JJ Armstrong Pty Ltd v Hope St Student Accommodation Pty Ltd
[2017] VCC 1247
•8 September 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-15-04510
| J.J ARMSTRONG PTY LTD | Plaintiff |
| v | |
| HOPE ST STUDENT ACCOMMODATION PTY LTD | Defendant |
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JUDGE: | HIS HONOUR JUDGE WOODWARD | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29-31 May, 1, 2, 5-7, 9, 22 and 30 June 2017 | |
DATE OF JUDGMENT: | 8 September 2017 | |
CASE MAY BE CITED AS: | JJ Armstrong Pty Ltd v Hope St Student Accommodation Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 1247 | |
REASONS FOR JUDGMENT
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Subject:CONTRACTS
Catchwords: Building contract – dates for and of practical completion – general damages for delay – agreement to fix delay damages – intention to create legal relations – common intention – consideration – assessment of damages for defects and uncompleted work – final claim certificate
Legislation Cited: Part 12A Building Act 1993 (Vic); Part IVAA Wrongs Act 1958 (Vic); s78 Evidence Act 2008 (Vic); s2 Penalty Interest Rates Act 1983 (Vic)
Cases Cited:Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113
Adapt Constructions Pty Ltd v Whittaker and Luff [2015] ACTSC 188
Andrews v ANZ Banking Group Ltd (2012) 247 CLR 205
Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280
Australis Media Holdings Pty Ltd v Telstra Corporation Ltd (1998) 43 NSWLR 104
Baese Pty Ltd v Bracken Building Pty Ltd (1990) 6 BCL 137
Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279
Beerens v Bluescope Distribution Pty Ltd [2012] VSCA 209
Bellgrove v Eldridge [1954] HCA 36; (1954) 90 CLR 613
Brambles Holdings Limited v Bathurst City Council (2001) 53 NSWLR 153
Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424
CJD Equipment Pty Limited v A&C Constructions Pty Limited & Ors [2011] NSWCA 188
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193
Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95
Filadelfia Projects Pty Ltd v Entirity Business Services Pty Ltd [No2] [2011] NSWSC 116
Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project Pty Ltd [2015] VSCA 190
Hera Project Pty Ltd v Bisognin [No 3] [2017] VSC 268
Home Site Pty Ltd v ACN 124 452 786 Pty Ltd (fka Nahas Construction (NSW) Pty Ltd) [2017] NSWSC 698
Howe v Teefy (1927) 27 SR (NSW) 301
J-Corp Pty Ltd v Mladenis [2009] WASCA 157
Lysaght v Building Solutions Pty Ltd v Blanalko Pty Ltd [No 3] [2013] VSC 435
Mainteck Services Pty Ltd v Stein Heurtey [2014] NSWCA 184,
Metier3 Pty Ltd v Enwerd Pty Ltd & Anor [2014] VSC 80
Radford v De Froberville [1977] I WLR 1262
Regreen Asset Holdings Pty Ltd v Castricum Brothers Australia Pty Ltd [2015] VSCA 286
Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344.
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 26 ALR 567
SGIC v Sharpe (1996) 126 FLR 341
Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246
Smith v Hughes (1871) LR 6 QB 597
Southern Region Pty Ltd v State of Victoria (No 3) [2001] VSC 436
Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8; (2009) 236 CLR 272
Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30
Todd v Alterra at Lloyds [2016] FCAFC 15
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Turner Corporation Limited (Receiver and Manager Appointed) v Austotel Pty Ltd (1997) 13 BCL 378
United Petroleum Pty Ltd v Bonnie View Petroleum Pty Ltd (In Liquidation) & Ors [2017] VSC 185
Wigan v Edwards (1973) 1 ALR 497
Woodlands Oak Ltd v Conwell [2011] EWCA Civ 254
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms Geraldine F Gray | Jeremy Johnson & Associates |
| For the Defendant | Mr M Whitten QC | Madgwicks Lawyers |
Table of Contents
Introduction2
Background and parties2
Summary of issues: delay damages4
Summary of issues: defect damages5
Summary of issues: other matters and the net result5
The course of the trial 6
The Contract7
Delay damages10
The building permits and building commencement10
How should the term ‘building permit’ be construed12
What was the date for practical completion?14
What was the date of practical completion?19
Can Hope St claim general damages or equitable compensation for delay?20
What is the period of compensable delay?26
What is the quantum of delay damages?27
Correspondence leading to the lunch meeting29
The lunch meeting31
Was there an intention to create legal relations?43
Was there common intention?44
Was there consideration?53
Defect damages57
The defects list57
Access pre-1 October 201458
The Lux café meeting60
Access during October 201461
The 23 October 2014 incident63
Final certificates66
What impact does any denial of access have on Hope St’s defects damages claim?72
Defects81
The expert evidence81
What damage has Hope St suffered from defects and incomplete work?84
Miscellaneous items84
Balcony repairs87
The stormwater system92
Part 12A of the Building Act94
Total cost of defects and incomplete work95
The Final Claim Certificate95
Site ownership101
The net result102
Annexure105
HIS HONOUR:
Introduction
Background and parties
1 According to Wikipedia “Brunswick is known for its local bohemian culture, strong arts community and large student population, owing to its proximity to the University of Melbourne and RMIT University”. The defendant (“Hope St”) is a family company that provides student accommodation in inner Melbourne. By a standard form building contract signed on 10 May 2012 (“Contract”), Hope St engaged the plaintiff (“JJ Armstrong”) as contractor to construct student accommodation at 6 Hope St in Brunswick. The accommodation comprised five floors, 22 units of various sizes, a common room and other common areas, an office and a ground floor shop.
2 Michael Dikeakos was the sole director of Hope St until 20 October 2014, when he was replaced as director by his father George Dikeakos. However, he remained involved in the business of Hope St as Operations Manager, and continued to have the day to day management of the building project. The directors of JJ Armstrong are John Newbold and his son Ben Newbold. JJ Armstrong’s contract manager for most of the period of the project was James Lenhart. Mr Lenhart left the employ of JJ Armstrong in April 2014, about half-way through the defects liability period under the Contract.
3 The Contract at the heart of this proceeding is the Australian Building Industry Contract, Major Works known as the ABIC MW-2008. This form of contract was selected by the project architect, Peter Brown Architects Pty Ltd (“PBA”), which also acted as the administrator under the Contract. Peter Brown, the principal of PBA, has been in continuous practice as an architect for just short of 50 years. The Contract is his preferred contract form and his firm has been appointed as architect under this contract at least six times since the early 2000s. He was assisted in administering the Contract by PBA’s employee David Ta.
