ET Constructions Pty Ltd v Brown
[2006] NSWLC 24
•24/04/2006
Local Court of New South Wales
CITATION: ET Constructions Pty Ltd v Brown [2006] NSWLC 24 JURISDICTION: Civil PARTIES: ET Constructions Pty Ltd
Peter BrownFILE NUMBER: 1538/05 PLACE OF HEARING: Downing Centre Local Court DATE OF DECISION:
04/24/2006MAGISTRATE: Magistrate H Dillon CATCHWORDS: Building and engineering contracts - Interpretation of contract - Whether project manager overcharged client - Whether project manager breached contract by failing adequately to supervise project LEGISLATION CITED: CASES CITED: Toll ((FGCT) Pty Limited v Alphapharm Pty Limited (2004) 211 ALR 342 REPRESENTATION: Neil O'Connor and Associates - Solicitors
Mr M E Luitingh - Counsel
Staunton Beattie - Solicitors
Mr E Peterson - CounselORDERS: In relation to the plaintiff's claim, verdict for the defendant Mr Brown and judgment accordingly.; In relation to the cross-claim, verdict for the cross-claimant Mr Brown in the sum of $28,790 and judgment accordingly.; In relation to costs, the orders proposed are that the costs follow the event in a sum to be agreed or assessed. Parties may have liberty to apply.
JUDGMENT
1. The parties in these proceedings, ET Constructions Pty Ltd (“ET”) and Mr Peter Brown, entered a contract in August 2002 concerning the construction of a house for Mr Brown at 36 Bayview St, Tennyson. The plaintiff is a corporation providing building services and building project management services. Mr Brown is the owner of the property and was at all relevant times the owner-builder. It is common ground that the plaintiff provided certain services to the defendant and that a number of invoices issued by the plaintiff to Mr Brown remain unpaid. The balance claimed by the plaintiff in this respect is a sum of $22,173.68. The plaintiff also claims a sum of $35,667.01 being for a “termination payment” it asserts is outstanding.
2. Mr Brown in his defence alleges that the plaintiff overcharged him a sum of $26,487.83 in its invoices and that he is therefore entitled to resist the plaintiff’s claim to that amount. Second, in his cross-claim he asserts that drainage work performed by the plaintiff was defective and seeks a sum of $20,000 for the rectification of that work.
The contract
3. Mr Brown had commenced his building project in 2002 some time before the plaintiff became involved. After negotiations had been conducted, the parties entered a written contract. Under the contract the plaintiff was entitled to be paid in accordance with various terms. A key issue in this case is the interpretation of various aspects of the contract. Of particular significance in the case are clauses 1, 5A, 15, 19 and 20. Clause 1 deals with definitions of the “cost of the works” and the “works”. Clause 5A deals with superintendence of the project. Clause 15 deals with the construction manager’s fee. Clause 19 concerns termination of the contract and clause 20 relates to the construction manager’s termination fee.
4. Clause 1 defined “cost of the works” as “costs and expenses incurred by the construction manager and by the principal in connection with the construction of the works”. It defined “the works” as “the whole of the work to be carried out and completed in accordance with the contract which is to be handed over to the principal”.
5. Clause 5A obliged the plaintiff to supervise the works “so as to ensure that [they were] executed in accordance with [the] contract” and for that purpose to maintain a competent person on the site as necessary.
6. Clause 15 provided:
In consideration of the performance of the construction manager’s management services under this contract, the principal shall pay the construction manager the following fees:
A fee paid on a fortnightly basis in arrears calculated as a percentage specified in the second option of Schedule 6 of the Cost of Works (excluding the construction manager’s fee under clause 15(a) and the fees of the delegate appointed under clause 8(b)).A fee paid on a fortnightly basis in arrears and based on an hourly rate for the hours (or part thereof) worked by the construction manager (if an individual) and employees of the construction manager and the classification of those employees and the rate shall be set out in Schedule 6. The construction manager must maintain suitable records of the hours worked by those employees; and
1. Schedule 6 set the hourly rates at $60 for the director; $50 for the project manager; $45 for the foreman; $40 for labourers; and $35 for clerical work, exclusive of Goods & Services Tax (“GST”). It also provided that “the fee to be paid to the construction manager for management services during the construction stage” would be five per cent of the “cost of works”.
2. Clause 17 of the contract governed the items that were included in the construction manager’s fee for the purposes of clause 15. It read:
(a) The remuneration of its employees at its principal or any branch office, site office and site labour, except as provided in Schedule 9(3).The following items shall be deemed to be included in the construction manager’s fee under [clause 15]:
(b) Other usual overhead expenses such as director’s fees, rents, rates and other “off the job” costs .
3. Schedules 9(3) and 10 listed the positions and hourly rates of ET’s employees stationed at ET’s main office rather than the site itself but whose salaries counted in respect of clauses 15 and 17. They comprised Mr and Ms Olofsson and Mr Follent at their respective hourly rates of $60, $35 and $50.
4. In relation to termination, clause 19 provided that either party could terminate the contract by giving the other 10 days’ written notice, to be sent by registered post after which a notice of termination could issue, again to be sent to the recipient by registered post. The contract was to be terminated upon receipt of the notice of termination.
5. Clause 19 also provided that the principal would pay the construction manager for any costs of the works not yet claimed by the construction manager or, if claimed, unpaid by the principal up to the date of termination. It also provided that a termination fee be paid in accordance with clause 20. Under clause 19, all these payments were payable within 14 days of termination.
6. Clause 20 relevantly provided:
(ii) Where the construction manager is being paid by a percentage of the cost of works pursuant to sub-clause 15(b) the balance of the fee payable based on the percentage set out in schedule 6 and the value of the cost of the works executed to the date of termination. The value of the cost of the works shall be estimated by the construction manager at the date of termination .The principal shall pay the construction manager… one only of the following:
7. It will be necessary to return to consider the contract and construe aspects of it.
Further background
8. Between June 2002 and 17 December of that year the plaintiff was involved in the construction of the defendant’s house. It rendered invoices in respect of the services provided between July and December 2002. In about September 2003, the plaintiff rendered a further invoice constituting its claim for balances it asserted remained outstanding under previous invoices. The defendant made payments in full to the plaintiff in respect of most invoices rendered but only part-paid three. During the course of the project, the plaintiff invoiced a total of $316,696.25 of which Mr Brown paid $294,792.96. It later rendered further invoices, for the most part repeating claims made in previous invoices which were not paid.
9. After the contract was terminated in December 2002, the defendant undertook further stormwater drainage works. He asserts that it was necessary for him to do so to rectify defective work carried out by the plaintiff. The parties agree that the reasonable cost of those works is $20,000.
The plaintiff’s claim
10. The plaintiff’s claim seems to have been attended by some confusion and uncertainty on its own part. In its amended statement of liquidated claim, the plaintiff claimed various sums exceeding $60,000 but abandoning the excess. It then sought to proceed on the basis of a further amended statement of liquidated claim in the sum of $57,845.69. When the trial commenced, an agreed statement of facts and issues was tendered, effectively amending again the plaintiff’s claim. At paragraph 15 of the agreed facts the claim was stated to be to a sum of $22,173.68 in respect of a number of invoices.
11. At paragraph 16 of that document, it was stated that the defendant disputed various sums to a total of $21,902.29. That included an amount of $6354.67 initially claimed by the plaintiff relating to a percentage of labour charges. When the matter came on for trial, however, the court was informed by counsel for the plaintiff that that sum was no longer claimed.
12. In the statement of agreed facts, the plaintiff also claimed a sum of $8,186.06 in respect of a percentage of prime cost items; a sum of $21,829.50 in respect “notice on termination of the contract”; and a sum of $47,981.85 “being a five per cent of the total cost of works (being all those costs incurred in construction before the plaintiff came to the site, while the plaintiff was on the site and after the plaintiff left the site)”.
13. In respect of what it refers to as a “termination” payment, the claim in its submissions was to a sum of $35,667.01. The plaintiff’s aggregate claim, ultimately, was therefore to a sum of $57,840.69.
