Home Site Pty Limited v ACN 124 452 786 Pty Limited (formerly known as Nahas Construction (NSW) Pty Limited)

[2017] NSWSC 698

Supreme Court

New South Wales

Medium Neutral Citation:	Home Site Pty Limited v ACN 124 452 786 Pty Limited (formerly known as Nahas Construction (NSW) Pty Limited) [2017] NSWSC 698
Hearing dates:	1 to 4, 10 to 12 May 2017
Decision date:	05 June 2017
Jurisdiction:	Equity - Technology and Construction List
Before:	Ball J
Decision:	See paragraphs 137 to 139 of this judgment.
Catchwords:	BUILDING AND CONSTRUCTION – contract –extension of time clause – whether terms of contract relating to extension of time were modified by deed of amendment – whether defendant entitled to extension of time under contract – whether plaintiff entitled to liquidated damages under contract. BUILDING AND CONSTRUCTION – contract – liability for defective works – whether contract specification required rectification of defects – whether rectification of defects unreasonable. BUILDING AND CONSTRUCTION – Home Building Act 1989 (NSW) s 10 – whether Home Building Act 1989 (NSW) s 10 applies. CONTRACT – building and construction contract – unenforceable – quantum meruit claim – whether plaintiff entitled to recover fair and just compensation for work completed in accordance with contractual specifications – whether costs incurred for work were reasonable – whether deductions should be applied to quantum meruit claim. CONTRACT – consideration – promise to perform existing duty – whether bona fides compromise of a disputed claim made. CONTRACT – construction and interpretation – “practical completion” – when did “practical completion” occur. CONTRACT – construction and interpretation – whether contract can be inferred from parties’ conduct – whether words and conduct of parties would lead a reasonable person in the position of the other party to believe there was a contract. PRACTICE AND PROCEDURE – Uniform Civil Procedure Rules 2005 (NSW) r 14.14 – whether point should have been pleaded – whether point likely to take defendant by surprise
Legislation Cited:	Building and Construction Industry Security of Payment Act 1999 (NSW) Corporations Act 2001 (Cth) s 440D Home Building Act 1989 (NSW) s 10 Uniform Civil Procedure Rules 2005 (NSW) r 14.14(1)
Cases Cited:	Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36 Bellingen Shire Council v Colavon [2012] NSWCA 34 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24 Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273 Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116; [2001] NSWCA 346 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 Radford v de Froberville [1977] 1 WLR 1262 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8 Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; [2004] HCA 52 Wigan v Edwards (1973) 1 ALR 497
Texts Cited:	Rawlinsons Australian Construction Handbook 2011 (29th Ed, Rawlinsons Publishing)
Category:	Principal judgment
Parties:	Home Site Pty Ltd (Plaintiff) ACN 124 452 786 Pty Limited (formerly known as Nahas Construction (NSW) Pty Limited) (Defendant)
Representation:	Counsel: M Ashhurst SC with S Duggan (Plaintiff) F Corsaro SC with P Bambagiotti (Defendant)   Solicitors: BCP Law (Plaintiff) Mills Oakley (Defendant)
File Number(s):	2013/353530
Publication restriction:	Nil

Judgment

Introduction

1. These proceedings concern a 44 unit residential development comprising two seven floor buildings in Waverley Street, Bondi which was undertaken by the plaintiff, Home Site (the Development).

2. By a contract dated 22 December 2009 (the Contract) between Home Site and the defendant, Nahas, as amended by a deed dated 22 February 2010 between Home Site, Nahas and Investec Bank (Australia) Limited (which provided funding to Home Site in respect of the Development) (the Deed), Home Site engaged Nahas to undertake the construction of, and perform certain design work for, the Development for a fixed price of $13,500,000 excluding GST ($14,850,000 including GST). That price included a provisional sum of $1,300,000 excluding GST ($1,430,000 including GST). The Deed provided that the provisional sum was “in respect of acoustical design and works as well as sewer design and augmentation”. In fact, the provisional sum was used to do more than that, including as a contingency to cover variations.

3. On 14 August 2012, when work on the Development was substantially complete, Nahas went into voluntary administration and subsequently, on 27 December 2012, it entered into a deed of company arrangement (the DOCA). Relying on the appointment of administrators and the DOCA, Home Site terminated the Contract on 20 February 2013.

4. On 21 August 2013, Nahas made an adjudication application under the Building and Construction Industry Security of Payment Act 1999 (NSW) in respect of progress claim 21 for $1,052,036.15 (including GST) (PC 21) that it had served on 29 July 2013. The amount claimed was said to comprise the release of a retention amount of $640,000 (excluding GST), a claim for variations totalling $313,614 (excluding GST) and a claim for an amount of $2,782.50 (excluding GST) said to be owing in respect of progress claim 19 (PC 19).

5. By a determination dated 10 September 2013, the adjudicator determined the amount payable in respect of PC 21 as $557,697.09.

6. Home Site commenced these proceedings on 22 November 2013 seeking leave to proceed against Nahas pursuant to s 440D of the Corporations Act 2001 (Cth) (which was required because Nahas was in administration) and an injunction restraining Nahas from enforcing a District Court judgment Nahas had obtained on the basis of the adjudication determination. On 3 December 2013, Hammerschlag J granted that leave and the injunction on condition that Home Site provide to the court an unconditional bank guarantee in the sum of $651,041.07.

7. Home Site maintains that, at the time of the appointment of the administrators, it owed nothing to Nahas and that, in fact, amounts were owing to it by Nahas. Home Site accepts that, as a result of the DOCA, it is not entitled to recover those amounts. Instead, it seeks declarations to the effect that no further amount is payable by it, with the result that the bank guarantee it has provided to the court should be returned to it. Relevantly, it puts its claim in two ways.

8. First, Home Site claims that in late September 2011, following service by Nahas on 27 September 2011 of PC 19 in the amount of $1,664,802.20 (excluding GST), Home Site and Nahas agreed that Home Site would forego any claim it had to liquidated damages and Nahas would forego its claim for additional amounts said to be payable under the Contract in respect of variations and adjustments to the provisional sum allowance. The result, according to Home Site, was that it was agreed that the contract sum would be adjusted to $12,384,438 plus GST ($13,622,88.80 inclusive of GST) and that PC 19 would be adjusted to claim an amount of $1,146,510.69 excluding GST.

9. Home Site claims that:

1. after taking account of amounts it has paid to Nahas or on Nahas’s behalf, it has paid the full amount of PC 19 as adjusted;

2. it has paid further amounts totalling $365,000 (excluding GST) ($401,500 including GST) as a release of retention moneys. Those amounts consisted of $316,941 paid directly to Nahas and payments to third parties of amounts owed by Nahas totalling $84,559, leaving a retention amount of $275,000 (plus GST);

3. it has claims for defective and incomplete work which exceed the balance of the retention amount owed by it.

10. Second, Home Site claims that, even if no agreement was reached in late September 2011, Nahas was not licensed at the time the Contract was entered into with the result that it is prohibited by s 10 of the Home Building Act 1989 (NSW) (HB Act) from recovering any amounts due to it under the Contract, although it remains liable to any claim for damages and other relief Home Site has under the Contract.

11. Home Site accepts that Nahas remains entitled to recover the value of the work that it did on a quantum meruit basis. However, it makes four points about that.

12. First, it says that Nahas must give credit for amounts that have either been paid by Home Site to it or for its benefit. Second, it says that the work done by Nahas must be valued in accordance with the Contract. Among other things, the Contract (as amended) only permits Nahas to recover amounts paid to subcontractors where Nahas provides evidence that those subcontractors have been paid, which it has not done. Third, it says that it remains entitled to claim liquidated damages. Fourth, it says that any restitutionary claim must give credit for costs incurred by Home Site in rectifying defects. In Home Site’s submission, once adjustments are made to take account of those four matters, the amount it has paid exceeds Nahas’s quantum meruit claim.

13. Originally, Home Site put its case in a third way. It claimed that, even if the amount to which Nahas is entitled is calculated in accordance with the Contract, after making adjustments for liquidated damages, amounts paid by Home Site to Nahas or on Nahas’s behalf and amounts to which Home Site is entitled to recover in respect of incomplete or defective work, the amount owing to Home Site still exceeds the retention moneys it has retained. However, in final submissions, Nahas conceded that s 10 of the HB Act applied, with the result that it was restricted to making a claim on a quantum meruit basis. For that reason, it is unnecessary to consider the third way in which Home Site put its case.

The claim based on the adjusted contract sum

Factual background

14. As I have said, on 27 September 2011, Nahas served PC 19. As is common, the progress claim was divided into a number of categories of cost and showed the total amount allowed for work falling within each category and the percentage of work that had been completed in each category both prior to the progress claim and including the progress claim. The claim (all amounts exclude GST) was for a total amount of $1,664,802.20, calculated as the difference between the total value of the work done of $12,582,730.01 less amounts paid previously (totalling $10,597,929.50) and less a retention amount of $320,000.00. The amount claimed represented the balance of the amount owing in respect of most but not all categories of costs. It included a claim for provisional sum items and variations of $456,927.01 (shown in PC 19 as a claim for the provisional sum of $1,300,000.00 and a credit of $843,072.99 in respect of variations).

