Digga Excavations Tas Pty Ltd v Linear Capital Pty Ltd
[2023] TASSC 22
•19 July 2023
[2023] TASSC 22
| COURT: | SUPREME COURT OF TASMANIA |
| CITATION: | Digga Excavations Tas Pty Ltd v Linear Capital Pty Ltd [2023] TASSC 22 |
| PARTIES: | DIGGA EXCAVATIONS TAS PTY LTD |
| v | |
| LINEAR CAPITAL PTY LTD | |
| FILE NO: | 3285/2017 |
| DELIVERED ON: | 19 July 2023 |
| DELIVERED AT: | Hobart |
| HEARING DATES: | 27, 28, 29, 30 September 2022 |
| JUDGMENT OF: | Brett J |
| CATCHWORDS: |
Contracts – General Contractual Principles – Discharge, Breach and Defences to Action for Breach – Conditions
– Conditions Precedent and Subsequent – Building contract for industrial subdivision - Breach for non-
payment of progress certificates issued by plaintiff to defendant for work completed – Plaintiff did not comply with clause requiring ‘documentary evidence’ of moneys due and payable with progress claims
– Whether a condition precedent to Defendant paying progress certificates? Whether Defendant can rely
upon clause where it was unaware of, and did not insist on performance of, this clause during life of contract - Held Defendant can rely upon retrospective justification which existed, whether known of at
the time - Plaintiff’s termination of the contract was therefore ineffective and contract was mutually
abandoned.
Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 – applied.
DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12, 138 CLR 423; Downer EDI Limited v Gillies
[2012] NSWCA 333 – considered.
Sopov v Kane Constructions Pty Ltd [2007] VSCA 257, 20 VR 127; Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2002] QCA 224, 1 Qd R 259; Re Concrete Constructions Group Pty Ltd [1996] QCA 086; [1997] 1 Qd R 6; Algons Engineering Pty Limited v Abigroup Contractors Pty Ltd (1997) 14 BCL 215; McDonald v Dennys Lascelles Ltd [1933] 48 CLR 457 - referred to.
CKP Constructions Pty Ltd v Gabba Holdings Pty Ltd [2016] QDC 356 – not followed.
Aust Dig Contracts [142]
Contracts – Building, Engineering and Related Contracts – Remuneration – Recovery on Quantum Meruit – In General – Defendant’s counterclaim for defective works by plaintiff – Found that plaintiff did fail to perform work to required standard –- Held that termination by mutual abandonment removes a right by the Plaintiff to use or set-off against the counterclaim for damages for breach – Defendant’s counter-
claim allowed.
McDonald v Dennys Lascelles Ltd [1933] 48 CLR 457 – applied.
Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd [2014] VSCA 32 – distinguished.
Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd (2004) 8 VR 16 – considered.
Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) – considered.
Mann v Paterson Constructions Pty Ltd [2019] HCA 32, 267 CLR 560 – applied.
Aust Dig Contracts [271]
REPRESENTATION:
Counsel:
Plaintiff: M O'Farrell SC, E Stewart Defendant: B McTaggart SC
Solicitors:
Plaintiff: Butler McIntyre & Butler Defendant: Abetz Curtis Lawyers
| Judgment Number: | [2023] TASSC 22 |
| Number of paragraphs: | 131 |
Serial No 22/2023 File No 3285/2017
DIGGA EXCAVATIONS TAS PTY LTD v LINEAR CAPITAL PTY LTD
| REASONS FOR JUDGMENT | BRETT J 19 July 2023 |
1 In 2016, the defendant engaged the plaintiff to undertake civil construction works in respect of the development of an industrial subdivision at Cambridge. The plaintiff carries on a civil construction contracting business based in Launceston, but had been expanding its business into the south of the State. Simon Healy, the owner of the business and a director of the plaintiff, was the primary representative of the plaintiff in respect of the project. The defendant is the owner of the land and had previous experience in developing subdivisions of this kind. Its managing director, Troy Harper, was its primary representative.
2 Mr Healy and Mr Harper had been discussing and negotiating about the proposed work since early 2014. The defendant had obtained quotes from a number of contractors, and the plaintiff won the work after this quoting process. The planned subdivision consisted of 40 lots but the work was to be divided into stages. The defendant's intention was to award a contract for the entire sub-division. Quotes were obtained both on an overall basis and in respect of each stage.
3 The formal written contract was signed by the parties on 3 March 2016. The contract was in the standard form approved by Standards Australia, AS4000-1997. The work under contract (WUC) was that necessary to complete stage 1 of the subdivision. The WUC was to be performed within 12 weeks of the date of issue of the relevant works permits. While the quoting process had involved an estimate of the overall cost of the work, the contract provided for the contract price to be based on work done, the value of which was to be calculated in accordance with "corresponding quantities in the schedule of rates". The contract provided for the plaintiff to submit progress claims to the contract supervisor on a monthly basis. The supervisor would certify for a progress payment after verifying the claim, and the certified sum was payable by the defendant within seven days.
4 The plaintiff commenced work on the project prior to execution of the formal contract. It continued until the WUC was suspended at the request of the defendant, and with the plaintiff's agreement, on 10 August 2016. As things transpired, the plaintiff left the site at that time and has not returned, nor performed any further work, since then. There is dispute between the parties concerning the circumstances surrounding that suspension, but it is common ground that the WUC was suspended at that time, and not resumed by the plaintiff thereafter.
5 There have been six progress certificates issued in respect of work performed by the plaintiff before the suspension. When the work was suspended, the defendant was experiencing problems with the project's finance, and did not pay the last three certificates. Eventually, the plaintiff purported to terminate the contract on the basis of the defendant's alleged breach of the contract constituted by its non-payment of those certificates. It now sues the defendant for the amount outstanding on the unpaid certificates, which it asserts is due to it as an accrued debt.
6 The defendant says that it has always been entitled to withhold payment of the certificates under a clause of the contract which entitles it to do so if the plaintiff does not provide certain documentary evidence, relating to the payment of subcontractors and employees, with the progress claim. Although it was not conscious of that clause at the time, and that was not the reason why it withheld payment, it argues that it can now rely on the plaintiff's failure to comply with that provision to respond to the allegation that it was in breach of the contract. It claims that the plaintiff's purported termination of the contract was therefore ineffective, but says that, in any event, the contract was terminated by mutual
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abandonment at around the same time. It argues that under the contract the plaintiff is only entitled to payment of the progress certificates on account and as the contract has now come to an end, its entitlement to payment for work done prior to the termination is on a quantum meruit and subject to a final accounting. The defendant argues that there are a number of deductions which must be set-off against the plaintiff's claim, in particular for materials which were part of the claim but not used in the works and which the plaintiff has retained, for work certified by the supervisor which was not in fact carried out, and for contract variations which were not justified. The defendant also counterclaims for the cost of rectification of defective works, which it says were discovered when it engaged another contractor to complete stage 1 in late 2017.
7 The plaintiff argues that, as a matter of law, its accrued right to payment under the certificates is not subject to setoff or counterclaim. It says, in any event, that there is no merit in the claimed deductions or the counterclaim, except for the deduction relating to the retained materials.
Background
8 The WUC included earthworks and the installation of pipework for stormwater, sewerage and water. It also included some road construction. A bill of quantities, with an associated schedule of rates, is appended to the contract. This document breaks down the WUC into itemised components, prescribes the quantity of work to be performed by the contractor, and the rate of charge applicable for each item of work. The total contract price including GST amounted to $1,116,530. With provisional items included, the total was $1,318,053.
9 The contract also provides for the appointment of a superintendent. Chris Shoeman was appointed to this role on or about 6 May 2016 and remained in that role for the balance of the life of the contract. It is a fair summary of the role of the superintendent that he is to act as an independent administrator in respect of various aspects of the contract, and is expected to perform his role "reasonably and in good faith". (See cl 20).
10 In particular, the superintendent has critical roles in relation to both variations and payment of the contract price. Clause 36 provides that any variations must be as directed by the superintendent in writing. It is common ground that the superintendent certified numerous variations throughout the life the contract. Clause 37 provides for the progress claims. These claims are to be made to the superintendent who shall assess the claim and issue a progress certificate. Clause 37.2 provides that the principal shall make payment in accordance with the certificate within seven days of receipt. I shall return in more detail to the issue of progress claims and certificates later in these reasons.
11 There are some significant matters that affected both the operation of the contract and the progress of the works. Firstly, the bill of quantities included both the provision of materials and performance of work by the plaintiff. There is no distinction made between materials and labour in respect of each item of work. For example, most items of work allow for a single rate to supply and install the relevant material. It is common ground that, despite this contractual provision, a separate agreement was reached between the parties with respect to the purchase of materials. In essence, the agreement was that the plaintiff would purchase the materials from its supplier and provide the invoices directly to the defendant. The effect of the agreement was that the amount payable by the defendant was limited to the cost of the materials if it was paid within a specific time. Otherwise, the plaintiff would be entitled to charge a further 10% of the invoice sum. Although there is disagreement between Mr Healy and Mr Harper as to the precise circumstances in which the materials agreement came about, it seems to be accepted that it was intended to be in substitution for the payment of a deposit by the defendant under the contract.
12 There is also an issue between the parties with respect to work performed by the plaintiff before the commencement of the formal contract. This work was invoiced directly by the plaintiff to the
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defendant on a "do and charge" basis. There is dispute as to whether this work was chargeable outside the contract but this issue, apart from its historical significance, does not require resolution in this case.