14. According to the statement of agreed facts and issues, the defendant contested claims made by the plaintiff in invoices T005-T017, namely $11,483.68 claimed for “administration charges”; $2920 claimed for “contract negotiation” and $1143.94 claimed for unpaid builder’s margin on prime cost items, a sum of $15,547.62. The confusion to which I have referred was compounded by the fact that in the submissions made at the conclusion of the trial, the parties stated that the dispute in relation to “contract negotiation” concerned a sum of $1460. The defendant also denied liability to pay any termination fee or payment.
The cross-claim
15. As pleaded, the cross-claim raised two principal issues: an allegation that the plaintiff had breached its contract with Mr Brown by failing properly to superintend the stormwater drainage works installed on the site during the construction and, second, an allegation that the plaintiff had overcharged the defendant. In respect of the latter issue, a claim for reimbursement or set-off was raised by the cross-claim. The alleged overcharging was for a sum of $10,885 for administration and $6953.33 for surcharges of five per cent being added to labour costs (including administration) together with a sum of $7189.50 for five per cent builder’s margins charged to Mr Brown by ET in respect of prime cost items.
16. The defendant’s amended notice of grounds of defence and notice of cross-claim for all relevant purposes make the same allegations.
17. Although the plaintiff in its written submissions argued that the agreed statement of facts and issues had largely superseded the pleadings, that argument obtains, it would seem, only in respect of the plaintiff’s claim, not the cross-claim.
The issues
18. At the conclusion of the hearing, the parties undertook to provide a joint tender bundle. This helpful collection of key documents included a list of issues to be determined. Unfortunately, it included the question whether the defendant was liable to pay a sum of $6354.67, being five per cent of labour charges claimed in invoices T005 to T017. I say “unfortunately” because, as I have noted above, at the trial, counsel for the plaintiff announced that this claim was not pressed by the plaintiff. In his submissions, the defendant specifically noted the plaintiff’s concession and relied upon it. In my view, that concession having been made and never having been withdrawn, it is not now open to the plaintiff to advance it. Lest I be wrong in holding that view, however, I propose to deal with it briefly below as it is a matter of construction of the contract only. It most convenient to come at the question when dealing with the cross-claim in respect of the allegation of overcharging.
19. The second issue in relation to the claim is the question whether the defendant is liable under the contract for “administration charges”. Related to this is an issue concerning the adequacy or otherwise of the records kept by the plaintiff.
20. The third issue is whether the plaintiff has an entitlement to a sum for “contract negotiation”. This is disputed by the defendant.
21. The fourth issue arising from the claim is whether the plaintiff is entitled to the sum claimed in respect of its Prime Cost schedule, or any part of it.
22. The fifth issue is whether the plaintiff is entitled to claim a sum of five per cent of the entire costs of the works, including those costs incurred by the defendant or others before the plaintiff entered the site and after it left the job. If the plaintiff is not entitled to that sum, then to what, if anything, has it an entitlement?
23. Sixth, an issue arises as to whether the plaintiff is entitled to a termination fee and, if so, in what amount. This question relates to the previous one.
24. Seventh, there is the question of overcharging, the allegation raised against the plaintiff by the defendant.
25. Finally, in respect of the cross-claim, the question is whether the plaintiff is liable in respect of the allegation that the plaintiff failed adequately to superintend the construction of the stormwater drainage system. (Quantum in that regard is not in issue.)
Preliminary evidentiary rulings
26. Somewhat reluctantly, I agreed early in the hearing with the suggestion of counsel that, rather than dealing with objections to evidence tendered at the time, I could deal with the objections in the course of hearing the submissions. In retrospect, I consider that the better course would have been to decide the admissibility issues at the time. Regrettably, having adopted the course urged on me by counsel (in the interests of saving time), I find that the defendant has made about 35 objections to the plaintiff’s evidence, and the plaintiff has not made any submissions in reply.
27. When the trial proper concluded directions were given concerning the filing of written submissions concerning objections and responses. Only the plaintiff’s counsel appears to have complied. The difficulties this creates, at least potentially, are self-evident. Nonetheless, it appears to me that there is probably relatively little prejudice to the plaintiff because its case is clear and most of the objections relate to insignificant matters.
28. In relation to the affidavit of Erland Olofsson, dated 15 April 2005, 10 objections are taken, most of them to very minor points. I exclude paragraphs [8] and [10] on the basis of irrelevance and, while paragraphs [46] and [47] are somewhat argumentative or can be classed as submissions they contain within them the evidence that certain payments have not been made. Those facts are agreed. There is therefore no prejudice to the defendant and the task of sifting the inadmissible from the admissible is entirely pointless. I admit the other material objected to because it is relevant to the background of the construction project and not otherwise inadmissible.
29. Two objections are taken to his second affidavit of April 2005. Paragraph [5] is irrelevant and is excluded. The other paragraph objected to is admitted.
30. In relation to Ms Tertu Olofsson’s affidavit, dated 15 April 2005, five objections are taken. Paragraph [10] is inadmissible because its ultimately offers an opinion based on mere hearsay. The hearsay itself is irrelevant. The balance of the objections relate to calculations made by Ms Olofsson from company books. This is direct evidence of her calculations. The documents have been tendered. There is therefore no prejudice to the defendant.
31. Although counsel did not have a copy of the second affidavit of Ms Olofsson, he nonetheless took objection to it. Again, the evidence is her calculations based on examination of the books of the company. In my view, that is admissible evidence. She is a bookkeeper, and the keeper of the records. The documents are in evidence – there is therefore no prejudice to the defendant.
32. Five objections are taken to the affidavit of Werner Zettl of April 2005. All of them are minor matters. All of the material is relevant, if only marginally, to give the flavour and background of the relationship between the parties on the construction site.
33. Five objections are also taken to the affidavit of Werner Zettl of 13 May 2005. Those objections appear to relate to a document I do not have.
34. Finally, in relation to the affidavit of Mr Robert Follent dated 24 May 2005, seven objections are taken. I exclude paragraphs [15], [20.1], [20.14] and [20.15] on the basis of relevance and [20.16] because it is an opinion for which a proper basis has not been demonstrated.
Evidence
35. The primary evidence in relation to the plaintiff’s case is the contract and the documents relating to the project, including the invoices it issued to Mr Brown. Evidence was also given by Mr Olofsson, sole director of ET, Mrs Olofsson, ET’s book-keeper and administrative officer, Mr Zettl, ET’s foreman on the site and Mr Follent, ET’s “project co-ordinator”. Mr Brown gave evidence against the plaintiff.
36. In relation to the cross-claim, Mr Brown gave evidence and evidence in response was called by the plaintiff from Messrs Olofsson, Zettl and Follent.
37. Although, in the interests of making a small genuflection in the direction of economy, I do not propose to refer directly to the entirety of the voluminous body of evidence that was adduced by the parties, I have read and considered all the documentary evidence and taken it, as well as all the oral evidence, into account. It is necessary, however, to deal with some of the documentary evidence, especially the invoices, in some detail.
The invoices
38. The plaintiff issued 14 invoices to the defendant, commencing on 20 July 2002 with T005. The plaintiff’s practice was to issue its tax invoice, effectively a progress claim, every few weeks during its tenure of the project. Attached to each invoice was a handwritten breakdown of the costs included in the sum claimed in each invoice. Where costs had been incurred by the plaintiff by, for example, by the ordering of materials or the hiring of equipment, the relevant invoices from the suppliers were generally attached to ET’s invoice. The handwritten sheet also included labour charges for Messrs Follent, Olofsson and others, together with claims for administration costs and such things as postage and sundries. Interestingly, the postage and sundries in most invoices came to a very neat $100.