15. PC 19 was discussed at a meeting on the same day or a day or two later (the 27 September 2011 meeting) which was attended by Mr Boris Markovsky, who is a director and the principal of Home Site, Mr Peter Younan, the architect appointed by Home Site in accordance with the Contract, Mr Sarkis Elia, a project manager employed by Nahas who worked on the Development, and Mr Youssef (Joe) Nahas, who was a director and one of the principals of Nahas. Nahas was facing financial difficulties at the time and was keen to be paid. Although each of the participants at the meeting gave somewhat different accounts of what occurred, it seems clear that they went through in some detail the payment claim and the defects that Home Site alleged existed with the work that had been done. It is apparent that Mr Markovsky, whilst accepting that Nahas was entitled to claim an amount of $159,438.50 against the provisional sum allowance for work for which no specific allowance had been made, disputed a number of claims for variations made against that allowance. At some stage during the meeting, Mr Markovsky said that he wanted to wrap everything up. He said that Home Site had a claim for over $500,000 in liquidated damages. Mr Markovsky said that Home Site would drop that claim if Nahas agreed to drop its claim for variations and agreed that PC 19 would be Nahas’s final claim for work done under the Contract. The likelihood is that Mr Markovsky said that if Nahas agreed to that and issued a revised PC 19 that reflected what he was proposing, he would approve it for payment. Mr Markovsky also said that Home Site would not agree to a reduction in the retention amount to $320,000.

16. Both Mr Markovsky and Mr Younan say that Mr Elia and Mr Nahas agreed to what was proposed and that at the end of the meeting they shook hands on it. Mr Elia and Mr Nahas deny that any agreement was reached at the meeting. However, Mr Elia said that Mr Nahas kicked him under the table to stop him from raising any dispute concerning liquidated damages and variations.

17. Following the meeting, Nahas issued an amended PC 19 (Amended PC 19). That progress claim was for an amount of $1,146,510.69. It corresponded to what Mr Markovsky had requested. It was calculated by taking the total contract price for the work of $12,200,000 (excluding GST) (that is, $13,500,000 less the allowance for provisional sum items of $1,300,000) and adding the amount accepted by Home Site for provisional sum items of $159,438.50 and an amount of $25,000.00 in respect of an agreed variation, making a total contract price of $12,384,438.50. The claim deducted from that amount the total of the amounts previously paid by Home Site of $10,597,929.50 and a retention of $640,000.00 to arrive at the claim of $1,146,510.69 (excluding GST). The progress claim indicated that it together with previous progress claims covered 100 percent of each category of cost into which the progress claim was divided. The progress claim was accompanied by a tax invoice dated 7 October 2011 for $1,261,159.90 (that is, the progress claim shown as $1,146,509.00 together with GST of $114,650.90).

18. On the same day, Mr Elia sent an email to Home Site asking it to pay the following subcontractors directly:

IDW Design	$148,604.50
Florida Kitchens	$64,675.00
Living Tiles	$65,463.00
ITC	$24,232.80

Those amounts were said to include GST and a 2.5% retention release. The amounts total $302,975.30. However, the amount owing to Living Tiles was stated incorrectly. The actual amount was $59,819.53, making a total of $297,331.83.

19. On or about 9 or 10 October 2011, there was a further meeting between Mr Markovsky and Mr Elia to discuss payment of Amended PC 19. In his affidavit sworn on 28 May 2014, Mr Elia says that Mr Markovsky said that he was only going to pay part of the claim because Home Site had paid a number of subcontractors on Nahas’s behalf. According to Mr Elia, Mr Markovsky said that he would pay part of the claim immediately and the rest when Nahas finished the outstanding work and defects. Mr Elia says that he disputed Home Site’s entitlement to retain part of the payment. He also says that he and Mr Markovsky agreed that Mr Elia could nominate who Home Site would pay on Nahas’s behalf, and that any deductions by Home Site would be limited to those nominated by Mr Elia. When cross-examined, Mr Elia had no recollection of the meeting, although he accepted that it may have occurred.

20. Mr Markovsky, on the other hand, says that at the meeting he raised the point that at their previous meeting they had not taken account of the fact that Home Site had made direct payments to subcontractors on Nahas’s behalf and those payments needed to be included in calculating the amount due to Nahas. Mr Markovsky said that the amount that had been paid totalled approximately $310,000, leaving an amount owing of approximately $836,000 plus GST. According to Mr Markovsky, Mr Elia said that he would check the figures but that that sounded about right. He also said that a further amount would need to be deducted to reflect the direct payments that he had requested Home Site to make in his email dated 7 October 2011. In fact, Home Site claims that between 8 December 2010 and 30 June 2011 it made payments to third parties on behalf of Nahas totalling $327,342.14, including GST.

21. I prefer Mr Markovsky’s account of the meeting. Mr Elia’s recollection of the meeting appears to be poor, since he could not recall it at all when giving evidence. Mr Elia’s affidavit evidence appears to be to the effect that, at the meeting, he was only prepared to agree to deductions that he subsequently approved. That seems unlikely when only a few days earlier he had asked in an email that Home Site pay a number of sub-contractors directly. In addition, Mr Markovsky’s evidence is more consistent with subsequent events.

22. On 10 October 2011, Nahas issued an invoice to Home Site in the amount of $836,000.00 ($919,600 including GST). Home Site deducted from that amount, the amount of $297,331.83 (the correct total of the invoices that Mr Elia had asked Home Site to pay on 7 October 2011), leaving a balance of $565,698.34 (excluding GST) or $622,268.17 (including GST). It paid the GST inclusive amount on 11 October 2011.

23. On 14 October 2011, Mr Younan sent Mr Elia an email saying that the site plumber, Shelby Plumbing, engaged by Right Flow, had requested payment of $40,000.00 plus GST and seeking approval to pay that amount on Nahas’s behalf. Mr Elia replied the same day giving that approval. Home Site paid that amount (that is, $44,000.00) the same day.

24. The total retention amount held by Home Site was $640,000.00 plus GST. On 18 October 2011, Mr Elia sent Home Site an email with the subject “Waverley St Retention Release”. The email requested that Home Site make the following direct payments:

Castle Lighting	$21,161.24
Flue for Hot water system	$12,000.00
Wardrobe to be air freighted	$6,000.00

The email also included an invoice “as discussed” for $365,000.00 (excluding GST) ($401,500 including GST), which was described as “Progress Claim 20”, but which was clearly a claim for the return of part of the retention money.

25. Home Site paid $21,232.00 to Castle Lighting, $12,727.00 to Luke Stapleton for the flue and $6,600 to IDW for the wardrobe. The slight discrepancy in amounts arises from errors in Mr Elia’s email. Together with the amount of $44,000.00 paid to Shelby Plumbing on 14 October 2011, those amounts totalled $84,559.00.

26. On 20 October 2011, Home Site paid Nahas the sum of $316,941.00. That amount, together with the payment to third parties of amounts totalling $84,559.00 represented full payment of progress claim 20, leaving a retention amount of $275,000.00 plus GST.

27. As I have said, Home Site claims that it is liable to pay the costs of remedying defects which exceeds the remaining retention amount. I will say more about those defects shortly.

Was there a contract?

28. Home Site puts its claim based on contract in two ways. First, it submits that an agreement was reached at the 27 September 2011 meeting. Second, it submits that an agreement is to be inferred from what happened at that meeting and the parties’ subsequent conduct.

29. The question whether an agreement was reached is to be decided objectively. As the High Court explained in Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165; [2004] HCA 52 at [40]:

It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement.

30. In my opinion, it is likely that at the 27 September 2011 meeting Mr Elia and Mr Nahas said nothing to suggest that they did not accept what Mr Markovsky proposed and that Mr Markovsky and Mr Younan interpreted their silence as acceptance.

31. Following the meeting, Mr Elia sent Home Site Amended PC 19. As I have said, that claim was entirely consistent with what Mr Markovsky had proposed. It was amended to make it clear that it was the final progress claim for work done, because it showed that all the work was complete. It deleted the claims for provisional sum items and variations except those that had been agreed, and it reinstated the full retention amount of $640,000.00. By submitting Amended PC 19, Nahas must be taken objectively to have accepted the proposal put forward by Mr Markovsky at the 27 September 2011 meeting. The parties continued to act on that basis. Both parties proceeded on the basis that work under the contract was complete and that the balance of the amount owing to Nahas was stated in Amended PC 19, subject to adjustments for direct payments to third parties made by Home Site on Nahas’s behalf. Despite the fact that Nahas was under financial difficulties and went into administration, it issued no further progress claims until 21 August 2013, almost two years later, when it issued PC 21. There is no suggestion that Nahas had done any further work since Amended PC 19 to justify that claim. If there really was no agreement in the terms proposed by Mr Markovsky, PC 21 would have been issued much earlier than it was.

