In-Style Developments Pty Ltd v La - [2023] NSWDC 23

District Court

New South Wales

Medium Neutral Citation: In-Style Developments Pty Ltd v La & Anor [2023] NSWDC 23
Hearing dates: 2 February 2022, 30 - 31 January, 1, 3 February 2023, 7 February (defendants’ supplementary written submissions), 8 February 2023 (plaintiff’s supplementary written submissions)
Date of orders: 13 February 2023
Decision date: 13 February 2023
Jurisdiction: Civil
Before: Abadee DCJ
Decision:
See paragraphs 252 - 256

Catchwords:
BUILDING AND CONSTRUCTION – whether notice to rectify defective or incomplete works invalid – whether owners’ termination of contract unlawful – whether the conduct by the owners (or the architect on their behalf) prevented the builder from substantially complying with his obligations to complete – whether cap on compensation under contract excludes or modifies right to compensation for defective works supplied in breach of statutory warranties – whether costs for strip out or structural works necessary and reasonable

Legislation Cited:
Home Building Act 1989 (NSW) ss 18B, 18BA, 18G
Uniform Civil Procedure Rules 2005 (NSW) r 7.2

Cases Cited:
Benson Property Group Pty Ltd v Key Infrastructure Australia Pty Ltd [2021] VSCA 69
Hadley & Anor v Baxendale & Ors (1854) 156 ER 145
Jones v Dunkel (1959) 101 CLR 298
Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82
Turner v Co-ordinated Industries (1994) 11 BCL 202

Category: Principal judgment
Parties: In-Style Developments Pty Ltd (plaintiff/cross-defendant)
Xuan Dieu La (first defendant/cross-claimant)
Thi Minh Dang (second defendant/cross-claimant)
Representation: Mr J Frangieh (in person) for the plaintiff/cross-defendant
Mr A Hourigan (Counsel) for the defendants/cross-claimants
Sarvaas Ciappara Lawyers (Solicitors) for the defendants/cross-claimants

File Number(s): 2020/229654
Publication restriction: Nil

JUDGMENT

INTRODUCTION

The plaintiff is a construction company (the ‘builder’). The two defendants (the ‘owners’) are the owners of residential premises in Marrickville, which they purchased approximately in 1997. From about 2008, the owners engaged an architect (Tony Legge of Legge & Legge Architects) (hereafter the ‘architect’) to assist them to develop the premises. The premises comprised multiple townhouses each being three storeys with five bedrooms.
On 19 April 2016 the builder and the owners entered into a contract whereby the former agreed to supply construction services to the latter. The architect was appointed as the Building Contract Administrator. The contract price, which was adjustable, was $1,200,000 (incl GST). The date for practical completion (also adjustable) was 270 days from the commencement of the works.
Construction works were performed, but on 4 November 2019, the owners issued to the Builder a notice to rectify purported defects and complete works. On 18 December 2019, the owners purported (they say validly) to terminate the contract. The builder contends that the notice to rectify issued on 4 November 2019 was invalid. It followed, on the builder’s case, that any act by the owners terminating the contract on the basis of non-compliance with that notice, or any other complaint about delay in completion, was also invalid.
By its statement of claim (filed 6 August 2020), the builder generally brought claims in contract and restitution against the owners. However, as the proceeding progressed, the builder abandoned certain claims^[1] and the issues in dispute arising from the builder’s claim substantially narrowed. Indeed, in his closing written submissions (at paragraph 12), Mr Frangieh, who ultimately represented the builder, withdrew all claims on its behalf.
1. Paragraphs 13-18, 22-23 of the Statement of Claim
This proceeding commenced for hearing before me on 2 February 2022. However, on that date, the owners successfully applied for and obtained leave to amend their cross-claim which resulted in an adjournment. The amendments were allowed on terms that required the owners to pay the builder’s costs thrown away by the amendments to the cross-claim and the adjournment.
An amended cross-claim was filed on 3 February 2022. Directions were subsequently made providing the parties with the opportunity to serve additional evidence on issues concerning the cross-claim^[2]. In the event, only the owners served supplementary (expert) evidence.
2. Orders 1 & 2 made on 13 July 2022
The owners contend that the builder failed to complete the works by the date for practical completion. The owners bring claims for the costs of completing allegedly incomplete works left to be performed ($280,297.55), loss of rent derived from the failure to occupy the premises ($183,920); rent that the owners had to pay as a result of not being able to occupy the premises ($64,844); the cost of different types of works undertaken to rectify allegedly defective works ($70,268 and $120,235.50).
The owners also claim, in the alternative, damages for breach of the statutory warranties under s 18B of the Home Building Act 1989 (NSW) (‘HB Act’) which they contend led to ongoing and latent defects. Particulars of that claim include ‘strip out’ works ($70,268), ‘structural works’ ($120,235.50), the costs of identifying the defects and the breaches of statutory warranties and other costs. The builder does not dispute that the warranties were applicable to the works, but denies that they were breached.
In its defence to the action on the statutory warranties, the builder contended a range of special matters in opposition to the statutory claim, including: a failure by the owners to comply with their duty to mitigate loss (under s 18BA(1) of the HB Act), their unreasonable refusal to comply with their duty (under s 18BA(3) of the HB Act) to allow the builder to access the site to repair the allegedly defective work; and argued for a limitation on damages attributable to these breaches; and argued that there was conduct by the owners which severed the causal nexus between any non-compliance by the builder of its breach of warranties and the damage suffered.
In large measure, the dispute on the builder’s claim turns upon the validity of the owners’ action in terminating the contract on 18 December 2019. The owners say that they were justified in terminating the contract on account of the failure to meet the date for practical completion, which they assert was 18 March 2018; following which a notice to complete was given on 20 August 2019 and another notice was given on 4 November 2019. The builder contends that they were not so justified in terminating the contract: it invokes the so-called ‘prevention principle’ and argues that conduct of the owners precluded the builder from properly asserting that the builder was in breach. In its then Counsel’s opening address on 2 February 2022, the acts said by the builder to comprise the owners’ ‘prevention’ of the builder performing the works were:

the owners’ failure to supply certain items;

the owners’ intermittent failure to permit the builder access to the site (from 1 October 2019); and

the owners’ failure to obtain easements, which the builder contends they were obliged to obtain.

Virtually nothing was said by the builder about (c) at the hearing.

Specifically, the builder argues that having regard to the owners’ breach of an obligation to supply items (under cl N1(c) of the Contract), Mr Legge should have adjusted the date for practical completion for a longer period than he did. The builder says that Mr Legge was aware of the builder’s complaint that it was being prevented from performing the works. It says that exercising his power in an impartial and fair way, and in good faith, the architect should have extended the date for completion. Since delay was the only asserted basis for termination, (and had not subsequently been augmented by other suggested grounds) the owners’ termination in December 2019 was invalid.
The builder contends that the quantum of the owners’ claim, in so far as the damages arose from delay, was capped by a liquidated damages clause. Further, or in the alternative, the builder contends that the lost rent or out of pocket rent claims are not proven. The builder contends that the real claim in relation to incomplete or defective works was capped in accordance with a certificate issued by the architect, being $280,297.55.
The owners say that if the Court determines that they validly terminated the contract, they would not only be entitled to the sum of $280,297.55 referred to in the architect’s certificate, but also their other claims. The claims in respect to loss of expected rental income and the payment of rent related to damage that emerged only after the termination of the contract fell within the actual or presumed contemplation of the parties under Hadley v Baxendale principles. The owners also rely upon additional heads of loss for defects discovered in 2021.
The main issues, as they emerged, were:

whether the Owners validly terminated the contract on 18 December 2019. This issue leads to consideration of:

whether additional delays should have been taken into account by the architect in extending the date for practical completion;

whether, by failing to provide owner supplied items, or by other conduct, the owners prevented the builder from substantially performing its obligations including completing the works by practical completion;

If the owners did validly terminate the contract:

whether the asserted claims of loss of opportunity to receive rent and payment of additional rent due to delay are proven;

whether an award for damages for the claim for defective or incomplete works is conclusively capped by the contract;

whether the breaches of the statutory warranties asserted by the owners are otherwise proven;

the builder’s defences to the owners’ statutory claim under the HB Act, as summarised earlier;

whether there were structural defects to the premises and if so, whether they were caused by the builder.

Regrettably, there was some further delays after the adjournment was ordered on 2 February 2022 which meant that a year passed before the hearing was resumed. It is also to be noted that since the matter was before the Court on 2 February 2022, the former solicitor acting for the builder ceased (from at least November 2022) to act for him. At the resumed hearing commencing on 30 January 2023, the director and secretary of the Builder, Mr Joseph Frangieh, appeared for the builder, having filed the prescribed affidavit^[3].
3. Under r 7.2 of the Uniform Civil Procedure Rules 2005 (NSW)

THE KEY CONTRACTUAL PROVISIONS

The parties entered into a Simple Works Australian Building Industry Contract ABIC SW-2008 H NSW. The parties adverted to the following provisions in the Building Contract.
The Contract price (subject to any variations or adjustments) was $1.2 million. The time period to reach practical completion was 270 days. The contract provided 5% for cash retention. The daily rate for liquidated damages was $120.
Schedule 8 to the Building Contract was titled ‘Items to be supplied by the owner’ (for the purposes of cl N1). This schedule had been left blank by the parties. However, it was common ground that a document^[4] , which listed ‘client supply’ items satisfied the definition of ‘contract documents’ under cl N1.2. In his evidence, the architect indicated that he had compiled the list of items on the owners’ directions. He did not disagree with Mr Frangieh’s rough and ready summary that, save for the air conditioning, the contract provided that about 90% of the fixtures and fittings were to be provided by the owners.
4. which appeared at Exhibit 6, Court Book (‘CB’) 726-732
Schedule 11 to the Building Contract set out the anticipated payment schedule (subject to variations and adjustments) as follows:

1.   Deposit 10%      $120,000
2.    Slab 20%      $240,000
3.    Walls Ext 15%      $180,000
4.   Roof 15%      $180,000
5.    Linings 3%      $360,000
6.    Handover 10%   $120,000

Clause A2 delineated the obligations of the builder^[5]. These included obligations to:

comply with all instructions issued under the contract by the architect (A2.1(d)); and

bring the works to practical completion in accordance with clause M1 (cl A2.1(h)).
5. Who was formally referred to under the contract as the ‘Contractor’. For ease of reference, I use the term builder in these reasons

By cl A2.2, if the builder’s capacity to complete the works was altered to the extent that it was unable to meet its obligations, it was required to immediately inform the architect and owner in writing.
Clause A4 is titled ‘Obligations of the owner’. The builder relied upon:

cl A4.3(b), which obliged the owners to obtain from neighbouring owners all easements that were required before the works could begin;

cl A4.3(f), which provided that the owner could only issue instructions to the contractor through the architect.

Clause A6 is titled ‘Architect to administer contract’. This set out the architect’s functions. Relevantly, cl A6 provided:

“….
.2 the architect is appointed to administer this contract on behalf of the owner and the owner warrants that the architect has authority to administer this contract
.3 the architect is the owner’s agent for giving instructions to the contractor. However in acting as assessor, valuer or certifier, the architect acts independently and not as the agent of the owner.
.4 the owner must ensure that the architect, in acting as assessor, valuer or certifier, compliance with this contract and acts fairly and impartially, having regard to the interests of both the owner and contractor. The owner must not compromise the architect’s independence in acting as assessor, valuer or certifier.
.5 The architect is not the owner’s agent for giving or receiving notices under clause A8, section P and section Q.
….”

