Etlis v New Age Constructions (NSW) Pty Ltd

NEW SOUTH WALES COURT OF APPEAL

CITATION: Etlis & Anor v New Age Constructions (NSW) Pty Ltd & Anor [2005] NSWCA 165

FILE NUMBER(S):
40957/03

HEARING DATE(S): 7 February, 2005

JUDGMENT DATE: 16/05/2005

PARTIES:
Robert Etlis & Lana Etlis (Appellants)
New Age Constructions (NSW) Pty Ltd (First Respondent)
John Carollo (Second Respondent)

JUDGMENT OF: Handley JA Hodgson JA Brownie AJA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 1981/99

LOWER COURT JUDICIAL OFFICER: Hungerford ADCJ

COUNSEL:
M Christie/D S Weinberger (Appellants)
I H Bailey SC/A Matalani (Respondents)

SOLICITORS:
Hunt & Hunt (Appellants)
Yandell Wright Stell (Respondents)

CATCHWORDS:
APPEAL - decision adopting report of referee - error established - respondent entitled to raise new point of law relevant to exercise of Court's powers
BUILDING & ENGINEERING CONTRACTS - "Plain English Building Agreement" - 11th ed of Housing Industry Association - clause 6 - extensions of time
D

LEGISLATION CITED:
Supreme Court Act 1970
Supreme Court Rules 1970

DECISION:
Appeal dismissed with costs.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40957/03
HANDLEY JA
HODGSON JA
BROWNIE AJA
16 MAY 2005

ROBERT ETLIS & ANOR v NEW AGE CONSTRUCTIONS (NSW) PTY LTD
& ANOR

CATCHWORDS

APPEAL – decision adopting report of referee – error established – respondent entitled to raise new point of law relevant to exercise of Court’s powers

BUILDING & ENGINEERING CONTRACTS – “Plain English Building Agreement” – 11th ed of Housing Industry Association – clause 6 – extensions of time

FACTS

The issues on this appeal concerned the validity of extensions of time allowed by a referee and the Judge, and the allowance for extra costs caused by the delays on a quantum meruit basis. The building contract was in the standard “Plain English Building Agreement” 11th ed issued by the Housing Industry Association. Clause 6 dealing with extensions of time required the builder to notify the owner in writing “within ten (10) days of the event”. The referee and the Judge found that the owners had waived their right to written notification for an extension of time claim based on the presence of a Telstra cable. There was no evidence of a representation or promise by the owner that written notification of that delay causing event need not be given. The builder sought to rely on a contention that written notice had in fact been given. The owner also claimed that the builder’s extension of time claim for a party wall should have been disallowed because written notice of that delay causing event had been given prematurely.

HELD: (1) In an appeal from a judgment adopting the report of a referee an appellant must establish error in the decision of the Judge and cannot simply rely on error in the report of the referee. Accordingly an appellant can only establish appellable error in respect of grounds taken and argued before the Judge: Super Pty Ltd v S J P Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549; Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd (NSWCA, unreported, 8 June 1994) applied; (2) Once error has been established the Court of Appeal must exercise its powers under s 75A(10) of the Supreme Court Act. At that stage a respondent is entitled, subject to the principles in Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 438, to raise a new question of law relevant to the exercise of the Court’s powers under sub-s (10); (3) The builder had given written notification of the extension of time claim for the Telstra cable which complied with cl 6; (4) The notification of the extension of time claim for the party wall was given “within ten (10) days of the event” although it was given before that event; (5) The extensions of time were properly allowed and there was no error in the allowance for delay costs on a quantum meruit basis.

ORDERS

Appeal dismissed with costs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40957/03
HANDLEY JA
HODGSON JA
BROWNIE AJA
16 MAY 2005

ROBERT ETLIS & ANOR v NEW AGE CONSTRUCTIONS (NSW) PTY LTD
& ANOR

Judgment

HANDLEY JA: The proprietors have appealed from the decision of Hungerford ADCJ in a building case. The Judge adopted the report of a referee and entered judgment in favour of the builder for $88,205.81 including pre-judgment interest and dismissed the proprietors’ cross-claims. Some grounds of appeal were withdrawn and others were added by amendment and the remaining issues in the appeal were:
(i)the builder’s entitlement to an extension of time for the delay caused by the discovery of a live Telstra Cable running through the property (delay claim 5). An extension of 34 days was allowed. The Judge found that the requirement in cl 6 for prompt written notice of the delay had been waived by the proprietors (grounds of appeal 1-5).
(ii)the builder’s entitlement to extensions of time for completion of the house on 14A Campbell Parade, Paddington as a result of extensions of time allowed for 14 Campbell Parade (delay claims 3 – stair set out, 5 – Telstra cable, and 8 – 14/14A party wall (grounds of appeal 6-7)).
(iii)the builder’s entitlement to an extension of time for the delay in respect of the party wall between 14 and 14A (delay claim 8) (grounds of appeal 12-13).
(iv)the builder’s entitlement to automatic extensions of time arising from the proprietors’ delays in paying progress claims 3 and 8 (grounds of appeal 14-15).
(v)the builder’s entitlement to automatic extensions of time for late payment of progress claims 2, 3 and 8 by the proprietors (grounds of appeal 21-22).
(vi)the validity of the assessment, on a quantum meruit basis, of the builder’s entitlement to extra costs for delay (grounds of appeal 16-17).

