E and E Sterling Enterprises Pty Ltd v Watpac Construction (Vic) Pty Ltd
[2012] VCC 1033
•22 May 2013 Revised 29 May 2013
| IN THE COUNTY COURT OF VICTORIA CIVIL DIVISION | Not Restricted Suitable for Publication |
Case No. CI-11-02265
| E & E STERLING ENTERPRISES PTY LTD (ACN 006 294 239) (as trustee for THE STERLING FAMILY SUPERANNUATION FUND) | Plaintiff |
| v | |
| WATPAC CONSTRUCTION (VIC) PTY LTD (ACN 104 451 130) | Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 20-21,23-24,28-31August,3-4,6September,11,19 October, 7-8 November 2012 | |
DATE OF JUDGMENT: | 22 May 2013 Revised 29 May 2013 | |
CASE MAY BE CITED AS: | E & E Sterling Enterprises Pty Ltd v Watpac Construction (Vic) Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1033 | |
REASONS FOR JUDGMENT
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BUILDING CONTRACT – whether warehouse floor built in accordance with contract
BUILDING CONTRACT – whether liquidated damages for delay payable - extension of time application
BUILDING CONTRACT- bank guarantee given by builder – whether returnable – damages for failure to return
BUILDING CONTRACT – progress payment claim – adjudication – judgment – judgment sum paid into trust account – disposition of funds - Building and Construction Industry Security of Payment Act 2002 s 48
DAMAGES – rectification damages - whether owner liable to tenant for damages for breach of quiet enjoyment covenant – whether owner could recover damages under indemnity in building contract
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Andrew | Middletons (K + L Gates) |
| For the Defendant | Mr M Stirling | Piper Alderman |
HIS HONOUR:
1 There are two main issues in this proceeding. First, whether the plaintiff can recover damages from the defendant for breach of a building contract because of the condition of the floors that were constructed. Secondly, whether any, and if so, what sum is owing by the plaintiff to the defendant under the building contract.
2 On 9 October 2008, the plaintiff (Sterling Enterprises) and the defendant (Watpac) entered into a contract under which Watpac agreed to construct dual pre-cast concrete factories with common office facilities for Sterling Enterprises in Heidelberg. The first portion of the factory was to be the manufacturing side and the second portion was the warehouse side.
3 The Contract was entered into by Sterling Enterprises as trustee for the Sterling Family Superannuation Fund for the construction of a new factory and warehouse facility at 140-152 Bamfield Road, West Heidelberg, Victoria for the lump sum of $4,344,095.00 plus GST.
4 Watpac was the builder under the Contract.
5 The Contract incorporated amended AS4000-1997 General Conditions of Contract and Annexures. The Contract also included the documents listed in the Contract documentation summary dated 30 September 2008, including the Tender documentation summary and notes for tender and contract.
6 The recitals to the Contract included that:
“The Principal enters into this Contract relying on the Contractor’s representation that it is experienced in the construction of works of similar nature, size and complexity to the Works.”
7 The project had two parts:
(a)Separable Portion 1 was the manufacturing site of the complex, not including the warehouse side of the complex, the amenities block, and the front office of the plant platform (“the manufacturing or factory works”); and
(b)Separable Portion 2 was the warehouse side of the complex, together with the amenities block, the front office and the plant platform (“warehouse works”).
SUMMARY OF DECISION
8 Sterling Enterprises has established that the warehouse floor does not comply with the Contract specification. Sterling Enterprises is entitled to recover against Watpac the sum of $146,277.00. This amount includes the sum of $90,000 for damages to rectify the warehouse floor and $14,135.00 for additional workforce and consultants’ costs, that have been incurred. The amount also includes the sum of $42,142 for liquidated damages for delay. Sterling Enterprises’ other claims for damages have not been proved.
9 Watpac is entitled to recover from Sterling Enterprises the sum of $326,443.00 being the balance of the moneys due under the Contract, less the delay damages.
10 Watpac is also entitled to the return of the bank guarantee and damages in the sum of $6,019.73, being $11.51 per day from 17 December 2011 and 22 May 2013, for the failure to return it.
11 The sums that Watpac is entitled to recover from Sterling Enterprises amount to $332,462.73.
12 I will hear the parties as to the appropriate final orders, including costs. I will also hear any further submissions as to the appropriate disposition of the funds held in the solicitors’ trust account, including whether Watpac should receive the interest that has accrued. In that regard, I refer to the judgment in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 4).[1]
[1][2012] VSC 155
STRUCTURE OF JUDGMENT
13 This judgment is divided into the following main sections:
(a) the Facts: paragraphs 16-197;
(b) Whether Sterling Enterprises has proved that Watpac breached the building Contract: paragraphs 198-364;
(c) Damages: paragraphs 365-540;
(d) Watpac’s counterclaim: paragraphs 541-597.
Issues
14 The parties formulated a set of issues which were involved in the determination of the proceeding. They are attached as an annexure to this judgment. The parties were in agreement in respect of a number of the introductory issues relating to the terms of the contract. I have addressed all of the issues that remained in contention, although not always in the same order that the parties had arranged them.
Evidence of witnesses
15 Witnesses provided witness statements and most were cross-examined on them. I have set out the facts from that evidence. Much of the chronology of events was not in dispute.
Section A The Background and the Building Work
The Sterling Group of Companies
16 Sterling Enterprises is a trustee company acting as the trustee under a deed of trust made between Mrs Elizabeth Sterling as founder, and Sterling Enterprises as trustee. Sterling Enterprises holds property on trust for members of the Sterling family. It has owned properties in West Heidelberg for many years. One such property was located at 151-157 Bamfield Road, West Heidelberg.
17 Westaflex (Australia) Pty Ltd (“Westaflex”), is a company owned and operated by the Sterling family, which specialises in producing and distributing products for heating and cooling systems. Westaflex was founded by Mr E Sterling in about 1974. Since his death in 1992, Westaflex has been operated by Mrs Elizabeth Sterling with her sons, Mr Paul Sterling and Mr Michael Sterling. Mrs Sterling owns 22,900 of its 23,000 shares. Mrs Sterling was hospitalised at the time of the trial and unable to give evidence.
18 Mr Paul Sterling is a director of Westaflex Pty Ltd.
19 Westaflex has manufactured, imported and distributed plastic products since 1974. Westaflex traded from 1990 at the premises of 151-157 Bamfield Road under a lease from Sterling Enterprises. It leased three premises in the same area: 22 Culverlands Road, 150 Bamfield Road and 156 Bamfield Road.
20 Westaflex has also used premises in Mount Waverley, since the early 1980s, as a manufacturing and distribution outlet, and premises in East Keilor for distribution.
21 Westaflex also has two premises in Western Australia for manufacturing and distribution and one in Queensland. There are four manufacturing plants. Revenue from those plants goes to Westaflex.
22 There are eleven distribution outlets in total. Three of them are in Victoria, the majority of which trade under the name Westaflex, with the remainder trading under the name Uniflex.
23 On 10 July 2000, Sterling Enterprises entered into a lease of 155 Bamfield Road, West Heidelberg to Westaflex for ten years.[2] The lease provided two further terms of five years and could therefore be extended until July 2020. Clause 6.1 of the Lease provided:
“The landlord must give the tenant quiet possession of the premises without any interruption by the landlord or anyone connected with the landlord as long as the tenant does what it must under this lease.”
[2]Court Book (CB) 5.331
24 In August 2005, the Bamfield Road building was destroyed by a fire. Also destroyed by the fire were the stock in the warehouse and manufacturing equipment. The Sterling family decided to build a connected factory and warehouse using funds provided by the insurers and additional funds from the Family Superannuation Fund. The cost of the new building was to be about $12 million. Mr Paul Sterling was, in effect, appointed to manage the reconstruction with assistance from his brother, Mr Michael Sterling, and under the general oversight of Mrs Sterling. He engaged Associated Project Control Pty Ltd (APC) to act as project manager. Mr Paul Vincent was APC’s representative. He had the day to day, hands on management of the project. He was later appointed as the Superintendent under the contract.
25 Another company in the Sterling Group is Uniflex Pty Ltd, which employs most of the workforce.
The specification – standard of work required
26 On or about 1 August 2008, APC issued a document headed “Notes for Tender and Contract”. This document was issued to tenderers, including Watpac, and mentioned the requirements for the floors in the warehouse and factory. Note 10 provides as follows:
“This purpose built facility has been designed to accommodate both manufacturing and warehousing for the proprietor, Westaflex Australia P/L.
The Manufacturing side located in the Southern half of complex will be used to produce components associated with the ducted heating and cooling systems, via injection and blow moulding specialized machinery.
The Warehouse side in Northern component of the building will be set up to facilitate wire guided Forklift loading in regimented aisles for maximum storage space.
The majority of works associated with Plant, Equipment and Warehousing will be carried out directly by the proprietor and his representatives following hand over of the various building areas. Some builders work is described in the documentation such as electrical switch boards, line marking, floor coating etc.
The concrete floor slabs within both areas have been designed to minimize movement and will require screeding during construction to an exacting standard.
Screeding of concrete should be carried out from West end towards East so as to minimize any discrepancy across aisle widths. Accuracy to +or- 5 mm over a distance of 4.5 metres is required.
With this in mind the construction sequence as noted in structural documents calls for the ground slabs to go in after structure, thus enabling them to be presented in an unmarked state. Careful attention to controlled curing (moisture loss) associated with concrete slabs, particularly in hot weather shall be noted.”[3]
[3]CB 4.093
27 Sterling Enterprises’ case was put on the basis that the highest obligation imposed on Watpac was to comply with Note 10.[4]
[4]Transcript (T) 1010
Particular terms of the contract
28 Clause 2.1 of the Contract, “Nature of Contract”, provided:
“2.1 Performance of Contract
The Contractor shall carry out and complete WUC in accordance with the Contract and directions authorised by the Contract.
The Principal shall pay the Contractor:
a)for work which the Principal accepted a lump sum, the lump sum; and
b)for work for which the Principal accepted rates, the sum of the products ascertained by multiplying the measured quantity of each section or item of work actually carried out under the Contract by the rate accepted by the Principal for the section or item,
adjusted by any additions or deductions made pursuant to the Contract.”
29 Clause 2.6 contained the Contractor’s warranties in the following terms:
“Without limiting the generality of subclause 2.1, the Contractor warrants to the Principal that the Contractor:
a)has examined carefully and assessed the contents of the Contract and any other documents, information or data made available to the Contractor by or on behalf of the Principal, prior to the date of the Contract;
b)at all times shall be suitably qualified and experienced and shall exercise the due skill, care and diligence in the execution and completion of the WUC expected of a competent contractor;
c)has taken into account all of the risks related to or connected with the Works and execution of the WUC which the Contractor could have discovered by making detailed enquiries, including by visiting and assessing the site and its surroundings, and has made full allowance for those risks in the Contract Sum. Those risks include without limitation:
i)all risks related to or connected with the site including the site conditions;
ii)industrial conditions;
iii)the availability and quality of all things required to carry out the WUC including, without limitation, materials, construction plant, equipment, labour, subcontractors and specialist services; and
iv)the requirements of all authorities and laws; and
d)has informed itself of all laws and any likely changes to laws that will or are likely to take place during the execution of the WUC and effect the WUC.”
