DCT Projects Pty Ltd v Champion Homes Sales Pty Ltd

Case •

[2016] NSWCA 117

•

20 May 2016

No judgment structure available for this case.

Court of Appeal


Supreme Court


New South Wales

Medium Neutral Citation: DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117
Hearing dates:17 March 2016
Decision date: 20 May 2016
Before: Macfarlan JA at [1]
Gleeson JA at [2]
Sackville AJA at [193]
Decision:

(1)   Appeal allowed in part;

 

(2)   set aside Orders 1 and 2 made by the primary judge on 26 May 2015;

 

(3)   in lieu thereof, order:
(a)   judgment in favour of the plaintiff against the first defendant in the sum of $61,593.23;
(b)   judgment in favour of the plaintiff against each of the second to ninth defendants in the sum of $6,843.69;
(c)   in each case, the judgment is to take effect on 26 May 2015;

 

(4)   the parties are to agree on the calculation of interest on the above judgments at the rates prescribed by Practice Note SC Gen 16 from 2 July 2008 to 26 May 2015, and submit a draft consent order within 14 days of the date of this judgment. In the absence of agreement between the parties, the parties are to file and serve their respective calculations of interest on the judgments and short written submissions in support, not exceeding 2 pages, within 21 days of the date of this judgment. The Court will determine the amount of interest on the papers;

 (5)   appellants to pay 90% of the respondent’s costs of the appeal.
Catchwords: CONTRACTS - building, engineering and related contracts - the contract – discharge, breach and defences to action for breach – where delay by the builder – whether repudiatory conduct– where purported termination by principal followed by purported termination by builder– onus on principal to prove work that could have been done – threats to suspend work made by builder in context of non-payment by principal – where builder suspended works for alleged breach by the principal – where principal did not serve a notice requiring the builder to remedy alleged breaches of contract – whether builder’s conduct evinced intention to no longer be bound or to fulfil contact in manner substantially inconsistent with its obligations
CONTRACTS - building, engineering and related contracts – claims for extensions of time – where no objection by principal when claims for extensions of time first made in closing submissions at trial – validity of claimed extensions by the builder and any notice of dispute by the principal under contractual regime for giving notice of claims– calculation of extensions by calendar or working days
CONTRACTS - building, engineering and related contracts – determination of contract sum/price – nature of deposit – whether fee for advice or part of contract sum – terms of contract
TRADE AND COMMERCE - Trade Practices Act 1974 (Cth) and related legislation – misleading and deceptive conduct – contract expressly excluded retaining walls and gave provisional sums for certain items including rock excavation – where builder aware of need for large retaining walls and did not inform principal prior to entry into contract – whether reasonable expectation of disclosure – where principal represented by its own project manager – no complaint by principal contemporaneous with need for retaining walls becoming apparent
DAMAGES - General principles – causation – misleading and deceptive conduct – where failure to disclose – causation established if disclosure would have caused inaction or different action – whether recovery for discrete loss permitted – where damages claimed on a “no contract” case
Legislation Cited: Competition and Consumer Act 2010 (Cth), Sch 2 (Australian Consumer Law) ss 18, 236
Trade Practices Act 1974 (Cth), ss 52, 75B(1), 82
Uniform Civil Procedure Rules, rr 14.14(2), 51.36(2)
Cases Cited: Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) [2006] NSWCA 282; 67 NSWLR 341 Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198
Australian Developments Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (NSWSC, Giles CJ Comm D, 30 January 1996, unrep)
Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd [1990] HCA 11; 169 CLR 279
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; 238 CLR 304
Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; 217 CLR 640
Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623
Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388
Rawson v Hobbs [1961] HCA 72; 107 CLR 466
Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620
Smith v Noss [2006] NSWCA 37
Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94
Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401
Wardley Australia Ltd v Western Australia [1992] HCA 55; 175 CLR 514
Category:Principal judgment
Parties: DCT Projects Pty Limited (First Appellant)
Timothy Ainsworth (Second Appellant)
Patricia Avila (Third Appellant)
David Barbic (Fourth Appellant)
David Brack (Fifth Appellant)
Peter Mason (Sixth Appellant)
Champion Homes Sales Pty Limited (First Respondent)
Sredoje Malesev (Second Respondent)
Representation:

Counsel:
Mr M R Gracie with Dr B Douglas-Baker (Appellants)
Mr C Stomo (Respondents)

  Solicitors:
Balmain Lawyers (Appellants)
Team Legal Group (Respondents)
File Number(s):2015/178979
 Decision under appeal 
Court or tribunal:
Supreme Court of New South Wales
Jurisdiction:
Equity Division
Citation:
[2015] NSWSC 616
Date of Decision:
26 May 2015
Before:
Ball J
File Number(s):
2009/334004

Judgment

  1. MACFARLAN JA: I agree with the orders proposed by Gleeson JA and with his Honour’s reasons.

  2. GLEESON JA: This appeal concerns a building dispute relating to the construction of eight townhouses on two blocks of land owned by the first appellant, DCT Projects Pty Limited (Projects), at Courtney Road, Padstow. Projects is the trustee of a unit trust known as “The Developers Club Trust No 1” (the Trust). Mr Robert Brown had acted as trustee of the Trust prior to the incorporation of Projects on 23 September 2005. The second to sixth appellants are some of the unitholders in the Trust and at all relevant times were directors of Projects. The first respondent, Champion Homes Sales Pty Limited (Champion Homes), as its name implies, is a builder. The second respondent, Sredoje Malesev (Mr Malesev) is its managing director.

  3. Champion Homes sued Projects, ultimately claiming the amount of $317,484.18 said to be owing under a construction contract less the amount it had been paid. It also made a claim against the unitholders of Projects as guarantors for their respective proportion of the amount claimed.

  4. Projects and the unitholders cross-claimed against Champion Homes and Mr Malesev. At trial, the only cross-claim pursued was that brought by Projects which made claims for recovery of amounts asserted to have been overpaid as variations; for liquidated damages; for costs to complete, for late completion damages; and damages for alleged misleading and deceptive conduct relating to the cost of constructing retaining walls and the need for retaining walls, not included in the contract.

  5. After a hearing lasting seven days the primary judge (Ball J) delivered reasons for judgment on 26 May 2015 (a) rejecting the claim against Champion Homes for misleading and deceptive conduct; (b) finding that Projects’ termination of the contract was wrongful and Champion Homes was entitled to terminate the contract; (c) concluding that Champion Homes’ loss is $76,593.23 (being the amount that it claims ($317,484.18), less the amount by which its claim for variations should be reduced ($106,330.95) and less the amount of liquidated damages payable by it to Projects ($134,560)); and (d) dismissing Projects’ and the unitholders’ cross-claims. After awarding interest of $42,524.72 from the date of termination of the contract (which his Honour treated as 2 July 2008) to the date of judgment at the rate prescribed by Practice Note SC Gen 16, his Honour entered judgment in favour of Champion Homes in the amount of $119,117.95 and judgment for one-ninth of that amount ($13,235.33 inclusive of interest) against each of the second to ninth defendants: Champion Homes Sales Pty Limited v DCT Projects Pty Limited [2015] NSWSC 616.

  6. Projects and five of the unitholders have appealed.

Relevant facts

  1. The Padstow land was located on the southern corner of Courtney Road. It consisted of two blocks, both of which fronted Courtney Road. The larger block is roughly 18 metres wide and 150 metres deep and slopes approximately 17 metres downhill in a southerly direction. The second block is adjacent to the eastern side of the first and is approximately 17 metres wide and 53 metres deep.

  2. The proposed development by Projects provided for six townhouses to be located at the top end of the site – three on either side of a road that was to run down the middle. The plans provided that the road was then to turn right and left and to run down the western side of the larger block leading to the remaining two townhouses (known as units 4 and 5), which were to be located at the bottom of the site.

