F & J Investment Assets Pty Ltd v Etcell
[2024] VCC 594
•7 May 2024
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-19-00242
| F & J Investment Assets Pty Ltd (ACN 621 866 180) as trustee for The Mustafa Property Trust | First Plaintiff |
| and | |
| Jetmir Mustafa | Second Plaintiff |
| and | |
| Florije Mustafa | Third Plaintiff |
| v | |
| Paul Etcell | Defendant |
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JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10-14, 17, 24-28 October, 2, 3, 7, 8 - 11 November 2022; 12 & 22 December 2022 (final written submissions) | |
DATE OF JUDGMENT: | 7 May 2024 | |
CASE MAY BE CITED AS: | F & J Investment Assets Pty Ltd v Etcell | |
MEDIUM NEUTRAL CITATION: | [2024] VCC 594 | |
REASONS FOR JUDGMENT
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Subject: BUILDING CONTRACT – TERMINATION – SUSPENSION BY BUILDER – SUFFICIENCY OF NOTICES
Catchwords: Building Contract – Refurbishment of premises as a childcare centre – Contract terminated by Client following giving of Show Cause Notice pursuant to the contract – Numerous “substantial breaches” relied upon including Builder’s suspension of the work – Whether Builder had validly suspended the works for Client’s failure to pay progress claims – Sufficiency of Builder’s Suspension Notice and related Show Cause Notice served on the Client – Sufficiency of Client’s notice served on Builder – Suspension of works not in accordance with the contract – Builder’s notices invalid and ineffective - Contract validly terminated by the Client – Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, MLW Technology Pty Ltd v May [2005] VSCA 829 and Yan & Anor v Zhang [2018] VSC 694 applied.
Delay – Extension of time – Whether notice claiming extension necessary - Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2021] VSC 705 distinguished.
Parties – Contract defined the “Client” as “The Mustafa Property Trust” – Contract negotiated by Mr and Mrs Mustafa and signed by Mr Mustafa “on behalf of” the Trust – At the time the contract was entered into the trustee was a company – No mention of company during negotiations – Mr and Mrs Mustafa were the sole directors of the company – Company not mentioned during contract negotiations - Whether the contract should be rectified to name the company as the “Client” – Contract rectified.
Legislation Cited: Domestic Building Contracts Act1995 (Vic); Building and Construction Industry Security of Payments Act 2002 (Vic).
Cases Cited: Northern Health v Kuipers [2015] VSCA 172; Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; Matthews v SPI Electricity Pty Ltd [Ruling no 20] [2013] VSC 197; Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2021] VSC 705; Jolin Nominees Pty Ltd v Daniel Investments (Aust) Pty Ltd [2022] VSCA 209; Yan & Anor v Zhang [2018] VSC 694; Lanshen Pty Ltd v F3 Enterprises Pty Ltd [2024] VSCA 59; Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; Central Pacific (Campus) Pty Ltd v Staged Developments Australia Pty Ltd [1997] VicSC 581; Catley v Watson (1983) V ConVR; Greydae Pty Ltd v Malilane Pty Ltd [2003] VSCA 27; MLW Technology Pty Ltd v May [2005] VSCA 829; Burbank Trading Pty Ltd v Allmere Pty Ltd [2009] VSCA 82; Salta Constructions Pty Ltd v St George Bank [2014] VSCA 289; and Balanced Securities Ltd v Dumayne Property Group Pty Ltd [2017] VSCA 61; Etlis v New Age Constructions (NSW) Pty Ltd [2005] NSWCA 165; Bunbury Foods Pty Ltd v National Bank of Australia [1984] HCA 10; Cardona v Brown [2012] VSCA 174; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; Hankey v Clavering [1942] 2 KB 326; Royal Botanic Gardens and Domain Trust v South Sydney City Council [2002]; Stojanovski v Australian Dream Homes [2015] VSC 404; J-Corp Pty Ltd v Mladenis[2009] WASCA 157; Hacer Group Pty Ltd v Euro Façade Tech Export Sdn Bhd[2022] VSC 373; Dura (Australia) Constructions Pty Ltd v. Hue Boutique Living Pty Ltd (No. 3)[2012] VSC 99.
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr R A Harris of counsel | MGA Lawyers |
| For the Defendant | Mr J R Gurr of counsel | Ward & Co |
HIS HONOUR:
1In 2017, Jetmir and Florije Mustafa (“Mr and Mrs Mustafa”) wished to proceed with the refurbishment of a building in Eltham (“the Eltham property”) for use as a childcare centre. It was their intention to engage a Builder to carry out the works on behalf of The Mustafa Property Trust (“The Property Trust”).
2Mr and Mrs Mustafa had been the trustees of The Property Trust since 1 February 2017. F&J Investment Assets Pty Ltd (“F&J Investment”) was incorporated on 22 September 2017. Mr and Mrs Mustafa had at all times been the directors of F&J Investment. By a deed dated 9 October 2017, F&J Investment replaced Mr and Mrs Mustafa, and became the trustee of The Property Trust.
3On 26 October 2017, a Building Contract for the refurbishment of the Eltham building was entered into by “The Mustafa Property Trust” as the “Client” and Paul Etcell as the “Builder” (“the Building Contract”). The contract was signed by Mr Mustafa “for and on behalf of” the Client and by Justin Barnett on behalf of the Builder. The contract sum was $1,472,847.00. A document headed “Variation” for an additional sum of $134,959.99 was also executed by the parties on 26 October 2017.
4Mr and Mrs Mustafa had first discussed the building refurbishment and the proposed Building Contract with Mr Barnett. Mr Etcell was first introduced to Mr and Mrs Mustafa on 4 October 2017. Mr Etcell was a registered Builder trading under the business name “Ikonic Homes”. Mr Etcell and Mr Barnett were to share the expected profits from the Building Contract. Mr Barnett was the Construction Manager for the project, although Mr Etcell was also involved on site.
5The stage one building permit was issued on 12 October 2017. Demolition work had commenced on 15 October 2017 and construction work on the refurbishment started shortly afterwards. The Building Contract was terminated on 24 August 2018. By that time, the parties had been in dispute for a lengthy period over a number of issues including the payment of progress claims, delays in construction and the quality of the building works.
6In July and August 2018, leading up to the termination of the Building Contract, there were meetings between Mr and Mrs Mustafa, Mr Etcell and Mr Barnett. Various notices and other correspondence were exchanged to which more detailed reference will be made in due course.
7Many of the disputes between the parties will be resolved by the Court’s determination as to which party validly terminated the Building Contract.
8On 24 August 2018, Mr Mustafa submitted to Grimbos Building Surveyors, the Registered Building Surveyor for the project (“the building surveyor”), an application to take over the refurbishment of the Eltham building from Mr Etcell. On 3 September 2018, the stage four amended building permit was issued naming Mr Mustafa as the “Client Builder”, replacing Mr Etcell as the Builder.
9Mr and Mrs Mustafa had engaged Shady El-Sheikh, a construction manager, to assist them with the completion of the project. Trades were contracted directly to finish the works. The refurbishment was completed in mid-2019. The works undertaken included the completion of matters left unfinished by the Builder, the rectification of defective work and the carrying out of other new redesigned works.
10Soon after the Building Contract was terminated, a building consultant, Matthew Osborne, was engaged by Mr and Mrs Mustafa to inspect the building works. He did so on 30 August and 11 September 2018. Mr Osborne identified defective work performed by the Builder prior to the termination of the Building Contract.
11On 8 May 2019, an occupancy permit was granted. On 8 July 2019, F&J Investment leased the property to a related company, Bridge Kids Pty Ltd, to operate the childcare centre.
12The principal issues raised for determination in the proceeding are as follows:
(a) Whether F&J Investment, or Mr Mustafa (separately, or with Mrs Mustafa), was the appropriate “Client” under the Building Contract. In this judgment, the expression “the Client” shall refer to the party to the Building Contract who, during the carrying out of the contract works acted in the position of “the Client”, or what might more commonly be described as “the owner”, without attempting to define at any particular time whether that meant:
(i)Mr Mustafa, either personally, as trustee for The Property Trust, or as a director of F&J Investment as the trustee of The Property Trust;
(ii)Mrs Mustafa, together with her husband, in any of the roles referred to; or
(iii)F&J Investment as the trustee of The Property Trust;
(b) The legal effect of the Builder’s suspension of the works and of his service of Suspension and Show Cause notices under the Building Contract, dated 31 July and 1 August 2018;
(c) The legal effect of the Client’s Show Cause Notice dated 1 August 2018 and the subsequent purported termination of the Building Contract on 24 August 2018;
(d) The financial consequences which follow from the decision I made about the termination of the Building Contract; and
(e) The resolution of other claims which survived the termination of the Building Contract, including whether the Builder carried out the contract works in a defective manner or was otherwise in breach of the Building Contract as a result of the delay in the completion of the project.
Summary of conclusions in the reasons for judgment
13In view of the length of these reasons for judgment, it is appropriate that I set out a summary of my conclusions at this stage. This summary must be read in light of the more extensive reasons that follow.
14Amendment of the Plaintiffs’ pleadings (paragraphs 36 to 52): Shortly before the trial concluded, I refused an application by the Plaintiffs to amend their Statement of Claim and their Reply and Defence to Counterclaim. The proposed amended pleadings were the Plaintiffs’ Fourth Further Amended Statement of Claim (“P4FASOC”) and the Plaintiffs’ Fifth Further Amended Reply and Defence to Counterclaim (“P5FARDCC”), both filed on 9 November 2022.
15The amendments referred to and relied upon the processes by which a quantity surveyor, Charter Keck Cramer (“CKC”), in three reports between February and July 2018, assessed the Builder’s progress claims and recommended how much of the progress claims should be paid by the Client. CKC was engaged by the Client’s bank, National Australia Bank Ltd (“NAB”).
16The amendment application was refused principally because of the late stage at which the application was made, and the likely reliance placed upon the Plaintiffs’ existing pleadings by the Defendant in the conduct of the case over an extended period.
17Credit of witnesses (paragraphs 60 to 64): I have generally accepted the evidence of Mr and Mrs Mustafa. I found Mr Etcell an unreliable witness. The absence of Mr Barnett as a witness without reasonable explanation led to the usual consequences.
18I preferred the evidence of the Plaintiffs’ expert Mr Osborne to the evidence of Mr Jeffery, who I found adopted the role of an advocate rather than of an expert.
19Issue 1 – Which party was the “Client” in the Building Contract? (paragraphs 65 to 78): The trustee of The Property Trust was always intended by the parties as the “Client” in the Building Contract. F&J Investment was the trustee when the Building Contract was entered into. All parties mistakenly believed that Mr (or Mr and Mrs) Mustafa was (or were) the trustee(s) at that time.
