Element Five Pty Ltd v Kingsland Group Pty Ltd
[2017] VCC 150
•16 March 2017
| IN THE COUNTY COURT OF VICTORIA | Revised (Not) Restricted Suitable for Publication |
AT MELBOURNE
COMMERCIAL DIVISON
GENERAL LIST
Case No. CI-14-05811
| ELEMENT FIVE PTY LTD | Plaintiff |
| v. | |
| KINGSLAND GROUP PTY LTD | Defendant |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21-23 February, 1 and 3 March 2017 | |
DATE OF JUDGMENT: | 16 March 2017 | |
CASE MAY BE CITED AS: | Element Five Pty Ltd v. Kingsland Group Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 150 | |
REASONS FOR JUDGMENT
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Catchwords: Building Contract – Contract providing for “Preliminary Works” to be performed prior to the contract became unconditional upon the approval of finance – Works performed by the contractor at the request of the superintendent and the principal – Alternative claims under the contract, and by way of quantum meruit.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr K. Oliver of Counsel | Moray & Agnew Lawyers |
| For the Defendant | Mr R. A. Fink of Counsel | Mills Oakley |
HIS HONOUR:
1On 12 December 2013, Element Five Pty Ltd (“Element Five”) as contractor signed an agreement with Kingsland Group Pty Ltd (“Kingsland”) as principal for the construction of retail premises, 36 apartments and a basement at Murrumbeena (“the contract”).
2The contract was subject to certain conditions, including the “provision of financial accomodation”, being either “satisfied or waived” by Kingsland, “prior to the commencement of any work under the contract” (clause 3(a)).
3An exception was provided in clause 3(a) for “any Preliminary Works”. These were defined in clause 1.1 as meaning “any work under the Contract required for the relocation of the stormwater drain (to the satisfaction of the Responsible Authority) and any initial design, and other preparatory work under the contract to be performed by the contractors with the prior written agreement of the principal…in accordance with clause 4.2”.
4Clause 4.2 contained specific provisions in relation to the performance of the preliminary works, including the application of the contract terms to the preliminary works, and specifically by clause 4.2(b) that, “all references in the contract to the contract sum shall be deemed to refer to the reasonable and proper cost of the preliminary works up to but not exceeding a maximum cost approved in writing by the principal for that purpose”.
5Element Five commenced work on the project following:
a.the execution of the contract by the parties;
b.the receipt of an email dated 12 December 2013 from Nic Culnane, the “representative” of the “superintendent” Pomeroy Pacific Pty Ltd, named in the contract;
c.minuted site meeting number 1 on 17 January 2014 attended by representatives of Element Five (a director Anthony Morton, the project manager Paul Harvey and the contract administrator Jonathon Sachs), Kingsland (Mr Wen Pinn Yee and two others) and the superintendent (Mark Petzer, who had replaced Mr Culnane).
6On about 28 January 2014, Element Five served payment claim number 1 for $158,939 (incl. GST) on the superintendent on behalf of Kingsland pursuant to the Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Act”). The claim was certified by the superintendent for payment in the sum of $143,045. No payment was made by Kingsland.
7On about 9 April 2014, Element Five served payment claim number 2 for $145,880.39. The superintendent did not issue a payment schedule under the Act and Kingsland made no payment in respect of the claim.
8On about 23 June 2014, Element Five received a payment of $77,607.20 from United Energy Ltd (“UEL”). The payment was a part refund of a payment of $94,039 paid by Element Five to UEL at the request of Kingsland. The payment of $94,039 had been claimed by Element Five in payment claim number 1. The refund of $77,607.20 received by Element Five from UEL was deducted from the amount claimed by Element Five from Kingsland.
9Element Five issued a writ dated 21 November 2014 claiming the sum of $211,318.29 being the total of payment claim numbers 1 and 2 less the payment made by UEL. By a further amended statement of claim filed 26 August 2016, Element Five made an alternative claim on a quantum meruit for $131,650.09 as “the reasonable and proper cost of the preliminary works”.
10By its defence, Kingsland alleged that:
a.Kingsland’s finance for the project was not approved and therefore the contract condition was not satisfied;
b.no written request was made for Element Five “to perform any works falling outside the scope of the preliminary works (as defined by the contract)”;
c.“no works (within the meaning of the contract) was performed by [Element Five] on the site”;
d.“no work, preliminary work or construction work (as that term is defined in the Act) was carried out by [Element Five]”;
e.Element Five “was advised to cease any further work at the site no later than 1 April 2014”;
f.Kingsland “did not approve a preliminary works budget”.
11Kingsland claimed by way of a set-off to be “entitled to recover against [Element Five] any payment claim amounts [i.e. the amounts sought in payment claim numbers 1 and 2 pursuant to the Act] which is in excess of the amount [Element Five] is entitled to under the contract for the construction services provided”.
12Element Five called four witnesses to give evidence, Mr Morton, Mr Harvey, Mr Sachs and Martin Watts, the Chief Financial Officer of Element Five. It also tendered a number of documents. Kingsland did not submit any evidence.