  3. The building work was put out to tender and the successful tenderer was Champion Homes. Its final tender price submitted on 9 September 2005 was $1,660,000, subject to a number of conditions. Relevantly, the “Other Conditions” included that the tender was subject to a survey report prepared by the builder’s surveyor and no allowance was to be made for retaining walls. The tender included the following statement:

Please acknowledge your acceptance of this tender by signing where indicated below and paying a non-refundable amount of $40,000.

The price in the contract was subsequently amended to $1,665,000.

  1. On about 22 September 2005, Mr Brown, as trustee of the Trust, accepted Champion Homes’ tender and agreed to pay a non-refundable tender fee of $40,000 at a later date. That fee was paid on 20 December 2005. There was a dispute at trial as to the nature of this payment and whether it formed part of the contract sum. The primary judge found that it was a deposit and was payable in addition to the contract sum.

  2. On 9 December 2005, Projects provided Champion Homes with contour plans of the site. These were used by Champion Homes to prepare preliminary plans. Mr Luke Wakeham, an architectural draftsman who worked under the supervision of Mr Cartagena, the drafting manager at Champion Homes, identified a number of issues in relation to those plans. Mr Wakeham prepared a document headed “Construction issues” dated 21 December 2005, which included reference to “large engineered retaining walls which would be required” adjacent to Units 3 and 5, as well as a “massive cut of 5.11 metres” adjacent to unit 5.

  3. On 9 February 2006, Champion prepared revised plans for the development.

  4. On 27 February 2006, there was a meeting on site between Mr McLean of Projects, and Mr Thorpe, Mr Petkovski and Mr Fordham of Champion Homes, and Mr Donovan, a consulting engineer. His Honour set out part of Mr Petkovski’s file note of the meeting (at [32]), but omitted reference to par 4 concerning a report required by Donovans Designs Pty Ltd (Donovans), civil and structural engineers. It is desirable to set out the relevant parts of that file note:

…

3. Excessive work evident.

4. Report on adjoining houses and retaining walls required by Donovans.

5. Special attention to block retaining wall along western boundary and log retaining wall along western boundary. Log wall requires larger post to support and block retaining [wall] partially requires removal.

…

7. Caution with sewer location and depth when commencing roadway on site.

  1. Following the site meeting, on 1 March 2006, Mr Malesev wrote to Mr McLean attaching a revised draft of Schedule 2 setting out the progress payments to be made by Projects. The letter is significant for Projects’ misleading and deceptive conduct claim. Relevantly, the letter said:

As the DA approved plans did not reflect the correct levels and elevations, the purpose of the meeting was to determine more accurate costing in relation to rock excavation and removal and site excavation and spoil removal.

It is our opinion that even after the site inspection and consultation with the structural engineer we can only still provide an estimate of the costs involved.

We estimate that rock excavation and removal will cost approximately $20,000.00 and we estimate that site excavation and removal of excess spoil will cost approximately $45,000.00.

As these are provisional sums only, we are happy to provide you with our rates in relation to machinery, excavation and removal of rock and spoil and keep a daily record of site activity for the duration of these works.

...

Other issues discussed are the two existing retaining walls on the right hand side of the site.

The copper log retaining wall requires additional support and we estimate the cost to be approximately $2,000.00.

The masonery [sic] block retaining wall needs to be demolished and removed and an engineering detail is required for a new retaining wall to be constructed.

The cost of this wall can not be determined until the engineering detail is prepared.

Before any work in relation to these retaining walls is undertaken an engineering certificate should be obtained and submitted to Bankstown Council stating that the existing walls have not been constructed to the building code and therefore need to be replaced or rectified.

The adjoining neighbours could then be approached and asked to pay for the cost of these walls.

There is a further retaining wall at the back of the site and we understand that you will advise us of your requirements in relation to this wall.

…

Please note that when preparing the schedule we have added the provisional allowances in the amount of $65,000.00 for rock and site excavation.

  1. His Honour noted (at [33]) that there was a dispute whether the reference to “a further retaining wall at the back of the site” was intended to be a reference to the retaining wall to be built adjacent to units 4 and 5, or whether it was a reference to an existing retaining wall that was adjacent to a neighbour’s property. He found (at [112]) that it was likely that the discussion was limited to the existing retaining walls on the site and that there was no discussion of the new walls to be built. That finding may be doubted in view of par 4 of Mr Petkovski’s file note of the site meeting, but Champion Homes did not seek to challenge that finding in this Court.

The contract

  1. The construction contract dated 8 May 2006 between Projects and Champion Homes was a lump sum contract for $1,665,000, with nominated provisional sums and excluded costs for retaining walls unless specified in the tender or variations: Special Condition 53.2. The contract duration was 45 weeks. The nine unitholders of Projects (who were parties to the construction contract) guaranteed Projects’ obligations under the contract as to a one-ninth share each. Projects’ representative for the contract was stated to be “DPL Projects Pty Ltd, Mr Max McLean, director”.

Commencement of the works and progress

  1. Work started on the site on 16 August 2006. There were delays in the progress of the work and Champion Homes made various claims for variations which led to disputes between the parties. On 8 November 2007, Champion Homes suspended work on the site. The parties entered into a Modification Agreement dated 13 December 2007 (the Modification Agreement) by which it was agreed, among other things, that Gleeds, quantity surveyors engaged by Projects, would value the variations in dispute, as well as future variations. However, further disputes arose and Champion Homes suspended work on another three occasions, the last suspension commencing on 18 June 2008. Following that suspension, Projects gave notice purporting to terminate the contract on 2 July 2008. In turn, on 7 July 2008, Champion Homes treated Projects’ notice of termination as a repudiation and itself purported to terminate the contract.

The proceedings

  1. As indicated above, Champion sued Projects for the amount which it claimed to be owing under the contract, ultimately $317,484.18, and the unitholders for their respective one-ninth shares of the amount claimed. By the time of the hearing, one of the guarantors, Mr Mark Nixon, was a bankrupt and the claim against him was not pursued.

  2. By its cross-claim Projects made the following claims. First, Projects claimed that it had overpaid Champion Homes the sum of $216,851.94 and sought to recover that amount. This amount related to variations which Projects contended were not properly claimable by Champion Homes.

  3. Secondly, Projects claimed liquidated damages at the contractual rate of $1,160 per day from the date of practical completion under the contract (which was 26 June 2007) to the date on which it purported to terminate the contract (2 July 2008), that is, 372 days. The total amount claimed was $431,520.

  4. Thirdly, Projects claimed cost paid to another builder, Linx Projects Pty Ltd (Linx), to complete the work ($588,954.11) less the costs of variations inclusive of GST, making a total of $557,306.36.

  5. Fourthly, Projects claimed late completion damages in the sum of $376,293.74 in respect of the period 3 July 2008 to the time of sale of the units on 1 August 2009.

  6. As already indicated, these claims by Projects were rejected by the primary judge except for part of the claim for liquidated damages and part of the claim for repayment of overpaid variations which were deducted from Champion Homes’ claim under the contract.

  7. Finally, Projects claimed that Champion Homes engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (the TPA) (now the Competition and Consumer Act 2010 (Cth) Schedule 2 s 18 (Australian Consumer Law)) and that Mr Malesev was a person involved in that contravention within the meaning of s 75B(1) of the TPA. Projects alleged that Champion Homes gave misleading advice concerning the amount that should be allowed for rock excavation and removal, site excavation, and spoil and fill removal, in addition to misleading advice concerning the cost of constructing retaining walls. It was further alleged that Champion Homes failed to disclose to Projects that substantial excavation would be required and that it would be necessary to construct numerous and large engineered retaining walls which were far in excess of those that had been disclosed to Projects.

  8. Projects claimed that if Champion Homes had not engaged in misleading or deceptive conduct, it would not have entered into the construction contract. Projects claimed as its loss the costs of retaining walls ($361,694.14), the increased costs of excavation and the change in levels ($221,535.10) and the costs of a retaining wall built by another contractor, Earthpro ($10,950). These amounts totalled $594,179.24.

  9. His Honour rejected the misleading conduct claim, finding that there was no reasonable expectation of disclosure that retaining walls would be required, although not included in the contract.