Clause A8 provided a mechanism enabling a party to dispute a certificate issued or decision made by the architect, essentially by giving 20 days’ written notice. A consequence of not giving notice (under cl A8.1) was that a party would not be entitled to dispute the matter at all.
Clause A10 provided that where the contractor or owner was entitled to compensation under the contract, once paid in full, the compensation was the “sole and complete” remedy for the contractor or owner.
Section H in the contract dealt with claims to adjust the contract. Clause HI enabled the builder to apply for a claim to adjust the contract, which required prompt notification and submission of the request to the architect. A claim to adjust was defined to include a claim to adjust the date for Practical Completion The builder relies upon the following provisions in this section:

cl H3, which obliged the architect to assess (independently – under cl A6)) the claim for adjustment.

cl H4, which obliged the architect to issue a written decision specifying any adjustment to the contract price, or any adjustments to the date of practical completion, or both, within 20 working days after receiving the relevant claim. Sub-clause H4.2 entitled the contractor to dispute the architect’s decision (or failure to issue a decision issued under this clause) in accordance with clause A8, but in accordance with clause P1, but continue to perform its contractual obligations.

cl H6 contemplated that if the contractor had not made a claim to adjust the contract following a change resulting from a variation (or from delay), the architect may (unilaterally) adjust the date for Practical Completion at any time up until issue of the final certificate (under cl N11) or a certificate issued under cl Q9 or Q17. This, the builder’s then Counsel submitted, was not a power exercisable at the architect’s absolute discretion.

Section L provided for adjustment of time. This section of the Building Contract was structured into the situations where causes of delay entitled such a claim either with or without costs. In summary:

Clause L1.1 listed as circumstances in which the builder may claim adjustment on time as being delay caused by: (b) the owner’s failing to give possession of the site (in accordance with cl F1); (e) a dispute with a nearby owner or occupier; and (i) a breach of the building contract by the owner.

Clause L1.2 provided that the builder must take all reasonable steps to minimise the impact of delay on the progress of the works.

Clause L3 indicated that where the works were delayed (relevantly) by any of the causes in cl L.1, the builder was obliged to notify the architect in writing, within 2 days of becoming aware of the start or end of the delay.

Under cl L4.1 the builder gave a warranty that the number of working days it allowed to completion included a reasonable allowance for delay to weather conditions or the effect thereof. (In this case, 10 working days was provided).

Clause M1 is titled ‘Practical Completion’. The builder was obliged to bring works to practical completion by the date for practical completion shown in item 22 of schedule 1, as adjusted in accordance with the Contract. Item 22 listed the date (incompletely) as 270 days.
Clause M9 is titled ‘Liquidated damages may be payable’. It provided:

“.1 If the works have not reach practical completion by the date for practical completion as adjusted, the architect must promptly notify the contractor and the owner in writing of the owner’s entitlement to liquidated damages.
.2 up to 20 working days after the issue of the notice of practical completion, the owner may notify the architect in writing whether it will enforce its entitlement to liquidated damages against the contractor.
.3 the contractor is liable to pay or allow to the owner liquidated damages at the rate shown in item 24 of schedule 1.”

Section N in the Contract is headed ‘Payment for the works’. Clause N1 is titled ‘Contract Price’. Relevantly, cl N1(c) stipulated that items in schedule 8 to the Contract were to be supplied by the owner and installed by the builder. As indicated, it was common ground that the ‘owner items’ appeared in an annexure to the architect, Mr Legge’s affidavit (CB 726-732). Other provisions in this section which the builder relied upon were:

cl N13, which stipulated that the amount certified by the architect was obliged to be paid within a certain period after delivery of the certificate.

cl N14, which indicated that the final certificate must state the architect’s assessment of “all outstanding entitlements”. This was evidence of the parties’ entitlements under the contract and that the contractor had performed its obligations, subject to any disputed matter (under section P).

Section P generally provided modes of alternative dispute resolution. But an important provision was cl P1, whereby even whether disputes arose, parties were obliged to continue to perform their obligations. Where they arose, however, cll P2 and P3 provided sequential forms of dispute resolution, being a compulsory conference (akin to conciliation), and mediation. Cl P4 suggested that section P did not derogate from the parties’ recourse to the courts where disputes arose under the HB Act.
Section Q provided for the circumstances of termination of the Building Contract. In particular, cl Q1 provided that:

“.1 if the contractor fails to meet a substantial obligation under this contract, the owner may give the contractor a written notice requiring the contractor to remedy the default within 10 working days. The notice must specify default, and state that it is given under this clause.
.2 If the default is not remedied, or the contractor fails to show reasonable cause white cannot be remedied within 10 working days, or such additional days as agreed with the architect, the owner may terminate the engagement of the contractor by giving the contractor a written notice of termination.
.3 the notice of termination must state that it is given under this clause and a copy must be given to the architect.”

It was submitted for the builder that by this provision, for a notice of default to be properly issued, it was necessary to show that it had failed to meet a substantial obligation under the contract. Once such a notice was served, the right to terminate only arose if “the default is not remedied”. In his opening submissions (MFI 2), the former Counsel for the builder submitted that it was implied in cl Q1.2 that the owners must afford the builder the opportunity to remedy the alleged default within 10 business days (or such other period as the parties agreed with the architect).
Clause Q8 provided that upon termination of the Contract (under cll Q1 or Q2), the architect had to promptly make written assessment of the cost to the owner of completing the works and issue both the builder and owner a copy of that assessment.
The amount was to be certified under cl Q9, a provision which set out the methodology for the assessment. In particular, under cl Q9.7, if a certificate was issued under cl Q9, it took the place of a final certificate under cl N11 and cl C7 applied.

FACTUAL BACKGROUND

Caveats

In accordance with usual practice, both parties supplied written chronologies and, consistently also with the Court’s practice, the plaintiff’s chronology was to be treated as evidence in the plaintiff’s case^[6]. However, the chronology which Mr Frangieh handed to the Court (Exhibit A) went well beyond the conventional expectation of a neutral citation of material events and strayed into partisan argument and, according to the owners’ Counsel, was inaccurate in certain respects as to what was conveyed about the evidence. Further, it appeared that it referred to events which had not previously been the subject of the evidence from the parties; which meant that reliance upon it by the Court was apt to instil a lack of procedural fairness to the owners. At any rate, the chronology was unreliable.
6. Practice Note DC (Civil) No.1, Schedule 1, par 2
Some of the matters referred to in Mr Frangieh’s affidavits, although formally admitted, also concerned matters which, in subject matter at least (as distinct from how it bore on his credit) were of tangential or minimal relevance; having regard to issues which no longer arose; especially in light of Mr Frangieh’s withdrawal of claims. A not insignificant amount of time was taken up at the hearing dealing with cross-examination of whether the builder had unpaid variation claims.
A further difficulty, stemming at least partly from the builder not being legally represented at the hearing, was the cross-examination of the main witness for the owners – Mr Legge, the architect – which was often interrupted by complaints that the questions contained unproven premises and often it was necessary to clarify that the questions were only based upon assumptions. But as I explained to Mr Frangieh during the hearing, answers by Mr Legge that were based on questions featuring such assumptions could only have weight if the assumptions were proven by other evidence. For reasons to be elaborated, on the real issues in dispute, the evidence – represented by Mr Frangieh’s two affidavits and the exhibits to those affidavits (respectively) – did not necessarily prove those assumptions. Similarly, when Mr Frangieh challenged parts of the expert evidence of Dr ElTantawy, he did so by reference to matters which had not been the subject of evidence when pre-trial directions were directed to ensuring that the evidence in chief of witnesses was to be by way of affidavit or witness statement. In particular, and as noted elsewhere, when directions were made last year after the adjournment, they included provision for the builder to adduce evidence in response to what turned out to be Dr ElTantawy’s report; but the builder did not serve any lay or expert evidence responsive to Dr ElTantawy’s report.
I will now proceed to narrate what I regard as the material events in the proceeding relevant to the issues to be adjudicated and where there is dispute about them, setting out the relevant evidence. In doing so, given the voluminous nature of the Court book (approaching 2,000 pages) the Court heavily relied upon the events being brought to the Court’s attention by the parties, either in submissions or indirectly through the evidence of witnesses.

The narrative

After purchasing the subject property in 1997, the owners engaged the architect. Between 2012 and 2014, the architect assisted the owners with a development application, which was approved in May 2015.
The owners’ building contract with the builder was entered into on 19 April 2016. Mr Legge was appointed as building administrator to this contract.
From April to October 2016, the builder undertook preparatory works to obtain a construction certificate. This included the demolition of the previous dwelling at the property and the obtaining of home owners warranty insurance.
In May 2016, the deposit (and progress payment 1) was paid; or, alternatively, there is no remaining issue that the builder has any continuing claim against the owners for such deposit. This was for the sum of $120,000.
On 26 September 2016, the construction certificate was issued. On 10 October 2016, building works commenced.

The s 96 application

On 28 November 2016, an application for modification of the works was submitted to the Inner West Council regarding expansion of top level space and function. Council approved the modification application on 5 June 2017. Under cross-examination, the architect identified the Special Conditions (schedule 2) of the Building Contract as indicating that the contract accommodated the application.

Problems with the soil

In November and December 2016, issues arose about soil composition. Mr Vicktor Mateffy, Director of the MPN Group, confirmed his discussion with the architect that foundation soil needed to be approved for a 200kPa safe bearing capacity, with the soils possibly being needed to be recompacted. Otherwise a blinding layer of site concrete may be required. At any rate, he advised that a geotechnical engineer should inspect and advise. On 8 December 2016, the architect emailed Andrew La, (son of the owners) reporting on this and indicating that he had arranged for Morrow Geotech to carry out a site inspection. Under cross-examination, the architect agreed that this was a serious issue which had (appropriately) been identified by the builder’s foreman. The architect went on in his email to report that Mr Mateffy needed to amend his drawings and that ‘Andrew’, on behalf of the builder, had obtained a quote from an excavation company to hand excavate the piers. The architect regarded the quote as excessive but ‘Andrew’ had arranged for a quote to have a machine drill the piers at a much cheaper price ($30,000 as against $55,000).
Piles were required and there was also an amendment of a foundation slab. In early February 2017, concrete slabs were poured at the property. The builder issued a variation (for $32,340). In cross-examining the architect, Mr Frangieh raised with him whether or not it was unfair for the architect not to have issued an extension of time because of delays. Mr Legge responded that the builder needed to make delay claims. That had not occurred in that instance.
On 15 February 2017, a progress payment certificate ($223,727.40) was issued by the architect. Progress payment (2) was paid two days later. Mr Frangieh appeared critical of the processing of the claim in respect to work which he regarded as having been completed three weeks before. But the architect explained that the process which saw progress payments usually paid 5 days after submission required the provision of documentation that the architect needed to assess, and possibly adjust (upwards or downwards) before a certificate was issued.
On 22 March 2017, Mr Frangieh emailed the architect to check whether the wall claim had been processed. After midday that day, the architect indicated that his assistant, Jim, would process the claim that day, however, the architect still required the design certificate from the engineer for the changes. After a further message from Mr Frangieh, the architect sent an email (12:43pm) confirming that he had no issue with the claim and saying that the frame inspection was very good. He suggested that technically, there needed to be a variation to note a change from the steel bracing structure in the MPN drawings to timber. The architect repeated that he needed a design certificate and drawing from a structural engineer, which was GMB at the time. In his evidence, the architect confirmed receiving such design certificate and drawing.
On 24 March 2017, progress payment 3 certificate ($181,483.64) was issued by the architect, although an amended certificate ($161,676.04) was issued on 6 April 2017.

