost of such work. The referee found that the plaintiffs failed to do so. The plaintiffs incurred a cost of $1,153,824.72 for work carried out by a builder, Sapphire Projects Pty Ltd, (“Sapphire”). But the work Sapphire was engaged to do was not to remedy defects in Parkline’s work in accordance with the contractual standard between the plaintiffs and Parkline, but rather to bring the apartments to a standard considered suitable by the Waugh Hotel Group, which was managing matters for the plaintiffs. For example, Sapphire’s work included the complete repaint of internal areas of the apartments to satisfy the standards of Waugh Hotel Group and its consultant Mr Peter Gurd of Nix Management Pty Ltd (“Nix”). As another example, Sapphire applied a render to the whole of the exterior of the building with a type of render different from that upon which Parkline and the plaintiffs had agreed. The referee was also not satisfied that the moneys paid to Sapphire represented the reasonable cost of the work done by Sapphire. The referee observed that no competitive quote was sought and throughout the performance of the work by Sapphire, no costs claim was rejected by Nix who carried out the construction management (at [202]). Hence, the moneys paid by the plaintiffs for the work done by Sapphire did not provide a measure of the reasonable cost of having a third party remedy defects for which Parkline was contractually responsible.

85 The plaintiffs contended that the referee was in error in this approach, and that the onus lay on Parkline to show the extent to which the costs the plaintiffs incurred did not form part of the plaintiffs’ reasonable costs of completing the works. It was submitted for the plaintiffs that the onus was on Parkline to isolate the extent to which the costs incurred represented betterment or failure to act reasonably to mitigate loss. That onus, so the plaintiffs submitted, had not been discharged.

86 The first question is what defects did the plaintiffs establish were due to Parkline not meeting its contractual obligations, or which it did not rectify promptly and within a reasonable time after the issue of a defects list by the architect?

87 The fact that Quirk issued defects lists up to 14 January 2005 and that the referee found that approximately 30 percent of the defects had not been rectified as at 14 January 2005 does not establish that the unrectified defects were a consequence of materials or workmanship not being in accordance with the contract.

88 The plaintiffs retained a Mr Tony Ransley of Tyrell’s Property Inspections to inspect the building work and report on any incomplete or defective work. Mr Ransley inspected the building on 19 January 2005 and issued a report on 25 January 2005 which, according to the referee, listed 719 alleged defects and listed 18 certifications by consultants and specialist contractors which had not been sighted by him. The referee observed that by the time the plaintiffs had exhausted inspections by building experts of the project the number of alleged defects amounted to 2,017 (at [94]).

89 The referee noted that Mr Ransley’s report had no contractual status. It was not adopted by the architect. (The plaintiffs effectively removed the architect from its role under the contract before purportedly removing it and replacing it with their solicitor. These were further acts of repudiation.) The referee did not find that the matters identified by Mr Ransley, as defective work to be addressed were defects arising from a breach of contract by Parkline. He observed (at [313]) that “if one had a criticism of the Ransley Report it would be that it was unrealistically detailed and pedantic in the inclusion of numerous items of the most minor significance.” He found that Mr Ransley was unaware of an agreement made in December 2003 as to the specification requirements for the external finish of the building (at [315]).

90 The problem of identifying which of the identified defects were the result of Parkline’s not complying with its contractual obligations became insuperable by the engagement of Sapphire to carry out work to a different standard without measuring and recording the areas of alleged defective work. This was notwithstanding that Mr Gurd advised on 6 July 2005 that Nix would project manage the rectification and completion of rectification works to a standard that met its satisfaction and the satisfaction of Waugh Hotel Management, and that in respect of all works to be undertaken it would establish a “comprehensive record including photographs, reports and invoices (matched to the works undertaken) with cross-referencing to the original Contractual Obligations of Parkline Constructions.” This was not done. In effect, the referee found that the plaintiffs had not proved which of the alleged defects were the result of a breach of contract, or what was a reasonable cost of rectifying them. He said:

