Cordon v Lesdor

[2010] NSWSC 1073

CITATION:	Cordon v Lesdor [2010] NSWSC 1073
HEARING DATE(S):	19/07/10, 20/07/10, 21/07/10, 23/07/10, 26/07/10, 27/07/10, 28/07/10, 29/07/10, 05/08/10; further written submissions 15/08/10 and 16/08/10
JUDGMENT DATE :	29 October 2010
JURISDICTION:	Equity Division Technology & Construction List
JUDGMENT OF:	McDougall J at 1
DECISION:	Plaintiff's claim fails Defendant's cross-claim succeeds in part. Parties to bring in short minutes of order.
CATCHWORDS:	CONTRACTS – construction – meaning of “completion” in deed – whether deed required completion in accordance with plans and specifications or only practical completion – relevance of doctrine of substantial performance – breach – whether plaintiff completed works in accordance with deed – whether plaintiff repudiated deed – where defendant terminated deed – whether defendant repudiated deed – whether defendant under implied obligation to act in good faith – whether plaintiff breached obligations in respect of financial accommodation needed to fund development – whether wrongful interference by defendant – whether plaintiff in breach of fiduciary duties in draw down on bank facility and application of some of proceedings – whether defendant breached obligations under interim management agreement – whether plaintiff suffered loss – amount of loss. - EQUITY - fiduciary obligations - whether fiduciary obligations are imposed in commercial context - relevance of terms of contract. - REMEDIES – restitution – whether defendant unjustly enriched at plaintiff’s expense – quantum meruit. - DAMAGES – whether defendant suffered loss – mitigation of loss – whether plaintiff suffered loss. - PRACTICE AND PROCEDURE – references – adoption of referee’s report.
LEGISLATION CITED:	Civil Procedure Act 2005 (NSW) Home Building Act 1989 (NSW)
CATEGORY:	Principal judgment
CASES CITED:	ACN 002 804 702 (formerly Brooks Building) v McDonald [2009] NSWSC 610 Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570 Alucraft Pty Ltd (In Liquidation) v Grocon Ltd (No.2) (1996) 2 VR 385 Bellgrove v Eldridge (1954) 90 CLR 613 Central Coast Leagues Club Ltd v Gosford City Council (9 June 1998, unreported; BC 9802257) Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28 Gilbert–Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 Graves v Legg (1854) 9 Exch 709, 156 ER 304 Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 Hoenig v Isaacs [1952] 2 All ER 176 Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 84 ALJR 446 Renard Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Tabcourt Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 Tan Hung Nguyen v Luxury Design Homes Pty Limited [2004] NSWCA 178 Walter Construction Group Ltd v Walker Corp Ltd [2001] NSWSC 283 Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253
PARTIES:	Cordon Investments Pty Limited (Plaintiff) Lesdor Properties Pty Limited
FILE NUMBER(S):	SC 2006/268618
COUNSEL:	F C Corsaro SC / B C A Bradley (Plaintiff) T S Hale SC / M S White (Defendant)
SOLICITORS:	CCS Legal (Plaintiff) Solari & Stock (Defendant)

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

McDOUGALL J

29 October 2010

2006/268618 CORDON INVESTMENTS PTY LIMITED v LESDOR PROPERTIES PTY LIMITED

JUDGMENT

1 HIS HONOUR: On 2 September 2002, the plaintiff (Cordon) and the defendant (Lesdor) entered into a deed (the deed) whereby they agreed to redevelop in joint venture land at Miranda (the land) then owned by Lesdor. In brief, Cordon, a builder, was to refurbish an existing commercial building on the land and construct a new building comprising carparking, commercial office space and residential units. Lesdor claims that Cordon failed, and indeed refused, to carry out the building works in accordance with the requirements of the deed as varied, and that for this and other reasons Cordon repudiated the deed and its obligations under it. Lesdor claims that it was entitled to, and did, rely on that alleged repudiation to terminate the deed. Cordon denies that it breached, or repudiated, its obligations under the deed. It claims that Lesdor, both because of its purported termination and for other reasons, has repudiated the deed. Those disputes lie at the heart of this litigation.

The real issues in dispute

2 The parties produced what purported to be a statement of the real issues in dispute. The document that they produced was repetitive, argumentative and unhelpful. I find it very hard to believe that parties, and their legal advisers, cognisant of their obligations under s 56 of the Civil Procedure Act 2005 (NSW) could not have agreed on a more succinct and helpful statement of the issues. That the parties did not find the document that they produced helpful is shown by the fact that they did not address it in their final submissions. I do not propose to go where the parties did not. Accordingly, I shall summarise what I perceive to be the real issues in dispute, and deal with them.

3 The first issue is: did Cordon achieve completion of the works in accordance with relevant requirements of the deed as varied? This issue involves the following questions:

(1) what is the proper meaning to be given to the word “completion” where it appears in the deed? In particular, does it refer to completion completely in accordance with the plans and specifications and free of apparent defects, or does it embrace what Cordon says is the commonly understood notion of “practical completion”: that is to say, complete save for the presence of minor defects that do not, and whose repair will not, have a detrimental impact on the enjoyment of the works, and that will be repaired in a defects liability period?

(2) to what extent did Cordon:

fail to complete the works in accordance with the plans and specifications?
Perform aspects of the work in a defective way?
Fail to rectify defects?


(3) Is the doctrine of substantial performance relevant; and if it is, did Cordon substantially perform its obligations as to completion?

(4) Did Lesdor waive its entitlement to “completion” in the sense for which it contended by taking occupation of the works before they had been brought to the state of “completion” in that sense, and in circumstances where Lesdor was not entitled to possession of the works until “completion” in that sense had been achieved?

(5) Should completion be deemed to have occurred in about December 2005, because Lesdor then took possession of the works; alternatively, because Lesdor took possession of the works in about December 2005, should Cordon be deemed by then to have satisfied whatever were its obligations in relation to completion?

(6) Alternatively, did Cordon achieve completion in accordance with the approved plans and specifications when, and because, Sutherland Shire Council (the Council) issued an occupation certificate and completion report on 1 December 2005?

4 The second issue is: was Lesdor obliged to sign the strata plan when required to do so by Cordon, or was it entitled to refuse to do so because the works were not at that time complete in accordance with relevant requirements of the deed? This issue involves the following elements:

(1) the extent to which work was defective or incomplete when Cordon requested Lesdor to sign the strata plan;

(2) the proper construction of relevant provisions of the deed; and

(3) whether, in light of the answers to those questions, Lesdor was entitled to decline to sign the strata plan.

5 The third issue relates to an implied term of good faith. Cordon contends that, under the deed:

(1) Lesdor was under an implied obligation to act in good faith and fair dealing in performing its obligations, and exercising its rights, under the deed; and

(2) it breached that implied obligation in four ways:

by refusing to identify what aspects of the work it said were defective before it served notice of termination;
by insisting on completion free of defects before it executed and delivered the strata plan, contrary to the deed on its proper construction;
by refusing to sign and return the strata plan “in circumstances where it had taken the benefit of the works to which it was entitled under” the deed; and
by interfering and “intermeddling” with Cordon’s relationship with the project’s financier.

6 The fourth issue relates to the way in which the project was financed. The parties obtained a loan facility from the National Australia Bank (NAB) for the estimated cost of construction, $8,252,000.00. Cordon was entitled to draw down on that facility from time to time to recover the cost of construction (as defined in the deed). However, its remuneration or profit (if any) over and above the cost of construction was to come from the sale of some of the residential units. In brief, designated units (which were called, and I shall call, the “residual lots”) were to be sold, and the proceeds of sale applied to paying out the NAB facility. Once that was done, the proceeds of sale were to be paid to Cordon. The NAB facility was secured by a mortgage given by Lesdor to NAB over the land. Lesdor asserts that Cordon was obliged to keep in place an adequate loan facility until sufficient residual lots had been sold to pay out NAB (or any other financier that might step in), and that Cordon failed to do this. Cordon, on the other hand, says that Lesdor wrongly “intermeddled” in Cordon’s dealings with NAB.

7 Against that background, the fourth issue is: did Cordon breach its obligations in respect of the financial accommodation needed to fund the development, or did Lesdor wrongfully interfere with Cordon’s attempts to perform those obligations?

8 The fifth issue is related to the fourth. Lesdor claims that Cordon drew down from the NAB facility in a way that was not authorised by the deed, and applied some of the moneys drawn down to other projects. The fifth issue, arising from that, is: did Cordon owe, and breach, fiduciary obligations by reason of the way it drew down on the NAB facility and applied some of the proceeds thereof?

9 To understand the sixth issue, it is necessary to know that, after these proceedings were commenced, the parties entered into an “Interim Management Agreement” (IMA) which was intended to provide for the continuing sale of residual lots, and reduction of the debt (by this time, Lesdor and associated companies had refinanced the NAB facility with a facility offered by Macquarie Bank Limited (Macquarie). In effect, the IMA required residual lots to be sold at agreed prices, or prices fixed by an independent valuer in default of agreement, and for the proceeds to be applied in reduction of the Macquarie facility.) It is, I think, common ground that Lesdor did not perform its obligations under the IMA.

10 The sixth issue is: did Lesdor breach its obligations under the IMA? If it did, did Cordon suffer loss and if so what is the amount of that loss?

11 To understand the seventh issue, it is necessary to know that Lesdor has retained a number of residual lots (over and above those other lots that, by the terms of the deed, it was entitled to keep), and has no present intention of selling the residual lots so retained. Cordon claims that in those circumstances Lesdor has been unjustly enriched at its expense, and claims restitution. The seventh issue is: does Cordon have a restitutionary claim against Lesdor in the events that have happened, because Lesdor has been unjustly enriched at Cordon’s expense? If there is such a claim, what restitution should Lesdor make? Cordon claims in the alternative to be entitled to be paid on a “quantum meruit” basis for the work that it has done.