Telstra cable

The contract, which was in the standard “Plain English Building Agreement” 11th ed issued by the Housing Industry Association, is dated 8 August 1997, possession was given immediately, and the builder promptly commenced work. Early in September excavation revealed the existence of an unsuspected Telstra cable running through No 14. Excavation stopped and the cable was inspected by Mr Carollo, the controlling director of the builder, and Mr Etlis, one of the proprietors. Shortly afterwards they inspected it with a representative of Telstra. Telstra’s subsequent investigations revealed that the cable was live and could not be removed. The builder was informed and he informed Mr Etlis.
Excavation in the area did not resume until 25 November. The proprietors dispute the builder’s entitlement to the extension of time accepted by the referee and allowed by the Judge. The issue arises from alleged non-compliance with cl 6 of the contract which required written notification to the owner within 10 working days.
The referee dealt with this claim in paras 110-134 and 190-208 of her report. The claim was from 16 September to 4 December but the referee only allowed it from 14 October because it was overlapped by an earlier extension to which the builder was entitled (paras 129-130).
Mr Carollo gave evidence that the cable which ran directly above the sewer line was discovered on or around 16 September but it is clear from fax messages (blue 3/542-3) that this happened shortly before 3 September. One of these was the builder’s quote for the cost of the extra work (3/542) of 4 September. The sewer line had to be encased prior to the construction of the footings and the excavation would normally have been done by a machine. Because of the cable the excavation had to be done by hand (paras 111-112). On 16 September Mr Carollo sent a fax message to the proprietors which stated, among other things (blue 1/159):
“We also note that due to the Telstra cable the sewer has to be hand excavated, due to this work, a lump sum price would not be fair for you or myself, I feel that the best alternative is costs plus builder’s margin.”
On 24 November Mr Carollo sent a further fax message to the proprietors quoting $16,896 for the extra work caused by the presence of the cable (blue 1/160) and he received a faxed instruction the same day to go ahead with hand excavation (blue 1/162).
The referee found that the excavation work and the encasement of the sewer line were on the builder’s critical path (para 130). Although the actual work took 8 days some of it was contract work and she found that a reasonable time for the extra work was 4 days (para 129). Subject to the overlapping claim she allowed an extension from 16 September to the receipt of the proprietors’ instruction of 24 November and a further 4 days (paras 129-130).
The referee found that the delay in commencing hand excavation was caused by the proprietors’ failure to issue an instruction to proceed (para 128). She reviewed the oral evidence about notification of this claim and recorded (para 131) the evidence of Mr Carollo (blue 4/955) that when it became necessary to hand excavate he said to the Etlises “This will take a lot longer than if we used a machine to excavate. We are going to be delayed” (blue 4/955). In annexure E to the statement of Mr Etlis of 2 October 2002 (para 116) the following account was given of his conversation with Mr Carollo when they first inspected the site after discovery of the cable (blue 7/1430-1):
“Robert said: ‘This is a pain! What do you think? Can it be relocated?’
John said:‘I don’t think so because there is not enough slack in it. It can’t be stretched to the side. But we’ll see what they say.’
Robert said: ‘Supposing we can’t move it what are the options?’
John said:‘We could dig by hand, and support the cable when we are encasing the sewer. If we have to do that it’s going to cost more.’
We were going to dig it up in two days. Manually will probably take close to a week for the guys to do it.’
I said:‘While we wait for Telstra can you price it for us and send us a quote for manual digging.’”
In paras 116-117 of her report the referee referred to Exhibit D4 paras 66-68 and 71. This was the statement of Robert Etlis of 25 November 2002. It was not in the appeal books, but was in the District Court file. It was tendered at black 2/258. The relevant paragraphs were as follows:
“67.I deny John Carollo’s claim that we tried to get Telstra to relocate the cable. It was understood from the start that the cable could not be relocated.
68.My discussions with Telstra were only in regard to getting them to pay for a portion of the costs associated with excavation and encasement of the cable. The reason for this was because the position of the cable was not shown on the Telstra map to be within our property.
69.…
70.When John Carollo advised us that we had to hand dig the site due to Telstra cable being there we agreed as there was no other option” (emphasis supplied).
Mr Etlis gave the following evidence in cross-examination (black 2/284-5):
“Q.So there were discussions about the existence of delays?
A.Yeah, there were some delays, of course.
Q.And you had discussions about it with Mr Carollo?
A.Yeah, like the Telstra cable.
Q.It was clear to you that there had been a delay because of Telstra?
A.There was a delay due to the fact that unexpected Telstra cable was found on the land. I understood.
Q.You understood, didn’t you, that he would be entitled to more time.
A.I understood that he would be entitled to extra time to complete the project …
Q.But the discussions included an acceptance by you that delay had occurred; correct?
A.I was acting on advice from John Carollo that he was delayed doing something or other.
Q.But you were also able to see for yourself that he had been delayed weren’t you?
A.Yes, when the Telstra cable was discovered” (emphasis supplied).
The referee reviewed the evidence relating to notice of the delay (paras 131-3) and found that Mr Etlis had discussions with Mr Carollo regarding the delay and understood that the builder would be entitled to extra time (para 132). She also found that Mr Etlis knew and acknowledged that the builder would be delayed by the cable (para 133).