4 PBA purported to issue a Final Claim Certificate under the Contract on 26 November 2014 (“first FCC”) and then a revised Final Claim Certificate on 24 April 2015 (“revised FCC”). The validity of the revised FCC is in dispute in the proceeding. It certified that, after allowing $11,417 for the value of defects work to be carried out and $15,000 being a “previously agreed delay loss contribution by Builder”, there was $71,116.35 due by Hope St to JJ Armstrong. JJ Armstrong sues on the revised FCC for payment of this sum. However, Hope St asserts that the amount owing to it for delay is $125,952 and the cost to it of rectifying the defects is $222,173. After allowing for the balance payable to JJ Armstrong under the contract, Hope St’s counterclaim against JJ Armstrong is for $343,670.05, including interest on the delay damages and the cost of building reports.
5 The central question in this proceeding is who owes what to whom. Resolution of that question of course requires consideration of a number of subsidiary questions. The formulation of those subsidiary questions in the form of a document entitled “Summary of Issues” was something of a moving feast both before and during the trial. Having considered the written submissions of both parties, including their discussion of the most recent iteration of the Summary of Issues document, I consider that the questions that ultimately fall for determination in the proceeding are best summarised as set out below. I have also set out following each question a brief statement of my answer.
Summary of issues: delay damages
(a) The LD agreement: Was an agreement made between the parties on 8 November 2013 fixing the amount of liquidated damages that Hope St could claim under the contract (“LD Agreement”)? More particularly:
· Was there an intention at the lunch meeting on 8 November to create legal relations? Answer: Yes, although the question is finely balanced.
· If so, is it possible to distil from what occurred at the meeting an objectively ascertainable common intention as to the key elements of an agreement? Answer: No. The key elements are, first, the amount that the parties agreed to fix as Hope St’s liquidated damages and, second, what (if anything) JJ Armstrong was contributing to the resolution of Hope St’s liquidated damages claim. There was no objectively ascertainable common intention in relation to either of these matters.
· If so, was JJ Armstrong’s contribution sufficient consideration for Hope St’s agreement to fix the amount of its liquidated damages claim? Answer: No need to answer. But even if I accepted JJ Armstrong’s characterisation of what it contributed to the resolution of Hope St’s liquidated damages claim, that was not sufficient consideration.
(b) Amount of delay damages: If there was no LD agreement, is Hope St entitled to damages or compensation for delay and, if so, in what amount? This issue requires consideration of the legal basis for Hope St’s claim, the ascertainment of the period of delay (which in turn requires consideration of the date for practical completion and the date of practical completion) and how damages or compensation for that period are to be assessed. Answer: Hope St is entitled to damages or equitable compensation for delay in the amount of $86,062.
Summary of issues: defect damages
(c) Access to site: Did Hope St limit or deny JJ Armstrong access to the site in a way that impeded or prevented JJ Armstrong from rectifying defects and completing incomplete works and, if so, did that conduct amount to a breach of express and implied terms of the Contract to co-operate and not to prevent performance or was it a failure by Hope St to mitigate its loss (or both)? Answer: Hope St did limit and deny access to an extent that gave rise to a failure to mitigate its loss.
(d) Defects: What items of defective or incomplete work is JJ Armstrong obliged by the Contract to rectify and what amount should be allowed in favour of Hope St in respect of those items (including by having regard to the access to site issue and the fact that certain of those items may give rise to remedies under Part 12A of the Building Act 1993 (Vic))? Answer: By reason of its failure to mitigate its loss, Hope St is entitled only to an amount in respect of defects and incomplete work by reference to the “builder’s cost”, being the cost to JJ Armstrong of rectifying and completing those works. But that cost is not reduced because certain items may give rise to remedies under Part 12A of the Building Act 1993 (Vic). The total payable by JJ Armstrong to Hope St in respect of defects and incomplete works is $58,549.
Summary of issues: other matters and the net result
(e) The Final Claim Certificate: Is the FCC valid and, if so, what part does it play in the determination of the other issues in the proceeding? Answer: The FCC is invalid. Even if it were otherwise, it is merely evidence of the matters it certifies and a factor to be weighed into the balance of the evidence (if any) on each of those matters.
(f) Site ownership: Is any claim by Hope St in respect of delay or defects precluded in any event by a failure to obtain written permission from the property owner for the works to be carried out, or by the fact that Hope St is not the owner of the property? Answer: No.
(g) The net result: Having regard to the answers to the questions above and after allowing for the retention amount (including GST) of $91,579.35 payable by Hope St to JJ Armstrong, what is the amount owing and to whom? Answer: After allowing for the retention amount (including GST) of $91,579.35, there is $53,031.65 payable by JJ Armstrong to Hope St.
The course of the trial
6 At the commencement of the trial, counsel for JJ Armstrong submitted that the usual course of the openings, evidence and closing addresses ought to be reversed. The basis for the submission was in substance that the overwhelming weight of the issues in the proceeding arose from Hope St’s counterclaim. This would mean that the bulk of the evidence from JJ Armstrong’s witnesses, after seeking to prove the formalities of the revised FCC, would be taken up with evidence in anticipation of the case to be put on behalf of Hope St.
7 I indicated to counsel for Hope St that I had some sympathy for JJ Armstrong’s suggested approach, primarily because it was likely to avoid the possibility of JJ Armstrong’s witnesses giving evidence on topics that later turned out to be uncontroversial. Hope St’s counsel submitted that it was not unusual for a plaintiff’s witnesses to be required to give evidence in anticipation of issues that may be raised for the defendant, but indicated that he had no substantive objection to reversing the order of addresses and witnesses.
8 While agreeing with Hope St’s counsel that the circumstances of this case were not particularly unusual, I saw some potential for time saving in JJ Armstrong’s suggestion, and in view of the lack of objection, acceded to it. I directed that the trial commence with an opening on behalf of Hope St, followed by an opening on behalf JJ Armstrong and that Hope St’s two lay witnesses be called next. This would be followed by the lay evidence on behalf of JJ Armstrong and then concurrent evidence from experts.
9 A number of other procedural issues arose during the trial, namely:
· the implications of JJ Armstrong’s late filing and service of the expert report of Dr Eilenberg;
· the debate over the iterations of the Summary of Issues document;
· Hope St’s successful application for leave to rely on their further amended reply to amended defence to counterclaim dated 26 May 2017;
· Hope St’s notice on 31 May 2017 that it did not press its liquidated damages claim calculated at $671,000, and instead claimed common law damages or equitable compensation totalling $125,952;
· JJ Armstrong’s successful application for leave to file and serve a rejoinder dated 2 June 2017 (including debate over various iterations of that document); and
· JJ Armstrong’s unsuccessful application to adduce expert evidence from Mr Brown.
10 It is necessary for me to say a little more about the last of these issues. I had anticipated also needing to say something about the second last issue, but given my findings below essentially rejecting the matters raised in the rejoinder, it is no longer necessary for me to do so.
The Contract
11 I describe the Contract as being at the heart of the proceeding because the parties are both experienced participants in commercial property development who made an informed choice (guided by Mr Brown) about the terms that would govern all aspects of their commercial dealings. And those terms are both extensive and comprehensive. Thus they play a central role in the consideration of every issue in this proceeding and will be the first and, in some cases, the only point of reference for determining those issues.