12 There are various damages issues arising out of the matters that I have described. In particular, the eighth issue is: in all of the circumstances, has Lesdor suffered any, and if so what, loss? If Lesdor has suffered loss, has it breached its obligation to mitigate that loss?

13 The corresponding ninth issue is: whether, in the circumstances, Cordon has suffered any, and if so what, loss?

14 To understand the tenth issue, it is necessary to know that questions as to the nature and extent of defective and incomplete work, and work not done in accordance with the plans and specifications, were referred out to Ms Janet Grey (the referee) for inquiry and report. The referee has furnished a report, in which she concludes that there were some items of defective works (although not nearly as many as asserted by Lesdor). More significantly, she concludes that some parts of the work were done otherwise than in accordance with the plans and specifications.

15 The tenth issue is: should the referee’s report be adopted, in whole or in part (and if in part, to what extent)? Allied to this is a question as to whether there is some requirement that it be “necessary” and “reasonable” to require conformity with the plans and specifications (Bellgrove v Eldridge (1954) 90 CLR 613; Tabcourt Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272). The referee did not deal with that question, because she took the view that it was beyond the terms of the order for reference for her to do so. Although Cordon submitted initially that this issue should be referred back to the referee for further inquiry and report, its final submissions appeared to accept, as did Lesdor, that the Court should determine the question for itself.

The witnesses in the case

16 Cordon is a company controlled by the Ghosn family. Mr Ghassan (known as “Gus”) Ghosn, one of its founders, gave evidence, as did his son Mr Habib Ghosn and his nephew Mr Joseph Ghosn. It was common usage, both at the times with which these proceedings are concerned and in the course of the litigation, to refer to those gentleman as “Gus”, “Habib” and “Joe” respectively. I hope that I will not be thought to be either disrespectful or patronising if, for the sake of convenience, I do likewise. (There is a latent confusion in this. The other founder of Cordon was Gus’s brother, who is also named Habib Ghosn. Since that brother does not feature in the evidence, the latent confusion can probably be avoided; where necessary, I shall refer to him as “Habib Snr”.)

17 Ms Barbara Ghosn, who is Joe’s sister, also gave evidence. She is a company secretary of Cordon, and is responsible for keeping the company’s financial records, managing and recording receipts, and paying and recording its expenses. She was generally referred to as “Barbara”. Again, for convenience but without intending to be either disrespectful or patronising, I shall adopt that usage.

18 Lesdor is a company associated with the Semken family. Members of that family are engaged in the businesses of building, property development and real estate agency. The patriarch of the family, and a director of Lesdor, is Mr Leslie Semken. Another director of Lesdor, who also was actively engaged in events relevant to these proceedings, is his son Mr Paul Semken. They were generally referred to at the time and in the litigation as “Les” and “Paul”. Again, for convenience but without intending to be either disrespectful or patronising, I shall adopt that usage.

19 It is not necessary to say a great deal about the question of credibility, because there are very few conflicts in the evidence. However, I should record that in my view Gus, Habib, Joe and Barbara sought, to the best of their ability, to give honest and truthful evidence. I have no doubt that each of them thinks that Cordon is in the right and that Lesdor is in the wrong. However, I do not think that any of them sought to tailor their evidence to advance Cordon’s case.

20 Although I do not think that Les or Paul sought knowingly to give untruthful evidence, I do have some reservations in relation to some aspects of the evidence of each of them. Les, in particular, seemed to be determined to use his lengthy stay in the witness box as an opportunity of advancing and vindicating Lesdor’s case. I had the strong impression that his objectivity was strained by his perception of what he thought had been the wrongs done to Lesdor. Those comments apply also, although not with as much force, to Paul.

21 In the result, to the extent that there is a difference in the evidence between Gus, Habib or Joe on the one hand and Les or Paul on the other, in general I prefer the evidence of the former group to that of the latter.

A brief narrative of events

22 Before I turn to the issues, and to give them some content, I will set out a brief, and I hope non-contentious, account of major events in roughly chronological fashion.

23 The parties negotiated the terms of the joint venture agreement over a period from about June 2001 to September 2002. The evidence includes correspondence between their solicitors (at the time, Mr Michael Marney for Lesdor and McBride Harle & Martin for Cordon) relating to the terms that were being negotiated. It was contemplated, at least from February 2002, that the relationship would be formalised in a joint venture deed and a building contract. From at least April to July 2002, the terms of those agreements were refined between the solicitors.

24 On 22 August 2002, Lesdor and Cordon (as principals) granted to Semken Real Estate (as agent) exclusive selling rights in respect of “new residential units and commercial space at 621 – 635 Kingsway Miranda”.

25 On 30 August 2002, McBride Harle & Martin sent to Mr Marney a number of documents including “deed executed by our client”. No building contract was sent. Mr Marney replied on 2 September 2002 enclosing “Deed signed by [Lesdor] by way of exchange”. Mr Marney did not raise any issue as to the absence of a building contract. No building contract was ever executed.

Relevant terms of the deed

26 The deed provided for a “project” comprising: the construction of a new building comprising two levels of carparking, two floors of commercial offices and 29 residential units; the refurbishment of the existing commercial building; and the sale of the “residual lots” included among those 29 residential units. The parties formed an unincorporated joint venture to execute that project.

27 The key obligation in the deed is cl 2. It reads as follows:

2. Erect building and sell residual lots

2. (a) The parties acknowledge that it is the intention of them to provide two floors of commercial offices and one level of car parking on the lower level and a Penthouse residential unit number 25 with double garage (on the upper floor of parking and subject to Council Approval, the unit to incorporate the roof area above the unit) and to provide for an additional 28 residential units of which Lesdor is to retain Unit 28 and a single garage and provide for the benefit of Cordon the remaining 27 residential units and one level of residential car parking on the upper level of car parking (excluding the single garage for Unit 28 and a double garage for the Penthouse residential unit) and to refurbish the existing commercial building for Lesdor as part of the building works.

(b) (i) In consideration of Cordon undertaking the Building Works upon the Land in accordance with the Plans and Specifications, Lesdor shall subject to these terms and conditions, direct the purchasers of the Residual Lots to pay to Cordon or as it shall in writing direct the whole of the proceeds of sale in respect of the Residual Lots.
(ii) Lesdor shall not (other than as provided in this deed) assign, Mortgage or charge their interest in the Land or this Deed without the prior written consent of Cordon.

(iii) Cordon shall borrow such funds (hereinafter referred to as “the borrowed funds”) as are necessary to meet the costs of construction for and to complete the building works and shall be liable for repayment of such borrowed funds.
(iv) That Lesdor will provide by way of guarantee and security for the borrowed funds to be obtained by Cordon a first registered mortgage over the land to the Lending Institution on such reasonable terms and conditions as it shall require.

28 The expressions “Approvals”, “Building Approval”, “Building Works”, “Development Approval” and “Plans and Specifications” are defined terms. Their definitions are as follows:

“ Approvals” the Development Approval and the Building Approval.

“Building Approval” means the approval to be obtained by Cordon from the Council for the construction of the Building and includes any Construction Certificate issued by Council.

“Building Works” means the construction work comprised in the Plans and Specifications necessary to construct the Building on the Land and to refurbish the existing building.

“Development Approval” means the approval of a mixed development building comprising residential units and commercial units and incorporating two levels of car parking and the refurbishment of the existing building and to be issued by the Council and to built on the Land.

“Plans and Specifications” means the plans and specifications of the Building the subject of the Development Approval and Building Approval.

29 By cl 3(a), it was Cordon’s obligation to prepare the plans, drawings and designs necessary to obtain all relevant approvals.

30 Clause 4.1 operated, once those approvals had been obtained, to require Cordon to construct in accordance with the approved plans. Clause 4.2 limited Cordon’s ability to change items listed in the Schedule of Inclusions. I set out cl 4.1 (so far as it is relevant) and cl 4.2:

4.1 It is hereby agreed by and between the parties that when the Approvals are obtained for the Building that Cordon shall arrange to have erected on the Land the Building approved by the Council and in accordance with the Plans and Specifications approved by the Council and Sydney Water which plans shall be deemed to be incorporated in this Agreement once approved…
4.2 Cordon shall only be permitted to change any finish, brand, or item in the Schedule of Inclusions to another finish, brand, or item of comparable or better quality in the instance of such being unavailable.

31 Clause 5.1(a) emphasised, yet again, that Cordon was required to complete the works in accordance with the plans and specifications. It reads:

5.1 (a) The works will be completed in accordance with the plans and specifications.

32 Clause 11, likewise, dealt with Cordon’s obligation to construct in accordance with applicable approvals and in a good and workmanlike manner:

11. Cordon to complete building works on time

11. Cordon shall diligently proceed with and complete the Building Works in accordance with the Approvals in a good and workmanlike manner within twenty (20) months of the Commencement Date and supply all materials in accordance with good building practice and comply with all relevant Australian Building Standards.

33 By cl 12, Cordon was entitled to a fair and reasonable extension of time if its performance of the works was delayed because of a number of specified matters.