20As the Client is the successful party in the litigation, there would be no prejudice to the Defendant if the Building Contract was rectified to name F&J Investment as the “Client”.
21Issue 2 – Delays during the Building Contract before termination (paragraphs 79 to 213): The date for practical completion was extended to 7 September 2018. The Building Contract was terminated rightfully by the Client on 24 August 2018. Consequently, no rights relating to delays under the Building Contract had accrued to the parties and survived the termination.
22Nevertheless, there were issues of delay by the Builder, both in the performance of the works and in the ordering of materials that were proper bases for the service of the Client’s Show Cause Notice on 1 August 2018.
23Issue 3 – Termination of the Building Contract (paragraphs 214 to 487): The Building Contract was rightfully terminated by the Client on 24 August 2018.
24The Builder’s Suspension Notices dated 31 July 2018 were not effective as there was no proper basis to give the notices at that time and the notices were inadequate under the Building Contract. The Builder’s Show Cause notice was similarly defective.
25Prior to the suspension of the works, the Client had substantially paid all monies owing under the Building Contract, as represented by completed “stages” of the work and as recommended by CKC in its third report dated 6 July 2018.
26The Builder’s progress claims on 15 and 17 June 2018 for the balance of Stage 7: Rough in and Stage 5: Frame did not comply with clause 21.1, being made prematurely before the works of each of those stages had been completed. In those circumstances, the balance of clause 21 of the Building Contract, specifically the deeming provisions in clause 21.5, had no application.
27The Client’s Show Cause Notice was an effective notice in terms of the “substantial breaches” of the Building Contract relating to:
(a) the wrongful suspension of the works by the Builder;
(b) the extent of the defective work of the Builder, representing 30% of the contract price and completed variations; and
(c) the late supply of materials and other delays by the Builder that meant the Builder would not have completed the works as programmed for reasons that were his sole responsibility.
28Issue 4 – The Builder’s items of defective work (paragraphs 488 to 1026): The pre-trial processes involving the experts reduced the disputed matters to the defect items set out in an agreed Scott Schedule dated 9 November 2022 (“the Scott Schedule”), containing each party’s position on issues of liability and quantum.
29After examining each of these items, I have determined that the reasonable cost to the Client to rectify the defective work was the total sum of $478,599.88.
30Issue 5 – Quantum (paragraphs 1027 to 1102): As a consequence of the determination that the Building Contract was properly terminated by the Client, the Client is also entitled to:
(a) the cost of completing the works of the Building Contract which I have fixed at $512,282.75; and
(b) delay costs for the period to complete the works of the Building Contract and to rectify defective work which I fixed at $910,136.99.
31The Builder did not succeed in relation to any of his counterclaims.
32Conclusions and orders: As a consequence of these determinations, and taking into account the state of the works when the Building Contract was terminated and the payments made to the Builder by the Client, the First Plaintiff is entitled to judgment on its claim in the sum of $654,117.17 and, on the counterclaim, that the counterclaim be dismissed.
33Other orders were made to allow the parties time to check the arithmetic of the calculations in the reasons for judgment and to address any further submissions that they might have on issues of interest and costs.
Pleadings, claims, evidence, credit of witnesses
34The proceeding was commenced by writ issued on 23 January 2019. Fixed trial dates on 27 November 2019, 17 March 2020, 15 June 2020, 13 October 2020, 29 June 2021 and 22 November 2021 were vacated as the parties requested more time to complete interlocutory steps. On 23 November 2021, the trial commenced before his Honour Judge Cosgrave (as he was then). The Defendant made application to further amend his defence. On 8 December 2021, after 5 sitting days hearing submissions, Judge Cosgrave delivered a ruling and made further interlocutory orders, including refixing the trial for 5 September 2022.
35The final form of the parties’ pleadings are contained in the following documents:
(a) the Plaintiffs’ third Further Amended Statement of Claim dated 18 February 2022 (“P3FASOC”);
(b) the Defendant’s fourth Further Amended Defence and Counterclaim dated 1 June 2022 (“D4FADCC”); and
(c) the Plaintiffs’ fourth Further Amended Reply and Defence to Counterclaim dated 18 February 2022 (“P4FARDCC”).
36Plaintiffs’ application to amend their pleadings: Probably the most critical issue for determination in this matter is which party effectively terminated the Building Contract. This decision depended, to a significant degree, on the sufficiency of the Suspension Notices and Show Cause Notices served by the parties on 31 July and 1 August 2018.
37That issue is not determined in a vacuum. The efficacy of each notice must be considered in the light of the circumstances which existed when the notice was served. The amendment proposed by the Plaintiffs was intended to clarify, and expand, the legal implications which they allege arose from the circumstances of which the parties were aware when the various notices were served.
38The ability of the Plaintiffs to raise these matters was unaffected by the outcome of the amendment application, as the issue of the construction of the provisions of the Building Contract, in respect of the Builder’s Suspension and Show Cause notices, was raised in P3FASOC.
39The basic facts which were relevant to the amendment application were as follows:
(a) in early 2018, NAB became the Client’s financier for the project;
(b) as part of NAB’s arrangement with the Client, it appointed CKC to assess the Builder’s progress claims for the Staged Works and Variations and to report on the value of the works that had been performed by the Builder and to recommend how much the Client, through NAB, should pay the Builder in respect of his progress claims;
(c) CKC made three reports dated 23 February, 5 April and 6 July 2018;
(d) the process for the preparation of each report involved CKC inspecting the works on site with the Builder’s appointed quantity surveyor, Louis Ng, and having discussions and correspondence with the Builder and the Client;
(e) following each report, the Client paid the Builder a sum which was substantially the amount recommended for payment by CKC;
(f) the recommendation made by CKC in its third report was that the progress claim for Stage 6: Carpark structure was owing, but that the claims for the balance of Stage 5: Frame and Stage 7: Rough-in were not owing as those stages had not been completed;
(g) After the third CKC report, the Client paid the recommended sum of $147,283.40 for Stage 6, but did not pay the Builder’s claims for the balance of Stage 5 and Stage 7; and
(h) on no occasion, did the Client provide a progress certificate within seven days, pursuant to cl 21.3(b) of the Building Contract conditions, disputing that all or part of a progress claim was not owing, including in relation to the progress claims for the balance of Stages 5 and 7.
40Paragraph 4A of the proposed P4FASOC alleged that, “in or about February 2018 and continuing up until the Contract was terminated it was agreed between the Client and the Builder to vary the operation of clause 21.3 and clause 21.5 of the Contract”.
41It was alleged that the variation involved the Builder submitting his progress claims to CKC for assessment. It would follow that the Client would therefore not be required (under clause 21.3) to issue a certificate within 7 days and would only be required to pay the amount assessed by CKC.
42Alternatively, the Plaintiffs alleged in paragraph 4B of P4FASOC that the Defendant had made representations to the same effect.
43The Plaintiffs alleged in paragraph 4C of P4FASOC that as a consequence of the variation, or in reliance upon the representation, the Builder’s progress claims had been provided to CKC for assessment, no progress certificate had been issued by the Client pursuant to clause 21.3 of the Building Contract, and the Client had paid to the Builder the sum assessed by CKC in respect of the progress claims.
44The Plaintiffs in their proposed P5FARDCC also relied upon these allegations as giving rise to an estoppel or an actionable representation.
45There was no significant difference between the parties in relation to these facts, save for whether the works of Stages 5 and 7 had been completed. The matters will be discussed later in more detail. The result is summarised in the following table:
Claim date
Amount claimed by Builder
CKC report no.
CKC report date
Amount recommended by CKC
Date paid by Client
Amount paid by Client
To 19 Jan 2018
$506,854.09
1
23 Feb 2018
$506,854.70
To 5 Mar 2018
$504,955.80
To 21 Mar 2018
$497,436.02
2
5 Apr 2018
$497,436.50
11 Apr 2018
$497,436.50
To 17 Jun 2018
[$12,606.00] $147,284.70
[$117, 827.76 $12,144.00]
3
6 Jul 2018
$147,283.40
19 Jul 2018
$147,283.40
$1,294,152.57
$1,151,574.60
$1,149,675.70
46At issue in the case as pleaded in P3FASOC, D4FADCC and P4FARDCC was:
(a) Whether the Builder’s progress claims for the balance of Stages 5 and 7, if made when those works were incomplete, satisfied the requirements of cl 2.1 as a valid progress claim, and cl17 as a proper basis for the suspension of works and for the suspension notices;
(b) whether the Client’s failure to pay the Builder’s progress claims for the balance of Stages 5 and 7, or to dispute them within 7 days of the claims being made, had the effect by reason of cl 21.5(b) of the Building Contract conditions of deeming that the payments were immediately due and payable;
(c) whether the Builder might rely upon this deeming to issue Suspension Notices or a Show Cause Notice pursuant to the Building Contract;
(d) the adequacy and effectiveness of the progress claims and the Builder’s Suspension and Show Cause notices.
47The issues raised by the Plaintiffs’ proposed amended pleadings are whether:
(a) the Builder and the Client varied by agreement, the Building Agreement to allow for the process of assessment by CKC of the Builder’s progress claims and the acceptance of that payment in accordance with the CKC report recommendations would satisfy the progress claim provisions of the Building Contract;
(b) alternatively, whether the Builder’s conduct constituted a representation relied upon by the Client to its detriment;
(c) as a consequence, the Builder was estopped or otherwise unable to enforce cl 21.5(b) of the Building Contract conditions, including by the service of Suspension or Show Cause Notices.
48I considered that it was appropriate to refuse the proposed amendments for the following reasons:
(a) the basic facts were not significantly disputed by the parties;
(b) however, the effect of those matters would need to be considered by the Court, whether or not the amendments were allowed, as part of the circumstances in which the various Suspension and Show Cause Notices were served, in order to determine the sufficiency and effectiveness of those notices in light of the appropriate construction of clauses 17 and 21 of the Building Contract;
(c) the proposed amendments were not formalised until very late in the proceeding at trial and after lengthy interlocutory processes;
(d) the Defendant had defended the case on the basis of the Plaintiffs’ pleaded case and would likely have made forensic decisions based upon the limitations of those pleadings. When Defendant’s counsel, Mr Gurr, opened his case early in the trial, he clearly had a thorough understanding of the issues relating to the non-payment of the progress claims for the balance of Stages 5 and 7. This included the role of CKC, who Mr Gurr said was “entirely irrelevant to the contractual relationship between the builder and the owner” [at T122] and “had no formal role under the contract” [at T201];
(e) whilst it is impossible to determine whether any, and what, actual prejudice the Defendant may have suffered, if the amendment were allowed, it would likely be significant if the Defendant had made decisions about the possible settlement of the proceeding or about the conduct of the trial, based on the way the Plaintiffs had pleaded their case.