39. Tax invoices were issued to Mr Brown on 20 July 2002 (T005) in the sum of $13,365.29; on 3 August 2002 (T006) in the sum of $6619.38; on 17 August 2002 (T007) for $16,077.47; on 31 August 2002 (T008) for $35,622.35; on 16 September 2002 (T009) for $27,279.20; on 29 September 2002 (T010) for $15,971.60; on 13 October 2002 (T011) for $28,400.87; on 27 October 2002 (T012) for $18,659.86; on 10 November 2002 (T013) for $47,230.29; on 24 November 2002 (T014) for $27,103.53; on 6 December 2002 (T015) for $33,973.79; on 30 December 2002 (T016) for $27,658.70; on 3 February 2003 (T017) for $13,547.92; and on 22 September 2003, ET issued what it characterised as a “final amended tax invoice” claiming a balance outstanding of $25,360.93 including GST. Further invoices were issued by ET in April 2005 (T019 – 021).
40. It is common ground that Mr Brown paid most of the invoices in full but that in respect of invoices T014, T016, T017 and T018, Mr Brown has not paid or not paid in full. Invoices T019 – 021 remain unpaid.
41. According to ET’s business records, in relation to invoice T014, Mr Brown paid a sum of $27,103.53, leaving a shortfall of $5457.39. Of the claim for $27,658.70 made in invoice T016, Mr Brown paid $15,528.32, leaving a shortfall of $12,130.38. When, however, it issued its last invoice (T018) on 22 September 2003, ET calculated a shortfall of $11,027.61 in respect of T016 and $4585.91 for T017 to which it added a claim to a sum of $7441.87 being for a builder’s margin on the Provisional and Prime Cost schedule. GST was added to the aggregate sum of $23,055.39 to bring the total to $25,360.93.
42. The essence of what I understand to be ET’s claim is set out in invoices T017 – T021.
43. In T017, which made a claim to a sum of $13,547.92 the aggregate sum was broken down. A sum of $3229.96 was claimed for the supply of materials and hire of equipment. A margin of five per cent was added to that and GST was added on top of that sum. Then ET claimed a sum of $320 plus margin plus GST for hours said to have been worked by Messrs Olofsson and Follent in February 2003, a time after the contract had been terminated. An administration fee of $140 plus margin plus GST was added to the bill.
44. ET then also claimed a margin in respect of two sums which appear to have been paid by Mr Brown. It is not clear, because the invoices from the suppliers were not tendered in evidence, whether the payments to the two suppliers or sub-contractors on which the margin was claimed were made by Mr Brown before the conclusion of the contract or afterwards. ET bears the onus of proving that it was at some time before 17 December when ET left the site but there is a reasonable inference to be drawn that it was the case if ET was in possession of the information that materials had been supplied. The margin claimed in that respect was a sum of $718.45 plus GST, a total amount of $790.29.
45. Then followed claims in respect of items said to be outstanding from other progress claims. Brought over from invoice T016 were two minor sums related to work apparently billed by sub-contractors who were, it seems, not paid by Mr Brown. More significantly, there was a claim made to a margin on labour costs in the sum of $4279.01. Brought forward from T005 was a claim to a sum of $1460 (plus GST) in respect of “contract negotiation”. Finally, a claim was made to a sum of $1493.50 plus GST in relation to the Provisional and Prime Cost Schedule. The invoice noted, “We have requested costings of PC items without firming (sic) information, we [are] assessing on the allowances as per schedule enclosed.”
46. T018 was stated to be an “amended invoice”. It claimed an amount outstanding from invoice T016 of $11,027.61 plus GST of $1102.76; an amount outstanding from invoice T017 of $4585.91 plus GST of $458.59 plus a builder’s margin on the whole of the Provisional and Prime Cost Schedule (i.e. a provisional sum of $198,450) plus GST, the sub-total of those amounts being reduced by $2480.63 for a payment previously made in respect of PC items under invoice T013. Invoice T018 then asserted a claim to a sum of $25,360.93.
47. Invoice T019 was generated on 11 April 2005. It once more claimed the margin on the Provisional and Prime Cost Schedule sum of $198,450 but made no other claims. It attached the architect’s schedule.
48. On the same day, ET generated invoice T020 which was its estimate of the total cost of the works, less sums already paid. The estimate for the total cost of works was $1,380,000 (including a builder’s margin of 15 per cent). From that sum was deducted an amount of $507,602.95 for sums already deducted (sub-contractors $266,737.13; suppliers $110,486.27 and labour $130,379.55) leaving, according to ET’s calculations, a sum of $872,397.05 upon which ET claimed a margin of five per cent, i.e., $43,619.86 plus GST, a grand total of $47,981.85.
49. Finally, again on 11 April 2005, ET generated yet another invoice, T021, this time relating to hours of work claimed in respect of “notice” not given by Mr Brown. The hours claimed were in the period 18 December 2002 to 6 January 2003. It is unnecessary to set out further details except that the sum claimed was $21,829.50.
50. Mr Brown’s evidence concerning the invoices was that he had had paid invoice T005 but had not closely looked at any of the invoices he had received from ET until towards the end of the time ET was on the site. He said that he had done a reconciliation in about December 2002 and January 2003.
51. In respect of T005, he challenged ET’s claim in that he asserts that the invoice included a claim for “contract negotiation” by Mr Olofsson in the sum of $1460. The invoice claims a sum of $4300 as a labour charge for Mr Olofsson but does not specifically refer to any time spent by him in negotiating the contract. In T005, a sum in handwriting appears below the total. It multiplies two hourly rates and comes to a figure of $1460 plus GST of $146, a total of $1606. It was not charged to Mr Brown in that invoice, although the calculation was done. The first reference to that amount being claimed by ET for “contract negotiation” by Mr Olofsson in an invoice seems to appear in invoice T017 where, apparently after a discussion between Messrs Olofsson and Brown early in 2003, a notation appears: “No overcharge on contract negotiation. At initial meeting P. Brown was informed clock started 25.6.02, he agreed and witnessed by Architect.” That invoice implies that Mr Olofsson told Mr Brown that a sum of $1460 had been included in the first invoice for “contract negotiation”.
52. Mr Brown also challenged the claim made by ET in invoice T014 to a sum of $4961.26 described in the handwritten breakdown sheet as “builder’s margin on 50% of provisional sum”. Mr Brown’s evidence was that at the time that invoice was issued 50 per cent of the PC items had not been installed and indeed many never were while ET was on the site. He said that because ET was claiming a 5 per cent margin for many PC items that had not been installed, he deducted $5457.39, being the amount claimed for PC items plus GST and paid the balance.
53. In relation to invoice T016, Mr Brown’s evidence was that he again disputed the sum of $4961.26 claimed in respect of PC items carried over from invoice T014. His evidence was also that he had concerns that ET was claiming an additional five per cent on top of its hourly labour charges which he believed it was not entitled to under the contract. He said that he had written to ET on 6 January 2003 admitting an obligation to pay $15,528.32 but not more because of these concerns and that he had paid ET that sum, having set out a reconciliation of what he considered ET was due.
54. Concerning invoice T017, Mr Brown’s evidence was that the invoice included (again) a charge for “contract negotiations”, which had already been paid in full in T005 but was an overpayment; a claim to $1493.50 for PC items, most of which were not installed by the time ET left the site according to Mr Brown; and a claim to five per cent on top of labour charges, ET’s entitlement to which was disputed by Mr Brown. He said that he made inquiries of the various suppliers nominated in the breakdown of T017 and, if any had not been paid by ET, paid them himself directly. His recollection was that he had paid $8962.01 directly in this fashion. According to his calculations this left a balance on invoice T017 of $4585.91 which he did not pay because in his view it was not outstanding. He added the further reason that ET had not properly superintended the works in accordance with its obligations under the contract.
55. Although it would have been helpful had the parties conducted the exercise rather than leaving it to the court, invoices T005-016, or rather the handwritten attachments and invoices attached to them, show that ET expended, on my calculations, $106,455.24 on supplies, equipment hire, sub-contractors, postage and sundries during the course of the construction works which it managed. This sum does not include labour costs or the five per cent surcharge added later as the construction manager’s margin. Nor does it include GST.