13 The materials arrangement caused accounting difficulties with respect to the operation of the contract. The inclusion of materials in the lump sum items in the bill of quantities meant that the separate payment for materials under the arrangement involved a double charge. This problem was eventually resolved in a manner devised by Mr Shoeman. In essence, the cost of materials paid separately was simply credited against the charges certified under each progress claim.
14 There were also significant changes to the scope of the WUC after the commencement of the contract. These changes also impacted on the accuracy and relevance of the bill of quantities. The recitals to the contract make clear that the contract relates to "construction work in connection with" the whole subdivision. However, a separable portion was defined in the schedule as comprising "stage 1 of the subdivision as identified in the planning permit". The planning permit had been granted on 2 February 2015 and was attached to the contract. It provided for stage 1 to comprise six lots and some road works. The overall concept was that the work would be conducted over four stages. However, the planning permit was varied by the relevant council on 15 March 2016. The varied permit provided for the work to be conducted over three stages, and the scope of stage 1 was increased to 12 lots, with commensurate increase in roadworks. This obviously necessitated significantly more work in respect of stage 1.
15 A further increase in the scope of the WUC came about as a result of changes to the engineering drawings. According to Christopher Males, a director of the engineering firm, Johnstone, McGee and Gandy Pty Ltd (JMG), concept drawings had been prepared in 2014. These did not include division of the work into stages. Mr Healy's evidence is that the quotes which eventually form the basis of the bill of quantities in the contract were derived on the basis of these drawings. On 16 March 2016, the day after the variation of the planning permit, JMG issued construction drawings, which contained more detail than the concept drawings. These showed the changes to the size and scope of stage 1, reflected in the amended planning permit. However, on 5 May 2016, JMG prepared revised construction drawings. The main reason for the revision was an oversight in the original design which had applied residential and not industrial standards. The practical consequence was significant changes to various aspects of the construction, including increases in the size and depth of stormwater pipes, changes to the height and volumes of road materials, the need for lime stabilisation of roads and design and size changes to a detention basin. According to Mr Males, there were further variations to the construction drawings in June and July.
16 Mr Healy, Mr Shoeman and Stewart Harry, who was employed by the plaintiff as its project manager and supervisor, all gave evidence that these changes resulted in the need for certification of numerous contract variations. Because of this, Mr Shoeman eventually suggested that he undertake a remeasure of the works and an appropriate variation of the bill of quantities. It is common ground that this was agreed but had not been completed by the time that the works were suspended on 10 August 2016. It is apparent from minutes of the site meeting conducted that day that the remeasure was well underway, but not fully completed by then.
17 The said witnesses each testified that these changes also had significant impact on the progress of the works. Mr Harry's evidence is that the works "had become vastly different to what Digga had initially contracted on" and this necessarily caused delays. Another factor which had a significant impact on the progress of works was rain. It is common ground that it was an unusually wet season. This resulted in significant interruption to excavation and other works. According to the minutes of the site meeting on 10 August, delays resulting from the design changes had added 20 days to the contracted date of completion i-e 5 August 2016 became 25 August 2016. With the addition of rain delay, this became 19 September 2016.
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18 Mr Harper disputes the need for the delays. This is reflected in a wider complaint by him concerning the competence of the plaintiff to perform the work. Mr Harper's evidence is that the plaintiff quickly demonstrated that it was not capable of competently and efficiently meeting its obligations under the contract that it quickly got behind in the work; and this incompetence was also reflected in defective work. This evidence is supported in some respects by Mr Males who claims that the engineering revisions would not have required the plaintiff to perform any extra work. Mr Harper also criticises Mr Shoeman for not competently supervising the plaintiff. All of this is disputed by the plaintiff's witnesses and Mr Shoeman. They claim that Mr Harper was well aware of the changes and the problems and at no time expressed any concern in relation to their work. The only contemporary complaint noticed by those witnesses was the expression by Mr Harper of increasing concern in relation to the works becoming more expensive and the precariousness of his capacity to meet the increased cost. According to them, Mr Harper attributed this to the requirements of the regulatory authorities and the engineers.
19 The evidence of the plaintiff's witnesses in relation to these questions is largely supported by minutes of various site meetings. Site meetings were conducted on a fortnightly basis. They were chaired by Mr Shoeman and attended by representatives of the parties, including in particular Mr Harper, Mr Harry and Mr Healy. Mr Shoeman prepared detailed minutes for each meeting and these were distributed to the attendees after the meeting. Mr Shoeman's evidence is that during the course of distribution he would invite comment and "take silence as acceptance of the accuracy".
20 These minutes demonstrate that Mr Harper did from time to time complain about delays, and extra expense, caused by engineering revisions and requirements. For example, a minute to this effect appears in the minutes of site meeting number three, held on 15 June 2016 (see, in particular, item number 12.2). In the minutes of meeting number six, held on 27 July 2016, Mr Harper is recorded as raising the fact that "sunset dates" for some lots have expired and that he has extended those dates. He notes the importance of completing lot 18 first. There is, however, no suggestion in these minutes that he attributes problems with progress to the work of the plaintiff. It is clear to me from a review of the whole of these records that Mr Harper was prepared to raise concerns if he held them. However, the only concerns raised by him in relation to the plaintiff or its performance of the WUC was limited to the odd argument about whether an item in a progress claim was a variation or already included under the contract. See, for example, item 11.2 in the minutes of site meeting number five held on 14 July 2016, which records Mr Harper's rejection of invoice 2297, on the basis that it relates to work which was already included in the bill of quantities. In my view, if Mr Harper did really hold the attitudes that he expresses in his evidence, at the time that the work was being undertaken, then it is probable that this would have been clearly reflected in the site meeting minutes. The absence of such record is inconsistent with his evidence that he did hold those concerns at the time. It suggests that he has reconstructed his view about the plaintiff's performance, in the light of subsequent events.
21 Mr Shoeman issued six progress certificates during the life of the contract. They certify an aggregate amount due of $515,658.22. This includes GST charged on each certificate. It also takes into account adjustment pursuant to the materials arrangement. The defendant has paid a total of $251,221.15. The payments do not correspondence neatly to the progress certificates because many of the payments were for separate invoices rendered under the materials arrangement. However, these amounts were credited against the progress certificates in accordance with that arrangement. The final payment was made on 1 August 2016, and it corresponds with progress certificate three. This payment was made nine days before site meeting number seven, conducted on 10 August 2016. The last three certificates, issued on 12 August, 20 September and 12 October respectively remain unpaid, although the difference between the total payments and the aggregate of the first three certificates, $23,864.49, is accepted by the plaintiff as part payment of the outstanding balance.
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Site meeting 7
22 Site meetings were, in accordance with their title, usually held on site. However, the meeting on 10 August 2016 was held in Mr Shoeman's office. This seems to be because the site was too muddy from recent rain for a meeting to be conveniently conducted there.
23 It is common ground that at the meeting, Mr Harper requested a suspension of the WUC. The relevant minutes simply record that Mr Harper wished "to suspend the WUC and restart again once it is favourable". What is to be favourable is not specified. They also record that Mr Harper "indicated that the suspension would be for 3-4 weeks."
24 The evidence of Mr Healy, Mr Harry and Mr Shoeman is that Mr Harper explained his reason for this request on the basis that he was having difficulties with finance and needed to refinance the project. In his proof of evidence admitted as his evidence-in-chief, Mr Harper says that his reason for requesting a suspension was the weather and to give the site time to dry. He conceded that he separately discussed his financing issues during the meeting, but denied that this was or was offered as the reason for the suspension. He maintained this position in cross-examination.
25 I accept the evidence of the plaintiff's witnesses in respect of this issue. Mr Harper concedes that his financer, Macquarie Bank, had by the time of the meeting withdrawn its financial support for the project, and he had been required to seek finance from other sources. He did not secure alternative finance until October 2016. Although the payment of progress certificate three on 1 August 2016 meant that, as at the date of the meeting, there was nothing due and payable by the defendant to the plaintiff, Mr Harper would have been aware that payment progress certificate four, in the sum of $169,068.96 was in the process of certification. This payment certificate was issued two days after the meeting. I regard it as highly improbable that Mr Harper would seek a suspension of the WUC for any reason other than his capacity to finance the project, particularly when it was in his interests to have the work completed as quickly as possible and this was clearly a matter of concern to him. Rain delays were capable of and already being dealt with under the terms of the contract. I simply do not believe Mr Harper's evidence about this.
26 My impression of Mr Harper's credibility on this question confirmed my overall view of him as a witness. I found his answers to be often disingenuous and evasive. Apart from the matter already referred to, there are other inconsistencies between his written and oral evidence and the written record. I have already discussed the improbability of the truth of his evidence about his view of the plaintiff's competency. He made similar comment in his affidavit evidence about Mr Shoeman's competency, but again there is no support for the existence of that concern in the written record, including both emails and site meeting minutes. On the other hand, both Mr Healy and Mr Harry impressed me as competent and straightforward in their approach to their work and this case. I was also impressed with Mr Shoeman's evidence. Except where otherwise indicated, I prefer the evidence of the plaintiff's witnesses over that of Mr Harper, where it is inconsistent, unless it is otherwise supported by reliable independent or documentary evidence.
27 Before leaving site meeting seven, it is appropriate to deal with a factual matter put as part of the defendant's case. In cross examination, senior counsel for the defendant, Mr McTaggart SC, put to Mr Healy that by 9 August 2016, the day before the meeting, he had already decided that he was no longer prepared to be bound by the contract. A passage from an email written by him on 9 August 2016 at 5.51am was put to him as consistent with that attitude. Mr Healy could not recall writing the email but opined that he had done it early in the morning and it was undoubtedly written in frustration. He rejected the proposition that he had that underlying state of mind.