13By the time counsel made final submissions, the matters in dispute had been substantially narrowed:
a.Element Five did not pursue its claim for payment of the payment claims. However, it requested I make declarations of entitlement in respect of the claims. I declined to permit Element Five to seek that relief at the stage the trial had reached;
b.Element Five, in its claims;
i.reduced its labour costs claimed under the contract by 40% (in the respect of Mr Sachs) and (in relation to both the contract and quantum meruit claims), by 15% in respect of Mr Harvey. These parts of their work did not relate to the specific items of work “requested in writing by Kingsland” referred to in the email dated 12 December 2013 or at the site meeting on 17 January 2014;
ii.reduced its overhead profit margin from 30% to 10%, but added 10% for GST;
c.accordingly, the contractual claim was for $95,738.24 and the quantum meruit claim for $118,037.80;
d.Kingsland sought to rely on Element Five’s failure to include a “cash flow” in either payment claim numbers 1 or 2 and the fact that there was no statutory declaration with payment claim number 2. These were required by clause 42.1 of the contract. These matters had not been raised in the defence;
e.the hourly rate of $46.93 claimed for Mr Sachs was said by Kingsland’s counsel Mr Fink to be unreasonable. He submitted that a rate closer to the $24.05 per hour claimed for Mr Xin Tan (whom Mr Sachs replaced as contract administrator on the project) was appropriate;
f.Mr Fink submitted that Element Five should not be entitled to claim for work performed after 1 April 2014, when Mr Sachs acknowledged in an email that Element Five had been “advised by the client that the Murrumbeena project is on hold pending a redesign of some elements of the building”. The addressees to the email were directed “not to proceed with any works until further notice”;
g.invoices from Interspan Pty Ltd for post tension design, and from Browns Piling Pty Ltd for piling design, had not been paid by Element Five. Mr Fink submitted that, on the evidence, it was doubtful that the sub-contractors would ever insist on being paid by Element Five.
14The issues for determination in the proceeding are:
a.whether Element Five performed any “preliminary work” as defined by the contract for which it should be entitled to recover from Kingsland;
b.whether Element Five performed any work which was not “preliminary work” as defined by the contract, and in respect of which it should recover from Kingsland;
c.whether a preliminary works budget under the contract was approved, and if not whether that affects whether Element Five should recover from Kingsland in respect of the work it performed;
d.whether Element Five’s ability to recover under the contract is affected by its failure to include:
i.a “cash flow” with payment claims 1 and 2;
ii.statutory declarations of payment with payment claim 2;
e.whether the quantum of the contract claim or the quantum meruit claim should include allowance for:
i.Mr Sach’s labour at an hourly rate less than $46.93;
ii.any work carried out after 1 April 2014;
iii.the invoices from Interspan Pty Ltd and Browns Piling Pty Ltd;
f.whether Element Five should recover from Kingsland on the alternative quantum meruit claim.
Background facts
15The contract executed by the parties on 12 December 2013 was a “design and construct” contract with a “contract sum” of “$13,785,674 (excluding GST) including Novated Consultants’ fees and provisional sums”.
16On that day, Mr Culnane, the superintendent’s representative named in the contract, sent an email to Mr Morton and Mr Harvey of Element Five and copied to Mr Wen Pinn Yee of Kingsland.
17The email read as follows:
“In line with our discussion this afternoon, we note the current outline actions for Element Five (EV) and associated timeline:
December 2013:
EV – to provide cash flow forecast this week
EV – to engage storm water contractor – Council’s conditioned approval and drawings attached
EV – to engage piling contractor and commence piling and site retention design with a view to being able to issue Protection Works mid-late January 2014
EV – to provide a revised construction programme
January 2014:
EV – to provide insurances in line with the Contract
EV – to establish a date by which the display suite is to be removed from site
EV – to commence relocation of the Council storm water drain
EV – to issue protection works notices
We also propose to convene a hand over meeting with the novated consultants to run through tender clarifications so all parties are aware of the changes to the design/specifications. We will follow this with a kick off meeting to ensure Element Five enjoys a smooth transition to site”.
The email also included an “outline agenda for our start up meeting”.
18At site meeting number 1 held on 17 January 2014, there were attendances by representatives of Element Five, Kingsland and the superintendent, and from the principal consultants (the architect, structural engineer and building surveyor). Minutes of the meeting were prepared and distributed by Mr Sachs.
19These minutes recorded most of the action items from the email dated 12 December 2013 and a number of further items, requiring work to be undertaken by Element Five, as follows:
“2.1
EV construction program to be updated with revised commencement date, as required by project financier…
EV
3.1
EV seeking to obtain building permit for ‘early’ works, including civil works, and bulk excavation/retention system down to basement level…
ALL
3.3
EV’s Construction Management Plan approved by council.
NOTE
3.4
Protection Notices served to project neighbours without response within 14 day window…
NOTE
3.6
PC noted EV to obtain Regulation 604 consent permit (public protection of street alignment) for civil works outside property boundary.
EV
3.7
Noted high-voltage power lines will obstruct adjacent construction works due to 3m No-Go-Zones. EV have been advised a permit cannot be issued to use piling rigs (or other machinery), within 3m of these cables. Also possible implications for temporary power. EV to confirm more details following meeting with Authority.
EV
3.8
EV have paid United Energy for documented power line relocation works in accordance with the PC Sum as Instructed. The Authority has advised these works will likely take place in May-June 2014 (potentially delaying construction works due to No-Go-Zone implications). O’Neill to liaise with United Energy to attempt to bring commencement date forward. EV have submitted a formal Notice of Potential Delay to Pomeroy last year…
4.1
Consultants to be novated to EV. Pomeroy to provide Deeds for execution…
PP
4.3
EV confirmed dilapidation surveys of neighbouring properties all but complete. Three (3) properties outstanding where tenants have not been contactable…
EV
4.5
All consultants and EV to provide Professional Indemnity insurances to Pomeroy…
EV/CKD/ONG/PC
5.1
Piling design completed (and certified) by Browns Piling. EV to provide to O’Neill for review…
EV
5.6
EV have allowed for reduced quantity of apartment lights...Tender correspondence…EV to confirm reduced quantities to O’Neill and PC…
ONG/EV
6.1
EV to provide detailed project cashflow forecast (with trade breakdown) to KLG for submission to project financier ASAP.