56. ET’s methodology was to list the various items hired or supplied with the relevant costs to which was added labour costs (I include the charge for administration made in each invoice). To the aggregate figure for these amounts was added an amount of five per cent of the total, including labour costs. If, as was usually the case, a supplier was paid directly by Mr Brown, ET added a surcharge of five per cent to each item listed in the handwritten breakdown sheet. This was then added to the previous total reached by ET and GST was then added to bring the bill to its grand total.
57. According to the invoices, ET billed for a five per cent surcharge on a total of $226,468.49, being payments made by Mr Brown to suppliers. (This sum does not include a percentage also charged in respect of prime cost items which was not paid by Mr Brown.) It appears that Mr Brown paid the surcharges claimed in respect of those payments made by him.
58. The invoices show that labour costs (including charges for administration) of $110,933.50 were charged in invoices T005-016. With the addition of the five per cent surcharge, I calculate that the total labour costs billed by ET were $116,480.18.
59. I will now deal with the evidence in relation to specific issues in some finer detail.
The contract negotiation fee
60. This fee is claimed in two invoices, T005 and T017, although it is not made explicit in T005. In T005, a sum in handwriting appears below the total. It multiplies two hourly rates and comes to a figure of $1460 plus GST of $146, a total of $1606. Although the calculation was made, it seems that Mr Brown was not billed that amount until invoice T017 was presented. Both claims apparently relate to the negotiation process conducted in June 2005.
61. Nothing appears in the written contract relating to a “negotiation fee”.
62. Mr Olofsson’s evidence was that on 25 June, at his first meeting with Mr Brown, he had agreed to undertake the project for Mr Brown and had stated, “Peter, I am prepared to project manage this project for you on the terms that we have discussed today. I will propose a form of contract and the clock starts now…” He said that he had subsequently got in touch with the Master Builders’ Association and obtained a copy of their standard form of contract which he had forwarded to the architect with a request that Mr Brown review it for further discussion. He said that there had been certain special conditions and amendments proposed by Mr Brown before the contract was finally signed by both parties, by which time ET had been working on the site for about six weeks.
63. The plaintiff also tendered a copy of minutes taken by the architects, Quinn O’Hanlon, at the meeting. Twenty-four items of business were discussed at the meeting. Of relevance were items 1.09 (“ETC to project manage under an agreement rather than a contract”) and 1.11 “ETC Agreement conditions”. The agreement conditions proposed by ET related to fortnightly payments; hourly rates for all labour and office staff; a five per cent loading on top of all labour and material costs; time sheets; a full-time foreman; site investigation and ordering of materials; and the time of the commencement of ET’s foreman on the site. No reference appears anywhere in the closely detailed minutes to a “contract negotiation fee” or “the clock starting” at the meeting. Mr Olofsson appeared in cross-examination to be unsure how his figure for contract negotiation had been derived. He said that it encompassed the work of a number of people. He did not explain what they did or when they did it.
64. Mr Brown had only a sketchy recollection of the first meeting. In his statement he gave very little evidence about the initial meeting and none to do with the “contract negotiation” fee at all. His position in effect was that there was no notice to him that ET would claim any fee in respect of “contract negotiations”, nothing ratifying such a claim in the written contract and no meeting of minds on this subject. He did not, however, contest the evidence that Mr Olofsson said that “the clock starts now” at the meeting.
Administration costs
65. Although the cross-claim alleged that ET was not entitled at all to claim for administration, as the evidence developed it appeared that there was ultimately no dispute between the parties that ET was entitled to be paid for administration costs reasonably incurred in respect of the contract. The contract provided for this contingency. The real issue is in relation to the reasonableness of the amounts claimed in the invoices. The following amounts of time were claimed by ET for work said to have been done by Ms Olofsson:
T005: 10 hours (at $35 per hour)
T007: 20 hours
T008: 30 hours
T009: 30 hours
T010: 30 hours
T011: 30 hours
T012: 30 hours
T013: 30 hours
T014: 30 hours
T015: 30 hours
T016: 30 hours.
66. No supporting documentation, such as timesheets or diary notes or any other records of time or even payslips were tendered by the plaintiff to support the claim that Ms Olofsson worked the hours claimed.
67. Clause 15 of the contract was critical evidence: it required the construction manager to “maintain suitable records of the hours worked by those employees” covered in the schedule of costs. There is no evidence that, in relation to Ms Olofsson, any such records were maintained. Ms Olofsson makes no mention of any such time-keeping records in her affidavits. While a site diary in which the hours of ET’s staff on the site were recorded was kept, no such records were produced by the plaintiff concerning the administrative side of the project.
68. In cross-examination Ms Olofsson stated that she had kept a record of her hours as administrator but conceded that it was in fact an estimate of the hours she spent per day. She thought that she had spent about three hours per day on the project but this was clearly at best a reconstruction on her part and was probably largely speculative. The record she was referring to was the time claimed in the invoice, not some separate document.
The claim to five per cent of Prime Cost items
69. In its amended statement of liquidated claim, the plaintiff alleged that in addition to its hourly rates it was entitled under the contract, among other things, to a fee equal to five per cent of the costs of the construction manager. The costs and expenses of the construction manager were then particularised to include $198,500 for prime cost items.
70. The amended statement of claim does not clearly delineate the clause of the contract relied upon for the claim. Clause 15(b) and Schedule 6 appear to be the operative parts. They provide that a fee of five per cent of the cost of the works be paid in addition to the hourly rates payable to ET. In my opinion, the contract is to be construed as relating to costs actually incurred during the contract period, not to a fraction of some notional sum bearing only a tenuous relationship with what actually came to pass.
71. As part of a joint tender bundle, a document headed “Provisional and Prime Cost Schedule” was placed in evidence. It was apparently prepared by the architects in May 2002. It listed 26 items, 20 of which were provisional and six – door hardware; carpets and vinyl; balustrades and handrails; light fittings; intercom and gate control; and a letterbox – were listed as “prime sums”. The total allowed for in the document by the architect was $198,450. The schedule also included a sum of $15,000 for contingencies. It is upon this sum that the claim to a sum of five per cent was based.
72. The claim to a percentage in respect of prime cost items appears for the first time in invoice T013 where the handwritten attachment adds an amount of $2480.63 (plus GST) being “builders margin on ¼ of Provisional sum”. Mr Brown paid that sum.
73. The next reference to a percentage in relation to prime cost items appears in invoice T014 where a claim was made by ET to a sum of $4961.26 (plus GST) being for “builder’s margin on 50% of Provisional sum.” Mr Brown did not pay that amount. That sum was again claimed in invoice T016 and was carried over to T017.
74. However, evidence was given in cross-examination by Mr Follent that a significant number of items listed in the schedule were never installed by ET. They included door shutters, timber fences, irrigation systems, electric gates, security system, “home minder” system, air-conditioning, infill panels, landscaping, water features, stair balustrades and handrails and intercom and gate controls. Messrs Zettl and Brown gave evidence to similar effect that a large number of PC items were never installed by ET. Moreover, the claims made in invoices T013, T014, T016 and T017 never specify the PC items in question but simply make the claim in respect of the “Provisional sum”.
75. Mr Brown’s evidence was that he would concede a sum of $2230 in respect of PC items installed while ET was on site. He concedes that entry doors were installed; that the kitchen had been partially fitted out; that the laundry had been partially completed; that the vanities had been partially completed; and that light fittings had been installed in part. His evidence was that the rest of the items in the PC schedule were completed after ET left the site.
The claim to five per cent of the whole cost of the works
76. The plaintiff makes claim to a sum of five per cent of the cost of works. According to the plaintiff, its claim is in respect only of a sum which is a fraction of the costs and expenses incurred by itself and the principal Mr Brown “in connection with the construction of the works” by the plaintiff. As I understand the plaintiff’s submissions, it does not, despite the assertions made in the amended statement of claim and agreed statement of facts and issues, make a general claim to five per cent of all costs and expenses incurred in connection with the construction of the works, including costs incurred by the principal before and after the parties were in a contractual relationship.
