Canterbury-Bankstown Council v Payce Communities Pty Ltd - [2022] NSWCA 74

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Canterbury-Bankstown Council v Payce Communities Pty Ltd [2022] NSWCA 74
Hearing dates: 7 December 2021
Date of orders: 19 May 2022
Decision date: 19 May 2022
Before: Meagher JA at [1];
White JA at [2];
Brereton JA at [173]
Decision:
(1) Appeal allowed in part.
(2) Vary declaration (1) made on 18 May 2021 by substituting for the figure $1,068,304.75 the figure $1,020,601.46, and substituting for the figure of $255,728.99 in order (2) the figure of $303,432.28.
(3) Otherwise dismiss the appeal.
(4) Dismiss the cross-appeal.
(5) Order that the appellant pay 80% of the respondent’s costs of the appeal and cross-appeal.

Catchwords:
BUILDING AND CONSTRUCTION – contract – whether claimed variations within contractual scope of work – builder’s margin – GST – no question of principle

Legislation Cited:
Building and Construction Industry Security of Payment Act 1999 (NSW), s 32(3)(b)
Disability Discrimination Act 1992 (Cth), s 23

Cases Cited:
Dr Shanahan v Jatese Pty Ltd [2019] NSWCA 113

Category: Principal judgment
Parties: Canterbury-Bankstown Council (Appellant/Cross-Respondent)
Payce Communities Pty Ltd (Respondent/Cross-Appellant)
Representation:
Counsel:
M Ashhurst SC with M T Keene (Appellant/Cross-Respondent)
D Miller SC with M Sheldon (Respondent/Cross-Appellant)
Solicitors:
Marsdens Law Group (Appellant/Cross-Respondent)
Vincent Young (Respondent/Cross-Appellant)

File Number(s): 2021/167145
Decision under appeal

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity Division

Citation:

[2021] NSWSC 331; [2021] NSWSC 558; [2021] NSWSC 710

Date of Decision:

6 April 2021; 18 May 2021; 17 June 2021

Before:

Stevenson J

File Number(s):

2019/133490

Judgment

MEAGHER JA: I agree with White JA.
WHITE JA: The appellant, the Canterbury-Bankstown Council appeals from orders of the Equity Division in proceedings brought against the Council by the respondent, Payce Communities Pty Ltd (“Payce”), Whilst there were five judgments delivered in the proceedings below, the substantive orders from which this appeal is brought were made in relation to the first and fourth, on 6 April 2021 and 18 May 2021 respectively: Payce Communities Pty Ltd v Canterbury-Bankstown Council [2021] NSWSC 331 and Payce Communities Pty Ltd v Canterbury-Bankstown Council (No 4) [2021] NSWSC 558 (Stevenson J)).
Payce is a property development and investment company. It entered into agreements with the Canterbury City Council pursuant to which, in exchange for the transfer of council land to it, it agreed to cause a building to be constructed on the land that included on the ground and first floor a library and community centre. These were to be dedicated for public use. To put it generally, under the agreements Payce, at its own cost, was to construct a library and senior citizens’ community centre or an educational establishment to a warm shell finish in accordance with a Voluntary Planning Agreement dated 1 March 2013. This was known as the Base Build.
Following council amalgamations, the Canterbury City Council is now the Canterbury-Bankstown Council. There is no issue that the Council has the same rights against and obligations to Payce as the former Canterbury City Council. I will refer to both the Canterbury City Council and the Canterbury-Bankstown Council as “the Council”, there being no need to discriminate between them.
Payce and the Council entered into further agreements, the effect of which was that a price was ultimately agreed for Payce to construct the full fit out of the library and community centre for a price of $2,171,000. This price was struck on the basis of documents and designs that have been called the 2015 Design.
There were further variations to the design. A dispute arose as to the extent of those design changes. Practical completion was achieved by 24 August 2018. Payce claimed that the total price for the Fit Out Works, including variations, was $4,052,543.78. It claimed $1,776,788.18 for variation works. The principal issues are as to the extent to which the works as constructed pursuant to the Council’s final instructions departed from the 2015 Design and the Base Build.
Payce made a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW). An adjudicator determined that $1,285,660.65 (ex. GST)was payable. This was an interim determination only. A summons filed by the Council seeking to set aside that determination was dismissed by Ball J on 18 December 2019: Canterbury-Bankstown Council v Payce Communities Pty Limited [2019] NSWSC 1803. His Honour ordered that the Council pay $1,471,552.11 (inclusive of GST) to Payce, and that amount was paid.
Payce instituted proceedings in the Technology and Construction List claiming damages for alleged breaches by the Council of the Fit Out Agreement in the sum of $228,833.44. Although its claim was framed as a claim for damages, it was a claim for further moneys payable under the contract, that is, a claim in debt.
The Council filed a cross-claim claiming that Payce had been overpaid.
On 18 May 2021, the primary judge declared that Payce was entitled to $1,068,304.75 (ex GST) on account of the variations it claimed under the Fit Out Agreement made on 4 December 2015. His Honour further ordered that pursuant to s 32(3)(b) of the Building and Construction Industry Security of Payment Act, Payce pay the Council $255,728.99 (ex GST) inclusive of pre-judgment interest to 18 May 2021, representing the amount overpaid by the Council pursuant to the adjudicator’s determination (as upheld by Ball J on 18 December 2019). (As will become apparent, the Council takes issue with the primary judge’s exclusion of GST in calculating the amount of its overpayment.)
The Council appeals from that part of the decision below in which the primary judge upheld, in part, Payce’s claim in respect of five claimed variations. It also appeals from the primary judge’s allowance of a builder’s margin of 10% in respect of seven variation claims, a ruling on GST, and consequential allowances and interest.
Payce cross appeals in respect of the primary judge’s refusal of two variation claims it made for reimbursement of the cost of consultants and the architect. It seeks a declaration that it is entitled to $1,225,946.75 (ex GST) on account of the variations it claimed under the Fit Out Agreement. It has also filed a notice of contention containing two grounds by which it seeks to affirm the primary judge’s exclusion of GST from the sum ordered to be repaid on 18 May 2021.
For the reasons which follow the Council’s appeal should be allowed in respect of what is called the “builder’s margin claim”, but should otherwise be dismissed. This conclusion makes it unnecessary to address Payce’s grounds of contention. The cross-appeal should also be dismissed.

Voluntary Planning Agreement

The parties and NSW Land and Housing Corporation entered into an agreement called a Voluntary Planning Agreement dated 1 March 2013. Clause 4.3(a) of that agreement provided:

“(a)    The Developer [Payce] must construct within Proposed Lot 2 a library and a senior citizens community centre, or an educational establishment, to a warm shell finish in accordance with:
(i)    the specifications set out in Schedule 3;
(ii)    the Building 1C Modification and any other relevant approvals required in order to carry out those works; and
(iii)    any Australian Standards applicable to works of the same nature as each aspect of those works,”

The “Building 1C Modification” was defined as follows:

“Building 1C Modification means the modification proposed to Building 1C so as to construct on Lots 446 and 447 in DP243672 27 social housing units, approximately 68 private dwellings, basement car parking and the library and senior citizens community centre (or an educational establishment) in accordance with the plan set out in Schedule 1.”

The plan set out in Sch 1 showed the proposed location of the library on the ground and mezzanine levels. The specification set out in Sch 3 was called a “Warm Shell Specification” dated October 2012. Under the heading “A. General warm shell building materials, finishes and services” it included the following relevant to the issues on this appeal:

“7.   Ceilings to be suspended grid ceilings with troffer lighting however the stores, delivery and garbage rooms will have an exposed concrete finish.
…
9.    Electrical services to meet BCA requirements and the use of energy efficient light fittings. An allowance for one switchboard including metering will be provided.
10.    Air conditioning and mechanical ventilation to meet BCA requirements.”

Under the heading “B. General Design Requirements” the specifications provided, relevantly:

“1.   The Educational Establishment will operate both day and night and 24 hour lighting, security and access is required.
…
4.    Building to comply with the BCA requirements and Australian standards.
…
7.    Warm shell to all areas shall include floors, ceilings, walls finishes and essential services however exclude walls and ceilings for the fitout, furniture, fixtures and equipment.”

Umbrella Agreement

On 12 September 2014 Payce and the Council made an agreement called the Umbrella Agreement that acknowledged the parties’ agreement and intention that, if Building 1C Modification proceeded, Payce was obligated to construct within proposed Lot 2 a library and senior citizens’ centre to a warm shell finish in accordance with the Voluntary Planning Agreement.
A schedule to the Umbrella Agreement contained a further agreement called the Fit Out Agreement. It was to come into existence on the date the last of specified conditions precedent were satisfied. That date was 4 December 2015.
By cl 9.3(b) the parties agreed that the specification in the Fit Out Agreement was preliminary only and was subject to variation in accordance with cl 9.
Clause 9.6 provided:

“Development of Design Documentation
(a)    Payce must procure the development and completion of the design of the Fit Out (and the items contained in section A of Schedule 3 to the Planning Agreement) in accordance with this clause 9.6. Payce's costs in managing the development and completion of the design of the Fit Out (and the items contained in section A of Schedule 3 to the Planning Agreement) will be borne by Payce.
(b)    Payce must schedule regular progressive meetings between Payce, the Architect and not more than two representatives of Council for the purpose of Council reviewing and commenting on the draft design documentation.
(c)    Council must:
(i)    ensure the representatives it appoints:
(A)    have experience in design development;
(B)    attend the scheduled meetings; and
(C)    act promptly in providing review and comment on the draft design documentation; and

(ii) not change the individuals acting as Council's representatives unless Council, acting reasonably, determines it not practicable to avoid doing so.

(d)    Payce must cause the Architect to amend the draft design documentation in accordance with the review and comment of Council from time to time.
(e)    Upon completion of the design development process the draft design documentation as approved by both Council and Payce will become the final design documentation and will not be further amended except in accordance with clause 9.8 or because there are faults in the design documentation which require rectification.
(f)    For the avoidance of doubt, the parties acknowledge if there is a dispute about what should comprise the final design documentation then the dispute will be referred to dispute resolution in accordance with clause 13.”