EV
6.1
EV noted not possible to provide 100% accurate cash flow for the duration of project as this is likely to change depending on site progress. KLG to review forecast cashflow requirements with bank…
KLG
7.1
KLG advise display suite to remain on site for as long as possible (4 weeks preferred). EV do not currently anticipate any issue…
NOTE
8.2
Anthony Meleser joining Pomeroy project team as Senior Project Manager…
NOTE”
20The items of work Element Five was instructed to proceed with were as follows:
a.provide cash flow forecast;
b.engage storm water contractor;
c.engage piling contractor and commence piling and site retention design;
d.provide revised construction programme;
e.arrange insurance;
f.establish date display suite to be removed from site;
g.commence relocation of Council stormwater drain;
h.issue protection works notices;
i.obtain building permit for “early work”;
j.approval of construction management plan;
k.obtain regulation 604 permit for works outside boundary;
l.clarify effect of HV power lines for nearby works;
m.payment of United Energy for power line relocation works.
21Evidence was given by Mr Sachs, Mr Harvey and Mr Morton that each of these items was attended to, as follows:
a. cash flow forecast: On 22 January 2014, Mr Sachs sent an “attached forecast cashflow, as requested by the client and required for the project financier”. The document was prepared by Mr Sachs.
b. engagement of storm water contractor: On 13 December 2013, a “letter of intent to engage Monkhort Group Plumbing for the Hydraulic and Stormwater package” for the project. This work was largely undertaken by Mr Sachs and Mr Harvey and included examining contractors’ pricing and interviewing contractors. The storm water drain was close to or over the boundary. The design of the works required meetings with the contractor on site. This was necessary to determine how the work would proceed and in order to comply with protection and safety requirements. The piling work would follow the relocation of the drain.
c. engage piling contractor, piling and site retention design: This work was largely carried out by Mr Harvey with assistance in early stages from Mr Xin Tan, Mr Sachs’ predecessor, during the engagement of the contractor.
The piling works were an extensive component of the early works. When the contract was awarded, Mr Harvey went on site and examined the set up of the site and safety issues. The power lines outside, but close to, the site boundary caused problems because, in addition to low voltage lines, there were 11 and 22 kilowatt high voltage lines. This restricted the works, including using piling rigs, within about 10 metres of the lines.
Mr Harvey investigated alternative methods of carrying out the piliing and retention works at a safe distance from the power lines. He met the piling contractor on site and consulted with other contractors in Victoria and interstate.
Mr Harvey said that, as a result of the pressure from Kingsland to “get work started”, Element Five was told by the superintendent to “resolve the issue”.
Accounts were received from Interspan for the post tension design on 24 April 2014 in the sum of $13,200 (excluding GST), and from Browns Piling for the piling design on 3 April 2014 in the sum of $7,250 (excluding GST). Mr Harvey said that the design work was necessary before a building permit would be issued.
d. revised contract programme: On 8 January 2014, Mr Wen Pinn Yee sent an email to Element Five (including to Mr Harvey) stating, “Please see attached construction program we received in last October. The dates may not be the latest however I believe the scope of works in correct… Can you please send… the updated program schedule and other details as required asap? Thanks”. Mr Harvey prepared an updated contract program dated 22 January 2014.
e. insurances: On 17 January 2014, Mr Sachs forwarded to the superintendent details of Element Five’s contract works, public liability and Work Cover insurances.
f. removal of display suites: Mr Harvey said in evidence that when Element Five started work on site not all the proposed apartments had been presold. Kingsland wanted to keep the display suites on the site for as long as possible. Mr Harvey met a representative of Kingsland on-site to discuss the issue.
g. relocation of Council stormwater drain: Mr Sachs said that the relocation of the drain could not be performed before a building permit was obtained. On 12 March 2014, a building permit was issued for “Stage 1 – Works to storm water drainage system on eastern boundary only”.
The permit lists “building permit documents” and 15 “additional documents”. A number of the additional documents were obtained by Element Five after the contract was executed and required Element Five to satisfy the local municipality and the building surveyor that protection notices had been served, the construction management plan had been endorsed, the civil design complied and relevant precautions over the street alignment and for the protection of the public had been put in place.
h. protection works notices: Dilapidation surveys were conducted and protection works notices were served in December 2013.
i. building permit for early works: On 7 January 2014, fourteen days after the protection notices had been served, an application was made for the “partial building permit for commencement on-site of some ‘early works’ in order [to] proceed without delay, including civil works outside the site boundary, piling, capping beam, and site amenities set up”.
Mr Sachs corresponded with the building surveyor including, on 16 January 2014, to confirm the matters on an attached checklist which were “required for the ‘early works’ permit”.
j. construction management plan: Mr Harvey prepared the construction management plan and submitted it to the local municipality on about 16 December 2013. The plan was approved on 9 January 2014.
k. regulation 604 permit for works outside boundary: Mr Harvey made a regulation 604 application on 26 February 2014 setting out the “public protection measures” that would be required during the performance of the civil works to be undertaken in accordance with the stage 1 building permit.
l. effect of HV power lines on works required nearby: The HV power lines affected the works that could be carried out in the vicinity, particular the use of piling rigs. Mr Harvey investigated methods of carrying out the piling and site retention works without infringing the “no-work” distance from the power lines.
m. payment of United Energy for power line relocation works: In November 2013, an agreement was entered into between Kingsland and United Energy to relocate power lines at a cost of $85,490 ($94,039 including GST). On 25 November 2013, Mr Culnane in an email to Kingsland foreshadowed that Kingsland may wish to expedite the works “ahead of the approval of bank finance and appointment of a builder” by paying the amount of $94,039 and then deducting it from the contract price once the contractor was appointed.