77. The plaintiff submits:
The defendant does apparently not appreciate the definition of "Cost of Works" and states that the claim is for works before the Contract was performed and after the Contract was terminated. This is incorrect. The claim is as defined in the Contract, the scope of which is to deliver a finished product as defined by the Contract, the drawings and the specifications. This includes an inspection of the existing works acceptance of and delivery of partially completed works as part of a completed project. It is not possible to have delivered the contracted and specified works without this work being done. Any costs “in connection" with these works by the Principal is a fee upon which the Construction Manager's fee must be calculated (see definition of cost of works).
78. It is not entirely clear to me what this submission means, but I interpret it to insinuate that the plaintiff claims only a sum of five per cent of those costs which were incurred by ET and Mr Brown once the agreement was reached by them on 25 June 2002 and up to the time that the contract terminated. If that is correct, it is an apparent retreat from the much wider claim made in the amended statement of liquidated claim, about which the defendant was so exercised.
79. In any event, the relevant evidence is primarily to be found in the contract itself. As I have noted above, clause 1 defines the “cost of the works”. It is to be read together with clauses 15(b) and 20. When those three clauses are read together, especially with the definition of “the works” in clause 1, it becomes apparent that the “cost of the works” relates to work done “in accordance with the contract”. It therefore follows that costs incurred by Mr Brown before or after ET commenced work on the site are not to be counted towards the “costs of the works” for the purposes of determining any percentage of that sum due to ET either during or at the conclusion of the contract.
The claim in respect of notice on termination
80. The defendant contends that it is entitled to a sum as yet unquantified in lieu of notice of termination of the contract. It bases this claim on clauses 19 and 20 of the contract.
81. Mr Olofsson’s evidence was that on 12 December 2002 Mr Brown told him that he wanted to terminate the contract from 16 December. He said that Mr Brown had requested that ET complete the front driveway and some other works and finish on the site on 16 December. He said that he had accepted the termination and told Mr Brown that he would confirm his, Mr Brown’s, instructions in a letter. He then wrote a letter to the architects notifying them that the contract was to be terminated as from 16 December.
82. On 15 December Mr Brown wrote to ET in which he made no direct reference to the termination of the contract but raised a number of complaints and concerns. On 18 December ET received an email message from Mr Brown stating that he was terminating the contract to be effective 10 days hence. According to Mr Brown, that message was sent at the request of Mr Olofsson. It appears to be common ground that in fact ET finally left the site on 17 December 2002.
The cross-claim: drainage
83. The principal issue raised in the cross-claim is in respect of rectification works that Mr Brown asserts were necessitated by faulty workmanship in laying drainage pipes.
84. Clause 5A of the contract required ET to supervise building works and to “ensure that the works are executed in accordance with the contract”. In evidence, among other things, were the specifications and plans, including the hydraulic plan, drawn up for the construction. These constituted the works.
85. The hydraulic plan provided for a sub-floor drain running in a north-south direction on the eastern side of the garage, joining a pipe running east-west across the property with an outlet to the street gutter.
86. Mr Brown’s evidence was that he had provided ET with the hydraulic plan at about the time it commenced work on the site and that he had discussed the need to join the sub-floor drainage at the rear of the garage to the public stormwater drain. He gave evidence that plumbing work had been done by a sub-contractor called Jason who was supervised by Mr Zettl.
87. Mr Brown said that he had seen a trench being dug across the southern side of the property and later seen a stormwater pipe laid in the trench. Some time afterwards, he said, he had seen a concrete path poured over the top of the trench and had assumed that the stormwater pipe had been joined to the sub-floor drain in the garage according to the plans.
88. He said that on 10 December 2002 he discovered that the garage was flooded and that water was not flowing down the drain. His evidence was that on 12 December he had had a site meeting with Messrs Zettl and Olofsson and asked why the water was not draining. He stated that Mr Olofsson’s reply was to the effect that the sub-floor drainage was at a lower level than on the street so that the water could not drain out to the stormwater system. His suggestion had been that a trench be cut across the floor of the garage to take the water away. Mr Brown said that he had refused to take this course. He also said that he had heard Mr Zettl tell Mr Olofsson that he had “forgotten about the pipe”.
89. Mr Brown’s evidence was that in 2003 he had had the concrete path excavated and discovered that the stormwater pipe had been laid above the sub-floor drain and that the two pipes were not connected. He gave evidence that he had later rectified the problem. (As previously noted, a quantum of $20,000 has been agreed by the parties for this work.) He said that at one point he had managed to drain the water by placing a hose in the culvert, running it out to the street and sucking on it, causing the water to flow out to the gutter. This, he said, had led him to believe that the levels were acceptable and that the real problem was that the pipes were not connected.
90. Mr Olofsson agreed in his evidence that there had been a drainage problem. He stated, however, that the sub-floor drainage pipe had already been installed when ET arrived on the site. According to him, the hydraulic plan required the east-west stormwater pipe to run out to the gutter and that this governed the level below which the east-west pipe could not be sunk because a certain degree of fall, which he did not specify, was required for the water to flow out to the gutter. Mr Olofsson gave evidence that he and Mr Zettl, using a laser level, had discovered that the sub-floor drain was in fact below street level and therefore could not flow to the street by force of gravity alone. He said that he had shown Mr Brown the levels recorded on the machine and that Mr Brown had stated that he understood.
91. According to Mr Olofsson, he had proposed a couple of solutions to the problems: using a pump to push the water to a higher level or cutting a shallower drain in the floor of the garage. He said that Mr Brown had rejected both options and had said that he would fix the problem. Mr Olofsson then arranged to have the open trench filled and concrete poured over the east-west stormwater line, leaving open a pit at the rear of the house.
92. Mr Brown gave evidence that the problem had been rectified by digging up the east-west path, digging a new trench and installing a new line connected to the existing sub-floor drain. The stormwater line was then repaired and properly levelled and connected to a pit from which a line ran to the gutter off the property.
The cross-claim: overcharging
93. The evidence in respect of the allegations made by the cross-claimant concerning overcharging is principally to be found in the contract and the invoices.
94. Clauses 15 and 17 of the contract have been set out above. Clause 15 provided for two types of fees to be paid to the construction manager. The first was a fee paid fortnightly in arrears based on an hourly rate for the construction manager (if an individual) and its agents. The hourly rate was to be set out in Schedule 6 and that was done. Clause 17 effectively fleshed out clause 15.
95. The second type of fee was a percentage of the cost of works excluding the construction manager’s fees of the first type.
96. In all the invoices, the plaintiff added a margin of five per cent on top of labour costs. As I understand it, it relied on its own interpretation of clauses 15 and 17 to do so. The evidence in respect of this issue is the contract itself and the invoices.
97. I have dealt elsewhere with the evidence concerning administration fees and prime cost items and do not propose to replicate that evidence here.
Findings and conclusions
98. By the time this matter came on for trial, some years had passed. This was, it appears, a dispute in which some degree of intransigence, if not animosity or even bitterness, was generated on both sides. Neither party prepared its evidence until about three years after the events in question. With the best will in the world, it is likely that the recollections of the witnesses had deteriorated by the time they swore their affidavits.
99. Demeanour is a particularly difficult form of evidence to accurately assess and is therefore often unreliable as a guide to where the truth lies in a dispute. Contemporaneous business documents are generally more reliable than either old memories or demeanour as evidence. Mr Olofsson appeared to be a reasonable and honest witness but I formed the impression of him and the other witnesses called for the plaintiff that all of them struggled to recollect with precision most of the events about which they gave evidence. Mr Brown also had difficulties in that regard.
100. Mr Brown could be described as a somewhat “peppery” witness. He was certainly argumentative and sometimes unresponsive in some of his answers. He sought to be an advocate in his own cause when a more passive role had been designated for him. Nevertheless, I formed the impression that he was attempting to give truthful testimony as best as he was able.