Issues on appeal

  1. The notice of appeal raised nine grounds, some of which were connected. Projects identified three main issues, namely: (a) whether Projects lawfully terminated the contract on 2 July 2008 (ground 1); (b) whether Projects’ entitlement to liquidated damages should be reduced by the sum of $134,560 representing 256 calendar days as extensions of time (ground 2); and (c) whether Champion Homes’ non-disclosure of the need for retaining walls was misleading or deceptive or causative of loss or damage by Projects entering into the construction contract (grounds 7, 8 and 9).

  2. The remaining grounds of appeal were directed to challenging his Honour’s findings that the contract sum of $1,665,000 did not include the $40,000 non-refundable tender fee paid by Projects to Champion Homes (ground 4), allowing in full Champion Homes’ claims for variation 1 ($94,100) and variation 6 ($189,000) (ground 3) and allowing Champion Homes an amount of $95,000 for contract price adjustment (CPA) 5 with respect to stormwater and hydraulic works (ground 5). In addition, Projects challenged his Honour’s contingent findings as to Projects’ claim for damages (assuming its termination was lawful) disallowing the cost to complete the works after termination in the amount of $557,306.36 (ground 6).

  1. It is convenient to deal with the main issues in the order in which they were argued on appeal before addressing the remaining grounds.

Termination by Projects (ground 1)

  1. Projects’ case at trial was that it was entitled to terminate the contract on the basis that Champion Homes had repudiated the contract by not performing its obligations under the contract for a period of approximately six months after the Modification Agreement. Significantly, Projects did not seek to terminate the contract for breach relying upon its express contractual rights. This would have required Projects to have served a notice of default in accordance with cl 33 of the contract and allowed Champion Homes ten working days to remedy that breach.

The facts

  1. The primary judge summarised the history of the building works from the time of the commencement of the works on 16 August 2006 until the Modification Agreement on 13 December 2007: at [60]-[79]. It is unnecessary to refer to the detail of what occurred during this period, as it is common ground that the parties affirmed the contract by entering into the Modification Agreement. One matter, however, should be mentioned. His Honour found that the first suspension of work on the site by Champion Homes from 8 November 2007 until the Modification Agreement on 13 December 2007 was valid: at [178]. That finding is not challenged by Projects.

  2. His Honour summarised the building work which followed the Modification Agreement until termination of the contract by Projects on 2 July 2008: at [86]-[99]. It is necessary to refer to these findings in some detail, since they are critical to his Honour’s assessment of the repudiation claim. His Honour found that:

  • Champion Homes re-opened the site for work on 14 December 2007 but could not itself recommence work because of the difficulty in re-engaging contractors shortly before Christmas: at [86];

  • Champion Homes was keen in January 2008 to resume work. In its letter to Projects of 21 January 2008, Champion Homes referred to being frustrated in carrying out the building works because of an absence of instructions on a number of matters (which were sought as a matter of urgency relating to retaining walls adjacent to units 5 and 6, the driveway lighting, and the need to give notice to owners of affected adjoining properties concerning replacing fences) and the inability to commence work on the final detention basin adjacent to unit 3 until the retaining wall adjacent to Unit 3 had been constructed (by Earthpro): at [87];

  • on 30 January 2008, Champion Homes re-commenced work on the site. It advised Projects that it was limited in the work that it could do because of the work being done by Earthpro and requested a response to its earlier request in relation to driveway lighting: at [88];

  • on 4 February 2008, Champion Homes served a second suspension notice which it subsequently withdrew on 14 February 2008 after Projects pointed out that Champion Homes had erroneously claimed that Projects had not paid for two of the variations the subject of the suspension notice: at [89];

  • there was a lengthy correspondence between the parties concerning the amount due under the Modification Agreement for variations during which time little work was done by Champion Homes on site, largely due to rain and because it maintained that it was restricted in what it could do given the work being done by Earthpro (on the retaining walls): at [90];

  • on 6 March 2008, Champion Homes served a further breach notice claiming an amount of $78,021.68 under the Modification Agreement. It issued a third suspension notice on 12 March 2008. Projects accepted that it owed $41,027.38 and paid that amount by cheque on 14 March 2008. Champion Homes refused to recommence work while the balance remained unpaid and the parties remained in dispute in relation to the balance. Nonetheless, on 26 March 2008 Champion Homes sought instructions in relation to various matters, including driveway lighting, and Mr Brown, of Projects, declined to attend a meeting the following day to discuss those issues: at [91];

  • on 2 April 2008, Champion Homes sent a letter to Projects which stated that it was ready, willing and able to recommence the building works as soon as the financial issues had been resolved and clear instructions provided to Champion Homes: at [91];

  • on 8 April 2008, Projects paid Champion Homes $6,943.95 and the parties met on site the following day. On 10 April 2008, Mr Malesev wrote to Mr Brown asserting that building work had not resumed up until that time “due to a combination of bad weather, the substantial retaining wall works undertaken by your contractors and the suspension of works for reasons that had been well-documented”. Mr Malesev also stated that Champion Homes was willing to accept the payment made by Projects and formally resume building work. Champion Homes recommenced work on 16 April 2008: at [92];

  • however, a number of issues remained unresolved. When Champion Homes commenced work on the fences it encountered a number of problems, including complaints from neighbours, which Projects had not resolved. There was also an issue in relation to the driveway lights where Projects indicated that it wanted to pay Champion Homes’ contractor directly: at [93];

  • although work on the retaining wall adjacent to units 4 and 5 was completed, according to Champion Homes, by 26 May 2008, Projects did not pay the balance of the variation relating to this work: at [94];

  • on 18 June 2008, Champion Homes purported to suspend the building works for non-payment of CPA 5 issued on 11 June 2008 relating to hydraulic and stormwater drainage works, the balance claimed as outstanding being $45,498: at [95]-[96];

  • Projects did not respond to that notice of suspension. Instead, on 2 July 2008, Projects gave notice purporting to terminate the contract on the basis that Champion Homes had repudiated it: at [97]. In support of that proposition, the letter giving notice of termination said:

From the signing of the [Modification] Agreement to the present date, a period in excess of 6 months, the only substantial works carried out on site have been completion of the variations referred to in clause 2.1 of the [Modification] Agreement, stormwater and hydraulics works for which there is a provisional allowance in the contract (completion of that work has been asserted by Champion but no certification or other evidence of completion has been provided) and two days of fencing work. No attempt has been made by Champion to carry out any of the other work necessary to bring the building work to Practical Completion.

  • Projects’ letter of 2 July 2008 continued by asserting that when its own contractors (Earthpro) were on-site constructing the retaining walls behind units 3 and 6 and opposite unit 5 from 29 January 2008 until 2 April 2008, Champion Homes could have carried out various works. The letter concluded by asserting that Champion Homes had seriously and persistently failed to comply with its obligations under the contract and “in failing to use all endeavours to proceed with the building work under the contract with due expedition and without delay for a period in excess of 6 months has evinced an intention that it will not bound (sic) by the contract and amounts to a repudiation of the contract.”

Primary Judge’s Reasons

  1. The primary judge found that the evidence did not establish that Champion Homes evinced an intention not to be bound by the contract or an intention only to fulfil the contract in a manner substantially inconsistent with its obligations: at [123]. It is desirable to set out his Honour’s reasons in full:

… It suspended work under the contract on four occasions because it believed, with some justification, that it had not been paid amounts due to it. When the work was suspended, it was open to DCT Projects to serve a notice under the contract giving Champion Homes ten days’ notice to resume work. It did not do so. Following the first suspension notice, it agreed to the Modification Agreement under which it paid a substantial sum of money. Following the second suspension, it pointed out that amounts that Champion Homes asserted had not been paid had been. Champion Homes accepted that it had made a mistake and withdrew its suspension notice and agreed to resume work. Following the third suspension notice, DCT Projects made further payments and following those payments Champion Homes again agreed to resume work. Champion Homes did do work during the periods when work was not suspended. In particular, it completed work on the retaining walls and on the drainage system. It also did some work on the fencing. It explained that it could not do further work because it was delayed by rain, by DCT Projects’ failure to provide instructions and by DCT Projects’ contractor. DCT Projects did not take issue with the assertion that some delay was caused by rain. It is apparent from the correspondence that Champion Homes was pressing DCT Projects for instructions on a number of items and that those instructions were not forthcoming or were delayed. DCT Projects asserts that there was work that Champion Homes could have done while Earthpro was completing the work that it was doing. However, it bears the onus of proving that that work could have been done and it has not sought to discharge that onus. It is possible that Champion Homes could have done more and that for that reason it was in breach of cl 38.2 of the contract. However, I do not think that that amounted to a repudiation of the contract.