12 Moreover, any unilateral decision by a party or PBA as contract administrator to depart from or disregard those terms, whether as a consequence of leaving the contract “in the bottom drawer” or otherwise, carried a significant risk. Namely, that the decision would in due course come to be measured against what the Contract required, and fall short. That is, to a significant extent, what has occurred in this proceeding.
13 The circumstances of the completion and execution of the Contract are largely uncontroversial. Mr Brown’s evidence was that he provided a blank form of the Contract for both parties to familiarise themselves with. He asked JJ Armstrong to provide the detail to be inserted into the schedules to the Contract and submit this to Mr Brown to consider and revise on behalf of Hope St. Mr Brown wrote up the Contract accordingly and then met with Michael Dikeakos and John Newbold on 10 May 2012 to go through the completed Contract, deal with any queries and then execute the Contract.
14 There was some controversy concerning how the rate for liquidated damages at item 30 of Schedule 1 to the Contract was arrived at. There is no dispute that the words “$250 per day per unit” were written in by Mr Brown and agreed to by the parties. Michael Dikeakos gave evidence that the figure of $250 per day per unit was proposed by Mr Brown at the meeting to finalise the Contract, with Mr Brown describing it as being “a standard industry figure”. According to Mr Dikeakos, Mr Newbold agreed saying, “that’s fine, not a problem”.
15 The substance of Mr Brown’s evidence was that JJ Armstrong had inserted that figure in the process of completing a draft of the Contract prior to revision and completion by Mr Brown. Mr Brown said that he queried Mr Newbold on the figure, probably over the phone when he was in the process of revising and preparing the execution copy of the Contract. According to Mr Brown, he recommended to JJ Armstrong that the amount was excessive, but Mr Newbold was prepared to proceed with the figure.
16 Mr Brown later gave evidence that he believed that the true damage measurement would have been $250 per week per unit (rather than $250 per day per unit), because that reflected the market rate that those units would be let out at. He went on to say that he knew at the time the Contract was signed what the market rental rates generally would be, and he mentioned to Mr Newbold that $250 per week per unit was more in line with those rates. Mr Brown did not recall expressing the same concerns to the Hope St representatives at this time. The evidence is that he first suggested to Hope St some 18 months later (in correspondence and discussions shortly before the lunch meeting on 8 November 2013) that the liquidated damages rate set by the Contract may not be enforceable.
17 When Mr Brown’s evidence about how the liquidated damages rate was selected was put to Mr Newbold during cross-examination (he was not asked about it during his evidence in chief), Mr Newbold said: “Mr Brown is incorrect”. He said he was not the one who originated the liquidated damages rate: “we’ve never done that…we have no access to that information to be able to do that, and it did not happen”.
18 I have annexed to these reasons the relevant provisions of the Contract. Key among them are:
· clause A1 – setting out the obligation of both parties to act reasonably and cooperative;
· clause A6 – concerning the role of the Architect in administering the Contract;
· clause A8 – dealing with the process for disputing a certificate or decision issued by the architect, or the architect’s failure to issue a certificate or decision;
· clause A10 – which provides that compensation is the sole remedy under the Contract;
· clause G4 – providing that the contractor is liable for the work done by sub-contractors and must take responsibility for any acts or omissions of suppliers or subcontractors;
· clause H1 – which sets time limits for making claims to adjust the Contract;
· clause M – dealing with practical completion, liquidated damages and defects; and
· clause N – dealing with payment obligations and the final certificate.
Delay damages
19 Although an examination of the period of delay pre-supposes that there was no agreement to fix the amount of delay damages, it is convenient to begin with that issue, as it falls for consideration first in the order of events.
The building permits and building commencement
20 Mr Brown wrote the words in the Contract “date of building permit issue” (as the date in Schedule 1, item 18 by which the owner must give possession of the site) and “twelve months after issue of building permit” (as the date in Schedule 1, item 27 for practical completion). Mr Brown’s evidence was that, both at the time he inserted those words and by the time the parties executed the Contract, the expectation among Mr Dikeakos, Mr Newbold and Mr Brown was that there was going to be only a single building permit issued.
21 The choice of a date for practical completion, being 12 months after the anticipated issue of the building permit was important to Mr Dikeakos because this would coincide with the university semester break and provide Hope St with the ideal opportunity to market the accommodation to students due to commence university at the beginning of the second semester. Mr Brown agreed that he was present at conversations leading up to the start of the Contract where it was clear to all parties that the twelve month contract period was important to Hope St because they would capture the midyear semester break for university students.
22 Mr Dikeakos’s recollection was that the decision to split the building permit into two stages was the result of a round table discussion he attended with Peter Brown, PLP (the building surveyors) and John Newbold. Mr Dikeakos made it clear that Hope St wanted the construction completed by the semester break. He was pretty sure that it was suggested by Mr Newbold and also PLP that the building permit could be split, so there was a permit to get the construction “out of the ground”, while all the documentation was finalised to enable the issue of the second stage permit.
23 Similarly, Mr Brown’s evidence was that the reason for the two permits was “to commence work as quickly as possible”. He said that staged permits are a common technique, so that outstanding issues that may involve finishes and other non-structural matters do not delay the project. Both Mr Dikeakos and Mr Brown thought that the outstanding issue delaying the permit (and thus leading to the splitting of the permits into two stages) concerned the fire engineering report.
24 The first permit is titled “Building Permit Stage 1 – (Structural and Civil Works Only)” and is dated 12 June 2012 (“Stage 1 permit”). The cost of stage 1 is stated in the Stage 1 permit to be $1,140,810, being about one third of the total cost of $3,400,000. The second permit is titled “Building Permit Stage 2 – (Completion of Works)” and is dated 20 September 2012 (“Stage 2 permit”).
25 Mr Dikeakos’s evidence was that the work commenced within a week or so of the Stage 1 permit being issued. Minutes of “Site Meeting Number 1” dated 3 July 2012 confirm under item 4.0, a contract start date of 12 June 2012, a contract period of 12 months and a completion date of 12 June 2013. Mr Dikeakos was present at that meeting and gave evidence that there was no concern or complaint raised during the meeting by Mr Newbold or anyone else about the 12 month contract period needing to start from a later date.
26 Similarly, Mr Brown’s position as at the date of the receipt of the Stage 1 permit, was that the contract period of 12 months ran from that date. Mr Brown’s recollection was that JJ Armstrong provided a building program, probably after the issue of the Stage 1 permit, and that it did not provide for stages of works to be split between Stage 1 and Stage 2, but was a continuous program. Mr Brown did not recall Mr Newbold saying anything to him to the effect that the building program might have to be changed because JJ Armstrong only had a Stage 1 permit. Mr Brown confirmed that by the time of the first site meeting on 3 July 2012, JJ Armstrong had commenced work and had started issuing progress claims.
27 It is not in dispute that JJ Armstrong never made any claim for an extension of time in relation to the splitting of the building permits or otherwise in connection with the issue of the Stage 2 permit on 20 September 2012. Further, there is no evidence that JJ Armstrong was in fact delayed by the splitting of the building permits or the issuing of the Stage 2 permit some four months later than the Stage 1 permit.