30. Nahas sought to resist the conclusion of the previous paragraph on various bases. First, it submitted that the agreement could not be as Home Site contended because patently it did not deal with all outstanding matters. In particular, it did not deal with third party payments or defects. Second, and related to the first point, Nahas submitted that, properly understood, the agreement resulting from the 27 September 2011 meeting was simply an agreement in relation to PC 19. Third, Nahas submitted in effect that Home Site repudiated the agreement by refusing to pay the amount due under it. Fourth, Nahas submitted that the claim for liquidated damages was illusory and consequently Home Site gave no consideration for the agreement. Fifth, Nahas submitted that Investec did not approve the variation as required by cl 2.5(a)(i) of the Deed.

31. I do not accept any of those submissions. The agreement proposed by Mr Markovsky was not intended to resolve every issue between the parties. Rather, Mr Markovsky stated that he wanted to fix the total amount that Nahas would claim under the Contract and, if that could be done, he said that Home Site would give up its claim for liquidated damages, which is what it did. Mr Markovsky also said that, subject to a retention of $640,000.00, he would authorise payment of the outstanding amount owed to Nahas. The fact that Mr Markovsky subsequently realised that it would be necessary to take into account amounts paid by Home Site to third parties in determining the amount payable by Home Site and the fact that Nahas agreed to that does not undermine the existence of the agreement on which Home Site relies. Nor does the fact that Home Site retained its right to make claims in respect of defective work. Claims of that type were outside the scope of the agreement. That is why Mr Markovsky was not prepared to agree to a release of part of the retention amount. To put the point another way, the fact that the agreement did not “wrap up” everything does not mean that the parties failed to reach an agreement to “wrap up” the amount owing to Nahas under the Contract.

32. As to Nahas’s second point, the agreement cannot be construed as an agreement that simply dealt with the amount payable in respect of PC 19. That construction is inconsistent with what Mr Markovsky said. It takes no account of the fact that Mr Markovsky offered to give up Home Site’s claim for liquidated damages, which is what it did. It also takes no account of the fact that Nahas adjusted PC 19 to make it clear that work under the Contract was complete.

33. As to Nahas’s third point, there can be no question of repudiation. The agreement fixed the total amount that Nahas was entitled to claim. Nothing was said from which it could be inferred that it also represented an agreement on the amount Home Site had paid in respect of that claim. That was apparent from the fact that, when Mr Markovsky raised the issue, Nahas submitted an invoice by which it accepted that an adjustment had to be made to take account of amounts previously paid by Home Site on Nahas’s behalf.

34. As to Nahas’s fourth point, it maintains that the claim for liquidated damages was illusory because it was entitled to the extensions of time under the Contract. Nahas submitted claims for extensions of time. Under cl 9.03 of the Contract, the Architect was required to determine the extension within 20 days. Under cl 9.04, if the Architect failed to notify Nahas of his determination within the required time, the time for Practical Completion was extended by the time claimed by Nahas. Mr Younan did not respond to Nahas’s requests for extensions of time. Nahas contends that, as a result, time was extended, with the result that Home Site was not entitled to claim liquidated damages.

35. I do not accept that submission. The question is not whether Home Site’s claim for liquidated damages would have succeeded. The question is whether it had a claim that it gave up. It plainly did. As will become apparent, Home Site’s primary case is that Nahas was not entitled to make a claim for extensions of time for wet weather and that consequently many of the claims for extensions of time were not properly made under the Contract. It made its position known to Nahas. Whether its position was correct or not, it gave up any claim that it might have had. That alone was sufficient consideration for the agreement that was reached. As Mason J explained in analogous circumstances in Wigan v Edwards (1973) 1 ALR 497 at 512:

The general rule is that a promise to perform an existing duty is no consideration, at least when the promise is made by a party to a pre-existing contract, when it is made to the promisee under that contract, and it is to do no more than the promisor is bound to do under that contract. The rule expresses the concept that the new promise, indistinguishable from the old, is an illusory consideration. And it gives no comfort to a party who by merely threatening a breach of contract seeks to secure an additional contractual benefit from the other party on the footing that the first party's new promise of performance will provide sufficient consideration for that benefit.

An important qualification to the general principle is that a promise do precisely what the promisor is already bound to do is a sufficient consideration, when it is given by way of a bona fide compromise of a disputed claim, the promisor having asserted that he is not bound to perform the obligation under the pre-existing contract or that he has a cause of action under that contract. The qualification recognizes that for the Court itself to examine and determine the correctness of the promisor's claim would be a pointless exercise when the new bargain indicates that the promisee regarded the fresh promise as a benefit, presumably viewing the promise of performance as more advantageous than the remedies available to him for breach of contract. But the law, by insisting that the claim in dispute is one which was honestly or bona fide made, prevents the qualification from assisting the party who would seek to gain an unfair advantage by threatening unscrupulously to withhold performance under a contract.

38. More will be said about the claim for liquidated damages shortly. As will become apparent, there can be no question that Home Site’s belief that it had a claim for liquidated damages was a bona fides one. It promised to give that claim up in return for the agreement it sought from Nahas. For the reasons given by Mason J, that was good consideration whether or not the claim itself was a good one.

39. As to Nahas’s fifth point, cl 2.5(a) of the Deed relevantly provides:

The Builder and the Mortgagor agree not to:

(i)   terminate, rescind, vary or waive any requirement under the Building Contract;

(ii)   …

without the prior written consent of Investec. Any act committed in breach of this clause 2.5 (including any purported termination, rescission or variation of the Building Contract) shall be void and of no effect.   

40. One difficulty with Nahas’s submission is that the point was not raised until final written submissions and the point is one that was likely to catch Home Site by surprise. For that reason, it should have been pleaded: see Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 14.14(1); Nowlan v Marson Transport Pty Ltd (2001) 53 NSWLR 116; [2001] NSWCA 346 at [27]ff per Heydon JA (with whom Mason P and Young CJ in Eq agreed); Bellingen Shire Council v Colavon [2012] NSWCA 34. If it had been, Home Site could have investigated the question whether Investec had given its approval or whether some estoppel operated against it. That point aside, the agreement reached on or about 27 September 2011 did not vary or waive any requirement of the Contract. Rather, Home Site and Nahas reached a compromise concerning the amounts payable under the Contract.

Payments on behalf of Nahas

41. Assuming there was an agreement as alleged by Home Site, the question whether Home Site owes any money under the Contract turns on two matters. The first is whether Home Site was entitled to deduct from the amount payable by it amounts it had paid to third parties and, if so, which amounts. The second is the amount Home Site is entitled to claim in respect of defects.

42. Nahas makes three points in relation to payments on its behalf. First, it submits that Home Site was registered for GST purposes, that it was entitled to claim input tax credits in respect of any GST it paid and that consequently, to the extent that any of the amounts paid by it included GST, it is not entitled to set-off those amounts against the amounts it owed to Nahas.

43. Second, Nahas claims that none of the invoices paid by Home Site, that Mr Markovsky estimated totalled $310,000.00, were paid on behalf of Nahas. The invoices relied on by Home Site in fact total $327,342.14 (including GST) and consist of the following (all amounts include GST):

1. Invoice dated 8 December 2010 from IDW Design for $88,000.00;

2. Invoice dated 11 February 2011 from IDW Design for $125,400.00

3. Invoice dated 13 December 2010 from Florida Kitchens for $47,300.00;

4. Invoice dated 24 January 2011 from Aoun Constructions for $3,900.00;

5. Invoice dated 27 May 2011 from Aoun Constructions for $24,000.00;

6. Invoice dated 22 June 2011 from Rubix Plumbing for $2,574.00;

7. Invoice dated 1 April 2011 from Castle Lighting for $25,718.14;

8. Invoice dated 29 March 2010 from M+G Consulting for $10,450.00.

44. In relation to the invoices from IDW Design and Florida Kitchens, Nahas submits that Home Site instructed it to obtain quotes from IDW Design and Florida Kitchens for the wardrobes and kitchens, that those quotes were substantially more than had been allowed for those items in the breakdown of trades that had been prepared for the project, that Home Site instructed Nahas to accept the quotes and agreed to cover the difference itself.

45. In relation to the invoices from Aoun Constructions and Rubix Plumbing, Nahas submits that the work covered by those items related to the sewer pipe deviation and the sewer vent pipe deviation, that that work fell within the provisional sum allowance of $1,300,000, that no claim against that allowance was made for that work and that instead Home Site agreed to pay the invoices itself.

46. In relation to the invoice from Castle Lighting, Nahas submits that it is unclear what the payment relates to, that Home Site has not established that it relates to the Development or that Nahas gave its approval to the payment, with the result that Home Site was not entitled to make a claim for it.