34 By cl 13, Lesdor gave Cordon a power of attorney for certain purposes. However, notwithstanding that power of attorney, cl 13.3 provided for Lesdor itself to execute certain documents including the strata plan and contracts for sale. I set out cl 13:

13. Lesdor – Power of Attorney

13.1 In consideration of the covenants on the part of Cordon to carry out or to arrange to have carried out the Building Works hereunder Lesdor hereby irrevocably appoints Cordon as their attorney for the following purposes:

(i) Subject to Clause 3.1, to lodge with the Council, development and building applications in respect of the Building Works and any plan of subdivision, Strata Plan and accompanying instrument relative to the Land from the Council.
(ii) To obtain the release of the Development Approval, Building Approval, any plan of subdivision, Strata Plan and any accompanying instrument relative to the land from the Council.
(iii) To arrange the promotion of the sale of the residual lots on the Strata Plan and to appoint Semken Real Estate or its conjunction agent to assist in such promotion and marketing.
(iv) To sign any Contract for the sale of the residual lots at such price and containing such terms and conditions as Cordon shall in its absolute discretion determine and to sign any transfer for the conveyance of the title of any of the residual lots to the purchasers thereof and to arrange discharge of any mortgage held by the Lending Institution over the Land and to do all such acts, matters and things as may be necessary for and incidental to the sale of the residual lots in the Strata Plan.
(v) To appoint solicitors or such other professionals as Cordon shall deem fit to act for Lesdor in relation to the sale and conveyance of the Residual Lots.
(vi) That the Power of Attorney is deemed revoked forthwith upon the completion of the sale of the last residual Lot.


13.2 The Power of Attorney hereby conferred on Cordon shall be irrevocable and may be relied upon by any third person dealing with Cordon.

13.3 Notwithstanding the preceding provisions of this clause, Lesdor shall execute any plan of subdivision, the Strata Plan any accompanying instruments and such Contract, Contracts, Transfer or Transfers for the conveyance of the title of the residual lots to such persons or corporation as Cordon shall nominate and shall deliver such plans, instruments and such Contract, Contracts, Transfer or Transfers to Cordon forthwith upon request.

13.4 If required by Cordon at any time before completion of this Agreement, Lesdor shall execute a Power of Attorney in favour of Cordon in a form consistent with the form referred to in the Conveyancing Act and containing the powers referred to in the preceding provisions of this clause 13.

35 By cl 14, Cordon was entitled to the proceeds of sale of the residual lots, after deduction of GST and repayment of all loan expenses and selling costs. I set out that clause:

14. Proceeds of sale of residual lots

14.1 (a) Cordon shall be entitled to receive for itself the whole of the proceeds of sale of the residual lots after deduction of all Goods and Services Tax (“GST”) incurred and payable by Lesdor as a consequence of electing to adopt the “margin scheme” in respect of the carrying out of the Building Works..

(b) That the proceeds of the sale of the residual lots shall be applied in priority as follows:
(i) Payment or part repayment (as the case may be) of the loan and, after such loan is repaid in full then
(ii) By way of Real Estate Agents’ Commission, advertising expenses, legal fees and disbursements and any fees or charges in respect of sales of the residual lots brought into being by virtue of registration of the Strata Plan and in respect of such Cordon will indemnify and keep indemnified Lesdor in respect of such. And further Lesdor and Cordon agree to direct the providor of the services referred to, to provide such accounts and render such fees as are applicable to the account of Cordon and to be forwarded direct to Cordon.

(ii) To Cordon for itself and for its sole benefit.

36 Clause 15 is another key provision. It obliges Cordon to register the strata plan as quickly as possible, and Lesdor to do what it can to help. I set out cl 15:

15. Cordon to register Strata Plan

15. Cordon shall at its own expense use its best endeavours to have the Strata Plan approved by the Council and registered at LPINSW as expeditiously as possible following completion of the Building Works and Lesdor shall do all such things as shall be reasonably required of it to give effect to this.

37 Clause 21 provided for a defect liability period. I set it out:

21. Defects liability
21. Any defects or other fault which may appear and be notified in writing to Cordon within a period of:
(a) Three (3) months from the date upon which Lesdor shall have taken possession of the refurbished existing building and the commercial offices and the one level of car parking or within three (3) months from the date on which Cordon shall have notified Lesdor that such are available for occupation (whichever is the earlier);
(b) Three (3) months from the date of completion of any sale of residential unit in this project by Lesdor for the occupation as a residence of any residential unit in the project provided however that the obligations in this regard shall cease after twelve (12) months after the registration of the Strata Plan.
Due to any materials or workmanship not being in accordance with this Deed or arising from faulty workmanship or defective materials shall be rectified and made good by Cordon at its own cost PROVIDED THAT this shall not apply to minor settlement cracks or shrinkage usually associated with building works of this type.

38 By cl 22, Lesdor was to pay Cordon $210,000.00 plus GST at 10% for delivery of the folio identifiers for units 25 and 28 (free of any mortgage). That was the extent of Lesdor’s obligations to make payment to Cordon.

39 By cl 26, Cordon was to provide Lesdor with a bank guarantee, in the sum of $1,000,000.00, as security for the due performance by Cordon of its obligations under the joint venture deed. That guarantee was to be returned once Cordon had completed work to the podium level of the new commercial building.

40 Clause 32 contained guarantees. Lesdor guaranteed to Cordon the proper performance of Lesdor’s obligations under the deed; and Habib Snr and Gus guaranteed to Lesdor the proper performance of Cordon’s obligations under the deed.

The variations

41 The first deed of variation was made on 19 August 2003. It amended the definition of “Plans and Specifications” as follows:

1. (b) Definitions and Interpretation “Plans and Specifications” – add at the conclusion of that Definition the following words “as lodged with Sutherland Shire Council and a copy of which has been inspected by the parties and initialled by them for identification and lodged with the solicitors for Lesdor for the benefit of the parties and for reference to by the parties as required.

42 The first deed of variation also provided that cl 2(a) was to be deleted and replaced by the following words:

(d) Clause 2(a) – the words contained therein shall be deemed to be deleted and replaced with the following words – “The parties acknowledge that it is the intention of them to provide two floors of commercial offices and one level of car parking on the lower level and a Penthouse residential Unit No. 25 with double garage to be side by side (on the upper floor of parking, the unit to incorporate the roof area above the unit and a staircase (for which the Council approval must be received no later than the time that the staircase is to be constructed) from the living room of the Unit to the roof terrace over along with a small room at the roof level to provide weather-proof entry/exit (Lesdor at its cost and expense is to seek such approval from Sutherland Shire Council and to provide additional twenty-seven (27) residential units of which Lesdor is to retain Unit 20 and double garage to be side by side and Unit 21 with one lock up garage space and to provide for the benefit of Cordon the remaining twenty-five (25) residential units and one level of residential carparking on the upper level of the carparking (excluding garages for the Penthouse residential unit and Units 20 and 21) and to refurbish the existing commercial building for Lesdor as part of the building works.

43 Finally, for present purposes, it provided a new cl 34 relating to sale of the residual lots through Semken Real Estate:

34. Cordon agrees as follows:
a. Semken Real Estate is to be the exclusive selling agent for the residual lots;
b. all of the residual lots are to be put on the market for sale before or at the date of the registration of the strata plan;
c. if any of the residual lots are not put on the market by Cordon for sale in accordance with the provisions of part (b) hereof then the standard commission on the market value of any such unit is to be paid by Cordon to Semken Real Estate within four (4) months from the date of the registration of the strata plan. Registration of the strata plan is not to be unreasonably delayed.

44 The second deed of variation was made on 19 November 2003. I do not think that anything turns on it.

45 The third deed of variation was made on 18 December 2003. Again, I do not think that anything turns on it.

Events following the making and varying of the deed

46 The Council gave building approvals as follows:

(1) for stage one, being excavation, shoring and piling, on 17 December 2003;

(2) for stage two, being for basement carparking and the podium level concrete slab, on 19 March 2004; and

(3) for stage three, being the remaining construction works for the new commercial and residential space, on 15 July 2004.

47 Whilst that was happening, the NAB granted a loan facility to Cordon for $8,252,000.00. Lesdor guaranteed Cordon’s obligations under that facility, and gave a mortgage over the land to secure its obligations as guarantor.

48 The marketing of residual lots appears to have commenced in about June 2005.

49 From about August 2005, there was correspondence between Lesdor’s solicitors and Cordon’s solicitors in relation to both completion (i.e., as to when it was when Cordon expected to achieve completion) and alleged defects.

50 From about October 2005, contracts were exchanged for the sale of various of the residual lots.

51 On 1 December 2005, the Council issued an occupation certificate and completion report. When that happened, Cordon gave Lesdor possession of the two new floors of commercial offices, one level of the new carparking space and residential lots 20, 21 and 25 with their associated carparking spaces. The existing commercial premises remained in Lesdor’s possession (as had been the case at all material times since the joint venture deed was made).

52 It is Cordon’s case that the works reach the stage of completion, or alternatively practical completion, once the events referred to in the preceding paragraph had occurred. However, Lesdor denied that the works had been completed in accordance with the requirements of the joint venture deed.

53 On 13 January 2006, Joe and Les met on site to discuss allegedly incomplete, defective and non-conforming works. Joe sent Les a fax shortly after the meeting, in which (on his evidence) he set out what works, by way of rectification, had been agreed. Les denied that any such agreement had been reached.

54 On 3 February 2006, Lesdor’s solicitor (by now, Mr Michael Solari of Solari Legal) gave Cordon 28 days’ notice to rectify alleged defective works. He stated that, if this were not done, Lesdor would terminate the deed and sue for damages.

55 On 15 February 2006, the Council approved the strata plans for all lots. On 23 February 2006, Joe delivered the strata plans to Lesdor’s solicitor, for Lesdor to sign them.