By cl 9.7(a) the parties agreed that the FOA Contract Price for the Fit Out Agreement referred to in cl 10.2 was provisional only and subject to change having regard to the final design documentation. The price provided for in cl 10.2 was that Payce would pay $2,040,000 to the Council for the purchase of Lot 477 and the Council would pay $2,040,000 to Payce which included a payment of $1,520,000 for the Fit Out Agreement. Clause 9.7(b) and (c) provided:

“(b)    On completion of the design documentation, Payce must prepare its determination of the FOA Contract Price and submit that determination to the Independent Certifier.
(c)    The parties by this agreement irrevocably instruct the Independent Certifier to assess Payce's submission made pursuant to clause 9. 7(b) and make a determination of the FOA Contract Price which determination is final and binding on the parties. The FOA Contract Price will be the amount determined by the Independent Certifier (subject to clause 9.6(a) and clause 9.9) except that: -
(i)    the cost of the architect will be paid for by Payce as to the first $70,000 and thereafter as part of the FOA Contract Price, and
(ii)    the cost of other consultants will be paid for by Payce as to the first $25,000 and thereafter as part of the FOA Contract Price.
(d)    At any time during the design process Payce (at Payce's own volition or on the request of Council) may prepare a submission of the estimated FOA Contract Price based on the then draft design documentation and refer that submission to the Independent Certifier for interim assessment. Any assessment made by the Independent Certifier pursuant to this clause 9. 7( d) will be for guidance only and not bind the parties except as provided for in clause 9.8.”

Clause 9.8 provided for the Independent Certifier to determine whether the Fit Out Agreement contract price would exceed $1,520,000. The Council could then within 15 business days elect either to accept the FOA Contract Price or amend the design documentation so as to reduce the price, in which case the design process provided for in cl 9.6 would recommence. If the Council elected to amend the design documentation it could nominate a maximum amount it would accept as the FOA Contract Price being not less than $1,520,000.
Clause 10.4(b) provided:

“(b)    If under the Fit Out Agreement the amount payable by Council to Payce exceeds $1,520,000 then:
(i)    the first $1,520,000 under the Fit Out Agreement will be set off as contemplated by clause 10.3; and
(ii)    the amount in excess of $1,520,000 will be paid by Council to Payce progressively in accordance with clause 37 of the Fit Out Agreement.”

Fit Out Agreement

The Fit Out Agreement defined “WUC” (from ‘Work under the Contract’) as meaning the work which the contractor was or may be required to carry out and complete under the contract and included variations. Under the Fit Out Agreement Payce was the Contractor.
Clause 36 of the General Conditions of Contract set out in Schedule 1 of the Fit Out Agreement provided:

“36.1 Directing variations
The Contractor shall not vary WUC except as directed in writing.
The [Principal], before the date of practical completion, may direct the Contractor to vary WUC by any one or more of the following which is nevertheless of a character and extent contemplated by, and capable of being carried out under, the provisions of the Contract:
a)    increase, decrease or omit any part;
b)    change the character or quality;
c)    change the levels, lines, positions or dimensions;
d)    carry out additional work;
e)    demolish or remove material or work no longer required by the Principal.
36.2 Proposed variations
The [Principal] may give the Contractor written notice of a proposed variation.
The Contractor shall as soon as practicable after receiving such notice, notify the [Principal] whether the proposed variation can be effected, together with, if it can be effected, the Contractor's estimate of the:
a)    effect on the construction program (including the date for practical completion); and
b)    cost (including all time-related costs, if any) of the proposed variation.
The Superintendent may direct the Contractor to give a detailed quotation for the proposed variation supported by measurements or other evidence of cost.
The Contractor's costs for each compliance with this subclause shall be certified by the Superintendent as moneys due to the Contractor.
36.3 Variations for convenience of contractor
If the Contractor requests the Superintendent to direct a variation for the convenience of the Contractor, the Superintendent may do so. The direction shall be written and may be conditional. Unless the direction provides otherwise, the Contractor shall be entitled to neither extra time nor extra money.
36.4 Pricing
The Superintendent shall, as soon as possible, price each variation using the following order of precedence:
a)    prior agreement;
b)    applicable rates or prices in the Contract;
c)    rates or prices in a priced bill of quantities, schedule of rates or schedule of prices, even though not Contract documents, to the extent that it is reasonable to use them; and
d)    reasonable rates or prices, which shall include a reasonable amount for profit and overheads,
and any deductions shall include a reasonable amount for profit but not overheads.
That price shall be added to or deducted from the contract sum.”

Agreement on FOA Contract Price

The independent certifier was a Mr Richard Rigby of Rider Levett Bucknall (“RLB”). On 21 October 2015, that is, before the satisfaction of the conditions precedent to the Fit Out Agreement, a Mr Michael Malak of Payce sent to Mr Rigby a request for him to assess the cost of the library works as the proposed design drawings then stood. On 8 December 2015 Mr Rigby sent to the superintendent, Mr Miled Akle of M Projects, his estimate of the fit out costs for the project based upon the documentation provided. His estimate for the fit out of the library/café on level 1 “as per attached elemental” was $510,426 and for library and community centre on level 2 was $1,508,378, a total of $2,018,804. The estimates did not include any sum for the “Base Build”. The “Base Build” refers to Payce’s obligation to construct the library and community centre to a warm shell finish in accordance with the Voluntary Planning Agreement.
The attached “elemental” included rates for different quantities of units under different headings including for the level 1 library/café for the following:

MS	Mechanical Services
108	Allowance for additional supply air diffusers with associated flexible ducts due to new partitioning
242	Mechanical Upgrade to library (e.o. base build)
LP	Light and Power
159	Extra over for better quality 1200 x 300 Recessed Flourescent (sic) Light Fittings
160	Extra over for Recessed Downlight in lieu of base building troffers – priced per downlight

For the level 2 library and community centre, his estimates included quantities and prices for the following:

CF	Ceiling Finishes
143	E.O Set plasterboard ceiling
164	E.O Set perforated acoustic plasterboard ceiling
184	E.O Suspended acoustic ceiling tiles
191	Paint to ceilings
230	E.O Suspended acoustic ceiling tiles, 4.5m to 5.0m
231	Plasterboard bulkhead, not exceeding 300mm high
232	Plasterboard bulkhead, over 300mm high
MS	Mechanical Services
108	Allowance for additional supply air diffusers with associated flexible ducts due to new partitioning
151	Allowance for new mechanical exhaust system to L2 Staff Unisex toilets comprising ductwork, grilles, fan, power and controls wiring and connection to existing base building exhaust riser (Assumed existing base building exhaust riser can accommodate new toilet facilities)
207	Allowance for new mechanical exhaust system to L2 Toilet complex comprising ductwork, grilles, fan, power and controls wiring and connection to existing base building exhaust riser (Assumed existing base building exhaust riser can accommodate new toilet facilities)
208	Allowance for kitchen exhaust and flesh air supply installations but excluding kitchen exhaust hood and comprising ductwork, diffusers, fans, power and controls wiring, and connection to existing base building risers (Assumed existing base building risers can accommodate the new kitchen)
209	Allowance for new supplementary water cooled package air conditioning system to serve the L2 function rooms
210	Allowance for new VAV box and associated ductwork modifications for new meeting rooms-priced per room
211	Allowance for new supplementary water cooled package air conditioning system to serve the L2 technical hub area
LP	Light and Power
107	Provisional allowance for feature lighting comprising large pendant
154	Provisional allowance for feature lighting comprising medium pendant
159	Extra over for better quality 1200 x 300 Recessed Flourescent (sic) Light Fittings
160	Extra over for Recessed Downlight in lieu of base building troffers – priced per downlight

The procedures provided for by cl 9.8 of the Umbrella Agreement were not followed. The Council did not seek to amend its design documentation so as to reduce the FOA Contract Price determined by the Independent Certifier. Instead, it obtained an opinion from another quantity surveyor, Mr Gallagher, of Hollis Partners. Hollis Partners provided an alternative detailed cost estimate based upon specified drawings and schedule of internal finishes and the warm shell specification that was an annexure to the Voluntary Planning Agreement. Mr Gallagher noted that his estimate and the estimate of RLB were based on the same documents. Mr Gallagher noted:

“The design is in the development stage with many materials yet to be selected, details and services designs to be provided and coordinated. As such there are considerable nominal and contingent allowances made within the estimates. These will need to be reviewed during design development to maintain the budget…”

Mr Gallagher’s cost estimate for the then design was $1,998,021 compared to Mr Rigby’s estimate for the equivalent items of $2,344,446.
On 24 November 2016 Payce proposed that the parties resolve the issue by agreeing to split the cost difference of approximately $350,000 on a 50/50 basis. On 24 February 2017 the Council accepted that proposal.
The effect of splitting the difference was that the agreed FOA Contract Price was $2.171 million. The primary judge said:

“[197] It will be recalled that the agreed FOA Contract Price of $2.171 million was the result of a “split of the cost difference” agreement between the Council and Payce concerning the opinions expressed in the 2015 RLB Estimate and 2016 Hollis Estimate.
[198] In those documents, Mr Rigby and Mr Gallagher each expressed their opinions by reference to elements within those trade descriptions.
[199] Mr Daubney [a quantity surveyor called by Payce as an expert witness] performed the arithmetical exercise of calculating what percentage of Mr Rigby’s total estimate of $2.344 million was attributable to each trade description and calculating the dollar value of the corresponding percentage of the negotiated “split of the cost difference” figure of $2.171 million (“the RLB Apportioned Figure”).
[200] For example, in relation to ceiling finishes, Mr Daubney calculated that Mr Rigby’s figure of $100,700 was 4.3% of Mr Rigby’s total figure of $2.344 million and that the corresponding component of the $2.171 million was $93,261.10. [32]
[201] Mr Miller and Mr Sheldon [counsel for Payce] performed a similar task in relation to Mr Gallagher’s figures (“the Hollis Apportioned Figure”) and also calculated, as a matter of arithmetic, the midpoint between the resultant figures (“the Mid Point Figure”).
[202] The result was a table Annexure MFI-13 (212981, pdf) which formed part of MFI 13 (altering the headings on the fourth to sixth columns to adopt the abbreviations I have adopted).
[203] For the purpose of calculating Payce’s damages in cases where Payce seeks to adopt Mr Daubney’s reasoning, [33] I propose to adopt, as a conservative course, the largest of those figures as the figure to be deducted from actual costs.”