Delay claims in 2017

On 30 March 2017, through an email by Andrew Pedzik, the builder submitted a payment claim to the architect including, amongst other things, a claim for delay in practical completion of the works, being 28 days, due to interference of the works by weather. After a period of some delay in response by the architect to that email, on 1 August 2017, Mr Pedzik sent a follow up email.
Mr Pedzic asked the architect to treat these claims as additional to the delay claim made on 30 March 2017. Totalling the days up, Mr Pedzik asserted that there had been a total of 172 working days of delays ‘due to no fault or reason’ of the builder.
On 29 and 30 March 2017, Jim Nguyen, an employee of the architect, had email exchanges with Andrew Pedzik, on the s 96 modification application. Mr Pedzik had asserted that the builder could not start building the next level of floor joists as the s 96 works would need to be built differently. Mr Nguyen sent Mr Pedzik a letter from the Council. This prompted Mr Pedzik to reiterate that the builder could not start the floor system until the builder knew what was happening with the ‘balcony approvals’. Less than 10 minutes on from that email, Mr Frangieh sent an internal email to Mr Pedzik (copied to the architect and Andrew La) asserting that these delays should mean that the ‘clock stops’ on construction days.
Mr Frangieh took the architect to these email exchanges and asked him whether the architect had supported that last assertion in his own communications with the owners. He insinuated that it was not fair to the builder if he had not done so. The architect said that it was clear that the architect was already a recipient to Mr Frangieh’s internal email to Andrew. He explained that he was under the understanding that other works were still happening and that it was only on 30 March 2017 that he became aware of the issue raised.
On 1 August 2017, Mr Pedzik notified the architect of a further claim (or claims) for delay to the works, being:

96 working days, said to result from the owners’ application to the Inner West Council to modify the development application; and

48 working days, in relation to missing information required for windows.

Later on 1 August 2017, at 5:24pm, the architect emailed Mr Pedzik acknowledging that there was a legitimate claim for delays, but identified certain issues requiring further information to enable him to make an assessment. At 6:00pm, Mr Frangieh sent an email to the architect with the intention of supplying answers to the issues raised by the architect.

The architect’s adjudication of the delay claims

Progress Payment Certificates 4 & 5 were issued on 7 July 2017 ($65,209.27) and 13 September 2017 ($106,785.10), respectively. The latter certificate approved a claim for delay, but only for 47 days. This surprised, or perhaps disappointed the builder. In his second affidavit, Mr Frangieh deposed (at paragraphs 20-21) that through the course of their working relationship, the builder and owners had dealt with each other in an informal manner, with much of the communications being either in person or over the phone, between the architect and himself or Mr Pedzik. He also deposed that the informal nature of this relationship and the architect’s personal awareness of the works meant that the builder had refrained from bringing formal applications for extension of the date for completion, effectively, on the assumed basis that informal discussions would be taken into consideration.
In response to the payment certificate of 13 September 2017, Mr Frangieh sent an email to the architect on that day, at 2:30pm, in which he complained about the timing for payment and asserted that the architect had intentionally ignored a variation claim.
A Progress payment certificate ($302,541.92) was issued on 6 March 2018. This was the last of the progress claims determined by the architect to be payable. In all, the architect allowed further total variations in the sum of $76,994.40.
On 30 August 2017, the builder made an ‘Extras claim’ in the sum of $52,712 (incl GST). It was put to Mr Frangieh that the components described as “Fence hire, Over hire on skip bin, Toilet Hire and Section 96 roofing and rear window works” were paid. Mr Frangieh appeared to dispute this but his evidence on the point (T30-31) was unconvincing and I preferred the architect’s evidence (paragraph 35(a) of his first affidavit) explaining that the invoice had been partly paid as part of progress claim 5.

The architect’s concern about lack of progress: October 2017 – March 2018

The architect deposed in his first affidavit (paragraph 37) to being increasingly concerned between October 2017 and January 2018 about the works not being progressed sufficiently fast.
On 24 January 2018, at 1:26pm, the architect sent Mr Pedzik an email seeking direction on a range of matters and asking for a site inspection. Mr Pedzik (who identified himself in email correspondence only by his first name, whilst indicating that he was a sales manager) responded by email (at 1:38pm) the same day^[7]. He concluded his email by stating that the builder was ‘hitting the home straight now’, whilst asking the owners to ensure that they have all the required items they were supplying in place so the works could be wrapped up. The builder later submitted that ‘owner items’ were requested in Andrew’s email of 24 January 2018 but I am unable to find any such express request for items in that particular email. A potential qualification was an expectation that the owners would provide the ‘AFS certificate’ (being responsive to item 8 in the architect’s email earlier in the day). Nor was any implied: the purpose of Andrew’s email was to provide reassurance to the architect.
7. Exhibit 6 (CB 1349)
On 7 February 2018 at 8:24am, Mr Pedzik sent another email, chasing a response to the email he had sent the architect on 24 January (at 1:38pm), and requesting processing of the claims that had earlier been sent. Mr Pedzik asserted that the electrician had not been paid for the extra work invoices Mr Pedzik had previously emailed to the architect. When he gave evidence, the architect indicated that he did not know what Mr Pedzik was talking about
On 6 March 2018, the architect emailed Mr Pedzik and Huy La following a telephone conversation with the former. A site meeting was to occur the following day. He estimated that the electrical works were 95% complete, whilst noting that lighting was to be supplied by the owners. He estimated that the builder was about 5 or 6 weeks away from completing the works.
But by 26 March 2018, the architect deposed to being concerned about the progress of the works and had a conversation, this time, to a person named ‘Anthony’. At 7:47am, the architect sent an email to Anthony, which was copied to Mr Frangieh; which set out a detailed list of works that needed to be carried out to complete the project. Mr Frangieh saw this and at 5:15pm on the same day, asserted to the architect, without any elaboration, that there must be some sort of mistake and asking him, if the architect regarded this as within the scope of the works and to advise him about the remaining amounts to be paid.

The architect’s attempts to progress the works: April – July 2018

The architect deposed that for the next three weeks, the builder took no steps to further construction. On 16 April 2018, the architect sent an email to Anthony; asserting that minimal work was occurring and demanding answers that day about when the project would be completed to practical completion as well as estimated dates for completion of the list of works identified in his 26 March 2018 email. On 18 April 2018, the architect inspected the site. He deposed in his affidavit that there had not been progression of the works. On that day, the architect emailed Mr Frangieh regarding the completion of works. They had an exchange of emails and debated whether the internal lining stage was completed. Over the next few days, there were further emails concerning Mr Frangieh’s query about amounts allocated for specific works.
On 25 April 2018, the architect sent another email to the builder regarding works to be completed. He made it clear that the items identified as needing to be completed was not comprehensive but those items needed to be completed as quickly as possible. He sought an update from the builder as to delivery dates and the date for the owners to deliver tiles and PC items.
On 10 June 2018, there was a further site inspection by the architect. On 13 June 2018, the architect emailed Mr Pedzik about works to be completed. This latter email raised safety issues as well as commenting that the site was not water tight, since water damage had occurred in various areas; and that the mechanical plant had not been properly installed. He stated that flashing needed to be installed asap. In the email, the architect asserted that the incomplete works were resulting in damage to completed works. He referred to mentioning to ‘Andrew’ that the water damaged plasterboard needed to be removed. In his first affidavit, the architect deposed that construction had not been completed in the 5 weeks after 18 April and the property had still been left in the state where the townhouses were not water tight and were susceptible to on-going damage.
On 20 June 2018, and 27 July 2018, there were further site inspections by the architect; in both cases, followed by emails from the architect to the builder about the works to be completed. In the former email, the architect questioned the builder’s motivation to complete the works.
On 5 July 2018, the architect emailed Mr (Joseph) Frangieh, in which he referred to his on-site meeting with Ray Frangieh. The architect had complimented Ray as having moved the site forward to a point where practical completion should be achieved by the end of August 2018. The architect believed, at that point, that the building was now ‘water tight’, and the window secured, so rain was not blowing into the stairs. Mould-effected plasterboard had been replaced. He alluded to Ray Frangieh having outlined a program for the next 2 weeks. The architect was taken to this email in cross-examination and acknowledged that, by this date, he was hopeful that with Ray Frangieh’s involvement, the work would progress. He also said that, at this point, flashings had not leaked; and that leaking occurred only later when there was penetration of air conditioning.
On 31 July 2018, following the site inspection four days before, the architect emailed Mr Pedzik, summarising a long list of items that had been discussed. The email also alluded to the need to address long-standing issues regarding the neighbours.

The notice for practical completion

On 29 August 2018, at 11:10am, the architect emailed a notice, to Mr Pedzik, Ray and Joseph Frangieh, purportedly with reference to cl M1 of the Building Contract and appointing 10 October 2018 as the date for Practical Completion (being 6 weeks’ time, to that point). The notice set out a long list of items (75 in number) that were asserted to have remained incomplete and also stipulated certain pre-practical completion requirements.

On 28 September 2018 and 3 October 2018, respectively, the architect sent further emails (again to Mr Pedzik and both Frangiehs) requesting information about the works to be completed. In his email of 28 September 2018, the architect expressed concern about the services or utilities connections being outstanding and requested an update on when the connections would be installed. His email of 3 October 2018 was a follow up request for that information.
On 16 November 2018, Mr Pedzik sent an email to the architect, providing an update about certain works that were booked over the coming weeks and predicting that after these works were complete, it was all to be ‘bits and pieces’ following which the job would likely be finished. But the architect deposed in his affidavit that notwithstanding what Mr Pedzik had said, the builder did not undertake the matters Mr Pedzik had indicated would be undertaken.
On 21 November 2018, the architect on-sent, by email, to the owners an email the architect had received from Mr Raymond Frangieh. The latter had notified the architect that an electrician had wanted to start installing the boards and required information. In the architect’s email to the owners (which was copied to Mr Joseph Frangieh), the architect asked the owners to provide the information requested by the electrician. Further, the architect advised them that they needed to follow up the gas and water connections with the plumber; adding that “Joseph provided this information weeks ago!”
In cross-examination, it was put to the architect, but he disputed, that by the end of 2018, he had lost interest in the site and had left the builder to deal with the owners.
On 26 and 27 March 2019, there was an email exchange between Ray Frangieh and the architect (with Andrew and Huy La copied in). On 26 March, Ray Frangieh emailed the architect to complain that he had received no contact in response to his request to ‘organise the fit off materials such as power points, switches and downlights’ in view of the circumstance that his electrician wanted to start fitting off later in the week, or early next week. On 27 March, the architect asked for a building program (with dates for delivery), indicating that he had been asking for months. He added that the joinery and ‘all the client supplied items are ready for delivery’ and asked ‘just give us the date’. He emphasised the need for a program since he was busy and could not answer every call. In cross-examination, Joseph Frangieh said that the builder could only provide a building program if it received the supply of items it needed from the owner. It was put to Mr Frangieh, but he disputed, that from March 2018, there had been no substantial progress to the works.
Mr Frangieh put to the architect in cross-examination, but the architect disputed, that by late March 2019, the structure of the house had been built, with the only works to be completed being the owners’ responsibility.
On 28 March 2019 at 10:23pm, the architect emailed Mr Pedzik, identifying issues that needed to be addressed, including joinery for power outlets and the need for the electrician and plumber to attend when vanity units were installed. The architect then set out a list of incomplete works and emphasised that water penetration from incomplete works was causing damage and further delays. Later that same evening, Mr Frangieh emailed Mr Pedzik to allocate the next week to remedy the items in that list.