56 Lesdor took the view that it would not sign the strata plan until the building works had been completed, in accordance with the plans and specifications and in what it said was a proper and workmanlike manner. Cordon offered to place some $30,000.00 in an interest bearing account, pending resolution of the issue of defective workmanship, if Lesdor signed the strata plans. That offer was not enough for Lesdor, which required retention of $1,500,000.00 both “to cover the costs of the defective work and also… [to] be an incentive for [Cordon] to complete the defective work within a reasonable time”.

57 On 12 April 2006, Cordon commenced these proceedings. It sought, on an interlocutory basis, an order in effect by way of specific performance: that Lesdor execute the strata plans and accompanying instruments. That application was dismissed by Barrett J on 5 May 2006: [2006] NSWSC 481. In brief, his Honour considered that, on the proper construction of the relevant provisions of the deed, the concept of completion was “due and entire accomplishment of each and every step appearing from the plans and specifications” (at [10]). It was common ground, his Honour said at [8], “that the work that has been done does not, in all respects, conform with the plans and specifications…”. It was not enough, his Honour said at [9], that the work might have satisfied the Council to the point that it issued an occupation certificate.

58 The NAB facility was due to expire on 31 May 2006. NAB offered to extend the facility for 60 days, so that it would expire on 31 July 2006. That was done to enable the parties “to agree a way forward”.

59 I pass over the continuing disputes between the parties as to how the impasse, or standoff, between them, might be resolved.

60 In June 2006, Lesdor and two associated companies, Marlborough Homes Pty Limited (Marlborough) and Semken Bros Pty Limited (Semken Bros) agreed to borrow $9,000,000.00 from Macquarie. That was to enable them to pay out NAB and to make “ongoing property acquisitions”.

61 On 1 August 2006 – the day after the extended NAB facility expired – NAB terminated the facility and made demand on the guarantors. Lesdor, Marlborough and Semken Bros drew down on the loan facility they had organised with Macquarie, and paid out NAB.

62 On 8 August 2006, Lesdor gave notice by which it terminated (or purported to terminate) the deed. The notice relied on repudiation on Cordon’s part.

63 On 3 November 2006, Cordon and Lesdor entered into “Interim Settlement Orders” and the IMA.

64 On 18 December 2006, Lesdor registered the strata plan for the residential lots and, on 9 March 2007, it did the same for the strata plan for the commercial floors.

65 Cordon took the view that Lesdor had not performed its obligations under the IMA. It approached the Court. On 3 August 2008, Einstein J appointed a receiver over the development: [2008] NSWSC 1006. His Honour’s order was stayed, and ultimately by consent set aside, by the Court of Appeal.

First issue: did Cordon complete the works in accordance with the requirements of the deed?

The construction of “completion” in the deed

The parties’ submissions

66 The parties agreed that I was not bound by the construction, of Cordon’s obligations as to completion under the deed, by the reasoning of Barrett J. Mr Corsaro of Senior Counsel, who appeared with Mr Bradley of Counsel for Cordon, submitted that Barrett J had not been given the full context, including reference to what Mr Corsaro submitted were relevant aspects of the specifications. Mr Hale of Senior Counsel, who appeared with Mr White of Counsel for Lesdor, submitted that Barrett J was correct and the additional material to which Mr Corsaro referred was irrelevant.

67 The parties agreed that, in construing the relevant provisions of the deed, I should take into account the purpose that the parties sought to achieve by the deed and relevant surrounding circumstances, to the extent that they were known or should be taken to have been known to the parties, at the time the deed was made. They agreed also that, in construing the deed, I should seek to avoid commercial absurdity.

68 Mr Corsaro submitted that, when one had regard to relevant aspects of the specifications, it was clear that the parties had in mind the concept of “practical completion” as governing the first stage of Cordon’s obligations under the deed. He referred, in this context, to acknowledgments by Les that he had read the specifications and that, although he could not recall having done so, he would have noted the various references in them to “practical completion”.

69 Further, Mr Corsaro submitted, the construction for which Lesdor contended (and which found favour with Barrett J) led to commercial absurdity. That was so, Mr Corsaro submitted, because it meant that any defect, no matter how minor, would justify Lesdor in refusing to sign the strata plan, so that registration of the strata plan, settlement of pre-sales and reduction of the amount owed to NAB would all be delayed.

70 Mr Corsaro referred to the provisions of cl 21 (dealing with the defects liability period). He submitted that this clause recognised, in effect, that completion of the works might be achieved notwithstanding the existence of minor defects. In this context, he relied on cl 19 of a version of the draft construction contract that had been exchanged between the solicitors.

71 Mr Corsaro relied also on various references to “practical completion” in correspondence exchanged between the solicitors when the parties were in dispute.

72 Mr Corsaro relied, further, on cls 13.3 and 15 of the deed. By the first of those, Lesdor was required to execute and deliver to Cordon documents, including the strata plan, “forthwith upon request”. By the latter, Cordon was required to use its best endeavours to have the strata plan approved and registered as quickly as possible, and Lesdor was required to do what it reasonably could to assist. Those obligations, he submitted, were substantial and not merely mechanical or ancillary.

73 Finally, Mr Corsaro relied on the evidence that showed, he submitted, that at all material times up until the point of execution and exchange of the deed, the parties had intended that there would be a construction contract. He submitted that the Court could infer that such a contract would contain what he characterised as customary provisions for “practical completion”. That understanding, he submitted, should be reflected in the construction that the Court gave to relevant provisions of the deed.

74 Mr Hale submitted that the deed meant what it said. “Completion” was to be understood as “Completion in accordance with the Plans and Specifications” (cl 4.1; and see too cl 5.1 (a), where the words “plans and specifications” do not have initial capital letters).

75 Mr Hale submitted that no assistance could be gained from the specifications, which were not in existence at the date the deed was made. It appears that, by the time the deed was first varied, the plans and specifications were in existence. However, Mr Hale submitted, those documents, which were manifestly in some standard or generic form, adapted to some extent for the purposes of the particular development, did not shed light on the proper construction of the deed.

76 Mr Hale did not accept that the construction for which his client contended led to commercial absurdity. On the contrary, he submitted, it contained a substantial element of common sense. He noted that there was no retention fund (the bank guarantee for which cl 26 provided was to be returned to Cordon once the works got to the stage of the podium level). Accordingly, he submitted, if his client was required to accept less than complete performance, it had no security, or other mechanism, for compelling performance. Further, he submitted, the contract contained no mechanism for determining when “practical completion” might have occurred, or standard by which an independent assessment could be made of whether in fact “practical completion” had occurred.

77 Mr Hale submitted that the factual matrix did not include pre-contract negotiations. He submitted, further, that in any event the draft construction contract (and, in particular, cl 19) was of no assistance because it was in part inconsistent with what had been agreed in the joint venture agreement.

78 Mr Hale submitted that it did not really assist to look at what the parties, or their lawyers, had said in correspondence sent well after the contract was made.

Decision

79 I do not think that it is legitimate to construe the deed that the parties did make by reference to, or so as to be in conformity with, a building contract that they did not make. I accept that it is likely that, at least during their negotiations, the parties intended their obligations to be governed both by the deed (which would set out their respective rights and responsibilities as joint venturers) and by a building contract (which would set out their specific rights and responsibilities in relation to the building work). I accept, too, that there is no explanation of the sudden disappearance, from the contemplated documentation, of the building contract; or of the failure to require a building contract to be executed. But I am concerned with what the parties did, not with what they might have done.

80 In the absence of evidence, it is open to infer either that the parties overlooked that they had intended to execute a building contract (I would have thought, an unlikely position, given that each was legally represented) or that, for some reason, they decided not to execute a building contract. Equally, it may be that, at the time the deed was exchanged, the parties still intended to execute a formal building contract; but that they either forgot, or decided not, to do so. Where the possibilities are so open, I do not think that either the precontractual intention to execute a building contract or the terms of the building contract that was being negotiated are legitimate aids to the construction of the deed.

81 Nor do I think that any assistance is gained from references, in the specifications, to “practical completion”. I accept that, at least as a matter of theory, there may be circumstances in which and purposes for which it would be legitimate to have regard to the terms of the specifications in construing the terms of the deed. But the specifications are ancillary to the deed. To be sure, they are recognised in the deed (at least, following the first variation, on 19 August 2003). But they were, presumably, documents brought into existence, or procured, by Cordon in pursuance of its design and documentation obligations (cl 3(a) of the deed). Even accepting that Les read and understood the specifications (and I have no doubt that, he being an experienced builder, if he had read them he would have understood them), it does not follow that he accepted them as expressing the full extent of Cordon’s completion obligations under the deed. The specifications were intended to give affect to, not to define the extent of, Cordon’s obligations under the deed.

82 The same applies, a fortiori, to other post-contractual references to practical completion, in the solicitors’ correspondence and in the terms of the NAB loan facility.

83 The appeal to commercial absurdity is, in truth, an appeal to the inconvenient consequences, from Cordon’s perspective, of the construction for which Lesdor contended. The works were wholly within the control of Cordon. It was open to Cordon to perform them to whatever standard of perfection it might have contracted to achieve. If Cordon did not achieve that standard, and thus failed to trigger relevant obligations of Lesdor under the deed, that may be inconvenient; but it does not seem to me to be absurd.

84 Further, the position as to commercial inconvenience is not all one way. On the contrary, I think, there are good reasons (one, at least, of which is significant) why Cordon’s completion obligations should be construed as Lesdor submitted.