Clause 6 of the contract provided so far as relevant:
“If the building work is delayed by a reason of:
(a)          any alteration to the attached Plans & Specifications;
…
(f)           any instruction of the owner or the failure of the owner to give any instruction(s);
…
(j)           a variation of the Building Work;
…
(l)           any other reason over which the Contractor has no control.
THEN the Contractor is entitled to a fair and reasonable extension of time PROVIDED that the owner is notified in writing … within ten working (10) days of the event.”
The referee considered the effect of this clause on the extension of time claims (paras 190-208). The only claims which are still disputed on the ground that written notification was not given to the owners in accordance with cl 6 are claim 5 where it is said that no written notification was given and claim 8 where it is said that the written notification was premature. In relation to claim 5 the referee found (para 210):
“There was no evidence of a written notice, however there was evidence from both parties that discussions took place about the delay caused by the Telstra cable and that Mr Etlis agreed that he understood that the builder would be entitled to extra time for it. The notice provisions of the contract were not met.”
The builder alleged that the proprietors had waived compliance with the requirements of cl 6 in relation to this claim. The conduct relied on was their acknowledgement that the work would be delayed and their representation that the builder was entitled to an extension of time (para 205). The referee said that when the Telstra cable was discovered Mr Etlis orally acknowledged that hand excavation would lead to a delay and would entitle the builder to an extension of time. She referred again to the evidence and her findings in paras 131-3 and concluded (para 207):
“Had Mr Etlis not acknowledged, at the time that the cable was discovered, that the Builder would be delayed by it and that, as a result, Mr Carollo was entitled to an extension of time … he would have retained the right to rely upon the strict terms of the contract … In contemporaneously affirming the right of the Builder to an extension, however, he led the Builder to believe that the written notice, within ten days, would not be necessary to establish the right … Accordingly I find that the owners waived their right to rely upon compliance with the notice provision of cl 6 … in regard to the claim for delay in relation to the Telstra cable.”
The Judge dealt with this extension of time claim under question 9 (red 220-3). The proprietors submitted that as a matter of law there could be no waiver without a communication from them which contained a promise or representation that written notification was not required. The referee found that the proprietors had accepted that the cable would cause delay when Mr Etlis acknowledged that there would be a delay and that additional cost would be incurred. The Judge said that the referee had concluded “that the owners thereby led the builder to believe that the written notification within ten days under cl 6 would not be necessary to establish the entitlement of the builder to an extension of time for the delay”. He held that this conclusion was reasonably open on the evidence and should be accepted.
There is no evidence that Mr Etlis made an express representation or promise that cl 6 need not be complied with in relation to an extension of time claim arising from the discovery of the cable. Mr Carollo did not give evidence that he was led to believe that written notification of this extension of time claim within 10 days would not be required. This means that findings of the referee which are critical to her reasoning and the reasoning of the Judge on the waiver and estoppel issues cannot be supported.
Mr Bailey SC, who appeared for the builder, relied on a Notice of Contention filed out of time on 16 December 2004. Ground 5 was that the quote faxed on 4 September 1997 (3/542) was a notice in writing which complied with cl 6. Ground 6 was that the request for the quote on 3 September 1997 (3/543) followed by the faxed quote the following day established a waiver of cl 6.
Mr Christie who appeared for the proprietors submitted that the builder’s Notice of Contention was ineffective because the grounds could not support the judgment below without some variation in the orders because order 1 had adopted the report in its entirety. This is clearly correct. See DCR Pt 28B r 12. The builder should have filed a notice of cross-appeal seeking an order adopting the report in part and a decision based on the evidence before the referee pursuant to the power in r 12(1)(d).
The notice of contention was filed well before the appeal was heard and the proprietors have not been prejudiced by the absence of a cross-appeal. If there was nothing more to the point the Court would treat it as a notice of cross-appeal.
The proprietors however contend that the contention points were not raised before the referee or the Judge and the builder should be bound by the way it conducted its case below. The builder does not appear to have raised these points before the Judge but the position before the referee is not clear.
The contention points are within the pleadings. Paragraph 22 of the builder’s further amended cross-claim claimed under cl 6 for the increased costs incurred by reason of variations extending the time for practical completion (red 16). Paragraph 18 of the further amended notice of grounds of defence of the proprietors pleaded the time bar (red 22). Paragraph 2(a) of the builder’s reply denied that the claim was time barred, and sub-para (c) pleaded waiver or estoppel against reliance on the time bar (red 26-7).
The correspondence relating to the additional work occasioned by the cable is in evidence and before the referee the builder was entitled to rely on any of those documents as a sufficient compliance with cl 6.