  1. His Honour concluded that as Projects’ termination of the contract was wrongful, it followed that Champion Homes was entitled to terminate the contract (which it did on 7 July 2008): at [124].

Submissions

  1. In written submissions, Projects emphasised that the contract contained two contractual obligations with respect to the timing of Champion Homes’ performance of the work. One was that “the building works will be done with due diligence and within the times stipulated in this contract”: cl 38.1(d). The other was Special Condition 38.2 to “use all endeavours to proceed with the building work under the contract with due expedition and without delay”.

  2. Projects next referred to Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303 (Hometeam) at [169] as authority for the proposition that, depending on the circumstances, delay of itself may be sufficient to raise an inference of lack of due diligence. It was submitted by reference to Hometeam at [181] that delay in progress during construction could amount to a failure to perform the building works with due diligence if there was either (i) a failure to carry out a reasonable amount of work by a given time measured by reference to all the work performed under the contract or (ii) in absolute terms, by reference to a lack of activity on the site over a significant period that could not be satisfactorily explained. The contention advanced was that the lack of due diligence evinced an intention by Champion Homes not to be bound by the contract.

  3. In oral argument, Projects identified six matters as demonstrating that Champion Homes had repudiated the contract. Those matters were:

  1. the delay in performance of the contract, in particular, the (unextended) date for practical completion was 27 June 2007 and by 2 July 2008 the works were at week 98 of a contract with a 45-week duration;

  2. Champion Homes failed to carry out any work following reopening of the site on 14 December 2007 up until 19 December 2007;

  3. Champion Homes threatened to suspend the works in early 2008;

  4. the only work undertaken by Champion Homes after the Modification Agreement in December 2007 related to variations and CPA 5 in respect of hydraulic works;

  5. Champion Homes failed to provide an updated works programme; and

  6. the works were invalidly suspended by Champion Homes on 18 June 2007, and this was the fourth suspension of works since November 2007.

  1. Although the relevant principles concerning repudiation are not in dispute, it is desirable to say something first about those principles, as they provide the context in which Champion Homes’ words and conduct are to be assessed.

Relevant principles - repudiation

  1. For the conduct of a party to constitute a renunciation of its contractual obligations it must be shown that the party is either unwilling or unable to perform its contractual obligations, that is, it has evinced an intention to no longer be bound by the contract, or stated that it intends to fulfil the contract only in a manner substantially inconsistent with its obligations and in no other way: Shevill v Builders Licensing Board [1982] HCA 47; 149 CLR 620 (Shevill) at 625-626 (Gibbs CJ); Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd [1989] HCA 23; 166 CLR 623 at 634, 647-648, 658; Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; 233 CLR 115 (Koompahtoo) at [44]. Repudiation is a serious matter and is not to be lightly found or inferred: Shevill at 633 (Wilson J).

  2. Where inability to perform is declared the conduct amounts to a refusal to perform and the innocent party need not prove that the other party was actually unable to perform when the time for performance came: Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 at 437.

  3. A renunciation can be made either by words or conduct, provided it is clearly made: Universal Cargo Carriers Corporation v Citati at 436. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it: Koompahtoo at [44]; Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd at 659 (Deane and Dawson JJ) and 647 (Brennan J).

  4. So far as factual inability to perform is concerned, what needs to be shown is that the party in question has become wholly and finally disabled from performing the essential terms of the contract altogether: Rawson v Hobbs [1961] HCA 72; 107 CLR 466 at 481; Almond Investors Ltd v Kualitree Nursery Pty Ltd [2011] NSWCA 198 at [62] (Bathurst CJ; Giles JA and Handley AJA agreeing). It is well accepted that factual inability must be proved “in fact and not in supposition”: Universal Cargo Carriers Corporation v Citati at 450.

  5. Here, Projects did not assert factual inability to perform. Projects asserted unwillingness to perform to be inferred from the words and conduct of Champion Homes (set out at [37] above).

Consideration

(a) Delay

  1. The first and overarching matter relied upon by Projects was the delay in performance of the contract. Project’s submissions pointed out on several occasions that the contract required completion within 45 weeks and that Projects had terminated the contract after 98 weeks. However, in argument, Projects accepted that the Modification Agreement was an affirmation of the contract and that the focus of the present enquiry therefore must be entirely on the period from 13 December 2007 until Projects’ letter of termination on 2 July 2008.

  2. Reference has been made above to his Honour’s factual findings concerning the building work which was undertaken following the Modification Agreement and the ongoing disputes as to whether payments were correctly made by Projects to Champion Homes. His Honour did not find that any of the disputes raised by Champion Homes were not genuine. Nor did his Honour find that Champion Homes was not genuine in asserting that the building works were delayed in part because of an absence of instructions from Projects, relating to various matters, including the retaining walls adjacent to units 5 and 6, the driveway lighting, and the requirement to notify affected adjoining owners concerning replacement of fences. Nor were any different findings sought by Projects on appeal.

  3. In support of its contention that Champion Homes failed to perform the works under the contract with due diligence, Projects pointed to the “Progress” of the works recorded in the independent QS reports prepared by Newton, Fisher & Associates Pty Ltd for Projects’ financiers dated 1 February 2008 and 12 May 2008. Under the heading “Progress”, the February 2008 QS report recorded the project status as follows:

● Substructure – 100% complete;

● Superstructure – 100% complete;

● Finishes – 100% complete;

● Fittings – 0% complete;

● Services – 69% complete;

● External Work – 0% complete.

  1. The report noted that six dwellings were almost complete and were waiting for the external works and the last two dwellings had the slabs laid, frames erected, roofing, plasterboard, joinery and brickwork complete, and with tiling and works on bathrooms progressing. Stormwater drainage was recorded as having been executed.

  2. The May 2008 QS report recorded that the position with respect to “fittings” and “external work” remained “0% complete” and that “services” were now “90% complete”. The report continued:

The overall programme has been delayed due to inclement weather, resourcing and retaining wall structures.

  1. Projects asserted that there was a lack of activity on site over a significant period that could not be satisfactorily explained. Projects accepted that it bore the onus of proving lack of due diligence by Champion Homes: Hometeam at [181]. There are three difficulties with Projects’ contention.

  2. The first is that this is not a case where there was a complete lack of activity on site between February and May 2008. It is acknowledged by Projects that work was undertaken in relation to variations and CPA 5 relating to hydraulic works. The work on the retaining wall adjacent to units 4 and 5 was completed by 26 May 2008, and the hydraulic and stormwater drainage works were substantially complete by 11 June 2008.

  3. The second difficulty is that the asserted lack of activity, at least with respect to “external works”, seems to be largely explained by a number of circumstances: some delay was caused by rain (and his Honour noted that Projects did not take issue with that assertion by Champion Homes: at [123]); the failure or delay by Projects in providing instructions on a number of items: at [123]; and the valid suspension of works by Champion Homes from 13 March 2008 until 15 April 2008: at [181].

  4. The third difficulty, as his Honour found (at [123]), is that Projects bore the onus of proving that work could have been done and did not discharge that onus. Mere reference to the “percentage complete” for the categories of work described in the QS reports in February and May 2008 does not establish that the work which Projects asserted could have (in fact) been done between February and early May 2008. As his Honour correctly recognised, it is possible that Champion Homes could have done more, and may have been in breach of clause 38.2 of the contract, but that did not amount to a repudiation of the contract: at [123]. In my view, no error has been demonstrated with respect to this finding.