28 I have reviewed the email in question, and emails written close in time to it including the email communication to which Mr Healy was responding. That was an email from Mr Harry forwarded to Mr
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Healy at 4.33am on the same day in which he noted that works to the value of $600,000 were likely to be undertaken within a month and suggesting that the supervisor be asked to seek "funding confirmation from Troy as he has not paid a deposit". Further, there is reference to some "big ticket" items including lime stabilisation for roads and ordering of a piece of infrastructure for the detention basin, a Humegard pit, which has a cost of $27,000 and would take six weeks to construct from the date of order. Mr Harry expresses concern that Mr Harper has not consulted engineers in relation to the infrastructure of the detention basin and he "is using that as an excuse to buy some time whilst looking for funding". There is also a related email written to Mr Harper on 8 August 2016 from the finance administrator of the plaintiff, Ms Watts, following up an unpaid account for pipework.
29 This evidence places the comment by Mr Healy in the 9 August email in context. It is apparent that Mr Healy was, when he wrote the email, aware of Mr Harper's finance problems. This is also confirmed by the evidence of Mr Shoeman. The plaintiff was anticipating incurring significant cost in relation to materials, and the need to imminently undertake work of significant value. It was obvious to it that Mr Harper was concerned about the engineering requirements and was trying to reduce cost where possible. There is email correspondence going back a week or two concerning efforts by the plaintiff to have Mr Harper finalise the issue of the lime stabilisation and order the Humegard pit. It is clear from the minutes of the meeting on 10 August that these were still outstanding at that time.
30 Taken in context, I view Mr Healy's comment in the email to be nothing more than frustration with Mr Harper's attitude to these issues, and a reflection of uncertainty concerning the defendant's capacity to finance the balance of the project. The email was nothing more than a discussion with his employee about the position that the plaintiff may have to take if there was default on the part of the defendant. I reject the proposition that this email evidences an unwillingness on the part of the plaintiff, as at the date of this meeting, to continue with the contract. On the contrary, it is in fact consistent with the plaintiff's willingness to pursue the works in accordance with the contract. The only uncertainty concerning the performance of the contract arose from the defendant's finance problems. The evidence establishes that problems with finance were clearly influencing Mr Harper's conduct at that time, and were the reason why he requested a suspension of the WUC at the meeting the next day.
Termination of the contract
31 On 12 August 2016, pursuant to the agreement reached at the meeting, Mr Shoeman issued a formal written notice of suspension of the WUC, with some specified exceptions. One of the exceptions was that the plaintiff was to carry out all work necessary to ensure that the site was safe and locked up. The plaintiff subsequently demobilised and left the site. As previously noted, it has never returned to it.
32 On the same day, Mr Shoeman also issued progress certificate four in the sum of $169,068.96. Under the contract, this certificate was payable within seven days. It remains outstanding.
33 There followed a series of communications concerning the outstanding payment. On 31 August 2016, Ms Watts emailed Mr Harper to query when payment might be expected. Mr Harper replied with advice that the defendant had been working with its "lender to get these payments resolved and paid". The email indicated that he expected payment to be resolved "imminently". On 15 September, Mr Healy wrote to Mr Harper referring to a telephone conversation two days earlier in which, he asserted, Mr Harper had promised to provide "critical payment dates for the balance owing". He requested provision of that information "as a matter of priority".
34 Mr Harper responded with a lengthy email on 17 September 2016. The purpose of the email was to provide a detailed update of the defendant's efforts to secure replacement finance and to persuade the plaintiff to refrain from taking legal or debt collection action. It included the following:
"We are deadly serious about getting you paid, and this project back up and running".
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"I have to apologise to you that you are carrying two progress payments on your balance sheet". "We need to work together to get you paid, back on site and finishing the balance of the job. I can appreciate you don't want to be holding the payments, and I am working to get you paid, but it is taking some time". The email then went in to a lengthy dissertation on what would happen if the plaintiff pursued collection action. It pointed out the consequent delays and difficulties that would arise from collection and subsequent legal action. It describes taking such a course of action as "madness". 35 Earlier that day, Mr Healy had instructed staff to remove all materials owned by the plaintiff from the site and place them in safe storage. He instructed staff not to "tell Troy or Chris what you are doing" because it was the plaintiff's materials. The staff were instructed to "leave site as secure as possible".
36 On 20 September 2016, Mr Shoeman issued progress certificate five in the sum of $98,463.30.
37 On 7 October 2016, Mr Healy wrote to Mr Harper. After referring to previous correspondence,
the communication said that the plaintiff was "for failure to meet payment terms…suspending the
Contract, in accordance with Clause 39.9 of the General Conditions of Contract AS 400 -1997 dated 3rd March 2016, with effect from 6th October 2016". The letter advised that the breach could be remedied by payment of certificates four and five, and that failure to remedy the breach "will result in Termination of Contract".
38 On 12 October 2016, Mr Shoeman issued progress certificate six. This certificate was in the sum of $20,769.30. It related to a number of miscellaneous items which had apparently been omitted from previous certificates. This was the final progress certificate issued under the contract. However, as I will discuss shortly, Mr Shoeman subsequently issued a further progress certificate, number seven, which did not relate to extra work, but was in the nature of a final account.
39 On the same day, Mr Harper forwarded by email a copy of the "NAB funding proposal". He said that this was sent "as reassurance that we are making significant progress on the refinance, and your patience will be rewarded".
40 There was some subsequent correspondence from Mr Shoeman to the plaintiff concerning the NAB's proposal. On 25 October, the plaintiff responded to Mr Shoeman with a comment that until the plaintiff had been paid for the outstanding works, it was "unable to commit any more reasonable assistance to the subdivision".
41 On 2 November 2016, Mr Harper wrote to Mr Healy requesting some information required by the NAB. The email included the following:
"As we are finalising funding matters with NAB, it would be greatly appreciated if you
could confirm that you will be available to continue the contracted works.I would like to keep working with you, but as you can appreciate it would be highly damaging to our creditability if I confirm with NAB that you will be doing the works and you are then not available".
42 Mr Healy responded on 5 November 2016, with specific responses to each of Mr Harper's requests. In relation to the continuation of the contract, he said that "we can discuss this when you have NAB on board" and that the plaintiff would "require a clear payment schedule from NAB and full payment for all outstanding items before continuing with any works".
43 On 14 November 2016, Mr Harper wrote to Mr Shoeman. In that correspondence, he noted that the plaintiff had sent "notice of the proposed termination" and that the notice "was written so that Digga did not lose any rights under the agreement".
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44 On 23 November 2016, the plaintiff sent a registered letter to the defendant in which it purported to terminate the contract. The letter referred to the fact that the "breach has not been rectified with no payment received". It then said:
"Digga Excavations is therefore terminating the contract, and in accordance with clause 39.9(a) of the general conditions of contract AS4000-1997 dated 3 March 2016, with effect from Wednesday 23 November 2016".
45 On 30 November 2016, Mr Shoeman wrote to the plaintiff, with a copy to the defendant, asking the plaintiff whether it intended "on completing the project" and "what changes to terms and conditions are required in order to move forward". On 5 December 2016, Ms Watts, on behalf of the plaintiff wrote to Mr Shoeman stating that the plaintiff was "interested in completing the project however due to the numerous construction changes and non-compliance with payment terms", it was "not prepared to
continue under the terms and conditions of the contract …. dated 3 March 2016". The email stated that
on receipt of all monies due, the plaintiff would "require a fresh start, moving forward under a new
contract".46 However, no further agreement has been entered into and the defendant has not made any further payment to the plaintiff.
47 In October 2017, the defendant engaged another civil contracting firm, Hazell Bros, to complete stage 1. There is no evidence that any work was conducted on the site from the time that the plaintiff left the site in August 2016 until Hazell Bros commenced work. The defendant alleges that during the course of the work by Hazell Bros, it discovered defects in the work carried out by the plaintiff. It alleges that the defects are due to the plaintiff's failure to use suitable new materials and to carry out the works in a proper and tradesman like manner and with the exercise of reasonable care, skill and diligence. It has counterclaimed for loss and damage arising from these failures.
The progress certificates
48 Clause 37 of the contract provides for payment to the contractor of the contract sum. Clause 37.1 provides that the contractor shall claim payment progressively and this is specified in the schedule to be on the last day of each month. The scheme set up in the contract is that the progress claim is given in writing to the superintendent who shall, within 14 days, thereafter issue to the principal and the contractor a progress certificate "evidencing the superintendent's opinion of the monies due from the principal to the contractor pursuant to the progress claim and the reasons for any difference". Clause 37.2 provides that the principal shall pay the contractor the balance of the progress certificate within seven days of its receipt. There is provision for adjustment for retention monies.
49 The clause also provides as follows:
"Neither a progress certificate nor a payment of monies shall be evidence that the subject WUC has been carried out satisfactorily. Payment other than final payment shall be payment on account only."