30 Mr Paul Sterling was the main witness for the plaintiff. He gave evidence that the floor had to be of an exacting standard because Sterling Enterprises wanted to build a top end complex, which was to be as multifunctional as possible and would make use of a high roof line by having high rise, palletised goods. In particular, the warehouse floor had to be so exact because of the high rise pallet racking system and forklift which the company intended to use.
31 Mr Sterling stated that the design provided for two separate, but connected, buildings so that they could either be used as one facility or two. He said that depending on the economic climate, it was possible that the Sterling Group might cease manufacturing and either use what is now the factory as an additional warehouse, or sell part, or all, of the buildings. It was therefore important that all the floors be to the exacting standard and consistent, so that, if needed, the whole complex could be used for high rise palletised goods, either by Sterling Enterprises, another tenant or a purchaser.
32 Mr Adrian Artico was project manager for the Contract on behalf of Watpac. He gave evidence that structural drawings usually specified the required tolerance of the floor, typically by reference to the relevant Australian standard. More often than not, it is plus or minus 3 millimetres over 3 metres for levelness. If a flatness requirement is required, it would be further specified, such as no greater than a deviation of 2 millimetres over 100 millimetres. He stated that in this case, there was no requirements regarding floor tolerance set out on the structural drawings or the architectural drawings.
33 Mr Artico gave evidence that, from his experience, if flatness was important, a clearer and higher standard than that contained in note 10 would be specified and it would be included in the drawings made by the consultants. This Contract only called for a monolithic slab, which meant that it was “literally just a concrete slab”. If a higher standard of finish was required, then the Contract should have required the slab to be poured with an infill and a screed used to achieve the required level. A screed involves the slab being set down approximately 20 to 50 millimetres and then coated with cementitious/epoxy screed installed to achieve flatness and level. Cementitious or epoxy screeds are self levelling and are applied by effectively flooding the floor and allowing the screed to settle at a uniform level. Mr Artico stated that he had not heard of a stringent standard for a slab finish being achieved without using a screed.
34 Mr Artico said that he did not recall the term “exacting standard” being discussed in site meetings.
35 Mr Daryl McIlvena, who was Watpac’s construction manager responsible for overseeing and running several projects, including the Sterling Enterprises project, gave evidence about the slab. He stated that the “for construction” issue drawings did not specify the floor tolerance requirements in the architectural or structural drawings or in the specifications. The project only specified this aspect in a “preamble note to tenderer”.
The proposed timetable for the work
36 Stage 1 of the factory was due for practical completion on 27 February 2009 but was not completed until April 2009.
37 Stage 2, which was the warehouse, was due for practical completion on 1 June 2009. Due to delays, the date for practical completion of the warehouse was extended to 14 July 2009. Watpac did not bring the warehouse to practical completion until 11 September 2009. An issue for determination is whether an extension of time should be granted to that date. Mr Vincent issued a Certificate of Practical Completion on 18 September 2009.[5]
[5]CB 6.027
38 Sterling Enterprises took possession of the factory first, then the warehouse and then the offices and car park.
The racking system and forklifts
39 Mr Paul Sterling gave evidence that Sterling Enterprises’ choice of pallet racking system and forklift was very important as it would greatly add to the efficiency and capacity of the warehouse. In particular, it would allow the vertical space to be utilised. That meant that pallets could be stored on racks that ascended to a high level.
40 Sterling Enterprises eventually purchased the Jungheinrich Model EKX 515K forklift. This was “the narrow aisle high rise” forklift. It is a high tech forklift with the operator raised on a platform to the full height of the racking system with the load ascending to approximately 10 metres. The forks are able to swivel from left to right in the front of the forklift so that it does not have to turn in the aisles. Therefore, Sterling Enterprises could have narrow warehouse aisles, providing greater storage capacity in a given floor area. The forklift was designed to travel down an aisle approximately 2200 millimetres wide, which was too narrow for conventional forklifts. To keep the forklift on course and avoid it hitting the pallet racks, a guide wire is fitted into the ground with transponders. A computer system then governs the operation of the forklift backwards and forwards along the narrow aisles, lifting pallets from designated storage areas.
41 This forklift will not operate on an uneven floor. Mr Sterling said this was the reason for the requirements for the floors contained in Note 10 in the Notes for Tender.
42 Mr Sterling stated that there were other measures taken to accommodate the needs of the forklift system, such as having control joints cut into the floor at 45 degree angles, because the forklift is three-wheeled and potentially unstable, bearing a total load of up to 12 tons. Having diagonal control joints means that only one wheel at a time will cross the joint.
43 Watpac completed the factory slab by April 2009 and the warehouse slab by about August 2009.
44 Mr Pietro Imperatori commenced on the project as a leading hand/carpenter, and after about July 2009, became Watpac’s site foreman. At that point, the last concrete pour for the north warehouse was occurring. He gave evidence about the installation of the racking by installers engaged directly by Sterling Enterprises. Mr Imperatori gave evidence that the forklift used in the warehouse was operated by a wire-guided system through the aisles. However, when moving between aisles, the forklift was operated manually in the same way a normal forklift would be operated. Mr Vincent told him that the different heights of the forklift wheels were causing swaying, when the forklift was lifting things from the racking, especially from the higher shelves. He stated that from a practical perspective, a difference of a millimetre or two at ground level can actually cause quite a significant difference when the forklift operated at height, as the height accentuates the differences.
45 Mr Imperatori gave evidence that one day before practical completion, Mr Vincent asked him why the slab was varying so much and why the contractor was installing packers. Mr Imperatori looked at the contract and when Mr Vincent asked him again about a week later, he said that he slab was within contractual tolerances. Mr Vincent said, “Let’s just see how it goes”.
46 On 16 August 2009, J R Design Pty Ltd, the project architect, issued a Practical Completion Stage 2 inspection report and sought confirmation that ‘the warehouse slab finished level meets stringent specifications as set down”. On 20 August 2009, Mr McIlvena of Watpac wrote to Mr Vincent stating that they had left the “site in full possession of the client and the floor levels installed to tolerance with laser screed and taken over by the client”.[6] In fact, the slab did not have a laser screed, but was manually screeded.
[6]CB 5.415
47 Mr Artico gave evidence of reports from J R Design on 14 August 2009, and a report of practical completion on 14 September 2009, with no reference to the floor, except that the summary report identified “warehouse floor level queried during forklift install”.
48 By 12 August 2009, Sterling Enterprises had taken possession of the Stage 2 works. The certificate of Practical Completion was issued on 18 September 2009, certifying that the date of Practical Completion was 11 September 2009.
Problems with the floors
49 Mr Sterling gave evidence that as soon as his company gained possession of the warehouse in September 2009, he arranged for the pallet racks to be installed. This had been programmed to occur well in advance and due to the delays, the pallet racks had been delivered into the warehouse in disassembled/flat packs prior to Sterling Enterprises taking possession. They were installed over a three week period in August 2009 by the APC Group. Then a technician came to lay the code wires into the slab. A further three technicians then arrived to commission the forklift and calibrate the guide system and computer controls.
50 Mr Sterling was advised by Mr P Haydon of NTP Forklifts, the supplier and installer, that he had a major problem with the warehouse floor, which he said was out of level. He pointed to various racks which were placed on packers to overcome the problem. He said that there would be problems using the forklift on such an uneven surface and they could only allow it to operate at half speed for fear of it vibrating itself apart. He told Mr Sterling that he would void the warranty if he insisted on it being used at full speed. Mr Sterling was very concerned to learn this and agreed to have the forklift set at half speed in order not to void the warranty. This impacted on productivity.
51 Mr Sterling contacted Mr Vincent and met him at the site. Mr Vincent conducted some tests using a straight-edge on the warehouse floor. He told Mr Sterling that the floor was out of spec. He told Mr Sterling that in numerous locations, when the straight-edge was placed on the ground, it showed peaks and troughs in the floor which gave it the appearance of a washboard effect. Mr Sterling stated that it was clear from the testing with the straight-edge that the floor did not achieve the required accuracy of +/- 5 millimetres over 4.5 metres.
52 Sterling Enterprises decided to engage Hawthorn Consulting Engineers Pty Ltd to provide an independent report. He asked Mr Haydon and Mr Anthony Walsh from the APC Group to confirm their views to him in emails.
53 On 14 September 2009, Mr P Haydon sent Mr Sterling the following email:
“Further to our discussions last week, I wish to confirm that the concrete floor layered (sic) in your warehouse where the Jungheinrich EKX515 truck will be operating, is well under the specifications required by Jungheinrich and supplied through Greg MacNamara (sic). As such we have serious concerns in regard to safety and premature failure of the equipment. During operation the machine shudders and jars the operator significantly making it hard to operate the unit safely. For this reason, we have had to adjust the speed of the truck down to half the possible speed allowable on a smooth floor. Unfortunately, the result of this will be seen in productivity and the effectiveness of the machine. Even at the slower pace operation is far from smooth.
We also found while conducting set up calibrations that the sealant for the guidance wire was lifting at a number of points. The sealant has obviously not adhered effectively to the concrete. This will need to be addressed promptly before any damage can occur to the wire.”[7]
[7]CB 6.023
54 On 15 September 2009, Mr Vincent emailed Mr Moleta, a quantity surveyor employed by Rider Levett Bucknall, stating that Watpac were clearly due for a payment, referring to the “floor problem” but asking:
“How do you suggest we hold money without getting into a full on stoush. We of course still hold the defects period BG for about &110K.”[8]
[8]CB 6.023A
55 On 24 September 2009, Mr Walsh of APC emailed Mr Sterling as follows:
“As per our numerous discussions whilst we were on site completing your installation of the pallet racking. We found that in our experience the floor in your building by comparison to many other sites we work (new or old), is not very level.
This did cost us considerable time and materials during the installation, as extra packing was required in more than a few location to square up the racking.
For example, the site we were at in Moorabbin the week prior to your site was also a new building and we used a total of 12 x 1mm levelling plates for the entire 1500m2 site.
Not over 80mm x 3 and 120 x 1 mm levellers.”[9]
[9]CB 6.046
56 On 25 September 2009, following a site inspection four days earlier, Mr Steven Shannon, who is an engineer employed by Hawthorn Consulting Engineers, reported to Mr Vincent. He set out the concerns of the forklift manufacturer and racking company and stated:
“During the site inspection a 4.5 metre long straight edge was laid on the concrete slab surface at various random locations. The use of the straight edge revealed that the surface levels undulate significantly at multiple locations.
Photos 1 to 3 show the straight edge placed in the northern most forklift aisle. The straight edge revealed a difference in floor level of approximately 15mm over a length of approximately 1300mm.
Photos 4 and 5 show the straight edge placed in the third forklift aisle from the north. The straight edge reveals the difference in floor level of approximately 6 mm over a length of approximately 950mm.
Generally, placement of the straight edge at other random locations revealed floor level differences of approximately 6mm to 7mm over a length of approximately 1000mm to 1200mm.”