The warning the owners might seek delay damages

On 6 May 2019 at 1:11pm, Mr Frangieh sent an email to the architect, in which he took issue with the calculation of payments. It emerged from cross-examination, that this was attributable to a continued sense of grievance in Mr Frangieh about the architect’s adjudication of a claim made back in in August 2017. At any rate, the architect supplied an explanation in response (at 2:21pm). The tone of the email was one of exasperation. After explaining the operation of the contract in terms of payment claims, the architect rejected claims for delay beyond what he had approved. He wrote the following about the state of the works:

“The windows and doors are still not complete the townhouses are not locked up and the site is not water tight. There are numerous defects and incomplete works. The project is now three years old. The works on site had been at a standstill for months. The completed work, in particular the timber flooring and plasterboard linings are being damaged by water penetration because of the delays in completing the drainage works. The site is not secured and is not safe. I’ve issued multiple emails advising that the balconies have no handrail, that the site fences are falling over and not secured.”

Ominously (for the builder), the architect went on to state:

“In addition you are on notice that Liquidation (sic) damages are being sought by the owners for all the delays. They have additional interest on their construction loan, rent for their alternative accommodation and additional fees for consultants to prepare reports on defective work and extension of the contract. The construction period was for 270 days. The owners paid Instyle delay costs for the Section 96 approval delays. However the construction period is now three years. The delays all sit with Instyle and a lack of attention provided to this project.”

When asked about the architect’s email, Mr Frangieh accepted that it was from about 6 May 2019, when the architect had raised the prospect of the owners claiming liquidated damages, that he sensed that a dispute was brewing.
On 6 May 2019, Andrew Pedzik emailed the architect an update on progress on the works. He indicated that the ‘tiler, silicon and door guys’ were ‘lined up’. He also indicated that a Sydney Water supervisor would need to inspect some works affecting the water main and noted that part of those works fell outside the scope of the contractual works. He provided an estimate that the job might be completed within 4 weeks and finished by predicting that the ‘end is near’.
Mr Frangieh deposed in his second affidavit to his exchanging various text messages with the owner, Andrew La, regarding the works, in the period from 31 May 2019 to a date (2 December 2019) which was close to the owners’ notice of termination. However, when in cross-examination, Mr Frangieh doubted whether they may have been sent in 2018 and corrected himself by indicating that they were texts between Mr Pedzik and the architect. At least in the selection of texts annexed to the affidavit, it is apparent that in most cases, there was no response. The texts attached to that affidavit may be summarised as follows:

on 31 May, Mr Frangieh pressed Andrew La for when the flooring would be on site;

on 24 and 26 September, Mr Frangieh inquired of Andrew La whether there other items he wanted him (Mr Frangieh) to negotiate a cheap price with the ‘guy for the vanities and stone’; and offered Mr La the opportunity to meet with that man;

on 14 November, Mr Frangieh indicated that he needed the middle of the three units to be opened, and that this was holding up his workers onsite;

on 2 December, Mr Frangieh inquired of Andrew what extra work did the latter pay the electrician for.

The builder identifies certain issues – middle of 2019

On 17 July 2019, Mr Pedzik emailed the architect, indicating that works were almost complete. But Mr Pedzik set out in the email what he called issues with Andrew La. Mr Pedzik complained that Andrew was not paying the plumber for connection works outside the boundary (which the builder considered went beyond the scope of the builder’s works), prompting the plumber to not return to the job and complete the works.
The architect was asked about this email in cross-examination. He believed that contrary to the builder’s belief, the civil drawings, which established connections between the pits to the stormwater, were such that the builder was responsible for the connection works outside of the boundary. Nevertheless, on the assumption that what Mr Pedzik wrote in the second paragraph of the email was correct, he agreed that the builder could not progress the works without the owner’s assistance in the context described in that paragraph.
Mr Pedzik’s email of 17 July also included an assertion that the owner’s kitchen contractor had complained to Mr Pedzik about not being able to contact the owner and not being paid, so he could not finish off the work. Mr Pedzik referred to Andrew La complaining about being overcharged. Nevertheless, despite such issues, towards the end of the email Mr Pedzik represented that the works would be completed soon: if the issues he had identified had not been completed the builder would ‘work around them and complete our scope anyway’.
Separately, in response to this correspondence, the architect deposed to his belief that it was the builder’s responsibility to pay subcontractors other than in limited instances and opined the matter raised in the correspondence did not absolve the builder from delay experienced over the preceding two and a half years.

The architect starts preparing defective works reports

A site inspection by the architect occurred on 1 August 2019. On the same day, the architect prepared a ‘Defective, Incomplete and Necessary Work Report’^[8] which was later annexed to the cl M11 notice referred to immediately below. The document (in small font) ran to 19 pages detailing complaints in different categories: the Public Domain, the Building Exterior, and each of the three Townhouses and the First Floor.
8. Exhibit 6, CB 1556-1574
On 20 August 2019, the owners issued a notice to the builder about defective or incomplete work, purportedly under cl M11 of the Building Contract. The notice was signed by the architect. The document was expressed in the following terms:

“In accordance with clause M11, you are instructed to correct * defects or finalise incomplete work within 10 days as agreed. The time is not agreed, then you must correct * defects or finalise incomplete work within 10 * working days or receipt of this notice. The details of the incomplete work or *defects are detailed in the attached Schedule:
Defective, Incomplete and Necessary Work Report – 20/08/2019
Based on Site Inspection 1 August 2019.”

It is not disputed that the cl M11 notice was not complied with. On 22 August 2019, Andrew Pedzik sent an email to the architect. Mr Pedzik conveyed that he had spoken to the (apparently owners’) ‘kitchen guy’ who had informed Mr Pedzik that he had been chasing payment from one of the owners, Andrew La for 9 weeks and would not return until paid. He mentioned also that the plumber who was waiting to be paid. Mr Pedzik concluded his message by informing the architect that his email was for the architect’s records only and was not to be sent to the owner.
In cross-examination, the architect admitted that on the assumption that what Mr Pedzik wrote was correct and the requests from sub-contractors had not been met by the owners, it would be difficult to get the builder to the stage of practical completion.
On 8 September 2019, Mr Pedzik sent another email to the architect. In this message, he informed the architect that he had been ‘chasing’ the owners for PC items, vanities and kitchen benchtops but had still not received a reply. He conveyed that the builder was ‘close to finishing the job now’. In his first affidavit, the architect deposed that this assertion was incorrect. The architect deposed in his affidavit to his disagreement with what Mr Pedzik had characterised as ‘progress’. He believed that not much progress had been made since the service of the M1 notice. However, in cross-examination, he agreed that on the assumption that what Mr Pedzik wrote was correct, it would again be difficult for the builders to get to the stage of practical completion.
At 8:25am on 1 October 2019, the architect emailed to the builder a Notice of Termination purportedly under cl Q1 of the Building Contract. The attached notice also indicated that the owners took possession of the site. At 8:34am on the same day, Andrew Pedzik sent an email to the architect in which he rejected the notice of termination. In the email, Mr Pedzik referred the architects to recent discussions he was having with the owner, Andrew La, about arranging a kitchen guy to get stone benchtops and vanities sorted out. Ultimately nothing came of the notice of termination served on that day.
On 29 October 2019, the architect conducted another site inspection. The same day, the architect issued another report setting out defective and incomplete work.
It is common ground that Practical Completion was never reached, for which result the builder and owners blame each other.

Notice to remedy default and the dispute about its validity: November 2019

On 4 November 2019, through their solicitors, the owners issued to the builder’s solicitors (copying the builder) a Notice of defective or incomplete works, purportedly under cl Q1 of the Building Contract. The Notice was materially expressed in the following terms:

“We are instructed that Instyle has failed to meet their substantial obligations under the Contract, including the failure to complete the works prior to the date of practical completion and the failure to remedy the defective and incomplete works as listed in our client’s M11 notice dated 20 August 2019.
In accordance with clause Q1 of the Contract, Instyle is hereby put on notice that Instyle is required to remedy the default within 10 working days. The items that are defective, incomplete or necessary that require remedy are set out in the enclosed report and our client expects all items to be rectified.
Please make arrangements with our clients to gain access to the property for the purposes of remedying Instyle’s default under the Contract.
Our client reserves all their of their rights.”

The next day, the builder’s solicitors wrote a response to the Q1 notice, in which it was asserted that the delays were predominantly the result of the owners’ conduct and that of the architect. They also explained that the 10 day period given to rectify was unlikely to be enough and cited that extensive parts of the works were being arranged by the owners themselves. The letter also sought confirmation as to when the builder could return to the property to recommence the works. A response was invited by close of business that day.
No response had been received by the owners’ solicitors, as requested, so on 6 November 2019, the builder’s solicitor sent a further letter. Reference was made to provisions in the contract regarding the builder’s access to the property and a statement was made about the builder’s readiness and willingness to complete. This letter did prompt the owners’ solicitors to respond, also on 6 November. The letter contained a denial of the assertion that the owners were depriving the builder of the opportunity to attend to the matters referred to in the recent notice. Another assertion was made that subcontractors had removed certain items from the property and a demand was made for their return. Other assertions made about previous delays or cooperation were denied.
At 7:26am on 6 November 2019, Mr Pedzik emailed the architect (and the owner Vu La) asking for a time to be met onsite so as to enable the builder to prepare and arrange to complete the works. At 5:33pm on 7 November 2019, the owner, Andrew La, responded to that email (copying in Mr Frangieh) by proposing an onsite meeting either the next day (a Friday) or the next business day after that and alternatively invited the builder to nominate a date.
Meanwhile, on 7 November 2019, the builder’s solicitors wrote in response to the letter of 6 November 2019 of the owners’ solicitors. The solicitors maintained their position about the owners’ precluding the builder from completing the project, citing a recent written request (15 October) to the architect for an onsite meeting and asserting unanswered telephone calls to the owners and the architect.
In his second affidavit, Mr Frangieh deposed (paragraph 26) to the builder’s endeavours to complete the works being held up by the owners’ failure to provide information relating to power connection to the subject property. In Exhibit C, certain emails on this subject with the architect (and at least one email with Stuart Johnson of BSE True Partners) were included. In summary:

on 17 November 2019, Deo Sharma of ‘Dr Connect’ required information from the builder to enable him to connect power to the main. The builder on-sent that request to the architect and owners; indicating that delay was holding the whole job up;

on 21 November 2019, Mr Sharma also requested from the builder a dispensation later to be provided to Ausgrid for a single pole. This was passed on to the architect, who communicated with Stuart Johnson of BSE True Partners. Issues remained up to 27 November, when Mr Johnson was requesting further information.