On 7 January 2014, Mr Wen Pinn Yee wrote to the superintendent, copying Mr Morton, stating that Kingsland “would like to request Element Five to pay” the amount of $94,039 “against the provisional sum allowed in the total contract sum”.
Mr Morton responded on 8 January 2014 noting that Element Five had “already sent a cheque to the power authority [United Energy] so will be claiming this in our next PC [payment claim]”.
22On 5 February 2014, Mr Millicer emailed Mr Harvey confirming approval given by Mr Wen Pinn Yee for “Element Five to access the site and clear the weeds and do some test pits”. Site clearance works were done by Aussie All Round Earthworks Pty Ltd between 4 and 6 March 2014 at a cost invoiced at $3,480 (excluding GST).
Progress claim number 1
23Progress claim number 1 was served on the superintendent on 28 January 2014. It claimed $158,939 calculated as follows:
3.8% of total preliminaries ($1,564,028) $59,000
overhead power invoice $85,490
$144,490
add GST $14.449
$158,939
24On about 13 February 2014, the superintendent issued a payment certificate certifying that the sum of $130,041 ($143,045.10 including GST) was “due for payment not later than Monday 24th February 2014”. The only adjustment was the deduction of a “retention claim” of $14,449 (excluding GST), as “Element Five has not yet provided bank guarantees as required under the contract”.
25Mr Millicer noted in an email to Mr Harvey dated 13 February 2016 attaching the payment certificate that, “The works are claimed and certified as preliminary works under clause 4.2 of the Instrument of Agreement”. Later that day, Element Five issued a tax invoice to Kingsland claiming the certified amount payable of $143,045.10.
26The amount was not paid by Kingsland. On 27 February 2014, Mr Watts emailed Mr Millicer asking whether Mr Millicer could “speak to the client about ability to pay whilst funding is not finalised, it raises alarm bells to us that funding isn’t yet in place”.
27Mr Millicer responded soon afterwards noting that, “The contract is not yet unconditional and one of the conditions relates to client finance”, and stating, “Kingsland will pay funds from their own substantial reserves prior to finance on line”.
Progress claim number 2
28On about 9 April 2014, Element Five submitted progress claim number 2 to Kingsland claiming the total amount of $145,880.39. A schedule to the progress claim noted that the claim was calculated as follows:
10% of total preliminaries ($1,584,028) $156.402.80
0.5% of groundworks ($915,735) $4,578.68
0.5% of concrete works ($3,237,612) $16,188.06
overhead power $85,490.00
$262,659.54
less unpaid certificate $130.041.00
$132,618.54
add GST $13,261.85
$145,880,39
29The claim was not considered by the superintendent. No payment schedule was served by Kingsland and no payment was made. On about 19 June 2014, United Energy paid to Element Five the sum of $77,607.20, apparently calculated as follows:
Original invoice $85,490.00
less costs $14,938.00
$70,552.00
add GST $7,055.20
$77,607.20
Contract claim and quantum meruit claim
30In further and better particulars dated 17 June 2015, and a further amended statement of claim dated 26 August 2016, Element Five claimed $131,650.09, calculated as follows:
Employees
Jonathan Sachs (787 hrs @ $46.93 per hour) $36,957.00
Paul Harvey ($296 hrs @ $78.00 per hour) $23.088.00
Xin Tan (121.5 hrs @ $24.05 per hour) $1,106.30
Sub-total $61,151,30
Other costs
(a) Traffic Management for building permit $390.00
(b) Surveying $350.00
(c) Building permit $239.00
(d) Plan printing $113.00
(e) Couriers/mail $30.00
(f) Telephone $30.00
(g) Protection Works Notices mailed by Registered Post $81.00
(h) Miscellaneous – purchase lock for site $17.00
(i) Shortfall from powerline relocation works $14,938.00
(j) Post-tension design by Interspan Pty Ltd $13,200.00
(k) Piling design by Browns Piling Pty Ltd $7,250.00
(l) Cutting grass earthworks by Aussie All Round Earthworks Pty Ltd $3,480.00
$40,118.00
SUB-TOTAL $101,269.30
Add 30% margin for overheads and profit $30,380.79
TOTAL CLAIM $131,650.09
31The time sheets for Mr Harvey, Mr Sachs and Mr Xin Tan are in evidence. Mr Harvey and Mr Sachs said that their time sheets were completed and submitted at the end of each week. The time sheets showed the hours they had worked on specific projects each day but not the tasks they performed.
32The time sheets cover the following periods:
a.Mr Sachs – 25 November 2013 to 17 April 2014;
b.Mr Harvey – 9 December 2013 to May 2014;
c.Mr Xin Tan – 11 November 2013 to 6 December 2013.
33Mr Watts gave evidence that the charge out rates for each employee were calculated as follows:
a.Mr Sachs ($46.93 per hour)
hourly rate $40.15
add 9.25% superannuation and WorkCover = $46.93
b.Mr Harvey ($78 per hour)
$150,000 per annum package including superannuation
add on costs, WorkCover, leave
$710 per working day
= $78 per hour (9 hour day)
c.Mr Xin Tan ($24.05 per hour)
hourly rate $20.58
add 9.25% superannuation,
2% Payroll tax and WorkCover = $24.05
34 Non-labour costs totalling $40,118 were also claimed. These costs were evidenced by receipts and invoices which were included as schedules to the further and better particulars. Each of the charges in the invoices related to works performed by Element Five at the written request of Kingsland, or the superintendent on its behalf.