(The report then referred to note 10 of the Notes for Tender and Contract.)
Conclusions
As noted above, the ‘Notes for Tender and Contract’ require an accuracy to +or- 5 mm over a distance of 4.5 metres.
Based on our site inspection and measurements taken with a 4.5 metre long straight edge, the concrete floor slab finish does not comply with the requirements of the ‘Notes for Tender and Contract.’”[10]
[10]CB 6.060
57 Mr Artico stated that he was not aware of problems with the slab until a visit by Mr Vincent to Watpac’s office on 18 September 2009 to return the bank guarantee. According to Mr Artico, Mr Vincent said, “There’s some talk about problems with the forklift but keep your heads down and we’ll see what happens.” Mr Artico said that he did not respond, because he did not understand the nature of the problem and Mr Vincent could not enlighten him.
58 On 24 September 2009, Mr Artico wrote to Mr Vincent stating that Watpac would take no further action in respect of the warehouse floor.
59 Mr Artico received a call in or about late September 2009 from Mr Vincent, who stated that the forklift was not working to its full capacity. He said the “forklift’s chattering and having difficulty getting over the construction joints”. He said that he would come out to the site and have a look at it.
60 On 28 September 2009, he received a Superintendent’s direction of the same date and a report from HCE that identified that “the racking company also expressed concerns regarding the undulations in the floor slab”. He provided the report to Civiworks, which was Watpac’s concreting sub-contractor.
61 Mr Imperatori gave evidence that in late September 2009, Mr Vincent came to the site with a 2 metre piece of medium density fibreboard which he tried to use to measure the level of the warehouse floor in the way a builder would use a straight edge. Mr Imperatori told him that he could not use a 2 metre piece of wood and “that was not the tolerance we signed up to”. It was not calibrated to any standard. However, Mr Vincent continued with his measurements.
Site meeting of 2 October 2009
62 On 2 October 2009, a site meeting was held to discuss the problems raised by Sterling Enterprises. It was attended by Mr Sterling, Mr Artico, Mr McIlvena and Mr Ridgeway of J R Design. Mr McIlvena and Mr Artico entered the cabin of the forklift with Mr Michael Sterling, who drove it around to show them what he was talking about. Mr Artico noticed that where the forklift passed over the construction joints, it did move around. He told the Sterlings that he would look into the problem and provide a response.
63 Mr Imperatori’s evidence was that at that meeting on 2 October 2009, the floor marks caused by the forklift were discussed. Mr McIIvena and Mr Artico said words to the effect that they would grind and fill the wheel tracks and epoxy over the affected areas to prevent problems in the future.
64 Mr McIlvena stated that the Sterlings said the forklift was not able to operate at full speed because, if it did, it started to sway. He stated that the forklift specification had various requirements for the floor, including that expansion joints should not be positioned within the aisle and that there was a need for a screed to be used.
65 On 2 October 2009, Civiworks stated by email that there were “2 or 3 areas with a tolerance 10 mm or more”, but “the rest of the highs or lows are in the range of 3 mm to 5 mm which I consider to be within tolerance.” Civiworks also suggested the use of a “heavy duty self leveller Cerntop XD supplied by Parchem”. That self-leveller is a filler.
66 Mr Artico downloaded the forklift specifications from the Internet. They had the following requirements for the floor:
(a)“As rule, expansion joints should not be positioned within the aisle.”
(b)“As a result, industrial floors consist of a sub-base, a concrete layer and surfacing (screed).”
(c)“The tolerance of DIN 15185, part 1, apply to truck tracks in the narrow aisle area.”
(d)“The requirements of this DIN cannot be met by concrete and screed generally applied in the trade. Additional measures are required here.”
(e)“The DIN 15185 requirement should today be regarded as minimum required.”
Distance of measuring points
1.0m
2.0m
3.0m
4.0m
Max. permissible deviation from levelness, sample dimensions as limit value in the tracks (Sp)
2.0mm
3.0mm
4.0mm
5.0mm
Levelness test carried out in accordance to DIN 18202
The first attempt at rectification
67 Following the meeting, Mr Artico drafted a letter, that Mr McIlvena sent to Sterling Enterprises and which stated in part:
“Work would commence on the northern aisle first with only two aisles being worked on at any one time. This is the only aisle known to date that may require a ‘fill’ product. It is proposed by our subcontractor for this application to use Cemtop XD supplied by Parchem.”[11]
[11]CB 6.390
68 On 5 October 2009, Mr McIlvena emailed Mr Vincent stating inter alia:
1. Prior to the meeting we had the opportunity to witness the operation of the forklift down all the aisles. It was noted that the northern most aisle at the concrete joint junction displayed the worst affect on tolerance. Other aisles were less affected with the third from north aisle being checked at a straight edge at each racking leg and mid points between the legs 3-5 locations in the aisle requiring some degree of grinding.
2. Work is targeted to commence on Tuesday 13.10.09 but will be confirmed as we locate an appropriate machine.
3. The grinding machine will need to be dust captive type but some minor dust may be emitted;
4. The day prior to commencing grinding the relevant spots will be paint marked by witnessing the actual locations affecting the forklift”.[12]
[12]CB 6.390
69 The letter also stated that only two aisles would be worked on at any one time, that following recoating the floor a six day curing period was required and remedial work may need to cease should access to an aisle be required. The letter also said that the northern factory slab configuration of 45 degrees did not lend itself to the use of a laser screed and Watpac had been reliant on their subcontractor who has over 40 years experiencing in laying such floors.
70 Mr Imperatori was responsible for grinding and filling the aisle floors in October 2009. This was done using a 4.5 metre straight‑edge set along the aisle floor, parallel to the racking to identify high and low spots in the concrete. He did this on his hands and knees. The high spots were then grinded back by Watpac’s subcontractor, Civiworks, using a manual grinder and any low spots were filled with structural grout. After the grinding and filling, Mr Imperatori arranged for the aisles to be patch coated with epoxy in spots where they had been grouted or grinded. Where the filling needed to occur or where the forklift guiding wire was, Mr Imperatori clipped the wire, filled the affected area with structural grout, established a chalk line where the wire was to go, saw cut a divot for the wire to sit in and then soldered the wire back in position. He then caulked over the divot to ensure that no debris could interfere with the wire and affect the operation of the forklift. The forklift company representative who was installing the wire told him to keep the wire down 3 to 5 millimetres from the finished concrete. At this stage he was trying to achieve that tolerance.
71 Mr Imperatori stated that during the repairs, Westaflex was stacking the warehouse by bringing dies in from the warehouse across the road. Repairs were being undertaken in certain areas at the instruction of Paul or Michael Sterling each day. Sometimes, when he turned up to site, he was told that Watpac could work in aisle 3, but not the other aisles, because Sterling Enterprises needed them that day.
72 Mr Sterling said that he was dumbfounded when he saw the equipment that the two Civiworks employees had brought to the site to rectify approximately 1100 square metres of concrete floor. It looked like the type of domestic floor polisher that is available to hire at supermarkets. He said words to the effect, “You might as well leave that on the ute, because you’re not going to fix it with that.” However, he let them proceed because he did not consider it his role to interfere. He stated that for approximately two weeks they moved about the warehouse floor creating a lot of dust and not making much difference. After they left, the warehouse floor was still as bad and unsuitable as it had been.
73 Mr Imperatori saw the HCE report and the photographs in it that indicated variances up to 20mm in the warehouse floor. He called Mr Vincent and stated, “on this floor we don’t have 20mm variances”. He asked Mr Vincent to show him where he was taking the measurements? Mr Vincent did not answer. He asked Mr Vincent to come on site. Mr Vincent said, “Keep working on it”.
74 Mr Vincent did come on site later, in order to show Mr Imperatori where the variances were. Mr Artico also attended. Mr Imperatori said that Mr Vincent moved the straight edge along the floor until he found a high spot. Instead of measuring from that point, he proceeded to move the straight edge until the end was within millimetres of the high spot. He then stood on the straight‑edge and measured the distance from the other edge, which was now in the air. Mr Imperatori did not agree with this method of measurement and compared it to moving the plank of a see-saw. He stated that measurement should have been taken from wherever the straight‑edge was and not positioned to maximise the deviation.
75 By letter dated 20 October 2009, Mr Artico informed Sterling Enterprises that grinding had been completed. Prior to sending that letter, he had gone with Mr Imperatori to take measurements. He estimated that a dozen spots were measured around the construction joints and in the aisles over approximately three hours. All were within the tolerance permitted by the Contract.
76 On 22 October 2009, Mr Artico wrote a summary report to Mr Vincent dated 20 October 2009. At item 10, in relation to the warehouse floor, Mr Artico stated: “Grinding complete” and “caulking & recoating of epoxy will occur on acceptance of trial forklift runs by client”.
77 On 23 October 2009, Mr Sterling spoke to Mr Artico and told him that he did not consider the warehouse floor to be fixed. Mr Artico asked him to check with the forklift and the straight edge. Mr Sterling drove the new forklift down the aisles, with the platform elevated to 10 metres. He stated that as the forklift went down the aisles, at half speed, at certain points the forklift swayed. He said that he could best describe the experience as “waddling like a penguin, swinging from side to side almost hitting the pallet racks on each side”.[13] It was unsafe and he would not allow any of his staff to operate it in those conditions.
[13]Paul Sterling witness statement paragraph 54
78 Mr Sterling is a licensed forklift driver with WorkSafe and was aware of the strict safety requirements of operating forklifts. He was also aware of his responsibilities as an employer to ensure that the workplace is safe.
79 Mr Sterling also made checks with his straight-edge and the tests showed that the floor still did not comply with the specification. The floor still had peaks and troughs in it, giving it the appearance of a washboard effect. He emailed Mr Artico stating that he believed a significant amount of work still needed to be done to bring it within specification and get the floor flat.
80 Mr Artico responded to him on the same day stating:
“I can confirm that a larger grinding machine was engaged to carry out works at considerable cost, however it was found to be too aggressive for this application & therefore we reverted back to the smaller machine with a courser disk.
An independent surveyor checked the conditions of the rectification works in relation to the specified tolerances on 16/10/2009.
Rectification works were completed on the 19/10/2009 with all tolerances re-checked & confirmed on site using the specified 4.5 metre straight edge measuring the tolerance at +/- 5 mm.
The rectification works carried out to date have in our opinion resolved this issue & believe the floor is now ready for the final application of the epoxy finish.
If you do not believe our analysis to be correct we recommend that a meeting be coordinated at your earliest convenience.”[14]
[14]CB 7.002
81 On 28 October 2009, Mr Vincent emailed Mr McIlvena and Mr Artico advising that: “Urgent action is required to finalize all work so that Westaflex can get on with business uninterrupted.”[15]
[15]CB 7.007
82 In his inspection report, Mr Vincent wrote that the rectification works were incomplete, and although works in some locations had improved the situation, many areas needed further action. He referred to discrepancies ranging from 5mm up to 11mm over short distances.