85 Under the deed, Cordon was to be paid for the actual cost of the work done by it (without any profit component) by drawing down from time to time on the NAB facility. That facility was to be repaid out of the proceeds of sale of the residual lots. Lesdor was a guarantor of Cordon’s obligations to NAB, and had provided a mortgage (and a first registered charge over all its assets and undertaking) to support that guarantee. It is not hard to see that completion of pre-sales would be expedited, and disputes as to retentions in respect of defects would be minimised, if completion was to be achieved in accordance with the plans and specifications and free of at least apparent defects.

86 However, Lesdor had no retention fund from which it could recoup the cost of repairing defects. Nor did it have any other mechanism, apart from withholding its signature to the strata plan, for forcing Cordon to complete in accordance with the plans and specifications and free of apparent defects. Once the strata plan was signed and returned to Cordon, it would be registered and pre-sales would fall due for completion. If the proceeds of pre-sales were insufficient to discharge the indebtedness to NAB (and the evidence indicates that this would have been the position), then Lesdor was reliant on there being raised, from sales of the remaining residual lots, sufficient funds to pay out NAB. Clearly, it would be in Lesdor’s commercial interest that those lots be marketed to best advantage. The existence of patent, even if minor, defects could well hinder that marketing, and diminish the selling prices.

87 In short, once Lesdor signed the strata plan and returned it to Cordon, it was left without any effective mechanism for ensuring that Cordon would comply with its obligations. It could rely only on Cordon’s self-interest. If it became apparent to Cordon that the sale of the residual lots would do not more than discharge the amount owed to NAB, then its self-interest would count for little. Indeed, self-interest might dictate that it would not spend more money on rectification, and thus increase the amount of its loss on the project.

88 Further, once each strata plan was registered, the owners corporation for each would come into existence, and common property the subject of each strata plan would vest in the relevant owners corporation. Of course, upon registration, Lesdor would become registered as proprietor of lots in each strata plan. But it would be expropriated of so much of its former proprietary interest as was comprised in common property under each strata plan. That is not an insignificant consideration.

89 If one looks at the residential lots, it is at least arguable, and I think probably the case, that Lesdor would be the “developer” for the purposes of the Home Building Act 1989 (NSW). It would accordingly attract liability, pursuant to s 18B, for the statutory warranties implied by that Act. If the works were completed in a defective state, Lesdor would be contingently liable to make good the defects. If Cordon refused to do so, proprietors and the owners corporations could call upon Lesdor. Again, that is not an insignificant consideration.

90 Those matters suggest that, contrary to Mr Corsaro’s primary submission, there are indeed good commercial reasons why Cordon’s completion obligations under the deed should be construed in the manner for which Lesdor contends.

91 I do not think that the submission based on cl 21 of the deed (the defects liability period) assists Cordon. On the contrary, I think, it may work the other way. It will be noted that cl 21 is expressed in future terms: “defects or other fault which may appear and be notified in writing”. The period within which the clause operates is, in the case of all but the residential lots, three months from the date when Lesdor takes possession; and, in the case of residential lots, three months from completion of contracts for sale.

92 Of necessity, completion of contracts for sale would take place after registration of the strata plan and, hence, after Lesdor had signed it. Equally, it might have been thought that, at the time the deed was made, Lesdor would take possession of the other parts of the development after Cordon had complied with its completion obligations. That is because, until completion, Cordon was entitled to exclusive possession of the works. In fact, Lesdor did not have, at any relevant time, exclusive possession of the former commercial building that was to be refurbished. But that post-contractual circumstance, which was inconsistent with the relevant terms of the deed, is not something to be taken into account in construing the contract; nor is what actually happened, as outlined at [51] above.

93 Thus, I think, cl 21 speaks of a period of time arising after Cordon has complied with its completion obligations. It does not suggest that the parties intended that the existence of a defects liability period would ameliorate what might otherwise be thought to be the stringency of those completion obligations.

94 All those considerations support the conclusion that Cordon’s completion obligations should be construed as Barrett J construed them, and as Lesdor submitted.

95 There is, I think, another significant consideration that supports this conclusion. It is this. If the word “completion” is to be read as meaning “practical completion”, what is the content of the obligation thereby imposed? By what standard is “practical completion” measured? By whom, in the event of dispute, is it to be fixed? Most contracts that provide for practical completion include a definition of what it is that will satisfy the requirement to achieve practical completion. It may be correct to say that those definitions have a generally understood common element. But I do not think that any such common element can be said to be universal, or notorious, so that, if the parties were to be taken to have intended that “completion” should mean “practical completion”, that is the content of the obligation that they intended to call up.

96 There is no difficulty in principle in understanding whether a builder has achieved completion in a good and workmanlike manner in accordance with the plans and specifications. There may be considerable difficulty in ascertaining whether a builder has attained some lesser level of completion, and whether that lesser level of completion satisfies some general concept, unadorned by definition or amplification, of “practical completion”.

97 To my mind, considerations of certainty make it unlikely that the parties should be taken to have intended that rights and liabilities should depend on the amorphous and undefined concept of practical completion advanced by Cordon; and, on the contrary, likely that they should have intended those rights and obligations to be governed by the clear meaning of the words that they chose in their deed.

98 Do cll 13.3 and 15 defeat that conclusion? Clause 13.3 forms part of cl 13, which deals with Lesdor’s appointment of Cordon as its attorney, and the purposes of that appointment. The effect of cl 13.3 is that, notwithstanding that Cordon holds (and pursuant to cl 13.4 may obtain a more formal version of) Lesdor’s power of attorney, Lesdor itself will execute specified documents if Cordon asks it to do so.

99 The purpose of cl 13 is to be understood from the circumstances of the joint venture. Lesdor was the owner of the land. Cordon was the builder. Cordon was required to obtain all approvals; to market, and to enter into contracts for the sale of, the residual lots; to obtain registration of the strata plan; and to complete such contracts for sale as it had made. All of those activities were required to be done either in Lesdor’s name or (in the case of development and building applications and the like) with Lesdor’s written consent. Clearly enough, cl 13 was inserted into the contract to enable Cordon to attend to those obligations without having to trouble Lesdor each time it needed a document to be signed.

100 However, the obligations with which cl 13 is concerned are either preparatory to, or assume the undertaking and completion of, the building works. Thus, obligations in relation to approvals are preparatory; and obligations in respect of the marketing and sale of the residual lots, and the registration of the strata plan, assume completion of the building works and enable the consequences – payment out of the debt owed to NAB, and the payment of a commercial return to Cordon – to follow. In the ordinary way, one would not expect that a substantive obligation (such as that in relation to the obligation to complete in accordance with plans and specifications and in a good and workmanlike manner) was to be governed, or its content to some extent controlled, by a machinery provision such as cl 13.

101 Further, although cl 13.3 requires Lesdor to execute and deliver documents of the kinds to which it refers “forthwith upon request”, it is necessarily implicit that the request should be one that, contractually, Cordon is entitled to make. For example, if it were obvious, indeed indisputable, that Cordon had not complied with its obligations to complete (and for the moment I put aside that this is precisely Lesdor’s case), so that it could not be suggested that Cordon had achieved “completion of the Building Works” for the purposes of cl 15, a request made of Lesdor by Cordon under cl 13.3 could not engender any obligation in Lesdor to comply with that request, nor render Lesdor liable for damages for breach of contract if it failed to do so. If a request by Cordon is to engender any obligation, then it must be a request that Cordon is contractually entitled to make.

102 Thus, cl 13.3 adds nothing to the debate. Reliance on it simply begs the question of whether Cordon was entitled to make the request that is said to have engendered Lesdor’s obligation to sign and deliver.

103 The same may be said of the concluding words of cl 15. True it is that Lesdor was required to “do all such things as shall be reasonably required of it to give effect to” Cordon’s obligation to have the strata plan approved and registered as soon as possible. But that obligation was one that arose “following completion of the Building Works”. If the Building Works had not been completed, then there was nothing on which Lesdor’s obligation to assist could fasten.

104 For those reasons, I conclude that Cordon’s obligations under (among others) cll 2(b)(i), 4.1, 5.1(a) and 11 to complete the works, the subject of the deed, in accordance with all relevant approvals, the plans and specifications and in a good and workmanlike manner, mean exactly what they say. They do not contemplate completion otherwise than in accordance with the plans and specifications, or with manifest defects. Thus, Lesdor’s undoubted obligations under cll 13.3 and 15, to sign the strata plan when properly required to do so, have not been triggered by Cordon’s request. In short, I agree with the views expressed by Barrett J.

To what extent did Cordon fail to comply with its obligations in respect of completion?

The parties’ submissions

105 Mr Hale submitted that there was uncontroverted evidence that Cordon had not complied with its contractual obligations in respect of completion, either as at 23 February 2006 (when the strata plans were delivered to it for signature) or by 8 August 2006 (when Lesdor gave notice of termination). He pointed to the following matters:

(1) at least as at the former date, there was agreement between Lesdor’s expert Mr Childs and Cordon’s expert Mr Austin that there were many defects in the work performed by Cordon, although Mr Austin did not agree with the full extent of the defects asserted by Mr Childs;

(2) although there was a dispute as to whether the defects apparently agreed by Messrs Childs and Austin had been rectified by 8 August 2006, there was no doubt that, at that date, there were still some outstanding defects; and this was confirmed by the referee’s report;

(3) in any event, and far more importantly, there were areas of the works that simply had not been completed in accordance with the plans and specifications, including:

the street frontage (to The Kingsway) of the commercial building had not been constructed in accordance with the plans, and the walkway that was to be constructed in front of that frontage had not been built;
the parapet on the roof of the existing commercial building had not been raised to the height of the parapet on the adjoining new commercial building, so as to present a continuous appearance from street level;

the awning structure that had been constructed in front of the buildings was not constructed from hot dip galvanised steel, but from powder coated steel;
the roof of the new structure (i.e., the roof level above the residential lots) had not been finished with gravel, as the specifications required; and
the “pebblecrete issue”: tiling over the pebblecrete surface where the walkway was to go, and ramping down to the shop floors; rather than doing as the referee said at paras 291 to 296 of her report should have been done: removing the pebblecrete surface and retiling so that the tiles and the shop floors were on the same level.