35 Mr Sachs gave evidence that the invoice for $13,200 (excluding GST) from Interspan Pty Ltd for the post tension design and the invoice for $7,250 (excluding GST) from Browns Piling Pty Ltd for the piling design, had not been paid by Element Five. Each creditor has apparently agreed to await the outcome of this proceeding before requiring payment.
Kingsland directed preliminary works to proceed
36 The email dated 12 December 2013 from the superintendent’s representative to Element Five was copied to Mr Wen Pinn Yee and was clearly sent with the authority of Kingsland. The email refers to “our discussion this afternoon”. Mr Morton said that on 12 December 2013, the day the contract was executed by the parties, he spoke with Mr Culnane. Mr Culnane asked Mr Morton to “get your boys to start work”.
37 The contract was to “design and construct” and, although finance had not been approved, the contract provided for “preliminary works”. On 7 January 2014, Mr Wen Pinn Yee of Kingsland, in an email to the superintendent and copied to Mr Morton, stated to Mr Morton, “We believe the above info [i.e. the part of the email directing the superintendent to “request Element Five to pay for below amount of $94,039 (including GST)” to United Energy] should be sufficient for Element Five to continue with the works. Please let us know should there by anything that is holding up the process”.
38 On 17 January 2014, representatives of all parties, including Kingsland, met at site meeting number 1 and agreed to Element Five proceeding with extensive works. On 22 January 2014, Mr Sachs sent a “detailed forecast cashflow, as requested by the client and required for the project financier”.
39 The forecast cashflow estimated that in February 2014, 4% of the “preliminaries” ($64,437) would be expended and that a provisional sum for “overhead power” of $200,000 would be spent (as to $86,000 in January 2014 and the balance in February 2014). It appears, however, that in January 2014 no “preliminary works budget” was prepared by Element Five or requested by either Kingsland or the superintendent.
40 On 13 February 2014, in an email enclosing payment certificate number 1, the superintendent noted that “the works [in payment claim number 1] are claimed and certified as preliminary works under clause 4.2” of the contract.
41 On 24 February 2014, in an email to the consultant structural engineer, Mr Harvey noted that, “We had a meeting this morning with the director from China of the KG [Kingsland Group] and Pomeroys [the superintendent]”. Mr Harvey stated that Element Five were “under immense pressure from the Kingsland Group to get this project underway”. It had been intended that the consultants’ contracts would be “novated” to Element Five as provided for in the contract. In the site meeting minutes for 17 January 2014, it was noted, “Pomeroy to provide deeds for execution”.
42 As at 24 February 2014, Mr Harvey noted in his email that “the Novation Contracts are being reviewed”. In these circumstances, Mr Harvey was seeking to have the structural engineering consultant complete a “final design of basement works for the stage 1 permit and this includes capping beam, civil works, shot crete, pads and footings”. He asked the consultant to “confirm your fees applicable to this component until the Novations are finalised by all parties”. Mr Harvey noted that, “We need to move very quickly to satisfy the client”.
43 On 27 February 2014, Mr Millicer confirmed, in an email to Mr Watts, that “Kingsland will pay funds from their own substantial reserves prior to finance coming on line”.
44 On 5 March 2014, Mr Harvey said that he met with Vincent Liew, from Kingsland. Mr Harvey was chasing payment of payment claim number 1. Mr Harvey was told that Kingsland had not paid the claim because “no works had commenced on-site”.
45 Mr Harvey referred to the conversation on 5 March, and an earlier conversation with Kingsland on 24 February, in an email he sent to Mr Liew on 6 March 2014, as follows:
“Further to our conversation yesterday advising me that your Director is unwilling to release our payment for progress claim #1 we wish to advise the following.
Firstly we do understand your Directors frustrations that the project has not yet started on site, these are frustrations that Element Five are also experiencing.
From our meeting last Monday 24th February we wish to re-iterate that Element Five are working through the issues (along with the consultants and Pomeroy’s) that are hindering the project from moving forward as best we can. The issues at hand are not the fault of Element Five and as such we should not be penalised for the delays caused by them.
However we do not see that these issues are relevant to the progress claim being paid and the moneys claimed have in turn been certified for payment by the Superintendent under the contract. Whilst there are Contract Clauses that we can enact it is not a path that Element Five choose to follow in dealings with our clients.
Element Five prides itself on building good projects and strong relationships for and with our clients and this is definitely our aim with the Kingsland Group.
With Good Faith intended we will hold our progress claim until we commence works on the soil reclassification works (due to start on site next week) on the proviso that our payment is made immediately once these works have commenced on site…”
46 On 12 March 2014, the stage 1 building permit issued for “works to the easement on the eastern boundary”. Mr Sachs sent the permit to Mr Millicer, noting, “We will need to have the Preliminary Works Budget approved, as per my attached email, before we can proceed with these works and incur further costs” .
47 On 25 March 2014, Mr Millicer wrote to Mr Paras at Kingsland, as follows:
“We have not received any responses to the email below [dated 17 March 2014 relating to an outstanding issue] or to the request for approval to expend money under the Preliminary Works Budget.
At present no work is occurring on the project because there is no approval to expend any funds. Could you please confirm in writing the direction for the Project. Please also call me to discuss when we can meet for a coffee and catch up with Element Five”.