47. In relation to the invoice from M+G Consulting, the invoice relates to a dilapidation report that was commissioned by Home Site and that was required by condition 73 of the Development Approval. Nahas accepts that the Contract includes an obligation on it to comply with statutory requirements. However, it submits that that obligation does not extend to payment for a report that Home Site chose to commission in satisfaction of a condition of the Development Approval.

48. Third, Nahas says that if there really had been an agreement of the type alleged by Home Site, Home Site would have relied on the agreement in its adjudication response and pleaded it in its original claim and Mr Markovsky would have referred to it in his first or second affidavit, which he did not do. According to Nahas, those facts indicate that the alleged agreement to reduce the amount payable to take account of payments to third parties was no more than an after-thought.

49. There is some force in the first two points made by Nahas. It appears that Home Site was registered for GST purposes, and it may have been entitled to input tax credits. However, there is no evidence that it claimed or received those credits. The issue was not raised until Nahas served its opening written submissions, and it was not put to Mr Markovsky in cross-examination that Home Site claimed or received the benefit of input tax credits. Moreover, if the true position is that the relevant amounts were amounts payable by Nahas and Home Site made the payments on Nahas’s behalf, it is not clear why Home Site was not entitled to claim the full amount of the payments from Nahas, leaving it to Nahas to claim the input tax credits. Because the issue was not raised until the hearing, or shortly before it commenced, it was not addressed properly by the parties. In the absence of evidence that Home Site actually received the benefit of input tax credits arising from the payment of GST, in my opinion GST should not be deducted from the amount claimed by Home Site.

50. There is some evidence in the client meeting minutes that Home Site agreed to pay “as a deposit” that proportion of the amounts payable to IDW Design and Florida Kitchens for the wardrobes and kitchens that exceeded the amounts for which allowance had been made for those items. However, there is no evidence of what those amounts were, although it may be inferred that they were the amounts that Home Site paid directly. Mr Markovsky’s position in relation to those amounts is that the agreement arising from the 27 September 2011 meeting was an agreement about the total amount that Nahas was entitled to receive for work done under the Contract, so that if Home Site made payments in respect of those amounts, it was entitled to a refund of them. However, whether the agreement could be characterised as having that consequence is doubtful; and the better view seems to be that Home Site was not entitled to claim the relevant invoices from Nahas.

51. Mr Younan appeared to accept when cross-examined that the amounts paid to Aoun Constructions related to diversion of the existing sewer line and that the costs of that work was a provisional sum item, with the result that if they had been paid by Nahas, Nahas would have been entitled to claim the amounts against the provisional sum amount of $1,300,000. On that basis, it appears that Home Site was not entitled to a credit in respect of those amounts, since it would have been liable to pay the amounts through an increase in the amount claimed against the provisional sum amount if it had not paid the amounts directly. On the other hand, Mr Younan’s evidence is that the work that Rubix Plumbing did fell within the work covered by the Contract. There is no reason to doubt Mr Younan’s evidence on that matter. On that basis, it appears that Home Site would be entitled to recover the amount it paid to Rubix Plumbing from Nahas.

52. There is also force in Nahas’s submission that Home Site was not entitled to recover the amount paid to Castle Lighting in the absence of evidence of what that invoice related to. On the other hand, the position in relation to the cost of the dilapidation report is less clear. Although the dilapidation report was required by the conditions attaching to Home Site’s Development Approval, the purpose of the report was to protect Nahas against claims from neighbours that its work had caused damage to their property. It is for that reason that Mr Markovsky maintains that the cost of the report should have been borne by Nahas. That said, if the report was required by the Development Approval and if Home Site obtained the report and paid for it to satisfy that condition, it is difficult to see on what basis the cost of the report was recoverable from Nahas.

53. It follows from what I have said that it is doubtful that Home Site was entitled to recover most of the costs Mr Markovsky said it was entitled to recover at the meeting on 9 or 10 October 2011. However, that is not the end of the matter. The principal difficulty with Nahas’s submissions is that they overlook the fact that Nahas accepted the deductions proposed by Mr Markovsky and issued an amended invoice reflecting those deductions. It is no answer to say that Home Site was not entitled to make the deductions Mr Markovsky claimed. The principle stated by Mason J in Wigan v Edwards (1973) 1 ALR 497 at 512 and referred to above is equally applicable here.

54. There was an issue concerning what, if any, deductions should be made for payments Home Site had made to third parties. Mr Elia accepted Mr Markovsky’s proposal in that regard and issued a revised invoice on that basis. There was no suggestion that Mr Markovsky was not acting bona fides when he sought the reduction that he did. Nahas never sought to recover the balance of the progress claim which, on its case, remained owing, at least until these proceedings were commenced. The only reasonable explanation of what happened is that Nahas compromised its claim for the amount stated in Amended PC 19 in light of the issue raised by Mr Markovsky. The likelihood is that it did so because it was keen to be paid quickly an amount that it was entitled to be paid in any event. But that does not make the compromise any less enforceable.

55. The difficulty with Nahas’s third point is that it does not explain how Mr Elia came to issue an invoice that cannot be explained except on the basis that Mr Markovsky did raise the amounts paid by Home Site as a ground for reducing the amount that it owed Nahas. The fact that the point was not raised again until recently can be explained by the passage of time and the urgency with which Home Site’s adjudication response would have been prepared.

56. It follows that in making the payments it did, Home Site paid Amended PC 19 in full.

Defects and incomplete work

57. Home Site claims that it is entitled to set off the following amounts against the retention amount it continues to hold:

1. $49,691.82 (excluding GST) ($54,661 including GST) for incomplete work;

2. $184,097.34 (excluding GST) ($202,507.07 including GST) for defective work rectified by Home Site;

3. $14,653.00 (including GST) for minor defect rectification work during the period August 2013 to December 2015;

4. The costs of repairing a failed membrane over the podium, which are estimated to be $160,000.00 (but which currently stand at $68,320 including GST);

5. The cost of repairing defective render, the actual costs of which to date are $51,536.80 (including GST).

The total of the amounts actually incurred to date (including GST) is $391,677.87.

The claim for incomplete work

58. The amount of $54,661 consists of $22,000 paid to Shelby Plumbing, $10,420 paid to Harvey Norman and $22,241 paid to European Timber.

59. The amount paid to European Timber is not disputed. The amount paid to Shelby Plumbing related to an invoice dated 10 November 2011 for $20,000 ($22,000.00 including GST) for the “supply and installation of gas metres [sic] to the plant room”. It is not clear how Home Site came to make this payment. But it seems clear from the description of the invoice that the payment was for work that was necessary to complete the Development. The amount was paid by Home Site. In my opinion, it was recoverable from Nahas. The amount paid to Harvey Norman was for appliances for a particular unit. It seems that the order was placed on Mr Elia’s instructions. According to Mr Younan, Mr Elia asked Mr Younan to pay for the items on his credit card, which is what Mr Younan says he did. Mr Younan was not cross-examined on his evidence. Nahas submits that there is not sufficient evidence tying the invoices claimed to the appliances that were ordered because the invoice that was paid was for $10,420 whereas Mr Younan says in his affidavit that the amount paid was $9,473.00. However, the explanation for the difference is Mr Younan’s amount does not include GST. I am satisfied that Home Site is entitled to recover the $10,420.

The claims for defective work

60. So far as defects are concerned, Schedule 1 of Home Site’s list statement provides a list of costs incurred in rectifying defects claimed by Home Site which, when correctly totalled and excluding GST, comes to the amount now claimed by Home Site. Mr Younan in his affidavit evidence gives information concerning the nature of each defect, when the defect was notified to Nahas and what was done and costs incurred to rectify the defect. That evidence was supported by a schedule cross-referencing each defect to correspondence in which it was said the defect was notified. Mr Younan was not cross-examined on the evidence he gave. Many of the defects were included in a list of defects Mr Younan sent Mr Elia by email on 6 August 2012. Mr Elia responded to that email on the same day saying:

As per our site meeting on Thursday 2 August 2012 [our] resources are currently limited, thus please organize to have these items rectified on our behalf and deduct the costs from the retention monies currently held.

Nahas, of course, went into administration shortly afterwards.

61. Nahas takes issue with a number of items claimed by Home Site. I deal with them in turn.

 Item 1

62. This item is for an amount of $1,000 for the cost of repairing a vanity unit in unit 4. Nahas submits that no explanation was given for what was wrong with the vanity unit and that the invoice relied on by Mr Younan relevantly only refers to a tundish for unit 4. However, the evidence given by Mr Younan was that he observed that the vanity was incorrectly installed with significant damage to the back wall and that a new vanity had to be made and installed. He was not cross-examined on that evidence. In my opinion, there is no reason not to accept the evidence that he gave.