The annexure that the primary judge adopted is also annexed to these reasons Annexure A (892843, pdf).

The contracted scope of works

It was common ground that there were further design changes, but their extent was in issue. Payce’s claims for variations fell to be judged against the scope of works in the Base Build, that is, the works to be constructed pursuant to the Voluntary Planning Agreement and the specification for a warm shell finish provided for in that agreement, and the scope of works the subject of the designs and schedules (the 2015 Design) upon which the estimates of the two quantity surveyors were based.
The primary judge held that Payce was correct in its submissions that:

“106 …
(1)   it was the elemental trade items described in the competing estimates by Mr Rigby and Mr Gallagher that comprised the scope or subject of the FOA Contract Price;
(2)   those elemental trade items are drawn from, or “based on”, the materials to which each quantity surveyor referred;
(3)   if an element was not shown in the elemental breakdown pages prepared by both quantity surveyors, that meant it was not priced and was not part of the later compromised FOA Contract Price; and
(4)   if what was ultimately supplied differed in number to what was listed in those elemental build-ups, or was of a different quality to that allowed in those elemental build-ups, or if what was supplied was a different arrangement all together, then those elements would not be covered by the FOA Contract Price and would constitute variations to be governed by cl 36 of the Fit Out Agreement.”

This was not disputed.
The primary judge accepted the Council’s submission that where a deduction should be made in respect of claimed variations on the basis that the work in respect of which a variation was claimed was an element in the 2012 design (the Base Build), the cost of such elements should be increased by 12% (J [212]).

Variation 18 – Mechanical Systems

Payce claimed that it was entitled to $192,010.51 for changes made to the air conditioning system following directions from the Council. The primary judge allowed the claim.
There was no issue that there had been a variation to the requirements of the air conditioning system following directions from the Council after February 2017. The primary judge described the variation as follows:

“[258] The 2015 Design, on which the FOA Contract Price was based, called for an air conditioning system with, mostly, square outlets. At a Design Meeting, Mr Goh directed that the mezzanine balustrade in the library be of full height glass. This had the effect of changing the air conditioning mechanical requirements.
[259] At a further Design Meeting on 21 June 2017, Mr Goh agreed with CK Design’s suggestion to use air conditioning diffusers and beam lights. This also changed the air conditioning mechanical requirements. On 11 and 13 July 2017, CK Design uploaded drawings reflecting these changes to Webspace.
[260] These steps constituted a direction from the Council to vary the works.
[261] Mr Daubney said that these changes to the mechanical design of the air conditioning system were significant.
[262] Mr Nader described the updated air conditioning design as follows:
‘The updated design of the mechanical system included linear diffusers, increased AC requirements due to the full height of the glazing to the mezzanine, system upgrades, relocation of AC units, new penetrations and façade glazing louvres.’

[263] The actual cost of the work was $608,966.52.
[264] From that should be deducted that part of the FOA Contract Price which is attributable to mechanical services air conditioning work.
[265] The largest of the relevant figures [38] for that element is the RLB Apportioned Figure of $230,911.51.
[266] Further deduction should be made for that part of the Base Build as is attributable to mechanical services air conditioning, $203,500, which should be escalated by 12%.”

Mr Goh was the Council’s representative. CK Design was the architect. Mr Nader was a project manager at Dasco Australia Pty Ltd (“Dasco”). Dasco was engaged by a related company to Payce as the builder.
In the case of Variation 18 the Council did not submit that any part of the work for which the variation was claimed fell within the scope of work that was within the Base Build or the 2015 Design, that is, the designs the subject of the agreed FOA Contract Price.
Instead, the Council submitted that the variation had not been priced in accordance with cl 36.4 of the Fit Out Agreement because the variation described by Mr Nader had not been priced.
The primary judge adopted the cost of all of the works ($608,966.52) and deducted from that figure the estimates attributable to mechanical services air conditioning in the Base Build and the further estimate of Mr Rigby of the cost attributable to mechanical services air conditioning in the designs the subject of the 2017 agreement (the 2015 Design).
The Council submitted that by taking the actual cost that the Contractor charged for the entire element of the work and then subtracting from it the 2015 costs that the parties had agreed, and the element estimated in the 2012 Base Build, there was an unproved assumption that the contractor would charge Payce the same amount for the components of the work that were the subject of the Base Build and the 2015 Design as the quantity surveyors had estimated.
The Council acknowledged that no case had been advanced prior to trial challenging the basis for assessment of the variation that Payce advanced and the primary judge adopted. Nor was it a ground of appeal that the primary judge erred by not rejecting the variation claim on the ground that it did not comply with cl 36.4 of the Fit Out Agreement. Senior counsel for the Council said that this was because the point had not been taken at trial.
The air conditioning works carried out by Dasco’s contractor (JJ Metro West Pty Ltd (“JJ Metro”)) were invoiced by JJ Metro to Dasco in the sum of $608,966.52. The Council submitted that if the variations were not to be valued directly but assessed as the difference between the costs actually incurred and the estimates for the work in the Base Build and the FOA Contract Price, the judge ought not to have used the quantity surveyors’ estimates for the Base Build (escalated by 12%) and the quantity surveyors’ estimates in the FOA Contract Price, but instead should have used what the Council described as “…contemporaneous evidence reflecting the price at which an actual trade contractor has contracted to perform the work”. It referred to what it called the respondent’s builder’s price for the installation of the Mechanical System based on the 2015 Design of $595,185. This was a reference to an attachment to an email sent by Mr Nader of Dasco to Ms Shaza Rifi, who worked for the project manager, on 8 December 2017.
The attachment referred to individual elements and against each element stated a figure for Old Brief October 2012, Design Brief 2015, Extra Over 2015, Design Brief Extra Over 2017 (being the pricing of the extra work over that provided for in the Design Brief 2015) and then a final column being the addition of the extra sums over the Old Brief 2012 as a result of both the Design Brief 2015 and the Design Brief 2017. Item 418 was described as “Supply and Install AC to library and SCC [Senior Citizens’ Centre] (including system upgrade, relocation of units, new penetrations and façade glazing louvres)”. Against this item under the column headed “Design Brief 2015” there was a figure of $595,185 and against “Old Brief October 2012” there was a figure $392,150. Under the column “Design Brief 2017 Extra Over” there was a figure of $157,000.
The Council submitted that the judge should have valued the variation at $608,966.52 (being the cost actually charged by JJ Metro) minus $595,185 (being the pricing of the Design Brief 2015 in Dasco’s schedule): a difference of $13,781.52 exclusive of GST.
On this reasoning, it should be inferred that Dasco or its contractor would have been prepared to carry out the work described by Mr Nader, as quoted by the primary judge at para [262] excerpted above, for $13,781.52.
Mr Nader was cross-examined by counsel appearing at trial for the Council on this document. It was not put to Mr Nader that he would have been prepared to do the work he described for that sum. He was asked about that 2015 design brief. In his affidavit Mr Nader had deposed:

“Variation 18: Mechanical System (Claim for $381,366.52)
Overview of Variation 18
126.    Variation 18 was a variation for implementing upgrades to the mechanical system for the Project in accordance with the updated Drawings provided by CKD in mid-2017. Payce claims an additional amount of $381,366.52 for this variation.
Original scope
127.    Drawing D04.01 Rev A and D04.02 Rev A, being part of the 2015 Design (pages 303 and 304 of Exhibit AN-1 ), provided the following basic design for the mechanical system:
a.    19 square air conditioner (AC) outlets, 6 wall mounted linear AC outlets and 11 return air inlets to the community hub;
b.    10 square AC outlets and 5 return air inlets to the mezzanine area; and
c.    16 square AC outlets to the library.”

The drawings referred to in para 127 are the same drawings referred to in Hollis Partners’ letter of 5 May 2016. Mr Nader was asked the following in cross-examination:

“Q.    The 2015 design that you refer to in 127, was that part of when you refer to the design brief 2015, part of the information you had for calculating the design brief that you refer to in column 2 on page 704?
A.    Not necessarily no.
Q.    Do you know one way or another?
A.    No.”

It may be inferred that the Design Brief 2015 referred to in Mr Nader’s email to Ms Rifi was a design prepared by the Council’s architect, CK Designs. In an email from Ms Rifi to Mr Rigby of 10 October 2016 Ms Rifi advised that “Dasco have repriced the library fit out based on CK Designs’ plans and specification. This will be the same package that was repriced by RLB.” There was no corroborative evidence for this latter assertion.
There was no evidence as to how Dasco or its subcontractor priced the 2015 design.
The judge did not err in adopting the estimate of Mr Rigby, given that Mr Gallagher had provided a lower estimate than Mr Rigby. There must be serious doubt about Dasco’s pricing of the 2015 design given that it estimated an extra price of $157,000 for the 2017 design over its pricing of the 2015 design which would suggest a price for the works of $752,185, whereas the actual cost was $608,966.52. It is not surprising that the builder, in its discussions with the project manager, would price the 2015 design highly.
It was legitimate for the primary judge to value the reasonable rates for the variation by taking the actual costs of the works, the reasonableness of which was not in issue, and deducting from that cost Messrs Rigby’s and Gallagher’s assessment of the value of that element upon which the FOA Contract Price was struck by the agreement of February 2017, and in the Base Build (escalated by 12%).
Payce submitted that it was not open to the Council to raise the issue at trial, nor on appeal, having regard to the conduct of the trial. The issue was raised in closing submissions but had not been identified as an issue in the pleadings, nor in the Council’s opening submissions, and was only addressed in evidence in the cross-examination of Mr Nader referred to above.
Payce contended that the first time that the submission was advanced by the Council was in a Scott Schedule that the primary judge directed and that was provided 13 days after the completion of the hearing and oral submissions (T 35). The Council did not take issue with this contention. If the Council’s submission as to variation 18 were otherwise attractive, which it is not, I would not accept it having regard to the lateness with which it was raised at trial. The inconclusive cross-examination of Mr Nader did not identify this as an issue to be addressed by Payce. (Dr Shanahan v Jatese Pty Ltd [2019] NSWCA 113 at [69]-[70], [133]-[135], [137]).
For these reasons I reject the Council’s appeal in respect of variation 18.