(b) Failure to recommence the works on 14 December 2007

  1. The next matter relied upon by Projects in support of its repudiation claim is that, on 19 December 2007, Champion Homes gave notice of a claim for extension of time from 14 December 2007 having reopened the site on that day as required by the Modification Agreement. In his letter to Mr Brown giving notice, Mr Malesev stated that:

It has been difficult to re-engage various contractors to return to the site because of the proximity to the traditional Christmas/New Year shutdown in the building industry and the dislocation caused to the programming of driveway and retaining wall construction works as a result of the suspension of the building works.

  1. The “suspension of the building works” referred to by Mr Malesev which preceded this claim for an extension of time, commenced on 8 November 2007 and lasted up until the Modification Agreement on 13 December 2007. As already indicated, his Honour found that this first suspension by Champion Homes was valid and there is no challenge by Projects to that finding.

  1. In oral argument, counsel for Projects submitted that this claim for an extension of time was not bona fide (T7 at line 47). It seems, however, that this proposition was not put to Mr Malesev in cross-examination. Ultimately, counsel for Projects submitted that this claim for an extension of time (for eight days) was not the most important matter relied upon by Projects, but rather it “added flavour” to later events (T8, lines 35-36 and T9, lines 39-42).

(c) Threats to suspend part of works in March 2008

  1. The next matter relied upon by Projects was that Mr Malesev threatened suspension of work by making unfounded allegations to WorkCover of unsafe work practices by Earthpro in March 2008, and contemplated actions that included locking the site and preventing Earthpro from carrying out further works, as an effective way of getting Projects to pay some more money very quickly. (Earthpro was the contractor engaged directly by Projects to construct the retaining walls adjacent to units 3 and 4.) Two observations can be made regarding this complaint.

  2. First, the evidence does not establish that Mr Malesev did not hold a genuine concern regarding alleged unsafe work practices by Earthpro in stockpiling dirt adjacent to the boundary near unit 3. Projects emphasised that Mr Malesev never took the step of engaging a consulting engineer to visit the site to check his safety concerns. This omission was relied upon as supporting an inference that Mr Malesev’s concerns were not genuine. Counsel for Projects accepted, however, that his Honour did not find that the threat to suspend works in and around unit 3 was a “pretence” by Mr Malesev. It seems that no such finding was sought at trial. Nor was such a finding sought in Projects’ statement of challenged findings of fact pursuant to the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) 51.36(2).

  3. Secondly, the contention by Projects that Mr Malesev “manufactured” a reason to threaten to suspend works ignores the context in which Mr Malesev sought legal advice in early March 2008 concerning whether Champion Homes was in a position to suspend all building works and issue a notice of breach. At that time, Projects had paid substantially less than the amount Champion Homes believed it was entitled to receive in relation to its claims which had been valued by Gleeds and accepted by Champion Homes. In oral argument, counsel for Projects accepted that there was a bona fide dispute between the parties as to whether Champion Homes had been paid the money that was due to it pursuant to the contract and the Modification Agreement. It is clear from the final sentence in Mr Malesev’s email to his solicitor of 3 March 2008, that the legal advice was sought in the context of seeking to pressure Projects “to pay some more money very quickly”.

  4. Whether the course contemplated by Mr Malesev was a good or bad idea is not to the point. Mr Malesev was seeking legal advice on what would be an effective way of getting paid more quickly. He had a legitimate and reasonable concern regarding non-payment by Projects. He ultimately did not carry out his threat to suspend part of the works near unit 3 due to safety concerns. That threat was overtaken by the events of 6 March 2008, when a notice of breach was issued by Champion Homes and the later (valid) suspension of works on 12 March 2008. I do not regard the earlier threat to suspend a small part of the works as repudiatory conduct.

(d) Nature of work performed

  1. The next matter relied upon by Projects was that the only work undertaken by Champion Homes after the Modification Agreement related to variations and CPA 5, relating to the stormwater and hydraulic construction work. The complaint made was that the variation work had a margin of 20 percent as opposed to the fixed price portion of the contract, which, it was acknowledged, contained some inherent builder’s margin. Projects contended that Champion Homes was not attending to the core contract work but was undertaking other work which was more profitable to it.

  2. The first matter to note is that the premise of this contention was not established, since the builder’s margin in respect of the contract price was not identified in the evidence by Projects.

  3. Further, Projects acknowledged that after the third suspension commencing on 13 March 2008 and lasting until 15 April 2008, which was valid (at [181]), Champion Homes came back onto the site and performed “some” work in accordance with the contract. The complaint made was that Champion Homes did not perform “all of the contract work that was available”. This contention has been addressed above under the heading “delay”. For the reasons already given, the nature of the work undertaken does not provide a basis for demonstrating repudiatory conduct by Champion Homes.

(e) Failure to provide updated works programme

  1. Projects pointed to the failure by Champion Homes to provide an updated works programme, despite repeated requests, as demonstrating an intention not to perform its obligations under the contract. Attention was drawn to Mr Malesev’s acceptance in cross-examination that he had been asked to do so by Mr McLean “half a dozen times”. However, Mr Malesev also explained in cross-examination that he told Mr McLean that he would have to pay for it. There was no evidence that Mr McLean agreed that Projects would do so. Nor did Projects contend that Champion Homes was contractually obliged to provide a revised building programme for no fee. Neither did it challenge Mr Malesev’s evidence in cross-examination that Champion Homes did not need a programme because they knew what they were doing.

  2. Projects pointed to its correspondence with Champion Homes in late May 2008 concerning this issue. That correspondence (dated 30 May 2008) does not really advance the argument. It contains assertions by Mr McLean that the reason Champion Homes would not produce a revised programme was because they would have to work to it. Mr Malesev replied to Mr McLean by email that day stating that he was still waiting for instructions concerning what work needed to be done relating to retaining walls adjacent to driveways, the driveway lights and the date that Projects would clear the boundaries so that the fences could be installed. Mr Malesev asserted that he was not contractually required to produce a work programme as Projects kept changing the scope of works and observed that the last cheque from Projects had bounced. That cheque was in the amount of $3,440.39 and there was evidence that it was dishonoured by the Commonwealth Bank on 30 May 2008. Projects did not submit that the evidence of the dishonour of Projects’ cheque for $3,440.39 was incorrect.

  3. Counsel for Projects acknowledged that there was no finding that the explanation given by Mr Malesev for not providing an updated works programme was contrived. Correspondence between Mr Malesev and Mr McLean relating to this issue continued in early June 2008. There was a continuing dispute as to whether Champion Homes had been provided with all relevant instructions, as previously requested.

  4. In my view, Projects has not demonstrated that the failure by Champion Homes to produce an updated works programme was unjustified, let alone a breach of the contract, nor that such conduct evinced an intention not to be bound by the contract, or to fulfil the contract only in a manner substantially inconsistent with its obligations.

(f) Fourth suspension of works

  1. On 5 June 2008, Mr Malesev informed Mr McLean by email that due to weather conditions (heavy rains) that week, no work had been able to be carried out onsite for the whole week. Mr Malesev indicated that, weather permitting, he anticipated being able to complete the stormwater drainage works by the end of the following week.

  2. On 17 June 2008, Mr Malesev sent a further email to Mr McLean referring to their telephone conversation that day and requested instructions in relation to the driveway retaining walls and the removal of vegetation on the boundaries. He had been requesting those instructions since February 2008. Mr Malesev also advised that if payment of $45,498 was not made for the balance of Variation 6 relating to the stormwater drainage works by the close of business that day, Champion Homes would be suspending all works on the site until that payment was received in full. The amount claimed was not paid by Projects and accordingly, Champion Homes suspended works the following day, being 18 June 2008.