“ Evidentiary Shortcomings in the Principals’ Case
346. The principal difficulty with the presentation of evidence may be stated generally as follows:
(a) Reliance by the Principals upon the Sapphire costs under a contractual arrangement for the performance of the work according to the standards of Nix and Waugh without any or with insufficient regard for the standards of performance required of Parkline under the Contract; compounded by the failure to measure and record the areas of alleged defective work as said to be rectified by Sapphire; further compounded by the failure to record costs by reference to the alleged defects and further compounded by a failure to identify the alleged defects in terms of the specific obligations of Parkline under the Contract conditions and specifications.
(b) Presenting evidence of alleged defects and incomplete works through reports, particularly of Mr Bullen and Mr Gurd who were insufficiently instructed on decisions taken on site during performance by Parkline.
(c) Tendering reports of the services specialists in relation to alleged defects in the services as performed by Parkline without verified statements by the authors of those reports and, so far as they were tendered as expert opinions, without agreement by them to be bound by the Expert Witness Code of Conduct.
...
349. The documentary evidence was adduced on behalf of the Principals mainly through Mr Gurd whose principal affidavit (Exhibit H) consisted of some two volumes of documents and comprised a report of March 2006 divided into six sections, the relevant part of which was ‘Section Six – Trade Costs’. That section was itself subdivided into 47 sections which included an ‘Actual Cashflow Expenditure’ (Subsection 1) which divided the expenditure incurred by apartments and trades.
350. The prime example of the method of presentation of the claim was to take a lump sum trade cost, say painting, and apportion that equally across the fourteen apartments. The same is true or substantially applicable to electrical, re-grouting and tiling, joinery, glazing, hydraulic etc: with subsections 7-47 being a collection of documents under particular trades such as Subsection 7 – Hydraulic, Subsection 8 – Mechanical and Subsections 15 and 22 Fire Services.
351. Each of those subsections had invoices, said to be supporting evidence of the expenditure. ...
352. One could go through virtually all of these breakdowns invoices and be none the wiser for the relevance to any failure on the part of Parkline in the performance of the Contract. Literally taking invoices at random, at p.545 there is an invoice from one Brian Byrne to Sapphire which sets out hours worked over a period of 5 days amounting to 39 hours which is charged at $35 per hour. That type of example can be multiplied hundreds of times. I think there comes a point when a tribunal exercising judicial functions is entitled to say that such a presentation of evidence is completely unacceptable.
...
355. The problem was probably unsolvable once the decision was taken to sack Quirk, employ third parties to inspect the premises without sufficient, or possibly any, regard for the contractual obligations of Parkline and to proceed to perform the work without any precaution aimed at identifying the particular defect attributable to Parkline and the cost of its rectification. ”

91 The only finding that there was defective work which was a breach of contract was in the referee’s consideration of a claim against Quirk that it had wrongly allowed a progress claim for the rendering component of the work about which it was said there was uncontested evidence that the work was not properly executed. The referee noted that “Defective finish of the external render was picked up by Quirk following its inspection of 14, 15 and 16 January 2005.” (at [305]). He said (at [323]-[324]):

“ 323. ... I accept that there would have been difficulty in matching patched areas with their surrounds, acknowledging that there were problems associated with the painted finish of the surrounds. I also accept that there was drummy render that required replacement, but where and how much I am not prepared to venture an estimate on the evidence and records, including photographic records, admitted into evidence in this reference.
324. Given the seriousness of the decision to Macrender, the least one could ask of a party seeking to establish the reasonableness of such a decision would be a full photographic and measurement record of affected areas which prompted the decision to overhaul the whole of the subject area. ”

92 The referee concluded (at [333]):

“ I am satisfied that there is no substance in the Principals’ case of wrongful certification by Quirk of Progress Claim 13. The rendering said to be faulty had been performed over the several months prior to July 2004. Second, the standard of finish above ground level was the subject of agreement between the parties of December 2003. Third, the Principals’ evidence fell well short of any reliable evidence establishing the extent of any defect in the rendering. Fourth, it was the opinion of Mr Ransley that the affected areas could be rectified by local patching. In my view, the nature of the alleged defect was not one calling for an adjustment of the progress claims of Parkline. It was properly addressed by Quirk in its 16 January defects list. ”