48 On 1 April 2014, Mr Sachs sent an email to a number of addressees. The email reads as follows:
“Gents, we have been advised by the client that the Murrumbeena Project is on hold pending a redesign of some elements of the building. As such please do not proceed with any works until further notice…”
The addressees were “Glen Waile; Craig Porter; Michael Cleven; Damian Monkhorst; Jason McFarlane; Erin Bull”. It is likely that these were Element Five’s sub-contractors for the project rather than the contractors or consultants involved in the preliminary works. It is likely that Damian Monkhorst was the representative of Monkhorst Group Plumbing, the hydraulic and stormwater contractor.
49 Payment claim number 2 was issued on 9 April 2014. It appears that by this time Element Five was only carrying out limited work on the project. The reason for this seems to be as a result of a combination of factors:
a.Kingsland had not paid Element Five for payment claim number 1;
b.the consultants’ contracts had not been novated to Element Five, and until that was done there was uncertainty as to whether the consultants would be paid if they did any further work;
c.although a building permit had issued, the carrying out of works, including piling and soil retention in the vicinity of the high voltage power lines, was a matter that had not been resolved, and therefore works could not begin on site.
50 On 20 June 2014, John Chen of Kingsland sent an email to Mr Pomeroy and Mr Millicer stating, “I think John Paras has sent to you the message to stop working on the project. Please make sure that all consultants stop working”.
51 On 23 June 2014, Mr Millicer forwarded on Mr Chen’s email to Element Five and to the other contractors and consultants involved in the Murrumbeena project. The subject of the email was described as “Stop work” and read as follows:
“To all,
Pomeroy Pacific has been engaged to Kingsland Group Pty Ltd as Project Managers for the ORB 355 Development in Murrumbeena.
There has been changes in personnel and Mr John Paras, Mr Vincent Liew, Mr Wen Pin Yee are no longer employed at Kingsland Group.
We have been advised by Mr John Chen in the email below that all consultants should stop working on Orb 355.
Pomeroy has not been provided with other direction in relation to the status of the Project…”
The email directed any further correspondence to Mr Chen.
Preliminary works performed by Element Five
52 I am satisfied that the superintendent, with the authority of Kingsland, directed Element Five to perform each of the items of work claimed as “Preliminary Works” under the contract. The directions were in writing and were principally contained in:
a.the email from the superintendent to Element Five dated 12 December 2013;
b.the minutes of site meeting number 1 held on 17 January 2014;
c.the email from the superintendent to Element Five dated 5 February 2014.
53 I also consider that, quite apart from the preliminary works under the contract, Element Five performed other works at the request of the superintendent or Kingsland which were essential to have the project in a state of readiness to proceed once finance was approved.
54 The requests, apart from the written directions referred to, were constituted by:
a.Mr Culnane’s request to Mr Morton on 12 December 2013 to “get your boys to start work”;
b.the “pressure” applied to Element Five by Kingsland “to get the project underway”, as referred to in Mr Harvey’s email to the consultant structural engineer dated 24 February 2014;
c.Mr Millicer’s advice in the email to Mr Watts dated 27 February 2014 that “Kingsland will pay funds from their own substantial reserves prior to finance coming on line”;
d.the expectation by Kingsland’s representatives, including Mr Liew, that work should have commenced on site by early March 2014, as evidenced by email dated 6 March 2014.
55 In my view, these directions and requests make it clear that the works performed by Element Five should be paid for by Kingsland, either pursuant to the contract or by way of quantum meruit and in a reasonable sum. This conclusion is supported by the certification by the superintendent of payment claim number 1 on 13 February 2014 in the sum of $143,045.10 (including GST) on the basis that, “The works are claimed and certified as preliminary works under clause 4.2 of the Instrument of Agreement”.
Effect of the absence of an approved preliminary works budget
56 Clause 4.2(b) of the contract anticipates that a “preliminary works budget” will be approved. The purpose of clause 4.2 is to make the contract conditions applicable to preliminary works performed in advance of the contract becoming unconditional.
57 Clause 4.2(b) provides that “all references in the Contract to the Contract Sum shall be deemed to refer to the reasonable and proper cost of the Preliminary Works up to but not exceeding a maximum cost approved in writing by the Principal for that purpose (‘Preliminary Works Budget’)”.
58 Clause 4.2(c) provides that “payment shall be made by the Principal to the Contractor, in respect of the Preliminary Works performed by the Contractor prior to the date specified in clause 3(a) of this instrument of agreement, in accordance with clause 42.1 of the General Conditions, and following satisfaction or waiver of the conditions subsequent in clause 3(a), those payment shall be deemed included within and to have been paid on account of the Contract Sum for the whole of the Works”.
59 The last part of clause 4.2(c) is echoed in clause 4.3(c) which provides that, “Amounts paid by the Principal for the performance of any Preliminary Works shall be deemed paid on account of the Contract Sum”. Clause 4.2(d) provides that “the Principal shall be entitled to suspend or terminate the performance of the Preliminary Works under this clause 4.2 at any time, by notice in writing to the Contractor, and shall pay the Contractor for the Preliminary Works performed in accordance with clause 42.1 of the General Conditions, to a maximum amount not exceeding the Preliminary Works Budget”.
60 By paragraphs 26 and 27 of its defence to further amended statement of claim, Kingsland asserted that, as Kingsland “did not approve a Preliminary Works Budget [Element Five] is not entitled to any payment”.