 Item 3

63. This item is for an amount of $1,460 and relates to the costs of re-pinning the locks to each fire door because the keys provided by Nahas did not operate any of those locks. Nahas submits that it was not a proper claim for a defect but was a design/selection issue. However, it is not apparent why that is the case. Nahas does not point to anything which suggests that the locks and keys were provided as specified. It was a defect that locks were fitted for which there were no keys. In the normal course of events that is something that Nahas would have been required to rectify by supplying the correct keys or changing the locks. In my opinion, the absence of keys was a defect for which Nahas was responsible.

 Item 4

64. This item is for an amount of $700 and relates to the replacement of missing towel rails, toilet seats and tapware. Nahas submits that it appears the relevant defects were not allegedly discovered until six months after work was complete, which is improbable, and that the relevant invoice from Harvey Norman makes no reference to the project to which the items relate. However, Mr Younan gives evidence that he identified the defects and that the work was undertaken. He was not cross-examined on that evidence. In the absence of cross-examination, there is no reason not to accept the evidence he gave.

 Item 8

65. This item is for an amount of $3,500 and relates to the cost of obtaining a report from a mechanical engineer to inspect the Development to ensure that fire dampers were installed in accordance with the design documents after some had been found missing. I accept Nahas’s submission that the costs of obtaining that report were not costs incurred in rectifying a defect.

 Item 9

66. This item is for an amount of $845.07 and relates to the cost of replacing a broken and rusted light fitting. Nahas submits that was not a defect but maintenance or alternatively covered by a warranty. However, in my opinion, the installation of a broken and rusted light fitting was a defect. The fact that Nahas may have had a warranty claim in respect of it does not mean that Home Site is unable to recover in respect of the defect.

 Items 10, 13, 19 and 25

67. These items are for a total amount of $72,000 (excl GST) ($79,200 incl GST) paid by Home Site to Combuild Australia Pty Ltd to rectify various defects identified by Mr Younan. Nahas submits that the agreement between Home Site and Combuild was not in writing, that the invoices describe the work done by Combuild as “maintenance” and that Mr Younan gives inadequate details of the work done. However, the fact that the agreement was not in writing is not critical. Mr Younan gives evidence of an oral agreement and, in the absence of any cross-examination on the subject, there is no reason not to accept that evidence. Mr Younan also gives evidence of the defects that Combuild was engaged to rectify. Again, in the absence of cross-examination, there is no reason not to accept that evidence.

 Item 12

68. This item is for an amount of $8,250 and relates to the payment of a retention amount owing to Florida Kitchens. The item is not a defect. It was a payment to a third party of an amount owing to it by Nahas. There is no evidence that it was authorised by Nahas. In those circumstances, the better view is that it is not recoverable.

 Item 14

69. This item is for an amount of $4,500 and relates to work carried out by National Fire Engineering Pty Ltd relating to defects with the diesel pump in the lower basement. Nahas submits that the invoice relied on my Mr Younan does not identify the work location or the work undertaken, other than by reference to a quotation, which was not in evidence. But once again, Mr Younan gives evidence of the work that was undertaken. He was not cross-examined on that evidence. In the absence of any cross-examination, I accept his evidence.

 Item 15

70. This item is for an amount of $1,425 and relates to the installation of a new oven in unit 33. Mr Younan gives evidence that the new oven was necessary because the oven that had been installed was not accessible. The door could not be opened because the oven had been installed too close to the refrigerator. Nahas submits that the defect is an architectural design defect because there is no evidence that it failed to construct the kitchen in accordance with the plans provided to it. However, Mr Younan gives evidence that it was a construction defect. He was not cross-examined on that evidence. Nahas does not seek to demonstrate that the kitchen was constructed in accordance with the plans. In those circumstances, I accept Mr Younan’s evidence.

 Item 16

71. This item is for an amount of $9,500 and relates to defective fire protection work. Mr Younan gives evidence that in relation to the fire shutter separator in the car park basement he observed that there was no sprinkler installed, the strobe light and heat detection device was not installed and nothing was wired and commissioned back to the fire panel. He gives evidence that National Fire was engaged to rectify those matters. Nahas takes issue with this item on the basis that the relevant invoice contains no information tying it to the Development. Again, in the absence of cross-examination, I accept Mr Younan’s evidence.

 Item 21

72. This item is for an amount of $6,279 and relates to the payment of a retention amount to IDW Design. It raises the same issues as Item 12. In my opinion, it is not recoverable by Home Site.

 Item 22

73. This item is for an amount of $8,100 and relates to the replacement of certain emergency lighting and associated work. Again, it was work undertaken by National Fire and raises similar issues to Item 16. For the reasons given in relation to that item, in my opinion, the amount claimed is recoverable.

 Item 32

74. This item is for an amount of $760 and relates to re-keying of the fire doors to the communications cupboard. The work was done in March 2013. Mr Younan does not say that the keys were not supplied originally. Having regard to the elapse of time between when the Development was completed and the locks were re-keyed, I am not satisfied that this was a defect rather than a change of locks because the keys had been lost. Consequently, I am not satisfied that this amount is recoverable.

 Item 38

75. This item is for an amount of $1,560 and relates to minor repairs in units 12, 16 and 29. Nahas submits that the work was carried out some 14 months after the property was first rectified and the defects do not appear on any list prior to 6 August 2012. However, Mr Younan gives evidence of the defects. He was not cross-examined on that evidence. In the absence of cross-examination, I accept his evidence.

The claim for minor defects

76. Nahas does not challenge the claim for $14,643.00 for minor defect rectification work during the period August 2013 to December 2015.

The claim in respect of the failed membrane

77. The claims in respect of the costs of repairing a failed membrane over the podium and the costs of repairing the defective render were the subject of expert evidence given by Mr Paul Evans on behalf of Home Site and Mr Peter Verinder on behalf of Nahas.

78. There are three issues in relation to the failed membrane. First, there is a question whether the specifications required the installation of a membrane at the podium level to prevent water penetration into the car park. It is not disputed that, if they did, the membrane is defective. Second, there is a question whether it is reasonable to rectify the defect by replacing the membrane or whether it is sufficient to install drip trays immediately below the ceiling of the car park to prevent water with dissolved salts from dripping onto cars. It is not disputed that over time, that water may cause damage to the paintwork and windshields of cars parked in the car park. Third, there is an issue concerning the costs of replacing the membrane.

79. As to the first of these issues, the relevant part of the specifications under the heading “EXTERNAL AND COMMON AREAS” provides:

•  Allow for waterproofing to all balcony slabs to underside of flashing and door openings.

•  Roof membrane to be 2 layers of touch-on [scil torch-on] membrane. Allow for 2 layers of touch-on [scil torch-on] membrane to any slabs above habitable areas. Allow for proper thermal insulation. Slabs above non-habitable areas to be liquid membrane. All membranes to Architect/Project manager approval.

80. Nahas submits that the second of the quoted bullet points only applies to the roof membrane and that there was no specification of a membrane for podium slabs above the car park. I do not agree. The bullet point is concerned with waterproofing in three areas. One is the roof. The second is all other slabs above habitable areas. The third is all other slabs above non-habitable areas. In the first two cases, the membrane must be a torch-on membrane. In the third, the membrane must be a liquid membrane. If the bullet point was only concerned with the roof, the first sentence would be unnecessary and the specification would be for a liquid membrane on the roof above non-habitable areas. That would completely change the meaning of the specification.

81. As to the second issue, Mr Verinder gave evidence that the costs of replacing the membrane would be disproportionate to the benefits that would be achieved and that a much more cost-effective solution would be the installation of drip-trays.

82. The general principle is that Home Site is entitled to have a building that meets the contractual specification unless insistence on compliance with the contractual specification was unreasonable: Bellgrove v Eldridge; (1954) 90 CLR 613; [1954] HCA 36; Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; [2009] HCA 8. In the latter case, the High Court pointed out (at [17]) that the test of unreasonableness would only be satisfied in “fairly exceptional circumstances”, such as where the party seeking rectification is “merely using a technical breach to secure an uncovenanted profit” (quoting from the decision of Oliver J in Radford v de Froberville [1977] 1 WLR 1262 at 1270).

83. In my opinion, it is not unreasonable for Home Site to replace the failed membrane. The contract specified a membrane and Mr Evans’s evidence, which I accept, is that Nahas installed a membrane, albeit defectively. The failure to provide an effective membrane was not simply a technical breach of the specifications, it caused a problem that needed to be rectified. Home Site is entitled to have that rectification work undertaken in accordance with the contractual specifications and not in accordance with some other, cheaper solution. The Owners Corporation for the Development has commenced that rectification work by replacing the failed membrane. For those reasons, the cost of replacing the failed membrane is the appropriate measure of Home Site’s loss.