The referee held (para 201) that the requirements in cl 6 for written notification were not met in respect of claim 5 saying “there was no evidence of a written notice”. It is not clear whether the referee was rejecting a submission for the builder or deciding the matter independently. It is well established that in some circumstances a new point of law can be raised for the first time on appeal. The point will be entertained when it arises on the construction of a document, or upon facts admitted or proved beyond controversy. It will not be entertained where evidence could have been given below which by any possibility could have prevented the point from succeeding. See Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 438; Green v Sommerville (1979) 141 CLR 594, 608; O’Brien v Komesaroff (1982) 150 CLR 310, 319.
An appeal from the decision of a Judge to adopt the report of a referee in whole or in part has special features. By adopting the report the Judge does not, without more, adopt any errors in it so as to expose his or her decision to attack on that basis in this Court: Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd (NSWCA, unreported, 8 June 1994) at pp 4, 10-11 per Gleeson CJ. The primary Judge exercises a discretion when deciding whether to adopt a report (DCR Pt 28A r 12(1)) and an appellant must establish an error in its exercise: Super Pty Ltd v S J P Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549. An appellant cannot attack the exercise of the Judge’s discretion on the basis of an error in the report where the point was not taken before the Judge.
The proprietors have established appellable error in the Judge’s findings of waiver and estoppel and the question is whether the respondent can raise a point of law that was not raised before the Judge.

The appeal is governed by s 75A of the Supreme Court Act which provides in sub-s (5) that it be a rehearing and in sub-s (10) that the Court may give any judgment or make any order which ought to have been given or made or which the nature of the case requires. These provisions allow the Court to entertain new questions of law in other appeals, and in my judgment they do so in this type of appeal once appellable error has been established. There is nothing in Super Pty Ltd v S J P Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 and Nine Network Pty Ltd v Kennedy Miller Television Pty Ltd, properly understood, which prevents a respondent in cases such as this raising a new question of law once the exercise of the Court’s powers under sub-s (10) becomes a live issue. These conclusions are reinforced by the duty imposed on the Court by s 63 of the Supreme Court Act to finally determine, as far as possible, all matters in controversy between the parties so as to avoid a multiplicity of legal proceedings. See also SCR Pt 1 r 3.
In para 14 of Mr Bailey’s submissions in reply of 14 February, after the Court had reserved its decision, he withdrew paras 3-6 of the Notice of Contention “in relation to the waiver for the Telstra delay”. Read literally this left in issue the contention under grounds 4-6 that the builder had given a written notification which complied with cl 6 of the contract, but Mr Bailey may have intended to withdraw grounds 3-6 completely.
In my opinion the Court should not act on the withdrawal of grounds 4-6 of the Notice of Contention, if this was intended, where the result, in disregard of this Court’s duty under s 63, would be further proceedings in the District Court, further costs, and further delays leading to an inevitable result. Under SCR Pt 51 r 22(1)(c) this Court can exercise its powers notwithstanding the withdrawal of these grounds of contention. The questions were fully argued and in my judgment this is a proper case for the Court to invoke this rule.
Under cl 6 the contractor, in the circumstances identified, was entitled to a fair and reasonable extension of time “PROVIDED that the owner is notified in writing … within ten working (10) days of the event”. The event refers to one or more of the matters in sub-paras (a) to (l) but the information to be included in the written notification is left to implication. It could simply be “the event”, it could be that “the building work” is or will or may be “delayed by reason of” “the event”, it could be that a claim will be made for delay “by reason of” “the event”, or it could be the claim itself.
The last construction should be rejected because it would require the contractor to formulate his claim within 10 days of the event when this might be impossible or impracticable. I would reject the third construction for similar reasons. The contractor may not know within 10 days whether a claim will be made because it may be possible to avoid delay by reorganising or varying the work and other causes of delay may be operating.
I would also reject the first construction that the contractor need only notify the owner of “the event”. Some of the “events” will be initiated by the owner such as (f) “any instruction of the owner …”, (j) “a variation of the Building Work”, and (k) “a suspension of the Building Work by” the owner. A construction which would require the contractor to notify the owner that he has given the contractor an instruction would be absurd.
This leaves the second construction which I would adopt. There is no absurdity for example in requiring the contractor to notify the owner within 10 days of receiving an instruction that compliance will cause delay because the owner may not be aware of this.
In the present case it is necessary to identify the relevant event and determine whether any letter sent to the proprietors was a notification in writing that the building work would be delayed by that event. The referee found that the builder was entitled to an extension of time under cl 6(a) (any alteration to the plans and specifications), 6(f) (any instruction of the owner or failure to give an instruction) and 6(j) (variation of the building work). However there was no alteration to the plans and specifications, no instruction from the proprietors, and no variation of the building work, until the proprietors’ instruction of 24 November (blue 1/162). Those events could not cause delay before they occurred and could not support an extension from 14 October.
The events which reflect the realities of the situation following discovery of the cable were either the second limb of para (f) “the failure of the Owner to give [an] instruction” or (l) “any other reason over which the Contractor has no control”. The only letters from the builder to the proprietors before 14 October which could possibly constitute a notification in writing that satisfied cl 6 in respect of these events are those of 4 and 16 September. The letter of 4 September (blue 3/542) relevantly stated “we are pleased to submit the following quote for your consideration: Extra cost associated with Telstra cable, including labour and equipment $27,450”. That of 16 September (1/159) relevantly stated:
“3)We also note that due to the Telstra cable the sewer has to be hand excavated, due to this work a lump sum price would not be fair for you or myself, I feel the best alternative is cost plus builder’s margin … Could you please confirm if you would like to proceed with the variations?”
The variations included those caused by the cable. The proprietors did not give an instruction to proceed until 24 November. The letter of 16 September implied that the work would be delayed until instructions were received. It was a notification that the cable created a problem and complied with the requirement that the proprietors be notified of any reason over which the builder had no control that would cause delay.
The statement “due to the Telstra cable the sewer has to be hand excavated” implies that the builder had intended to use a machine but cannot do so. The letter did not state in terms that the work would be delayed but the proprietors already knew that hand excavation would cause delay.
The oral evidence referred to in paras 8-10 of these reasons fully supports the referee’s findings referred to in para 13. The knowledge that the parties had of the need for hand excavation, and the delay that this would cause did not dispense with the need for the builder to give an appropriate notification in writing to the proprietors.
Where to the knowledge of both parties the proprietors already have the information that cl 6 requires the builder to communicate the notification need not set this out at length. In those circumstances the primary purpose of any written notification will be to provide objective evidence to facilitate contract administration and avoid disputes.
The relevant question is whether the letter of 16 September would convey to a reasonable recipient, with this background knowledge, that the building work would be delayed because of the cable. There is no difficulty in so construing this letter. A non-technical approach to its construction is supported by Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, 774 where Lord Hoffmann said that the clause in issue “does not require the tenant to use any particular form of words”. This can be said of cl 6. At 767-8 Lord Steyn said:
“The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood [them] … the notices must be construed taking into account the relevant objective contextual scene … The real question is what evidence of surrounding circumstances may ultimately be allowed to influence the question of interpretation. That depends on what meanings the language read against the objective contextual scene will let in.”
In its Notice of Contention the builder only relied on its letter of 4 September as a compliance with cl 6 but Mr Bailey relied in oral argument on the letter of 16 September (T 57(16), 58(25, 45), 59(21) and 60(40)). No objection was taken that this was outside the Notice of Contention and if it had been the Court would either have allowed an amendment or brushed aside the objection. The Court is entitled to hold that the letter of 16 September was a sufficient compliance with cl 6.
The question of whether the letter of 4 September was also a sufficient compliance is not so clear. The words which could notify a recipient that the cable would cause delay are “Extra costs” and “labour”. Both parties knew that the extra costs were for doing the work by hand over a longer period. In my opinion this letter construed in the light of the known background information also satisfied cl 6. The letters of 3 and 4 September also evidenced a waiver of any further compliance with cl 6. The proprietor’s request for a quote was a step in contract administration that would normally follow notification of a variation under cl 6. The request dispensed with the notification step and the builder’s reliance on the request was evident. I would therefore reject these grounds of appeal and uphold extension of time claim 5 as allowed by the referee and the Judge.