49Balancing these matters, I considered that the interests of justice required that the amendment application be refused.
50Having now reached my decision in the proceeding based upon the unamended pleadings, I know that the basic facts underpinning the amendment application have had particular significance in my decision concerning the adequacy and effectiveness of the Builder’s Suspension Notices and Show Cause Notices. The Client has therefore succeeded in the proceeding without needing to rely on the additional legal bases which may have arisen from the critical facts I have referred to.
51In reaching my decision on the amendment application, I followed the decision of the Court of Appeal in Northern Health v Kuipers [2015] VSCA 172 (“Kuipers”), and the further important decisions referred to in Kuipers of Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 and Matthews v SPI Electricity Pty Ltd [Ruling no 20] [2013] VSC 197.
52In Kuipers at [22], the Court of Appeal referred to the “pivotal” position of the Civil Procedure Act 2010 “to the resolution of disputes about case management issues in civil proceedings” and, at [24] to the need for the Court to have regard to the objectives set out in s 9 to further and give effect to the overarching purpose of the Act in s 7 “to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute”. These are processes I followed in relation to the amendment application.
53Plaintiffs’ claims: By its claim in the proceeding (P3FASOC), F&J Investment, or alternatively Mr and Mrs Mustafa, as trustee or trustees of The Property Trust, sought a determination of the following matters:
(a) rectification of the Building Contract to clarify the name of the Client;
(b) that the Building Contract was properly terminated by the Client and not the Builder;
(c) the cost of carrying out the contract works left incomplete by Mr Etcell;
(d) the cost of rectifying the defective work of Mr Etcell;
(e) liquidated damages or delay damages for the time beyond the date for practical completion necessary to complete the incomplete works and to rectify defects; and
(f) interest.
54Mr Etcell, by his counterclaim (D4FADCC), claimed:
(a) various declarations relating to the “Client” in the Building Contract and, the adjusted date for completion, and whether the Defendant validly terminated the Building Contract;
(b) $ 144,476.89 as unpaid progress claims;
(c) alternatively, reasonable remuneration for the work and labour done and materials provided;
(d) loss and damage totalling $432,316.19 arising from the termination, as follows:
(i)$303,406.86 termination fees paid to subcontractors or suppliers;
(ii)$34,389.30 materials ordered and paid for;
(iii)$94,520.03 lost profit on work not performed;
(e) interest.
55Evidence: The documents in the case were contained in three Court Books, the Court Book (“CB”) containing 4,849 pages, the Supplementary Court Book (“SCB”) containing 2,223 pages, and the Further Supplementary Court Book (“FSCB”) containing 1,998 pages.
56Initially, individual documents in the three Court Books, that the parties wished to put in evidence, were marked as an exhibit, for example, Exhibit P1 included the documents the Plaintiffs tendered from the Court Book. This system broke down before the end of the trial. However, documents that were not in the Court Books were given a distinctive exhibit number and any objections were noted.
57Accordingly, in preparing this judgment, I have had regard to all documents in the three Court Books and I have described and referenced all key documents relied upon in reaching decisions on the critical issues in the case.
58At various times during the hearing, the parties’ counsel, at times taking objections, at other times making comment rather than taking objection, anticipated that these matters would be resolved by me, when considering my decision, giving appropriate weight to what the documents contained. This approach was also followed by me in relation to the evidence of witnesses contained in the witness statements and in their oral evidence.
59I have considered that this matter is best dealt with by making an order that, “all documents in the Court Book, Supplementary Court Book, and the Further Supplementary Court Book shall be admitted into evidence subject to consideration of all objections and the appropriate weight that should be given to the contents of the documents”.
60Credit of witnesses: When assessing the evidence of both the lay and expert witnesses, I have taken account of the following matters:
(a) the evidence-in-chief of the principal lay witnesses, including Mr and Mrs Mustafa and Mr Etcell, involved each of them affirming the truth of extensive witness statements prepared by the parties’ lawyers. The language of the statements was, therefore, not necessarily that of the witnesses. For example, there appeared to be considerable copying between the statements of Mr and Mrs Mustafa;
(b) Mr Barnett did not give evidence although he would have been anticipated to be one of the principal defence witnesses. No witness statement was filed by him. No satisfactory explanation for his absence was given, although the Plaintiffs indicated that they would rely on Mr Barnett’s absence to make submissions as to what evidence should be accepted as a consequence.
(c) Mr Gurr stated early in the trial, on 12 October 2022, at T291, that Mr Barnett was “not giving evidence”. Mr Barnett was not called as a witness. When Mr Etcell gave evidence on 2 November 2022 about whether Mr Barnett had been aware of the architect’s specification of Loxo cladding before February 2018, I asked him [at T1408] whether there was any reason Mr Barnett could not come to court to give evidence about his knowledge of this matter.
(d) Mr Etcell said that he had “been a little bit worried for Justin’s state of mind. So at the time when I asked him to give evidence, he wasn’t in a position where he could give evidence. He said, ‘the last thing he needed in his life right now was this court case’”. However, asked when that conversation had taken place, Mr Etcell replied that it probably would have been around about when this first trial came about [November 2021] … But recently, no, I haven’t asked him to come and give evidence in the case” [at T1409].
(e) Mr Etcell said [at T1328], whilst giving evidence on 28 October 2022, in relation to Mr Barnett, “Yes, we do have a project we’re currently working on at the moment”. Accordingly, I am not satisfied that an adequate explanation has been given by the Builder as to why he did not call Mr Barnett as a witness.
(f) I have assumed that, if Mr Barnett had attended to give evidence, his evidence would not have assisted the Defendant, without speculating about what that evidence might have been. I have, in these circumstances, found it easier to accept the evidence of the Plaintiffs’ witnesses where there was a matter about which Mr Barnett would have been likely to have personal knowledge. This has also affected my assessment of conflicting evidence, for example where the evidence of Mr Etcell conflicted with other evidence but has not been supported by evidence that might have been expected from Mr Barnett;
(g) the reports of experts, as is commonly the case, supported the contentions of the party which had engaged them and often, in regards to the Builder’s experts, contained uncritical endorsement of the instructions given by the respective parties as the basis for opinions expressed;
(h) the processes of preparing a Scott Schedule, conclaves of experts and concurrent evidence sessions at the trial, to a degree, narrowed some issues canvassed by the experts, particularly as they related to the alleged defective work.
61In relation to the key witnesses, I would make the following further comments:
(a) Mr and Mrs Mustafa: Generally, I accepted the evidence of these witnesses. However, I was not persuaded that their evidence on certain matters was a full and frank account. These matters included the extent of the new works undertaken by the Client after the termination of the Building Contract;
(b) Mr Etcell: I would not accept any statement by Mr Etcell at face value. It was impossible to be confident that he was speaking from personal knowledge in both his witness statements and oral evidence. Mr Etcell did not meet Mr and Mrs Mustafa until 4 October 2017. Mr Barnett, who had dealings with Mr and Mrs Mustafa since April 2017, continued during the project to be the principal person on behalf of the Builder who dealt with Mr and Mrs Mustafa personally and corresponded by email with them and others involved in the project.
(c) I would regard Mr Etcell’s evidence as essentially a version of the facts that he thought best supported his case. In many instances, it was demonstrably inaccurate or untrue;
(d) Mr Osborne: I found Mr Osborne’s written reports and oral evidence about his observations and opinions on technical matters to be straight-forward, unvarnished and reliable. Many of his quantum figures, relating to his evidence of the extent of the alleged defective work and the cost of rectification, were significantly reduced during the conclaves. This is how these processes should operate and, although it made me examine his evidence more critically, I do not consider that it reflected adversely on his credit as a witness;
(e) Mr Jeffery and Mr Casamento: I consider that, particularly in the case of Mr Jeffery, much of the written reports of these witnesses was inadmissible. It was, to a significant degree, in the nature of advocacy based upon the correctness of their client’s instructions, without critical analysis in reaching the opinions stated. This made the determinations in relation to the alleged defective work more difficult, particularly as the Plaintiffs had the onus of proof and more cogent expert evidence on behalf of the Defendant would have assisted;
(f) Mr Gulevski and Mr Papasavvas: Mr Gulevski’s evidence in relation to the work he undertook as a subcontractor, particularly in distinguishing between the categories of later defective, incomplete and new work, lacked the detail and precision of his initial report. I do not, however, have any criticism of the professionalism or credibility of either Mr Gulevski or Mr Papasavvas.
62These matters have meant that I have been particularly careful when examining the oral evidence and, where it has been at all possible, have sought confirmation on contentious issues from the evidence of other witnesses or, more often, from the considerable volume of contemporaneous documents.
63Further, I consider that it is appropriate to record certain conclusions I have reached from the evidence. These are matters which have been relevant, although not necessarily critical, to the determinations I have made in the case, particularly in regard to the primary issue of the termination of the Building Contract. My general conclusions are as follows:
(a) Mr and Mrs Mustafa were not as careful as they might have been in their attention to the formalities of the Building Contract and the obligations of the Client under it. This led them to put too much faith in Mr Barnett and Mr Etcell and to be disappointed with the Builder and critical of his performance as the progress of the works slowed;
(b) Before CKC became involved in the project, Mr and Mrs Mustafa failed to make payments as required by the Building Contract, and the reasons for these failures were not always apparent;
(c) the issue of building permits was staged, which may not have allowed for the most efficient completion of the works. However, there is little evidence to suggest that the Builder’s progress was delayed by the absence of building permits;
(d) Mr and Mrs Mustafa, in about August 2018, made significant changes to the scope of the works. The opportunity to make these changes was opened up by the poor performance of the Builder, and as Mr and Mrs Mustafa did not, by that time, consider the continued employment of Mr Etcell as the Builder was a serious option;
(e) Mr and Mrs Mustafa’s record keeping, particularly following termination of the Building Contract, made it very difficult to allocate responsibility for the further spending on the project to the Builder for having left the works incomplete and defective, rather than to the changes made as a result of design decisions at the time of, or subsequent to, termination;
(f) The Builder’s performance was generally unsatisfactory, including in the organisation of the site, the planning of the execution of the works, the supervision of subcontractors and the timely ordering of materials. The Builder was, at times, unconcerned with or unaware of his legal obligations under the Building Contract, including the requirements relating to variations, delays and notices, as well as the extraordinary approach he adopted to the use of his own engineer without reference to the Client or its design engineer;
(g) The Builder took pre-emptive action by suspending the works before Mr and Mrs Mustafa themselves took the necessary steps to terminate the Building Contract, and in circumstances in which the Builder did not at the time, appear to have the will or demonstrated capacity to complete the works in a timely manner.