83 On 29 October 2009, Mr Tony Moleta emailed Mr Vincent stating: “Seems like a shambles” and suggesting that he nominate a date for completion of the rectification and if that did not occur, then Sterling Enterprises should proceed to complete the rectification at Watpac’s expense.
84 At that time, Mr Sterling was contemplating engaging a contractor to do the works and back charging Watpac. He obtained prices for flood coating the entire floor, including under the racks, with an epoxy compound to achieve a level surface. He had received a quote for approximately $80,000 from Remedial Concrete Works and an estimate of approximately $93,000 from Tony Moleta of Rider Levett Bucknall.
85 Around this time, Mr Sterling says that he attended a meeting with Mr McIlvena who said: “It’s fixed” or words to that effect. Mr Sterling replied that it was not and suggested they flood coat the whole floor with a levelling agent as Watpac had considered at an earlier point.
86 He said that Mr McIlvena refused to flood coat the whole floor. He did suggest to him localised filling of the low spots but Mr Sterling rejected this because the product he was going to use was not suitable with feather edges and Mr McIlvena would not agree to square cut the affected areas.
87 Watpac agreed to try a second grinding attempt with larger equipment using another contractor, Hanlay Pty Ltd, who also supplied and installed the coating to the floor. Mr Sterling said he agreed to this because he had little choice.
The second attempt at rectification
88 On 30 October 2009, Mr Vincent sent an email to Mr Artico and Mr McIlvena stating in relevant parts:
“Floor rectification will resume within the warehouse first thing next Thursday morning.
Efforts will be concentrated on one aisle initially to achieve satisfactory completion of same prior to moving on to other areas. (Paul Sterling or Lou, the factory manager will provide direction as to which aisle to select with a view to least interrupting their daily operations).
What ever method employed to carry out the rectification, dust control is critical.
I will attend to inspect progress at 3.00 pm on Friday as requested. (If this is not suitable let me know.)”[16]
[16]CB 7.030
89 On 30 October 2009, Mr Artico responded to Mr Vincent stating:
“Please be advised that slab rectification works are scheduled to commence at 7.30 am Thursday 5/11.
We have engaged a concrete grinding company experienced with this type of work with access to much larger equipment.
The contractor will have an individual on site attending to dust & will have access to tarps to cover any equipment likely to be directly effected-we appreciate the difficulty involved in such a request but it would be much appreciated if any sensitive equipment could be relocated prior to the commencement of works.
Works will be concentrated on one aisle at a time & shall be measured for level using the 4.5 m straight-edge with tolerances of +/- 5 mm.
…”[17]
[17]CB 7.031
90 Mr Sterling gave evidence that while Hanlays were carrying out the further grinding in November 2009, areas where Civiworks had laid the levelling agent began to chip out around the edges at the point where the forklift drove over them. The Hanlay personnel said that they would not accept this work and removed it and ground down the areas to achieve the level.
91 On 13 November 2009, Mr Artico sent an email to Mr Vincent stating, inter alia, in respect of the warehouse floor:
·Grinding works underway with an expected completion date of the 13/11/09; and
·Caulking & recoating of epoxy will occur on acceptance of trial forklift runs by the client.
92 On 18 November 2009, Mr Artico sent an email to Mr Sterling stating that:
(a) yesterday’s cleaning and sealing of the warehouse floor sees the completion of major grinding rectification works;
(b) epoxy filling and final epoxy paint coating to commence in the warehouse on 12 December 2009;
(c) for these works to be completed within the timeframe all materials and equipment are needed to be removed from the warehouse floor to enable clear access; and
(d) A meeting should be held between all key parties.
93 Mr Sterling stated that he was not happy with the results of the second attempt at rectification. The aisles were more even than they had been, however the grinding had created deep steps of up to 19mm along the side of the aisles. These were trip hazards which were not permissible in a warehouse where staff walked around.
94 On 25 November 2009, Watpac submitted a payment claim to Sterling Enterprises following practical completion. It was not certified by the Superintendent. Instead, on 1 December 2009, Mr Moleta suggested that “we intend to wrap up all outstanding items on the project in one final payment certificate”, once all rectification works had been completed.[18]
[18]CB 9.001
Meeting of 3 December 2009
95 A meeting was held between Mr Sterling, Mr Vincent, Mr Artico, Mr Moletta and Mr McIlvena on 3 December 2009 at the Westaflex boardroom to discuss what works could be undertaken to improve the operation of the slab. Mr McIlvena stated that Sterling Enterprises was lucky to have Watpac because it could work with them to sort it out. They discussed whether Watpac would undertake any works under the racking. Mr McIlvena said that the program was based on grinding in the aisles only.
96 At that meeting, Mr Sterling expressed his concerns about the deep steps that the grinding had caused in some of the aisles, and said that they were a tripping hazard. His evidence was that Mr McIlvena said that Watpac would, starting at the northernmost aisle, grind each aisle completely, until he was satisfied. He said that Mr Sterling should determine whether it was satisfactory or not, by driving the forklift down the aisles. Mr Sterling stated that he was prepared to accept this proposal, but also said that he was not happy with the deep steps which had been created. He said that Sterling Enterprises had only ever talked about rectifying the aisles. Mr Sterling also pointed out that the storage under the racks at floor level were for wheel trolleys and he could not have his staff wheel trolleys over deep steps. Mr McIlvena would not agree to work under the racks and the meeting ended inconclusively.
97 Mr Artico denied that there were deep steps in the floor.
98 The minutes of the meeting under the heading “WAREHOUSE SLAB RECTIFICATION” recorded that:
“19.2.1 Hanlay to commence preparation works on the 12/12/09 & continue on the 13/12/09. Watpac to supervise works, provide access to site & lock up on completion- PS to provide keys & security codes. Access to Office amenities will be required throughout the rectification works.
19.2.2 Hanlay will commence works necessary to ensure Warehouse aisles meet the specified tolerances on the 14/12/09 in the far North aisle. Client is to conduct a test run & approve rectification works prior to Hanlay moving into the next aisle. This methodology will continue until rectification works are complete. Client to have all materials & equipment off the Warehouse floor before the 12/12/09.
19.2.3 Hanlay will not commence final epoxy coating until all aisles have been approved by the client.
19.2.4 Rectification works are to be completed by COB on the 22/12/09 – Access may need to be provided to site after hours to ensure program is met.
19.2.5 Line marking to be scheduled for the 22/12/09. Contractor responsible for the forklift guidance system is to be placed on notice as wire has been found to have inadequate cover – Wire may require ongoing repairs through the rectification works.
19.2.6 The whole of the Warehouse slab is to be recoated with the specified epoxy coating – Epoxy is to be cut in around racking & will continue directly over the top of the wire guidance system.
19.2.8 Hanlay will not have representation on site on the 17/12/09.
19.2.9 The client questioned whether any works were to be undertaken under the Warehouse racking.
Watpac have confirmed that this stated methodology is based on the rectification works being undertaken only in the Warehouse aisles which is consistent with all previous communication.
The current program nominating completion on the 22/12/09 cannot be achieved if the client wishes for areas under the racking to also be considered.
Unless instructed otherwise Watpac will proceed with rectification works on the 12/12/09 in the Warehouse aisles only.” [19]
[19]CB 9.003
99 Mr Imperatori gave evidence that at some later point after the meeting of 3 December 2009, he was asked to go to the site again. When he did, Mr Vincent, using two MDF planks, measured random spots and said that the floor was not within the tolerances. Mr Imperatori told him, “You can’t use that.” He then went and got his 4.5 metre aluminium straight‑edge. The straight‑edge dimensions were 125 mm x 25 mm x 4.5 mm.
100 Mr Sterling stated that it was either at this meeting, or shortly after, that Watpac first said that there were problems with the Contract specification. He did not agree that the Contract was under specified. He said that Watpac was aware of the required finish to the slabs. He rejected the contention that Sterling Enterprises was asking for more than the contract required.
101 Mr Sterling has no experience in working in the building or construction industry.
102 On 8 December 2009, Mr Vincent wrote to Mr Artico stating that Sterling Enterprises could not accept the rectification works without the need for rectification under the racks as well. He also wrote that:
“The extent and method for rectification, as previously noted, will remain your responsibility, we just require the problem to be corrected without further compromise to the project, as per Watpac’s contractual obligations.”
103 On the same day, Mr McIlvena replied, stating that Watpac was “shocked” at Mr Vincent’s comments about the floor levels under the racks and said that it was only the aisles that were being discussed. His email also stated:
“We have never demonstrated anything other than professionalism. What has turned things upside down was the introduction of Tony Moleta who actually poured petrol onto the discussion to date. In your letter Paul failed to mention my comment that the slab tolerances are under specified. We will respond further by COB 10/12/09 as requested.”[20]
[20]CB 9.009
Site meeting on 10 December 2009
104 A site meeting was held on 10 December 2009, which was attended by Paul and Michael Sterling, Mr Artico, Mr Shannon of HCE and Mr Nick Pavlovic, who had became state manager of Watpac in February 2009.
105 Mr Sterling stated that Mr Pavlovic wanted to know what Sterling Enterprises’ position was with regard to liquidated damages and variations being included in the final payments. Mr Sterling said words to the effect that it would be to the detriment of Sterling Enterprises if he made a payment and if Mr Moleta had signed off on the outstanding variations, before the floor was fixed.
106 Mr Pavlovic said that Sterling Enterprises wanted Watpac to achieve more than the Contract and the forklift specifications required.
107 Mr Pavlovic asked Mr Shannon, the structural engineer, whether he had read and understood the tolerances. Mr Shannon said that he hadn’t and asked Mr Pavlovic the same question. Mr Pavlovic said that he had and handed him various documents, including the Tolerances for Concrete Surfaces (Sept 2005) Guide produced by Cement Concrete & Aggregates Australia and explained the DIN standard, the forklift specifications and the requirements of the Contract preamble. Either Mr Pavlovic or Mr Artico said that if Sterling Enterprises had wanted a stringent finish floor, then it should have been detailed differently – there should have been a set down with a screed and the joints should have been under the racking. Mr Pavlovic explained that there were time and cost implications of what Sterling Enterprises was asking Watpac to do and he suggested the parties should split the costs.
108 Mr Pavlovic said that Watpac was trying to work diligently through the issues. He said that if the Superintendent wanted Watpac to work on the slab below the racks, he should have raised this from the start, rather than just before they were about to recoat the floors – this would have made the works more efficient. Watpac now needed to reassess its methodology. He also stated that the work which Watpac was now being required to carry out would be beyond its contractual scope and more stringent than the standard required by the Contract. He stated that Watpac would continue to assist Sterling Enterprises so that the forklift was operational, but they were looking for an amicable settlement of all outstanding commercial issues. Since Sterling Enterprises wanted the area under the racking done, Watpac would go away and reassess the best way to flatten the whole floor. This could involve flooding the whole floor with a self-levelling screed, or extensive grinding, or a combination of both.
Events between 11 December 2009 and the middle of 2010
109 After the meeting of 10 December 2009, Mr Imperatori received a call from Mr Pavlovic instructing him to make the floor perfect – to give Sterling Enterprises what they wanted.