84. Mr Evans estimated the cost of replacing the failed membrane to be $212,718.00. Mr Verinder estimated the cost in the joint expert report as $77,352, using a composite rate of $200/m2 applied to an area of 293 m2 and adding a builder’s margin of 20 percent and GST. Mr Evans and Mr Verinder did not discuss their alternative estimates at their joint conclave and were not in a position when giving evidence to explain why there was such a significant difference in their estimates. Mr Verinder used rates from The Cordell Housing Building Cost Guide to arrive at the rates he used. In fact, the Owners Corporation has engaged Crest Waterproofing Pty Ltd to undertake the rectification work. The evidence is that Crest Waterproofing has charged the Owners Corporation $68,320 to remediate approximately half the car park slab and to perform some incidental works to the driveway slab that connects to the podium slab. It is on that basis that Home Site estimate the total costs of rectifying the slab at $160,000.

85. I accept Mr Evans’ evidence that generally the best evidence of the costs of performing rectification work is the actual costs incurred in performing that work absent some reason for thinking that those costs are excessive. In the present case, Mr Evans expresses the view that the actual costs charged by Crest Waterproofing are reasonable. There is no reason to think that Crest Waterproofing charged an excessive amount for the work that it did. For those reasons, I accept Home Site’s estimate of the costs of replacing the membrane.

Claim in respect of the render

86. Both Mr Evans and Mr Verinder agree that the render on the exterior walls of the Development was defective, although they disagreed on the cause. The Owners Corporation engaged Specialist Height Access Pty Ltd to undertake rectification work on the render and the amount claimed by Home Site represents its charges for the work that it did. Mr Verinder gave evidence that he did not have an opinion on whether the amount charged by Special Height Access was reasonable because he had not investigated the extent of the work that it had undertaken. In the absence of any evidence that the amount charged was unreasonable, I accept the amount claimed by Home Site.

Conclusion

87. On the conclusions I have reached, there is an amount of $18,789 (excluding GST) ($20,667.90 including GST) which Home Site has claimed in respect of defects which it is not entitled to recover. However, that still leaves a claim for defects of $371,009.97 (not including further work to replace the defective membrane), which exceeds substantially the retention amount it continues to hold. On that basis, it is entitled to the relief that it seeks.

The claim based on quantum meruit

88. Having regard to the conclusions I have reached on Home Site’s primary claim, it is not strictly necessary to consider the alternative claim based on Nahas’s quantum meruit claim. However, I should say something about it in the event that I am wrong.

89. The case based on Nahas’s quantum meruit claim raises two broad questions. The first is what amount Nahas is entitled to recover on a quantum meruit basis. The second is what deductions, if any, Home Site is entitled to make from that claim.

Nahas’s claim for a quantum meruit

90. Nahas bears the onus of proving that it is entitled to a quantum meruit and the amount of that entitlement. It sought to discharge that onus by relying on evidence from Mr Colin Fox, an expert quantity surveyor, who prepared a report setting out the costs of building the Development as at September 2011. Mr Fox calculated those costs on the basis of the drawings for the Development and the variations claimed by Nahas. His cost estimates were taken from a number of sources including Rawlinson Construction Handbook, 2011 Rawlinsons Australian Construction Handbook 2011 (29th Ed, Rawlinsons Publishing), PC Sums provided in the Contract Specification, invoices from suppliers provided in variation quotations and costings for similar projects, although it is apparent that he depended heavily on Rawlinsons as a source for the estimates he made. In his report, Mr Fox concluded that the total building costs came to $17,718,844. However, following a conclave with Mr Ian Menzies, the expert quantity surveyor engaged by Home Site, Mr Fox revised his figure to $14,845,243. Mr Menzies, on the other hand, concluded that a reasonable amount for the work done by Nahas was $12,269,175 (excluding GST).

91. Nahas accepts that it is not entitled to recover on a quantum meruit basis more than the contract price. It calculates that price as $13,420,000 plus variations of $27,500 and provisional sum adjustments of $315,896.99, making a total of $13,763,396.99. However, it appears to have included the sum of $27,500 in the figure of $315,896.99, resulting in a double counting. The correct total is $13,375,897.

92. In my opinion, the approach taken by Nahas to the assessment of the amount it is entitled to recover on a quantum meruit basis was mistaken. Consistently with his instructions, Mr Fox sought to estimate the amount that another builder would have charged for undertaking the work set out in the relevant drawings. In arriving at that estimate, he took no account of the actual costs incurred by Nahas.

93. Nahas sought to justify that approach by pointing to the following statement of principle of Barrett J in Eddy Lau Constructions Pty Ltd v Transdevelopment Enterprise Pty Ltd [2004] NSWSC 273 at [70] (itself derived from statements of Deane J in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 at 257 and Meagher JA (with whom Priestley and Handley JJA agreed) in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 276-278):

It is thus clear that, in a case such as the present, the price or rate provided for in the terminated and no longer operative contract does not limit the quantum meruit sum but forms part of the evidentiary base to which regard may properly be had in fixing or arriving at that sum. I am satisfied that the referee treated the contract price as a relevant consideration in this way and that this is reflected in her report. There is no need to disrupt her findings by reference to this matter.

94. There may be a question whether the principle stated by Barrett J is applicable where the claim on a quantum meruit basis arises because the builder is prevented by legislation from recovering under the contract, although the legislation does not itself terminate the contract or render it unenforceable by the person for whose benefit the work is carried out. It seems odd in those circumstances that the builder should be entitled to recover more than the contract allows for a particular item. That point aside, Barrett J says nothing about the relevance of the actual costs of the work undertaken by the builder.

95. In Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5 at 263, Deane J stated the principles for assessing the amount recoverable for work performed under an unenforceable contract in these terms:

What the concept of monetary restitution involves is the payment of an amount which constitutes, in all the relevant circumstances, fair and just compensation for the benefit or “enrichment” actually or constructively accepted. Ordinarily, that will correspond to the fair value of the benefit provided (eg remuneration calculated at a reasonable rate for work actually done or the fair market value of materials supplied).

96. The circumstances of the present case are that Nahas entered into a contract to construct the Development in accordance with particular specifications. In order to perform its obligations under that contract it bought materials, engaged subcontractors and undertook some work itself. It is entitled to recover fair and just compensation for work it did in accordance with the specifications, as varied in accordance with the Contract. However, where, as here, materials and services were provided by third parties, that necessarily involves a consideration of the costs of those materials and services. In the normal course of events, provided the costs are reasonable, those costs, together with a reasonable margin on them, should be recoverable. Similarly, where Nahas undertook the work itself it should be entitled to recover reasonable remuneration for the work that it did. But if, for example, Nahas paid $X for the supply of windows for the project, I cannot see why it would be entitled to recover $X plus $Y for the windows because the total of those two figures represents a reasonable allowance for windows. Whether that allowance is reasonable or not, I cannot see why, in determining what is fair and just compensation for the benefit Home Site obtained, it should be required to pay more than the costs Nahas incurred plus a reasonable builder’s margin on those costs. No doubt, in some cases, it may be necessary to estimate the fair value of what is supplied because, for one reason or another, the actual costs are not available or it is not appropriate to separate out the costs for the supply of materials and labour in calculating the value of what is supplied. But that is not this case. And even if all that is not correct, I cannot see how it is reasonable to ignore altogether the actual costs incurred by Nahas in fixing fair and reasonable compensation for the benefit it provided.

96. Home Site submits that Nahas is not entitled to recover in respect of subcontractors because under cl 10.02.01.07 of the Contract Nahas was required to supply a statutory declaration advising “payment of wages, subcontracts and goods” and there is no evidence that those statutory declarations were provided or that subcontractors were paid. Accepting that that would provide a ground for preventing recovery as a quantum meruit basis, I do not accept Home Site’s submission. Home Site does not identify the subcontractors in respect of whom the evidence of payment is missing. Home Site paid progress claims made by Nahas. It may be inferred that those amounts included amounts paid to subcontractors and it may be inferred from those payments that the relevant evidence had been provided.

97. Home Site has paid Nahas $12,596,929.77 (including GST) in respect of the Development.

98. As I have said, Mr Fox, because of his instructions, made no attempt to ascertain the costs actually incurred by Nahas in completing the work except for quoted costs for variations. There is evidence that at least some of his estimated costs were substantially greater than the actual costs incurred by Nahas. It appears that Mr Menzies did have some regard to the actual costs incurred by Nahas, or the amounts charged by Nahas for the work that it did, in preparing his estimate and his assessment more closely approximates the actual costs incurred by Nahas. In those circumstances, if I had been required to do so, I would have preferred the evidence given by Mr Menzies to that given by Mr Fox. On that basis, I would have concluded that Nahas was entitled to recover no more than $12,269,175 (excluding GST) on a quantum meruit basis.

Home Site’s claims for deductions

100. Home Site contends that it is entitled to deduct from whatever amount Nahas was entitled to recover on a quantum meruit basis the amounts it paid on Nahas’s behalf, the costs of rectifying defects and liquidated damages.