50 The purpose and meaning of that clause is placed in context by the provisions of cl 37.4, which provides for a final payment claim and certificate. That clause provides for the contractor to give to the superintendent a final payment claim within 28 days of the expiry of the last defects liability period. Within a specified time, the superintendent must then issue to both contractor and principal a final certificate "evidencing the monies finally due and payable between the contractor and the principal on any account whatsoever in connection with the subject matter of the contract". The party with liability under the final certificate must make payment within seven days of its receipt. The clause goes on to provide as follows:
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"The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party's obligations in connection with the subject matter of the contract except for:
'Clause 37.4
The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party's obligations in connection with the subject matter of the Contract except for:
a) fraud or dishonesty relating to WUC or any part thereof or to any matter dealt with
in the final certificate;b) any defect or omission in the Works or any part thereof which was not apparent at the end of the last defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate;
c) any accidental or erroneous inclusion or exclusion of any work or figures in any
computation or arithmetical error in any computation; and
d) unresolved issues the subject of any notice of dispute pursuant to clause 42, served
before the 7th day after the issue of the final certificate.'"
51 The progress certificate scheme set up by cl 37 is very common in building contracts. The commercial purpose which underpins it is the need to ensure that the builder has sufficient liquidity throughout the course of the work to make payments as they became due to suppliers and sub- contractors, and otherwise maintain its financial viability until the completion of the works. It follows that upon issue of a progress certificate, the contractor accrues an absolute entitlement to immediate payment of the progress certificate, without deduction or set-off for disputed items, or for claims based on allegations of defective work. This is well accepted by the authorities, and, accordingly, provisions of this nature are usually construed to preclude a right to set-off against a progress payment, at least during the life of the contract: Sopov v Kane Constructions Pty Ltd [2007] VSCA 257, 20 VR 127; Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq) [2002] QCA 224, 1 Qd R 259; Re Concrete Constructions Group Pty Ltd [1996] QCA 086; [1997] 1 Qd R 6; Algons Engineering Pty Limited v Abigroup Contractors Pty Ltd (1997) 14 BCL 215.
52 In this case, a question arises as to the impact of early termination on the plaintiff's right to payment under these certificates. However, before considering this, it is necessary to deal with an anterior question, in particular whether the plaintiff, in fact, accrued a right to payment under the progress certificates in accordance with cl 37 at all. This requires consideration of the defendant's argument that that right to payment was subject to a condition precedent which was not met in this case.
Clause 38 – A condition precedent?
53 Because it is necessary to consider the scheme set up by cl 38 in order to determine its relationship with cl 37, I will set out the clause in full:
"Clause 38 – Payment of workers and subcontractors
38.1 Workers and subcontractors
The Contractor shall give in respect of a progress claim, documentary evidence of the payment of moneys due and payable to:
a) workers of the Contractor and of the subcontractors; and b) subcontractors,
in respect of WUC the subject of that claim.
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If the Contractor is unable to give such documentary evidence, the Contractor shall give other documentary evidence of the moneys so due and payable to workers and subcontractors.
Documentary evidence, except where the Contract otherwise provides, shall be to the
Superintendent's satisfaction.
38.2 Withholding payment
Subject to the next paragraph, the Principal may withhold moneys certified due and payable in respect of the progress claim until the Contractor complies with subclause 38.1.
The Principal shall not withhold payment of such moneys in excess of the moneys evidenced pursuant to subclause 38.1 as due and payable to workers and subcontractors.
38.3 Direct payment
Before final payment, the Principal, if not aware of a relevant relation-back day (as defined in the Corporations Law) may pay unpaid moneys the subject of subclause 38.1 directly to a worker or a subcontractor where:
a) permitted by law;
b) given a court order in favour of the worker or a subcontractor; or c) requested in writing by the Contractor. Such payment and a payment made to a worker or a subcontractor in compliance with a legislative requirement shall be deemed to be part-satisfaction of the Principal's obligation to pay pursuant to subclause 37.2 or 37.4, as the case may be."
54 The evidence in respect of compliance with this clause is as follows. The plaintiff concedes that it did not provide any of the evidence referred to in cl 38.1 during the life of the contract. In fact, the evidence was first provided when Ms Watts, in her capacity as finance officer of the plaintiff, provided a statutory declaration, which asserted that "all workers and sub-contractors who have at any time been employed by the Subcontractor in relation to the works have as at the date of this declaration been paid all monies due and payable to them". The statutory declaration is dated 15 June 2017, and was sent by the plaintiff's lawyer to the defendant's lawyer by email on 19 June 2017 in connection with related proceedings in the Federal Court. The email also disclosed detailed payroll and superannuation records supporting the claim made by Ms Watts in the statutory declaration.
55 Mr Shoeman's evidence is that he was aware that the plaintiff had not provided documentary evidence under this clause. In his proof of evidence, admitted as part of his evidence-in-chief, he says that he asked Mr Harper about whether he wanted to insist upon that evidence but Mr Harper told him "not to worry about it". In cross-examination, he agreed that this conversation was not recorded in relevant documents, such as site meeting minutes and emails, and that his usual practice would have been to record such a conversation. He agreed also, when shown an email relating to an exchange with Mr Harper concerning whether Mr Harper would insist on the provision of statutory declarations concerning payment by the plaintiff for materials prior to the issue of a progress certificate, that the relevant passage in his proof in fact referred to that conversation. An attempt in re-examination to have him confirm that a relevant conversation did take place in any event, was unsuccessful.
56 Mr Harper's evidence about this question is that the plaintiff's failure to provide the required evidence first came to his knowledge on 15 February 2017. This occurred when it was raised in the Federal Court proceedings. It seems that Mr Harper was not familiar with the requirements of cl 38 until then. He was not cross-examined about this issue, and there is no other evidence from him in relation to it.
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57 The defendant's argument is that cl 38.1 sets up a condition precedent and, that until the plaintiff complied with it in respect of a particular progress claim, it did not accrue a right to payment of the certificate relevant to that claim. Accordingly, it was not entitled to rely on the non-payment of the last three certificates to justify its purported termination of the contract. Further, when the contract ended, it lost any capacity to retrospectively accrue a right to payment, irrespective of provision of compliance with cl 38 thereafter. It is only rights accrued prior to termination which are preserved upon termination. McDonald v Dennys Lascelles Ltd [1933] 48 CLR 457, per Dixon J. This case is referred to in more detail on this point later in these reasons.
58 As a matter of fact, I am satisfied on the evidence that the requirements of cl 38.1 were simply overlooked by everybody involved with the contract, including Mr Healy, Mr Harper and Mr Shoeman. Mr Shoeman is an experienced superintendent and I have no doubt that if he had turned his mind to the requirements of cl 38, he would have discussed the question with the parties. However, I am also satisfied that if he had had specific conversations in relation to this question, he would have recorded those conversations in the site meeting minutes or by some other means. I accept his evidence that he was diligent about recording such matters. The only conclusion I can draw on the balance of probabilities is that he overlooked these requirements.
59 There are two factual conclusions which are inescapable. The first is that the plaintiff did not comply with the requirements of this provision. The second is that the defendant did, in fact, withhold payment. However, it is obvious that the defendant's reason for doing so was not because of its rights under cl 38.2, but rather because of its financing problems. In other words, I can safely assume that had finance not been an issue, the relevant progress certificates would have been paid when due.
60 There are two questions of law which arise as a result of these factual findings. Firstly, whether on the correct construction of cl 38.2, failure to comply with cl 38.1 entitled the defendant to withhold payment. Secondly, if it did, whether the defendant is now entitled to rely on that failure to justify non- payment, despite not being aware of this justification at the time, and in fact, simply failing to pay the certified amounts because of lack of funds.
61 In relation to the correct construction of cl 38.2, senior counsel for the applicant, Mr O'Farrell SC, relied on a view expressed by a District Court judge in Queensland in the case of CKP Constructions Pty Ltd v Gabba Holdings Pty Ltd [2016] QDC 356. In that case, McGill DCJ was dealing with relevantly identical provisions in an earlier version of the standard contract. His Honour concluded that the words "Subject to the next paragraph" in cl 38.2 limited the right of the principal to withhold monies under that clause. In particular, in circumstances where no evidence had been provided to comply with cl 38.1, his Honour's view was that the second paragraph of cl 38.2 prevented the principal from withholding payment of any money under the progress certificate, because the whole sum is "in excess of the monies evidenced pursuant to subclause 38.1 as due and payable to workers and subcontractors".
62 I do not accept the logic of his Honour's reasoning and respectfully disagree with the conclusion reached by him. The commercial purpose of cl 38 is, in my view, to enable a principal to withhold monies in circumstances where the principal may incur a statutory obligation to pay or secure money owed by a contractor to a sub-contractor or employee. A number of Australian jurisdictions have legislation which creates this direct liability. This would seem to be consistent with the provisions of cl 38.3. Clause 38.2 is clumsily drafted, but, in my view, it is clear enough that it provides a mechanism which ensures that the principal has sufficient funds to meet any such obligation. Hence, until the contractor provides the necessary evidence, the principal can withhold the entire payment. The second paragraph of cl 38.2 really deals with a different circumstance, that is, where evidence has been provided as to what is due and payable, but the debt is still outstanding. In that circumstance, the principal's capacity to withhold money is limited to that established by the evidence to be still due and payable. Hence, there is no interaction between the two paragraphs, because one deals with the situation where there has not been compliance and the other where there has been. In my view, the phrase "subject to
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the next paragraph" has no work to do, and is simply surplusage arising from clumsy drafting. I would
certainly not attribute the same importance to it as was done by McGill DCJ.63 His Honour's reasoning also took into account that there may well be no money outstanding to anyone at the date of the claim, in respect of work to which the claim relates, and hence, there would be no obligation under cl 38.1 to provide any evidence. This may well be correct on a strict reading of the provision, but to then interpret cl 38.2 as not permitting the withholding of the payment in such circumstances, defeats the commercial intention of the scheme set up by the clause, and is clearly contrary to the intention of the parties evinced by that scheme. That construction should not be adopted. In this case, as in most cases, it is inconceivable that something would not have been due and payable to an employee, at least, in respect of relevant work, and this is confirmed in any event by the material provided under this provision by the plaintiff to the defendant in June 2017. In any event, cl 38.1 should be construed to include the provision of evidence that nothing is, or was, due and payable, if that is the case.