One or two projects

The referee held on the true construction of the contract there was only one project although there were different dates for the practical completion of 14 and 14A. Accordingly any extension of time for 14 would automatically extend the time for 14A whether or not the delay was on the critical path (para 40). The Judge upheld this construction. The proprietors claimed in grounds 6 and 7 that the contract provided for two projects so that a delay to 14 did not automatically extend the time for 14A. The referee found that all the successful delay claims lay on the builder’s critical path (paras 40, 88, 125, 159).
However it is not clear that the referee found that all delays to 14 caused the same or any delays to 14A, and her finding on the Telstra cable delay (para 125) was that:
“Mr Smith agreed that the delay in proceeding with this work affected the critical path of the project on 14A … Mr Finnane also agreed that the delay was on the critical path of the project.”
Thus there was no finding that the work was also on the critical path for 14. Her findings as to the stair set out for 14 (para 88), and for the retaining wall and underpinning (para 159) were that these caused delays to “the project”.
It is arguable in relation to these two claims that the referee found that the delays affected both 14 and 14A but there is either a finding to the opposite effect with respect to the Telstra cable delay or at best for the builder the finding is ambiguous.
In these circumstances the Court must decide the question of construction. Schedule 4 to the contract specified 25 weeks from 8 August 1997 for completion, but schedule 8 provided a time of 13 weeks for completion of 14 Campbell Avenue.
Clause 6 relevantly provided:
“If the Building Work is delayed by reason of:
…
THEN the Contractor is entitled to a fair and reasonable extension of time …”
Building Works (sic) was defined in cl 2 as meaning:
“… the Building Works shown in the Quote and the Approved Plans and Specifications as annexed to this Agreement.”
The properties 14 and 14A were side by side and were to be joined by a party wall. The contract fixed different dates for their practical completion, but otherwise treated the work as a single project.
The form of contract envisaged that the parties would define stages for the completion of the work when the builder would become entitled to payment. The relevant schedule was struck through and stages were never defined. Definition of the stages without more would not have created more than one project, and in my judgment fixing different dates for practical completion of 14/14A did not have this effect either. I would therefore uphold the decision of the Judge and the referee on this question of construction, and reject grounds of appeal 6 and 7.