In the course of cross-examining Mr Legge, Mr Frangieh raised certain general questions about the responsibility of the owners’ to supply items under this building contract. Mr Legge did not regard that obligation as unusual. It was suggested, hypothetically, that if a single owners’ item had not been supplied and that this had prevented practical completion, than the builder could not be responsible. Mr Legge regarded that view as being too narrow, treating the non-delivery of an item in isolation. He stated (as he had earlier deposed in his main affidavit) further that fundamentally, practical completion did not arise in this case due to fundamental defects and incompleteness in the works. He selected the example that an owner could not supply electrical items if the property was not water tight but was rather leaking. It was not appropriate to simply defer repair of fundamental defects to the defects liability period. Mr Legge maintained that throughout the administration of the contract he had repeatedly issued notices detailing the steps that the builder needed to take and, where the builder had suggested that steps needed to be taken by the owners, asked for programs.
On 3 December 2019, the architect conducted another site inspection and, on the same day, issued another report of defective or incomplete works.
In his second affidavit, Mr Frangieh also deposed that on or about 9 December 2019, he had learnt (from Mr Germanos) of electrical works being held up, apparently because of the owners not providing the ‘owner items’. Mr Germanos emailed the builder on that day explaining that he was having trouble completing the job due to not having all the PC items and stating that a list of what was needed had been given to the owner a while ago. Although things had been dropped off, not all the items had been given. These were identified as exhaust fans and data sockets.
On 9 and 10 December 2019, there was correspondence (Exhibit E) between the architect, Mr Germanos and Mr Frangieh regarding the installation of LED downlights, which Mr Frangieh understood as amounting to an acknowledgment by the architect of the supply of incorrect lighting.
On 10 December 2019, the builder emailed the architect, asserting that neighbours had been causing the builder ‘immense grief’ and asking Andrew La to speak to them. Mr Frangieh deposed that on or about 10 December 2019, he had requested the owner, Mr Andrew La, speak with the neighbours to deal with the builder’s access to neighbouring properties.
The builder also relied upon an email (Exhibit D) he received from an electrical sub-contractor, Jason Germanos, (of JaySparks Electrical Pty Ltd) dated 13 December 2019 which listed Pc items he needed to complete the work and asking the owners to drop them off as soon as possible. In cross-examination, the architect admitted that on the assumption that what Mr Germanos wrote was correct, it would be difficult for the builder to get to the point of practical completion. Mr Frangieh on-sent the email to Mr La and the architect 20 minutes after Jason’s email had been sent.

In his first affidavit, the architect deposed that the owners were not required to deliver any electrical items on site since the Q1 notice had been served on 4 November 2019 and the 10 day period for rectification had expired. He also deposed to the belief that the owners had previously delivered bathroom, kitchen and electrical items which had been removed by the builder; adding that this matter had been raised in correspondence with the builder’s solicitors on 6 November.
Mr Germanos’ correspondence to Mr Frangieh of 13 December 2019 prompted the architect to send an email to Mr Frangieh at 10:24am on 16 December 2019; in which the architect challenged the latter about his ‘soul (sic) focus’ on electrical work when there were other urgent defects that needed to be addressed which, the architect asserted, had been ignored. Reference was made, amongst other things, to the houses (not) being ‘water tight’, missing grated drains causing water ingress, repairing the timber flooring or lining of the stairs. The email concluded by saying that ‘we needed to see how you propose to make good the defective and incomplete works’ and when practical completion would be achieved and effectively demanded a program by close of business the next day. The email attached a site inspection report.
At 9:43pm on 18 December 2019, Mr Germanos emailed Mr Frangieh, indicating that he had still not received any Pc items from the owner, and reported that he had tried to contact him (including by SMS) multiple times.
Mr Germanos did not give evidence. Mr Frangieh indicated that he had no personal knowledge of what and when Mr Germanos had asked the owners to provide.

The owners terminate the building contract

On 18 December 2019, through solicitors, the owners issued a Notice of Termination (with immediate effect) of the Building Contract, purportedly under cl Q1(2) of the Building Contract. Mr Frangieh received from the Builder’s then solicitor the notice by email at 6:52pm that day. Because of its brevity, it is convenient to reproduce the content in its entirety:

“We confirm that we act for the Owners.
We refer to our Q1 Notice dated 4 November 2019 (Notice) and the Simple Works Contract for Housing in New South Wales between our clients and Instyle dated 19 April 2016 (Contract)
The Notice provided your client with 10 working days’ under cl Q1 of the Contract to rectify or remedy its default. The list of default was attached to the Notice in the form of a 21 page ‘Defective, Incomplete and Necessary Work Report’ dated 29 October 2019 prepared by our clients’ architect.
We are instructed that since the date of the Notice, Instyle have failed to rectify or remedy the default. Our clients consider that Instyle have had ample time and opportunity in addition to the time required under the Contract to rectify or remedy its defaults but have not done so. Accordingly, the Owners hereby give notice by this letter, pursuant to clause Q1(2) of the Contract, that the Contract is terminated with immediate effect.
We enclose with this letter and updated “Defective, Incomplete and Necessary Work Report’ dated 3 December 2019 prepared by our clients’ architect (Default Report). The Default Report largely contain the same items as the previous report attached to the Notice as the vast majority of the previous items have not been rectified or remedied. The Default Report also includes a small number of additional items which are defective, incomplete or necessary and which arises from additional works carried out by Instyle since the date of the Notice.
Our clients reserve all their rights.”

On 20 December 2019, lawyers for the builder emailed a letter to the owners’ solicitors, refuting the owners’ right to terminate. Amongst other assertions were made, pertinent ones included that: they could not proceed with the works because of the owners’ holding up of the works by failing to have PC items removed; the owners had caused significant delays due to design issues with the foundation, and the application for modification to the DA at Council and omission to obtain consent from their neighbours for the builder to access the side passageway. A ‘Dispute Notice’ was enclosed with the letter and the letter concluded with a threat to commence legal proceedings.
At 5:52pm on 20 December 2019, Mr Frangieh sent to the architect an email attaching various documents. As he explained in his first affidavit (paragraph 29), these comprised an extensively annotated commentary of the defects report that the architect had prepared on 5 December 2019 (apparently running to 22 pages, although the version in Exhibit B ran only to 17 pages) including his commentary on the progress and substantiating the builder’s perspective on its attempts to bring the works to practical completion.

The architect’s adjudication of costs of completion & the commencement of litigation

On 14 March 2020, Mr Ian Tucker, a quantity surveyor retained by the owners, estimated the costs of completion or rectification of defective works as being $374,411.
On 3 April 2020, Mr Dzung Nguyen, of the firm AUBC Consulting, supplied a quantity surveyor’s report to the builder. Mr Frangieh said in his evidence that he had tried, unsuccessfully, to contact Mr Nguyen with a view to determining whether he was available to give evidence. On 20 April 2020, the builder received a letter from the architect seeking the provision of Mr Nguyen’s report (which the architect had understood the builder had commissioned) within 14 days (Exhibit 8). Mr Frangieh said he was unaware whether that request had been complied with. As noted later, in his closing oral argument, Mr Frangieh appeared to diverge from that statement.
On 6 August 2020, the builder commenced this proceeding. The owners filed a Defence and Cross-Claim on 18 September 2020. (The builder filed a Defence to the Cross-claim on 23 October 2020).
On 16 September 2020, the architect issued a notice of assessment of costs to complete the works, purportedly under cl Q8 of the Building Contract, in the sum of $280,297.55.
In March 2021, the owners entered a contract with the Northwest Construction Group for ‘strip out’ rectification works. Those works were carried out.
In April 2021, the owners entered a separate contract, with the same group, for structural defect rectification. Those works were also carried out.

Credit

Lay witnesses

Mr Joseph Frangieh

In the owners’ written submissions, serial attacks are made upon the weight to be given to Mr Frangieh’s evidence. These attacks may be summarised as including: (a) his lack of involvement in and knowledge of negotiations preceding and the operation of the contract; (b) his not being ‘hands on’ in relation to the administration of the contract until close to the time of the owners’ termination; (c) his dependence upon what he was told by Mr Pedzik (who he did not call to give evidence) and omission to receive from him evidence in response to what the architect had deposed to in the latter’s affidavit evidence; (d) exaggerated and other assertions of fact not sustained by reference to evidence before the Court; (e) implausible contentions from someone with his experience and his omissions to engage or invoke protections for him under the contract, as might have been expected, if he genuinely had grievances regarding defaults by the owners or bias or unfairness exhibited by the architect.
I regarded Mr Frangieh as generally trying to do his best to give truthful evidence, however considered that, as a party-witness, he was too personally wedded to the content of the evidence and its likely bearing on the issues to be persuasive. The impression left by his evidence, in other words, was that he was determined – not unnaturally given his representation of the builder’s interests and the vastly different function of being a witness – to play the role of advocate during his testimony. This was of some significance in circumstances where for a significant part of the events the subject of his evidence, he was not actually involved in them himself. He was left to reconstruct such events on the basis of a retrospective consideration of contemporaneous documentation involving others – notably Mr Pedzik and the architect.
The pitfalls of this absence of personal involvement in conjunction with a reconstruction of events was demonstrated when he was asked to explain, or perhaps reconcile, his dismissal of Mr Pedzik as an employee of the builder for not accounting for the receipt of the deposit with his sworn assertion, in his affidavit, that the deposit had not been paid; an assertion which previously laid the platform for a claim for the non-payment of a deposit; which claim was subsequently withdrawn. Another simple example was, with reference to text messages involving the architect annexed to his second affidavit – which were relied upon to prove the owners’ purported lack of co-operation - he had deposed to them being messages to which he was privy, only to alter his position under cross-examination, to suggest that the text messages were those of Mr Pedzik. This suggested a casualness (at least) in approach to the preparation of his affidavit, whose correctness he had sworn was truthful.
These matters lead me to be very circumspect about accepting Mr Frangieh’s evidence where it is not corroborated, or independently supported by contemporaneous documentation, and otherwise the objective probabilities.
As an advocate for the builder, the content of some of his questioning and indeed the content of some of his submissions also created an impression that Mr Frangieh had tendencies towards conspiratorial thinking leading to the making of wild assertions (Mr La being ‘led’ by the architect ‘down the wrong path’; and Dr ElTantawy being determined to ‘taint’ the builder) which not only did not assist the Court but undermined his credibility. Some assertions made by Mr Frangieh later about Mr Legge and Dr ElTantawy regarding fabrication of defects were offensive and would not have been tolerated if made by a legal representative.

Andrew La

Mr Andrew La struggled at times to deal with some of the questions raised of him, which I regarded as at least partly attributable to difficulties with understanding or speaking English, but his evidence was brief in its scope. I did not form a view that he was being less than honest in his evidence or that what he said was unreliable.