How should the term ‘building permit’ be construed?
28 I agree with JJ Armstrong’s submission that whether JJ Armstrong did or did not subsequently claim extensions of time based on the Stage 2 permit is not relevant to this issue. The question is purely one of the proper construction of Schedule 1, item 27 of the Contract. In my view, on its proper construction, the expression ‘building permit’ as it appears in Schedule 1 item 27, is a reference to the permit pursuant to which construction commenced on the site, being the Stage 1 permit.
29 The term “building permit” appears twice in Schedule 1 of the Contract: in item 18, “date by which the owner must give possession of the site”, being “date of building permit issue” and item 27, “date for practical completion”, being “12 months after issue of building permit”. It is a fundamental rule of construction that any document should be construed as far as possible so as to give the same meaning to the same words wherever those words occur in that document.[1] Although this principle is better known as a principle of statutory construction, it applies equally to the construction of contracts.[2]
[1]Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450 at 452 per Hodges J
[2]Apple and Pear Australia Ltd v Pink Lady America LLC [2016] VSCA 280 at [160] and
30 In my view, the reference to “building permit” in Schedule 1 item 18 can only mean the building permit that entitles the contractor to enter into possession of the site and commence construction. The words “building permit” in Schedule 1 item 27 should be given the same meaning. Such a construction is also consistent with the relevant surrounding circumstances and the commercial purpose of the Contract. I agree, in this regard, with Hope St’s submissions.[3]
[3]At [5.10] to [5.20]
31 The evidence establishes that at the time the Contract was executed, the intention of the parties was that there would be a single permit. That intention is objectively apparent both from the form of words selected for Schedule 1 items 18 and 27 and from the fact that the idea of splitting the permits first arose after the Contract was executed. Thus at the time of execution of the Contract, the expectation was that construction on the site would commence on a particular date and proceed continuously until completion. The later splitting of the permits did no more than facilitate an earlier start date than would have been possible if the parties had been forced to await finalisation of the prerequisites to the Stage 2 permit.
32 I agree with JJ Armstrong’s submission that the change in circumstances after the Contract was executed resulting in a single permit becoming two permits, has given rise to a “latent ambiguity” in the Contract. However, in my view, a commercial result is achieved by resolving that ambiguity in favour of a construction that “building permit” in Schedule 1 item 27 means the permit that facilitated commencement of construction (being the Stage 1 permit). As Hope St submitted, the alternative view that the Stage 2 permit marks the commencement of the Contract period disregards the preceding three months of work which was in fact carried out on the project, claimed for and paid. To me, that is a result that gives rise to the kind of commercial nonsense eschewed by the authorities on which JJ Armstrong’s submissions rely.
33 JJ Armstrong has submitted that clause R14.1 of the Contract supports the preferred interpretation of “building permit” as plural. In my view, converting the term into the plural form “building permits” does not advance the argument. It remains productive of ambiguity when looked at in the context of the Contract as a whole, particularly in light of Schedule 1, item 18. Thus the same construction analysis is engaged, with the same result.
What was the date for practical completion?
34 Although the documentation concerning the progress of the building project did not identify precisely when and why this occurred, there was no dispute between the parties that the original date for practical completion of 12 June 2013 was at some point extended to 1 July 2013. Mr Brown gave evidence that there were claims for delays that would have been certified to that extent. There is, however, a dispute about whether the date was further extended to the end of July 2013.
35 In anticipation of completion in June 2013, Hope St commenced advertising for tenants in about mid-April 2013. The advertising coincided with open days for the various nearby universities. Hope St was able to secure 5 tenants at rentals ranging from $1,304 per month to $1,704 per month. In cross-examination, Mr Dikeakos explained that the documents giving details of those tenants were not leases, but were “disclosure statements” provided to prospective tenants. He said that the statements set out a snapshot of what the student was going to be leasing and, when the premises became available, the student would come in and sign a lease and be given the keys. Each of the disclosure statements included a provision that the tenant would be notified by no later than 2 June 2013 in relation to the building being available on 2 July 2013.
36 Mr Dikeakos gave evidence that at the time the prospective tenants were secured by provision of the disclosure statements, he already had a little bit of concern about the project not being completed by the due date, given that the works were not up to the stage expected by that time. Mr Dikeakos referred to a meeting on-site with PBA and John Newbold during which Mr Newbold stated that the building would be complete by 31 July 2013. It seems likely that the meeting Mr Dikeakos was referring to was the last site meeting, being site meeting number nine held on 9 July 2013.
37 Minutes of site meeting number 8 held on 4 June 2013, at item 4 still show the “revised completion date of 1 July 2013”. The handwriting appearing on that page of the minutes in the court book is Mr Dikeakos’s. Mr Dikeakos’s evidence was that the notes were made by him during a later conversation with Mr Brown when it was evident that the building would not be completed by 1 July 2013. This conversation is likely to have been at or about the time of the final site meeting on 9 July 2013. The minutes of that meeting showed that the revised completion date remained at 1 July 2013 but included a note that:
JJA informed practical completion is scheduled for 30 July 2013, 30 calendar days after adjusted completion date. JJA to provide work progress in a week’s time.
38 The effect of Mr Brown’s evidence in relation to this note was that he was aware there were delay claims that JJ Armstrong could have made, but didn’t. This was not something that JJ Armstrong had said to Mr Brown or emailed him about, it was just his observations about the works. There was a subsequent extension of time (“EOT”) claim that was not processed, part of which related to a delay in the delivery of vanities. While Mr Brown agreed that this extension claim was never certified by PBA, he gave evidence that: “We agreed that practical completion would extend to that likely time” (referring to 30 July 2013).
39 However, shortly after the final site meeting on 9 July 2013, Mr Brown sent an email to JJ Armstrong confirming that Hope St wanted the building completed by the end of July 2013. The email sent by Mr Brown is dated 11 July 2013 and states as follows:
“John
I have to draw your attention to an issue raised as a result of your advice on Tuesday (9th) that you anticipate completion by the end of this month (July).
It is noted that your advice at our June 2 meeting was that you anticipated completion in the first week of July. And further, that the Contract completion date had been adjusted to July 1st. Both of those times have now passed.
Michael and George have pointed out that they have lost 5 tenants scheduled to move in on the 13th July, and have also incurred another month of financing costs-and are desperate for completion.
They are aware that under Clause M12 they may have entitlements to liquidated damages, subject to any time claims that you [may] not have yet lodged.
At the same time they are appreciative of your work and the manner in which you have carried out of the contract on a very difficult site and don’t want to compromise the current excellent working relationship.
Accordingly, on their behalf, I pass on the proposal that if JJ Armstrong undertakes to achieve Practical Completion by July 31, and in the process agrees to install the previously deleted shelving, as well as the level 5 balcony boxing to the downpipes, then they will happily forgo their entitlement to liquidated damages.