Premature notification under cl 6

The relevant grounds of appeal (12-13) refer to delay claim 8 relating to the 14/14A party wall for which the referee allowed 28 days. This extension is challenged for non-compliance with cl 6 because the builder’s written notification was said to be premature. The notification relied upon was given on 15 January 1998 (para 160), but the delay found by the referee and upheld by the Judge did not commence until 19 January.
Mr Christie submitted that a notice given before the delay causing event could not satisfy the requirement in the proviso to cl 6 “that the owner is notified … within ten working (10) days of the event”. However the first meaning of “within” in the Macquarie Dictionary used to express temporal limits is “before the end of a period”. If “within” has this meaning in cl 6 the notice of 15 January was valid because it was given before the end of the period expiring 10 working days after the event. There is nothing in the context which excludes this meaning and it does not produce absurd or capricious results. The proprietors will not be prejudiced if the builder correctly anticipates a delay causing event and the extra notice could be a benefit. Nor will the proprietors be prejudiced if the event does not occur or does not cause delay. The notice will then be a piece of waste paper. In my judgment “within” has this meaning in cl 6 and these grounds of appeal fail.

Builder’s entitlement under cl 6 to automatic extensions of time for late payment of progress claims

Clause 9 relevantly provided:
“The Owner shall direct the Lending Authority to pay to the Contractor Progress Claims outlined in the Progress Payments Schedule Five of this Agreement within five (5) working days after being notified in writing by the Contractor that the stages of work have been satisfactorily completed.”
It was common ground that a Lending Authority was involved (para 103). Schedule Five was not completed and “as per attached sheet” had been written across it. There was no attached sheet dealing with progress claims. The proprietors relied on the fact that the progress claims did not contain a notification in writing that the relevant work or stage of the work had been satisfactorily completed.
The referee and the Judge held that the proprietors had waived the condition precedent in cl 9 to an entitlement for payment of progress claims 2, 3 and 8. They allowed the builder automatic extensions of 13, 5 and 14 days under cl 6 for late payment of these claims. Grounds 14 and 15 challenged the finding that the condition precedent had been waived for claims 3, and 8.
Grounds 9 and 11 challenged the automatic extension of time for late payment of progress claim 2 but those grounds were expressly withdrawn by Mr Christie when the appeal was opened (T 2). It is clear from later argument (T 38) that this was a slip and grounds 21 and 22 were added to the Notice of Appeal by amendment to challenge all automatic extensions of time for late payment of progress claims.
Clause 6 relevantly provided:
“Should the Owner not pay a Progress Claim … within five (5) days of the due date OR where a Lending Authority is involved an inspection is delayed for more than three (3) days, the Contractor is entitled to an automatic extension of time equal to the number of days such payments are late or inspection delayed.”
The builder’s progress claims, other than the first for the deposit, were presented at the end of each month. The proprietors pleaded an express oral term of the contract that progress claims would not be issued more than once a month (para 21). The builder put this in issue but the referee found there was this term (para 25).
The proprietors’ starting point was that these progress claims did not comply with cl 9 because they did not contain a notification that the work or stages had been satisfactorily completed.
Clause 9 must be construed having regard to the oral term found by the referee and the absence of any agreement as to stages. In these circumstances the condition precedent could only refer to the work for which payment was sought in the monthly progress claims. On that basis a progress claim had to contain a written notification that the work charged for had been satisfactorily completed. However each progress claim, and progress claim 2 in particular, conveyed a representation to that effect. The representation was necessarily implied by the claim for the work identified in the claim documents.
Progress claim 2 was made on 30 August and paid on 1 October. The builder’s progress claims called for payment within 14 days (blue 1/62) and not five days as provided in cl 9 (para 15), and the proprietors had a further three days for payment because of the need for an inspection (paras 102-4). The referee allowed an automatic extension of 13 working days for this delay (para 108).
Progress claim 3 was made on 30 September and paid on 21 October and the referee allowed an automatic extension of 5 working days for this delay (para 139). Progress claim 8 was made on 18 March 1998 and paid in full by 21 April. The referee allowed an automatic extension of 14 working days for this delay (para 175).
Until a late stage in the project, which is not relevant, the builder’s monthly claims were paid without any objection based on the absence of an express notification that the work claimed for had been satisfactorily completed (para 19). The referee found that the proprietors thereby waived this condition precedent (para 20). This finding, accepted by the Judge, was a complete answer to the challenge to automatic extensions allowed as a result of the late payment of claims 3 and 8. Grounds 14 and 15 therefore fail.
However the waiver of the condition precedent by the payment of progress claim 2 could not have retrospective effect. It could not confer on the builder an entitlement to payment of that progress claim before the condition precedent was waived. However the automatic extension of time for the late payment of progress claim 2 can be supported on the ground that the progress claim contained, by implication, the required notification. Grounds 9, 11, 21 and 22 therefore fail.