64Following my assessment of the evidence and the parties’ submissions, I have determined that the Client properly terminated the Building Contract and, consequently, is entitled to recover the cost of completing the contract works and rectify defective work, and to an award of damages resulting from the Builder’s delay in completing the works. There is no sum that the Builder is entitled to recover, although the contract price and variations must be taken into account in calculating the amount the Client is entitled to recover.
Issue 1: Who was the correct “Client” party or parties?
65Mr Etcell has raised, as an issue in the proceeding, whether the Client, as a party to the Building Contract, was F&J Investment or Mr Mustafa (with or without Mrs Mustafa).
66The Writ issued on 23 January 2019 named “F&J Investment Assets Pty Ltd (ACN 621 866 180) as trustee of The Mustafa Property Trust” as the sole Plaintiff.
67The Statement of Claim annexed to the Writ alleged that F&J Investment as trustee of The Property Trust, and as “the Client”, entered into a Building Contract which, insofar as it was in writing, “was constituted by an HIA Medium Works Commercial Contract document executed by the parties on or about 26 October 2017”.
68In his Defence and Counterclaim dated 11 March 2019, Mr Etcell denied the pleading of the Building Contract in the Statement of Claim and joined Mr and Mrs Mustafa (with F&J Investment) as Defendants to his Counterclaim. Mr Etcell further alleged that “at all relevant times prior to service of F&J’s [F&J Investment’s] Writ, the Second and Third Defendants by counterclaim (Mustafas) held themselves out as the trustees of The Property Trust (Trust)”.
69Subsequently, Mr and Mrs Mustafa were added as further Plaintiffs to the Writ and the claim was pleaded in the alternative with them as the “Client” party to the Building Contract.
70In the Plaintiffs’ latest pleading, P3FASOC, it was alleged that the Client pursuant to the Building Contract entered into “on or about 26 October 2017”, was “F & J as trustee of the Trust”, or alternatively, “Mr and Mrs Mustafa in their own personal capacity”, or “alternatively, Mr and Mrs Mustafa as trustees of the Trust”.
71The relevant facts are as follows:
(a) from 1 February 2007, until their retirement on 9 October 2017, Mr and Mrs Mustafa were the trustees of The Property Trust;
(b) upon their retirement as trustees on 9 October 2017, F&J Investment was appointed the trustee of The Property Trust. Mr and Mrs Mustafa were at all relevant times the directors of the F&J Investment;
(c) Mr and Mrs Mustafa, in 2015, had become the registered proprietors of the Eltham property [CB 4159], Mr and Mrs Mustafa alleged that they held the Eltham property “as bare trustees for The Mustafa Property Trust”;
(d) the initial discussions concerning the project were in about March 2017, and were between Mr Mustafa and Mr Barnett. On 22 August 2017, Mr Barnett submitted a quotation under his business name “Vault Corporate” to complete the project [CB 1557];
(e) on 5 September 2017 [CB 1594], Mr Mustafa forwarded an email from his Accountant, James Hakim, to Mr Barnett stating:
“Hi Justin, Please write the contract in this entity, Jetmir Mustafa & Florije Mustafa ATF The Mustafa Property Trust, 161-163 Serpells Rd Templestowe 3106”;
(f) on 13 September 2017, Mr Barnett forwarded a draft Building Contract to Mr Mustafa which named “Jetmir Mustafa” as the “Client”. Mr Mustafa said in his witness statement dated 20 August 2021 [Exhibit P3, para 24] that:
“Sometime between receiving the Draft Contract on 13 September 2017 and signing the Contract on 26 October 2017, I told either Justin or Paul that the Client was not to be me personally but ‘The Mustafa Property Trust’.”
(g) a Building Contract, prepared by Mr Barnett, was executed by Mr Mustafa and Mr Barnett. The Building Contract [at CB 2107] named “The Mustafa Property Trust” as the “Client” and “Paul Etcell” as the “Builder”. The document is dated 26 October 2017 and was “Signed for and on behalf of The Mustafa Property Trust” by “Jetmire Mustafa” and was “Signed for and on behalf of ETCELL, PAUL C Builders reg – CB 41507” by “Justin Barnett” [CB 2111].
72The applicable legal principles are as follows:
(a) a trust cannot, of itself, be a party to a contract;
(b) the trustee of a trust may enter into a contract on behalf of a trust, if the trustee is authorised by the trust deed to do so;
(c) the trustee is personally liable under a contract entered into on behalf of a trust, unless the trustee’s liability is excluded by the terms of the contract;
(d) a trustee, entering into a contract on behalf of a trust with appropriate authority, may indemnify itself from the assets of the trust.
73In these circumstances, the following conclusions follow from the facts of the present case:
(a) on 26 October 2017, the appropriate party to have entered into a contract on behalf of The Property Trust was its trustee, F&J Investment and not Mr Mustafa (or Mr and Mrs Mustafa). At that time, Mr and Mrs Mustafa were the sole directors of F&J Investment;
(b) if the Plaintiffs were successful in the proceeding (taking into account all matters of set off and counterclaim), it would be appropriate for judgment to be entered in the name of F&J Investment (the actual trustee on 26 October 2017) and not Mr and Mrs Mustafa (who had ceased to be the trustees); and
(c) on the other hand, if the Defendant were successful in the proceeding on his counterclaim (taking into account any success by the Plaintiffs on their claims), there would be an argument as to whether it would be appropriate for Mr Mustafa (and perhaps Mrs Mustafa) to be personally liable by reason of Mr Mustafa having executed the Building Contract, and Mr Mustafa (or Mr and Mrs Mustafa) having held himself (or themselves) out as entitled to enter into the Building Contract for and on behalf of The Property Trust.
74The Plaintiffs have sought to have the Building Contract rectified to name F&J Investment as the “Client”, the company being the actual trustee of The Property Trust at the time the Building Contract was entered into. On the evidence, it would be appropriate to make findings that Mr and Mrs Mustafa and Mr Etcell believed, at all relevant times, and particularly at the time the document evidencing the Building Contract was prepared and executed:
(a) that The Property Trust was “involved” in the project and was intended to be the “Client” party to the Building Contract through its trustee;
(b) mistakenly, that Mr and Mustafa were the trustees of The Property Trust.
75In these circumstances, it would be appropriate to rectify the Building Contract to name the actual trustee (F&J Investment) as the “Client” under the Building Contract as a result of the misapprehension by both parties as to the correct position, unless to do so would unfairly prejudice one of the parties.
76If Mr Etcell had been the successful party in the proceeding, it would not, in my view, have been appropriate to rectify the Building Contract. Mr Mustafa held himself out to be the trustee of The Property Trust when he executed the Building Contract. In those circumstances, he (and possibly Mrs Mustafa) would have been the contracting parties with a personal liability to Mr Etcell in respect of all the “Client’s” obligations under the Building Contract. That liability would extend beyond any recovery Mr Mustafa (and Mrs Mustafa) may have been entitled to from the assets of The Property Trust, to his (and Mrs Mustafa’s) other personal assets.
77However, as a Plaintiff party (the “Client”) is the successful party in the proceeding, it would be appropriate, and of no prejudice to Mr Etcell, for the Building Contract to be rectified so that the actual trustee of The Property Trust at the relevant times (F&J Investment) is entitled to recover in the proceeding on behalf of The Property Trust.
78In these circumstances, an order will be made to rectify the Building Contract to name as the “Client”, “F&J Investment Assets Pty Ltd as trustee for The Mustafa Property Trust”.
Issue 2: Delays and the date for “practical completion”
79One of the principal complaints by the Client about the Builder was his lack of application and progress with the contract works. This issue has relevance to the following questions:
(a) the termination of the Building Contract, as the Client’s Show Cause Notice dated 1 August 2018, included as two of the “substantial breaches” relied upon, the Builder’s “failure to adhere to the practical completion date and three subsequent extensions to the practical completion date and failure to complete the works in a timely manner”, and the Builder’s “failure to order materials on time to ensure practical completion of the works”;
(b) the Client’s claim for damages in the nature of delay costs.
80Both of these matters will now be considered, although the reasons for my determination that the Building Contract was validly terminated by the Client will be more fully discussed in the next section of these reasons under Issue 3.
81The matters relating to the Builder’s timely completion of the building works require consideration of the following questions:
(a) Under the Building Contract, what was the “commencement date” of the “building period”?
(b) What was the effect of the Builders Extension of Time claims?
(c) Whether the Client was entitled to liquidated damages or delay damages as a result of the Builder’s failure to achieve practical completion?
(d) Whether the Builder was prevented from achieving practical completion by the Client’s failure to obtain all necessary building permits?
82At the outset of the discussion of this issue, it is necessary to examine the provisions of the Building Contract as they relate to the time allowed to the Builder to complete the contract works and the clauses relating to the provision of programmes of how the Builder planned to carry out the works.
83a. The “commencement date” of the “building period”: In relation to the general question of the timely completion of the building works, a critical matter to determine is the “commencement date” of the “building period” under the Building Contract, in order that the date for practical completion might be calculated.
84Item 5 of the Schedule attached to the “Medium Works Contract Conditions” (“Contract Conditions Schedule”) provides as follows:
“5. Building period (Clause 16)
a. Commencement date: 1 week from the later of the date that the Client
i. gives possession of the site to the Builder;
ii.gives the Builder evidence of capacity to pay the contract sum, or
iii.provides the Builder with the required building and planning approvals.
b. date for practical completion being:
i. date nominated for practical completion; or
ii.period of time for practical completion: 24 weeks from the commencement date.”
85The parties agree that the “commencement date” of the “building period” was to be determined as the date the Client provided “the Builder with the required building and planning approvals”, and that the “date for practical completion” would be “24 weeks from the commencement date”.
86Mr and Mrs Mustafa assert that the operative commencement date should be 26 October 2017, the date the Building Contract was executed. The stage one building permit had been issued on 17 October 2017 for, “Proposed internal non-structural and external doorways demolition of existing two storey office building … to completion of proposed Stage one works only” [CB 1914]. Mr Mustafa, in his witness statement [paras. 70-2 of Exhibit P3], stated that, “on 5 October 2017 the Builder erected hoarding at the site and commenced demolition works on 15 October 2017”.