106 Mr Corsaro disputed the extent of the defects asserted. As to the five matters mentioned in the previous paragraph (being instances of non-compliance with the plans and specifications that remain to this day), Mr Corsaro advanced a variety of arguments, to which I shall return.

107 Further, Mr Corsaro referred to evidence which, he submitted, led to the conclusion that Lesdor had agreed to accept the works as they were presented to it (this is said to refer to particular matters, and not to the fact of taking possession, which is the subject of the next sub-issue).

Decision

108 I note that although I have stated the position as to defects alternatively as at 8 August 2006 – the date of termination of the deed - the parties and the referee addressed the position as at 31 July 2006. Nothing turns on this, because there is no suggestion of any relevant change over the intervening week. In point of analysis, in relation to the question of completion, I think that the relevant time for consideration is 8 August 2006.

109 As I have indicated already, there is no doubt that the works were not “complete”, in accordance with the deed properly construed, as at 23 February 2006. That is because, as Messrs Childs and Austin agreed, there were then numerous defects in the work that had been done. It may be that, at least putting aside the five significant instances of departures from the plans and specifications referred to above, the defects were “minor”. It may be that they could have been repaired relatively easily, relatively quickly and for relatively very little money. (That having been said, it is also clear, from the referee’s report, that not all of those defects had been repaired by 8 August 2006. I will return to this.)

110 It follows that Cordon’s request, made on 23 February 2006, for Lesdor to sign the strata plan did not oblige Lesdor to do so because the request was not made “following completion of the Building Works” in accordance with cl 15 of the deed, properly construed.

111 Between February and August 2006, Lesdor, through its solicitors, made numerous demands on Cordon to complete the building works free of defects in accordance with the terms of the deed. Cordon refused to do so, on two bases. The first was that, on the proper construction of the deed, the works were not required to be free of defects in order to be complete. The second was that it disputed the existence of many of the defects alleged by Mr Childs.

112 For reasons which are unclear, the parties did not avail themselves of the dispute resolution procedure – reference to arbitration – contained in cl 28 of the deed. Instead, they maintained their respective stances.

113 It follows, from my conclusion as to the proper construction of the deed (in relation to completion), that Lesdor was entitled to take the stance that it did in correspondence, and that Cordon was not entitled to take the stance that it did. It follows, also, that Cordon must be regarded as having stated that it was not prepared to perform its obligations in accordance with the deed, but only in accordance with its own (erroneous) interpretation, or understanding, of those obligations. It did not, for example, acknowledge the possibility of error, and state that if the deed were to be construed otherwise than it said, it would perform its obligations accordingly. In those circumstances, I think, it is clear that Cordon repudiated the deed, and its obligations under it, by no later than 8 August 2006; and that Lesdor was entitled to do as it did on that date, and given notice of termination.

114 In that context, it is of some significance that this Court had decided, although on the hearing of an interlocutory application, that the deed was not to be construed (in relation to completion) as Cordon contended; but that, on the contrary, it was to be construed as Lesdor contended. That happened on 5 May 2006. Thereafter, on 16 June 2006, Lesdor expressly called on Cordon to state whether it intended to complete the works “duly and entirely in accordance with the plans and specifications as required by the Deed”. Cordon neither undertook to do so nor in fact did so.

115 The notice of termination relied, also, on Cordon’s failure to refinance the NAB facility. I will come to that in due course, but what I have said so far would lead to the conclusion that Lesdor was entitled to do as it did on 8 August 2006: accept Cordon’s repudiation, and terminate the deed.

116 Mr Corsaro sought to deflect that conclusion by referring to a number of matters:

(1) the meeting between Joe and Les on 13 January 2006, and the agreement allegedly reached at that meeting;

(2) offers made by Cordon from time to time thereafter, to put aside a retention fund as security for the rectification of defects, to facilitate signature and registration of the strata plan;

(3) the “failure” or “refusal” of Lesdor to provide a further report by Mr Childs, in answer to a report prepared by Mr Austin on 31 May 2006 and given to Lesdor on that day (among other things, this report referred to defects that Mr Austin acknowledged were present and proposed that $190,000.00 be set aside as a retention fund to cover the cost of rectification); and

(4) the circumstance that the defects, as at 8 August 2006, that the referee found were proved were far less in scope and extent than the defects asserted by Mr Childs.

The meeting of 13 January 2006

117 Although, in general, I prefer Joe’s account of the meeting of 13 January 2006 to that of Les, it does not follow that what transpired at that meeting absolved Cordon from its obligations under the deed. Joe and Les walked around the works and observed a number of instances of incomplete and defective work. They discussed what Cordon proposed to do to rectify them. Joe made notes. Later that day, he prepared a list of the works and what he said had been agreed in relation to them, and sent it to Les. Les annotated that list and sent it back to Joe.

118 Mr Corsaro submitted that some form of agreement had been reached at the meeting, that Joe’s notes had recorded that agreement, and that Les had sought to resile from that agreement. I do not think that this is correct. I think that the correct analysis of what happened is that Joe and Les identified the defects (including non-compliances) that were set out in Joe’s list, and that Joe indicated what Cordon proposed to do to rectify those defects. I do not think it is likely that Les, then and there, accepted that this was a sufficient extent of rectification. Lesdor’s position (which I have no doubt reflected Les’ intention) was that the works should be completed and handed over, in accordance with the plans and specifications and free of apparent defects. It is, I think, easy to infer that Lesdor had had the benefit of legal advice that this was its contractual entitlement under the deed. Les did not strike me as a man who would lightly, and without reflection, give away anything that he believed to be due to him, or to Lesdor. On the contrary, he struck me as someone who would do all he could to insist on the due and complete performance of any contract to which he or Lesdor was a party.

119 The truth, I think, is that Les wanted to find out what it was that Cordon proposed, and wanted some opportunity to consider that. Despite what I have said as to my perception of Les, his response indicated that he was prepared to consider some compromises. No doubt, he was prepared to give some ground to get, although late, substantially the benefit for which Lesdor had contracted. But it does not follow that he agreed, at the meeting, to everything put by Joe. It should also be noted that Cordon never accepted the changes suggested by Les when he returned the annotated document to it.

120 I conclude that there was no definite agreement, whether binding or not, reached at the meeting of 13 January 2006; and, a fortiori, no agreed variation to, or agreed mode of performance of, Cordon’s obligations under the deed.

Offers of alternative interim regimes

121 As to the second matter on which Mr Corsaro relied: it is not to the point that, from time to time, Cordon offered alternatives that did not involve performance in full of its contractual obligations. It could be said (although I do not decide) that Cordon was acting reasonably, in proposing interim regimes that would enable the strata plan to be signed and registered as quickly as possible. But there was no obligation on Lesdor to accept what Cordon was proposing. Specifically, there was no obligation on Lesdor to accept less than its contractual entitlements. If Lesdor was not prepared to accept anything less than complete performance of the deed – and that this was its position is clear from the correspondence – then Cordon’s obligation was not to continue to negotiate to provide something less than full performance, but, rather, to do what it was contractually obliged to do.

Alleged failure to provide report

122 The failure to provide a report in report of Mr Childs goes nowhere. First, as Lesdor’s solicitor Mr Michael Solari said in evidence, the delay was solely due to Mr Childs. Second, and more important, it was Cordon’s obligation to complete the works to the appropriate standard. Lesdor had no obligation to tell Cordon what remaining works required completion, or, more generally, how Cordon should perform its contractual obligations.

123 There is a more fundamental difficulty in relation to Mr Austin’s approach. I accept that, in relation to work that was purportedly done in accordance with the plans and specifications but done (or said to have been done) defectively, Mr Austin sought to address the correct test. But in relation to the five major issues mentioned above, Mr Austin’s view was based, expressly or by implication, on an assumption that the works did not need to be done, in accordance with the plans and specifications, so as to achieve the contractual standard of completion.

124 I turn to those five substantial issues.

125 The first issue relates to the alignment of the existing (to be refurbished) commercial building. That building was located at the southwestern corner of the site, which was bounded to the south, west and north by, respectively, The Kingsway, Wandella Road and an apparently unnamed laneway. In its unrefurbished state, the frontage of the existing commercial building to The Kingsway seems to have been offset, being at or close to the footpath at the southwestern corner of the building and somewhat removed from the footpath at its southeastern corner. The approved plans called for the frontage to be realigned so that, for about one-third of its length from the southwest corner, it was shifted back, or to the north, from the footpath.

126 The intent was to provide pedestrian access along a colonnade running parallel to The Kingsway and leading to Wandella Road. That colonnade was to be tiled, so that it would link up (by stairs) with a “plaza” in front of the new commercial building, which lay immediately to the east of the existing commercial building. Thus, pedestrians could pass along the frontage of the two buildings via the tiled plaza and colonnade, and could have access to Wandella Road.

127 The frontage of the existing commercial building was not realigned as shown on the approved plans and specifications. Further, a fire door was constructed at the western end of the colonnade, effectively blocking access to Wandella Road.

128 Cordon’s case was that the work shown on the approved plans could not be carried out, for two reasons. The first reason was that it was necessary to construct the fire door, so as to comply with appropriate standards. The second was that there was some problem with a column, which was said to lend support to the other storeys of the building.