93 Thus, whilst the referee was able to find that there was some defective work which involved a departure from the contractual standard, he was not able to identify the extent or significance of such defective work. This was not through a failure to make necessary findings, but because the plaintiffs, by the way they carried out works to the building after removing Parkline from the site without keeping a proper record of the alleged defects, failed to prove the extent of such defects.

94 The plaintiffs submitted that they should at least be entitled to a sum of $150,420, being a sum which quantity surveyors retained by both parties agreed would be the cost to rectify defects identified by a Mr Bullen in 2006. However, the quantity surveyors’ joint report of the cost of rectifying such defects was expressly based on the assumption that the defects existed and were “valid defects” under the contract with Parkline. They said “It should therefore be clearly understood that the costs included in the attached summaries do not represent claimable costs unless the validity of the relevant defect has been established by others.” The referee observed (at [361]) that the qualifications to the quantity surveyors’ joint report “severely limit the utility of the joint report in any exercise to quantify rectification costs by reference to the contractual standards imposed upon Parkline under the contract and by reference to the extent to which those standards may be departed from – not in general terms, but in specifics requiring some reasonable evidence of the extent of those alleged departures and the reasonable cost of rectifying them.”

95 The referee also found that the plaintiffs failed to prove their claim for alleged rectification of services. Whilst the referee allowed the plaintiffs considerable latitude on the reference for the adducing of additional evidence as the result of conferences between experts and services engineers, he observed that the objections which counsel for Parkline advanced were ultimately not cured: namely, that there was no accurate identification of the alleged defects by reference to the contractual standard to show that they were the builder’s responsibility (at [365]-[366]).

96 I do not consider that the referee erred by failing to hold that the plaintiffs could recover all their expenditure except to the extent to which Parkline could show that it was expenditure for work not required to rectify defects for which Parkline had contractual responsibility, or otherwise resulted in the betterment of the plaintiffs’ position from that in which they would have been had Parkline performed the contract. It is true that where a plaintiff suffers loss as a result of a defendant’s breach of contract, the onus is on the defendant to make out a claim that the plaintiff failed to act reasonably to mitigate his loss. The onus is on the defendant to establish the value to the plaintiff of any benefit received by the plaintiff caused by the defendant’s conduct or by expenditure made by the plaintiff as a result of the defendant’s breach (Monroe Schneider Associates (Inc) v No. 1 Raberem Pty Ltd (1991) 33 FCR 1 at 17; Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [255], [264]; Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443; (2005) 12 BPR 23,923 at [44], [53]). But in this case there is no finding that the work done by Sapphire for the cost of which the plaintiffs seek damages was done in mitigation of loss, or that the plaintiffs’ expenditure was caused by Parkline’s breach of contract. Rather, the engagement of Sapphire and the plaintiffs’ expenditure followed and was the result of the plaintiffs’ own repudiation of the agreement and its determination to have building works done to a different standard.

97 Moreover, in assessing damages, a court is entitled to draw inferences against a party whose actions have made an accurate determination problematic. In Tyco Aust Pty Ltd v Optus Networks Pty Ltd, Handley JA (at [96]) applied that principle against a plaintiff with the onus of proof whose actions and omissions had made an accurate determination problematic.

98 I do not consider that the referee erred in his approach to the assessment of damages.

99 The referee made findings that Parkline had been dilatory and that there was drummy rendering that required replacement. These are findings of a breach of contract. Whilst the plaintiffs have not established their claim for substantial damages, they are entitled to nominal damages for breach of contract. The referee found that the plaintiffs are liable to pay Parkline $485,203 which, although described as damages, was in fact money due under the contract after variations. Parkline is entitled to judgment accordingly. The judgment for nominal damages can be set off against the judgment to which Parkline is entitled.