87Choosing 26 October 2017 as the appropriate “commencement date” allows “one week” from the date of the building permit and the giving of possession of the site. It means that the date for practical completion would be 24 weeks later, plus any extensions of time. The earliest date, based on this analysis, would be 12 April 2018.
88The Builder, in final written submissions asserted that “the ‘required building approvals’ were provided on 21 March 2018, which was the date of issue of the Stage 4 Building Permit". That permit, the Builder submitted, “permitted the Builder to undertake the bulk of the works required to be performed, [although] it did not permit the Builder lawfully to complete all the contract works”.
89Mr Gurr submitted that this was “a practical response to the difficulties created by the fact that the parties did not in their definition of commencement date specify whether “required building approvals” means approvals required to commence the works or approvals required to perform and complete all works to be performed under the Contract”.
90I consider that Item 5 of the Contract Conditions Schedule should be construed as meaning that the “commencement date” is the latest date satisfying all of the three requirements, in order for the Builder to meaningfully commence the contract works. This does not mean a capacity to perform a few preparatory tasks. It must mean that the Builder is, after the date of the last of the relevant events specified in Item 5, capable of going on site and starting work and which, at that time, would be expected to continue to conclusion within the “period of time for practical completion”; in this case 24 weeks from commencement.
91The matters which lead me to that conclusion are as follows:
(a) Item 5 deals with the critical dates in the context of the “building period” where the “commencement date”, in conjunction with the “building period”, determines the expected date for completion. The provision therefore foreshadows that, once started, the building works will continue until completion;
(b) Item 5 references cl 16 of the Contract Conditions. Clause 16 is headed “Time and programming”. It recites the Builder’s obligation “not to impede the progress of the works” and, if directed, to prepare a “construction program”, which must include the “order” of the works and “major events, activities and milestones in the carrying out of the works”. The program is “deemed to be a contract document” [cl 16.4];
(c) Clause 22 anticipated that delays might occur which would result in the building period and the date for completion being extended. Provided the cause of delay was not “within the sole control” of the Builder, and he was not the “sole cause of the delay”, time would be extended [cl 22.1];
(d) Staged building permits were within the contemplation of the parties. Clause 6.1 of the Building Contract provided that “the Client must obtain all building and planning approvals and provide those approvals to the Builder”;
(e) The building permit issued on 12 October 2017 was made following an application dated 9 October 2017 [CB 1912]. Mr Mustafa said that the building permit application forms were “pretty much filled out by Justin” although Mr Mustafa, after the application form was sent to him, “would fill in the relevant [parts]”, and then sign and return it to Mr Barnett [T276–277];
(f) In the application form, under the heading, “Stage of building work”, the form stated, “If application is to permit a stage of the building work. Extent of Stage”, the handwritten word “DEMOLITION” was inserted;
(g) the Builder commenced the demolition of the works on site contemporaneously with the application for, and grant of, the building permit;
(h) whilst the Builder was proceeding with the works after commencement, further staged building permits were obtained and were the subject of Notice of Delay 3 dated 15 February 2018 and Extension of Time (“EOT”) claim no. 3 dated 29 July 2018;
(i) the construction of Item 5 asserted by the Builder, is inconsistent with the natural meaning of the language of the item and other clauses of the Building Contract, and the conduct of the parties both prior and subsequent to the execution of the Building Contract; and
(j) it is likely that the parties, foreshadowing staged building permits, intended the reference to “required building and planning approvals” would be of a similar nature as the other two parts of Item 5(a), being matters necessary for the works to commence, but not necessarily anticipating everything required for the works to reach completion.
92Alternatively, the Builder submitted that the “commencement date” was at or after 13 November 2017 when the “required … planning approvals” were obtained. A planning permit for the project had been issued on 18 April 2017 [CB 1372]. The planning permit was subject to conditions including that, “before the development and use commences, three copies of amended plans to the satisfaction of the Responsible Authority must be submitted to and approved by the Responsible Authority”. The relevant plans were submitted on 20 September 2017 [CB 1744] but not approved until 13 November 2017 [CB 2296].
93I consider that the operative date for “planning approvals” was the issue of the permit on 18 April 2017. The issue of the Stage 1 building permit was adequate for the Builder to commence work, and to expect that he might continue those works to completion. The Builder did not, during the course of the building works, claim to have been impeded in the progress of the works because of the absence of planning approval or approved issued drawings, save for the limited delays referred to in NOD 03 and EOT claim no. 3 to which I shall later refer.
94A broad interpretation of “building and planning approvals” might include, not only “permits” but also, the results of on-site inspections. For example, during the course of building works many approvals might be obtained at various stages before works can proceed, including when the frame is erected, before concrete pours and at other critical times. It is not every such “approval” that the parties had in contemplation by Item 5 of the Schedule to the Contract Conditions.
95However, the definition of “building or planning approval” in cl 1.1 of the Building Contract as, including “permits, licences and the like and any fee payable in connection with these”, appears to foreshadow an extended scope for the words.
96Further and alternatively, the Builder submitted that if it were “accepted that ‘required building approvals’ means approvals required to perform and complete all works under the Contract, then the “‘required building approvals’” were not obtained prior to termination of the Contract, with the consequence that a condition necessary for the determination of the commencement date was never achieved”. The Stage 5 building permit (issued 16 October 2018) and the Stage 6 building permit (issued 29 April 2019) “were not issued until well after the Contract was terminated [although these permits] were necessary to enable the Builder to achieve practical completion”.
97I shall deal further with this matter later. I note, at this stage, that the circumstances that arose during the course of the building works did not require the Builder to reach completion prior to the termination of the Building Contract by the Client on 24 August 2018. From that date, by its actions in terminating the Building Contract, the Client accepted that the Builder was no longer obliged to perform its obligations under the Building Contract.
98It is apparent that the Client, in a letter to the Builder dated 24 July 2018 [CB 3498], anticipated that the Builder had until 7 September 2018 to complete the building work. Further, CKC had on 6 July 2018 considered “completion to be achievable by August 2018”.
99The letter from Mr and Mrs Mustafa to Mr Etcell dated 24 July 2018 [CB 3498] reads as follows:
“We refer to the recent build programme provided to us on 19 July 2018, which we have attached a copy of.
We consider the attached programme to be a request for an Extension of Time for Practical Completion pursuant to clause 22 of the Build Contract.
We advise that the practical completion date has now been revised [in the Builder’s programme dated 19 July 2018] to 7 September 2018. If practical completion is not reached by such date, we will be claiming liquidated damages for every day practical completion is not achieved.
Pursuant to clause 22.1 of the Contract, any further requests for an Extension of Time for Practical Completion will not be accepted on the basis that we consider you have directly caused the delay and such cause is within your sole control and the sole cause of the delay.”
100The Builder responded by letter dated 31 July 2018 [CB 3573], which reads as follows“
“I refer to your letter of 24 July 2018.
Clause 22 entitles a Builder to an extension to time. It requires, however that [the Builder] give the Owner a written claim which sets out evidence of the cause of the need for the extension and what the delay is.
I sent you a rolling schedule of works in response to your request. The rolling schedule neither complies with Clause 22 nor requests an extension. I am entitled to extensions but the schedule is not a request. In any event the time for Practical Completion is 13 September, 7 September is hardly an extension.
We reserve the rights to exercise an Extension of time under the Build contract clause 22 due to your late payment and should there be an event arise that is not in the builder’s control prior to the Completion date.”
101On 6 July 2018, CKC had provided to NAB a report on the state of the works at the time of its inspection on 4 July 2018. The report [CB 3409] includes the following statements:
“Construction Cost
Our assessment on a staged payment basis, of the Stages of Works Completed, and the Stages of Works to Complete as at the date of our site inspection is attached to this report. In summary:
Stages of Works Completed $1,046,886 (GST excluded)
Stages to Complete $414,757 (GST excluded)
The above-mentioned figures are based on the contract sum of $1,472,847.00 (GST included) or $1,338,951.82 (GST excluded) and approved variations of $122,690.90 (GST excluded). We note from a $/m2 calculation that this amount appears to fall within the expected range of construction costs appropriate for carrying out the works as documented. We further note that we have not been commissioned to provide a full Initial Report as per the bank's normal procedures. As such, we cannot confidently confirm the adequacy and breakdown of the contract price.
Please note the above-mentioned figures, do not take into consideration, the stage payments contractual obligations. We note that both Stage 5 (Frame) & Stage 7 (Rough in) have not been fully completed, as at the date of our inspection. However, we have been provided with a 'RFI' dated 29 March 2018, where the Client and the Builder, have mutually agreed to the part payment of these stages.
Please note that the amounts payable under the contract for completion of the different stages may not necessarily be a true reflection of the actual value of works carried out on site. …
Programme
We have been provided with a construction programme that indicates an estimated completion date of end March 2018. Subsequent to our 2nd progress report, the builder has advised of a revised completion date of end July 2018. We consider completion by this date to be optimistic. Based upon progress of the works, we would consider completion to be achievable by August 2018, provided sound management is maintained and delays are not encountered due to inclement weather, industrial action and variations. We will monitor the progress of the works and provide an update in our next progress report [emphasis added].”
102There is little evidence to support a conclusion that, prior to the Builder’s suspension of the building works on 31 July 2018 and the subsequent termination of the Building Contract, that the Builder would have been able, or likely, to complete the contract works until after the “revised” date for practical completion of 7 September 2018 referred to in the Client’s letter to the Builder dated 24 July 2018. The effect of the Builder’s suspension and the subsequent termination of the Building Contract will be considered later in the discussion of issue no. 3.
103In my view, it is appropriate to conclude that, if the Builder had not suspended the building works on 1 August 2018 and the Client had not terminated the Building Contract on 24 August 2018, that the Builder was unlikely to have completed the building works under the Building Contract by 7 September 2018, having regard to the following matters:
(a) the pace at which the Builder was proceeding with the works;
(b) the extent of defective work;
(c) delays in the ordering of materials.
104These matters will be discussed in more detail in the next section of these reasons in relation to issue no.3 and the Client’s Show Cause Notice.
105b. The Builder’s programmes for the completion of the contract works: The Builder was not required to provide the Client with a construction programme until it was directed to do so. The Building Contract provides as follows:
“16.3 Within 14 days of being so directed, the Builder must give a construction program to the Client. The construction program must include:
(a) the order in which the Builder proposes to carry out the works;
and
(b) major events, activities and milestones in the carrying out of the works.
16.4 The construction program is deemed to be a contract document.”
106The Client first requested a construction programme from the Builder on a date that I have been unable to identify. The first report of CKC dated 23 February 2018 discussed the Builder’s construction programme at CB 2920, stating that the programme indicated “an estimated completion date of end March 2018” and that “The Builder has since provided a revised completion date of mid April 2018”.