101. In relation to the plaintiff’s case, some of the business records upon which it placed reliance somewhat undermined the impression of honesty and reliability that its witnesses sought to convey. It is fortunate that this judgment is not intended as an entertainment because it has been necessary to undertake a close and detailed analysis of most of the invoices relied upon by ET. It was striking to me, and I remark upon this elsewhere in the judgment, that there appeared to be a significant degree of “padding” of the invoices. Despite its contractual obligations to do so, ET did not keep or, if it did, tender, satisfactory wage records. It claimed very neat sums for administration, postage and sundries, all of which suggested that a set charge was being imposed rather than an hourly rate being charged, plus the costs of disbursements. No evidence was presented other than estimates to prove these sorts of charges. When these factors are added to the pervasive sense of confusion and occasional double-counting (such as the claim to five per cent of the prime cost items and to five per cent of the total cost of the works) that seems to me to be woven into the very fabric of the plaintiff’s claims, it appears to me that the invoices are of limited reliability as evidence.
102. True it is that Mr Brown has not taken issue with some of the minor matters but they go to the questions of credit and credibility. The invoices all claimed the very last cent that ET asserted it was due but despite a tendency to round up in its favour where such a course was convenient and advantageous to it, as far as I can see it never rounded down in respect of the very minor sums of money it might reasonably have absorbed. This led to the impression that where mistakes were made in calculation, they almost always fell to ET’s advantage. On the other hand, Mr Brown gave the impression of having, at the end of the project, undertaken a painstaking analysis of the various costs incurred in the project.
103. Thus, while I cannot say that I was greatly impressed by the reliability of witnesses for either party, I have less confidence in those called for the plaintiff than in Mr Brown and I do not have great confidence in the overall reliability of the calculations made by the plaintiff in its business records. I therefore formed the view that where there was a conflict, and Mr Brown was able to give evidence on a given topic, his evidence was generally to be preferred as the more reliable.
104. The plaintiff bears the onus of proof, on the balance of probabilities, of proving the elements of its claim. Similarly, the cross-claimant bears the onus to the same standard in respect of his cross-claim.
The contract negotiation fee
105. In my view, there is a considerable risk that the so-called contract negotiation fee is a reconstruction on Mr Olofsson’s part. While Mr Brown had virtually no reliable recollection of the first meeting with Mr Olofsson, the detailed contemporary notes taken by the architects, which were tendered in the plaintiff’s own case, make no mention of any “contract negotiation fee”, either in explicit terms or by implication. Nor was there any mention made of the “clock starting now”. That phrase first appears in documentary form in about January 2003. For example, Mr Olofsson used it in the notes to invoice T017.
106. If there had been an agreement that ET’s fees or recompense would include a “contract negotiation” fee, given the close detail into which the parties are recorded as having gone on 25 June 2002, it is a most surprising lacuna that the fee was not mentioned or even implied in some fashion.
107. While I do not doubt that at the meeting ET agreed to take on the project, work done on its own behalf in considering whether to tender for the project would, unless there was explicit agreement to the contrary, ordinarily be a cost it would bear itself. Of course, once agreement had been reached, any work done on behalf of Mr Brown pursuant to the agreement was required to be paid for by him. If the clock had started at the meeting of June 2002, it could only have been started in relation to work done pursuant to the agreement reached. Anything done prior to the striking of the agreement was not part of the contract.
108. I am not satisfied, however, on the evidence that the plaintiff has proven an entitlement to a “contract negotiation” fee because there is simply no evidence of a meeting a minds on that subject. Moreover, given that there seems to have been a tendency on ET’s part to “pad” its progress claims (see further below), and the first news of the claimed entitlement to a fee for “contract negotiation” came very late in the day, it has all the hallmarks of reconstruction or an attempt to justify an unsubstantiated claim for work said to have been done by Mr Olofsson. In any event, the claim fails.
Administration costs
109. The plaintiff’s evidence in relation to this aspect of its claim is not very satisfactory. I have already made some remarks on this subject. Although it is clear that some work was done by Ms Olofsson on the Brown project, because she attached copies of invoices received and processed from suppliers and sub-contractors to the invoices sent to Mr Brown, she, by her own admission, did not keep time-records of hours worked. There is an elegant symmetry in the claims made in each invoice for administration costs yet there is a considerable variation sometimes from fortnight to fortnight in the numbers of documents attached to the ET invoices. As Ms Olofsson’s administrative work, as far as I could understand, was largely to do with processing the various invoices sent to her by suppliers and sub-contractors, and as the numbers to be processed varied considerably but the hours claimed did not, the impression given was that her estimate of hours worked on the Brown project is unlikely to be very accurate.
110. One of the difficulties the plaintiff’s evidence present to the court is that it is remarkable as much for what is not said as for what is said. Nowhere in her evidence does Ms Olofsson give a detailed account of her duties and the work she did in relation to the project, or how that work meshed with any other work (if any) she was doing in relation to other projects or even the total number of hours she worked per day or week or fortnight. She does not explain how she arrived at the conveniently neat figure of three hours per day for the work done on the Brown project. It appears that all she did at the time was to make the roughest of guesses as to the actual times she worked on the project assuming that the estimate would never be challenged. By the time she came to give evidence three years later, her ability to recollect the actual hours worked was virtually non-existent.
111. That is not to say that the plaintiff’s claim in this regard fails in toto. Clearly, some work, and probably a considerable amount at various times, was done by Ms Olofsson. It is inconceivable – and the invoices show this – that the project could have been managed without some significant clerical and administrative support. Nevertheless, I cannot be satisfied that the amounts claimed are reasonable in aggregate. In my view, it is highly unlikely that Ms Olofsson spent exactly 30 hours per fortnight on the Brown project for most of the time ET was there, nor that the number of hours she worked increased in neat 10 hour steps over the first stages of the project until they reached a plateau of 30 hours.
112. Doing the best I can with the evidence available to me, I would allow administration costs of 20 hours per fortnight on each of invoices in which an administration charge is found except for those in which that amount or less is claimed in which case I allow the amount claimed.
Prime Cost items claim
113. While the construction manager was entitled, pursuant to clause 15(b) and Schedule 6 of the contract, to a five per cent fee paid fortnightly in arrears in relation to its costs and expenses, it is not clear to me on what other basis, if any, it had any entitlement to a blanket five per cent of the prime and provisional cost schedule as asserted in the amended statement of claim.
114. In my view, the contract clearly expresses an intention that, during the construction phase, if the construction manager or principal incurred costs or expenses (excluding the construction manager’s fee under clause 15(a) and the fees of any delegate appointed under the terms of the contract) that a fee of five per cent of those costs be paid on a fortnightly basis to ET.
115. The evidence is clear that during the time that ET was engaged in the project, neither the construction manager nor Mr Brown incurred significant numbers of the costs listed in the May 2002 schedule, upon which ET apparently relies in significant part. In its particulars as outlined in paragraph 5.1 of the amended statement of claim, the plaintiff only make claim to a percentage of “the costs of the construction manager”, so any costs incurred by Mr Brown are possibly irrelevant here.
116. Mr Brown’s evidence was very specific and persuasive on this topic. It was corroborated to a very large extent by Messrs Follent and Zettl. It appears to me that his concession that a sum of $2230 is due is likely to be accurate and reasonable in the circumstances. I accept that evidence in preference to what appears to have been a sort of ambit claim in respect of a sum of five per cent of the schedule amount of $198,450.
117. It is clear from most of the invoices presented in evidence that ET charged its five per cent on all the items paid for by Mr Brown and listed in the monthly breakdown sheets. Those were specified. On the other hand, in respect of the “builder’s margin” on prime cost or provisional items, there was no specificity at all but simply a claim seemingly based on the schedule provided before the works started by the architect. It was open to Ms Olofsson, before sending the claim for “builder’s margin” to Mr Brown to check with Mr Zettl or Mr Follent or both to find out exactly the state of play regarding PC items but she failed to take the course and simply made the ambit claims found in the invoices. Mr Brown has conceded an amount. He has paid slightly more. That sum, paid in respect of invoice T013 was probably about right.