Claim Against Quirk

100 The only part of the claim against Quirk which is now pursued is the claim for any loss by the plaintiffs of liquidated damages between 23 August 2004 (the date of deemed practical completion) and the date of practical completion, namely, on the referee’s findings which I adopt, 12 November 2004. As I agree with the referee’s conclusion that the contract does not provide for the payment of liquidated damages, and as the referee found that the plaintiffs failed to establish any actual damages as a result of the delay in bringing the works to practical completion, the plaintiffs could not recover more than nominal damages against Quirk even if a breach of contractual duty were established.

101 The referee found (at [90]):

“ The Principals’ case against Quirk relies upon its failure to advise the Principals of their exposure to deemed practical completion by reference to the operation of clause 9.10. I think that where parties are contemplating action falling within clause 9.10 the supervising architect, who has the role of issuing a notice of occupancy, does carry an obligation to advise or alert a proprietor to the mechanism and operation of that clause so as to avoid an unintended deemed practical completion. I think that must be so in most if not all cases where the architect has a role to play. It does not involve a proposition that the architect has a continuing obligation generally to offer unrequested quasi legal advice to its proprietor. ”

102 On the motion to adopt the referee’s report Quirk did not take issue with this conclusion. It sought the adoption of a whole report. It did not submit that the obligation the referee found it owed had not been pleaded. The plaintiffs also sought the adoption of this paragraph. As the parties had a common position on this question I will adopt the paragraph without myself expressing any view as to its accuracy. The referee did not say whether the supervising architect’s obligation to advise the proprietor as to the mechanism and operation of clause 9.10 was a contractual duty or an aspect of a duty of care. However, I assume that the obligation to which the referee referred was, in his view, an aspect of an implied contractual term that the supervising architect exercise reasonable care and skill in providing his professional services (Astley v Austrust Ltd [1999] HCA 6; (1999) 197 CLR 1 at 22-23 [47]-[48]).

103 The question therefore arises whether, even though no substantial damages for the alleged breach of the obligation have been established, the plaintiffs are nonetheless entitled to nominal damages against Quirk for breach of contract. That would depend upon whether the obligation as so described was performed. The referee found (at [253]-[259]) that Quirk did not breach the duty he found it owed the plaintiffs. He said:

“ 253. If I am correct in the conclusion that there was a deemed practical completion on 23 August 2004 by reason of the occupation of the hotel and related areas by the Principals, that arises by reason of the absence of a clause 9.10.02 notice or ‘other written agreement’ within the meaning of clause 9.10.04. In most circumstances, the absence of such a notice where the contract does not provide for staged completion of the works when early partial occupation is under contemplation would, in my view, be regarded as a failure on the part of a supervising architect operating under a clause such as 9.10. To reach such a conclusion in the circumstances of this case strikes me as being unreasonably harsh.

254. It will be apparent from my earlier findings that I have taken a strong adverse view of the conduct of Waugh which in my view was overbearing in the extreme. It is also clear that there was significant commercial pressure exercised by Waugh to ensure that the Principals obtained occupation of the hotel portion of the project in July/August 2004 to avoid renewal of its lease of nearby hotel premises.

...

258. As earlier observed, I am satisfied that neither party nor Quirk gave consideration to clause 9.10 and I am satisfied that that was in no more small measure due to the situation created on the site by the commercial imperatives of the Principals. That, I think, led to Waugh’s invasion of contract administration with significant pressure being put upon by Parkline by Waugh, all compounded by the introduction of significant design changes affecting the hotel portion of the project.