  3. Projects relies upon this fourth suspension as demonstrating that Champion Homes did not intend to fulfil its contractual obligations. I do not agree. It was not suggested that this suspension was not bona fide. His Honour’s finding that the fourth suspension was not valid was on the basis that Champion Homes had discharged the onus of proving that Projects had failed to pay CPA 5 (at [183]). However, his Honour had earlier found that Champion Homes suspended work under the contract because it believed, with some justification, that it had not been paid amounts due to it: at [123]. That finding was not challenged.

  4. In my view, Projects has not demonstrated that Champion Homes repudiated its obligations under the contract. It follows that ground 1 should be rejected.

Liquidated damages and Extensions of Time (ground 2)

  1. Item 13 of the particulars to the contract stated that liquidated damages were $1,160 per day.

  2. Clause 9 of the contract dealt with extensions of time. It relevantly provided:

9.1 The builder is entitled to a reasonable extension of the contract period if the building works are delayed by the builder suspending the building works under Clause 32 or from a cause beyond the sole control of the builder including:

(a) a variation or a request for a variation by the owner;

(b) an act of God, fire, explosion, earthquake or civil commotion;

(c) adverse weather;

(d) an industrial dispute;

(e) a dispute with adjoining or neighbouring residents or owners;

(f) anything done or not done by the owner;

(g) delays in getting any approvals;

(h) a delay in the supply of materials selected by the owner;

(i) the need for a survey of or other report in relation to the site; or

(j) the industry shutdown being a 5 week period commencing on or about 22 December in each year.

9.2   The builderis to give the owner written notice of an entitlement to an extension of time detailing both:

(a)   the cause of the delay; and

(b)   the extension of time,

within 10 working days after becoming aware of both the cause and the extent of the delay.

9.3   If the owner wishes to dispute the builder’s entitlement to an extension of time the owner must, within 5 working days of receiving the builder’s notice, give the builder a written notice:

(a)   disputing the extension of time; and

(b)   detailing the reasons why the extension of time is disputed.

“Adverse weather” is defined in cl 1.1 to mean “any weather condition in which 7.5 mm or more of rain have fallen, as measured and reported by a Bureau of Meteorology measuring station nearest the site within a 24 hour period”.

  1. At trial, Projects claimed an entitlement to liquidated damages in the sum of $431,520. This claim was quantified as 372 days at $1,160 per calendar day. In its amended defence to the further amended first cross-claim (par 13), Champion Homes denied Projects’ claim for liquidated damages. In par 14 of its defence, Champion Homes asserted that it could not and was not obliged to provide a request for an extension of time as Projects was aware of the cause and Champion Homes could not determine the extent of any delay.

Primary judge’s reasons

  1. His Honour noted that Champion Homes did not plead the extensions of time to which it says it was entitled; instead, in its defence to Projects’ amended cross-claim claiming liquidated damages, it simply denied that Projects was entitled to liquidated damages: at [154].

  2. At [155], his Honour referred to the two bases on which Champion Homes claimed in its written submissions that it was entitled to an extension of time. It is only necessary to refer to the first. This relied on claimed extensions on particular days and a letter from Champion Homes to Projects dated 23 August 2007.

  3. At [163], his Honour rejected the submission by Projects that Champion Homes was not entitled to an extension of time because none of the claims for extensions of time on which Champion Homes relied were made in accordance with the contract. His Honour referred to the requirement under cl 9.2 that Champion Homes give notice detailing the cause of the delay and the extension claimed and that the claim had to be made within 10 working days after Champion Homes became aware of “both the cause and the extent of delay”. His Honour found that if Champion Homes gave a notice that satisfied those requirements then, under cl 9.3, it was entitled to the claimed extension unless, within 5 working days of receiving the notice, Projects gave written notice disputing the extension claimed and “detailing the reasons why the extension of time is disputed”. His Honour observed that Champion Homes bore the onus of proving that it was entitled to an extension of time and that Projects bore the onus of proving that it gave a notice disputing the extension in accordance with cl 9.3.

  4. At [164], his Honour took the approach that, in the absence of any evidence to the contrary, it should be inferred that any claim for an extension was made within the 10-day period. He noted that the 10-day period ran from the time that Champion Homes became aware, relevantly, of the extent of the delay. He observed that in cases where the delay was caused by variations, that may not have been until work on the variation was complete.

  5. At [165]-[174], his Honour considered each of the five extensions of time claimed by Champion Homes and the claims in its letter dated 23 August 2007. He concluded that the five extensions of time claimed by Champion Homes satisfied the requirements of cl 9, but not the various claims in its letter dated 23 August 2007.

  6. His Honour then considered two additional categories of extensions. The first arose out of the Christmas period in 2007/2008. The second arose from the suspensions of work by Champion Homes. His Honour noted that Champion Homes claimed to have been delayed by those events and although they were not specifically referred to, reliance on them was consistent with Champion Homes’ general denial that it is liable for liquidated damages: at [175].

  7. With respect to the 2007/2008 Christmas period, his Honour found that Champion Homes was entitled to an extension of 43 days (at [176]).

  8. With respect to the suspensions of work, his Honour found that Champion Homes was entitled to an extension for the two periods for which it validly suspended work (at [178]). These were the first suspension, which commenced on 8 November 2007 and lasted until 13 December 2007 (36 days), and the third suspension which commenced on 13 March 2008 and lasted until 15 April 2008 (34 days): at [180]-[181]. His Honour found that the second suspension, which commenced on 5 February 2008 and lasted until 15 February 2008, and the fourth suspension, which commenced on 19 June 2008 and lasted until 2 July 2008, were not valid: at [182]-[183]. Those findings are not challenged on appeal.

  9. Accordingly, his Honour concluded that Champion Homes was entitled to extensions of time totalling 256 days. Since the total delay was 372 days, his Honour found that Projects is entitled to liquidated damages for a delay of 116 days at $1,160 per day, being $134,560: at [184].

Submissions

  1. Projects contended that his Honour erred in allowing the extensions of time for three reasons. The first was that it was denied procedural fairness because his Honour should not have assessed such entitlements in the absence of Champion Homes pleading an entitlement to extensions of time. The second was that it was not possible for his Honour to have made any assessment of delay in any of the extension of time claims in the absence of expert evidence and a revised building programme. The third was that his Honour’s approach to the specific claims made by Champion Homes for extensions of time was erroneous in drawing inferences that the claims were made within time and ignoring evidence that Projects had disputed the claims within time.

(1) Procedural fairness point

  1. Although Champion Homes did not plead the extensions of time to which it ultimately claimed at trial it was entitled, the issue was clearly raised in the parties’ written submissions and Projects did not object at trial when the claim was made by Champion Homes in oral closing argument. Reference to the transcript of the hearing and the parties’ written submissions establishes the following.

  2. First, Projects’ outline of opening submissions dated 10 April 2015 addressed this topic in some detail presumably in anticipation that Champion Homes might claim extensions of time as an answer to Projects’ claim to liquidated damages. Certainly, Champion Homes should have expressly pleaded in its defence to the Projects’ cross-claim, that it was entitled to extensions of time, in addition to its general denial of Projects’ claim for liquidated damages for delay: UCPR, r 14.14(2). However, I do not consider that Projects was surprised when the matter was raised by Champion Homes in closing submissions. If it had been surprised, then it could be expected that an objection would have been taken by Projects at this point.

  3. Secondly, counsel for Projects cross-examined Mr Malesev on the topic of extensions of time. Projects contended that this cross-examination was only directed to challenging “some” of the claims for an extension of time. One was the claim for delay caused by rain, referred to in Champion Homes’ letter of 23 August 2007. Another was the claim for an extension of time immediately following the Modification Agreement on 13 December 2007. Whatever forensic decisions were made by Projects as to the scope of cross-examination on this topic, it chose to open up this issue in cross-examination.