Variation 19 – supply of lighting - $276,070.33

This variation was allowed for the amount claimed.
In relation to this item the primary judge said:

“[267] Both the 2012 Design and the 2015 Design made allowances for lighting.
[268] The 2015 Design specified that troffer lights, downlights and medium and large pendants were to be supplied and installed throughout the library. It did not specify the intended quality, size or number of those lighting fixtures.
[269] At a Design Meeting on 21 June 2017, Mr Goh said, ‘We want all lights in the library to include beam lights’.
[270] The minutes of that Design Meeting recorded that Mr Goh approved aluminium extrusion lighting, which was reported to be almost three times as expensive as the ‘current lighting’ and that CK Design were instructed to issue a ‘schedule of selected light fittings to incorporate in design plans’.
[271] Shelmerdines Consulting, mechanical and electrical consulting engineers, uploaded the requisite drawings to Webspace shortly thereafter.
[272] These steps constituted a direction by the Council to effect these changes.
[273] Mr Berson agreed that:
‘… there is an increase in the scope and quantity of the lighting in the as built design from the pre Feb 2017 design’.

[274] Mr Daubney has made an analysis of the light fittings installed to assess what lighting has been installed over and above that contemplated by the 2015 Design.
[275] He described the process he undertook in his report as follows:
‘I have counted the number and types of light fittings shown in the 2015 Design and the 2017 Design, and compared and reconciled the changes. My count of light fittings by type based on the 2017 Design differs from that included in a light schedule supplied to me as part of the Carrier Electrical Invoices. I am instructed that the Carrier light schedule represents the as-built lighting schedule, and I have used that as the basis of my assessment. I have applied the rates for the specific light fittings charged by Carrier on the basis they represent the market price for those items. I have adjusted those rates to deduct an amount for the base build cost of a standard energy efficient troffer. I have calculated the base build cost as $70/unit. This method provides for the actual cost less the Base Build amount (which effectively is the extra over cost intended by the Fit Out Agreement).’

[276] As an attachment to the Joint Statement with Mr Berson and Mr Brewster, Mr Daubney revised that opinion as follows.
‘Mr Daubney has revised his opinion of Variation No.19 to include for the extra over costs of the entire 2017 lighting design. Mr Daubney’s initial analysis only included for costs associated with the increase in lighting between 2015 and 2017 (i.e., the extra over quantities only) and therefore did not value the full extent of the cost impact resulting from the changes in lighting design and specification during this period.

Consequently, Mr Daubney has revised his opinion to include for the following:
(a) The extra over costs for the supply of lighting for all 568 lighting fixtures in accordance with the SCC Lighting Schedule Rev A;
(b) A deduction of $18,865.00 for the extra over allowance made by RLB within their 2015 estimate; and
(c) A reasonable allowance for the supply and installation of additional base build lighting as a result of the increase in lighting between the 2015 and 2017 designs (172 No. total).’

[277] Mr Daubney then set out a table detailing his analysis that the value of the lighting work over and above that in the 2015 Design was $276,070.33.
[278] There was no other evidence on this topic. I accept Mr Daubney’s analysis and allow this item.”

The Council contends that Payce’s claim for variation 19 should have been for the amount claimed by the builder of $206,762.19 being the difference between the 2015 and 2017 designs, less a Base Build allowance from 2012 said to be $137,985. On this basis, by its notice of appeal, the Council contended that the amount allowed ought to have been $69,677.19 rather than $276,070.33.
In its written submissions, the Council contended that the variation should have been valued at $96,764.19 (excluding GST).
The warm shell specification provided for suspended grid ceilings with troffer lighting and the use of energy efficient light fittings. It provided for the Educational Establishment to operate with 24 hour lighting. (See [16] and [17] above).
RLB’s indicative budget estimate for the Base Build as at April 2012 provided an estimate of $171,125 for “electrical and lighting” for the library Base Build and $137,085 for the senior citizen Base Build. Thus the sum of “electrical and lighting” for the Base Build was $308,210, but the break up of that sum between electrical and lighting was not disclosed.

In his report, Mr Daubney opined that the appropriate method of valuation was to ascertain a reasonable extra over cost of the lighting in accordance with the 2017 design. He assumed that the lighting scope under the Base Build work required the supply and installation of energy efficient troffer lighting.
Omitting a paragraph of Mr Daubney’s report that was not read, he stated:

“221    In my opinion, the appropriate method of valuation is to ascertain the reasonable extra over cost of the lighting in accordance with the 2017 Design.
222    In the first instance I have sought to identify what elements of lighting scope sit under the Base Build Works and which form the Fit Out Works. This is necessary to ensure that my opinion of Variation 19 does not include amounts already paid under the Base Build Works.
…
224    In the 2015 RLB Price, the lighting scope included:
224.1 Feature pendants – large size;
224.2 Feature pendants – medium size;
224.3 An extra over amount for ‘better quality 1200 x 300 recessed fluorescent light fittings’ based upon an assumed quality of $30 per unit;
224.4 An extra over amount for ‘recessed downlight in lieu of base building troffers-priced per downlight’ based upon an assumed increase in quality of $55 per unit.

225    Based on the foregoing, I have assumed that lighting scope under the Base Build Work requires the supply and installation of energy efficient troffer lighting.
226    Based upon the descriptions of the scope included in the 2015 RLB Price, it is my opinion that the Parties intended the FOA Contract Price to include for the ‘betterment’ of the light fitting specification from that provided in the Base Build Works, and for the additional costs of those fittings to be paid for under the Fit Out Agreement. Relevantly, that increase in quality was only assumed and not in reference to any given specification. I note that the actual cost for the light fittings exceeded those pricing assumptions.
227    Payce claims that the quantity of light fittings has also increased from that provided in the 2015 Design and seeks the additional costs incurred in complying with the 2017 Design.
228   I have counted the number and types of light fitting shown in the 2015 Design and the 2017 Design, and compared and reconciled the changes. My count of light fittings by type based on the 2017 Design differs from that included in a light schedule supplied to me as part of the Carrier Electrical Invoices. I am instructed that the Carrier light schedule represents the as-built lighting schedule, and I have used that as the basis of my assessment. I have applied the rates for the specific light fittings charged by Carrier on the basis they represent the market price for those items. I have adjusted those rates to deduct an amount for the base build cost of a standard, energy efficient troffer. I have calculated the base build cost as $70/unit. This method provides for the actual cost less the Base Build amount (which effectively is the extra over cost intended by the Fit Out Agreement).
229   I note that the as-built 2017 Design includes for 172 No additional light fittings compared to that contemplated under of the 2015 Design. I have included the full cost for the supply and installation of this additional quantity of 172 fittings, on the assumption they were not previously included as part of the Base Build Works.
230   Payce claims $207,198.19 for Variation 19.
231    I am of the opinion that the reasonable value of Variation 19 is $165,171.47 as summarised in Table 29 Annexure B (121141, pdf) . A copy of my full assessment is provided in Appendix 31.

In the joint experts’ report Mr Daubney said:

“4.8    Mr Daubney has revised his opinion of Variation No.19 to include for the extra over costs of the entire 2017 lighting design. Mr Daubney’s initial analysis only included for costs associated with the increase in lighting between 2015 and 2017 (i.e., the extra over quantities only) and therefore did not value the full extent of the cost impact resulting from the changes in lighting design and specification during this period.
4.9    Consequently, Mr Daubney has revised his opinion to include for the following:
(a)    The extra over costs for the supply of lighting for all 568 lighting fixtures in accordance with the SCC Lighting Schedule Rev A;
(b)    A deduction of $18,865.00 for the extra over allowanced made by RLB within their 2015 estimate; and
(c)    A reasonable allowance for the supply and installation of additional base build lighting as a result of the increase in lighting between the 2015 and 2017 designs (172 No. total).

4.10 Mr Daubney’s final analysis of Variation No.19 in the sum of $276,070.33, is summarised in the table Annexure C (124354, pdf) .

The table identified a quantity of lights supplied at different locations and the amounts allowed for them.
The Council submits that Mr Daubney’s opinion expressed in his joint report ought to have been rejected because it did not disclose his reasoning. Payce submits that although this part of Mr Daubney’s evidence contained in the joint report was objected to, it was not objected to on this ground and, had it been objected to on this ground, leave would have been sought to adduce his reasoning.
When the joint report was tendered (wrongly recorded in the transcript as having been admitted without objection) the initial objection taken was that the opinion expressed by Mr Daubney was beyond the pleaded case. The report was tendered on 4 March 2021. Mr Daubney and the quantity surveyors whose evidence was relied upon by the Council (and whose reports were largely rejected) were examined in conclave on 5 March 2021.
Objection was taken to Mr Daubney’s report dated 4 March 2021. The primary ground of the objection was that Mr Daubney’s opinion had been expressed on the basis of matters outlined in an affidavit of Mr Rigby that Payce decided not to read. The Council objected that Mr Daubney’s reports (including his opinion in the joint report) were inadmissible because the assumptions underlying his report could not be established from evidence and that he had acted on assumptions derived from evidence of Mr Rigby that had not been read. The primary judge overruled that objection and there is no appeal from that ruling.
As part of its written submissions, the Council submitted that Mr Daubney’s failure to disclose his assumptions regarding the Base Build made it impossible for the Council to test his conclusion that the constructed works were a variation from the Base Build. In oral submissions before the primary judge the primary judge commented

“HIS HONOUR: But he’s exposing his reasoning process here, isn’t he? I mean, you may criticise it and you may want to test him about it, but although Mr Daubney has recited in para 210 of his report what Mr Rigby said, when he’s doing his workings Mr Daubney refers to the figure.”