Mr Tony Legge

I found that Mr Legge was sometimes defensive in his answers, providing justifications for his conduct which were unnecessary having regard to the content of the question. Nevertheless, part of this was, I apprehended, a desire to assist the Court. Unsurprisingly given the age and nature of the dispute, his recollections had dimmed by the passage of time, but this was not shown to be material. Mr Frangieh relied upon some parts of his evidence as admissions against the builder which indicated to me his independence from the builder. His credibility was not shaken.

The missing witness: Mr Andrew Pedzik

Mr Pedzik, the project manager for the builder, was not called. I agree with the owners’ submission that he had far more knowledge of the detailed events concerning the progression of the works than Mr Frangieh throughout the subsistence of the contract; a matter which it appeared to me Mr Frangieh acknowledged. The owners invited the Court to draw a Jones v Dunkel inference against the builder for its omission to call Mr Pedzik as a witness. Mr Frangieh did not address this submission in his written submissions. Mr Frangieh did however explain during the course of the hearing that he had dismissed Mr Pedzik from employment during 2018. Curiously, Mr Pedzik continued on to correspond with the architect after such dismissal under Mr Frangieh’s even more curiously stated assertion that Mr Pedzik was obligated to do so. I am not satisfied that Mr Pedzik was not available to give evidence. Given Mr Frangieh’s dependence upon what information Mr Pedzik had provided to him, and also his reliance upon what was contained in the emails as being evidence of the truth of what Mr Pedzik was representing which in material respects differed from the architect’s views (in particular the state of progress of the works), it can fairly be said that there were some issues requiring more evidence and scrutiny of the person making the representations contained in the contemporaneous correspondence, most obviously whether or not the owners or the architect were being obstructive for not providing owners’ items or otherwise. In my view, it is appropriate to infer that what Mr Pedzik may have had to say on relevant issues would not have assisted the builder’s case.

The parties’ arguments on the validity of the termination

The builder’s submissions

As indicated, on the first day of the hearing, prior to the long adjournment, the builder’s then Counsel provided the Court with a written outline of opening submissions (MFI 2). That document set out the essence of the builder’s legal and factual argument (although the latter was spare); although it was supplemented by written and oral argument by Mr Frangieh at the conclusion of the evidence.
The builder invoked the so-called ‘prevention principle’ in arguing that conduct of or on behalf of the owners prevented its performance of the works and precluded the owners from validly terminating the Building Contract. In Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82 (“Probuild”) McColl JA (Beazley ACJ and Macfarlan JA agreeing) observed (citations omitted):

[114] In Spiers Earthworks Pty Ltd v Landtec Projects Corp Pty Ltd (No 2), McLure P (with whom Newnes JA agreed), by reference to Hudson’s Building and Engineering Contracts, observed that “[t]he essence of the prevention principle is that a party cannot insist on the performance of a contractual obligation by the other party if it itself is the cause of the other party’s non-performance”. As frequently observed, there is debate about the juridical basis for the principle. In Spiers Earthworks, McLure P observed that it “may be regarded as a particular manifestation of the obligation to cooperate implied as a matter of law in all contracts”, referring to Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd.
….
[116] The prevention principle may preclude an owner recovering liquidated damages for delay in the completion of works by the contractor where that delay has been caused by an act or omission of the owner in breach of the contract. This is because, if it applies, the contractual date for practical completion ceases to be the proper date for the completion of the works and, if there is no contractual mechanism for the substitution of a new date in the events which have occurred, then there is no date from which liquidated damages can run and the right to liquidated damages will be lost. In other words, the time for performance is “at large”, although it should be undertaken within a reasonable time.

Her Honour then analysed the significance of extension of time clauses in relation to the principle:

[117] The operation of the prevention principle can be modified or excluded by contract. The manner in which this can be done, as relevant to the present case, is by extension of time provisions such as cll 41.5 – 41.6. Those clauses established a procedure by which, in the event of an actual or likely delay caused as provided in cl 41.6(b)(i), DDI could advise Probuild of the matters set out in cl 41.5, including whether it sought an extension of time to the Date for Practical Completion.
[118] In the event, which Probuild contends occurred, that DDI failed to seek an extension of time pursuant to that provision, it is arguable (depending upon the proper construction of the Subcontract) that the prevention principle did not operate. This is, in essence because, as Cole J explained in Turner (No 1), DDI failed to exercise a contractual right which would have negated the effect of the preventing conduct.

Her Honour then considered the relevance of a provision empowering an architect to extend the time for practical completion; notwithstanding that the builder had not issued any notice under the contract:

[124] Such a clause was considered in Peninsula Balmain. That case concerned a clause in a building contract which incorporated the Australian Standard General Conditions of Contract (AS2124-1992) with certain modifications and additions provided by special conditions. Clause 35 dealt with times for commencement and practical completion and bore some broad resemblance to cll 41.5 – 41.6 in requiring the Contractor to make a written claim for an extension of time in the event of possible delay of the work under the Contract. It also included a provision that “[n]otwithstanding that the Contractor is not entitled to an extension of time the Superintendent may at any time and from time to time before the issue of the Final Certificate by notice in writing to the Contractor extend the time for Practical Completion for any reason.” (reserve power). As can be seen that provision is conceptually similar to cl 41.9 in that it permits an extension of time to be granted, notwithstanding that the contractor was not entitled to one.
[125] The Contractor failed relevantly to seek extensions of time. Hodgson JA held that, absent the reserve power, if an extension of time claim had not been made within time, that failure would have precluded the operation of the prevention principle and rendered the Contractor liable for liquidated damages. However, in his Honour’s view, the reserve power was “capable of being exercised in the interests both of the owner and the builder, and … the Superintendent is obliged to act honestly and impartially in deciding whether to exercise [it])”.
[126] In Spiers Earthworks, McLure P thought it “arguable that the prevention principle is a relevant consideration in the exercise of the superintendent’s discretion to extend time in relation to the ‘non-breach’ causes of delay specified in cl 35.5” and that “[i]f a court or another decision-maker concludes that the superintendent should have exercised the power and granted an extension of time, the principal will be prevented from claiming liquidated damages for the relevant (proven) delay”.
[127] Osborn J followed Peninsula Balmain in 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) in relation to a provision almost identical to cl 41.9 save that, as in Peninsula Balmain, the reserve power was vested in the Superintendent. In his Honour’s view, the reserve power was to be exercised “effectively where it [was] just and equitable to do so, … [was] expressly directed to situations where ‘the contractor is not entitled to or has not claimed an extension of time …’, is expressed to arise on a separate and distinct basis from the provision for the extension of time pursuant to the primary mechanism [and] [t]he grounds for exercise of the reserve power [were] expressed in the broadest possible terms”.
[128] In my view, and contrary to Probuild’s submissions, Probuild was obliged to exercise the reserve power to grant extensions conferred by cl 41.9 honestly and fairly having regard to the underlying rationale of the prevention principle to which I have earlier referred or, if necessary, because there is an implied duty of good faith in exercising the discretion cl 41.9 conferred.
[129] It needs hardly be said that whether there have been relevant acts of prevention, and whether, in all the circumstances Probuild was entitled to liquidated damages, or DDI was entitled to an extension of time for the entire period encompassed by Probuild’s liquidated damages, turned on the terms of the Subcontract in the events which had happened. However, as a matter of general principle, both the liquidated damages and extension of time clauses in printed forms of contract must be construed strictly contra proferentem.

But another aspect of the significance of the statutory warranties concerns the recovery for the rectification costs which the owners claimed, which will be touched upon later in these reasons.
The same matters relied upon to establish breach by the builders of their contractual obligations also sustain a finding that the statutory warranties in s 18B(1) were breached.

the cross-claim

The owners claim was set out in MFI 4. In tabular form, this was:

Costs of completion of works (cl Q8)      $280,297.55

Additional rent due to delayed completion

($650pw 18/12/19 – 10/2/20)         $64,350.00

Additional rent paid due to delayed completion

($680 pw 10/2/20 – 28/6/21)         $48,960.00

Lost rental income due to delayed completion

($715 base rent, but 45% discount for contingencies)
$122,265.00

Cost of ‘strip out’ works required because of

defective works $70,268.00

Cost of ‘structural’ works required because of

defective works $120,235.50
TOTAL $706,376.05

(excl of interest)

Costs of completing the works

To reiterate, upon termination of the building contract pursuant to clause Q1, the architect was required (by cl Q8) to promptly make a written assessment of the costs of completion of the works. Once that assessment was made, clause Q9 required him to prepare a certificate as to the amount payable. As the owners correctly submitted, through these procedures, the builder (who undertook an inspection with his quantity surveyor, Mr Nguyen) had the opportunity to furnish expert evidence. In particular, on 20 April 2020, the architect requested that if the builder obtained a report from Mr Nguyen, that should be supplied to the architect within 14 days. At that point, Mr Nguyen had already prepared a report and addressed it to the builder. Mr Nguyen’s report was dated 3 April 2020^[12]. It was principally addressed to quantifying the costs of incomplete works – indeed it specifically excluded consideration of the cost for repair of building defects.
12. This was within Exhibit C (CB 1860-1907)
Contrary to what was suggested (tentatively) by Mr Frangieh in his submissions, there is no evidence that it was passed on to the architect.
On 16 September 2020, the architect issued a Notice of Assessment of costs to complete the Contract Works pursuant to Q8 of the Agreement and a copy of the report of the quantity surveyor, Mr Tucker (14 March 2020). A certificate was issued pursuant to cl Q9 for the sum of $280,297.55^[13]. The architect deposed in his first affidavit (paragraph 81) to finding that Mr Tucker’s report – which quantified the costs of completion (including costs of rectification of defective works) as being in the sum of $374,411 (plus GST), was accurate. In addition to that sum, the architect assessed that an additional sum of $50,000 (plus GST) was required to complete and make good acoustic works under the agreement.
13. Exhibit 6 (CB 1779-1781)
At paragraphs 82-83 of his first affidavit, the architect explained how, as part of the assessment, he reconstructed the adjusted contract sum payable. This factored in the variations claimed by the builder, his delay claim and the architect calculated that there was a cost to complete the works of $280,297.55.
At paragraph 84 of his first affidavit, the architect explained how he adjusted the date for practical completion to 18 March 2018. That took into account the delay in obtaining the modification approval and 10 days’ rain delay, and also a further 207 days of weekends and public holidays.
Importantly, also, at item 8.03, the architect had factored into his assessment the total sum left to the builder under the building contract.
The builder did not take steps to vitiate or abrogate the architect’s certificate; based on a disregard of Mr Nguyen’s opinion on costs or any other matter. Indeed, to the contrary, for other forensic reasons, the builder effectively embraced the correctness certificate; by arguing that the amount under the certificate represented a cap on the owners’ entitlements (including to liquidated damages).
In the circumstances, it is inappropriate to go behind the conclusive character of the architect’s certificate on the costs for completion of the works.

Should there be an offset?