  4. Thirdly, it is common ground that Champion Homes’ closing written submissions (dated 23 April 2015) contained references to claims for extension of time. Projects emphasised that these closing submissions were first provided to the court and counsel for Projects when counsel for Champion Homes commenced his oral closing submissions. That may be accepted. However, the written submissions on this topic were supplemented by the oral closing submissions of Champion Homes and Projects did not object to Champion Homes raising this issue. Nor did Projects submit that it was prejudiced by the late notice of Champion Homes’ claim for extensions of time. Counsel for Projects responded to these submissions in oral closing argument at trial by disputing any substantive entitlement of Champion Homes to claim extensions of time.

  5. In my view, Projects cannot now validly complain on appeal that it was denied procedural fairness. The issue was anticipated by Projects in its opening submissions, in circumstances where Champion Homes had denied Projects’ claim for liquidated damages. Projects had cross-examined on the issue, and responded in its closing submissions to Champion Homes’ submissions relying upon extensions of time as an answer to Projects’ claim for liquidated damages. Projects must be taken to have made a forensic choice not to object to Champion Homes raising the issue in its closing submissions. The present case is one in which the parties have deliberately chosen a different basis for the determination of the respective rights and liabilities to that in their pleadings: Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd [1990] HCA 11; 169 CLR 279 at 287.

(2) Absence of revised works programme

  1. His Honour accepted that the issue of delay, the subject of the claims for an extension of time, required an answer to the question of whether, as a factual matter, an event caused a delay in the work: at [162]. Projects contended that his Honour erred in finding that the question of whether a particular event caused actual delay could be answered without a program of works. Projects argued that determining delay required an assessment of the works against the programme.

Primary Judge’s Reasons

  1. The primary judge held that Projects was not entitled to challenge amounts claimed by Champion Homes for variations that had already been paid in accordance with the terms of the Modification Agreement: at [144]. His Honour reasoned as follows.

  2. First, under the Modification Agreement, the parties agreed on a mechanism for valuing provisional sum adjustment 3 and Variations 6, 13, 14, 15, 17, 19, 20, 21 and 22. They also agreed that Projects would pay Champion Homes $264,000 on account of those Variations, and Variations 1 and 12. Although the sum of $264,000 was payable on account of a number of variations, including Variations 1 and 12, the parties did not agree on a mechanism for determining the actual amount payable in respect of those two variations: at [136]. Rather, it was common ground that where the value of a variation had not been determined in accordance with the Modification Agreement before the contract was terminated, the value of the work should be determined by the Court having regard to the expert evidence: at [141].

  3. Secondly, following entry into the Modification Agreement, Gleeds proceeded to value the variations that it was required to value in accordance with that agreement, including Variation 1: at [142]. His Honour concluded that it was not open to Projects to challenge those amounts since it agreed to pay for the work covered by those variations in accordance with the Modification Agreement and it was bound by that agreement.

  4. Thirdly, by making payments that were additional to the provisional payments made under the Modification Agreement, his Honour found that Projects: (i) accepted that the provisional payments should be allocated to the variations and provisional sum items in respect of which Champion Homes made claims and that further amounts were due in respect of those items; and (ii) was bound by the agreement arising from that conduct: at [143].

  5. With respect to Variation 6 relating to retaining walls, his Honour found that this was valued by Gleeds in accordance with the Modification Agreement. Accordingly, Champion Homes was entitled to the amount as determined by Gleeds being $189,075.29: at [145].

Consideration

Variation 1

  1. Variation 1, dated 13 September 2006, related to the change in the RLs of the work in order to achieve the gradients prescribed by Council and to comply with the development consent. The amount claimed by Champion Homes was $96,100. On 2 November 2006, Mr McLean sent an email to Mr Malesev of Champion Homes accepting all points in Variation 1 with the exception of the costs associated with the carport servicing units 5 and 6 totalling $7,840. The agreed variation totalled $86,260. On 15 November 2006, Mr McLean reported to Mr Brown of Projects that he had engaged an independent engineer to verify that the changes in the levels were required to obtain the construction certificate. The Modification Agreement described Variation 1 in cl 3.1 as “not complete”.

  2. His Honour seems to have thought that Gleeds valued Variation 1. Projects contended that this was an error. So much may be accepted. Variation 1 was not valued in either the Gleeds report of 19 February 2008 or its supplementary report of 16 May 2008. That, however, is unsurprising. The Modification Agreement, although referring to Variation 1 as “not complete”, did not expressly require Gleeds to value Variation 1. Nonetheless, for the reasons which follow, this slip by his Honour is of no consequence.

  3. In its further amended first cross-claim (par 26), Projects disputed liability for Variation 1 in the amount of $94,100, solely on the ground that it was not a variation under the contract, not that the work was incomplete. The contention relied upon by Projects at trial, and again on appeal, was that Champion Homes was not entitled to claim this variation because it was excluded by cl 12.5 of the contract.

  4. Clause 12 deals with “hidden site conditions”. Clause 12.1 provides that if either party believes that the surface or sub-surface conditions may not support or may affect the building work, the builder may, and must at the owner’s request, retain consultants to report on the site conditions. Clause 12.2 requires the builder to give the owner notice detailing any extra work required and the costs of that work. Clause 12.5 provides:

The builder is only entitled to payment for such extra work, if the actual site conditions differ from those either:

(a) disclosed or known to the builder prior to this contract being signed; or

(b) shown in the contract documents,

and if the effect of that difference requires more or less work than that which a reasonable builder would have anticipated on signing of this contract.

  1. Projects’ reliance on cl 12.5 is misplaced. Projects correctly points out that cl 1.2 of the contract provides that clause headings do not form part of the contract and cannot be used in its interpretation. Nonetheless, an examination of the whole of clause 12, and in particular cll 12.1 and 12.2, makes clear that this provision is addressed to extra work in consequence of surface and sub-surface conditions of the site which “may not support or are likely to affect the building works”. This is the context of the qualification in cl 12.5 on the builder’s entitlement to payment for extra work. The qualification provision is only satisfied if the actual site conditions differ from those either disclosed or known to the builder prior to the contract, or shown in the contract documents.

  2. Variation 1 relates to a different subject matter, namely, the additional works which were required because of the changes to RLs, shown on the DA approved plans to that required to comply with Council conditions of development consent. Those changes had nothing to do with the surface or sub-surface conditions of the site being able to support the building works. In my view, Clause 12.5 provides no answer to Champion Homes’ claim in respect of Variation 1.

Variation 6

  1. Variation 6, dated 13 November 2006, related to the retaining wall adjacent to Units 4 and 5. The amount claimed was $140,000. A revised Variation 6 dated 16 November 2006 claiming the same amount, was submitted by facsimile from Mr Malesev to Mr McLean following a meeting that day at the office of Champion Homes.

  2. The valuation of Variation 6 by Gleeds of $189,075.29 was contained in its first report dated 19 February 2008 and repeated in its supplementary report of 16 May 2008. His Honour allowed Champion Homes $189,075.29 for Variation 6.

  3. Projects contended that Gleeds subsequently revised its valuation of Variation 6 in its letter to Projects dated 25 June 2008. The context of the revised valuation was as follows. Gleeds had referred in par 3.10 of their earlier reports to the cost of the retaining wall exceeding normal expectations for a typical retaining wall. In its letter of 25 June 2008, Gleeds expressed the opinion that the cost of a proposed alternative design for the retaining wall was $122,000 plus GST. Projects contended on appeal that since the work for Variation 6 was not completed until 26 May 2008, it could rely upon the Gleeds letter of 25 June 2008 as a valuation of Variation 6, performed after its completion in accordance with cl 2.4 of the Modification Agreement.

  4. It is necessary to set out cll 2.3 and 2.4 of the Modification Agreement in full:

2.3   If Gleeds issue a valuation of variation 6 prior to completion of that variation, 75% of that valuation will be paid within 7 days of receipt of Gleeds’ revised valuation to the extent that amount is not covered by the $264,000 payment under clause 3.1.

2.4   When Gleeds issue a valuation of variation 6 after its completion their value of that valuation will be paid within 7 days of receipt of Gleeds’ valuation to the extent that amount is not covered by the $264,000 payment under clause 3.1 and the payment under clause 2.3.