118. It is also self-evident that if ET was entitled to a margin of five per cent on the cost of the works (other than labour costs) prime cost items would be included. As I read the contract the claim to five per cent of the cost of works necessarily includes the claim to a percentage of the prime cost items. There is no specific provision in the contract for the contract manager to be paid a percentage of the prime cost schedule prepared by the owner-builder or architect in addition to the claim in respect of the overall cost of works. This part of the claim is, therefore, misconceived because it is a form of double-dipping.
119. In any event, ET has, in my view, failed to discharge its onus of proof in relation to any additional sum not paid by Mr Brown.
Claim to five per cent of the cost of the works
120. This claim arises either under clause 15(b) or, more likely, in my opinion, because there is no dispute that the contract has been terminated, under clause 20.
121. I have outlined above the plaintiff’s submission clarifying its claim to the percentage of the costs of works.
122. The defendant’s interpretation of the claim is wider and, in my view, more consistent with the claim made in the plaintiff’s pleadings. He says that the claim goes beyond the five per cent of the cost of works already calculated, paid (and not disputed) in invoices T005-T014 and that this claim is for five per cent of cost of works performed before the contract was created, and after the contract was terminated. He says that such a claim is not supported by the contract, or commonsense, because the definitions in clause 1 show that the cost of works in the contract means works performed under the contract. It therefore cannot mean cost of works performed before the contract began or after the contract was terminated nor can it include cost of works on the PC and Provisional Costs schedule that never happened, or happened after termination. He says that it can only mean works performed during the contract from 25 June 2002 to 21 December 2002.
123. Nevertheless, as I now understand the plaintiff’s case, there is no significant disagreement with the defendant regarding the interpretation of clauses 1, 15(b) and 20 in respect of the meaning of “the cost of works”. In my view, the rational interpretation of the contract is that the plaintiff was entitled, as both parties now appear to agree, to five per cent of the costs incurred by both Mr Brown and ET in relation to the construction of the project from 25 June 2002 to the date of termination.
124. If that is correct, the real issue then becomes one of quantum. The plaintiff claims that it is entitled to five per cent of the principal’s costs and expenses incurred in the period between 25 June 2002 and termination but that it has been denied that information.
125. Mr Brown’s submission is that the entitlement of the plaintiff has already been invoiced and paid for by him. He, of course, incurred costs himself during the time ET was working on the site after 25 June 2002. Mr Brown did not provide documentation of his costs or even a summary of those costs expenses. I observe, however, that these goods, like all the other materials and goods delivered to the site, ought to have been noted by ET when they arrived. Most likely they were in fact received by the site manager. He admitted having purchased about $2230 worth of prime cost items during ET’s management of the project. If there were any costs of the works that needed to be revealed by Mr Brown to ET to enable it to estimate the cost of the works, that evidence is the best available to the court now.
126. Clause 20 provided the mechanism for the calculation of the percentage of the cost of works. As noted above, it provides that on the termination of the contract “where the construction manager is being paid by a percentage of the cost of works pursuant to sub-clause 15(b) the balance of the fee payable based on the percentage set out in schedule 6 and the value of the cost of the works executed to the date of termination.” Critically, it then goes on to explain how that percentage is to be calculated: “the value of the cost of the works shall be estimated by the construction manager at the date of termination.”
127. It would be odd indeed if the percentage were to be calculated on the basis of the construction manager’s estimate alone if there were a more accurate method of determining the relevant amount such as a dossier of invoices and other business records collected by the principal and construction manager during the course of the project or some other form of acceptable evidence. I think, then, that clause 20 is to be read and interpreted as implying a term that absent a more accurate method of calculation, the value of the cost of the works shall be estimated by the construction manager as at the date of termination.
128. This would leave the principal to produce satisfactory evidence of the costings or to rely on the estimate provided by the construction manager. The necessary evidence to be produced by the principal might be in the form of documents or reasonably reliable oral testimony.
129. In my opinion clause 20 also necessarily implies a term that the estimate be reasonable and be capable of rational and empirical substantiation. An estimate based on such matters as contingencies allowed for by an architect but never realised or estimated expenditures which never took place in the contract period could not be regard as reasonable. It must, in my view, relate to costs and expenses actually incurred by the principal or construction manager during the contract period but for which there is inadequate documentation or other evidence available to the construction manager.
130. In this case at least part of the percentage due was paid by Mr Brown as he satisfied the various progress payment claims during the course of construction. What remains after that is disputed but there is no better evidence than that to which I have referred.
131. It appears to me that the estimates of cost of works relied upon by the plaintiff in relation to this part of the claim are simply speculative and no reliance can be placed on them. It has failed to discharge its onus of proof in this respect.
Claim to termination fee
132. According to its submissions, the plaintiff’s claim to a termination fee is a claim in the alternative to the claim to five per cent of the balance of the cost of the works.
133. The amended statement of liquidated claim asserts that the construction manager was entitled to a sum of five per cent of the cost of the works. It also asserts it was entitled to 10 days’ notice of termination of the contract and a payment in respect of that period. According to the amended statement of claim, a sum of $20,895 is demanded in respect of that period. The defendant submits that the plaintiff has no entitlement to what it terms “the notice claim”.
134. The plaintiff submits that the contract was terminated unilaterally by Mr Brown. It says that the cost of the works is estimated at $1,008,134 (by the construction manager) and that, based on that figure, ET would therefore be entitled to a sum of $50,406.70, being five per cent of the estimated cost of the works. What has not been elucidated by evidence is the basis for the estimate of $1,008,134. Nor, for that matter, has the plaintiff explained how it came to estimate the total cost of the works in invoice T020 as being $1,380,000. Both figures appear to relate to ET’s estimate of the costs of the entire building project. This is, once again, an example of the confusing and confused state of critical parts of the plaintiff’s case.
135. The plaintiff says that Mr Brown has already paid five per cent of $280,756.15 being $14,739.69 (with a total payments being made of 294,993.96). It submits that the balance likely to be due in respect of the Construction Manager’s fee is therefore $50,406.70 less $14,739.69, a total of $35,667.01. It argues that whether the plaintiff’s entitlement be the balance due under clauses 19 and 20 as a termination fee or simply outstanding remuneration under clauses 15 and 17, the end result is the same. That is correct.
136. It submits, however, that the termination fee cannot be calculated until the cost of the works has been disclosed. The court is invited to find that an amount is due under the termination clause with quantum to be determined by agreement or on the basis of further evidence to be led. Having closely considered the evidence, I disagree with that approach. The plaintiff bears an onus of proving liability on the part of the defendant. The assumption in the invitation is that the defendant will be found liable. That cannot be established unless the plaintiff does the groundwork of proving, by close analysis of the costs of the project. This it simply has not done but rather has sought to fill in the gaps in its case with highly speculative “estimates” based on foundations that have not been proven able to sustain them.
137. In relation to the question of notice and the sum of $20,895 sought in the statement of claim, the plaintiff made no submissions. I infer therefore that this aspect of its claim is abandoned. If not, there is, in any event, evidence showing that Mr Brown on 12 December notified Mr Olofsson that the contract would be terminated from 16 December. This appears to have been accepted by Mr Olofsson at the time. Mr Brown’s letter of 18 December appears to have been an attempt on his part to meet the requirement for written notice and nothing more. In any event, on 17 December 2002 ET left the site.
138. There is nothing in the contract to suggest that payment in lieu of notice was available to the plaintiff. The clauses dealing with termination provided for a mechanism by which the contract could be terminated. Once that event had occurred, the only entitlements of the plaintiff were those provided for in clause 19(a) and (b) and clause 20. If the claim for 10 days’ payment is maintained, in my view it fails because there is simply no warrant to be found for such a payment in the contract and no evidence that ET worked pursuant to the contract after 17 December 2002.
139. In relation to the claim for termination payment, the defendant asserts that the plaintiff has already been paid. This issue has been dealt with above in relation to the claim to five per cent of the cost of the works.