64 The next question which arises is whether the defendant is now entitled to rely upon that clause to justify its non-payment of the amounts due under the progress certificates. There are really three questions that arise in respect of this issue. Firstly, is the defendant entitled to rely on a justification for payment of which it was unaware at the relevant time, but has since discovered? Secondly, the plaintiff has pleaded that the defendant made a positive election not to withhold monies under this clause and should be bound by that election. Finally, the plaintiff has also pleaded that in any event, having regard to certain representations made by the defendant to the plaintiff, the defendant is now estopped from relying on the provisions of cl 38.
65 The second and third issues can be dealt with briefly. In view of the factual findings I have made, I am satisfied that the defendant did not make a positive election under this clause. As I have already found, no one, including Mr Harper, turned their mind to this provision until the conduct of the Federal Court proceedings, which took place well after the purported termination of the contract. The fact of the matter is that the payment was withheld and this had nothing to do with any election one way or the other in respect of the provisions of cl 38.
66 The estoppel argument has a slightly different basis but in my view must fail for the same reason. The estoppel claim as pleaded does not assert any specific representation on the part of the defendant not to rely on the provisions of cl 38. Even if it did, as a matter of fact, I would find that there were no such representations, because neither party nor the superintendent had turned their mind to the operation of cl 38 until well after the purported termination of the contract. The representations pleaded were ongoing promises by Mr Harper to pay the monies due under the progress certificates. However, as I understand the defendant's case, although it now asserts that some of the work was defective, there is no dispute that while the contract was on foot, it was obliged to make payment of the amounts certified in the progress certificates. Clause 38.2 does not remove that obligation, but simply enables the principal in certain circumstances to withhold some or all of the payment. Any representation made by the defendant with respect to payment of the relevant progress certificates had nothing to do with whether or not cl 38 should be complied with. A promise to pay is equally consistent with anticipation of eventual compliance with cl 38, as it is with payment being made without such compliance. It is impossible to draw any firm representation about compliance with cl 38 from Mr Harper's promises.
67 Further, there is no evidence to establish that the plaintiff relied on those promises when it continued not to comply with cl 38. On the contrary, as I have now stated a number of times, I am satisfied that the plaintiff, as with everyone else involved in this contract, simply did not give any consideration to its obligations under cl 38. It follows that the claim of the estoppel must fail.
68 The final question is whether the defendant can rely on the plaintiff's failure to comply with this clause, as a belated justification for non-payment. This question can, I think, be resolved as a matter of
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law. Of course, the resolution of this question can only have consequences in terms of the conduct of the parties prior to the provision of the evidence in June 2017. Upon the provision of that evidence, any capacity on the part of the defendant to withhold payment on that basis came to an end. However, my findings in relation to this clause have clear implications in relation to the alleged breach which was the basis of the plaintiff's purported termination of the contract. In short, if the defendant is entitled to rely on the plaintiff's non-compliance with that clause to justify non-payment, then the alleged breach disappears, and the consequence must be that the termination was ineffective. The significance of such a finding in circumstances where the contract was terminated in any event by mutual abandonment by the parties, is another question, and one to which I shall return.
69 In support of his argument that the defendant can rely on the plaintiff's failure to justify its non- payment of the progress claims, Mr McTaggart SC relies on the oft quoted comments of Dixon J in Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359, at 377-378.
"But the rule is of general application in the discharge of contract by breach, and enables a party to any simple contract who fails or refuses further to observe its stipulations to rely upon a breach of conditions, committed before he so failed or so refused, by the opposite party to the contract as operating to absolve him from the contract as from the time of such breach of condition whether he was aware of it or not when he himself failed or refused to perform the stipulations of the contract. 'It is a long established rule of law that a contracting party, who, after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification which in fact existed, whether he was aware of it or not (per Greer J., Taylor v. Oakes Roncoroni & Co.)"
70 The rule confirmed by these comments supports the lawfulness of termination for breach based on an incorrect reason, when there is a legitimate reason of which the party terminating was not aware at the time. That party can later rely on the unknown reason to justify the termination. The situation in this case is slightly different. The defendant relies on a reason of which it was not aware, that is the plaintiff's breach of clause 38.1, to justify its failure to make payment, and hence establish that it was not in breach of the contract, and that the termination was not justified.
71 Despite this difference, I see no reason why the principle should not extend to this case. In essence, the rule is concerned with a retrospective justification of a refusal to perform a contractual obligation on a basis not known at the time. I do not think that the legal consequences of the refusal are important. The question is how the act should be characterised under the contract. This is consistent with the view taken by the New South Wales Court of Appeal in a different context in Downer EDI Limited v Gillies [2012] NSWCA 333. Allsop P spoke in terms of justification of a "contractual act", and noted that the subsequent justification could be relied upon despite its "separate relevance."
72 One well-known feature of the common law is that a contracting party who gives a reason for a contractual position being taken (such as termination) does not by the giving of that reason (which may be wrong) deprive itself of a justification which existed, whether known of or not at the time.
73 As a matter of principle and authority, the limitation on the principle should not be accepted. There is no reason in principle for Shepherd v Felt and Textiles to be confined to supporting as justifiable acts done under contract which are not valid without further justification from the facts not previously known. In principle, it should equally extend to adding a further basis for justification of the act if that further basis has separate relevance.
74 In this case, the termination was expressly reliant on the consequences prescribed by the contract for breach, including by non-payment of amounts due and payable. It is appropriate that the assessment of the existence of such a breach be judged according to the contract. There is no reason why this question should not be judged retrospectively, with knowledge gained after the purported termination. Ultimately, the defendant was either in breach of the contract as alleged, or it was not.
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75 It is also important to observe that the plaintiff's notice purporting to affect the termination did not allege that the defendant had repudiated the contract by non-payment. Where a contract contains termination clauses, they "are presumed to state additional bases for termination" see Carter's, Contract Law in Australia 7th edition, par 31-04. Hence, the effectiveness of the termination did not depend upon the defendant's non-payment amounting to repudiatory conduct. The question of whether there had been a breach which supported the contractual right to terminate is solely dependent on the terms of the contract. In this regard, the fact remains that in terms of the breach which is said to underpin the plaintiff's termination, the plaintiff had not complied with cl 38.1 and, accordingly, the defendant was entitled to withhold payment under cl 38.2. Viewed in that context, the defendant was not in default by failing to make payment, as alleged in the notice. It follows that the plaintiff was not entitled to terminate the contract at that time, and that its purported termination was ineffective.
76 Mr McTaggart submits that the correct finding in this case is that the contract has been terminated by mutual abandonment. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12, 138 CLR 423, the High Court considered a case in which there were mutual attempts by the parties to a contract for the sale of land to terminate the contract on the basis of alleged anticipatory breach by the other. Each attempt was ineffective, and there was then a period of inactivity. The court concluded that by the commencement of proceedings, neither party intended to perform the contract in its terms. It was held that the contract had come to an end by mutual abandonment:
"Thus the contract in the present case was still on foot on and after 25th July 1974. Neither party had effectively rescinded. But there can be no doubt that by 5 December 1974, when these proceedings were commenced, neither party, whatever may have been their reasons, regarded the contract as being still on foot. Neither party intended that the contract should be further performed. In these circumstances the parties must be regarded as having so conducted themselves as to abandon or abrogate the contract."
77 In this case, it is clear that, at least by the time of the purported termination on 23 November 2016, the plaintiff had no intention of continuing with the contract in its original terms. It evinced this intention in numerous ways, including by the purported termination itself and Ms Watts' email of 5 December 2016. It is not as clear in the defendant's case when this point was reached, but the evidence establishes that at least by January 2017, it was seeking tenders from other contractors to complete the stage 1 works. My conclusion is that over time, the defendant conducted itself in a way that confirmed that it, too, had abandoned the contract.
78 I find that by the time of commencement of these proceedings, this contract had come to an end because of mutual abandonment.
The effect of termination on plaintiff's rights under the progress certificates
79 The question which next arises is the effect of the termination of the contract by mutual abandonment on the plaintiff's entitlement to claim payment under the progress certificates. The plaintiff argues that its accrued right to payment, and its entitlement to sue in debt, is unaffected by the termination. The defendant argues that because the contract was terminated by mutual consent, the plaintiff has lost the right to claim on the progress certificates and is limited to a claim on a quantum meruit for the work actually performed by it. It is argued that this will differ from the progress certificates, because there must be deduction for work and materials certified incorrectly, and for its counterclaim for loss and damage for defective works, which is to be set off against any money due under the quantum meruit claim.
80 The starting point in an analysis of this question is to understand the concept and effect of the early termination of a contract. In McDonald v Dennys Lascelles Ltd, Dixon J said this:
"When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the
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contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its
breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach."