Otherwise they reserve their entitlement.
If you have any queries please call, otherwise I look forward to your acceptance of the proposal.”
40 It is notable that Hope St’s offer in the letter from Mr Brown is to forgo an asserted entitlement to liquidated damages despite an anticipated delay of one month, so long as JJ Armstrong agreed both to meet the new deadline and to do some minor additional works. This theme repeats in the evidence of Michael and George Dikeakos about what occurred at the 8 November 2013 lunch meeting discussed below.
41 Importantly for present purposes, the email is not consistent with the existence of any notification (formal or otherwise) of an extension of the date for practical completion to 31 July 2013. On the contrary, the effect of the email is that Hope Street was reserving its entitlement to claim liquidated damages for delay if JJ Armstrong failed to achieve practical completion by 31 July 2013. If the date for practical completion had already been extended to 31 July at the time this email was sent (as Mr Brown suggested), Hope St would have had no “entitlement” that it could “reserve”.
42 Similarly, JJ Armstrong’s extension of time claim 14 dated 22 July 2013 (“EOT claim 14”), claims eight working days as an adjustment to the date for practical completion and puts the “Revised Practical Completion Date” as 17 July 2013. It is not clear to me how the eight additional working days leading to an adjusted date of 17 July 2013 is calculated, but it is certainly not based on a date that had already been adjusted to 31 July 2013. PBA failed to assess that claim within the time required by clause H4, or at all. And JJ Armstrong failed to dispute PBA’s failure to assess the claim pursuant to and within the time provided by clause A8.1 of the Contract.
43 JJ Armstrong relies on two items of later correspondence. First, an email from Mr Dikeakos to Mr Brown dated 24 October 2013, which states that at the site meeting held on 9 July 2013: “it was agreed that practical completion would be given on 30 July 2013 as the main delay was in relation to the power being connected to the property”. Secondly, Schedule 1 to the letter dated 4 May 2015 from Hope St to Mr Brown disputing the revised FCC, in which Hope St refers to: “Extension of time approved for completion date: 31st of July 2013”. These may show that Mr Dikeakos believed at the time that the date for practical completion had been adjusted. However, in the absence of grounds for estoppel, Mr Dikeakos’s subjective belief about that matter cannot operate to effect that adjustment. No estoppel is pleaded in reliance on those communications, nor could it be. Among other things, there is no evidence of reliance by JJ Armstrong or acting to its detriment in respect of either communication.
44 In those circumstances, I do not accept JJ Armstrong’s submission that, while no formal notice was issued by the architect of the extension to 31 July 2013, the evidence clearly indicates that the parties were notified at site meeting number 9 that the date was so extended. In my view, the evidence as a whole points the other way. In any event, PBA’s certification of 1 July 2013 as the date for practical completion (and PBA’s failure to certify any later date) is decisive on this issue. JJ Armstrong failed to dispute pursuant to clause A8 of the Contract either PBA’s certification of the adjusted date for practical completion of 1 July 2013 or its failure to certify a later date.
45 By its rejoinder, JJ Armstrong has pleaded that Hope St is also disentitled to general damages for delay on the basis claimed, because it contributed to that delay in a manner that amounted to a breach of its express and implied duty to co-operate and act reasonably. In its particulars to this pleading, JJ Armstrong relies on its (uncertified) EOT claim 14. I had understood this claim to amount, in effect, to an alternative basis for a finding that the start date of Hope St’s delay loss should be later than 1 July 2013, regardless of the stipulation of the date for practical completion under the terms of the Contract.
46 However, JJ Armstrong’s submissions on this issue appear to address a different matter, namely, the allegation that Hope St denied access to JJ Armstrong for the purposes of completing defects.[4] That allegation has no bearing on any entitlement to damages for delay. It is therefore not clear to me whether JJ Armstrong presses this claim and, if so, on what basis. In any event, I am persuaded that it should be rejected for the reasons advanced by Hope St.[5] Accordingly, I consider that any delay loss claimable by Hope St should be calculated from the adjusted date of practical completion certified under the Contract of 1 July 2013.
What was the date of practical completion?
[4]Page 37, issue 4, cross-referencing paragraphs [44]-[47]
[5]At [4.1]-[4.9]
47 According to Mr Dikeakos, Hope St received the occupancy permit “pretty much the next day” after the date it bears (12 September 2013). His evidence was that he was expecting to receive the keys at the same time, but did not in fact receive them until around 25 September 2013. They were given to Mr Dikeakos by Mr Lenhart on site. Mr Lenhart’s evidence was that he did not recall the specific date on which he delivered the keys to Mr Dikeakos, but did recall that it was “quite soon after, meaning a number of days” after the receipt of the occupancy permit. He added that “it was certainly not as late as 25 September 2013 which was almost two weeks after the certificate issued”.
48 In fact, the date the occupancy permit bears was a Thursday. If the permit did not reach the parties until late the next day (or the following Monday), and the reference to a “day” is taken to be a reference to a business day, it is possible that the “number of days” that Mr Lenhart refers to could therefore have taken the period of delay to the Thursday or Friday of the following week (20 or 21 September). 25 September 2013 (a Wednesday) is only 3 to 4 business days beyond that. Further, as at 25 September 2013, Mr Dikeakos had not received all of the manuals and other documents listed at Schedule 2a, item 9 of the Contract. His evidence was that he had not received any folders at this time. Rather they came in from the architect in “dribs and drabs”, somewhere between the end of September and the end of October 2013.
49 PBA issued the formal Notice of Practical Completion dated 31 October 2013. The notice is directed “To Contractor” and states:
“Pursuant to clause M4 and item 9 of Schedule 2a -Special conditions, you are advised that, in our opinion as Superintendent, the Works have reached Practical Completion (Noting occupancy commenced on 13 September 2013). The defects Liability Period of 52 weeks commences on 31 October 2013. Further, we hereby release 50% of the retention funds pursuant to clause C7”.
50 In evidence-in-chief, Mr Dikeakos said that on receiving the Notice, Hope St began the process of advertising the apartments. He said that it took about eight weeks to secure leases for all of the 22 units in the building, “and we had to start advertising at a discount rate to try to get the apartments filled”. However, in cross-examination, Mr Dikeakos said that the first tenant moved in in late September or early October 2013, and “gradually we started filling them up”, over the course of the next days and weeks.
Can Hope St claim general damages or equitable compensation for delay?
51 I have concluded that it is not necessary for me to determine whether the date of practical completion under the terms of the Contract falls on the date of the occupancy permit (12 September 2013), the date certified by the architect (31 October 2013) or some date in-between. But before giving my reasons for that conclusion, I will consider the question of whether (as JJ Armstrong has alleged), the only compensation available to Hope St under the contract for delay is liquidated damages calculated in accordance with clause M12. The relevant provisions are clauses A10 and M12 of the Contract. For the reasons that follow, on a proper construction of those provisions, Hope St is not precluded from recovering general damages for delay.