61 Element Five’s counsel, Mr Oliver, submitted that, “The requirement for a preliminary works budget is not a prerequisite to Element Five being entitled to payment. The fact that Kingsland issued instructions for work without setting a maximum cost is an omission by Kingsland and is not a defence to Element Five’s claim”.
62 One of the matters requested by the superintendent in its email to Element Five on 12 December 2013, was that Element Five “provide cash flow forecast this week”. The minutes of site meeting number 1 on 17 January 2014 record, “EV [Element Five] to provide detailed project cash flow forecast (with trade breakdown) to [Kingsland] for submission to project financier ASAP”.
63 Mr Sachs provided a “detailed forecast cash flow” on 22 January 2014. On 13 February 2014, the superintendent certified payment claim number 1 as being for “preliminary works under clause 4.2” of the contract.
64 On 7 March 2014, Mr Sachs wrote to Mr Millicer stating that Element Five “wish to clarify what works we intend to claim as ‘Preliminary Works’ under the contract”. The email listed eight items at a total estimated cost of $507,000 which, after deducting the costs “claimed to date” of $144,490, left $362,510 as the “estimated remaining to claim”.
65 On 12 March 2014, Mr Sachs in a further email to Mr Millicer stated, “We will need to have the Preliminary Works Budget approved, as per my attached email, before we can proceed with these works and incur further costs”. The matter was never resolved.
66 Clause 4.2(b) seems to anticipate that a preliminary works budget would be prepared by Element Five and submitted to Kingsland for approval. However, the expression “preliminary works budget” is defined in clause 4.2(b) as “a maximum cost approved in writing by the Principal for that purpose [emphasis added]”. The relevant purpose seems to be to set a limit on what may be claimed as “the reasonable and proper cost of the preliminary works”. Clause 4.2(d) confirms that the contractor’s payment claims for preliminary works must be limited “to a maximum amount not exceeding the Preliminary Works Budget”.
67 Clause 4.2(b) was necessary because there was no delineation in the contract of the means of costing the preliminary works. Clause 4.3(b) provides that the “contract sum payable by the Principal for the work under the Contract is a fixed lump sum”. However, the preliminary works were not so constrained.
68 The contract does, however, provide protections for the principal in respect of preliminary works, as follows:
a.the general scope of preliminary works is included in the definition;
b.preliminary works require the “prior written agreement of the principal”;
c.the contractor can only claim “the reasonable and proper cost of the preliminary works”;
d.the contractor’s payment claim would be assessed by the superintendent;
e.the reasonable and proper cost cannot exceed a “maximum cost approved in writing by the principal”;
f.“amounts paid by the principal for the performance of any preliminary works shall be deemed paid on account of the contract sum”.
69 Accordingly, I do not consider that, in circumstances where preliminary works were appropriately requested and only the reasonable and proper cost can be claimed, the fact that the principal has not given written approval for a “maximum cost” for the preliminary work, can not exclude the principal’s liability to pay the contractor. This aspect of Kingsland’s defence must fail.
Effect of the failure to include a cash flow or statutory declaration with the progress claims
70 Clause 4.2(d) of the contract provides that payments are to be made “in accordance with clause 42.1”. Clause 42.1 provides that the contractor’s payment claims:
a.“must include the provision of a statutory declaration” relating to payment to “subcontractors, consultants, suppliers and workers”; and
b.“shall include a cash flow forecast to completion of the Works”.
71 Mr Fink, submitted that payment claim numbers 1 and 2 were not valid claims under the contract because they lacked a cash flow forecast, and payment claim number 2 did not include a relevant statutory declaration. These matters were not raised by Kingsland in its defence, and no application was made to amend the defence. Any application would, in my view, have been unlikely to be granted because the matters raised had little merit.
72 A “detailed forecast cash flow” was provided by Mr Sachs on 22 January 2014. Payment claim number 1 was made on 28 January 2014. In the circumstances, I do not consider that the requirements of clause 42.1 have not been met, namely the delivery to the superintendent of evidence supporting “the amount due to the contractor and such information as the superintendent may reasonably require” including, as required by sub-paragraph (e), “a cash flow forecast to completion of the works”.
73 On 28 January 2014, the superintendent had the evidence of the “detailed forecast cash flow” provided on 22 January. There is nothing to suggest that the superintendent might reasonably have required more than that document to determine “the amount due to the contractor”. Certainly the superintendent did not consider that anything further was required, and certified on 13 February 2014 that the amount of $143,045.10 was payable by Kingsland to Element Five.
74 As the sum of $143,045.10 exceeds the amount claimed by Element Five in the proceeding, both pursuant to the contract or as a quantum meruit, it would be unnecessary for me to determine the statutory declaration issue which related only to payment claim number 2.
75 In the present case, a statutory declaration may have been required by clause 42.1(d), for example to verify that contractors and workers had or would be paid. However, whether or not that is the case, a failure to satisfy that requirement would not necessary prevent recovery on a quantum meruit basis and probably not under the contract, although further steps may have needed to have been undertaken by Element Five.
Factors affecting the quantum of Element Five’s claims
76 Mr Fink challenged three specific aspects of the quantification of Element Five’s claims:
a.the labour charge of $46.93 per hour for Mr Sachs’s labour;
b.whether labour costs during the period after 1 April 2014 were claimable;
c.whether the invoices of Interspan Pty Ltd and Browns Piling Pty Ltd were “due and payable”.