Mr Legge estimated that at the point of termination of the building contract, the sum of (approximately) $262,395 remained to pay the builder.
Andrew La was asked why the balance owing to the builder could not have been used to rectify or complete works. He said that he was advised by the engineer that new problems emerged.
In his closing written submissions, Mr Frangieh submitted that the amount left to be paid to the builder upon Practical Completion which was never paid and therefore this amount should offset as the builder is not making claim to the Unpaid Amount. However, as Counsel for the owners explained in closing oral argument, the amount had been taken into account in the architect’s certificate^[14]. Although Mr Frangieh purported to provide a response^[15], with no disrespect to him, it was unintelligible.
14. Exhibit 6, CB 1779-1780
15. T 294-5
I accept the owners’ claim for costs of completion being in the sum of $280,297.55.

Rental costs for delay in works

There were three components in respect to rent:

additional rent the owners paid at Illawarra Road, Marrickville due to delay in completion, from 18 December 2019 to 10 February 2020 (quantified at $64,350);

additional rent the owners paid at Kendall Street, Ermington, due to delay in completion, from 10 February 2020 to 28 June 2021(quantified at $48,960);

lost rent that the owners assert that they would have received had practical completion been reached (quantified at $122,265).

Certain evidential rulings were made at hearing which rejected much of the evidence relied upon for these claims.
In relation to rental claim (a), Mr La annexed a receipt from a real estate agent indicating payment of $2,600 from the period 1 April 2017 to 28 April 2017. That equates to $650 per week. There was no admissible evidence however, as to the circumstances in which such payments were made. Rental claim (a) is rejected.
In relation to (b) Mr Xuan Vu La (aka Andrew La) is the son of the owners. In his affidavit of 28 June 2021, he deposed that his parents were, at that date, residing in a rental property in Ermington and that they had been there since 10 February 2020. This evidence was hearsay (although not objected to). Mr La deposed that the weekly rent paid by the owners between 10 February 2020 and the date of his first affidavit was $680. Xuan Vu (aka Andrew) La also annexed to his affidavit a residential tenancy agreement entered between two landlords and the defendants in connection with real property at Ermington for the period between 12 February 2020 and 11 February 2021. But again, there was no admissible evidence as to the circumstances of their occupation of that property. Accordingly rental claim (b) is also rejected.
As to rental claim (c), Mr La also deposed to information obtained from an investment research house, SQM Research directed to the market rental for 3 bedroom houses in Marrickville, suggesting that average rental was $792 per week in the period from 15 March 2018 to 1 June 2021.
However, there was no admissible evidence as to the purposes of occupation of the 3 townhouses or their intention to derive rent which would engage either or both of the two limbs of Hadley v Baxendale. It was not explained how the loss naturally arose. Nor was the builder’s knowledge of what the owners would do with the properties at the date the contract was entered, for example, a subject raised with Mr Frangieh in the latter’s cross-examination. Nor was it touched upon in the building contract itself. Rental claim (c) is also rejected.

Claim for costs of defective works

The claim

This claim was sub-divided, as follows:

a claim for the cost of stripping out works, quantified at $70,268; and

a claim for the cost of structural works, quantified at $120,235.50.

The combined sum for this claim is $190,503.50. The stripping and structural works were engaged in pursuant to separate contracts which the owners entered into with Euro Innovations Pty Ltd on 4 March 2021 and 17 May 2021, respectively.

The necessity for the strip out and structural works

Lay evidence

Andrew La gave evidence that he was involved in a discussion with the architect in March 2021, the result of which was that works were undertaken into the structural beams of the property. He recalled that the property had to be ‘stripped out’. He recalled that mould had grown and flooding on the site.
At paragraph 88 of his first affidavit, the architect deposed to investigations subsequent to those which culminated in his assessment of 17 September 2020. He observed that on or about 26 April 2021, Mr Viktor Mateffy of MPN Structural Design & Engineering conducted a site inspection. In his second affidavit, the architect explained that this inspection was made possible by ‘strip out’ works undertaken by the Northwest Construction Group. At paragraph 8 of his second affidavit, the architect set out a list of what he characterised as ‘strip out’ works.
Later that day, Mr Mateffy emailed the architect a ‘non-exhaustive’ list of defects which the latter characterised as structural defects. The architect deposed to his concern about the implications of that email in terms of the safety of occupants, and explained that this led to the owners engaging a contractor, the Northwest Group, to undertake emergency bracing works, including temporary props for the structure. Northwest Group supplied a quote on 17 May 2021.
In cross-examination, the architect was asked multiple times why it was necessary for strip out works to be carried out. His response was that he was concerned about the connections between the walls and the timber structure and the acoustics installed. Further, he explained that the stripping out was needed to unravel acoustics works and the structural connections between the walls which had been concealed.
Mr Frangieh referred the architect in cross-examination to a drawing^[16]. He put to the architect, but the architect disagreed, that it was possible that stormwater had overflowed into the house. The architect opined that the grated drains had not been installed, so that it flowed into the house. Mr Frangieh put to the architect that with the exception of the drains, at the date of termination of the building contract in December 2019, the issue of water ingress had resolved.
16. Exhibit 6 (CB 923)
Separately, Mr Frangieh referred the architect to the structural certification by GMB Structural dated 17 March 2017, concerning the timber framing^[17] and his email of 22 March 2017 in which he stated that that he had no issue with the builder’s claim, albeit noted that the steel bracing structure (needed to laterally support the concrete walls) had been deleted (and suggested that technically there should be a variation for the change from steel to timber). The architect acknowledged that in reliance upon that certification, he accepted the change, but qualified this by emphasising the need for a drawing and design certificate.
17. Exhibit 6 (CB 1257)
Mr Frangieh put to Mr Legge, in effect, that with this known alteration, it was unfair to hold him as the builder responsible for inadequacy of the erection of the walls when no one had taken issue with the works for many years after the GMB certification.
In his second affidavit, the architect said that he attended the site on 2 June 2021 and observed the emergency bracing works carried out in preparation for the works to prepare structural defects.

Expert evidence

The owners relied upon supplementary report of Dr Ayman ElTantawy (Exhibit 3), a structural engineer of the firm ALJ Consulting Engineers, dated 7 June 2022, to prove the necessity for the strip out and structural works in rectification. The builder did not rely upon any responsive report. Mr Frangieh did, however, cross-examine Dr ElTantawy.
Dr ElTantawy is a structural engineer (and remedial consultant) or 19 years’ (plus) experience and has a PhD in structural engineering.
Unsurprisingly, Dr ElTantawy confirmed that he had not attended the site during the excavation of the site in 2016. When he saw the site on 21 May 2022, he said he did not find any cracks or deficiencies in the slab. He noted in his report that systematic defects in three units, being (a) uncontrolled water ingress on the ground floor slab, covering a significant footprint of the concrete slab; (b) uncontrolled vegetation in the three units’ front and back yards; and (c) severe mould and bio-reaction evidence on the concrete walls.
In his report, which ran to 70 pages, he set out in considerable detail, between sections 8.2 and 8.10 what he identified as considerable structural defects throughout investigated structural elements; which he considered reflected poor construction and a lack of compliance with section B of the Building Code of Australia.
He stated (at paragraph 22) his belief that the ‘strip out’ work (which he defined to mean the work stripping out the wall finishing and exposing all enclosed building work for engineering and building assessment and certification) was necessary to reveal the base construction and facilitate the building certifier and engineering inspections.
He opined (at paragraph 23) that the installation of the steel beams on the first and second floor slabs, which he assumed had been undertaken by another builder (paragraph 187) was necessary to provide structural stability to the building RC walls.
Particular attention was directed in Dr ElTantawy’s cross-examination to sections 8.2 and 8.10 of his report.
In section 8.2, Dr ElTantawy concluded that the builder had installed the first floor as a timber framing system consisting of waler timber beams attached to the sides of the building RC walls and timber joists supported on those walers. Having reviewed the correspondence with the architect, he concluded that the builder did not install the bracing system at the first floor framing, leaving the RC walls with a structurally inadequate lateral restraint. He also considered that the RC walls did not have structurally adequate lateral support at the first-floor level. Bracing elements were critical to preventing floor framing from in-plane distortion which prevented RC walls from lateral out of plane movements. The builder did not install the bracing elements. This Dr ElTantawy opined was an obvious breach of the structural design plans and sketches, with the constructed RC walls left with no adequate structural lateral stability.
At sub-section 8.2.3, Dr ElTantawy endorsed actions by the MPN Group to install temporary propping to secure the walls and also steps by Northwest Construction Group to strengthen the work by bracing the building RC walls.
Dr ElTantawy was also critical of a structural design certificate issued on 17 March 2017 regarding framing inspection was vague and opined that the builder did not construct the first-floor bracing system as prescribed by both the original structural design and the alternating structural design. Further, he opined that the builder did not install the bracing elements.
Much of the cross-examination centred upon the contention that Dr ElTantawy disregarded the views of the engineers GMB, or was biased towards the designs of MPN. But Mr ElTantawy stated that he had regard to drawings from both firms. When (at paragraph 59) express criticism of a structural certificate issued by GMB (17 March 2017) for its vagueness, he was challenged on this evidence.
In cross-examination (at T 140-141) the suggestion was put to Dr ElTantawy that metal straps could have been stripped off at the time gyprock was stripped. The expert did not dispute that as a possibility. The witness wanted to supply an explanation but the question did not in terms require it (in that circumstance I indicated that it was not necessary).
It was drawn to the expert’s attention that the architect had indicated his willingness to accept deletion of the steel bracing structure on the proviso that he received a design certificate and drawing. But Dr ElTantawy pointed out that there was no engineering certification of the deletion of the bracing. He elaborated that the GMB design did not affect the MPN design, which had bracing across the full floor and not only in a more limited number of places.
In the midst of some intemperate questioning (T 142-143), Dr ElTantawy emphasised that he did not have a ‘bias’ for either the MPN drawings or the GMB drawings: he indicated that he had worked from both (T 143.24). Where he commented negatively on the GMB certificate, he did so on the vagueness of it and, more especially, the omission to certify that bracing was not required (T147). In effect, the builder did provide the architect with the certificate that the latter had asked for.
There were a range of other failures or omissions by the builder the subject of commentary by the expert in sections 8.3 – 8.9 of the report which received little or no criticism by Mr Frangieh. In the absence of such challenge, the expert’s evidence should be accepted.
In section 8.10, Dr ElTantawy alluded to his understanding as to how the building foundation slab had originally been designed (by the MPN Group, in February 2016) as a stiffness raft foundation, before being modified by that designer (in December 2016) to add piers under the stiffness raft. Then the builder had engaged GMB Structural to alternate the foundation slab design to a ‘waffle slab’.
Dr ElTantawy opined that the builder had failed to provide enough documents covering the construction of the foundation slab. This reduced his confidence in the foundation slab construction and he recommended that a qualified structural engineer assess the waffle slab design and undertake testing to ensure that it could structurally perform consistently with BCA requirements.
Under cross-examination, Dr ElTantawy refuted the proposition put to him that there were problems in the original design. He said that what he wrote in section 8.10 of his report did not alter that view.
Dr ElTantawy elsewhere opined that the strip out work undertaken in March 2021 was necessary to reveal the structural defects he reported on and comply with project certifier instructions.
As indicated, the builder did not adduce written expert opinion evidence from a structural engineer to counter Dr ElTantawy’s report. Instead, in a departure from conventional procedural practice, where differences between experts are, or should be, exposed before hearing, Mr Frangieh raised matters (without prior notice) for Dr ElTantawy’s consideration.