52 Clause M12 is headed “Liquidated damages may be payable”. Accepting that headings in the Contract are a guide only and do not form part of it (clause R11), I consider that the heading does accurately state the effect of the clause. Clause M12.2 unequivocally confers on the owner a discretion as to whether to claim liquidated damages. It relevantly provides: “Up to 20 working days after the date of 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” [emphasis added]. However, if an owner chooses not to enforce its entitlement to liquidated damages under clause M12, or is unable to do so (for example, because the agreed rate amounts to a penalty), is the owner’s right to recover compensation for delay lost altogether?
53 There is some tension between the Australian authorities and academic writings about how that question should be answered. And the authorities themselves are not entirely consistent. The current state of the law, at least in Australia, is conveniently analysed and summarised in a recent decision of Burns J in the ACT Supreme Court in Adapt Constructions Pty Ltd v Whittaker and Luff[6] (“Adapt”). That analysis (as it relates to the position in Australia), begins with a discussion of the decision of Giles J of the NSW Supreme Court in Baese Pty Ltd v Bracken Building Pty Ltd[7] (“Baese”) and, in particular, His Honour’s distinguishing of the English Court of Appeal in Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30, and his finding that:
“It is, I think, fairly well recognised that a liquidated damages clause providing for liquidated damages in the event of failure of a builder to complete on time is normally inserted for the protection of the proprietor, in order that the proprietor may be relieved from the difficulty and expense of proving actual damage occasioned by delay, and I refer in this regard to what was said by Salmon LJ and Phillimore LJ in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 114 at 121 and 127. It seems to me that the function of cl 10.14 was to enable the proprietor, if he so desired, to cause the architect as his agent to invoke the machinery whereby liquidated damages could be assessed, or enable the architect to do so, in order to obviate the task which would otherwise arise of establishing an actual loss due to delay, but that if the proprietor or the architect did not do so, then the proprietor was entitled to rely upon his common law right to damages for breach of cl. 1.02.03.
One matter in particular can be seen as supporting this view of the contract. As Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd shows, a proprietor may lose his right to rely upon a liquidated damages clause providing for liquidated damages in the event of delay in completion if the proprietor caused or contributed to the delay. In that situation it would require clear words, in my view, before it was held that a liquidated damages clause was the entirety of the proprietor’s rights, because the proprietor would be exposed to being left with no entitlement at all to damages for delay if by reason of his own contribution thereto he was unable to rely upon the liquidated damages clause. Clause 10.14, read in the context of the contract as a whole, does not to my mind so provide, and certainly does not so provide in clear words.”
[6][2015] ACTSC 188 at [72]-[80]
[7](1990) 6 BCL 137
54 I would say the same about the function of clause M12 particularly (as in this case) where the proprietor has lost his right to rely on the liquidated damages clause because it has been conceded (correctly, in my view) that it is a penalty.[8]
[8]For a specific reference to the implications of a clause being successfully challenged as a penalty, see Liquidated Damages and Extensions of Time in Construction Contracts, by Brian Eggleston, published by Wiley-Blackwell, 3rd ed at 3.3. See also Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246 at [62]
55 I note that Burns J in Adapt does not include in his analysis the decision of Turner Corporation Limited (Receiver and Manager Appointed) v Austotel Pty Ltd (1997) 13 BCL 378 (although it was cited to him), in which Cole J (also of the NSW Supreme Court) distinguished Baese, essentially on the basis that he (Cole J) was not addressing liquidated damages. There is a clear sense that Cole J was troubled by the result in Baese and concluded that he was unpersuaded that the word ‘may’ in the clauses he was tasked to construe, was intended to preserve common law rights. Referring to the concept articulated in Baese that if a party's common law right to sue for damages for breach of contract is to be contractually removed, it must be done by clear words, Cole J held (at p395):
“I do not doubt that concept; however, it does not mean that express words are required. If on the proper construction of the contract as a whole, it can be said that a party has surrendered its common law right to damages, that construction must be given effect to, notwithstanding absence of express words surrendering the common law right to damages.”
56 However, Burns J in Adapt does cite extensively from the still more recent decision of the WA Court of Appeal in J-Corp Pty Ltd v Mladenis[9] (“J-Corp”) (which cites Baese with approval) and distils from the authorities as a whole the following principles:
[9][2009] WASCA 157
(a) the requirement in each case is to ascertain the intention of the parties to the agreement concerning damages for delay;
(b) in ascertaining that intention, consideration may be given not only to the language of the agreement, but also to the surrounding circumstances known to the parties and the apparent purpose and object of the transaction;
(c) the vesting of a discretion in the proprietor to exercise a contractual right to claim liquidated damages may indicate that the parties did not intend the contractual right to liquidated damages to be the exclusive remedy for delay; conversely, a mandatory clause, in the sense of compelling the builder to pay regardless of any demand for payment by the principal, may indicate that the clause is intended to provide an exclusive remedy; and
(d) in construing a contract which, on its face, provides for no liquidated damages for breach, an intention to exclude a right to common law damages must be expressed in clear and unambiguous terms.
57 The principle in (d) above derives from a statement by Newnes JA in J-Corp where His Honour drew a distinction between contracts which provided for the liability of the builder in a positive amount, and those which provided for nil damages. His Honour said (at [51]):
I do not consider there is any inconsistency between the terms of cl 11.9 and a right in the respondents to claim unliquidated damages for delay. The position may well be different where a contract provides for the liability of the builder for liquidated damages in a positive amount, it being unlikely that the parties would have intended that the proprietor should have the benefit of both liquidated and unliquidated damages for the same delay.
58 I have some reservations about the second sentence of this passage, given that none of the authorities appear to countenance a suggestion that an owner could claim both liquidated and unliquidated damages for the same delay. At most, decisions like Baese can be said to preserve to the owner a choice where (as in the present case) the liquidated damages clause is expressed in permissive terms.[10] In any event, two matters that all the authorities are clear and consistent about are, first, that the question is ultimately one of construction of the particular contract under consideration. And, secondly, that if a party's common law right to sue for damages for breach of contract is to be contractually removed, it must be done by clear words.
[10]That is, it is not a “valid and mandatory” [emphasis added] liquidated damages clause: Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246 at [62]
59 In this case, in my view, clause M12 fits comfortably into the category of a clause that evinces an intention of the parties to confer on Hope St a discretion not to take the liquidated damages route, and instead opt for common law damages. In particular, I do not read the clause as providing that a decision (or an inability) on the part of Hope St to take the liquidated damages route, robs it entirely of any right to seek compensation for breach of the Contract. Put another way, there are no clear words in clause M12 suggesting that the parties intended to remove Hope St’s right to claim common law damages (I deal with clause A12 below).