The admissibility of Mr Daubney’s opinions was not challenged on the basis of failure to give reasons. If it be correct, as the Council asserts, that there were no reasons given for his opinion, that would mean that his opinion should have little or no weight. For the reasons below, that assertion is not correct.
The Council referred to the attachment to Mr Nader’s email to Ms Rifi of 8 December 2017 referred to above in which Dasco priced “light fittings including troffer lights” for the community centre and the library under the ‘Old Brief October 2012’ at $110,000.
The lighting work “elements” of the FOA Contract Price were broken down in RLB’s 2015 assessment in the sum of $67,465 and were so identified in Mr Daubney’s report at para [220].
The Council submitted that the Lighting Works were performed by Carrier Electrical Pty Ltd who charged $274,229.19 for the work.
The Council’s submission that the variation should only have been valued at $96,764.19 excluding GST depended upon its submission that Dasco’s price of $110,000 for the installation of the lighting system based on the 2012 design should have been accepted and that $67,465 should have been allowed as an additional cost within the FOA Contract Price.
I do not accept that the Council can rely upon Dasco’s allowance for troffer lights as part of the Base Build in contradiction to Mr Daubney’s opinion as to the rate he adopted for Base Build troffer lights ($70) rather than what might be presumed to be the higher rate allowed for in Dasco’s document. The differences were not put to Mr Daubney in cross-examination. Payce says that this calculation was raised for the first time on appeal. The Council did not take issue with that submission but rather submitted that it was not a matter that needed to be put to Mr Daubney.
The grounds of appeal in relation to variation 19 did not claim, in the alternative, that the variation should only have been allowed to the extent provided for in Mr Daubney’s first report. Nor was that submission advanced in the Council’s written submission. But in the course of oral submissions, Mr Ashhurst SC who appeared with Mr Keene for the Council submitted that in his report Mr Daubney applied the correct methodology of valuing the variation. He submitted that some of his reasoning should be rejected because it was based upon what he had read in an affidavit made by Mr Rigby that had not been read by Payce. Subject to the criticism referred to below of Mr Daubney’s report, the Council submitted that it would otherwise be appropriate to adopt Mr Daubney’s original figure for the variation of $165,171.
Mr Daubney commented upon Payce’s original claim for variation being the difference between the charge made by Carrier Electrical for the lighting as installed ($274,229.19) and the RLB price for the 2015 Design said to be $67,465. In Mr Rigby’s estimate of fit out costs based on the 2015 Design for the library/café on level one he allowed the following under the heading “Light and Power”:

Description	Unit	Qty	Rate	Total
159	Extra over for better quality 1200 x 300 Recessed Flourescent (sic) Light Fittings	No	15.0	30.00	450.00
160	Extra over for Recessed Downlight in lieu of base building troffers – priced per downlight	No	59.0	55.00	3,245.00

For the light and power allowance on level 2 (library and community centre), Mr Rigby allowed the following:

Description	Unit	Qty	Rate	Total
107	Provisional allowance for feature lighting comprising large pendant	No	7.0	2,300.00	16,100.00
154	Provisional allowance for feature lighting comprising medium pendant	No	15.0	1,500.00	22,500.00
159	Extra over for better quality 1200 x 300 Recessed Flourescent (sic) Light Fittings	No	73.0	30.00	2,100.00
160	Extra over for Recessed Downlight in lieu of base building troffers – priced per downlight	No	236.0	55.00	12,980.00

The total of these figures is $57,465, not $67,465.
Implicitly Payce was claiming that the Base Build included a $10,000 allowance for the lighting works required under the warm shell specification which provided that ceilings were to be suspended grid ceilings with troffer lighting and that energy efficient light fittings were to be used (Warm Shell Specification, paras 7 and 9).
In his schedule supporting his reasons, Mr Daubney proceeded on the basis that the allowance for troffer lights that should be allowed for the Base Build was $70 per light. Mr Ashhurst submitted that:

“If the $200 troffer light was applied instead of Mr Daubney’s $70 troffer light figure was applied, instead of the $165,171.47 figure that Mr Daubney did reach in his first report, then the figure that would have been derived is $91,331.”

He submitted that Mr Daubney should have used a figure of $200 per unit because he had assumed that the figure in the Base Build was $70 per unit based upon Mr Rigby’s affidavit evidence that was not read.
This is a different submission from that advanced in the Council’s written submissions. In its written submissions the Council said that the primary judge ought to have deducted both the $67,465 figure and a price of $110,000 identified by Dasco in Mr Nader’s attachment to his email of 8 December 2017 in which he allowed a price of $110,000 for the installation of the lighting system based on the 2012 design.
We were not taken to any cross-examination of Mr Nader in relation to these items, nor to submissions made about them before the primary judge. Payce submitted that Mr Nader was not asked anything about how he had come up with $200 per troffer for the Base Build nor what the design was that he was pricing in the document and was not asked anything about what the price of $110,000 was for. Mr Nader’s attachment to his email of 8 December 2017 was not shown to the quantity surveyors retained by both parties and they were not asked questions about it.
I accept Payce’s submission that in the absence of any evidence from Mr Nader to explain the basis of the figures in the attachment sent to the project manager estimating a price of $110,000 for light fittings under the Base Build, in the absence of any reference to those documents by the parties, or the quantity surveyors retained by the parties as experts, it would have been inappropriate for the primary judge to make his assessment of the value of variation 19 having regard to the line items in the schedule sent by Mr Nader to Ms Rifi on 8 December 2017.
Mr Daubney produced in his report an advertisement by a supplier of troffer lights quoting “An Efficient LED Troffer – 120cm x 30cm” at $69.95 each. This was the basis of his troffer allowance in the Base Build. In the absence of any evidence as to what kind of troffer lights were envisaged in the Base Build, there was no error in Mr Daubney adopting that figure.
It appears to have been common ground that the rates for specific light fittings charged by Carrier was $200 per troffer.
As is apparent from Table 29, in his report Mr Daubney applied the rate of $150.48 to the additional quantity of 172 lights. He described this as including the full cost for the supply and installation of that additional quantity.
That does not suggest that the rate charged by Carrier was $220 per light fitting rather than $150.48 for the supply and installation of such light fittings. Carrier Electrical Services’ tax invoice is unilluminating.
Mr Daubney’s opinion in the joint report is quoted at [68] above. It did not lack reasoning.
Paragraph 4.9(a) of the report and the attached table shows that Mr Daubney adjusted the extra over costs for the increased quality of lighting not just for the 172 additional lights that he had allowed in his report, but for all of the lights that had been installed.
We were not taken to any cross-examination of Mr Daubney in relation to variation 19. The primary judge did not err in accepting his opinion as expressed in his joint report.

Variation 23 – ceiling finishes - $372,598.48

This claimed variation was allowed in the sum of $317,599.88.
The Council admits that there was a variation of the work required but submits that it should have been valued only at $87,358.44. The Council submitted that of the variation sum claimed, $230,241.44 should have been wholly rejected. The latter sum was included in an invoice from Bright Construction Group Pty Ltd dated 15 March 2018 for work simply described as “Plasterboard Ceilings”.
The invoice also referred to the supply of “Décor Panels System”. The Council did not take issue with the variation claimed for that item.
As to the cost of $230,241.44 for plasterboard ceilings, the primary judge said:

“[290] This was the amount that Bright Constructions charged for what Mr Daubney described as ‘double layers of plasterboard’ that were required ‘to comply with Fire and Acoustic specifications’.
[291] Mr DeBuse submitted that this evidence showed that the double plasterboard of the ceiling was the responsibility of Payce under the Base Build and that:
‘Under the warm shell specification, the ceilings had to be acoustically sound for BCA compliance, at Payce’s cost.’

[292] Mr DeBuse did not refer to any particular provision in the Warm Shell Specification to justify this submission. The only reference to ‘ceilings’ that I can find in that specification is:
‘Ceilings to be suspended grid ceilings with troffer lighting …’ [39]

[293] The Warm Shell Specification did also state that the building must ‘comply with the BCA requirements and Australian standards’ but I can find no provision of the kind to which Mr DeBuse referred.
[294] The allowance in the 2012 Design for ceilings in the Base Build contained two amounts for ‘mineral fiber tile ceiling’ (totalling $68,695).
[295] The drawings priced by Mr Rigby and Mr Gallagher made no reference to double layer plasterboard and referred only to ‘set perforated acoustic plasterboard ceiling’.
[296] I am, in these circumstances, persuaded that the component of the Bright Construction Group invoice for ‘plasterboard ceilings’ represents a cost not included in the earlier estimates.
[297] From that actual cost, Mr Daubney deducted the RLB Apportioned Figure of $93,261.10 as reflecting that part of the ceiling costs that should be attributed to the FOA Contract Price.
[298] For the reasons I have set out above, [40] I propose to adopt the slightly higher Hollis Apportioned Figure of $101,342.51.
[299] Mr Gallagher then deducted a further sum of $107,955, being the cost attributable to ceilings in the 2012 Design.
[300] For the reasons I have explained, I consider this figure should be increased by 12%.”

The drawings that were part of the 2015 Design priced by Mr Rigby and Mr Gallagher referred to perforated acoustic plasterboard ceilings in respect of a function room and to “set P/B ceilings in the library” and to “600w set P/B on the bulkheads in the library”. A note to the drawings stated that “all workmanship and material shall be in accordance with the relevant Australian standards, the building code of Australia and the requirements of the relevant statutory authorities” (Drawing D04-01 and D04-02 RevA). The requirement for double layered plasterboard related to the function room, not the library.
The Council submitted that a double layer of plasterboard was required in order to comply with Australian standards. The Council relied first on Mr Daubney’s report. He said:

“[257] In addition to the information on the 2017 Design drawings, I am instructed that Payce was required to install double layers of plasterboard to comply with Fire and Acoustic specifications. I am instructed that the amount stated on the Bright invoice refers only to the ceiling installation in the library and community centre and includes for all elements required to comply with regulations and the 2017 Design.”

The acoustic specifications referred to are in a document prepared by Acoustic Logic dated 1 October 2015 addressed to Mr Nader of Dasco . Acoustic Logic specified that the ceiling of the function room contain two layers of 16mm plasterboard (as well as specified glasswool insulation) (E 134). They stated that the noise criteria adopted for the function room were as follows:

“● to residential directly above the project site shall be less than 30dB(A)L₁₀ at any time
● to outdoor spaces the nearest noise receivers shall comply with the criteria by Council DA Condition”

In response to the observation of Brereton JA that the document at E134 refers only to the ceiling in the function room, Mr Ashhurst referred to Blue D4/2025.Z, which were the minutes of a project meeting of 5 July 2017 attended by representatives of the Council, CK Design, Dasco, Payce and the project manager M Projects. Item 1.5 of the minutes records:

“AN [Alex Nader of Dasco] advised of his meeting with the acoustic consultant on 4/7 and advised that to satisfy the acoustic requirements there needs to be two layers of plasterboard behind the chosen ceiling panel (in the function room) and one layer (community meeting rooms). PW [Phillip Waters of CK Design (the Council’s architect)] to liaise with George [acoustic consultant] and check if this is correct. KG [Kim Goh of the Council] advised if this is correct the [sic] does not want to go ahead with the selected ceiling panels.”