107The further three programmes provided by the Builder will be described as programmes 2, 3, and 4, and were supplied as follows:
(a) Programme 2 was provided by Mr Barnett to the Client with an email dated 31 May 2018 [CB 3238]. This programme [CB 789] provided for the project to be completed by 23 June 2018.
(b) Programme 3 was provided by the Builder to the Client on about 5 July 2018 after Mr Mustafa sent a text to Mr Barnett expressing concerns about the completion of the project [SCB 555]. The programme [CB 790] provided for “Defect Inspection with Clients” on 11 August 2018.
(c) Programme 4 was provided on 19 July 2018 [CB 791] following a request by an architect from Ewert Leaf, Katherine Voyage dated 18 July 2018 [SCB 556]. Ms Voyage, during the project changed her name to Stewart. For consistency, she will be referred to as “Ms Voyage” in these reasons. The programme provided for “Final Inspection” on 7 September 2018. At paragraph 113 of his witness statement dated 5 October 2021, Mr Etcell stated that,
“Based on my knowledge of the scope of the remaining works, discussions with suppliers and the availability of materials, expected durations of particular activities and the availability of trade, I was confident that this date could be achieved provided the Mustafas promptly paid our invoices and obtained and provided the necessary permits for the works on time.”
108At paragraph 184 of his witness statement, Mr Etcell said,
“I was responsible for the preparation of the programmes during the course of the project. I have many years’ experience in programming building works and I prepared the programmes in accordance with my usual practice and based on my experience and knowledge as to the scope of works and the rates at which the relevant trades could perform those works. I say, based on that experience, that all of the programme dates and completion dates in the programmes I produced were achievable.”
109On the evidence, it appears more likely that Mr Barnett had some responsibility for the programmes as the person with more direct knowledge of the works. In my view, the programmes were fairly simplistic with no attempt to define the critical items of work or the critical path to completion. It appears also that the Builder paid little heed to the programme and was prepared to carry out works with whatever trades were available to be onsite regardless of the logic of those works.
110An example Mr Etcell gave was in relation to the installation of the in-wall toilet cisterns and his explanation for having plastered the walls whilst being fully aware that the cisterns would need to be placed there. At T1311, he said,
“Look, we were under absolute, ridiculous pressure from the Mustafas to complete this project. We were pushing trades as hard as we could. The plasterer came in. He plastered over the top of those walls. We were well aware that the cisterns had to go in. We were aware that we had to cut the plaster to install them.”
111I shall shortly examine the Builder’s delay claims. The Notices of Delay refer to matters such as the Client’s late payment of progress payments, the late issue of building permits, and the suspension of the works. These matters are repeatedly referred to by Mr Etcell as causes of delay, although it must be assumed that the updated programmes had taken account of these matters by subsequent programmes extending the date for completion.
112c. The effect of the Builder’s EOT claims: It is necessary to examine correspondence and discussions between the parties during the period of the building works, including each of the Builder’s Notices of Delay and EOT claims, and the factual basis for those notices and claims.
113Clause 25 of the contract conditions, relating to “Liquidated damages”, provides as follows:
“25.1If the works do not reach practical completion by the date for practical completion, the Client is only entitled to liquidated damages in Item 14 for every day after the date for practical completion to and including the earliest of:
(a) the date of practical completion;
(b)the date the Client takes possession or control of the whole or any part of the works without the Builder's prior written consent; and
(c) the termination of the contract.
25.2If, after the Builder has paid or the Client has set off liquidated damages, the time for practical completion is extended, the Client must immediately repay to the Builder the amount of the liquidated damages as represents the days the subject of the extension of time.”
114In my view, the letter Mr and Mrs Mustafa gave to Mr Etcell dated 24 July 2018 extended the date for practical completion to 7 September 2018. The contract was terminated before that date was reached. By the operation of clause 25.1(c), the termination of the contract (as the earliest of the 3 options specified in the provision) would mean that no liquidated damages had accrued when the Building Contract was terminated.
115After the termination of the contract, although liquidated damages would have no application, the Client would be able to establish an entitlement to delay damages, if it were shown that the Client had suffered loss and damage as a result of any action or lack of action on the part of the Builder. I will deal with this matter under Issue 5: Quantum.
116The Builder submitted that if the works had not been suspended as a result of the non-payment of progress claims, and appropriate extensions of time had been allowed, the date for practical completion would have been achieved. Further, the Builder submitted that the Client had not obtained two building permits until after termination of the contract, which effectively meant that the Builder was prevented from achieving practical completion by the due date.
117Clause 22 of the Conditions of Contract provides as follows:
“22. Extension of time for Practical Completion
22.1Except as otherwise stated in Item 13, the Builder is entitled to an extension of time for carrying out the works (including reaching practical completion), if the Builder is or will be delayed in reaching practical completion unless the Builder directly caused the delay and such cause was:
(a) within the sole control of the Builder; and
(b) the sole cause of the delay.
22.2The Builder must give to the Client a written claim for an extension of time, evidencing the facts of causation and of the delay to the works, within 28 days of when the Builder became aware of both the causation and the extent of the delay.
22.3The Client is deemed to have been given a direction granting the extension of time as claimed by the Builder unless, within 7 days of the Builder giving the claim, the Client gives the Builder a written direction:
(a) disputing the claim;
(b)certifying the extension of time that the Client believes the Builder is entitled to claim; and
(c)detailing the reasons why there is a difference from the extension of time claimed by the Builder.
22.4The Builder's entitlement to an extension of time is not affected by:
(a)whether the Builder can reach practical completion by the date of practical completion without the extension of time;
(b) whether the Builder can accelerate; or
(c) a concurrent delay.
22.5The Builder must take reasonable steps to mitigate the duration of any delay.”
118In Schedule 3 to D4FADCC, the Builder lists the “extensions of time claimed”, as follows:
No. Notice of delay Time extension claim Basis of claim Days claimed 1 NOD1: 2 Nov 17 Deposit paid late 13 2 EOT 1: 29 Jul 18 Invoices paid late 22 3 NOD2: 13 Feb 18 EOT 2: 29 Jul 18 Invoices paid late 20 4 Suspension Notice: 31 Jul 18 Suspension of works 24 5 Cutting concrete for grease trap EOT 5: 31 Jul 18 10 Total 89 6 NOD3: 15 Feb 18 EOT 3: 29 Jul 18 Failure to procure permits 45 Total days claimed 134 119In addition to the documents listed in the table, at CB 3338 there is a copy of “NOD 04” dated 26 June 2018. NOD 04 was not listed as a “Notice of Delay” issued by the Builder, in Schedule 3 of the D3FADCC from which the table above was based. I shall refer to NOD 04 later.
120The Building Contract does not provide for the giving of such notices, but simply the making of claims for extensions of time under clause 22. A Notice of Delay has no contractual force, although the notice of delay may provide evidence as to whether the Builder has made his EOT claim within the period of 28 days prescribed by clause 22.2.
121Under clause 22.2, the Builder has 28 days after becoming “aware of both the causation and the extent of the delay”, to “give to the Client a written claim for an EOT, evidencing the facts of causation and of the delay of the works”.
122It is noted that none of the EOT claims were issued until 29 or 31 July 2018 and that no explanation has been offered for the delays in issuing the written claims for an extension, including where the claim was made long after Notices of Delay relating to similar complaints were made by the Builder.
123It is also noted that there is a dispute as to whether the EOT claims were ever served on the Client. This matter will be addressed later.
124a. NOD 1 - 2 November 2017: On 2 November 2017, the Builder sent “Notice of Delay – NOD 01” to the Client [CB 2134]. I will quote the substance of the document in the form it was apparently drafted by Mr Barnett. I will not attempt to clarify (by square bracketed additions) the meaning of this and some other parts of documents quoted in these reasons where the meaning of what is written is reasonably clear. On occasions, I have used bracketed additions to clarify the meaning of the passage quoted. The document dated 2 November 2017 reads as follows:
“We hereby advise that this NOD 01 claim is for an event occurring on or before the Date of Practical Completion, which is beyond the reasonable control of the Contractor.
lkonic Homes was meant to commence the fitout and extension works on site as the demolition work is currently completed. We are unable to start works or let packages to our sub-contractors due to the deposit of 5% under the contract is not fully paid by the Client. Should the outstanding balance of $58,642.35 is not being paid in the next couple of days, it would incur further delay as we might not able to secure any sub-contract works and/or the suppliers before the Christmas break. Once the delay has been quantified a formal extension of time will be issued.
Due to these delays practical completion prolonged. Once we know what the delays is a new practical completion date can be determined.”
125The progress claim for the deposit of $73,642.35, was issued by the Builder on 15 October 2017. There was a part payment of $15,000.00 on 1 November 2017. The balance of $58,642.35 was made by two payments on 3 November 2017, following the service of Notice of Delay – NOD 1 by the Builder.
126There may have been an argument that the progress claim would not have become due and payable until seven days after 15 October 2017, as the contract itself was only executed on 26 October 2017. However, the matter is of little consequence as the delay notified in Notice of Delay 1 was not the subject of a subsequent EOT claim. EOT claim no. 1 did not relate to the matters raised in NOD 01.
127b. EOT 1 - 29 July 2018: The first EOT claim, “Extension of Time Claim No. 01”, is dated 29 July 2018 [CB 3561], two days before the builder suspended the building works. There is a dispute as to whether this and other EOT claims were served on the Client. This is a matter I will discuss later. The claim was made on the basis of:
“late payment [being the fact that the] Payment due and payable as per the contract Wednesday 27th June[;] part payment was received on Thursday 19th of July. Duration: 22 calendar days[,] critical path item works [were prevented from] proceeding further & subcontractors have to reschedule their programme to complete their works. [The] total delay time [is] currently 22 days[;] full delay time can be advised only once full payment is received. … Steps taken to mitigate[;] issuing a NOD on Thursday 28th of June.”
128It is not clear as to which “NOD” is referred to. It is likely to be a reference to NOD 04 dated 26 June 2018 which referred to “Progress Claim for works up to and including the month of June 2018 is now overdue”.
129The operative part of NOD 04 dated 26 June 2018 [CB 3338] read as follows:
“We hereby advise that this NOD 04 claim is for an event occurring on or before the Date of Practical Completion, which is beyond the reasonable control of the Contractor.
Progress Claim for works up to and including the month of June 2018 is now overdue. Should the Claim is not being paid in the next couple of days, it would incur further delay as we might not able pay any our sub-contract works and/or supplier. Once the delay has been quantified a formal extension of time will be issued.