129 The evidence as to the first point is scanty. There is no doubt that Joe told Les that there was a problem with the fire door, and that Cordon had retained an expert, Mr Anthony Uzelac, to advise. The fire door that was constructed accorded with Mr Uzelac’s advice, and was satisfactory to the Council. But it did not accord with the approved plans, and meant that the design intent, of pedestrian access along the colonnade to Wandella Road, could not be achieved.

130 At no stage, before carrying out the work to which I have referred on the frontage of the existing commercial building, did Cordon inform Lesdor that there was a problem with constructing what was shown on the approved plans, either in relation to the fire door or in relation to the column. At no stage did Cordon propose a variation to what was shown on the approved plans. It went ahead and did the work. It had no entitlement under the deed to do that. On the contrary, its obligation was to carry out and complete the works in accordance with the approved plans and specifications.

131 Further, it was Cordon’s obligation to prepare the plans, drawings and designs (cl 3(a) of the deed). It was also Cordon’s obligation to comply with all legislative requirements relating to the work. If the plans that Cordon caused to be prepared could not be constructed, that is not something for which Lesdor should be held to be responsible.

132 Thus, even if the existing commercial building could not have been refurbished in the way required by the approved plans, Cordon was not entitled to depart from those approved plans without the prior consent of Lesdor. Since it made no attempt to get that prior consent, there is no point in speculating on what Lesdor’s attitude might have been.

133 I should say that the evidence as to impossibility of performance is less than clear. It is certainly the case that Cordon asserted impossibility of performance, both in relation to the fire door and in relation to the column. The only evidence in relation to the fire door comes from a letter of 11 April 2006 from Mr Uzelac’s company Central Engineers Pty Ltd to Cordon. In relation to the fire door, it states:

On site discussions with your self and Mr Graeme Harlor from Sutherland Shire Council, regarding the new entry/ exit door and stair off Wandella Road to the existing commercial building that remained resulted in the position of the entry / exit doors being relocated so as to ensure the new fire isolated stairs discharged directly to open space.

The architectural drawing did not provide this hence it was agreed on site that this would be a satisfactory alternative to ensure compliance.

134 That document was admitted without limitation (Mr Hale had submitted that it should not be received as evidence of the truth of its contents). However, it does no more than show that what was constructed was an available solution to a problem apparently raised by Mr Harlor of the Council with Cordon. It does not show that there was no other solution. More importantly, it does not show that an acceptable fire door could not have been constructed if the frontage of the building had been realigned as required by the approved plans.

135 In any event, the fact that Cordon, Mr Uzelac and Mr Harlor agreed that the variation was required does not mean that it was an authorised variation for the purposes of the deed. It was necessary that Cordon should obtain Lesdor’s consent to the variation. It did not do so.

136 There was even less evidence in relation to the column, or the problems, in performing the required work, that it was said to cause. In reality, the evidence consists of no more than assertion and counter-assertion. There was no expert evidence as to what could or could not be done. Nor did the parties give the Court any assistance, by evidence or submission, as to how the competing assertions might be resolved.

137 As to the parapet on the existing commercial building: there was no suggestion that it was impossible for Cordon to raise it so that it would match the height of the parapet on the new commercial building (below the level of the residential floors). Cordon’s case was that the work did not need to be done. Further, Cordon said, Joe and Les had agreed, at the meeting on 13 January 2006, that only part of it would be done. For the reasons I have given, I do not think that the meeting of 13 January 2006 resulted in any binding consensus that had the effect of altering Cordon’s contractual obligations.

138 The referee found that the work was incomplete, because the parapet on the existing commercial building had not been raised. Further, she found, it was necessary to raise it for safety reasons, because people (presumably, workmen and the like) would have access to the roof from time to time. Cordon submitted that I should not accept this finding of the referee, because the possibility had not been raised in the reference. I do not accept that submission. The referee’s point is one of common sense. In any event, whether or not the roof was likely to be used by workmen, the fact remains that Cordon’s work was incomplete, and not in accordance with the approved plans, because the parapet on the existing commercial building was not raised as required.

139 The issue as to the structural steel is that, according to Lesdor, the specification called for it to be hot dip galvanised, where as what was constructed was powder coated. Cordon raised two answers. The first was that the specification should not be construed as Lesdor submitted. The second was that what was supplied was, functionally, equivalent to what was called for by the specification.

140 The steel in question is the structure of an awning that covers the colonnade or walkway at the front (to The Kingsway) of the existing commercial building. It is covered by glass, but otherwise exposed to the elements.

141 The specification stated, in relation to steel surfaces the following (item 18.5.3 of the “CC” specification issued 19 February 2004, and forming part of the plans and specifications the subject of the Council’s construction certificate No. 13805):

18.5.3 SURFACE PREPARATION

…

Preparation And Shop Painting

…

All structural steel not encased in concrete, galvanised or otherwise treated shall be painted in accordance with the Architect’s Specification before delivery to the site.

Internal or unexposed steelwork shall be thoroughly cleaned … and shall be dry. … After preparation the steel work shall be painted with one coat of zinc rich primer… .

Services inaccessible after fabrication or erection… are to be prime painted before fabrication, or be immersion treated after fabricated.

External or exposed steel work shall be sand blast cleaned… . Immediately following sandblasting, the steel work shall be galvanised as follows. …

Galvanising

The galvanised coating on all steel work on the drawings or listed below shall conform to the requirements of AS4680 and are specified herein.

[The specification then described a “hot dip galvanising” process.]

142 For reasons that I have to say that I do not understand, Mr Corsaro submitted that the specification was ambiguous. I do not agree. The effect of the specification, so far as it is relevant, is that external or exposed steel work is to be cleaned as stated and then hot dip galvanised; and that other steel work shown on the drawings or listed in the specification as required to be galvanised is likewise to be cleaned and hot dip galvanised. In this case, the awning frame is caught by the requirement to galvanise because it is exposed steel (the referee so found, and I do not understand this finding to be in dispute).

(2) that principle is subject to the qualification that the work undertaken to produce conformity must be necessary to do that, and, in the circumstances, a reasonable course to adopt; and
(3) it is a question of fact as to what, if any, remedial work is both necessary and reasonable in any particular case.

342 The decision in Bellgrove was considered by the High Court in Tabcorp. Of present relevance, the Court explained the concept of necessity (“necessary to produce conformity”) at 289-290[19]. Their Honours said that the word “necessary” meant “apt to bring about conformity”: between whatever had been done and the plans and specifications that had not been conformed with. In other words, the test of necessity is directed at bringing the work into compliance with the plans and specifications. The test of reasonableness, on the other hand, is directed to the decision to undertake works to achieve compliance; and as the Court had pointed out at 288[17], “the test of “unreasonableness” is only to be satisfied by fairly exceptional circumstances”.

343 Damages may be recovered on the Bellgrove basis even where the building has been sold without the rectification having been performed: De Cesare vDeluxe Motors Pty Ltd (1996) 67 SASR 28. The rationale of that decision is, I think, that the sale price of the building was depressed because of the unrectified defective work. However, Lesdor did not claim damages on the basis of diminution in value.

344 In Central Coast Leagues Club, Giles CJ Comm D had occasion to consider the application of Bellgrove in circumstances where it was clear that rectification work would not be carried out. His Honour said (at BC 216) that if rectification work will never be undertaken, there is no loss. Building on that, his Honour said (at BC 216-217) that if work will never be undertaken, it is open “to conclude that it is not a reasonable course to adopt” to do that work. His Honour referred to Alucraft Pty Ltd (In Liquidation) v Grocon Ltd (No.2) (1996) 2 VR 385, where it was held that the contractor did not intend to rectify the works and would not be called upon to do so; in those circumstances, the contractor was held not entitled to the cost of rectification of defective work done by the subcontractor.

345 The question arose again in Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253. In that case, Giles JA (with whom McColl and Campbell JJA agreed) considered the relevant principles from [41]. His Honour stated at [61] that if supervening events meant that rectification work could not be carried out, it could not be found that rectification was reasonable in order to achieve the contractual objective, because achievement of that objective was no longer relevant. At [62], his Honour qualified what he had said in Central Coast Leagues Club by saying:

… it is necessary to ask why the rectification work would never be carried out. In these cases the rectification work could not be carried out because of supervening events, and established that the plaintiff had not been deprived of the benefit of performance of the contract and thus had not suffered a compensable loss. In other cases, depending on their facts, whether rectification work would be carried out could come under consideration, but not because an intention not to carry out the work itself precluded the award of damages.

346 In other words, as I understand it, if the work cannot be carried out then the Bellgrove principle is inapplicable. If there is no intention to carry out that work, what is relevant is not just the intention, but the reason why it has been formed: for example, because the building has been sold, and the vendor thereafter has no intention to carry out the works because it cannot carry out the works.

347 In this case, some of the defective work, and much of the incomplete or non-conforming work, is in common property. That common property is no longer owned by Lesdor. It is owned by the relevant owners corporation. No owners corporation is a party to these proceedings. In those circumstances, it is open to conclude, and I do conclude, that the work of rectification will never be undertaken: at least, by Lesdor. Certainly, Lesdor called no evidence of any resolution by the members, or executive committee, of any owners corporation to show that rectification work was in contemplation (let alone that Lesdor proposed to fund that work). Nor did Lesdor prove any demand made on it to perform, or fund the performance of, rectification work.