110 Mr Imperatori said that Watpac previously used a large bobcat fitted with an 800 mm diameter grinding stone to carry out the mass grindings between the aisles. This was not suited to grinding under the pallet racking. As such, the subcontractor had to go back to using the stand behind grinders which had been initially used, making the task more time consuming.
111 On 17 December 2009, Mr Artico sent an email to Mr Vincent with a letter attached from Mr McIlvena which said that there were some areas where its subcontractor had not achieved the concrete slab tolerance as specified for the project, +/- 5mm. The best way forward was for rectification work to continue to the aisles, for the work to be resurveyed and for the next course of action agreed. Mr McIIvena stated that the current design of the floor slab did not appear to meet the requirements of the client’s forklift.[21]
[21]CB 9.017
112 Mr McIIvena also stated that:
“As discussed on site on Thursday 10th December 2009, we have undertaken a further survey of the entire floor with the flooring contractor. Given the current status of the floor and the client’s ongoing operations, and in consultation with the flooring contractor, we believe the best way forward is as follows:
1. Hanlay commenced works on 12/12/09 to make good the rectification attempted by Civiworks.
2. Resurvey the floor (planned for 15/12/09).
3. Inspect floor with forklift supplier and Hanlay to agree next course of action required.
4. Consult with the Client/Superintendent.
In summary, we believe the ultimate problem is that the floor slabs have been underspecified. Watpac will however, continue to work through the problem with the client in line with the process outlined above.”[22]
[22]CB 9.019
113 Mr McIlvena stated that a problem compounding Watpac’s attempts to rectify was that Mr Vincent was difficult to contact during this period and Watpac was being left to deal with Mr Moleta and Mr Sterling.
114 Mr Sterling stated that despite several requests, he did not receive copies of the surveys referred to in Mr McIlvena’s letter until discovery occurred. Presumably, these were the Survey 21 documents.
115 On 18 December 2009, Mr McIlvena sent an email to Mr Vincent and Mr Sterling stating that they had received the final survey data and had passed it on to Hanlay for assessment and quotation options. The quotations were expected on 21 December 2009. They proposed a meeting for 22 December 2009 to present those options. However, the meeting did not occur.
116 On 22 December 2009, Mr McIlvena emailed Mr Moleta, asking that Mr Vincent confirm that Watpac was not required to make the forklift specification, that only the contractual specification of +/- 5 mm in 4.5 metres applied. On 3 January 2010, Mr Vincent responded stating:
“We require our floor to an exacting standard, accurate to 5 mm over any given distance of 4.5 metres relative to level, and straight along 4.5 metre length.”
117 Mr McIlvena stated that this instruction effectively sought to reduce tolerance from 10 mm to 5 mm.
Site meeting on 13 January 2010
118 A site meeting was held on 13 January 2010. Mr Paul Sterling, Mr Michael Sterling, Mr Shannon, Mr Pavlovic, Mr McIlvena and Mr Artico attended. Discussion occurred about the use of a self levelling screed over the floor.
119 Mr Pavlovic described the history of the steps that had been taken and outlined the difference between the forklift specification and Contract requirement. He said words to the effect of: “We’ll do some more grinding and then use an epoxy to give you what you need for the forklift.” He explained the work that would take place around the feet of the racking so that it could be removed in the future without damaging the floor. He also explained how Watpac would go about reinstalling the wire-guided tracks. Watpac provided the product data for the epoxy that was to be used.
120 Mr Pavlovic stated that the main reason that they were in the current position was that the right tolerance had not been correctly specified. If it had, the floor would probably have been constructed in a two stage process – a structural base slab with a topping screed cast over the top most likely in smaller pour strips to control the flatness. He said that this was typical of a “super floor construction”. It was the way the floor construction was described in the forklift specification, but not the way it was documented in the Contract. Mr Pavlovic stated that Watpac had already spent over $30,000 performing the work and that was partly wasted, given the push to now flatten the whole floor. The change in methodology had wasted a lot of time. The Superintendent had been very difficult to get in touch with.
121 Mr Pavlovic said that they discussed the revised methodology to achieve the desired flatness over the whole floor. This included options from flooding the floor with a self levelling compound to extensive grinding. It was going to cost Watpac in the vicinity of $140,000 to complete. Watpac would go away and confirm the proposed methodology. He said that Watpac did not want to commit to these costs without some certainty on the other commercial issues, including: liquidated damages, credits, outstanding claims and variations and the manufacturing floor tolerances. Mr Sterling said that they were waiting on information from Rider Levett Bucknall to finalise these issues.
122 In a letter of 15 January 2010, Watpac proposed the use of self-levelling screed. The proposal was to flood coat the entire warehouse with a levelling screed. The letter attached a Technical Data Sheet for Ultra Tuf 55.
123 On 18 January 2010, following correspondence from Mr Sterling, Mr Artico sought confirmation from the subcontractor that the epoxy was capable of sustaining the loads from the equipment in use at the premises and pointed out aspects of the specification sheet for the product. Mr Sterling stated that he did not understand why Watpac did not proceed with the flood coating and was somewhat perturbed that they had returned to localised grinding.
124 On 19 January 2010, Mr Artico emailed Mr Sterling concerning floor rectification providing “further confirmation/clarification of the nine raised items”. Item 6 stated: “The application of the levelling screed will meet the design tolerance of +/- 5mm over 4.5m.”
125 On 19 January 2010, Mr Artico instructed Sure Tec to proceed with the epoxy work.
126 However, on 22 January 2010, Mr Artico instructed Sure Tec not to proceed with applying the epoxy until further notice. Mr Sterling stated that the product did not specify a maximum weight point load and was described as suitable only for light forklift traffic.
127 The proposal to use a levelling screed did not proceed.
128 Mr Artico said the reason that epoxy floor coating was not used was because Mr Sterling raised issues in mid January 2010 about the turning circle of the forklift and the loads. The product was fine, but Mr Sterling would not accept it.
129 Mr Imperatori gave evidence that he rang Mr Vincent in late January 2010 and said, “I am not epoxying this floor until you sign this off”. He arranged for Mr Vincent, Mr Shannon and Mr Paul Sterling to attend the site and said to them both, “Forget the gridlines, take your straight‑edge and put it anywhere on the warehouse floor, if I can’t fit this part of the ruler under it, then it passes. Do it all day. If I can’t fit it under there I pass the test.” He was confident the floor was level and working outside of the gridline framework was a far more rigorous requirement than the contractual tolerances.
130 Mr Vincent, Mr Shannon, Mr Paul Sterling and Mr Imperatori spent approximately two to three hours measuring the floor at different points. Mr Vincent, Mr Shannon or Mr Sterling would pick a random location and use their straight levels to undertake measurements. At no point was Mr Imperatori able to fit the 5 millimetre thick ruler underneath. No area on the floor had failed the test and both Mr Vincent and Mr Sterling said words to the effect that the levelling of the floor was acceptable. There was no suggestion that the racking needed to be moved to undertake rectification under it.
131 Mr Sterling said that he was not present for all of the inspection, that he did not recall the outcome of Mr Imperatori’s testing and he did not ever sign off or accept that the warehouse floor was acceptable.
132 Mr Imperatori gave evidence that at no time did Mr Michael Sterling or Mr Paul Sterling, who were on the site every day, ask when the rectification works would be finished or tell him to hurry up because it was affecting Westaflex’s operations. Watpac had always worked around the client in completing the floor works. He pre-planned and moved the stock around so as not to cause disruption to Westaflex operations. He was never told by anyone on site that the floor grinding work was preventing Westaflex from accessing critical supplies or meeting deadlines.
133 Further grinding work was done on the floor in January 2010.
134 Mr Imperatori stated that by late January 2010, Watpac had finished rectifying the floor to the standard required for the forklift. Having spent weeks on his hands and knees manually pushing around a straight‑edge over all areas of the floor, he considered that the floor was practically perfect – there were no deviations of more than 10 millimetres, as allowed by the contract, and all deviations were well less than 5 millimetres. He estimated that he spent approximately one day per 4.5 metre area on the floor. It was very hard going because the floor was concrete.
135 Mr Shannon of HCE inspected the floor again on 22 January 2010 and provided a report dated 25 January 2010. The report stated that the floor level “undulated significantly in multiple locations”. It contained measurements of 19 locations. The report stated that Mr Shannon’s tests with the straight-edge revealed that surface level undulations had been significantly reduced since the last inspection. The surface level undulations complied with the requirements of the specifications for the majority of the slab. There were, however, some areas observed where this did not occur, however not significantly. He stated that grinding/filling had not been carried out under the racking leg locations and, therefore, if the racking was removed in the future some localised high/low points may exist. He also stated that the works carried out to the warehouse slab have achieved as accurate a result as could be expected considering the method adopted, with the majority of the slab complying with the specifications.
136 On 28 January 2010, Mr McIIvena wrote to Mr Vincent in the following terms:
“RE: BOO6 WESTAFLEX –WAREHOUSE FLOOR REWORK
We are in receipt of the letter dated 25/1/2010 from your structural engineering consultant Steve Shannon and comment as follows:
·The flatness of the slab was reassessed with the specialist flooring contractor on 21/01/2010, after several days of grinding.
·Significant improvements had been made and the flooring contractor recommended that further localised grinding and filling was now the most appropriate method to rectify the floor.
·We agree that the whole floor does not currently conform with the specified tolerances as our rectification works are not yet completed.
·We disagree that significant works are required to bring the slab to within the specified tolerances.
·We are confident that the proposed course of action recommended by the specialist flooring contractor will bring the slab to within the specified tolerances.
·The guidance wire was reinstalled on the 25/1/10 due to the installer not otherwise being available until 24/02/2010. The guidance wire contractor also confirmed that the wire and caulking was best installed prior to the final floor coating, so as to provide a better floor finish.
We confirm here our revised methodology to bring the floor slab into the specified flatness tolerance.
1.Grinding and localised filling will be complete on Monday 01/02/2010.
2.No screed will be applied alleviating the risks expressed by Steve Shannon with regard to forklift loads (Information received 18/01/2010) and Paul Sterling’s concerns regarding scouring at changes of direction.
3.We propose Watpac and the client (and consultants) inspects the floor from Tuesday 02/02/2010 at 1pm.
4.We propose to commence floor priming and coating on Wednesday the 03/02/2010.
5.Line marking will commence in the following week. We remind that curing of the final coat will be 7 days before floor is trafficable.
We trust that we will reach consensus on the flatness of the slab at Tuesday’s inspection prior to coating”.[23]
[23]CB 9.367
137 Mr Artico said that during this period, Mr Vincent was very difficult to contact. He said that Sterling Enterprises kept shifting the “goal posts” of the project. At no time was Watpac asked to perform work on the factory floor or to remove the racking. He said that lengthy delays were caused by the need to work around Westaflex’s operations, Sterling Enterprises’ “shifting goal posts” and the unavailability of the Superintendent for long periods.
138 Mr Sterling stated that the rectification works continually disrupted Westaflex’s business, including the use of the forklift. Westaflex used other premises to ensure access to components and to enable it to receive new stock.