60 To the extent that it is necessary to seek guidance from surrounding circumstances (and acknowledging the ongoing uncertainty about when it is permissible to do so[11]), these point in the same direction. The evidence referred to above concerning how the rate of liquidated damages was arrived at, shows a distinct lack of discipline in the process. There was no real attempt by any of those involved to engage in a robust pre-estimate of what Hope St’s actual loss from delay might be. Indeed, on one view of the evidence, Mr Brown (in this capacity, acting for Hope St) alerted JJ Armstrong through John Newbold, to the fact that the rate was excessive and Mr Newbold was content to proceed with it.
[11]Compare, for example, Mainteck Services Pty Ltd v Stein Heurtey [2014] NSWCA 184, Grocon Constructors (Victoria) Pty Ltd v APN DF2Project Pty Ltd [2015] VSCA 190 and Todd v Alterra at Lloyds [2016] FCAFC 15
61 Thus the parties either knowingly adopted a liquidated damages rate that was not a genuine pre-estimate of actual loss or, at best, treated the rate as an afterthought. In my view, this conduct is not consistent with an intention that liquidated damages stand as the only source of Hope St’s entitlement to damages. It is not mandatory in its express terms and it carried with it the risk that it was invalid in it operation. It therefore falls entirely outside the description offered by Jenkins J in Silent Vector Pty Ltd t/as Sizer Builders v Squarcini as follows[12] (citations omitted):
“The authorities are at one that a valid and mandatory liquidated damages clause in a building contract which stipulates a positive amount of liquidated damages for failure to reach practical completion by the due date is evidence of an intention by the parties to exclude liability for unliquidated damages. In other words the parties to a contract will be bound by the liquidated damages clause if it is not a penalty.”
[12][2008] WASC 246 at [62]
62 In my view, clause A10 of the Contract does not detract from the analysis above, for two reasons. First, clause A10 provides: “Where the contractor or the owner is entitled to compensation as determined under this contract”. The use of the generic term “compensation” and not “damages” or “liquidated damages”, suggests to me that the clause intends to exclude non-monetary remedies (such as specific performance, where the Contract allows for compensation in lieu of performance), and is not seeking to distinguish between types of monetary damages. Secondly, and in any event, the clause goes on to provide that such compensation is a sole and complete remedy under the Contract only “when paid in full”. Here, no compensation whether liquidated or otherwise, in full or in part, has been paid by JJ Armstrong for its delay. Accordingly, clause A10 does not operate at all.
63 Although my findings above mean it is unnecessary for me to decide the point, my tentative view for the reasons advanced in the Hope St’s submissions, is that Hope St has an alternative remedy in equity, based on the remarks in Andrews v ANZ Banking Group Ltd,[13] and the later authorities referred to by Hope St. I also note that, despite being the putative beneficiary of the admittedly exorbitant rate of liquidated damages provided for in the Contract, Hope St appears to have had little or no involvement in arriving at that rate. This may be a further factor in favour of equity intervening to ensure Hope St is not deprived entirely of a remedy for delay.
[13](2012) 247 CLR 205 at [10]
What is the period of compensable delay?
64 JJ Armstrong’s failure to bring the works to practical completion by the adjusted date for practical completion (1 July 2013) was a breach of the Contract entitling Hope St to damages for such breach, calculated in accordance with the usual measure of damages for breach of contract. Hope St claims in effect that its loss and damage manifested in its loss of opportunity to lease the apartments on and from that date and to derive rent from those leases. There can be no suggestion that loss of the type claimed was not foreseeable. Likewise, it is clear that the loss was caused by JJ Armstrong’s failure to have the apartments ready for occupation by the date for practical completion of 1 July 2013.
65 I accept that Hope St was able to arrange five likely tenants during May 2013 when it seemed possible that the project would be completed in July 2013, at the rents set out in the disclosure statements referred to above. I am also satisfied on the evidence that, had the project been nearing completion in the period leading up to that date, Hope St would have derived some advantage from the likelihood of greater demand for student accommodation around the time of the university semester break in late June and July, than would be expected mid-semester. Thus, it is likely that the apartments would have filled up somewhat more quickly commencing on 2 July 2013 than commencing on a date in September or October.
66 Turning to the point in time when loss from the delay ceased, the pre-eminence of the terms of the Contract and the implications of the certification (or lack of it) by PBA as ‘architect’, are decisive considerations in determining many of the issues in this case. However, they are of diminished importance in relation to fixing an end date of the period for which Hope St can claim damages. This is because, in my view, Hope St’s decision on day three of the trial to abandon its claim for liquidated damages, necessarily takes it out of the strict terms of the Contract. Instead, the exercise becomes one of determining assessable actual loss flowing from the breach in respect of both any “rate” of damages, as well as the period in respect of which those damages are to be assessed. Put simply, by abandoning liquidated damages, Hope St can no longer rely on the formula imposed by the Contract either in respect of rate or period.
67 While the date for practical completion does set the start date (because it is the failure of JJ Armstrong to deliver a completed building by that date that constitutes the relevant breach of the Contract), the end date will be determined by ascertaining when in fact Hope St was able to begin the process of leasing apartments, not by reference to the artificially imposed date of practical completion. On the evidence, this was a date after 12 September, but before 31 October 2013, by which time the process of leasing the apartments was well underway (if not close to complete).
68 The evidence on this discussed above is sketchy, as is the evidence of rental rates. But in my view, and notwithstanding JJ Armstrong’s submissions to the contrary, this is a case of difficulty of assessment, not one where Hope St has produced no admissible evidence of loss. The authorities are clear that where damages are difficult to assess because the plaintiff has produced evidence which, while establishing loss or damage, does not permit the court to make as reliable an assessment as should have been possible, the court must do the best it can.[14]
[14]Howe v Teefy (1927) 27 SR (NSW) 301 at 306 per Street CJ (Gordon and Campbell JJ concurring) (approved Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 125; 104 ALR 1 at 43; 66 ALJR 123 per Deane J
What is the quantum of delay damages?
69 Doing the best I can, and after allowing for the uncertainty about the date of the provision of keys and the fact that there would likely have been greater difficulty in finding tenants in the middle of the university semester compared with a 1 July date of practical completion (but accepting that there would have been some time delay in filling apartments in either case), in my view Hope St’s delay loss had ceased by no later than 30 September 2013. Thus the total period of compensable delay was three months, not four as submitted by Hope St.
70 As with the evidence going to the period of delay, the evidence of actual rental rates potentially achievable during that period is also considerably less than ideal. Hope St relies on the rent referred to in the five disclosure statements Hope St was able to secure in May 2013 and the evidence of Michael Dikeakos as to the numbers of apartments that attracted the various monthly rents (13 at $1,304, 4 at $1,504 and 5 at $1,704). The only other evidence was Mr Brown’s scantily supported assertion that $250 per week (being $1,083 per month) per unit, reflected the market rate that the units would be let out at. However, as JJ Armstrong submitted, the rates provided by Mr Dikeakos do not appear to take account of, for example, which apartments were rented furnished and which were not (given the rates in the disclosure statements were for furnished apartments and Mr Dikeakos gave evidence in cross examination that not all apartments were rented furnished). JJ Armstrong went on to submit that:
“In light of the evidence that tenants were in fact occupying apartments in September and October and the fact that Hope St must be in possession of documentary evidence in respect of its claim for general damages, it must be assumed that any such evidence held by Hope St does not support the claim as particularised. In the absence of such proof the claim for general damages must fail.”