The Council did not rely on the last sentence.
It was common ground that the drawings priced by Mr Rigby and Mr Gallagher did not only refer to “set perforated acoustic plasterboard ceiling” (J [295]). But it is correct that on the area of the plan D961-I that constituted the function room, the only reference was to perforated acoustic P/B. In the relevant area, the primary judge was correct in saying that the drawings referred only to set perforated acoustic plasterboard ceiling and made no reference to double layer plasterboard.
The first question is whether it is open to the Council to contend that double plasterboard ceilings were required in order to comply with the requirements of the warm shell specification that the building comply with BCA requirements and Australian standards, and condition 8 on drawing D04-02 that all workmanship and materials be in accordance with the relevant Australian standards, the Building Code of Australia and the requirements of the relevant statutory authorities. If it is open to the Council to rely upon that argument, the second question is whether the evidence establishes that double layers of plasterboard were required in order to comply with BCA requirements and Australian standards or the requirements of condition 8 to drawing D04-02 quoted at [101] above.
Mr Ashhurst did not dispute Payce’s submission that the Council had not pleaded in answer to the claim for variation 23 that double layers of plasterboard were required to comply with Australian standards, the Building Code of Australia, or the requirements of statutory authorities. The primary judge found (at [175] and [176]) that the Council did not plead that there was any particular BCA requirement that should have been considered in the course of effecting the variations that were the subject of Payce’s claim, and that its pleading did not suggest that any BCA requirement had a role to play in the scope of work the subject of the FOA Contract Price.
Mr Ashhurst submitted that whilst the primary judge had found that this ground had not been pleaded, his Honour did not find that for that reason the Council was precluded from arguing the point. Before the primary judge the Council had argued that the double layer was for fire and acoustic compliance, citing Mr Daubney’s report at para 257 quoted above. Mr Ashhurst noted that no notice of contention had been filed by Payce in this respect. He submitted that if a notice of contention had been filed the Council would argue that the form of Payce’s pleading did not give the Council the opportunity, and made it unnecessary for the Council, to have pleaded the BCA requirements. I accept this submission. It is open to the Council to raise the point on appeal.
The primary judge was clearly right in holding that the requirement of the warm shell specification that the building comply with the BCA and Australian standards did not inform Payce’s scope of work. If work were within the Base Build or the 2015 Design, then it had to comply with those standards. But where additional work was required the fact that the additional work had to comply with those standards did not bring it within the requirements of the Base Build or the 2015 Design.
Nor does condition 8 of drawing D04-02 take the matter further. That condition refers to the required standard of workmanship and materials, neither of which is in issue.
The Council did not identify any requirement of the BCA or any Australian standard, or any Council requirement, that would require the installation of a double layer of plasterboard in the ceiling above the function room. The acoustic report specification of Acoustic Logic does not identify any such requirement. The Council did not place any reliance upon the second dot point under the heading “Noise Criteria” quoted at [103] above. No doubt that is because plasterboards in the ceiling above the function room might have no impact upon compliance with the criteria referred to of noise travelling to outdoor space, as distinct from the residence above the project site.
Para 257 of Mr Daubney’s report is quoted at [102] above. The first sentence does not state that the installation of double layers of plasterboard was required in order to comply with regulations. The second sentence does not state that double layers of plasterboard would be required to comply with regulations in accordance with the 2015 Design. We were referred to no cross-examination of Mr Daubney on the issue. The Council does not say that a double layer of plasterboard was required over the library, presumably because that would be a quieter area than the function centre. This suggests that the requirement for a double layer was not due to fire considerations but rather to acoustic considerations. The only identified basis for the requirement is in the first dot point of the Acoustic Logics report para D.1 which does not suggest that this was a requirement of any regulation.
I should add that the acoustics report was not one of the documents referred to by Mr Hollis as forming the basis of the 2015 Design.
For these reasons I would reject the Council’s appeal in respect of variation 23.
It is convenient to deal next with variation 30 that deals with the same subject matter.

Variation 30 – Acoustic Insulation - $77,754.60

The primary judge said in respect of this claim:

“[329] Payce claims this amount in relation to what it contends to be additional works on account of installing acoustic insulation.
[330] Mr Nader described this work as a ‘variation for the supply and installation of acoustic insulation to the library ceiling space in order to comply with BCA Requirements’.
[331] Mr Nader said that the works were specified in a ‘2017 Acoustic Report’ which stated that these works needed to be carried out (adopting Mr Nader’s words) ‘to ensure that the Fit Out Works were compliant’. Mr Nader said that the works ‘were not included in the 2015 Design’.
[332] There was no provision in the 2012 Design for such insulation, nor was such insulation referred to in the 2015 RLB Estimate or the 2016 Hollis estimate. It therefore did not form part of the FOA Contract Price.
[333] Mr DeBuse submitted that:
‘The insulation was installed in the roof space above the ceiling. It is either Base Build or Warm Shell. There is no element of ‘Fit Out’ in this. This was required for regulatory compliance. Mr Nader says so in his affidavit … The location and purpose of the insulation does not suggest that the batts are a discretionary matter related to the enjoyment of the Library. The fact that they are not in the 2012 RLB estimate or in fact in any estimate does not change the character.

[334] It is clear from Mr Nader’s evidence that the acoustic insulation was required for regulatory compliance.
[335] But the evidence also shows that it was work over and above that in the 2012 Design and was not work the subject of the FOA Contract Price.
[336] I accept that this amount is recoverable by Payce as a variation.”

The Acoustic Logic report identified that the ceiling of the function room, as well as having a double layer of plasterboard, should also have glasswool insulation to a specified minimum thickness.
The Council submitted that the source of the obligation to carry out the ceiling insulation work that is the subject of variation 30 was cl 4.3(a)(iii) of the Voluntary Planning Agreement and para 4 of Part B of the warm shell specification that the library and senior citizens’ community centre was to be constructed to a warm shell finish in accordance with any Australian Standards applicable to works of the same nature as each aspect of the works (cl 4.3(a)(iii)) and comply with the BCA requirements and Australian standards (warm shell specification Pt B para 4).
Condition 4 of Pt B of the warm shell specification does not define the scope of work required by the warm shell specification or the 2015 Design. The warm shell specification referred to the installation of suspended grid ceilings. The ceilings ultimately required were not suspended grid ceilings.
The 2015 Design upon which the contract price was based made no reference to glasswool insulation. Glasswool insulation for the ceiling of the function room was provided for in Acoustic Logic’s report of 1 October 2015 provided to Dasco. But that was not a document used by the quantity surveyors in their pricing.
The Council relied upon the primary judge’s acceptance of Mr Nader’s evidence that the acoustic insulation the subject of variation 30 was work required in order to comply with BCA requirements (J [330]). But his Honour went on to find that there was no provision for this work in the 2012 design or the 2015 Design. The Council does not take issue with the latter finding. For the reasons above I do not accept the challenge to the former finding.
I would reject the appeal in relation to variation 30, which is in a similar category to variation 23.
By its notice of appeal the Council also contended that variation 30 should have been rejected on the ground that there was no evidence of any direction having been given within the meaning of cl 36.1 of the Fit Out Agreement for the variation. I do not accept this contention. The primary judge found that under cl 36.1 a direction given by the Council to Payce did not have to be in writing and there was no appeal from that finding. Moreover the 2017 ceiling drawings contained a note that was not on the 2015 ceiling drawing: “Check acoustic report for locations of all … acoustic rated ceilings”. The 2017 acoustic specification contained the requirement for glasswool insulation. Although the same requirement was contained in the 2015 acoustic specification there was no similar note in the 2015 ceiling drawings that referred to that specification.

Variation 24 – hearing loop - $142,279.50

In relation to this claim the primary judge found:

“[301] At a Design Meeting on 12 July 2017, Mr Goh directed that there be a ‘hearing loop wherever there is an [audiovisual] system’.
[302] There was no hearing loop priced as part of the FOA Contract Price.
[303] Indeed, both Mr Rigby and Mr Gallagher in terms excluded any price for an audiovisual system.
[304] The Builder had noted as part of a ‘new brief’ (July 2015) that there was to be added an amount of $54,850 for:
‘Supply and Install for Hearing Loop System in areas defined in the Fit Out Spec – Design’.

[305] Mr DeBuse sought to develop an argument that it was somehow implicit in the Base Build cost that hearing loops would be installed.
[306] Mr DeBuse referred to a communication from an acoustics engineer which he said ‘sets out hearing augmentation requirements for a public space’. However, the documents to which Mr DeBuse referred do not appear to me to set out such requirements.
[307] Further, the Builder’s document to which Mr DeBuse referred contrasted the ‘Old Brief October 2012’ with the ‘New Brief (July 2015)’, suggesting the figure of $54,850, therein referred to, was not part of the Base Build.
[308] As the requirement of a hearing loop was not referred to in the 2015 RLB Estimate or the 2016 Hollis estimate and was therefore not part of the FOA Contract Price, I am satisfied that the amount claimed by Payce should be allowed as a variation.”

Again, the Council contended that the obligation to carry out the hearing loop works arose under cl 4.3(a)(iii) of Pt B of the warm shell specification which required the building to comply with BCA requirements and Australian standards. The Council submitted that to comply with the relevant code and standards, Payce was required to include in its Base Build a hearing loop.
The Council referred to minutes of a meeting held on 10 February 2015 attended by, amongst others, representatives of the Council, Dasco, M Projects and Payce, which included notes that CK (CK Design) was to review an “accessibility report” prepared by MGAC (Morris Goding Accessibility Consulting) to ensure all requirements were met. MGAC provided a report to Dasco on 4 February 2015 setting out recommendations said to be made in accordance with mandatory requirements of, amongst other things, the Building Code of Australia Pt D3, E3 and F2.
Its report stated at para 14.1 and 14.2 that hearing augmentation was required in all “class 9b rooms/areas” if an inbuilt amplification system were installed and in particular was required in the library/educational establishment “stepped seating area zone”. In cl 14.2 MGAC stated that hearing loops are required to at least 80% of floor area with inbuilt amplification system and that these areas were required to be signed. MGAC also made additional recommendations. It said that the recommendations that followed did not have an impact on the building sign-off under the DDA access code for buildings or the BCA but were recommendations “in line with the intent and objectives of the DDA to ensure equitable and dignified access for people with disabilities”. Under the heading “Hearing Augmentation” MGAC stated:

“4.3 Provide hearing loops at all service counters (with or without screening), lifts, points, communication points (eg intercoms to buildings) and warning systems, compliant with AS 1428.5 (advisory) to enable all people making enquiries to clearly hear staff.
4.4 When multiple counters in one location provide the same service, ensure 20% min. of each class of counter provides a hearing loop system.”