139 On 4 February 2010, Rider Levett Bucknall informed Mr Pavlovic that “variations will be finalised once the floor rectification works have been satisfactorily completed”.
140 Mr Shannon of HCE prepared a further report of 5 February 2010 in respect of the warehouse slab. It stated in part:
“The use of the straight edge revealed that the surface undulation has been reduced significantly since out site inspection carried out on 22 January 2010.
The use of the straight edge revealed that the surface level undulation complies with the requirements of the specification for the majority of the slab.
It should also be noted that some areas were observed where the surface level undulation does not comply with the requirements of the specification, however not significantly.
It should also be noted that grinding/filling has not been carried out under the racking leg locations and therefore if the racking is removed in the future some localised high/low points may exist.
It also be noted that only surface undulations over a 4.5 metre long straight edge have been measured, floor levels relative to a datum have been measured.
In our opinion, the works carried out to the north building concrete slab surface levels, have achieved as accurate a result as could be expected considering the method adopted, with the majority of the slab complying with the specification.”[24]
[24]CB 10.037-038
141 Mr Sterling stated that following this report, he did not request Watpac to return to continue rectification works. He was fed up that the defective floor was still not rectified after nearly five months. He described the warehouse floor as looking like a pockmarked lunar surface due to the localised grinding that had occurred. The unsuccessful rectification works had been extremely costly and disruptive to Westaflex’s operations and caused dust to settle on everything, including on the new forklift. He drew these problems to Watpac’s attention on a number of occasions.
142 He said that that reason for not proceeding with the rectification program was not conveyed in as many words to Watpac, but was blindingly obvious.[25]
[25]T 207
143 Mr Sterling gave evidence that during the rectification period, Sterling Enterprises’ business was constantly being disrupted. It had to move the trolleys containing supplies from under the racking to allow access to the floor. While Watpac worked in a particular aisle, Sterling Enterprises could not access supplies in that aisle and could not store new supplies, which had been delivered. On a number of occasions, the grinding works pulled up the wire guidance system, which was fixed at Watpac’s expense. However, until it was fixed, the forklift could not operate at all in any aisle.
144 After the grinding works were completed, the warehouse floor had to be repainted. Each time the floor was repainted, the forklift could not be used on the warehouse floor for seven days. These matters prevented Sterling Enterprises accessing critical supplies to meet deadlines.
145 The grinding also created dust and Sterling Enterprises had to attempt to protect equipment and supplies from it. However much of them still got dusty and had to be cleaned. Because of these disruptions and limitations on Sterling Enterprises’ business and to avoid impeding the rectification, Sterling Enterprises used other warehouses to ensure access to vital components and to receive new stock. It would otherwise have been impractical to continue to operate. However, these issues still impacted very negatively on productivity.
146 Mr Sterling gave evidence that the factory and warehouse floors remain out of specification. The factory has an uneven floor throughout. In the warehouse, the quality of the floors is very poor, as the surface has an irregular ripple finish. The forklift still has to be set at half speed.
147 The recommissioning of the forklift and the warehouse occurred on 17 and 18 February 2010.
148 Mr Sterling stated that as a result of the issues with the warehouse floor, he was concerned about the factory floor. On 12 February 2010, Mr Shannon inspected the floor in the factory and issued a report concluding that:
“Based on our site inspection and measurements taken with a 4.5 metre long straight edge, the concrete floor slab finish does not comply with the requirements of the ‘Notes for Tender and Contract’ at multiple locations.” [26]
[26]CB 10.046
149 Mr Artico said that he first saw that report on or about 28 April 2010. By that time, the defect liability period for the factory separable portion had already expired.
150 Mr McIlvena gave the following evidence about the manufacturing/factory southern slab. Laser screeds were used to get the levels. It had 90 degree horizontal joints through it, while the northern warehouse slab had diagonal joints. He stated that there was no general forklift in use in the factory. Sterling Enterprises took possession of the factory premises in April 2009. At no time had he had any discussion with anyone representing the client in which Watpac was asked to rectify the factory slab. Further, Watpac has never been instructed to rectify the factory floor and, in fact, a letter from Mr Sterling of 8 December 2009 stated that Sterling Enterprises did not intend to rectify it. That letter stated, regarding the factory, that:
“Note: Random in house testing has indicated that the manufacturing side floor is also not within required tolerance, albeit far better than the warehouse side. it is not our intent to pursue additional rectification works in this area, although we shall confirm this once further level checks have been carried out by Hawthorn Consulting. The results will be forwarded to you as soon as they are available.”[27]
[27]CB 9.006
151 Mr Sterling stated that he was concerned with the effect that any grinding rectification works would have on the factory and the disruption that it would have on Westaflex’s operations. Mr Sterling said that there were forklifts in use in the factory daily and the high forklift from the warehouse is also used to access the high storage of plastic pallets of raw materials in the factory.
Meeting on 27 April 2010
152 A meeting between the parties occurred on 27 April 2010, which was attended by Mrs Sterling and Mr Paul Sterling and Mr Pavlovic. Sterling Enterprises tabled their first summary of economic loss, which was for $677,000, including costs for work to the manufacturing floor. Mrs Sterling said that she was not happy that the floor had not been constructed to their expectations and that the time taken to fix the floor had been very disruptive to their operations.
153 Mr Pavlovic explained that while the floor works had taken some time to resolve, Watpac always tried to work through the issues diligently. He stated that several factors had contributed to the process being drawn out. This included the Superintendent’s performance, the inadequate initial specification of tolerance and the initial attempt to fix the floor by the original concrete subcontractor. He stated that the initial contractor was capable of producing the floor as specified, but not to the requirements of the forklift specification. He said that the main problem was that the floor tolerance specified was inadequate for the operation of the forklift. Watpac had been proactive in trying to address the issues. It had procured the forklift specifications to understand the issues that Sterling Enterprises had and engaged a specialist flooring contractor to carry out the final works. He was disappointed that Sterling Enterprises had tabled a large ambit claim for economic loss, which included the manufacturing floor. That floor had never been raised as a problem, but was now being raised as a leverage after Watpac had undertaken works required to make the warehouse floor operational. Mr Sterling said that if Westaflex left the building, the Sterling Super Fund would be left with a substandard floor.
154 Mr Pavlovic disputed that the floor was substandard. Works had proceeded in good faith, even though Watpac had not been paid for contract works or variations, despite seven months having passed since practical completion.
155 Mr Pavlovic stated that Sterling Enterprises’ design issues had delayed the completion of the project and Watpac’s works to fix the floor were in excess of the contract requirements as the original tolerance specification was inadequate for the forklift. Watpac had not intended to pursue these issues because of the previous relationship with Sterling Enterprises and the fair approach it had shown to the time taken to carry out the floor works. However, in view of Sterling Enterprises’ changed approach, Watpac would now need to table those issues.
156 Mr Pavlovic stated that after the meeting, he received HCE’s report of 12 February 2010 from Mr Sterling. The defects liability period for that separate portion had already expired. This was the first time that liquidated damages had been proposed by Sterling Enterprises.
157 Mr Sterling stated that at the conclusion of the meeting he understood that Watpac was going to go away and come back with a counteroffer. He did not hear anything from them until 26 July 2010 when Watpac made two claims for extensions of time.
158 Sterling Enterprises stated that the purpose of preparing the 27 April 2010 claim was to have negotiations with Watpac, and Sterling Enterprises wanted to go in with “some strength so that [it] could get a reduction on the amount which [it] owed Watpac under the building contract.”[28]
[28]T 239
159 On 23 June 2010, Mr Sterling wrote to Watpac:
“The economic loss was suffered by Westaflex during the period September 2009 - February 2010 for the warehouse, where Watpac performed remedial works after handover to bring the floor within specification as detailed within the building contract and the factory floor remains unresolved.” [29]
[29]CB13:257
160 Mr Sterling said that this was a poor choice of words and that he was not saying that Watpac had remedied the problem.[30]
[30]T296 and 298
Visit to the factory on 6 July 2012
161 On 6 July 2012, Mr Imperatori inspected the floors. He used a straight‑edge to conduct measurements on the floor of the warehouse at approximately eight to 16 locations, including at least two to four measurements in each of the four aisles. Whilst the position at which he conducted measurements using the straight‑edge were random, he focussed on placing it on the diagonal joints. At no location was there a deviation of 5 mm below the bottom of the straight‑edge. He also placed the straight‑edge in three to four locations in the factory. Again, there was no deviation of 5 mm from the bottom of the straight‑edge. He asked Mr Sterling whether he could see the forklift in operation, but Mr Sterling refused him.
Meeting on 10 August 2010
162 On 10 August 2010, a meeting occurred between Mr Paul Sterling, Mrs Sterling, Mr Michael Sterling, Mr Pavlovic, Mr Peter Collins and Ian West. Ian West is Watpac’s national commercial manager for the construction division. Watpac tabled an assessment of the financial summary of the project. Mr Pavlovic reiterated that the biggest problem was that the tolerances were not appropriately specified to suit the forklift and that therefore the floor issues were not the result of a construction defect. Sterling Enterprises’ losses should be resolved with their consultants who specified the original tolerance.
Events after the meeting of 10 August2010
163 By payment claim dated 4 August 2010, Watpac sought payment of the sum of $574,890. This was based on a total adjusted contract sum of $4,789,317, less the sum of $4,214,427, as paid. It included Extension of Time claims 17 and 18 and slab rectification work as variation claims.
164 Mr Sterling said that he was surprised to get Watpac’s final reconciliation document, which included the sum of $130,793 for “slab rectification beyond specification as requested”. He had never been told that the rectification work was considered to be a variation.
165 By fax dated 24 August 2010, Mrs Sterling sent a letter to Watpac claiming $677,057.14. The claim was headed “final reconciliation”.
166 On or about 26 August 2010, Watpac received a certificate from the Superintendent in the amount of $219,930, consisting of $199,936 plus GST. Sterling Enterprises has never paid this amount. Mr Artico stated that, even though Watpac had achieved practical completion, the certificate reduced the value of the concreting works that had previously been certified, so that $93,000 was held back from the contract sum from the concrete trade item.
522 Watpac submitted that this claim was based on an earlier estimate of the costs for consultants, which has been discussed above and which commenced as a claim for $76,000 and was reduced to $26,000. Mr Sterling agreed that that was the case.[170]This item of damages was likely to be reduced in a similar manner. No estimates of costs had been obtained from consultants.
[170]T257
Conclusion
523 Watpac’s submissions that the Court should not be prepared to make assumptions, in circumstances where the evidence could have been called on the issue, but was not, has force. It is certainly possible that further consultants’ costs will be incurred, but no evidence has been presented proving what those amounts were. I would therefore have been unable to award damages in respect of this claim.
(b)Factory floor rectification
524 This claim was put in different ways. First, was the claim based on Mr Sterling’s evidence. This was the sum of $406,441.33 consisting of:
(i)removal and reinstatement of floor mounted
equipment in factory $406,441.33
(ii)rectification of factory floor $93,000.00
(iii)estimated loss of production $243,869.94
(iv)additional staffing costs due to factory $128,467.94
shut down
(i) Removal and reinstatement of the floor-mounted equipment in the factory
525 Sterling Enterprises’ claim is for the costs which would be incurred to clear the factory floor, except for the mezzanine level, to provide access to enable the rectification to occur. It also includes the costs of setting up the factory again.