81 This was a case in which the contract had been terminated by one party for breach by the other. However, as a matter of logic, there is no reason why the same principles, at least in respect of rights which have accrued before termination, should not apply where there has been early termination on another basis, including mutual abandonment. In Cedar Meats (Aust) Pty Ltd v Five Star Lamb Pty Ltd [2014] VSCA 32, the Court of Appeal in Victoria (Nettle, Beach JJA and McMillan AJA) considered that question, in a case in which there was an unchallenged finding that the contract had been terminated by mutual abandonment:
"As has been seen, the judge held that, because Cedar Meats did not expressly reserve its rights to accrued cl 8(a) payments; did not seek to enforce those rights until November 2011; and, in the interim, processed some small quantities of lamb for Five Star on an ad hoc basis on terms different to the terms of the agreement, it was to be inferred that Cedar Meats had abandoned its accrued cl 8(a) entitlements.
With respect, we take a different view. The consequences of the discharge of a contract by abandonment depend on the intention of the parties as manifested in the way that they have acted in relation to each other. According to ordinary contractual principles, the manifestation of such an intention may be express or implied. Where, however, a contract has been partly performed, it is not lightly to be supposed that parties intend to abandon accrued rights. Absent a clear indication to the contrary, it is to be inferred that the abandonment of a contract operates prospectively without prejudice to accrued entitlements."
82 In this case, there could not possibly be any suggestion that the plaintiff conducted itself in a way which evinced an intention to abandon its accrued right to payment of the progress certificates. On the contrary, the evidence is overwhelming that it continued to assert that right, and in fact attempted to terminate the contract because of the defendant's failure to make payment. Further, there is no evidence that the defendant asserted at any relevant time that the abandonment of the contract should affect any accrued right which had been gained by the plaintiff in respect of its partial performance of the contract. Once again, the contrary is clearly true. There is ample evidence of Mr Harper continuing to make promises to pay the amounts outstanding under the progress certificates.
83 The real question which arises in this case, in my view, is the nature of the right accrued by the plaintiff prior to termination. The plaintiff asserts that it has a right to unconditional payment of the progress certificates without deduction for set off or any other reason. The plaintiff's argument is that this is the right which survives the termination, and upon which it can now sue. Whether that is the right accrued by the plaintiff, or whether it takes a different form, is the determinative question. In order to properly consider this question, it is necessary to return to the scheme set up by the contract in relation to the payment of progress certificates.
84 I have already discussed this scheme insofar as it affords a right of immediate payment during the life of the contract. However, consideration of the entire scheme makes it apparent that the payment of a progress certificate is on account and subject to the final certificate. The final certificate is intended to settle accounts which arise under the contract during the course of the works, after the works have
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been completed. In respect of defective work, cl 29 sets up a scheme whereby defective works which are identified during the course of the contract are assessed by the superintendent who can then require the contractor to rectify the defect. If the contractor does not do so within a specified time, then the principal, under the supervision of the superintendent, can have the work rectified by someone other than the contractor, at the contractor's expense. The cost of the rectification work becomes a sum which can be accounted for in a progress certificate or the final certificate. In the case of the final certificate,
the principal will retain its right to pursue payment for "any defect or omission … which was not
apparent at the end of the last defects liability period, or which would not have been disclosed by
reasonable inspection at the time of the issue of the final certificate".85 A similar scheme is set up in respect of other issues in dispute. See cl 42. This presumably would include disputes with respect to the accuracy of certification. Once again, any unresolved issues which are the subject of a notice of dispute made before the issue of the final certificate, remain unaffected by that certificate.
86 It is necessary, in my view, to have regard to the entire scheme when identifying the nature of the right accrued upon the issue of a progress certificate. Clearly enough, because the contract expressly says so, any payment, other than the final payment, shall be payment on account only. The contract does not define what is meant by this, but it is clear enough that the payment is subject to the final accounting which takes place when the contract has been fully performed by the contractor. The question which arises, however, is whether the final accounting applies in circumstances such as this, where there has been early termination before full performance of the contract.
87 This question has been discussed judicially in a number of authorities, but only in the form of obiter comments. This is because invariably the question has arisen for discussion in cases where the contract is not yet terminated. In Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd (2004) 8 VR 16, the Victorian Court of Appeal was dealing with an appeal from the decision of the primary judge to award summary judgment in favour of a subcontractor against the main contractor in an action for recovery of payments due under progress certificates. The contract in question had provisions of similar effect to those in this case. It was argued that the contract had been terminated and the primary judge accepted a submission that the accrued right to payment of the sub-contractor survived the termination. The only effect of the termination was on future rights. It is not apparent that the matter was fully argued before the primary judge, because his Honour proceeded on what was, according to the Court of Appeal, the incorrect assumption that the point had been conceded by the other party. The Court of Appeal declined to resolve the issue on the basis that it was dealing only with an application for summary judgment, but concluded that the primary judge was wrong to find that the point was not arguable, and concluded that it was one of a number of "real questions to be tried".
88 In the course of its analysis, the Court of Appeal referred to a view expressed by Holmes J, with whom the other members of the court agreed, in Queensland University of Technology v Project Constructions (Aust) Pty Ltd (in liq). In that case, the court was concerned with whether an equitable set-off was available to the appellant with respect to a claim for liquidated damages, in respect of an action to recover certified progress payments. The question of whether the right to payment without set- off was affected by termination was not in issue because the contract had not been terminated. However, in the course of her analysis, her Honour expressed the following view:
"It does not seem to me inevitably to follow that, where the contract evidences an agreement that progress claims will not be the subject of deduction or set-off, that preclusion must extend to the event of termination. Such a conclusion seems to me to move rather away from the rationale expressed in Daysea for discerning and preserving a right to progress payment without set-off; that is, the need of the contractor to remain viable in order to finish the contract. There seems no reason, either in general terms or on examination of the contract, that the parties' respective entitlements should not be the subject of set-off upon termination of the contract. The better view, I think, is that Cl 42.1 operates to defer any right of set-off during the life of the contract."
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89 The Victorian Court of Appeal considered these comments, albeit obiter, to represent "a considered view adopted by the Queensland Court of Appeal which is at odds with that expressed by" the primary judge. However, as already noted, it declined to resolve the question.
90 The passage from the judgment of Dixon J in McDonald v Dennys Lascelles Ltd quoted above, has most recently been cited by the High Court, and provided the fundamental basis of its reasoning in Mann v Paterson Constructions Pty Ltd [2019] HCA 32, 267 CLR 560. Mr O'Farrell SC has relied upon that decision in support of his argument that the plaintiff's accrued right to payment of the progress certificates under the contract remains intact and unaffected by the termination of the contract.
91 The facts in Mann v Paterson Constructions Pty Ltd resemble those in this case in a number of respects. Mann concerned a construction contract of significant value, in which payment was to be made in stages, with the relevant stages defined by completion of a segment of the relevant works. The contract was terminated when the building contractor accepted a substantial breach by the principal as the principal's repudiation of the contract. To this point, the facts of the case relevantly mirror those in this case. Although I found that this contract has been terminated by mutual abandonment, as will be seen, that is not an important distinction. As already discussed, the termination by mutual abandonment will still have the consequential legal effect discussed by Dixon J in McDonald v Dennys Lascelles Ltd. In particular, it meant that "both parties are released from contractual obligations which are not yet due for performance, but existing rights and causes of action continue unaffected", per Nettle, Gordon and Edelman JJ.
92 Despite these similarities, there is an important distinction between Mann and this case. In Mann, the contract was for a fixed price and progress payments were calculated simply on the basis of a nominated percentage of the fixed price, subject to variations. The builder argued that because it had terminated the contract as a result of breach by the other party, it should no longer be constrained by the agreed fixed price when claiming for work completed under the contract. It, in fact, wanted to claim on a quantum meruit, which it obviously believed would result in higher remuneration for the relevant work. It argued that otherwise the defaulting party would be unjustly enriched.
93 The High Court was divided, but the majority Gageler, Nettle, Gordon and Edelman JJ rejected this argument, at least insofar as it related to work performed pursuant to the contract. In respect of such work, the court divided it into two categories having regard to the contractual provisions concerning payment. Those categories were work which had been done by the builder for which the builder had already accrued a contractual right to payment at the time of its termination, and work done by the builder under the contract but for which the builder had not yet accrued a contractual right to payment. In other words, the distinction was between work which was included in stages which had been completed, thereby entitling the builder to a progress payment calculated as a specified percentage of the fixed price, and work in respect of a stage which was not yet completed and hence the builder was not yet entitled to such a progress payment.
94 The majority rejected the contention that the value of work recovered by the builder should be calculated in accordance with a "non-contractual quantum meruit". It held that the basis of the claim is restitution, but calculation of that restitution is in accordance with rights accrued under the contract. This was explained by Nettle, Gordon and Edelman JJ as follows:
"By contrast, where a contract is enforceable, but terminated for repudiation, there are no reasons of practicality and few in principle to eschew the contract price. It has been said that '[t]he defendant cannot refuse to abide by the contract and at the same time claim its protection' against the innocent plaintiff. But, as has been seen, where a contract is terminated for breach, it continues to apply to acts done up to the point of termination, and it remains the basis on which the work was done. There is, therefore, nothing about the termination of the contract as such that is inconsistent with the assessment of restitution by reference to the contract price for acts done prior to termination. The contract price reflects the parties' agreed allocation of risk.
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Termination of the contract provides no reason to disrespect that allocation. Granted, there may be difficult questions of apportionment of the contract price, such as where performance of a small part of the entire obligation is the most valuable part of the contractor's work. There may also be difficult questions in identifying the contract price, such as where the expected benefits to the contractor include not only payments of money but also the value of promises or releases. But such difficulties of valuation and apportionment have long been encountered in other areas."