259. Moreover, it is apparent that at a time when it had been thought the hotel and the apartments would reach practical completion at about the same time, Waugh was also taking steps to have trades and services go in to the hotel section in advance of its occupation of the whole of the hotel. In those circumstances I am not persuaded that there was any breach of any duty of care owed by Quirk to Bitannia in not putting in place a notice of occupancy pursuant to clause 9.10.02 nor in failing to advise Bitannia of the implication of clause 9.10 in relation to the steps being taken by Waugh in July/August 2004. ”

104 It was submitted for the plaintiffs that any “overbearing conduct” could not “exempt” Quirk from its obligation to advise and alert the plaintiffs of the need for a notice under clause 9.10.02, or another complying agreement under clause 9.10.04. Nor, so it was submitted, could the exercise of commercial pressure or the existence of other commercial imperatives be a sufficient reason for Quirk not giving advice of the kind which the referee considered should ordinarily be given by a supervising architect.

105 Notwithstanding that the referee did not couch his finding of a supervising architect’s obligation to advise or alert a proprietor to the mechanism or operation of clause 9.10 so as to avoid an unintended deemed practical completion in terms as an obligation to exercise reasonable care and skill in the performance of the architect’s function, it is clear from his analysis at paras [253]-[259] that the obligation he considered was owed was not absolute, but was an aspect of a “duty of care” (at [259]) owed to the plaintiffs. A duty of care is performed through the exercise of reasonable care in the circumstances. Whether Quirk, in the circumstances that obtained on 23 August 2004, failed to exercise reasonable care is a question of fact.

106 It has not been shown that no reasonable tribunal of fact could have made the findings the referee made at [258] and [259]. Indeed, it is manifest that Quirk could not have been in breach of any duty it owed to the plaintiffs in not giving a notice of occupancy under clause 9.10.02, as no agreement had been reached between the plaintiffs and Parkline on the matters required to be stated in such a notice. The only breach of the alleged duty could be in failing to advise of the consequences of not serving a notice under clause 9.10.02 or entering into a written agreement which dealt with the matters in clause 9.10.02. Whether an architect under intensive and unreasonable pressure in other areas failed to exercise reasonable care in not giving such advice is a jury question. I see no reason not to adopt the referee’s finding of fact.

107 Finally, it might be noted that even if a breach by Quirk had been established, and even if the plaintiffs would have been entitled to liquidated damages up to 12 November 2004 but for practical completion being deemed to have occurred on 23 August 2004, the plaintiffs would still have failed to establish the causal link between Quirk’s breach of contract and their loss of liquidated damages. To establish such a causal link they would have to established that it was probable that had the appropriate advice been given an agreement would have been negotiated with Parkline such that practical completion would not be deemed to have occurred. I was not referred to any material which would show that the plaintiffs had established such a causal link.

Conclusions and Orders

108 For these reasons I propose to adopt the whole of the referee’s report, save for the last two sentences of para [250].

109 Parkline is entitled to judgment for $485,203 as found by the referee, and interest. The plaintiffs are entitled to nominal damages against Parkline. The judgments may be set off.

110 Quirk is entitled to judgment on the plaintiffs’ claims against it.

111 Prima facie the defendants are entitled to their costs of the proceeding including the referral and the application to adopt the referee’s report. However, Quirk sought costs on the indemnity basis from 13 December 2005. I will hear the parties on the question of costs. One or more of the parties may wish to adduce evidence relevant to costs.

112 For these reasons I make the following orders.

1. The report of the referee, the Honourable Mr Robert Hunter QC dated 30 April 2009 be adopted, except for the last two sentences of para [250];

2. Judgment for the plaintiffs against the first defendant in the sum of $10;

3. Judgment for the cross-claimant (first defendant) against the cross-defendants, (first and second plaintiffs) in the amount sought in para 2 of the first defendant’s notice of motion filed 22 May 2009;

4. The judgments pursuant to orders 2 and 3 are to be set off;

5. Judgment for the second defendant on the plaintiffs’ claims against it.

6. Except as to costs, the plaintiffs’ notice of motion filed on 11 June 2009, the first defendant’s notice of motion filed on 22 May 2009 and the second defendant’s notice of motion filed on 27 May 2009 be otherwise dismissed.

7. Exhibits may be returned after 28 days.

113 I will hear the parties on costs.

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01/12/2009 - Correction to solicitors for the defendants - Paragraph(s) 0