Summary of conclusions in respect of the plaintiff’s claims
140. The plaintiff’s claim includes a number of heads of damages. It claims to have been unpaid in respect of a “contract negotiation” fee to which it was entitled ($1606 inclusive of GST); a margin in respect of labour costs in some of its invoices; a termination fee based on the cost of the works; and a claim in respect of work done after 18 December 2002.
141. I have concluded for the reasons given above that ET was not entitled to a “contract negotiation” fee or a margin upon its labour costs. Nor was it entitled to any payment for work done outside the contract and therefore the claim to a sum for work done after 17 December 2002 fails. That leaves only a claim to a termination fee based on the cost of the works.
142. In my view, ET had a contractual entitlement to be paid a sum equalling five per cent of the cost of the works undertaken pursuant to the contract except in relation to labour costs, which included the work done by Ms Olofsson.
143. Given the complexity of the facts and the changes of position taken by the plaintiff during the course of the proceedings, it took some time to clarify precisely the plaintiff’s case on this issue.
144. As I interpret the contract and invoices, the plaintiff was entitled to add a margin of five per cent to costs incurred by itself and Mr Brown in respect of materials and services supplied by third parties. In most of the invoices, these sums were calculated by ET itself and charged. In invoice T020, however, it then sought to estimate the total cost of the works. Upon what basis it concluded (a) that the sum it was entitled to claim related to works done before and after the contract period and (b) that the total cost of the works was $1,380,000 was never made clear on the evidence. It appeared to me to be one of those rather vague estimates that ET had a tendency to make throughout the project, always to its advantage.
145. In its final submissions, as I have noted, the plaintiff retreated from its position of staking a claim to a percentage to the entire cost of the works, whether it had been involved in performing or procuring those works or not. That was a proper position for it to take. That left it, however, with the evidence of having claimed and been paid a margin on various items listed in most of the invoices plus a claim to a percentage of the Provisional and Prime Cost Schedule.
146. In my opinion, the plaintiff has not proven on the balance of probabilities that it has any further entitlement to a termination fee constituted by a margin on the cost of the works except in relation to a sum of $790.29 (see paragraph [50] above).
The cross-claim for drainage works
147. On the evidence of both parties, the sub-floor drain was below the level of the line installed by ET’s sub-contractors and no connection was made between the two lines, notwithstanding the specifications of the hydraulic plan. Mr Brown’s case is that ET failed properly to supervise the plumbers sub-contracted by it to install the drainage works and is therefore entitled to compensation for the rectifications.
148. ET’s submission is that the hydraulic plan was faulty because it did not reveal that the sub-floor drain was below street level and that therefore the plan was impossible to carry out as drawn. It denies any failure on its part but its alternate submission is, in effect, that even if there was a failure on its part to superintend the works, there was no loss to the cross-claimant because the hydraulic plan was impossible to execute in the form specified.
149. In my view, the evidence shows clearly several things: that the north-south sub-floor drain was not connected to the east-west storm water pipe; that this was because the storm water pipe had been laid at a level above the sub-floor drain and then concreted over; that in turn implies that indeed the plumbers and Mr Zettl had forgotten about the need to connect the sub-floor drain; and that the apparent success of the rectification works contradicts Mr Olofsson’s assertion that the east-west storm water drain had to be laid at a level above the sub-floor drain in order to have sufficient fall for water to drain to the street.
150. It is self-evident that Mr Brown’s old-fashioned suction method of draining the water from the drain does not prove that the levels were “acceptable” – suction creates a vacuum into which the water would have flowed even against gravity up to a certain point.
151. Neither, however, can we have confidence in the evidence concerning the levels Mr Olofsson says that he and Mr Zettl measured because he did not put those measurements in evidence or describe in any detail how they were measured but most significantly because those assertions are contradicted by the evidence that drainage system was made workable without raising the sub-floor drain and without the use of anti-gravity devices such as pumps. Moreover, nothing in the evidence of ET contradicts the assertion of Mr Brown that the east-west and north-south pipes were never connected.
152. In any event, even if it were the case that the sub-floor drain and the east-west storm water line could not be joined, or if there had been some latent fault in the hydraulic plan, these were matters that a reasonable careful and prudent superintendent of works ought to have discovered and discussed with Mr Brown at the time the east-west line was installed. That any such faults were not discovered until Mr Brown drew them to ET’s attention seems to me to demonstrate on its own that there had been a failure on the parts of the sub-contractors even to attempt to adhere to the hydraulic plan or on ET’s part properly to superintend their work.
153. I am therefore satisfied on the balance of probabilities that ET failed adequately to supervise the installation of the drainage works.
The cross-claim for overcharging
154. In my view, clause 15 of the written agreement of the parties made clear that the five per cent surcharge that ET was entitled to add to its monthly bill was confined to the cost of the works excluding labour and administration costs.
155. Clause 17 did not amend clause 15 – it simply provided definitional detail (perhaps, in this case, insufficient detail) and was therefore subsidiary to the overriding agreed provision in clause 15. Looked at another way, it would be anomalous for clause 15(b) to have excluded the construction manager’s fee from the cost of works for the purpose of calculating the margin if it was to be added back in by the back door route of clause 17 (if ET’s construction of the operation of clauses 15 and 17 was to be preferred). If there is any ambivalence in the minds of the parties, the written contract must speak for itself. Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 211 ALR 342.
156. It was, I assume, an inadvertent oversight on the part of Ms Olofsson of the fact that the original clause 15 of the standard contract had been amended by the special conditions but, nevertheless, in each monthly bill sent to Mr Brown and, it appears, not closely scrutinised by him, included a five per cent impost on labour and administration plus GST on that amount. In my view, ET was not entitled to that five per cent nor should it have charged GST upon it. True it is that the GST amount is relatively insignificant – half of one per cent – but it remains the case that Mr Brown was overcharged in respect of it. It is, it appears, another example of a mistake being made by ET with the advantage falling its own way.
157. In respect of the amount overcharged for labour costs, on my calculations ET claimed $5547.68 or thereabouts in invoices T005-T016 to which it was not entitled. If GST overcharged of $27.74 is added, the total amount overcharged under this head of the cross-claim comes to $5585.42.
158. In relation to the amounts charged by ET for administration, as I have related above, for invoices T008-T016 there was an overcharging of $3150.
159. In relation to prime cost items, the cross-claim alleges that there was an overcharge of $7189.50. This was based on a calculation by Mr Brown that charges totalling $18,104.25 had been claimed in invoices T015-T018 but that only $10,914.75 had been due to ET.
160. The claim to a sum in respect of prime cost items appears in a number of invoices, starting with T013. Mr Brown paid the first amount claim, a sum of about $2400 and conceded that ET was entitled to about $2230. The remaining amounts claimed by ET were not paid by Mr Brown. He was therefore not overcharged in respect of them. Given the somewhat rubbery nature of many of the figures in this case, it appears to me that it would be reasonable to regard the sums of approximately $2400 and $2230 as cancelling each other out in this context.
161. On my calculations, therefore, there was an overpayment of about $8700 by Mr Brown to ET.
Conclusions in summary
162. In my view, the plaintiff has failed on the balance of probabilities to establish any entitlement under the contract other than that to a sum of $790.29. Its claim must therefore substantially fail.
163. The cross-claimant, on the other hand, proved on the balance of probabilities that there was a breach of contract by ET in respect of superintendence of the drainage works and that claim succeeds. Quantum was agreed at $20,000.
164. I am also satisfied on the balance of probabilities that ET overcharged Mr Brown in a number of respects during the course of the construction and I allow $8700 under that head of damage. Against this should be offset the sum of $790.29. It would be reasonable in the circumstances to round off the amount to $7900.
Verdicts and judgments
165. In relation to the plaintiff’s action there will be a verdict for the defendant Mr Brown and judgment accordingly.
166. In relation to the cross-claim, there will be a verdict for the cross-claimant Mr Brown in the sum of $28,790 and judgment accordingly.
167. In relation to costs, the orders proposed are that costs follow the event in a sum to be agreed or assessed. Parties may have liberty to apply.
Hugh Dillon
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