95 The effect of the decision in Mann was that the builder was entitled to claim the contractual progress payment in respect of stages which had been completed, and on a "contractual" quantum meruit in respect of work performed on stages which had not been completed. The builder was entitled to claim "at its option damages for breach of contract or restitution, but the amount of restitution should be limited in accordance with the rates prescribed by the contract". It was clear also that the builder would be entitled to claim damages for loss of bargain in respect of the balance of the contract, which is an entitlement not applicable in this case.
96 In my view, these principles can be applied to this case. In particular, the plaintiff's entitlement for work done is to be calculated in accordance with the contract, that is by reference to the bill of quantities and the schedule of rates. This calculation will be reflected in the progress certificates, but, as has been discussed, this is subject to the limitations imposed by the contract. The most important limitation is that a progress certificate is not "evidence that the subject WUC has been carried out satisfactorily", and payment under a progress certificate is "on account only". Further, the contract clearly contemplates a final accounting under cl 37.4. That clause cannot be applied strictly in accordance with its terms because the early termination of the contract has made irrelevant a "defects liability period". However, the "contractual quantum meruit" discussed in Mann will include a final accounting, to the extent applicable in the circumstances.
97 I think this view also sits well with the comments of Holmes J in Queensland University of Technology v Project Constructions Aust Pty Ltd (in liq). As her Honour noted, an absolute entitlement to payment of a progress certificate, without deduction or adjustment, during the life of the contract is entirely consistent with the purpose of such payments as already discussed. However, that rationale, as a matter of logic, cannot extend beyond termination. To do so would distort and undermine the commercial purpose that supports the treatment of such payments while the contract is extant. The absolute entitlement is only commercially workable and viable, because it is "on account", and subject to adjustment at the end of the contract. The clear intention of the parties was that these payments, during the life of the contract, were to be subject to a final accounting on final performance of the contract. In my view, that intention remains applicable in the case of early termination by mutual abandonment.
98 It follows that I reject the plaintiff's claim that it is entitled to sue on the progress certificates, with no set-off for amounts incorrectly certified, or for the cost of rectification of defective works. It is entitled to recover remuneration for work done under the contract, calculated in accordance with the contract. Hence, the proper assessment will be reflected in the progress certificates, with appropriate adjustment in accordance with cl 37.4.
99 This is effectively the quantum meruit calculation adopted by the plaintiff as its alternative position, and the basis of the respondent's case. The calculations have some common items but differ in a number of respects. The respective calculations are:
Plaintiff
Progress certificates adjusted in accordance $506,082.53 with a final account prepared by Mr Shoeman
as at 23 November 201619 No 22/2023
Less adjustment for materials retained by $ 82,726.54 plaintiff Total $423,355.99 Less payments made by defendant $251,221.15 Total $172,134.84 Defendant The defendant's calculation is as follows: Total certified $460,075.03 Less materials not on site $ 82,726.54 Less Reduction for over-certification $ 15,391.70 Reduction for variations not substantiated and disputed $ 41,141.06 Deduction for defective works $164,920.92 Total value of works $155,894.82 Plus GST $ 15,589.48 Total value of works including GST $171,484.32 Less total paid to date $251,221.15 Final item amount owed to principal overpayment $ 79,736.85
100 The plaintiff concedes the deduction for materials not on site, with an agreed value of $2,726.54 accordingly, the remaining items of difference are:
A different calculation of the aggregate due under the progress certificates; Over certification; Disputed variations; and Claim for rectification of defective works. I will deal with each in turn.
Amount due under the progress certificates.
101 The plaintiff's figure of $506,082.53 simply represents the total of the individual progress certificates. The defendant's figure of $ 460,075.03 is taken from Mr Shoeman's final account.
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102 The difference can be explained by Mr Shoeman's approach to the progressive calculation of GST. There does not seem to be any dispute that GST is properly added to the amount payable under each certificate. However, when Mr Shoeman carries forward the amount certified from one certificate to the next certificate, the progressive balance excludes GST on prior certificates. To maintain consistency, GST should then be added to the aggregate progressive balance. However, what seems to have happened is that the new certificate only accounts for GST on the amount of the current certificate, not the aggregate progressive balance. Therefore, the GST due in respect of all previous certificates has not been accounted for, and is effectively deducted from the amount due.
103 Clearly, this methodology is not correct or fair. The plaintiff is entitled to have GST added to the entire amount of each certificate. The plaintiff's calculation proceeds on this basis. I will proceed in accordance with that calculation.
Over certification
104 The defendant claims that the certification of works contained in progress claim six should be reduced by $15,391.70 to reflect the actual quantities of sewer, stormwater and water pipes laid by the plaintiff. The reduction represents a variation of approximately 10% of the certified amount.
105 The identification and calculation of this alleged over certification is contained in the expert evidence of Heine Poortenaar. Mr Poortenaar is a civil engineer with considerable experience. Mr Poortenaar did not inspect the works at the time of preparation of the certificate and, in fact, only attended the site for the first time in 2020. However, for the purpose of this calculation, he relied on an "as constructed drawing" prepared by Joel Murray, a surveyor. Mr Murray was involved in the works between April 2016 and August 2017 and attended the site a number of times during that period. In August 2017, he prepared a detailed measurement of all of the relevant works. Mr Poortenaar worked off this drawing when making his calculations.
106 In general, Mr Murray's measurements can be accepted as accurate. His evidence included a detailed explanation of the process used by him to prepare the drawing. This included reliance on GPS data and visual inspection of pipework from pit to pit. However, it is clear that in some respects, as will be seen, his analysis was constrained by physical impediments or his understanding of the extent of the work to be included in his survey.
107 Mr Shoeman's evidence is that his calculation of the quantity of pipework used by the plaintiff relied almost entirely on information provided to him by the plaintiff. However, in November 2016 he prepared a plan intended to identify work completed by the plaintiff. He prepared the plan in consultation with Mr Harry. The plan is entitled "Indicative mark up of installed services", and was sent by Mr Shoeman to Mr Harper on 30 November 2016. According to Mr Shoeman, the quantities reflected in the plan were discussed, and I infer agreed, by the parties after that.
108 As I understand Mr Poortenaar's evidence, he has deferred to the "mark-up plan", in preference to the "as constructed drawing", in at least one respect. The mark-up shows a completed sewer line S1.10 to S1.11, which is not on Mr Murray's "as constructed drawing" or CCTV taken as corroborative evidence. However, the existence of the pipework in the ground was verified by Hazell Bros, when they came on site in late 2017. Mr Poortenaar accepts this, and Mr Murray confirmed in his evidence that he may not have measured that piece of line because "it was covered with something I couldn't lift, or I was unable to measure it". However, there are other differences between the "as constructed drawing" and the certificate, which are not explained in that way. Most of the difference relates to a separate piece of sewer line that runs for approximately 44 metres, and is shown on the marked up plan as extending from S1.8 to Lot 3. The marked up plan bears a hand-written note showing this piece of line as "trench only", suggesting that the work had not been completed. This work, if allowed in full as completed work
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by Mr Shoeman, would almost completely account for the discrepancy between his final account and
the "as constructed drawing".109 Apart from Mr Poortenaar's evidence, there was no specific evidence dealing with this particular point. Mr Shoeman was not asked about it, and his general evidence about the mark-up, given the existence of the note, tends to support Mr Poortenaar's point. In any event, the difference is demonstrated and not otherwise explained. I am satisfied on the balance of probabilities that the amounts contained in progress certificate six and the final progress certificate have over certified the amount of pipework actually laid by the plaintiff to the extent assessed by Mr Poortenaar. The adjustment claimed by the defendant in the sum of $15,391.70 will be allowed.
Variations
110 The final account was based on an aggregate of 56 contract variations over the life of the contract. Of these, 49 had been agreed and certified under the contract prior to the issue of progress certificate number six. The balance were raised by Mr Shoeman in his final account, on the basis that the work had been properly requested and performed, but not included in either the bill of quantities or earlier variations. According to Mr Shoeman, the reason for the large number of variations overall was the significant changes to the scope of works discussed earlier. I note that Mr Shoeman was in the process of conducting a re-measure at the time that the works were suspended in August 2016. The purpose of this exercise was to bring the contract schedules into line with those changes, and hence reduce the need for further variations. The site meeting minutes suggests that the re-measure was supported by all parties.
111 In his evidence, in particular his final report dated 26 September 2022, Mr Poortenaar challenges the validity of four variations. His opinion is that each was not justified under the terms of the contract. Mr Poortenaar objects to variations 51, 53, 54 and 55. I will consider each in turn.
112 Variation 51 allows $1,595.37 for the supply and installation of sewer pit risers due to increased depths. Mr Poortenaar's evidence is that the CCTV indicates that these risers were not installed. He was not challenged about this. However, I do not find this evidence particularly convincing and I am satisfied that Mr Shoeman would not have allowed such an item unless satisfied that the work had been done. The variation is accepted as valid.
113 Variation 53 allows $11,638.60 for additional trench depth for sewer pipes. The evidence is clear that the original concept drawings upon which the original quote was based, did not specify depths for sewer pipes. However, Mr Poortenaar argues that the plaintiff should have realised that sewer pipes would have to be laid under stormwater pipes and depths were prescribed for the latter. Hence, it is argued that the variation should not have been allowed because the greater depth should have been anticipated.