526 Mr Sterling gave evidence that the estimate was based on the costs of setting up the factory in 2009. He said that the damages calculations were generous to Watpac as they did not take into account increases in costs since 2009.[171] However, the amount of the 2009 costs was not disclosed.
[171]T271
527 Mr Sterling’s calculations to reach the sum of $406,441.33 list various costs, but provides little detail of them. The list includes contractors who work with Blow Moulders and injection moulders and associated transport and insurance costs, the costs of a trades assistant, of a hydraulic and mechanical fitter, of an injection moulder specialist and of an electrician. There were also bills associated with Taiwanese blow moulder specialist and injection moulder specialists, who its appears would be required to work on the reinstatement of machinery. Claims were also made for hydraulic oil, the disposal of oil and the rental of storage space machinery.
528 Mr Sterling said that he has considerable experience in arranging for the movement of plant and equipment. and that he has previously organised the removal and installation of equipment in connection with the business.[172]
[172]T261 and 2669
529 However, none of the contractors was called as a witness and no quotations from them was provided. The need to bring technicians from overseas was not explained.
530 Watpac objected to Mr Sterling’s calculations and argued that his calculations were a mixture of hearsay and estimate.
Conclusion
531 It is clear enough that Sterling Enterprises would be likely to incur costs associated with rectifying the floor in removing, storing and reinstalling the machinery at the factory. But the Court cannot speculate about such costs.
532 The amount claimed by Sterling Enterprises has not been proved. However, Mr Clack also gave evidence about this issue and put the cost at $93,000. I would have accepted that figure. As stated in respect of the warehouse floor costs, I consider that Mr Clack had the specialised knowledge and instruction to make such an estimate.
(ii) Rectification of factory floor
533 It is not possible to express any definite conclusion concerning the amount that would be required to rectify the factory floor in circumstances where I have found that no breach of contract has been proved. The cost of rectification would have be found after proof that the floor did not comply with the Contract.
(iii) Estimated loss of production – $243,869
534 Sterling Enterprises claims the sum of $243,869 based on Westaflex not being able to produce its products at the factory for six months, while rectification was completed. Mr Sterling gave evidence that during that period Sterling Enterprises would have to purchase required components in order to carry on the business. This would add 20% to Westaflex’s costs. This was a conservative estimate, based on figures provided by Mr Ho for 2009/2010. The period of six months was based on his experience of the time that it took to set the factory up.
535 Mr Sterling gave evidence that Sterling Enterprises and Westaflex were not presently making a profit. He said that Sterling Enterprises chose not to make a loss of profits claims due to its experience of how complex, time consuming and costly such a claim could be. Instead, it made an increased cost of working claim.[173]
[173]T272-273
536 Watpac argued that Mr Sterling’s evidence was generalised unsubstantiated assertion.
Conclusion
537 I would have concluded that Sterling Enterprises has not established that Westaflex would suffer the claimed loss of production, or indeed any loss of production during any rectification of the factory floor. The information that Sterling Enterprises provided was too general and lacking in detail. In addition, in the absence of findings about the extent of the defects in the floor, it is not possible to determine for what period a loss of production might occur.
(iv) additional staffing costs due to factory shutdown $128,467
538 Sterling Enterprises claimed the sum of $128,467 for labour costs that it would have incurred for standing down and rehiring of staff, for work force management and the need to pay out staff while the rectification of the factory floor occurred. Mr Sterling stated that once the floor was rectified and the equipment moved back in, Sterling Enterprises would have to rehire staff to operate it.[174] Mr Sterling’s estimate was based on the costs of hire companies, calculated at April 2011. Mr Sterling was unsure whether the staff were Uniflex or Westaflex employees. The evidence in the case of employment practices in the Sterling group suggests that they were employed by Uniflex.
[174]T278
539 Watpac argued that there was no evidence that the staff were employed by Westaflex. The entitlements are accrued irrespective of any alleged breach of contract. The appropriate method of rectification, ie grinding, would mean no recruitment was required.
Conclusion
540 I would have concluded that this claim had not been established. The staff were probably employed by Uniflex. It is not clear how Sterling Enterprises might be liable to Westaflex in respect of this claim. In addition, the amount of the costs associated with the dismissal of staff would depend on when any rectification of the factory slab occurred. This is because the amount of employment termination payments, including redundancy payments, depends on length of service.
Section D Watpac’s Counterclaim
Issue 32: Is Watpac entitled to extensions of time, and if so how many days?
541 This issue is connected to Issue 7: What was the date for Practical Completion properly adjusted?
542 Watpac contends that it was delayed in reaching practical completion by qualifying causes of delay.
543 The agreed practical completion date for the warehouse was 14 July 2009, but practical completion occurred on 11 September 2009.
544 Watpac submits that is entitled to 39 days extension of time by the deeming provisions of clause 34.5 because two Extension of Time (EOT) claims that it made were not responded to within the three days required by the Contract. Watpac seeks delay costs of $82,000.95 for 39 days at $2105 per day.
545 The causes of delay, for which the EOTs should be deemed to be granted, were compensable causes which include acts, defaults or omissions of the Superintendent, the Principal or its consultants, agents or other contractors (not being employed by the Contractor): see clauses 1 and 34.9 of the Contract.
546 Mr Artico gave evidence that the claims were submitted to the Superintendent by email on 26 July 2010.[175] The Superintendent suggested that he did not receive the claims until 16 August 2010. However, I accept Mr Artico’s evidence on this issue.
[175]CB 10.275 - 329
547 Both the Extension of Time claims were rejected by the Superintendent on 19 August 2010. He stated that he had no power to extend the time for practical completion other than for the benefit of the Principal.[176]
[176]CB 11.029
548 Watpac argued that because the Superintendent failed to assess the EOT claims within 3 days, pursuant to clause 34.5 of the Contract, they were deemed assessed with a direction for the extensions of time claimed.
549 Sterling Enterprises argued that Watpac was not entitled to any delay costs because the Extension of Times claims were submitted well after the date of practical completion and well outside the time fixed by clause 34.3 of the Contract. Further, Watpac was being delayed in reaching practical completion by causes that were not compensable causes, including delays of its own electrical sub-contractor.
550 Clause 34, which deals with Extensions of Time, provides:
34.1 Progress
The Contractor shall ensure that WUC reaches practical completion by the date for practical completion.
34.2 Notice of delay
A party becoming aware of anything which will probably cause delay to WUC shall promptly give the Superintendent and the other party written notice of that cause and the estimated delay.
34.3 Claim
The Contractor shall be entitled to such extension of time for carrying out WUC (including reaching practical completion) as the Superintendent assesses (‘EOT’), if :
a) the Contractor is or will be delayed in reaching practical completion by a qualifying cause of delay; and
b) the Contractor gives the Superintendent, within 7 days of when the Contractor should reasonably have become aware of that causation occurring, a written claim for an EOT evidencing the facts of causation and of the delay to WUC (including extent).
If further delay results from a qualifying cause of delay evidenced in a claim under paragraph (b) of this subclause, the Contractor shall claim an EOT for such delay by promptly giving the Superintendent a written claim evidencing the facts of that delay.
34.4 Assessment
When both non-qualifying and qualifying causes of delay overlap, the Superintendent shall apportion the resulting delay of WUC according to the respective causes’ contribution.
In assessing each EOT the Superintendent shall disregard questions of whether:
a) WUC can nevertheless reach practical completion without an EOT; or
b) the Contractor can accelerate,
but shall have regard to what prevention and mitigation of the delay has not been effected by the Contractor.
34.5 Extension of time
Within 3 days after receiving the Contractor’s claim for an EOT, the Superintendent shall give to the Contractor and the Principal a written direction evidencing the EOT so assessed. If the Superintendent does not do so, there shall be a deemed assessment and direction for an EOT as claimed.
Notwithstanding that the Contractor is not entitled to or has not claimed an EOT, the Superintendent may in its sole discretion and for the benefit of the Principal extend the time for practical completion at any time and from time to time before issuing the final certificate direct an EOT. The Contractor acknowledges and agrees that the Superintendent, in exercising this discretion, is under no obligation to do so reasonably, for the benefit of the Contractor, or at all.
If the Superintendent uses the discretion to direct an EOT under this subclause 34.5A:
a) the Superintendent shall give the Contractor written notice of such direction; and
b) the Contractor shall not be entitled to any other compensation.
34.6 Practical completion
The Contractor shall give the Superintendent at least 14 days written notice of the date upon which the Contractor anticipates that practical completion will be reached.
When the Contractor is of the opinion that practical completion has been reached, the Contractor shall in writing request the Superintendent to issue a certificate of practical completion. Within 14 days after receiving the request, the Superintendent shall give the Contractor and the Principal either a certificate of practical completion evidencing the date of practical completion or written reasons for not doing so.
If the Superintendent is of the opinion that practical completion has been reached, the Superintendent may issue a certificate of practical completion even though no request has been made.
34.7 Liquidated damages
If WUC does not reach practical completion by the date for practical completion, the Superintendent shall certify, as due and payable to the Principal, liquidated damages in Item 24 for every day after the date of practical completion to and including the earliest of the date of practical completion or termination of the Contract or the Principal taking WUC out of the hands of the Contractor.
If an EOT is directed after the Contractor has been paid or the Principal has set off liquidated damages, the Principal shall forthwith repay to the Contractor such of those liquidated damages as represent the days the subject of the EOT.
37.8 Bonus for early practical completion
…
34.9 Delay damages
For every day the subject of an EOT for a compensable cause and for which the Contractor gives the Superintendent a claim for delay damages pursuant to subclause 41.1, damages certified by the Superintendent under subclause 41.3 shall be due and payable to the Contractor.
34.10 Acceleration
…”
551 In the first EOT, number 17, Watpac sought an extension for 11 days due to the rescheduling of the pour works to the northern hardstand to accommodate delivery of the client’s warehouse racking. Mr Artico had raised with Mr Vincent that there was a problem with the grades in the civil drawings, because the descent from the footpath into the driveway was too steep and that large semi-trailers would bottom out. Mr Vincent did not accept that, but re-designed the hardstands twice. The pouring of the northern hardstand was delayed because Mr Vincent needed to have the racking delivered. This caused delays between 20 July and 3 August 2009 when the hardstand and associated work was completed.
552 The second Extension of Time claim, number 18, related to two main issues. One was the requirement of the building surveyor that Watpac:
“5} Provide a rail not more than 50mm above the stair nosing for the two stairs leading from the first floor to the factory.”
553 The railings were not part of the Contract works. There were delays in having the building surveyor inspect the works.
554 There was also an issue with the occupant warning system. When tested, the audibility was found to be less than required by the Standard. Installation of four additional speakers was completed on 3 September 2009.
555 Watpac argued that Mr Artico was not challenged by Sterling Enterprises in relation to his evidence of the reasons for the delays. Sterling Enterprises had possession of the warehouse from July 2009 and undertook its own works from that point.