Due to these delays practical completion prolonged. Once we know what the delays is a new practical completion date can be determined.”
130The Builder made two progress claims on 15 and 17 June 2018, as follows:
Date Stage Amount Total 15 June 2018 Rough in (20% balance) $44,185.41 $132,332.57 17 June 2018 Frame (20% balance) $73, 642.35 $73,642.35 131The non-payment of these claims will be discussed later in these reasons. The Builder gave his Suspension Notice of the works on 31 July 2018 on the basis of progress claims being unpaid. I consider these matters under Issue 3 in relation to the validity of the Builder’s suspension of the works and the Client’s Show Cause Notice dated 1 August 2018. In the circumstances, this EOT claim was overtaken by the Builder’s Suspension Notice and Show Cause Notices dated 31 July 2018 and the Client’s Show Cause Notice dated 1 August 2018 and the resulting termination of the contract by the Client on 24 August 2018.
132c. NOD 2 - 13 February 2018; EOT 2 - 29 July 2018: The Builder gave the Client “Notice of Delay – NOD 02” on 13 February 2018 [CB 2907]. The document reads as follows:
“We hereby advise that this NOD 02 claim is for an event occurring on or before the Date of Practical Completion, which is beyond the reasonable control of the Contractor.
Invoice No. Descriptions Date issued Amount Invoice #1711/09 Windows 9/11/17 $470.00 Invoice #1712/10 Shop Drawings 10/12/17 $35,463.50 Invoice #1801/19 12.5% Stage Payment 4 19/1/18 $184,105.90 Invoice #1801/24 Balance of Windows Variation 24/1/18 $45,529.99
Ikonic Home have issued the above claims to The Mustafa Property for payments. Pursuant to contract clause 21.2, the Client must pay within 7 days after received the claims, otherwise interest in item 17 of the Contract Schedule will be payable currently at 20%. Should the outstanding balance of $265,569.39 is not being paid in the next couples of days, it would incur delay as we are unable to pay our sub-contractors to ensure they continue to work on site. Once the delay has been quantified a formal extension of time will be issued.
1062Mr Osborne’s cost estimates were reduced in the Scott Schedule to about 36% of the total of the figures in his first two reports. There are very large adjustments to the following items:
Item no.
Description
Reduction
3
Window installation
$86,097.00
6a
Stormwater part 1
$54,346.20
7a
Toilet cistern part 1
$31,170.76
16
Play area concrete level
$607,806.44
24
Reverse cycle installed
$54,440.50
29
Sewer drainage
$25,275.28
35
Eastern boundary retaining wall
$26,630.00
38
Stormwater system to carpark
$183,472.00
Total
$1,069,238.18
1063It seems probable that none of these adjustments was considered by the Plaintiffs when relying at the trial on the out-of-date information about the cost of rectification that Mrs Mustafa had included in her earlier witness statement and Mr Buchanan had included in Appendix D of his expert report.
1064Did the Builder grossly under-estimate the contract price? Mr Buchanan was requested by the Plaintiffs’ solicitors to offer an opinion on “whether the cost of the building works set out in the Contract was reasonable and commercial?”
1065The contract price in the Building Contract was $1,472,847.00. A quotation with this price was sent by Mr Barnett to Mr Mustafa in an email on 22 August 2017 [CB 1557]. A single page breakdown of the quoted price, trade by trade, accompanied the email [“Cost estimate summary” at CB 1560]. Although higher sums were mentioned in the following weeks, the Building Contract was executed on 26 October 2017 with a contract price of $1,472,847.00. Variation no. 1, covering additional items with a total value of $134,959.99 arising from later design changes, was the subject of further agreement on 26 October 2017 [CB 2131]. The total contract price was $1,606,806.99 (including GST).
1066Mr Buchanan’s opinion, in his report dated 20 November 2019 [at CB 199–200], was that “the contract sum [did not] reasonably reflect the scope of the contracted works”. Mr Buchanan’s opinion was that “the reasonable value of the contracted scope of works was $2,220,030.00 including GST. Mr Buchanan provided a “detailed measurement and calculations” [CB 207–19].
1067At paragraph 6.5, Mr Buchanan said that “It is difficult to identify why my assessment of the construction cost is so much greater than the builder’s price as there is no detailed breakdown of the builder’s contract price”. Mr Buchanan does not list the “Cost estimate summary”, mentioned above, among the documents with which he was provided.
1068Mr Buchanan said that the Works could not have been satisfactorily undertaken for the contract price. It would follow, from that logic, that the cost of completing the works of the Building Contract would, to a significant degree, be inflated by the fact that the original contract price was too low.
1069If the Building Contract had been entered into for an appropriate price, the Client may have been required to pay substantially more. However, this fact should not affect the assessment of damages as the Builder is bound by his bargain and Mr Etcell and Mr Barnett, in the months that preceded the execution of a formal agreement, had a long period to determine the price for which they were prepared to enter the Building Contract.
1070In Mr Jeffery’s supplementary report dated 28 May 2021, he expressed the opinion that Mr Buchanan’s “estimate of the Original Contract Sum is highly inflated” and was not appropriate [CB 474] and provided his own estimate of “$1,492,145 including GST and [ie, plus] variation number 1” [CB 475]. Mr Jeffery said that his view of the contract price was supported by the reports of CKC.
1071Mr Buchanan responded in a further supplementary report dated 18 June 2021, suggesting that the CKC reports were prepared for different purposes and were expressly limited to those purposes. At paragraphs 6.4 and 6.5, Mr Buchanan stated that:
“The Jeffery costing is limited in extent and limited to principal scope items and does not provide for the full scope of the works. For example, no sundries are included in his estimate. … Generally, the rates applied by Jeffery are too low and not reflective of current construction costs. In my opinion Jeffery has applied bottom of the market or lower than bottom of the market values to all of the rates in his calculations to produce his assessment.”
1072There is a draft Variation no. 3 at CB 3307, with the date “15/6/18” for the net sum of $564,060.37 ($605,128.68, less credits of $41,068.31). The document was never finalised or submitted to the Client. The net sum of $564,060.37 would represent an additional 35% on top of the total contract sum of $1,615,747.90.
1073I have referred to these matters in some detail because of the difficulties earlier mentioned in distinguishing on the evidence between the cost of completing the works in the Building Contract and the cost of additional works necessary by reason of the Client’s changes following the termination of the Building Contract.
1074The experts’ conclusions on matters of quantum can be summarised as follows:
Item Agreed or determined Contract sum $1,472,847.00 Value stages 1-7 complete $1,177,822.00 Var. 1 (as agreed) $142,900.90 Var. 1 (completed) $103,730.99 Var. 2 (claimed) $24,750.00 Var. 2 (allowed) $12,606.00 Var. 3 (draft) $564,060.37 Var. 3 (claimed) $12,144.00 Var. 3 (allowed) Nil Progress claims by Builder $1,294,152.57 Payments by Client $1,149,675.70 Osborne Jeffery Buchanan Value of Builder’s work (incl vars.) $881,385.78 $1,155,929.00 No estimate Rectification costs [$478,599.88] $1,812,686.26
($652,282.00)
$24,463.00
($229,850.00)
$2,060,653.25 Completion costs $1,189,842.50 $509,820.00 $589,614.76 Cost of additional work to Contract n/a No estimate $239,769.22 1075Another factor that may be considered relevant, is the time taken by the Builder to carry out the contract works prior to termination, and the time taken by the Client to complete the project. The period from the signing of the Building Contract on 26 October 2017 to the suspension of works by the Builder on 31 July 2018 was 279 calendar days. The period from the termination of the Building Contract on 24 August 2018 to the issue of an occupancy certificate on 8 May 2019 was 257 calendar days.
1076In my view, the most appropriate way to calculate the reasonable cost to the Client to rectify defective work and to complete the works of the Building Contract is to take account of the following matters:
(a) The contract price of $1,472,847.00.
(b) The cost of the properly allowable variations totalled $103,730.99. I have excluded the grease trap variation claimed by the builder in the sum of $12,144.00. The grease trap variation was part of draft Variation 3 and, as defect item 29, an allowance would have been made to the Client to re-do the variation work claimed by the Builder. It had no value. The allowable variations are:
Var No.
Description
Amount (incl GST)
1
Windows
$64,999.99
1
Fire services
$14,850.00
1
Security cameras & data racks
$11,275.00
2
Bulkheads
$2,970.00
2
Steel post relocation
$4,950.00
2
Kitchen door and window
$1,980.00
2
Music and kitchen walls
$946.00
2
Additional power points
$1,760.00
TOTAL
$103,730.99
(c) The payments made by the Client to the Builder for the contract stages and variations totalling $1,149,675.70.
1077I consider that in calculating the cost of completing the works of the Building Contract an additional allowance should be added to compensate for the extra time that it would be likely to take to complete the works, and for the inconvenience of taking over a partially completed project with significant defective work.
1078I have previously accepted, as appropriate margins in respect of rectification work, a builder’s margin of 30% in addition to a contingency allowance of 10%. This effectively adds 43% to the basic cost. For the original contract work, involving a refurbishment and change of use of premises, an allowance of 20% for builder’s margin and 5% contingency allowance would be more appropriate and would effectively add 26% to the basic cost.
1079The difference between the effect of these allowances is an additional 17%. In the circumstances, I consider that an additional 20% should be added when calculating an appropriate figure for completion of the contract works by the Client. This would take account of many other factors which may not have been otherwise included.
1080In my view, the Client is entitled to be paid or allowed the sum of $512,282.75 by the Builder as the cost of completing the contract works. This sum is calculated as follows:
Amount (incl GST)
Contract sum
$1,472,847.00
Add Variations
$103,730.99
$1,576,577.99
Less Payments
$1,149,675.70
$426,902.29
Add Allowance (20%)
$85,380.46
Total
$512,282.75
1081When the sum of $512,282.75 is compared with other suggested or possible allowances, I am satisfied that this figure is appropriate:
Description
Amount (incl GST)
Mrs Mustafa’s allocated payments for completion
$611,614.76
Mr Jeffery’s estimate of completion costs
$509,820.00
Contract sum plus appropriate variations less total payments (without the additional 20%)
$426,902.29
1082Accordingly, I shall allow the sum of $512,282.75 as the appropriate cost for the Client to complete the works of the Building Contract.
The Client’s damages arising from delays in completing the project
1083The Client claims that it suffered losses as a result of the delays to the completion of the Building Contract arising from the need for the Client to terminate the Building Contract and to carry out further rectification and completion works.