Submissions

Mr Frangieh submitted that the builder was not responsible for strip out works, The ‘rotted moisture content and damage occurred to the plasterboard lining by weather and water ingress’ was caused:

“.. due to the lack of maintenance on the site and completion of the Fit Out. The is not the responsibility of the builder as the builder left the site and perfectly watertight and repair condition”.

He referred to (without specifying, with reference to evidence) the architect’s admission that the property was water tight at the point of termination of the contract and also argued that because certain of the ‘defective’ items concerned stages for which the builder had received payment, it stood to reason that there could not have been any defect at the earlier point; and therefore could not have been a defect at the date when termination occurred, or thereafter.
The owners disputed the underlying premises for this submission. Contrary to Mr Frangieh’s submission, the property was not water tight at the point of termination. The architect’s correspondence throughout 2018 and 2019 was to the contrary effect: he was indicating his view that it was not water tight. There was no contemporaneous assertion from the builder that it was. To the extent that the builder was now relying upon an issue concerning a blockage in a pipe, this was not the subject of evidence.

The builder submitted that the ‘structural’ works represented a new claim, only made belatedly. He argued that if there was a problem with the structure, it was not the builder’s responsibility. The engineering designs had been altered from MPN to GMB, which the architect had approved. The architect was said to have admitted relying upon certification provided by another subcontractor (HD Projects). The owner should look to that entity if there was any structural concern.
Mr Frangieh trenchantly criticised Dr ElTatawany’s report in these respects. It was prepared well after the event; post-construction and also after the strip out. He did not know basic information such as the progress payment stages or how other parts of the building contract operated. He was biased in going out of his way to criticise the builder. He based his report on incorrect drawings. The submission was even made that Dr ElTantawy had ‘fabricated’ evidence. It may be said at once that there was no foundation for an attack on the professional integrity of Dr ElTantawy and this last submission should not have been made.
The owners argued that these submissions proceeded on a misapprehension. Dr ElTantawy had looked at the GMB being ‘morphed’ into the MPN drawings. It was not a case where he had drawn any dichotomy: both the MPN and GMB drawings needed to be referred to. The fact was that there was a change effected to the MPN drawings. The real issue was whether bracing should have been there or not and if so where. Anticipating what the builder might say, that he relied upon certification from the engineer issued on 17 March 2017^[18], he could not properly do so. There was doubt whether bracing was or was not in place. The owners said that there was some bracing^[19].
18. Exhibit 6, CB 1272, 1274
19. Exhibit 3, CB 2006
Mr Frangieh submitted that there was nothing wrong with the structure and that the owners’ were buying ‘peace of mind’. They should not do so at the builder’s expense. The works that were done were contrary to the plans that he was provided, which had been valued in the contract as amounting only to $30,000.

Consideration

Dr ElTantawy impressed me as an expert knowledgeable within his field of expertise and also as someone genuine in trying to assist the Court. I reject Mr Frangieh’s implied suggestion that he was biased, which assertion (in paragraph 29 of the latter’s closing written submissions) appeared, at its highest, to be based only upon Mr Frangieh’s disagreement with what the expert had said. It was not only unfair but ludicrous for it to have been expressly suggested that the expert had fabricated evidence. Both suggestions should not have been made. Generally, I regarded that under the furnace of cross-examination, he kept his cool and remained calm. I regarded Dr ElTantawy’s evidence as being unshaken in that cross-examination.
There were only limited parts of Dr ElTantawy’s report to which, through the inadequate means of questions without prior evidentiary foundation (such as the opinion of another engineer), Mr Frangieh challenged. For the majority of the matters which he addressed, there is no difficulty in accepting Dr ElTantawy’s evidence.
Where, through his questioning, Mr Frangieh implicitly indicated his disagreement with Dr ElTantawy, I prefer Dr ElTantawy’s evidence. I accept the owners’ submission that Mr Frangieh misapprehended that he had a binary choice of favouring one engineer’s drawings over another when that was not the position and that the builder did not abide by the architect’s request for drawings and certification regarding the substitution of timber for steel and further that there was an absence of adequate bracing. In particular, I find that compliance with the warranties in s 18B(1)(a) and (b) of the HB Act did not absolve the builder from having regard to both the drawings issued by MPN and GMB. Further, the argument that one of those engineers may have breached a duty of care (noting that no defence of proportionate liability had been pleaded by the builder in his defence to the cross-claim) to the owners was beside the point.
Mr Frangieh’s criticisms have little or no substance in circumstances where, following the service of Dr ElTantawy’s report, the builder refrained from serving competing evidence, either presumably from Mr Frangieh and/or from a structural engineer with comparable qualifications to Dr ElTantawy. Had such evidence been served, the owners would likely have had it scrutinised. Other than admissions made by Dr ElTantawy that could be utilised by the builder, where Dr ElTantawy’s evidence amounted to disagreement with propositions that Mr Frangieh was putting to him, I am unable to find that this assists the builder’s case.
I find that Dr ElTantawy’s evidence to be plausible and, as indicated not shaken.
Accepting, as I do, Dr ElTantawy’s opinions the builder’s submission that there was nothing fundamentally wrong with the structure of the property upon termination is untenable.
I accept Dr ElTantawy’s evidence and find that the rectification works in the strip out and structural repair works was both necessary and reasonable.

Costs of ‘strip out’ & ‘structural’ works

Andrew La attached to his second affidavit redacted versions of NAB bank statements on a joint account in the owners’ names indicating serial payments to Northwest Construction Group. These indicated payments to that Group in the sum of $174,266.80.
That marks the extent of recovery for the cost of the strip out and structural works.

Is there a cap on damages?

The builder’s former Counsel had submitted that the owners are entitled to obtain nothing more than the monies certified in Q9. This, Counsel argued, was the effect of cll N14 and 15.
The owners submitted that the contractual provisions cannot act as a fetter on the right to recover damages for defective works generated under statute. It is obvious that at a practical level, for example, for latent defects, any certificate issued by the architect could not make provision for compensation for such defects.
I prefer the owners’ submission. Subject to no overlapping, the owners are entitled to rectification costs that are separate to and distinct from the allowance made for the architect’s certification of costs to complete the works.

Other defences

Andrew La said in cross-examination that he had maintained the property since the termination of the Building Contract in December 2019.
In cross-examination, the architect said that maintenance had occurred on the property. Mr Frangieh asked Mr Legge what measures were put in place to keep the property watertight after the building contract had been terminated. The architect said that the windows and doors were closed. Nevertheless, the architect added, there was ground floor flooding.
The builder submitted that the owners’ claim for defective or incomplete works does not accommodate the circumstance that they allowed the site to be exposed to the elements and, in so doing, they failed to mitigate their loss.
The owners acknowledged that there was some delay, but submitted, persuasively, that this was unsurprising in view of the processes that had to occur after termination. The builder did not try to prove what a reasonable owner in the position of these owners would have done differently and how quickly such alternative measures would have been undertaken. Nor did he make a serious attempt to draw a comparison of the state of the property before and after the point when the building contract was terminated. There was lurking in the period post-termination the problem with the Pandemic. I am not persuaded by the builder that such delay as there wad materially increased the costs beyond which were incurred. That would be a matter that might be expected to be the subject of evidence from either or both an (independent) builder or a quantity surveyor, but no such evidence was adduced by the builder.
The builder did not persuade me that conduct by the owners represented a failure to minimise loss or increased their loss. The defence of a failure to mitigate, under the common law or s 18BA(1) of the HB Act fails.
The separate defence under s 18BA(3)(b) of the HB Act fails in circumstances where there never was any contemporaneous email from the builder to the architect (excluding assertions by the builder’s lawyer) in which complaint was made about denial of access and there was no evidence of conversations in which such complaint was conveyed^[20].
20. At T288, the builder was invited to refer the Court to the evidence of lock out but that did not eventuate

summary & orders

In summary, the critical ultimate findings are:

the termination of the building contract on 19 December 2019 was lawful

the owners are entitled to recover on their cross-claim:

costs of completion of $280,297.55;

costs of rectification works of $174,266.80

The owners also have a claim for interest, which awaits quantification.
After conferring with the plaintiff, the defendants should bring in short minutes to reflect these reasons and make provision for interest and costs. On the matter of costs, I note from their Counsel’s submissions that the defendants seek only an order for costs on the ordinary basis. Prima facie, without having heard from the plaintiff, they are entitled to obtain that order for costs, but Mr Frangieh should receive an opportunity to be heard on that matter. But the defendants apparently also seek an order for interest on costs, which is far from being axiomatic. If the parties are in agreement on quantification of interest and the costs order, final orders may be made in Chambers.
In the event that the parties are in dispute about final orders, including interest, costs, and interest on costs, the defendants should, in addition, serve and supply my Associate with short submissions (not exceeding 5 pages, excluding relevant evidentiary attachments) by 16 February 2023.
Mr Frangieh is to serve on the defendants’ solicitor and supply my Associate with short submissions (not exceeding 5 pages, excluding relevant evidentiary attachments) by 20 February 2023. The defendants may serve any submissions in reply (not exceeding 1 page) by 22 February 2023. Unless indicated otherwise, I will determine remaining disputes on the papers.

**********

Endnotes

Decision last updated: 13 February 2023

Medium Neutral Citation:	In-Style Developments Pty Ltd v La & Anor [2023] NSWDC 23
Hearing dates:	2 February 2022, 30 - 31 January, 1, 3 February 2023, 7 February (defendants’ supplementary written submissions), 8 February 2023 (plaintiff’s supplementary written submissions)
Date of orders:	13 February 2023
Decision date:	13 February 2023
Jurisdiction:	Civil
Before:	Abadee DCJ
Decision:	See paragraphs 252 - 256
Catchwords:	BUILDING AND CONSTRUCTION – whether notice to rectify defective or incomplete works invalid – whether owners’ termination of contract unlawful – whether the conduct by the owners (or the architect on their behalf) prevented the builder from substantially complying with his obligations to complete – whether cap on compensation under contract excludes or modifies right to compensation for defective works supplied in breach of statutory warranties – whether costs for strip out or structural works necessary and reasonable
Legislation Cited:	Home Building Act 1989 (NSW) ss 18B, 18BA, 18G Uniform Civil Procedure Rules 2005 (NSW) r 7.2
Cases Cited:	Benson Property Group Pty Ltd v Key Infrastructure Australia Pty Ltd [2021] VSCA 69 Hadley & Anor v Baxendale & Ors (1854) 156 ER 145 Jones v Dunkel (1959) 101 CLR 298 Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82 Turner v Co-ordinated Industries (1994) 11 BCL 202
Category:	Principal judgment
Parties:	In-Style Developments Pty Ltd (plaintiff/cross-defendant) Xuan Dieu La (first defendant/cross-claimant) Thi Minh Dang (second defendant/cross-claimant)
Representation:	Mr J Frangieh (in person) for the plaintiff/cross-defendant Mr A Hourigan (Counsel) for the defendants/cross-claimants Sarvaas Ciappara Lawyers (Solicitors) for the defendants/cross-claimants
File Number(s):	2020/229654
Publication restriction:	Nil