  1. Projects contended that, given what it described as the “final” Gleeds valuation of 25 June 2008, his Honour should not have allowed recovery of the $54,875.29, being the unpaid 25 percent based on the original valuation by Gleeds (of $189,075.29), and instead given a credit for $7,606.25 to reflect the amount allegedly overpaid by Projects.

  2. The difficulty with this contention is that the Gleeds valuation of 25 June 2008 related to a proposed “alternative design” for the retaining walls based on drawings received by Gleeds from CSG Engineers Pty Ltd on 20 June 2008. It is in respect of that design that the valuation of $122,000 plus GST, a total of $134,200, was provided by Gleeds. However, that is not what cl 2.1 of the Modification Agreement required Gleeds to value.

  3. The Gleeds valuation of 25 June 2008 did not assess the reasonableness of the cost of the retaining wall that was actually constructed by Champion Homes. It assessed another retaining wall, the subject of the “alternative design”. That assessment of 25 June 2008 does not, in my view, constitute a valuation by Gleeds in accordance with cl 2.4 of the Modification Agreement. His Honour was correct to ignore this subsequent revised opinion of Gleeds.

  4. Ground 3 has not been made out.

CPA 5 (ground 5)

  1. CPA 5 was a contract price adjustment relating to the provisional sum item for stormwater and hydraulic works. The provisional sum allowed in the contract for this item was $95,000. The total claim by Champion Homes in CPA 5 was $109,489. After allowing for the provisional payment of $64,000, the balance claimed by Champion Homes was $45,489.

Primary judge’s reasons

  1. His Honour recorded that it was not disputed that Champion Homes had completed the stormwater and hydraulic works. He noted, however, that both experts agreed that insufficient information was provided to assess this claim. Mr Plaister was of the view that Champion Homes should recover nothing. On the other hand, Mr Zakos was prepared to allow the claim in full: at [151].

  2. His Honour was satisfied that Champion Homes did the work: at [151]. In the absence of evidence concerning value, his Honour took the approach that he should permit Champion Homes to recover the amount allowed in the contract – that is, the provisional sum of $95,000. Accordingly, his Honour reduced the claim by Champion Homes by $14,489 (that is, the amount claimed of $109,489 less the $95,000 allowed in the contract): at [151].

Submissions

  1. Projects advanced two contentions. The first was that his Honour erred in regarding CPA 5 as the full item of work for all stormwater and hydraulic works for which the contract provided a provisional sum of $95,000. Projects pointed to CPA 3 which also related to drainage works of $15,000, as being included as part of the total provisional sum of $95,000.

  2. Secondly, Projects contended that his Honour erred by allowing the full value of the provisional sum allowance (which should have been $80,000) by finding that all stormwater and hydraulic works had been completed as claimed in CPA 5. Projects contended that the relevant work was not complete. Projects pointed to photographs contained in the report by the quantity surveyor, Gleeds, dated 15 September 2008 and a progress claim by the new builder, Linx, in respect of hydraulic services work as at 13 February 2009 in an amount of $20,770. The material in the Gleeds report contains photographs of what was said to be incomplete external works as at 5 August 2008.

Consideration

(a) $15,000 error

  1. Counsel for Champion Homes fairly accepted that an error had occurred (at [151]) in his Honour’s reasons. His Honour should have treated CPA 5 as having a provisional sum value of $80,000, not $95,000. (It seems that a slip occurred in his Honour’s reasons because his Honour had earlier correctly identified (at [95]) the provisional sum item of $80,000 for the work the subject of CPA 5).

  2. Accordingly, the judgment in favour of Champion Homes should be reduced by $15,000, to $61,593.23 exclusive of interest. As a consequence, the judgment against each of the nine unitholders should also be reduced by one-ninth of $15,000, namely, $1,666.66 to $6,843.69 exclusive of interest. The award of pre-judgment interest should also be re-calculated.

(b) Whether the CPA 5 works were incomplete

  1. The Court was not taken to any documentary or oral evidence that demonstrated that the photographs of the works in the Gleeds report showed the extent and value of the stormwater and hydraulic works under the contract which were “incomplete” at the date of termination of the contract. Nor was the Court taken to any evidence demonstrating that the hydraulic services work later performed by Linx in February 2009 was the same work that Champion Homes was required to perform, but had not completed it under the contract.

  2. Insofar as Projects relied upon its letter of termination of 2 July 2008 as evidence of incomplete stormwater and hydraulic works, that submission is not borne out by the terms of the letter. Projects asserted in its termination letter that the only “substantial” works carried out on site since the Modification Agreement included, relevantly, stormwater and hydraulic works. The letter noted that “completion of that work has been asserted by Champion Homes but no certification or other evidence of completion has been provided”. The point being made by Projects in its letter related to the absence of certification or evidence of completion, rather than that the actual works had not in fact been completed. There was no error in his Honour’s finding that Projects had not disputed that the stormwater and hydraulic works had been completed by Champion Homes.

  3. In my view, ground 5 should be rejected.

Alternative findings on Projects’ damages (ground 6)

  1. In light of the conclusion reached above (that Projects wrongfully terminated the contract), it is not necessary to deal with the further contention that his Honour erred in finding that Projects failed to prove its costs to complete the contracted-for work after the termination of the contract. I would add, however, that I do not consider that his Honour’s reasons (at [188]) disclose appealable error. Simply stated, as his Honour found, Projects has not proved that the work that Linx did post-termination of the contract was necessary to complete the contracted-for works.

Conclusion and Orders

  1. The appeal has failed on all grounds advanced by Projects, except for ground 5, in respect of which Champion Homes conceded the error by the primary judge of $15,000 relating to the amount allowed for CPA 5. That concession by Champion Homes was first made in oral argument, and it was necessary for Projects to appeal to correct that error. The costs order on the appeal should reflect that limited success by Projects. In my view, the appropriate order is that Projects pay 90% of Champion Homes’ costs of the appeal. There is no reason to interfere with the costs order below.

  2. Taking into account the $15,000 error referred to above, Champion Homes is entitled to judgment against Projects in the amount of $61,593.23. It is entitled to judgment for one-ninth of that amount ($6,843.69) against the second to ninth defendants. In addition, it is entitled to interest at the rate prescribed by Practice Note SC Gen 16. That interest should run, as the primary judge found, from 2 July 2008 to 26 May 2015. A direction will be made that the parties agree the calculation of interest and submit a draft consent order, or in the absence of agreement, submit their respective calculations of interest and the Court will determine the matter on the papers.

  3. Accordingly, I propose the following orders:

  1. Appeal allowed in part;

  2. set aside Orders 1 and 2 made by the primary judge on 26 May 2015;

  3. in lieu thereof, order:

  1. judgment in favour of the plaintiff against the first defendant in the sum of $61,593.23;

  2. judgment in favour of the plaintiff against each of the second to ninth defendants in the sum of $6,843.69;

  3. in each case, the judgment is to take effect on 26 May 2015;

  1. the parties are to agree on the calculation of interest on the above judgments at the rates prescribed by Practice Note SC Gen 16 from 2 July 2008 to 26 May 2015, and submit a draft consent order within 14 days of the date of this judgment. In the absence of agreement between the parties, the parties are to file and serve their respective calculations of interest on the judgments and short written submissions in support, not exceeding 2 pages, within 21 days of the date of this judgment. The Court will determine the amount of interest on the papers;

  2. appellants to pay 90% of the respondent’s costs of the appeal.

  1. SACKVILLE AJA: I agree with the orders proposed by Gleeson JA and with his Honour’s reasons.

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Decision last updated: 20 May 2016

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Statutory Material Cited

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Champion Homes Sales Pty Limited v DCT Projects Pty Limited [2015] NSWSC 616
Hometeam Constructions Pty Ltd v McCauley [2005] NSWCA 303
Shevill v Builders Licensing Board [1982] HCA 47