Before the primary judge and in its written submissions on appeal, the Council also relied on s 23 of the Disability Discrimination Act 1992 (Cth). That submission was not pressed.
Clause 4 of Pt B of the warm shell specification which required that the building comply with the BCA requirements and Australian standards must be read with para 7 of that Part that provides that the warm shell excludes equipment. The Council does not dispute that hearing loops are equipment.
The direction for the variation was given by Mr Goh on behalf of the Council on 12 July 2017 in which he directed that there be a hearing loop wherever there was an audiovisual system (J [301]). The Council does not dispute that this was a variation but contends that the variation should have been quantified in the amount of $87,429.50 rather than $142,279.50 because allowance ought to have been made, but was not made, for the “hearing loop” Base Build cost of $54,850.
The elements on which Mr Rigby and Mr Gallagher priced the 2015 Design excluded allowance for AV installation. The primary judge did not err in allowing the claim. It did not fall within any of the elements of the Base Build. Nor was it included in the elements on the basis of which the price of the 2015 Design was agreed.
The Council sought to rely on an allowance that Dasco was said to have made for this item in its pricing of the 2012 and 2015 Designs. Mr Ashurst submitted that in this respect the point that the Council sought to raise in respect of variation 24 was the same as the submission made in respect of variation 18 and 23, namely that if instead of valuing the variation, one took the actual costs charged (accepted as reasonable) and made a deduction from that cost, the appropriate deduction was the builder’s assessment of the cost of the Base Build and the 2015 Design rather than the quantity surveyors’ estimates of the reasonable costs.
I have rejected that submission in relation to the earlier variations. In any event, the question does not arise in respect of variation 24 because, contrary to whatever assumption Dasco might have made, hearing loops were not included either within the warm shell specification or the 2015 Design.
I would dismiss the appeal in respect of variation 24.

Builder’s margin

The primary judge said:

“The Builder’s margin
[213] The experts agree that Payce is entitled to charge a margin of 10% on top of the cost of variations; reflecting the ongoing role that Payce, together with its Project Manager, had in liaising with the Council and the Council’s architect as the design developed.
[214] Pursuant to the Building Contract, the Builder also charged a 10% margin on the costs it incurred to deal with such matters as the Builder’s attendance, supervision and coordination of the variation works and such matters as preliminaries and overheads.
[215] As this was the Builder’s contractual entitlement, it appears to me to be reasonable that, assuming Payce is otherwise successful in relation to the variations for which it contends, Payce should be reimbursed in respect of that margin.
[216] I will not refer to this further, but it should be assumed that Payce’s damages will include a figure reflecting this element for each variation it sustains.”

The Council did not challenge Payce’s entitlement to charge a margin of 10% on top of the cost of variations reflecting its ongoing role, together with the role of its project manager, in liaising with the Council and the Council’s architect as the design developed. It did challenge the judge’s finding at [214] that Dasco charged a 10% margin on the costs it incurred to deal with such matters as the builder’s attendant supervision and coordination of the variation works, preliminaries and overheads. The Council submitted that there was no evidence that Dasco charged a 10% margin on the costs it incurred with respect to the claimed variations and that there was no evidence that any such cost was ever charged to Payce.
In the joint expert report Mr Daubney (called by Payce) and Mr Burson (called by the Council) stated:

“2.31    Mr Daubney and Mr Berson agree that it is reasonable and appropriate under the Fit out Agreement for an allowance of 10% to be applied to the direct cost of the Variations to compensate for Payce’s overhead and margin.
…
2.34    Mr Berson and Mr Daubney disagree on the application of a margin for Dasco’s (Payce’s Managing Contractor) overheads and profit to ascertain the net value of the Disputed Variation to Payce. Mr Berson is of the opinion that fair and reasonable prices provided would have included for all subcontractor overheads and profit margins.
2.35    Mr Daubney stated that this could not be the case where Mr Daubney and Mr Berson had used the net invoiced cost to Dasco as the basis of their opinions. Further, Mr Daubney noted that in certain instances, Mr Berson had solicited trade quotes, but had not allowed for any subcontractor allowance for overhead and profit on those prices. Mr Daubney considered that Mr Berson’s pricing did not properly reflect the actual procurement structure for the Fit out work.
2.36    Mr Berson disagrees with this statement as the quotes provided in this Joint Statement are fair and reasonable and in line with quotes at that time. Mr Berson’s opinion appears to be in line with Payce’s as they have never claimed this so-called 10% subcontractor margin.
2.37    Mr Daubney has included 10% for Dasco’s margin in addition to the direct trade costs Dasco has incurred (whether they are actual costs or in the absence of actual costs, a reasonable estimate), because he considers it necessary to recognise that each entity in the supply chain is entitled to recover margin. Mr Daubney is instructed Dasco was entitled to 10% for margin on such costs in accordance with its agreement with Payce.
2.38    Mr Berson outlines that Council’s contract was with Payce (and not Dasco) and Mr Berson has allowed for all applicable margins in the contract on that basis. Mr Berson also points out that Payce have never claimed this additional Dasco subcontractor margin and it is unclear to Mr Berson why Mr Daubney is now adding this additional margin.”

The issue on appeal turned on two questions. Was Payce liable to pay Dasco a 10% margin in respect of the variations over the prices the subcontractors charged Dasco and did Dasco charge Payce such a margin? Mr Daubney’s evidence was that it is industry practice that each entity in the supply chain is entitled to recover a margin.

The Council submitted that there was no evidence to support the instruction to which Mr Daubney referred in the joint report that Dasco was entitled to charge and had charged an allowance of 10% for its cost of managing the varied work.
Payce submitted that the valuation exercise for the primary judge in relation to the allowance of the margin was a discretionary one. This appears to be a reference to cl 36.4 of the Fit Out Agreement that Payce was entitled to reasonable rates or prices including a reasonable amount for profit and overheads for each variation. But the issue does not concern the reasonable amount for profit and overheads, that is, Payce’s profit and overheads, but whether a reasonable price includes a margin that Dasco could charge Payce and did charge Payce.
Dasco was engaged to carry out the work by Payce Communities No 4 Pty Ltd, which may be taken to be a related company to Payce. The contract between Dasco and Payce Communities No 4 provided that if the Contractor (Dasco) considered that a Direction of the Principal (Payce Communities No 4) involved a Variation then the Contractor was required to provide an estimate of the cost of the Variation with appropriate detail following the receipt of which, the Principal might accept the Contractor’s estimate, negotiate different terms, give the Contractor a Variation Direction or reject its estimate. (Design and Construct contract between Payce Communities No 4 Pty Ltd as Principal and Dasco Australia Pty Ltd as Contractor cl 9.1). Clause 9.3 provided that, if there were no agreement between the Principal and the Contractor, then the Principal was required to pay an amount reasonably determined by the Quantity Surveyor, whose price for the Variation was to include 10% of direct costs as the agreed allowance for contractor attendance, supervision, coordination, preliminaries, overheads and profit (cl 9.3(c)). In substance Dasco was entitled to charge 10% for its margin on the reasonable cost of variations carried out by its subcontractors. It would be surprising if it did not charge that amount to Payce Communities No 4. If it did so, that margin would appropriately be treated as a reasonable price to which Payce should be entitled for the variation on its claim against the Council.
The only evidence of Dasco’s making a margin claim is a payment schedule provided by Payce Communities No 4 in relation to a payment claim made by Dasco for the period up to 30 April 2018. Dasco made a claim for “builder margin and overheads” (at 312.V). The claim as it appears in the payment schedule is not broken up, and does not evidently relate to the variations in question.
The question as posed by the Council is not whether Dasco was entitled to charge a 10% margin on direct costs, but whether it did so. The Council points to the fact that the judge rejected Payce’s claim for Dasco’s margin in respect of variations 18 and 23 (Payce Communities Pty Ltd v Canterbury-Bankstown Council (No 2)) but allowed it with respect to variations 5, 19, 24, 25, 30 and 41. The primary judge did not give reasons for this differential treatment. There is no cross appeal by Payce against the primary judge’s rejection of this part of its claim in respect of variations 18 and 23.
The question comes down to whether Payce has established that Dasco charged Payce Communities No 4 the 10% margin it was entitled to charge (or some lesser margin) in respect of these variations. If it did not, then it would not be reasonable to price the variations under cl 36.4 of the Fit Out Agreement for an amount that Dasco had not charged. Although Dasco was entitled to charge that margin, the evidence did not establish that it did so with respect to the variations in issue.
Payce submitted that the Council had not pleaded that Dasco had not charged a 10% margin on the costs that it incurred. The onus was on Payce to establish what was a reasonable price for the variations and if the reasonable price included a margin charged by Dasco, to prove that Dasco charged that margin. Even if it could be said that this was an issue which the Council should have pleaded so as to avoid taking Payce by surprise, the issue was plainly raised in the joint experts’ report.
For these reasons I would uphold this ground of appeal. The effect of upholding this ground is to reduce the amount that the primary judge found Payce was entitled to receive on account of the variations it claimed under the Fit Out Agreement by $47,703.29.