114 This might all be so, but the anticipation of that greater depth is something that could have been anticipated by both parties. I thought Mr Poortenaar's evidence about this question was somewhat unreliable. He conceded that he had little, if any, knowledge or information about the history of the contract, including the major changes in the scope of the works and the re-measure being undertaken when the works were suspended. In answer to questions on this point from me, he qualified his opinion that the variation was not justified, on the basis that it was because he had not seen any justification for it. Given his lack of historical and contextual knowledge concerning variations such as this, I prefer Mr Shoeman's implied opinion, manifested in his allowance of the variation. I accept the variation.
115 Variations 54 and 55 were disputed by Mr Poortenaar on the basis that he had seen no evidence that this work had been done. Variation 54 relates to works performed on roads and variation 55 relates to the construction of an earth mound on the eastern boundary. Mr Poortenaar relied heavily on the "as constructed drawing" of Mr Murray in respect of these matters but during cross-examination Mr Murray
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confirmed that he had not been engaged to survey the road works nor the earth mound. He confirmed seeing "a pile of dirt" in the location of the earth mound when he went to site. Mr Harry gives evidence that this work was done and there is photographic evidence and other contemporaneous documentary evidence to support this. I am satisfied that the work was done and that the variations are justified.
116 There will be no deduction for the variations referred to by Mr Poortenaar.
| Defective Works |
117 The defendant claims the sum of $161,673.98, being the cost to rectify defects in the work performed by the plaintiff. There was no issue that the plaintiff was obliged to perform the works in a good and workmanlike manner and with reasonable care and diligence, and that a breach of these obligations would sound in damages. The question is whether I can be satisfied on the balance of probabilities that the breaches have occurred, and if so the proper measure of damages as a consequence.
118 The alleged defects were identified when Hazell Bros commenced work. The project manager, Mr Osborne, gave evidence that Hazell Bros attended site on 10 January 2017 and 27 July 2017 for the purpose of preparing tenders. Hazell Bros was subsequently engaged to complete stage 1. It commenced work in October 2017. Mr Osbourne's evidence is that the site, at the commencement of the work, was essentially the same as had been observed in January and July.
119 Hazell Bros identified some defective work. This is contained in the evidence of Mr Fielding. Further, in November 2017, Hazell Bros organised CCTV footage of the installed sewer pipes, in order to obtain the approval of Taswater. Taswater rejected much of the work as unsatisfactory. The evidence of Suzanne Marks, a senior development compliance officer at Taswater, establishes that there were numerous defects in the works which required rectification.
120 Ms Marks' evidence was not challenged by the plaintiff. However, the plaintiff argues that all materials were purchased from a reputable supplier, and that pipes which were laid before August 2016 had been the subject of preliminary inspection by both engineers and Taswater. The plaintiff also relies on the evidence of Brian Sackley, the project manager/supervisor of the plumbing sub-contractor who assisted with the installation of water mains during the course of the plaintiff's work. The plumbing sub- contractor performed a visual test and a physical water test known as pressure tests in order to check the integrity of waterlines and joints. He also observed similar being done by the engineers and a Taswater inspection. No issues resulted from the testing at that time.
121 The plaintiff argues that given this evidence and the lapse of time between August 2016 when it left the site, and October 2017 when Hazell Bros came on to site, the defendant has not established on the balance of probabilities that the defects observed in November 2017 are attributable to the plaintiff's workmanship. However, Ms Marks' evidence is that although the plaintiff had arranged for pressure testing of sewer and water pipes between 7 July and 1 August 2016, satisfactory testing at this point is not sufficient to constitute approval by Taswater. Her evidence is that "pressure testing is only one step to gain practical completion". A number of steps are required before this can occur, and a critical step is the CCTV survey, which in this case was conducted in August and November 2017, before any work was done by Hazell Bros. It was at this point that multiple defects were identified. As a result of these defects, Taswater did not accept the relevant lines of pipes and required them to be relaid. As I have already noted, Ms Marks' evidence was not challenged by the plaintiff.
122 It seems to me that this evidence overwhelmingly establishes that as at October 2017, when Hazell Bros took over the site, the work was in the alleged defective state and required rectification. Mr O'Farrell SC submits that the evidence does not permit a finding of a causal connection between the plaintiff's work and the defects observed by Taswater in late 2017. The argument, I think is that I cannot exclude other possible explanations as to what might have taken place between August 2016 and October 2017.
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123 I reject that argument. In my view, the evidence establishes on the balance of probabilities that the relevant defective work had been performed by the plaintiff. Mr Harper's evidence and the evidence of Mr Osborne concerning the tendering process justifies an inference that there was no other work done on this site between the plaintiff leaving and Hazell Bros taking over the site in October 2017. Mr Fielding's evidence explains in some detail why various rectification works were necessary and it can all be related to the installation of the works by the plaintiff. For example, one or more sewer lines did not meet Taswater's fall requirements, and another sewer line had been installed out of alignment. Some rectification works were necessary because the plaintiff had not installed lot connections to some lots. Further, Ms Marks identified defects related to four sewer lines. Her description of the defects is consistent with faulty installation. They do not include the mere accumulation of loose debris, which can be flushed out. The defects do include matters such as defective seals in joints, pipes which have not been satisfactorily pushed into sockets and hence have become dislodged, joints which have not been glued and hence have become dislodged, and holes in pipes. In my view, all of this is consistent with faults which occurred during the original installation of the work and not problems that would have arisen because of the delay. I am satisfied that the defendant has established the necessary causal link between the defects identified by Taswater and breach by the plaintiff of its obligations relating to the performance of the work.
124 The plaintiff also argues that it should have been provided with an opportunity to rectify the defects. It says that had the contract proceeded to full performance, it would have had the opportunity to rectify any defects identified by Taswater under the defects liability provisions of the contract, and that it should not be required to pay for another contractor's rectification of defects which would have been rectified by it in that way. This argument seems to be based on an assertion of the plaintiff's innocence concerning the early termination of the contract. However, the plaintiff has also pleaded that the defendant has failed to take reasonable steps to mitigate its loss by allowing the plaintiff access to the site to remedy defects.
125 The contractual argument seems to me to necessarily rest on the premise that if it were not for the wrongful default of the defendant, in particular by non-payment of the progress certificates, then the plaintiff would have continued the contract and been able to act under the defects liability provisions. However, in view of my finding concerning the manner in which this contract came to an end, that is, by mutual abandonment, it seems to me that this argument necessarily falls away. As was observed by Dixon J in McDonald v Dennys Lascelles Ltd, the termination of the contract discharged both parties from future performance. This obviously includes the rights and obligations of each party concerning the defects liability provisions. Further, the termination by mutual abandonment rather than for breach removes any right on the part of the plaintiff to use or set-off against the counterclaim for damages for breach.
126 As to the plaintiff's claim that the defendant has failed to mitigate its loss by allowing it to remedy the defects, the critical question is whether the defendant has acted unreasonably in that regard. In my view, having regard to all of the circumstances of this case, it cannot be said that it was unreasonable for the defendant to continue with its contract with Hazell Bros, once the defects had been identified. The defects were only discovered after Hazell Bros had been contracted to come on to site and complete stage 1. The defendant would have been required to breach these contractual obligations to afford such an opportunity to the plaintiff. I do not regard that as a reasonable expectation. Further, and in any event, the plaintiff had made it abundantly clear, in numerous items of correspondence, that it would not return to the site to perform any further work until the monies which it considered to be due to it had been paid. By way of example, I refer to a covering letter sent by Ms Watts with the notice of termination on 23 November 2016, in which she confirmed to the defendant that if it wanted to continue having the plaintiff perform the works it would be necessary to enter into "a new credit application and contract".
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127 I reject the plaintiff's argument that the damages awarded to the defendant for the defective work should be adjusted because of the defendant's failure to mitigate its loss.
128 The final matter raised by the plaintiff is whether the defendant has established that the rates charged by Hazell Bros for this work were fair and reasonable, having regard to prevailing market standards. The plaintiff has not presented any evidence of its own about this, but puts the defendant to proof. However, there is evidence to support reasonableness of the rates. Mr Osborne says that the rates charged by Hazell Bros "were reflective of the market resource rates at the time", having regard to various factors including the scope of the work and the existing conditions at the site. In cross- examination, he said he was engaged by Hazell Bros in early 2018, shortly after the rates were fixed by that company. However, he explained that they were determined by his predecessor, and in any event his opinion is that the rates are reasonable. His evidence about this was not undermined in cross- examination. Further, although Mr Poortenaar did not expressly say that he considered the rates for the rectification of the defective works to be fair and reasonable, that opinion can be inferred from the whole of his evidence. He has certainly allowed the amount in full in his assessment of what is due and owing under the contract. I am satisfied to the requisite standard that the rates charged by Hazell Bros for the rectification work were fair and reasonable.
129 It follows that the defendant's counterclaim must succeed. It should be awarded damages for rectification of the defective works in the sum of $161,673.98.
Conclusion
130 My assessment of what is due and owing is as follows:
Plaintiff's claim
Amount Due as assessed in $506,082.53 final certificate
Less materials adjustment $ 82,726.54
Deduction for over $ 15,391.70 quantification
Total deductions $ 98,118.24 Total $407,964.29 Less payments made by $251,221.15 defendant
Total $156,743.14 Defendant's counterclaim $161,673.91
131 The difference between these two figures is $4,930.84. This is the sum which is payable by the plaintiff to the defendant on the counterclaim after allowance for set-off against the plaintiff's claim. I think it is appropriate to allow a modest amount of interest under s 35A of the Supreme Court Civil Procedure Act 1932. I calculate interest in the sum of $1,000. I award judgment in favour of the defendant in the sum of $5,930.84.
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