101. It was not seriously suggested that Home Site was not entitled to deduct amounts that it paid on Nahas’s behalf and the costs of rectifying defects from Nahas’s quantum meruit claim. I have already dealt with those amounts. Two of the amounts I rejected as defects were the payment of retention amounts to Florida Kitchens and IDW Design of $8,250 and $6,279 respectively. In my opinion, Nahas would have to give credit to Home Site for those amounts on a quantum meruit claim because they were payments for work or materials covered by that claim.

102. In the context of Home Site’s contractual claim, I concluded that a number of payments made by Home Site to third parties should not be taken into account because they represented additional amounts that Home Site had agreed to pay in respect of variations. However, different considerations apply in the present context. The work in respect of which the claim for a quantum meruit is made includes the variations. If the value of the variations is included in the quantum meruit claim, then Home Site’s contribution to those variations must be brought to account. For that reason, Home Site should be entitled to include the total amount it has paid to third parties in calculating the payments Home Site has made in respect of the work that is the subject of the quantum meruit claim. The only exceptions are the amount of $25,718.41 paid to Castle Lighting and the amount of $10,450 paid to MYG Consulting. I concluded that Home Site was not entitled to a credit for the former amount because the evidence concerning that payment was inadequate. I concluded that Home Site was not entitled to a credit for the latter amount because I was not satisfied that it was a liability of Nahas. On that basis, the third party payments for which Home Site is entitled to a credit totals $673,064.83 (that is, $297,331.83 plus $84,559 plus $327,342.14 less $25,718.41 and less $10,450). It is also entitled to include the costs of rectifying defects, which total $371,009.97.

103. That leaves the claim for liquidated damages. Schedule O to the Contract provided that liquidated damages were payable at the rate of “$5,500 per DAY 7 DAY WEEK STARTING FROM 18 JUNE 2011”. Nahas submits that Home Site is not entitled to liquidated damages because it (Nahas) was entitled to extensions of time, with the result that it completed the work by the Date for Practical Completion (as amended by the extensions). According to Nahas, Practical Completion occurred no later than 27 September 2011. The Date for Practical Completion was 18 June 2011, with the result that there was a delay of 101 days. It claims that it was entitled to extensions of time in excess of 101 days and that consequently it was not liable to any liquidated damages.

104. Nahas’s claims for extensions of time raise two questions. The first is when Practical Completion occurred. The second is to what extensions Nahas was entitled.

105. “Practical Completion” is defined in cl 1.02.09 of the General Conditions of the Contract to mean:

The state of being substantially complete and fit for use and/or occupation by the Proprietor, all tests required under the provisions of this Agreement having been satisfactorily completed and omissions or defects being limited to items:

.01   The immediate making good of which is not practicable;

.02   the existence of which and/or the making good of which will not significantly inconvenience the Proprietor, taking into account the use or intended use of the items concerned and of the areas in which they occur; and

.03   which do not cause any legal impediment to the Proprietor’s use and/or occupation.

106. Nahas submits that Practical Completion occurred on 14 September 2011, when the strata plan was registered, or on 27 September 2011, when the occupation certificate was issued. Home Site pleaded in its List Statement that Practical Completion was reached in mid-October 2011 (Mr Markovsky says in his affidavit dated 21 July 2015 that it was 13 October 2011), when Home Site started settling on the sale of units. However, it led no evidence setting out the precise state of defects at that time and at the times contended for by Nahas. Absent any other evidence, in my opinion, it is reasonable to infer that the defects had been sufficiently rectified to achieve Practical Completion when the strata plan was registered and Home Site transferred the common property to the Owners Corporation.

107. Two issues of contractual interpretation arise in relation to the assessment of the extensions of time to which Nahas is entitled.

108. The first is whether Nahas is entitled to any extensions of time due to wet weather.

109. Clause 9.01 of the Contract permits Nahas to claim an extension of time “[i]f progress of the Works is delayed by any cause beyond the control of [Nahas] … in a manner which might reasonably be expected to result in a delay in the Works reaching Practical Completion”. If Nahas desired to make an application for an extension of time, it was required by cl 9.01 “as soon as practicable and in any event not later than twenty (20) days after the cause of delay arose [to] give notice in writing to the Architect stating the nature, the cause and, where possible, the extent of the delay”.

110. The Date for Practical Completion was stated in the Contract to be “18th day of JUNE 2011 INCLUDING SIX (6) WEEKS INCLEMENT WEATHER”. There is a question concerning what those words mean. One possibility is that they mean that the Date for Practical Completion was six weeks earlier but if there was inclement weather of six weeks then it was 18 June 2011. Another possibility is that they mean that the Date for Practical Completion was 18 June 2011 but that date included extensions of time of up to six weeks for inclement weather. Home Site contends for a third possibility – namely, that they mean that the Date for Practical Completion was 18 June 2011, that that date included an allowance of six weeks for inclement weather, and that Nahas was not entitled to any additional extensions of time for inclement weather.

111. Of the alternatives, I prefer the second interpretation. The first makes no sense. If the parties had intended the Date for Practical Completion to be six weeks earlier, they would have said so, leaving any extensions of time for inclement weather to be governed by the Contract. The third alternative bears no relationship to the words used. There is nothing in the words used from which it could be inferred that the parties had agreed that there would be no further extensions of time. In support of the third interpretation, Home Site submits that the second interpretation also makes no sense and that the interpretation for which it contends is supported by the surrounding circumstances. In particular, Home Site relies on evidence given by Mr Markovsky that he had a conversation with Mr Joe Nahas before the Date for Practical Completion was inserted in the Contract in which he said:

The date of construction commencement will be 18 February 2010, which gives you 2 months for construction documentation. If we add your construction duration of 14 months plus allow for the public and Christmas holidays, the Date for Practical Completion is around 7 May 2011. I would like you to take the risk for wet weather, because I don’t want to have arguments during the Project about delays caused by the weather. Can we add six weeks and you then take the risk for wet weather. So the Date for Practical Completion becomes 18 June 2011.

According to Mr Markovsky, Mr Nahas agreed and Mr Younan then wrote the words in the Contract specifying the Date for Practical Completion.

112. I do not accept Home Site’s submissions. In my opinion, the second interpretation makes commercial sense and there is nothing pointless about the addition of the words “including six weeks inclement weather”. The effect of what was agreed was that Nahas obtained a date for practical completion of 18 June 2011, but it bore the risk of delay caused by the first six weeks of inclement weather. The conversation between Mr Markovsky and Mr Nahas is inadmissible for the purpose for which Home Site relies on it. As Mason J explained in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCS 24 at 352:

It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself.

It is plain that Home Site seeks to rely on the conversation between Mr Markovsky and Mr Nahas for the second, and impermissible, purpose identified by Mason J.

113. It follows that Nahas was entitled to claim extensions of time for inclement weather other than for the first six weeks of inclement weather.

114. The second issue of interpretation concerns the question whether the terms of the Contract relating to extensions of time were modified by the Deed.

115. Clause 9.02 of the Contract requires Nahas to give a second notice stating a fair and reasonable time by which in its opinion the time for Practical Completion should be extended. Clause 9.03 provides that the Architect “shall as soon as practicable but not later than twenty (20) days after receiving [Nahas’s] notice pursuant to Clause 9.02 determine what, if any extension of time for Practical Completion of the Works shall be granted to [Nahas] and shall thereupon notify in writing [Nahas] accordingly”. Clause 9.04 provides that if the Architect does not provide a notice in accordance with cl 9.03 “the time for Practical Completion of the Works shall be deemed to be extended by the time stated in [Nahas’s] notice given under Clause 9.02”. Clause 5.02.02 provides that the Architect is “hereby authorised to act as the assessor, valuer or certifier” in respect of various matters including extensions of time under cl 9.03. Any dispute in relation to a decision of the Architect concerning any of the matters referred to in cl 5.02.02 may be referred “to dispute resolution under Section 13”. Section 13 of the Contract requires the party raising a dispute to serve a notice of dispute in accordance with cl 13.01. It then provides for that dispute to be referred to private negotiation. If those negotiations fail, the dispute is to be referred to arbitration or litigation following service of a further notice.

116. The Deed under the heading “Appendix” provides that the following clause is to be substituted for cl 10.14 of the Contract (dealing with liquidated damages):

If [Nahas] fails to bring the Works to Practical Completion by the Date for Practical Completion, [Nahas] must pay to [Home Site] liquidated damages at the rate stated in Item O.

117. Home Site contends that the effect of this clause in the Deed is to modify the provisions in the Contract so as to permit it to challenge claims for extensions of time, even if the Architect has failed to determine the claim within the 20 days provided for in cl 9.03. In my opinion, it does no such thing. It simply provides for the payment of liquidated damages if Practical Completion is not reached by the Date for Practical Completion. However, it leaves determination of the Date for Practical Completion to be made in accordance with the Contract, including the provisions of the Contract relating to extensions of time.