348 Further, it was always the case that Lesdor was going to be divested of the common property on registration of the strata plans. Thus, if the matter is looked at in terms of Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145, the cost of rectification of defects in common property which were unrectified at the time the strata plans were registered would not be either the natural result of the breach (arising “according to the usual order of things” from the breach) or something that “may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”. That is because the parties must have understood, had they turned their minds to the point, that on registration of the strata plans Lesdor would be divested of the common property, and of both the right and the ability to repair and defects. Nor, where that occurred not as the result of sale but as the result of a statutory divestment that the parties always contemplated would occur, is there any basis for claiming damages on a “diminution in value” basis.

349 Mr Hale submitted that it was irrelevant that Lesdor had been divested of common property on registration of the strata plans. First, he said, Lesdor was entitled to insist on performance of the deed, and the divestment did not of itself prevent it from doing so. Second, he submitted, the existence of the owners corporations was relevant only to the extent that they themselves commence proceedings against Cordon. Third, he submitted, Lesdor had “an exposure” to the owners corporations and to lot owners, by reason of ss 3A and 18D of the Home Building Act 1989 (NSW).

350 The first and second points are answered by the reasons of Giles JA in Westpoint. The question is not whether Lesdor can pursue a claim for damages, but what is the proper measure of damages for whatever breaches it proves? Where the damages claimed are the cost of rectification of defects, then the question of reasonableness requires consideration. As Giles JA pointed out in Westpoint, if supervening events mean that the innocent party to the contract cannot carry out rectification work, then it cannot be found that the rectification work is reasonable to achieve the contractual objective. That objective ceases to be relevant once supervening events have the effect of preventing rectification.

351 As to the third point, it may be accepted that Lesdor has “an exposure” to the owners corporations and to lot owners in respect of the residential strata development. There is no evidence of any complaint, or of any threat. In any event, Lesdor has not sought damages on the basis that it is entitled to be indemnified against any such claim. If that is the approach on which damages are to be assessed, then it would be necessary to investigate the likelihood that a claim would be made, and of the amount that would be awarded. There is no basis in the evidence for assessing those matters. If damages are sought on the basis of an indemnity against claims, it is necessary to show in some way the amount for which indemnity is sought.

352 Accordingly, I conclude, both by application of the “Bellgrove v Eldridge” principle and on more general grounds, that Lesdor is not entitled to recover damages for so many of the defects as are within common property. As I understand the evidence, that includes a number of minor defects of about $31,000.00 in value, as found by the referee; the five major defects that I discussed at some length earlier in these reasons; and another major defect (so characterised by the referee, because of its amount) relating to some planter boxes.

Conclusion

353 Lesdor is entitled to damages for defective, incomplete or inconsistent workmanship, in the applicable amounts found by the referee, but excluding any amount that is referable to common property (or, more accurately, unrectified defects in common property).

354 To put it another way, Lesdor is only entitled to recover damages for defective, incomplete or inconsistent work to the extent that such work is relevant to lots that it owns.

355 It may be possible, with great labour, to struggle through the report and identify the extent of Lesdor’s entitlement in accordance with these reasons. However, the safer course is to leave it to the parties to resolve this matter, and to give liberty to apply in the event that they cannot do so. If they cannot do so, I would envisage returning the matter to the referee.

Ninth issue: Cordon’s damages

356 On my findings, Lesdor did not breach its contract with Cordon and, accordingly, Cordon has no entitlement to damages.

Tenth issue: adoption of the report

The relevant principles

357 I set out the principles relevant to adoption of referee’s reports, as I understood them, in Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 at [7]. That decision was taken on appeal. It appears from the judgment of Giles JA (with whom McColl and Campbell JJA agreed) ([2007] NSWCA 253 at [9]) that I did not misdirect myself in so stating the principles. Accordingly, I repeat what I said:

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

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

The parties’ submissions

358 Mr Corsaro submitted that the referee misdirected herself in some respects, and that in those respects her report should not be adopted. Otherwise, he submitted, the report should be adopted.

359 Mr Hale submitted that the report should be adopted without qualification.

Decision

360 I start with the observation that the referee is a qualified architect, and thus eminently suitable to enquire into the existence, and where necessary fix the cost of rectification, of the alleged defects. I add that the report gives a detailed analysis of the relevant facts, and sets out clearly reasoned conclusions on the issues with which the referee was confronted. It is logical and coherent, and demonstrates that the referee had a detailed understanding of the issues, the arguments and the evidence.

361 In those circumstances, there is a strong predisposition in favour of adoption of the report.

362 One of the reasons put against adoption of the report is that, in relation to a finding that the roof area over the residential lots would be trafficable, Cordon was denied natural justice. The question of whether the roof was trafficable was in issue before the referee and Cordon had the opportunity to put evidence or submissions directed to that issue. If it did not do so, it can hardly blame the referee.

363 Cordon attacked the way that the referee construed one of the questions put to her, namely question 7. That question reads as follows:

7. Whether the Building Works were completed except for minor omissions and/or defects which did not prevent the works from being reasonably fit for occupation and/or use by an owner, and the site cleared of all rubbish and building materials, as at 23 February 2006 and 31 July 2006.

364 Mr Corsaro submitted that the referee had not considered whether the question of whether the defects were minor in nature was informed by the extent to which they rendered the works unfit for occupation or use. He submitted that she erred in considering those two aspects of the question disjunctively rather than conjunctively.

365 I have great difficulty in understanding this complaint. If, as the referee concluded, the defects did prevent the works from being reasonably fit for occupation or use, then it did not matter whether, otherwise, they were “minor”. She concluded, after a detailed analysis of the evidence (at paras 407 to 420 of the report) that, as at 23 February 2006, the defects, whether considered individually or in combination, that she had found existed were not minor and would prevent the works from being reasonably fit for occupation or use. On either basis, Cordon did not achieve what it contended was the appropriate standard for “practical completion”. Since it was sufficient, for this to follow, that a finding be made that the effect of the defects was to prevent the works from being reasonably fit for occupation or use, it is unnecessary to go further into this aspect of the referee’s reasoning.

366 I do not think that the referee’s reasoning on this question betrays any error of principle. But even if it did, there is a sufficient basis for the conclusion that she did reach – being that which I have just emphasised – to make any further investigation pointless.

367 Mr Corsaro submitted that the referee had misdirected herself in the construction of the specifications in so far as they dealt with the requirement for structural steel to be hot dip galvanised. For the reasons that I have given at [141] to [143] in dealing with this defect, I do not think that the referee erred.

368 Mr Corsaro submitted that the referee had erred in her approach to defects in the common property. I am not sure that this is of any significance. The referee did not conclude that any particular amount was owing by Cordon to Lesdor for defective, incomplete or inconsistent work. She merely reported on the extent of defective, incomplete or inconsistent work at relevant times and on the cost of rectification or making good. It is up to the Court to make what it will of, and take what it wishes from, those findings. Adoption of the report will not of itself dictate that everything in it is added to the damages bill.

369 Mr Corsaro may be correct in submitting that the findings are irrelevant, but that does not matter because, as I have indicated, adoption of the report does not compel the Court to award irrelevant matters as damages.

370 As I have indicated, the report ought be adopted. What follows from that is a matter yet to be determined.

Conclusions

371 In summary, I have concluded that:

(1) Cordon breached the deed, and repudiated its obligations thereunder, both in relation to completion and in relation to the refinancing of the NAB facility;

(2) Lesdor was entitled to, and did, accept that repudiation as terminating the deed and discharging it from further performance;
(3) Lesdor did not, thereby, itself repudiate the deed; nor did it breach the deed in the way that it dealt with NAB;
(4) Lesdor’s exercise of its right to terminate was not vitiated by failure to comply with any applicable duty of good faith or reasonableness;
(5) Lesdor breached the IMA, but this results in no loss to Cordon;
(6) Cordon has no entitlement to be paid on a restitutionary or quantum meruit basis;
(7) Lesdor is entitled to damages, but it should have mitigated its loss by selling the residual lots within 12 months after the date of termination of the deed;
(8) had Lesdor acted properly to mitigate its loss, there would have been sufficient net proceeds of sale to discharge entirely the amount borrowed from Macquarie to pay out the NAB facility, and a probable surplus of at least $330,000.00;
(9) Cordon has no entitlement as to damages; and
(10) the referee’s report should be adopted without qualification.

372 I have indicated, along the way, items of damage that are and are not recoverable. At present, I do not know whether those that are recoverable (on the basis of my conclusions) will exceed $330,000.00 (more accurately, whatever the notional surplus should be, taking into account and resolving the issue as to capital gains tax flagged but not resolved at [332] and [333] above). Accordingly, it will be necessary for the parties to seek to quantify, in monetary terms, the effect of my reasons and conclusions. I think that the best way to do that is for the parties to submit a draft of the orders that should be made, and written submissions in support.

373 That leaves the question of costs. If the outcome of the process that I have just described is that Lesdor’s damages are less than the notional credit arising from the notional sale of the residual lots, then it would seem that the appropriate order is that the claim and cross-claim should be dismissed with costs to follow the event in each case, and that costs should be set off. However, that is merely a provisional view; there may be other factors that impinge on the costs decision, and it may not be until the monetary effect of these reasons is quantified that proper consideration can be given to the question of costs.

374 In those circumstances, I make the following orders:

(1) Direct the parties to exchange, and deliver to my Associate, by 12 November 2010 a minute of the orders that each submits should be made to give effect to these reasons, together with written submissions, no more than 10 pages in length, in support of those orders;
(2) Direct the parties to exchange, and deliver to my Associate, by 19 November 2010 written submissions in reply of no more than five pages in length;

(3) Stand the proceedings over to 10:00am on 26 November 2010 for the making of orders;
(4) Order that the report of the referee, Ms Janet Grey, dated 29 June 2010 be adopted.
(5) Reserve costs.

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