Delay costs on a quantum meruit basis

The referee and the Judge held that the builder was entitled to delay costs for extensions of time totalling 95 days (para 703). Clause 6 relevantly provided:
“Where the cost of the Building Works has increased as a result of a delay as outlined above, the Contractor is entitled to a reasonable increase on the Contract Price together with the Builder’s Margin.”
The builder’s margin specified in Sch 9 of the contract was 20 per cent. The parties called experts in the reference to deal with this claim. The builder’s expert assessed the delay costs on a quantum meruit basis consequent on its rescission of the contract. The proprietors’ expert attempted to assess the builder’s actual costs. The experts then conclaved and accepted a figure for overheads of 5 per cent of project costs for a building such as this was in line with industry standards (para 709). The referee preferred this method and awarded the builder $20,814.50 for the extra costs due to the delays (para 711). The Judge held that the referee was entitled to adopt this approach and had not erred in law in doing so. I agree.
Mr Weinberger said that this award overcompensated the builder and the proper award was one based on its actual costs. The referee appears to have taken the view that the builder’s records had not captured all its overhead costs and a figure of 5 per cent of project costs based on industry standards was more realistic. There are no grounds for interfering with the Judge’s exercise of discretion on this question. Grounds 16 and 17 therefore fail.
Since all grounds of appeal that were argued fail the appeal must be dismissed with costs.

HODGSON JA: I agree with the order proposed by Handley JA and, subject to what I say below, with his reasons.
Handley JA at [50] expresses the views (1) that definition of the stages for completion of the work, without more, would not have created more than one project, and (2) that the fixing of different dates for practical completion of 14/14A did not have this effect either. I agree with (1), but wish to say more concerning (2).
Clause 2 of the agreement defines “Practical Completion” as follows:
“Practical Completion” means the time when the Contractor has completed the Building Works in accordance with this Agreement except for any minor omissions and/or defects BUT EXCLUDING any items listed in the Clause 23 Excluded Items Schedule.
Clause 19 of the agreement deals with what happens on practical completion, as follows:
Upon Practical Completion (as defined in Clause 2) the Contractor shall give the Owner a Notice of Practical Completion stating that the Building Works are Practically Complete AND progress claim for Payment on Practical Completion. This progress claim shall be paid within five (5) Working days of receipt by the Owner.
Also within five (5) Working days the Owner may give (if necessary) the Contractor an Owner's Notice setting out those matters and things required by this Agreement still to be completed. The Contractor shall complete such matters and things as soon as is practicable but otherwise within five (5) Working days of receiving the Owner's Notice. The Contractor shall give to the Owner notice in writing of completion of the said matters where upon the works shall be deemed to be practically completed upon the date of such notice and the Defects Liability Period shall commence to run from the date of such notice. Defects Liability Period of thirteen (13) weeks.
Upon payment of the progress by the Owner, the Contractor shall give the Owner the keys to the Building Works. By accepting the keys, the Owner is;
1.Acknowledging responsibility for the Building Works in terms of insurance; and,
2.Acknowledging that the Building Works have been completed.
It is the responsibility of the Owner to obtain the Building Certificate Form 3 from the Local Council Authority.
If the Local Council Authority refuses or fails to issue the Certificate due to a failure by the Contractor to perform any works or supply any material under this Agreement, then the Contractor will attend to those works or supply those materials to enable the Certificate to be issued.
Payment of the progress claim by the Owner is not dependent upon the Owner obtaining a Building Certificate Form 3 from the Local Council Authority.
Within ten (10) Working days of Practical Completion the Contractor shall give the Owner a Final Account (as defined in Clause 2 of this Agreement).
Clause 5 of the agreement, relating to “Time for Completion” simply refers to Schedule 4. Clause 22 relating to “Liquidated Damages” simply refers to Schedule 6; and cl.24 relating to “Special Conditions” simply refers to Schedule 8.
Schedule 4 is as follows:
The Contractor shall diligently proceed and complete the Building Work within 25 calender (sic) weeks from 8 August ’97 and subject to Clause 6 of this agreement
Schedule 6 is as follows:
The Contractor and Owner agree that if the Building Works are not completed in accordance with the time specified in Schedule 4 of this Agreement THEN the Owner shall be entitled to claim the sum of $500 each dwelling ($500 each) per week for each and every day after the period shown in Schedule 4, as extended by Clause 6 in this Agreement which provided for extensions of time for the Contractor.
Schedule is as follows:

Time for completion of dwelling 14 Campbell Ave, Paddington – Thirteen (13) weeks form 8 August 97 being 7 November 97
Any references to architect in any attached documentation will mean the Owners.