118. The next question, then, is whether Nahas was entitled to extensions of time in accordance with the Contract.

119. In all, Nahas made 29 claims for an extension of time (EOT) totalling 140 days. Two EOTs were numbered 27. One was dated 20 June 2011. It was for 3 days. The other was dated 18 August 2011. It was for one day. It will be convenient to refer to the EOT dated 18 August 2011 for one day as “EOT 29”. All but three of the EOTs related to inclement weather. EOT 13 dated 29 September 2010 (for 2 days) and EOT 14 dated 12 October 2010 (for 15 days) related to issues with drawings. EOT 22 dated 28 January 2011 (for 12 days) related to delays in the supply of aluminium frames due to floods in Queensland.

120. It is convenient to deal first with the EOTs in respect of wet weather.

121. On 9 April 2010, Nahas sent by fax to Mr Younan EOT 1 claiming three days on the basis of rain. Mr Younan replied to that email on 12 April 2010 saying “I would like to bring to your attention that any rain delays is included as part of the contract”. Mr Kocak, the Nahas project manager, responded the same day saying “We realise there is 6 weeks in our contract and I knows you guys don’t want these submitted. However I’m being told from my head office to submit progressively to keep records”. Mr Younan replied to that email in these terms:

That’s fine but I don’t understand why we need to be kept in the loop on the rainy days unless it rains nonstop for 3-4-5 weeks consecutively. There will be no discussions even if it rains more than 6 weeks throughout the duration of the project. Same in respect if it only rains less than 6 weeks through the duration of the project that risk has been included in the programme.

122. As I have said, following that correspondence, Nahas submitted further EOTs relying on inclement weather. Mr Younan says in his affidavit evidence that in respect of each of EOTs 2 to 11 and 24 he handed Nahas a document rejecting the EOT at a client or site meeting. Mr Younan denies receiving EOTs 12, 15, 16, 17, 18, 19, 20, 21 and 23. In relation to EOT 25 (for 14 days), Mr Younan sent Mr Kocak an email dated 20 May 2011 saying:

I have previously mentioned in an email that there will be no EOT’s approved under any circumstance. These EOT’s are only a record as agreed for Nahas Constructions. Furthermore the critical path is definitely not the exterior of the building. The building is almost at a lock up stage and therefore the critical path is well and truly pasted [sic] this stage.

123. In relation to EOT 26 (for 4 days), Mr Younan sent an email dated 1 June 2011 to Mr Kocak, saying “Please find attached”. It is not possible from the evidence to determine what was attached, although Mr Younan gives evidence, which seems likely, that he attached a rejection.

124. In relation to EOT 28 (for 4 days), Mr Younan sent an email dated 22 July 2011 to Mr Elia saying “Please find attached E.O.T. for your records. I must bring to your attention Extension of time can’t be claimed after the completion date for the project has past [sic]”. Again, it is not clear what was attached. Mr Younan gives evidence, which I accept, that he attached a rejection. Mr Younan sent a similar email to Mr Elia in relation to EOT 29. Again, Mr Younan gives evidence that a rejection was attached, which seems likely.

125. There is a dispute whether Mr Younan provided any rejection of EOTs at the meetings. None is in evidence. Mr Kocak and Mr Elia deny receiving them. There is no record in the minutes of the meetings that the rejections were provided. If they had been provided, it is to be expected that Mr Younan would have said something about them in his email dated 20 May 2011 to Mr Kocak. Taking those matters into account, I am not satisfied that Mr Younan provided rejections of the claims for EOTs at the meetings.

126. Mr Elia gives evidence that he sent each of the EOTs (other than EOT 29) to Home Site. That evidence is consistent with the practice he followed in relation to EOTs 1 to 11. The EOTs were important to Nahas. It is difficult to see why Mr Elia would have failed to send so many EOTs after EOT 11, particularly when it is clear that the EOTs had been prepared. On the other hand, because of the position taken by Mr Younan, the likelihood is that he would not have considered them to be important, at least for most of the project. Consequently, it is not surprising that he failed to keep a record of all of them. Although Mr Elia did not give evidence that he sent EOT 29 (he did not distinguish it from EOT 27), it is plain that it was sent. In those circumstances, I am satisfied that each of the EOTs was sent.

127. Nahas did not serve two documents as contemplated by cls 9.01 and 9.02 of the Contract. However, the documents it did serve clearly satisfied the requirements of both clauses. In my opinion, that was sufficient. Moreover, although the EOTs contained limited information, that information included the nature, cause and length of the delay. That was sufficient to comply with the requirements of the Contract.

128. On the other hand, where Mr Younan rejected a claim for an extension, Nahas never sought to challenge that rejection in accordance with the Contract. In those circumstances, in my opinion, the decision of Mr Younan was binding on the parties.

129. In relation to EOT 29 (1 day), Mr Younan sent Mr Elia an email dated 19 August 2011 rejecting the extension of time.

130. It is apparent, then, that Nahas applied for 111 days of extensions based on inclement weather. Nahas was not entitled to claim extensions of time in respect of inclement weather in the first six weeks. The Contract provided for a six day working week, so that equates to 36 days (including EOT 1 which was specifically rejected by Mr Younan). In addition, Mr Younan rejected EOTs 25, 26, 28 and 29 totalling 23 days. It is plain that Mr Younan rejected the extensions because he incorrectly believed that Nahas was not entitled to any extensions of time for inclement weather. Mr Younan’s determinations are open to challenge on that ground. Nahas was entitled to the other extensions it sought because of the operation of cl 9.04 of the Contract.

131. Both parties led expert evidence from programmers on Nahas’s claims for extensions of time. The expert engaged by Home Site, Mr Jonathan Shahady, expressed an opinion on the merits of each EOT. However, for the reasons I have given and leaving aside the first six weeks, Nahas was entitled to the extensions of time that it claimed other than in relation to EOT 25, 26, 28 and 29. According to Mr Shahady, Nahas was entitled to 14 days in respect of EOT 25, 5 work-days in relation to EOT 26 and 4 days in respect of EOT 28. He does not deal with EOT 29 (presumably because of the numbering error). On the other hand, Mr Peter, the expert engaged by Home Site, expressed the opinion that Nahas was not entitled to any of the extensions claimed in EOT 25, 26, 28 and 29 because the delayed work was not on the critical path. Mr Peter’s evidence is that by the time of EOT 25 and later EOTs the critical path was through the internal work, which was unlikely to have been affected by the weather.

123. I prefer the conclusions of Mr Peter. Mr Peter’s point about the critical path appears to be reasonable. The relevant EOTs give inadequate information from which a proper assessment of delay can be made. The onus was on Nahas to satisfy the Architect that an extension of time should be granted. In my opinion, Nahas failed to discharge that onus.

124. It follows that Nahas was entitled to extensions of 52 days due to inclement weather – that is, 111 days less 36 days and less 23 days.

125. That leaves EOTs 13, 14 and 22. Mr Younan says that he did not receive EOT 13. He rejected EOT 14 by email dated 13 October 2011 on the basis that the architects had spent more than enough time preparing the drawings. He says that he rejected EOT 22 at a monthly client meeting. EOT 13 raises similar issues to those raised by, for example, EOT 12. EOT 22 raises similar issues to those raised by, for example, EOTs 2-11. For the reasons I have already given, in my opinion, Nahas is entitled to those extensions of time.

126. In relation to EOT 14, Mr Shahady would have allowed the claimed 15 days whereas Mr Peter would not have allowed any time, on the basis that it was not a valid claim. Mr Younan relied on the fact that Nahas was responsible for the design as a ground for rejecting the claim. However, there is no evidence that the architects were within the control of Nahas. Consequently, in my opinion, Nahas was entitled to an extension of time if a delay was caused by the architects. It follows that Nahas was entitled to extensions totalling 29 days in respect of EOTs 13, 14 and 22.

127. It follows from what I have said that Nahas was entitled to extensions of 81 days, with the result that Home Site was entitled to liquidated damages at the rate of $5,500 per day for 20 days – making $110,000.

128. On the conclusions I have reached, Nahas would have been entitled to $12,269,175 (excluding GST) on a quantum meruit basis – that is, $13,496,092.50. On the other hand, Home Site has paid or is entitled to deduct from the amount it owes Nahas the following amounts:

Payments to Nahas	$12,596,929.77
Payments to third parties	$673,064.83
Costs of rectifying defects	$371,009.97
Liquidated damages	$110,000.00
Total	$13,751,004.57

138. It follows that, even on Home Site’s alternative case, Nahas is not entitled to recover any more than it has already been paid and that Home Site is entitled to the relief that it seeks.

Orders and costs

139. The parties should bring in short minutes of order to give effect to these reasons. There appears to be no reason why Nahas should not pay Home Site’s costs of the proceedings. However, if costs cannot be agreed, I will hear the parties before making any final orders concerning costs.

140. If the parties can agree on the form of the short minutes of order to be made by the Court, I will make those orders in chambers. Otherwise, the matter should be re-listed by contacting my Associate to deal with any outstanding questions.

**********

Decision last updated: 05 June 2017