556 Watpac also sought to rely on an estoppel argument to prevent Sterling Enterprises relying on the provisions of the extension of time clause. Watpac said that throughout the project it had been led to believe that liquidated damages were not going to be an issue.[177] However, that argument was not pleaded and Watpac did not pursue it.
[177]CB 10.275
557 Watpac argued that the “prevention principle” applied so that the time for an extension of time claim was enlarged. Where the acts or omissions of the principal, or proprietor, cause the contractor to fail to complete works by the date for practical completion and where there is no power under the Contract to grant the contractor relief, then the express obligation to complete by the stipulated date is replaced by an implied obligation to complete within a reasonable time.[178]
[178]See Halsbury’s Laws of Australia, Volume 3(2), [65-1020]
558 However, even where there was the a contractual provision dealing with delays, the Superintendent was obliged to exercise his power independently. The Superintendent merely adopted the assessment of the principal and took into account the quantity surveyor’s decision. Mr Vincent was not called to explain his actions.
559 Sterling Enterprises relied on the fact that both EOT claims were submitted nearly a year after the alleged delay events, far outside the seven day period prescribed by the Contract. They were time barred and the delay suggested that they are not genuine delays. There was no provision in the Contract to permit the seven day period in clause 34.3 to be extended.
560 Sterling Enterprises, in the alternative, submitted that Watpac has not satisfied the onus of proving that the delays were due to a compensable cause. There has been no critical path analysis provided and no proof that the project as a whole had been delayed. There were other concurrent delays caused by Watpac that delayed practical completion, including delays by Watpac’s. electrical subcontractor. These included the existence of outstanding items that needed to be completed to obtain Certificates of Compliance for electrical and fire safety works The Certificate of Compliance was required in order to obtain the Occupancy Permit.[179] The Building Surveyor’s Inspection Notice raised a number of mandatory regulatory issues, including some pertaining to fire safety.[180]
[179]CB15.105 – 107, cf T705
[180]CB15.121
Conclusion
561 Watpac’s Extension of Time claims have not been established. The Claims were not submitted within the time required by the Contract. Therefore no deemed assessment occurred.
562 Nor am I persuaded, that the prevention principle applies to require the certifying of the extensions of time. The ambit of that principle was not the subject of any detailed submission. The Contract contained a complete regime for delays and extensions of time.
563 In any event, I am not persuaded that the delays which are the subject of Watpac’s application were caused by the acts or omissions of Sterling Enterprises. There was conflicting evidence relevant to this issue. Watpac established that the delays on which it relies occurred. However, Sterling Enterprises established that there were other outstanding issues, eg the fire safety issues, which were the cause of delays in completing the project.
Issue 33: Is Watpac entitled to delay costs and if so how many days and at what daily rate?
Conclusion
564 As the claims for extensions of time fail, then Watpac is indebted to Sterling Enterprises for liquidated damages for the period 14 July 2009 to 11 September 2009, being a total of 8.4 weeks which is $42,142, which is the amount certified by the Superintendent.
Issue 31: What sum is Watpac entitled to on account of contract works?
565 Watpac claims $368,585.00 being the balance of the payments due for the contract works. This sum is reached by the total of the adjusted Contract sum of $4,549,505.00, less the sum of $4,214,427.00 paid by Sterling Enterprises to Watpac. The balance is $335,078.00 plus GST, being $368,585.00. From that sum must be deducted the liquidated damages of $42,142 that Sterling Enterprises has been awarded.
566 Mr Akrigg gave evidence of the make up of the claim and of the payments received from Sterling Enterprises. Watpac has not received any payment since 3 September 2009.
567 Sterling Enterprises argued that Watpac had failed to complete the works in accordance with the contract and was not entitled to payment of the contract sum.[181] It contended that, if it was awarded damages to rectify the concrete slabs, then Watpac was entitled to set off $199,936, excluding GST, being the unpaid balance of the contract as certified by the Superintendent on 25 August 2010.
[181]T1248 -1249
Conclusion
568 The difference between the Superintendent’s certificate of 25 August 2010 in the sum of $219,932 and Watpac’s claim is substantially the amount of the liquidated damages and an amount of $93,000 for a concreting item. The nature of the concreting item, and why Mr Vincent deducted it, was not explained in evidence.
569 Mr Artico gave evidence, which I accept, that Watpac rectified the defects that were required by the Superintendent under the Contract. No basis has been shown for deducting the concreter’s item from the amount certified by the Superintendent. In that sense Watpac has performed the building works required by the Contract, even though it is liable to damages for rectification.
570 Watpac is entitled to the balance of moneys due to it under the building Contract. It claims the sum of $368,585 less the liquidated damages of $42,142, leaving $326,443.00.
571 The amount to which Watpac is entitled exceeds the amount to which Sterling Enterprises is entitled by way of damages.
572 In the circumstances, I consider that it is appropriate to give judgments on the claim to Sterling Enterprises and on the counterclaim to Watpac.
Issue 34 Is Watpac entitled to a variation?
573 Watpac claimed that it was entitled to a variation. Sterling Enterprises disputed this claim. However, Watpac conceded that it was unable to quantify its entitlement and in effect did not pursue it.
Issue 35 Is Watpac entitled to interest and enforcement costs in relation to the adjudication amount and if so in what sum?
574 Watpac also claims the interest that has accrued and the enforcement costs of the adjudication sum and the Court judgment that has been paid into the interest bearing account.
575 Watpac argues that it was entitled on an interim basis to receive the benefit of that sum and should receive the interest that has accrued on it.
576 Progress payments made under the Building and Construction Industry Security of Payment Act 2002 do not affect any proceedings arising under a construction contract save as is provided in s47(3) and (4). Section 47(3) is relevant and provides:
“In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal –
(a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order, determination or award it makes in these proceedings; and
(b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings.”
577 Sterling Enterprises argued that the adjudication fees are part of the adjudicated amount which has been certified by the authorised nominating authority and entered as a judgment of this Court on 27 January 2011.
578 Sterling Enterprises submitted that Watpac cannot claim the interest payable on the sum deposited in the solicitors’ trust account.
Conclusion
579 The appropriate manner in which to deal with the moneys contained in the solicitor’s trust account is likely to be affected by the amounts that I have awarded to each party.
580 I refer to the judgment of Dixon J in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 4)[182] in that regard.
[182][2012] VSC 155
581 I will hear any further submissions the parties wish to make in respect of the moneys contained in the interest bearing account, including the interest component.
582 The Act provides that both parties are jointly responsible for the adjudicator’s fees and expenses:s45(3) and (4).
Issue 36 is Watpac entitled to the return of the second bank guarantee together with the cost of it being provided late?
Issue 10 Did on or about 13 October 2011, the Superintendent send Sterling Enterprises and Watpac a memorandum confirming that the separate defects liability period of twelve months as directed by him on 9 September 2010, commenced at 4.00pm on 11 May 2011?
583 The Superintendent did issue a memorandum on 13 October 2011 that a twelve months rectification period did commence at 4pm on 11 May 2011.[183]
[183]CB 14.084
584 Watpac seeks an order for the return of its bank guarantee that it provided under the Contract. It is valued at $108,602.00. Watpac argued that the defects liability period expired on 7 December 2011, as there was no contractual entitlement to extend the defects liability period after completion. Clause 5 of the Contract deals with Security. Clause 5.4 provides:
“Upon the issue of the certificate of practical completion a party’s entitlement to security (other than in Item 13(e)) shall be reduced by the percentage or amount in Item 13(f) or 14(d) as applicable, and the reduction shall be released and returned within 14 days to the other party.
The Principal’s entitlement to security in Item 13 (e) shall cease 14 days after incorporation into the Works of the plant and materials for which that security was provided.
A party’s entitlement otherwise to security shall cease 14 days after final certificate.
Upon a party’s entitlement to security ceasing, that party shall release and return forthwith the security to the other party.”
585 On 7 September 2010, Mr Artico requested the Superintendent to release Watpac’s bank guarantee.[184] His letter stated that:
“As the completion of the Defect Liability Period is due on September 11 2010, we request the release of our Bank Guarantee G314550 to the value of $108,602.00.”
[184]CB 11.120
586 The Superintendent responded on 9 September 2010 referring to defects in the report and detailing what were said to be defects in the works. The Superintendent directed under clause 35(b) of the Contract, that there be a separate defects liability period of 12 months commencing at 4.00pm on the date that the rectification was completed.
587 The Superintendent responded on 18 November 2010 confirming that the “defects liability period would commence at 4pm on the day upon which the contractor complete the rectification that I have directed.”[185]
[185]CB11.154
588 Watpac argued that the Superintendent’s decision was invalid because he was only entitled to extend the defects liability in respect of defects notified prior to the original defects liability period.
589 Mr Artico gave evidence that the last defect notified during the original period concerned balcony tiling and that was completed by December 2010.[186] The defects liability period expired on 17 December 2011.
[186]CB2.114
590 In the alternative, Watpac argued that, at the latest, it became entitled to the return of the bank guarantee on 6 July 2012, being 14 days after the final certificate was issued on 21 June 2012.
591 Mr Akrigg gave evidence about the cost of the bank guarantee. The daily charge incurred by Watpac for maintaining the bank guarantee is $11.51 per day.
592 Clause 35 of the Contract, the Defects Liability clause, provides:
“The defects liability period stated in Item 27 shall commence on the date of practical completion at 4.00pm.
The Contractor shall carry out rectification at times and in a manner causing as little inconvenience to the occupants or users of the Works as is reasonably possible.
As soon as possible after the date of practical completion, the Contractor shall rectify all defects existing at the date of practical completion.
During the defects liability period, the Superintendent may give the Contractor a direction to rectify a defect which:
a) shall identify the defect and the date for completion of its rectification; and
b) may state a date for commencement of the rectification and whether there shall be a separate defects liability period therefor (not exceeding that in Item 27, commencing at 4.00pm on the date the rectification is completed and governed by this clause).
If the rectification is not commenced or completed by the stated dates, the Principal may have the rectification carried out by others but without prejudice to any other rights and remedies the Principal may have. The cost thereby incurred shall be certified by the Superintendent as moneys due and payable to the Principal.”
593 Sterling Enterprises argued that Watpac could only succeed on this application if there were no defects in the slab justifying the holding back of the bank guarantee. By way of analogy, Watpac had retained some $60,000 of Civiworks retention money.
Conclusion
594 There was no evidence for Mr Vincent about his reasons for extending the defects liability period. I accept Mr Artico’s evidence concerning when the defects were completed. Watpac was entitled to the return of the bank guarantee on 17 December 2011. Sterling Enterprises has failed to return it. Watpac is entitled to damages for Sterling Enterprises’ breach of the Contract by not returning the bank guarantee at that time.
595 I accept Mr Akrigg’s calculation of the cost to Watpac of the bank guarantee.
596 Watpac is entitled to the sum of $11.51 per day from 17 December 2011 to 22 May 2013. That totals $6,019.73.
597 I declare that Watpac is entitled to the second bank guarantee.
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