GST

In the adjudication determination the Council was ordered to pay Payce $1,471,522.11, inclusive of GST. The payment was inclusive of GST because it was for what had then been determined to be the additional payment that the Council was required to make for the supply by Payce of the construction work to the Council.
It is common ground that the Council is registered for GST and was entitled to an input tax credit for the GST component of the payment.
The adjudicator’s determination was provisional. The primary judge found that the Council was liable to pay not $1,471,522.11 inclusive of GST, but $1,068,304.75 exclusive of GST, which equates to $1,175,135.20 inclusive of GST.
The Council contends that, as the payment made by it to Payce pursuant to the adjudicator’s determination was inclusive of GST, and the excess as found by the primary judge was repayable to it by way of restitution, the repayment should also have been inclusive of GST.
Correcting for arithmetical errors, the Council submitted:

“56.   …
(b)    If the payment to and from the Respondent had been treated on an inclusive of GST basis then the amounts would have looked like this:
(i)   Payment to the Respondent by the Appellant $1,471,522.11 (incl GST);
(ii)   Payment retained by the Respondent pursuant to Court Orders made on 18 May 2021 ($1,068,304.75 + [excl] GST) or ($1,175,135.20 incl GST);
(iii)   The difference between (i) and (ii) is $1,471,522.11 - $1,175,135.20 = $296,386.90 incl GST (which is the sum that should have been repaid to the Appellant);
(iv)   The sum that was repaid to the Appellant pursuant to the orders made on 18 May 2021 was only $255,789.90 (including interest and GST);
(v)   The difference between (iii) and (iv) is $40,657.91.”

Payce framed its claim against the Council as a claim for damages for breach of contract rather than as a claim for moneys owing to it under the contract. Nonetheless its claim was for debt. The amount payable by it to the Council was moneys payable by way of restitution for the Council’s having been required to make an overpayment pursuant to the adjudicator’s determination.
But this is by the way.
The Council’s submission has no fiscal significance to the parties or to the Commonwealth.
On the payment by the Council to Payce pursuant to the adjudication determination of $1,471,522.11, the Council was entitled to an input tax credit of $133,774.74. If the judge had determined that Payce was entitled to $1,175,135.20 inclusive of GST, and directed repayment of $296,386.91 inclusive of GST, the Council would have been required to amend its previous claim for an input tax credit to $106,830.47 and Payce would have amended its GST return accordingly.
There was no explanation as to how the repayment of $255,728.99 was calculated. On the face of it, if the Council’s submission were accepted, the consequence would be that on determination that it was entitled to a repayment of $296,386.90 inclusive of GST, it would be required to amend its return claiming an input tax credit of $133,774.74 to $106,830.47 (one eleventh of $1,175,135.20): a difference of $26,944.27. This still leaves a difference of about $15,000 between the sum that the Council says it was repaid and that to which it would be entitled, but there was no explanation as to how the sum repaid to the appellant was calculated. In principle it should make no difference as to whether the reassessment is made inclusive or exclusive of GST. If it is made inclusive of GST, Payce and the Council would need to amend their returns. If the calculation is made exclusive of GST there is no need for those amendments with consequential savings in administration costs for both parties and the Commonwealth.
I would reject this ground of appeal.
This conclusion makes it unnecessary to address either of Payce’s grounds of contention, by which it sought to affirm the primary judge’s exclusion of GST from the amount ordered to be repaid to the Council on 18 May 2021. Those grounds were said to be pressed only if this Court were to hold that the primary judge erred in failing to give reasons for excluding GST, and thus do not arise.

Cross-appeal

Payce cross appeals from the primary judge’s rejection of claims for reimbursement of consultancy fees paid by it ($88,250) and fees it has paid to CK Design ($38,700).
The primary judge’s reasons for rejecting the claims were as follows:

“[339] Payce’s entitlement to recover these amounts depends upon the proper construction of the relevant part of cl 9.7 of the Umbrella Agreement.
[340] To repeat, the relevant part of cl 9.7(c) provided:
‘The FOA Contract Price will be the amount determined by the Independent Certifier … except that
(i) the cost of the architect will be paid for by Payce as to the first $70,000 and thereafter as part of the FOA Contract Price; and
(ii) the cost of other consultants will be paid for by Payce as to the first $25,000 and thereafter as part of the FOA Contract Price.’

[341] Mr Miller and Mr Sheldon submitted that the effect of this clause is that Payce must pay the first $70,000 of the architect’s fees and the first $25,000 of the other consultants’ fees, but that, on the proper construction of this clause, the Council must pay those fees over and above these amounts.
[342] I do not agree.
[343] In my opinion, on the natural reading of the clause, the words ‘will be paid for by Payce’ govern not only the nominated figures of $70,000 and $25,000, but also the words ‘thereafter as part of the FOA Contract Price’.
[344] The effect of this clause is that Payce is to pay the first $70,000 and $25,000 of those fees and that otherwise Payce is obliged to pay the architect’s and the consultants’ fees ‘as part of the FOA Contract Price’; now agreed to be $2.171 million.
[345] It follows that my conclusion is that Payce does not have any entitlement to recover these fees from the Council.”

Payce submitted that the construction adopted by the primary judge did not accord with the contract as a whole, nor the commercial realities of the project. It submitted that the effect of cl 9.7(c) was that it was to pay the first $70,000 of the architect’s fees and the first $25,000 of the fees of other consultants but that the Council would pay the architect and consultants’ fees over that amount.
Clause 9.4(a) of the Umbrella Agreement provided that Payce would appoint an architect nominated by the Council and consented to by Payce. Payce was required to consent to the appointment of CK Design. Clause 9.5(a) provided that the risk of the work undertaken by the Architect was to be borne by the Council. Such risk was defined to include negligence by the architect, the cost of rectifying any error in the construction documentation and any fault in design which became apparent during or after construction. Pursuant to cl 9.4(b) all other consultants were to be appointed by Payce. Under cl 10.4(b)(ii) where the price payable under the Fit Out Agreement exceeded $1,520,000 then the excess was to be paid by the Council to Payce progressively. Under cl 9.7 the Independent Certifier was to assess Payce’s determination of the FOA Contract Price. It appears from cl 9.7(c) that the Independent Certifier would not have the function of determining the cost of architects or other consultants. Nonetheless, there was nothing to preclude Payce from including a sum in its determination of the FOA Contract Price which accounted for the costs of retaining an architect or other consultants. In fact the assessment by Mr Rigby included a 5% allowance for design contingencies.
As explained earlier in these reasons, the parties agreed on a compromise figure for the contract price.
Payce’s construction requires reading cl 9.7(c) of the Umbrella Agreement as if it provided that the costs of the architect and the other consultants would be paid for by Payce as to the first $70,000 or $25,000 and would thereafter be added to (not be part of) the FOA Contract Price. That involves rewriting cl 9.7(c). It is not an available construction. The additional costs of the architect and other consultants were to be treated as part of the FOA Contract Price that was payable by the Council, and such additional costs were to be paid to the architect or the other consultants by Payce. Such additional costs were not to be added to the FOA Contract Price.
For these reasons I would dismiss the cross-appeal.

Conclusion and Orders

Accordingly, I propose that the appeal be allowed in respect of the allowance by the primary judge of the additional 10% builders’ margin in respect of variations 5, 19, 24, 25, 30 and 41 in the total sum of $47,703.29. I would otherwise dismiss the appeal and would dismiss the cross-appeal.
Payce has been the substantially successful party on the appeal but the Council’s success on the building margin issue warrants a discount on the costs payable by the Council to Payce on the appeal. If the appeal were the only matter in issue I would propose that the Council be ordered to pay 95% of Payce’s costs. There is no occasion to reverse the costs order made below.
The Council is entitled to its costs of the cross-appeal.
If separate orders were made for the costs of the appeal and the cross-appeal the costs assessed or agreed would be set off the one against the other.
Rather than putting the parties to the expense of separate costs assessments, it is appropriate to reduce the proportion of the costs payable by the Council to Payce of its appeal to reflect Payce’s liability to pay the Council’s costs of the cross-appeal. The cross-appeal was in short compass. I propose that, rather than making separate orders for the costs of the appeal and the cross-appeal, the Council be ordered to pay 80% of Payce’s costs of the proceedings in this court.
For these reasons I propose the following orders:

Appeal allowed in part.

Vary declaration (1) made on 18 May 2021 by substituting for the figure $1,068,304.75 the figure $1,020,601.46, and substituting for the figure of $255,728.99 in order (2) the figure of $303,432.28.

Otherwise dismiss the appeal.

Dismiss the cross-appeal.

Order that the appellant pay 80% of the respondent’s costs of the appeal and cross-appeal.

BRERETON JA: I have had the benefit of reading in draft the judgment to be delivered by White JA, which comprehensively addresses the issues. I agree with the orders his Honour proposes, for the reasons his Honour gives.

**********

Decision last updated: 19 May 2022

Medium Neutral Citation:	Canterbury-Bankstown Council v Payce Communities Pty Ltd [2022] NSWCA 74
Hearing dates:	7 December 2021
Date of orders:	19 May 2022
Decision date:	19 May 2022
Before:	Meagher JA at [1]; White JA at [2]; Brereton JA at [173]
Decision:	(1) Appeal allowed in part. (2) Vary declaration (1) made on 18 May 2021 by substituting for the figure $1,068,304.75 the figure $1,020,601.46, and substituting for the figure of $255,728.99 in order (2) the figure of $303,432.28. (3) Otherwise dismiss the appeal. (4) Dismiss the cross-appeal. (5) Order that the appellant pay 80% of the respondent’s costs of the appeal and cross-appeal.
Catchwords:	BUILDING AND CONSTRUCTION – contract – whether claimed variations within contractual scope of work – builder’s margin – GST – no question of principle
Legislation Cited:	Building and Construction Industry Security of Payment Act 1999 (NSW), s 32(3)(b) Disability Discrimination Act 1992 (Cth), s 23
Cases Cited:	Dr Shanahan v Jatese Pty Ltd [2019] NSWCA 113
Category:	Principal judgment
Parties:	Canterbury-Bankstown Council (Appellant/Cross-Respondent) Payce Communities Pty Ltd (Respondent/Cross-Appellant)
Representation:	Counsel: M Ashhurst SC with M T Keene (Appellant/Cross-Respondent) D Miller SC with M Sheldon (Respondent/Cross-Appellant) Solicitors: Marsdens Law Group (Appellant/Cross-Respondent) Vincent Young (Respondent/Cross-Appellant)
File Number(s):	2021/167145
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2021] NSWSC 331; [2021] NSWSC 558; [2021] NSWSC 710 Date of Decision: 6 April 2021; 18 May 2021; 17 June 2021 Before: Stevenson J File Number(s): 2019/133490