1084The Client claims that the builder should have completed the building works and approved variations by 12 April 2018 and that the Client lost rental on the property until 1 July 2019 when it was able to lease the property for use as a childcare centre.
1085On 8 July 2019, F&J Investment (as trustee for The Property Trust) entered into a lease of the property with Bridge Kids Pty Ltd (as trustee for The Bridge Kids Trust) for a term of 15 years commencing on 1 July 2019 and a further term of 5 years at an initial annual rental (excluding GST) of $280,000.00 [CB 4610].
1086I consider that the evidence establishes the following matters:
(a) the lease is between related entities associated with Mr and Mrs Mustafa. However, there was no evidence that the sum of $280,000.00 did not reflect a reasonable yearly rental for the property;
(b) it is unlikely that, at the date of termination of the Building Contract on 24 August 2018, the Builder had the capacity to complete the building works by 7 September 2018, the extended date for practical completion;
(c) however, the Client chose to terminate the Building Contract and there were no rights accruing to the Client for liquidated damages at that time. If there had been, the Clients damages would have been limited to the sum of $500.00 per day (specified in item 14 of the Schedule to the Contract Conditions, whether or not its actual losses were greater (J-Corp Pty Ltd v Mladenis[2009] WASCA 157 [at 35-36], as applied in Hacer Group Pty Ltd v Euro Façade Tech Export Sdn Bhd[2022] VSC 373 [at 179-182] and Dura (Australia) Constructions Pty Ltd v. Hue Boutique Living Pty Ltd (No. 3)[2012] VSC 99 [at 644]);
(d) the Builder was aware that, if the project were not completed in accordance with the terms of the Building Contract, there would be significant financial consequences by reason the property not being able to be used for the purpose of a commercial childcare centre; and
(e) the following relevant dates can only be determined by a more thorough examination of the evidence concerning:
(i)the date upon which any claim for delay damages should commence; and
(ii)the date upon which the delay damages should cease.
1087Commencement of delay damages: The Client rightfully terminated the Building Contract on 24 August 2018, including on the basis that the Builder had wrongfully suspended the building works on 31 July 2018. I consider that 7 September 2018, the date referred to by the Client in its letter to the Builder dated 24 July 2018, as the extended date for the Builder to complete the building works, is the earliest date upon which the Builder was required to complete.
1088However, taking into account the circumstances considered by the Client in nominating that date in the Builder’s works programme dated 19 July 2018 including, the state of works at that time, the extent of defective and incomplete work and the matters which had been raised by the Builder as having delayed its completion of the work, it would be appropriate to conclude that the building works should have reached practical completion by 30 September 2018.
1089Although two building permits were not obtained until later dates, I am satisfied that the permits could have been obtained earlier by the Client if the Builder’s performance on site had required them.
1090In my view, the Client’s delay damages should be calculated as having commenced on 1 October 2018.
1091Cessation of the Client’s entitlement to delay damages: The lease with Bridge Kids Pty Ltd is dated 8 July 2019. Pursuant to Item 8 of the Schedule of the lease, rental was to be payable from the commencement date of 1 July 2019.
1092However, I consider that allowance should be made for the following matters:
(a) a certificate of occupancy was issued on 8 May 2019;
(b) the Client, through Mr Mustafa had been primarily responsible for the building works upon the issue of the amended building permit in his name; and
(c) the Client carried out rectification work, completion work and further work between August 2018 and July 2019, not all of which was the responsibility of the Builder.
1093I consider that, although there is no specific evidence on this matter, that it would be appropriate to allow a further period of 14 days after the issue of the occupancy certificate to 23 May 2019 for the Client to obtain all necessary further permissions to allow the property to be used as a childcare centre, and therefore for the Client to expect a commercial return after that time.
1094I have, in this regard, taken account of the fact that the Client (through Mr Mustafa) was effectively in the position of the builder and would have had a degree of control over when the building works would be complete and, as essentially the proposed lessee was a related entity, the ability to efficiently commence to operate the business. Without more specific evidence as to the delay in the commencement of the lease, it would not be appropriate to allow a further period beyond the period of 14 days from the issue of the occupancy certificate.
1095Calculation of the Client’s entitlement to delay damages: The Client carried out work during this period for which the Builder was not responsible. I consider that the relevant considerations that I should take account of are:
(a) The similar time taken by the Builder to reach the stage of works he did when he suspended the works (279 days) and the time the Client took, following termination of the Building Contract, to complete the works and obtain an Occupancy permit (257 days).
(b) The amount paid by the Client to the Builder of $1,149,675.70 (similar to the sum assessed by CKC of $1,151,574.60) is probably the best indication of the value of the contract works that the Builder had completed. This would leave a balance to be paid of $$426,902.99 of the adjusted contract price (including the completed variations.
(c) Bearing in mind the degree of rectification required, the value of the works carried out by the Builder was likely to have been less than the total of the Client’s payments.
(d) The total of the rectification work ($478,599.88) and the completion work ($512,282.75) that I have assessed is $990,882.63. If the defective plumbing works I assessed at a total rectification cost of $66,041.20 were included, the adjusted total for the Client to complete the works of the Building Contract would be $1,056,923.83.
(e) I consider that the total of altered works initiated by the Client following termination of the Building Contract, and which are additional to the contract works and therefore not the responsibility of the Builder, are likely to have cost more than the calculations of Mrs Mustafa ($208,119.22) and Mr Buchanan ($239,769.22).
(f) Further, I consider that the figure derived by Mrs Mustafa and Mr Buchanan as the total amount spent by the Client to complete the project ($2,880,387.24) is likely a significantly inflated figure. From the figures of Mrs Mustafa and Mr Buchanan must be deducted the total sum of $78,243.58, conceded by Mrs Mustafa in her further witness statement as being incorrectly added to the amounts set out in Appendix D to Mr Buchanan’s report. Also, consideration must be given to the few examples I have referred to of clear mistakes in the allocation of invoices in Appendix D. Mr Jeffery raised many more in his report.
(g) The proportion of whatever expenditure the Client spent on the project which is the responsibility of the Builder is certainly inflated. The figures used by Mrs Mustafa and Mr Buchanan, that they derived from Mr Osborne’s estimates of the cost of rectification work, in his first two reports a total of $1,812,686.26), was not consistent with his revised total estimate ($652,582.00) or the amount I have allowed of $478,599.88 or, if the plumbing defect items were included, $544,641.08.
1096Taking all these matters into account, it is my view appropriate, that the relevant period of delay following the termination of the Building Contract, should be considered as equally divided between the period of time reflecting the rectification and completion work which was the responsibility of the Builder, and the period of time taken by the Client to undertake works additional to the Building Contract and for other works that I have not been satisfied were the responsibility of the Builder.
1097The Client is therefore entitled to delay damages of $90,136.99 calculated at the rate of $767.12 per day (1/365 of $280,000.00 per annum) for 117.5 days (one half of the period of 235 days from 1 October 2018 to 23 May 2019).
The Builder’s counterclaims
1098In calculating the amount to which the First Plaintiff is entitled, it is necessary to take into account the balance owing under the Building Contract. This is necessary as the damages awarded to the First Plaintiff are assessed on the basis that it is entitled to be put in the position as if the Building Contract had been performed and the building properly constructed for the contract price (adjusted for variations).
1099However, by reason of the decision I have made as to validity of the Client’s termination of the Building Contract, Mr Etcell must fail in his claims arising from the termination.
The Client’s entitlement
1100The amount of $619,070.43 is due to the Client as damages, calculated as follows:
Contract price $1,472,847.00 add Variations $103,730.99 Adjusted price $1,576,577.99 less Payments $1,149,675.70 Unpaid balance $426,902.29 less Cost to complete $512,282.75 -$85,380.29 $85,380.29 add Client’s rectification costs $478,599.88 add Client’s delay costs $90,136.99 Client’s damages $654,117.16
1101Interest: My tentative views in relation to the issue of interest is that:
(a) the Client may have been entitled to interest on the overpayment of $85,380.29 from the date of the last payment by the client on 19 July 2018;
(b) each of the figures for Completion costs ($512,282.75), Rectification costs ($478,599.88) and Delay costs ($90,136.99) may attract interest from a date that might best be calculated as the mid-point between the two relevant dates I have chosen, 1 October 2018 as the starting date and 23 May 2019 as the completion date of the further works. That date on my calculation is 27 January 2019.
1102However, I will deal with the issues of interest and costs after hearing further submissions from the parties, and if necessary, sequentially.
Orders
In the circumstances, the following orders are made by the Court:
1. The Plaintiffs’ application to deliver a fourth further amended statement of claim dated November 2022 and a fifth further amended reply and defence to counterclaim is refused.
2.All documents in the Court Book, Supplementary Court Book, and the Further Supplementary Court Book shall be admitted into evidence subject to consideration of all objections and the appropriate weight that should be given to the contents of the documents.
3.The contract dated 26 October 2017 between The Property Trust as the “Client” and Paul Etcell as the “Builder” (“the contract”) is rectified by amending the name of the Client in Item 2 of the Schedule to the Medium Works Contract Conditions, and in any other corresponding places in the contract where the “Client” is described, from “The Mustafa Property Trust” to read “F & J Investment Assets Pty Ltd as trustee for The Mustafa Property Trust”.
4.Declare that the contract was, on 24 August 2018, validly terminated by F & J Investment Assets Pty Ltd.
5.Judgment for the First Plaintiff against the Defendant on the First Plaintiff’s claim that the Defendant pay to the First Plaintiff the sum of $654,117.16. Stay this order until 4pm on 31 May 2024.
6.Judgment for the First Plaintiff against the Defendant on the Defendant’s counterclaim that the counterclaim be dismissed.
7.By 4.00 pm on 28 May 2024, the parties must file and serve written submissions limited to the following matters:
a.the calculation of the judgment sum, limited to any errors in the arithmetic;
b.the entitlement to and calculation of interest upon any sums awarded to the First Plaintiff;
c.the question of the costs of the proceeding;
d.whether the party wishes to make further oral submissions, and if so the reasons for requesting a further hearing.
8.However, if the parties consider that it would be inappropriate to have the issue of costs determined at the same time as the issue of interest, the filing (but not the service) of the parties’ submissions on costs may be delayed until 7 days after the Court’s determination on the issue of interest.
9.Upon receipt of the parties’ written submissions, or the expiry of the time limited by the order in paragraph 7, further orders will be made by the Court.
Certificate
I certify that the preceding 310 pages are a true copy of the judgment of his Honour Judge Anderson delivered on 7 May 2024.
Dated: 7 May 2024
Tracey Huang
Associate to His Honour Judge Anderson
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