Among the attached documentation are pages entitled “Supplementary Conditions of Contract”, of which the following have some relevance.
There is a clause entitled “Scope of Work” as follows:
This contract shall include all materials, labour, plant, equipment and cartage as necessary for the proper erection and completion of the works comprising generally renovations, alterations and additions to the existing terrace at 14 Campbell Ave. (building B1) and the erection of a new dwelling at 14A Campbell Ave. (building B2) Paddington.
There are clauses numbered 46, 47 and 48, which are as follows:
46.         Practical Completion
Practical Completion designates the time that, at the discretion of the Architect, the works are reasonably fit for the occupation of the Proprietor.
At Practical Completion the Builder shall clean up the site and the works in accordance with clause 34 above. Hand over all keys correctly labeled (sic) and leave the whole of the works ready for occupation. The Builder shall notify the Architect in writing when he considers that the works are Practically Completed.
At the discretion of the Architect, notice of Practical Completion may be issued for certain elements of the project with selected exclusions and/or the Proprietor may occupy the premises, with the permission of the Builder, prior to the issuing of a Notice of Practical Completion.
47.         Liquidated and Ascertained Damages
If the Builder fails to bring the works to Practical Completion by the date stipulated by the contract the Builder shall be liable for liquidated damages of $750 per week for B1 and $1,000 per week for B2.
48.         Defects Liability
The Defects Liability Period shall be twenty six weeks after practical completion or at the completion of the works in the case where a notice of practical completion has been issued prior to the completion of the works. Any defects, shrinkages or other faults in the works occurring within the defects liability period shall be made good by the Builder within reasonable time, and wher (sic) such faults are due to materials and/or workmanship not being in accordance with this Contract, such making good by the Builder shall be at no cost to the Proprietor.
In my opinion, this contract did not contemplate two dates for practical completion, two final accounts under cl.19, or two defects liability periods under cl.48 of the supplementary conditions. This is subject to the possibility, under cl.46 of the supplementary conditions, of there being a Notice of Practical Completion issued at the discretion of the architect (that is, the owners) for certain elements of the project.
Similarly, when one considers the provisions for liquidated damages, it is to be seen that Schedule 6 refers to “the time specified in Schedule 4”, that is the expiration of 25 weeks, and does not refer to the respective times referred to in Schedule 4 and Schedule 8. Clause 48 of the Supplementary Conditions refers to practical completion and “the date stipulated by the contract”, so again it is indicative of one date after which there will be a liability for liquidated damages in relation to each building.
In my opinion, it follows that, while breach of the requirement of Schedule 8 would give rise to the possibility of unliquidated damages, it would not give rise to liquidated damages either under Schedule 6 or cl.48. There is no occasion to consider how the discrepancy between Schedule 6 and cl.48 is to be reconciled.
These considerations confirm that there was one project, so that it was appropriate to consider one critical path. Of course, there could be delays entitling the builder to an extension of time under cl.6, which do not lie on the critical path of the project but do justify an extension of time for the completion of 14 Campbell Avenue; and thus could affect the builder’s liability for unliquidated damages under Schedule 8, while not affecting liability for liquidated damages under Schedule 6 or cl.48.
Accordingly, in my opinion the referee was correct to consider whether items were on the critical path for the project; and in so far as the referee did find that the items in question were on that critical path, there is no basis to overturn that decision.
I should however refer to some particular submissions made by Mr. Christie for the appellants.
First, Mr. Christie submitted that acceptance of an opinion “that the two-day stoppage delayed the critical path of the work at Nos. 14 and 14A” amounted to a finding that each house had its own critical path. Having regard to the use of the singular for the word “path”, that submission is plainly wrong.
Mr. Christie submitted that reference to opposing evidence of experts as to whether “the work delayed the critical path of the project on both houses” or “only affected No.14A and not No.14” was tantamount to a finding that each house had it own critical path. Again, that submission is plainly incorrect. Consistently with what I said above, there could be a critical path for the project on both houses, and there could also be matters only affecting No.14A, in which case they would not lie on that critical path.
Mr. Christie criticised the finding of the referee at Red 70G that “there was only one single project and, until completion of No.14, the completion dates of both No.14 and 14A became extended whenever the Builder was entitled to a time extension”. I agree that that is not a complete and accurate statement of the position. As noted earlier, there could be matters not on the critical path of the project that would entitle the builder to an extension in relation to No.14, and therefore affect liability for unliquidated damages under Schedule 8, but not affect the date for practical completion of the project. However, in my opinion when the referee addressed the question of whether items were on the critical path of the project, the referee was properly addressing that question, and her decision was not vitiated by any disregard of the possibility that there could be items not on this critical path that may have entitled the builder to an extension in relation to No.14 alone.
Mr. Christie relied on an answer given by the builder in evidence, when it was put to him that a particular delay, associated with an internal staircase to No.14, did not hold up No.14A, to which the builder agreed. However, the referee referred to expert evidence that the finalisation of the stair detailing would delay the critical path of the project in that, until the design was finalised, the builder could not make required preparations for associated work such as landings, wall finishes, ceiling linings to the attic, skirtings and architraves. What Mr. Christie in effect submitted was that the referee should have found that the builder should have altered the scheduling of the works, so that works scheduled to be addressed after this particular job should have been re-scheduled to be performed before this job was completed. In my opinion, that is in substance the question addressed by the referee in her decision that this was on the critical path. The finding was open notwithstanding the evidence of the builder, which could properly have been interpreted as conceding merely that it would have been possible to re-schedule so that the delay to the staircase did not directly necessitate a delay to No.14A.
So for those reasons, in addition to those given by Handley JA, in my opinion the appeal should be dismissed with costs.
BROWNIE AJA: I agree with Handley JA.

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LAST UPDATED: 20/05/2005

[2005] NSWCA 165

16 May 2005