77 a. labour charge of $46.93 per hour for Mr Sachs: Mr Fink submitted that the labour charge for Mr Sachs was excessive. Mr Sachs had replaced Mr Xin Tan as the contract administrator. Mr Xin was paid at a rate of $24.05 per hour. Mr Fink said that Mr Watts had given evidence that the range of wage rates for contract administrators was between $24 and $46 per hour. Therefore, it was submitted a reasonable rate for a contract administrator was “substantially less than the $46.93 per hour claimed for Mr Sachs’s labour”.
78 In fact, Mr Watts said that the range of labour costs for contract administrators was between about $24 and $70 per hour. The project was substantial, apparently with significant design as well as construction issues. In the circumstances, a contract administrator with considerably more than basic experience was required if the project was to proceed efficiently. There is no evidence to support the view that the labour charge of $46.93 per hour was not reasonable.
79 b. the appropriateness of charging for work after 1 April 2014: Mr Fink submitted that Element Five should not be entitled to payment for work commenced after 1 April 2014 “or for items or components of work commenced after that date”. Mr Fink relied on Mr Sachs’ email to a number of addressees on 1 April 2014.
80 The email stated the client had advised that the project was “on hold”. The reason given was that this was “pending a redesign of some elements of the building”. The inference from the email is that the “redesign” was proceeding. The contract awarded to Element Five was a design and construct contract. It is likely therefore that Element Five and certain of its employees, sub-contractors and consultants would be continuing work.
81 In fact, the correspondence between Element Five, Kingsland and the superintendent in March 2014 (particularly on 6 and 12 March) indicates that Element Five was seeking direction from Kingsland and the superintendent about the project and payment of the certified payment claim number 1.
82 The work performed by Mr Harvey and Mr Sachs after 1 April 2014, and the work undertaken by sub-contractors or consultants was very limited. However, it was not until about 23 June 2014 that the superintendent considered that it was appropriate to direct those parties working on the project (including Element Five, its sub-contractors and the consultants) to stop work.
83 There is no basis for disallowing the hours recorded by Mr Harvey and Mr Sachs, or invoices for work performed, except after mid-June 2014.
84 c. invoices of Interspan Pty Ltd and Browns Piling Pty Ltd: Mr Fink submitted that there was evidence suggesting that both Interspan Pty Ltd and Browns Piling Pty Ltd “would not require that [Element Five] pay these invoices”. However, Mr Fink said that implications from the evidence would only arise if Element Five were “unsuccessful in recovering moneys for the Interspan and Browns Piling items in this proceeding”.
85 In my view, this provides no basis for denying Element Five recovery against the designers for the invoiced costs of the work each performed. It appears that both designers have a longstanding and ongoing business relationship with Element Five and neither company has insisted that its invoice be paid before this proceeding is concluded.
86 Although I am not persuaded that it is necessary, I will in allowing the invoices, order that Element Five’s solicitors advise each company that Element Five has recovered judgment for an amount which includes the whole of Interspan Pty Ltd’s invoice dated 24 April 2014 for $14,520 (including GST) and Browns Piling Pty Ltd’s invoice dated 3 April 2014 for $7,975 (including GST).
Should Element Five recover on its quantum meruit claim?
87 The contract claim is for a lesser sum than the quantum meruit claim. I consider that Element Five should succeed on both claims. Justice Vickery in Vasco Investment Managers Ltd v Morgan Stanley Australia Ltd [2014] VSC 455 at paragraphs 336-342 conveniently summarised the principles which “apply to an action in quantum meruit, as derived from Pavey & Matthews Pty Ltd v Paul [(1987) 162 CLR 221], Brenner v First Artist Management Pty Ltd [(1993) 2 VR 221] and Lumbers v W. Cook Builders Pty Ltd (in liq) [(2008) 232 CLR 635]” (paragraph 337). The quantum meruit claim fits within those principles.
Proposed orders
88 On 15 March 2017, AGS’s solicitors corresponded with Belgravia’s solicitors and the Court about “errors in calculations contained in the final submissions”. The errors relate to the hours claimed for Mr Harvey, which were overstated as 296 rather than the correct figure of 249. However, the resulting deduction was almost covered by an error in the calculation of the 10% GST.
89 AGS’s solicitors suggested that “the rectification of these errors results in a small increase in the contractual claim”. However, the quantum meruit claim also takes account of Mr Harvey’s labour claim and it may also need to be adjusted.
90 Subject to clarification of the issue of quantum, I propose to make the following orders in the proceeding:
1.Judgment for the plaintiff against the defendant that the defendant pay to the plaintiff the sum of [$114,239.37].
2.Within 7 days, the plaintiff’s solicitors must serve on Interspan Pty Ltd and Browns Piling Pty Ltd, by pre-paid post addressed to their respective registered offices:
a. a copy of this order; and
b.a letter advising each company that the proceeding between Element Five Pty Ltd and Kingsland Group Pty Ltd concluded and the Court gave judgment in favour of Element Five Pty Ltd for a sum which included the following invoices [together with interest thereon pursuant to the Penalty Interest Rates Act 1983 (Vic)] from (a date to be specified), and which the plaintiff intents to pay to each company upon the receipt of payment from the defendant:
i.invoice from Interspan Pty Ltd dated 24 April 2014 for $14,520 (including GST);
ii.invoice from Browns Piling Pty Ltd dated 3 April 2014 for $7,975 (including GST).
91 I will hear further from the parties as to the form of the orders and questions of interest and costs. If the parties cannot resolve these matters between themselves, the case will be relisted at a time convenient to the parties and the Court.
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Certificate
I certify that these 24 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 16 March 2017.
Dated: 16 March 2017
Carla Cianfaglione
Associate to His Honour Judge Anderson
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