71 Although (as discussed above) I do not agree that the evidence is so deficient that the claim for general damages must fail altogether, I do consider that the uncertainty in the evidence requires that I take a cautious approach to the evidence of rental rates (such as it is). While accepting that Mr Dikeakos has given evidence of a range of rents from $1,304 up to $1,704 per month, I need to weigh that against the lack of detail in that evidence as to what factors justified those higher rates and the evidence from Mr Brown suggesting that market rates may have been even lower. Once again, doing the best I can, I propose to take the figure of $1,304 per month, representing the lower and more conservative end of the possible range or rents, and apply it to all 22 of the apartments.
72 On that basis, I assess Hope St’s loss from the delay as 22 multiplied by $1,304 per month for three months, or $86,062 in total. I accept the submission by Hope St that it is entitled to interest on that sum under the Contract at the rate of 10% per annum (clause N16, item 34). However, in the ordinary course, the sum owing by JJ Armstrong for delay damages would have been netted-off against the retention sum, and this amount would not have begun to accrue interest until a final accounting was achieved as part of a valid Final Claim Certificate process. The parties were denied that process in the circumstances discussed below, and I therefore propose to allow interest on the net amount owing to Hope St on and from 13 February 2015, for the reasons there set out.
Correspondence leading to the lunch meeting
73 Mr Dikeakos wrote to Mr Brown by email dated 24 October 2013 seeking his thoughts on a number of matters relating to delays, defects and deficiencies in the manuals received. On the subject of liquidated damages, the email states: “My understanding is we have rights to claim the full $228,000 under item 30 M12 clause”, and then sets out how that sum has been calculated. Among other things, Mr Dikeakos asserts in the email that the “delay to complete as per our contract was 38 days”.
74 On the topic of defects, Mr Dikeakos states in the email:
“Furthermore in relation to the defect period the list was provided to JJ more than 10 days ago from the date of this email and yet they have not been rectified. I don’t want these defects to carry on for over 6 months and given you’re the super of this contract can you pls advise what the best course of action is. We are continually getting water through the downpipes and into our bin/bike area. [emphasis added]
…
We want these rectified asap given students are starting to occupy the rooms. Seems as JJ are dragging their feet given the constant harassing of getting these defects completed”.
75 Mr Brown responded to that email by email dated 6 November 2013. In this email, Mr Brown makes a number of observations concerning a potential claim for liquidated damages. After noting that Hope St is considering whether or not to make a claim, he observes that Hope St had also acknowledged the merits of the construction performance by JJ Armstrong. He states:
“These 2 things seem contradictory to each other and perhaps they can be better resolved at lunch on Friday”. He continues: “I suspect that whilst it is articulated in the contract at $250/day per unit, that liquidated damages rate would not be accepted by a Courts [sic] on the grounds that… The purpose of liquidated damages is to compensate for losses (damages) only-it is not meant to be a profit opportunity. Any damages could only reasonably be assessed at $250/week” [emphasis in original].
76 At point 9 in his email, Mr Brown states: “Against these points must be weighed the builder’s overall performance and fairness in his variation and time claims. The (pedantic if you like) fact is that his Stage Two permit is dated September 30, 2012”.
77 Mr Dikeakos responded to this email by an email dated 6 November 2013, copied to John Newbold. In it, Mr Dikeakos asserts that seeking liquidated damages is not a profit driven exercise. The email goes on to identify concerns in workmanship in the project and other matters, including a major outstanding issue regarding the hot water service. The email concludes by expressing hope that issues can be resolved over Friday’s lunch.
78 John Newbold of JJ Armstrong also replied to the 24 October email from Mr Dikeakos shortly before the lunch meeting. His email is dated 7 November 2013. Mr Newbold begins: “Just a couple of notes (I feel obliged to respond) in regard to your email to Peter Brown onto which I was copied”. He then goes on to respond at some length to a number of Mr Dikeakos’s complaints and strongly defends the quality of the workmanship and materials used in the project. His email does not engage with Mr Dikeakos’s asserted claim for liquidated damages, apart from stating: “38 days: I am unsure what this is about and where these nominated 38 days have come from. It was in our best financial interests to be off site sooner rather than later”. Mr Newbold makes no references in his email to the Stage 2 permit or to the time to complete of defects.
The lunch meeting
79 The meeting foreshadowed in Mr Brown’s and Mr Dikeakos’s emails took place at 1.00pm on Friday 8 November 2013 at “Mesa”, a Greek restaurant in Abbotsford. The meeting was attended by Michael Dikeakos, his father George, John Newbold, Ben Newbold and Mr Lenhart from JJ Armstrong and Mr Brown. Having regard both to the differing priorities and expectations of those attending the meeting and the informality of the setting, it is perhaps unsurprising that there are significant differences in the various accounts of what was discussed and agreed at the meeting.
80 On the Hope St side, Michael Dikeakos’s evidence was that he remarked at the meeting that, as the building wasn’t yet fully occupied, it was a great opportunity after Mr Brown had done his list of defects and Mr Dikeakos had compiled his list, for the builder to get into the building in the period leading up to Christmas and complete the majority of the defects. Mr Dikeakos continued: “He could move around freely in the building, given the fact it wasn’t fully occupied, and we were stressing to him that we wanted them completed as soon as possible”. According to Mr Dikeakos, the response on behalf of JJ Armstrong was “we will do our best efforts to complete them”.
81 George Dikeakos understood the purpose of the meeting was to discuss the outstanding work and rectification of the defects. His evidence was, that while he was not directly involved in the negotiations, he heard John Newbold, Mr Brown and Michael Dikaekos discussing the outstanding work and defects. He understood that Mr Newbold and Mr Brown had agreed to complete the outstanding work and rectify the defects by 30 June 2014 in exchange for a sum of money. George Dikeakos said he had heard the amount of $30,000 mentioned, but didn’t pay any attention to it.
82 On the subject of liquidated damages, according to Michael Dikeakos, he stated at the meeting that Hope St had a rate of $250 per unit per day and Mr Brown responded by asking what Hope St’s actual losses were. Mr Dikeakos estimated without having details in front of him that actual losses would have been $30,000 or thereabouts. Mr Brown then made the suggestion that if “Michael and George would limit the LD charge to half of the actual losses if defects were completed by 30 June 2014”. Mr Dikeakos said he was happy to agree with that and it seemed to him that everyone agreed. According to Mr Dikeakos, Mr Newbold did not say anything to give him the impression that getting all the defects done by 30 June 2014 was not going to be possible.
83 According to Michael Dikeakos, there was no discussion at the lunch meeting about the issue of the dates of building permits. He added that, during his entire dealings with the architect or the builder on the project, neither of them ever raised the issue with him about the contract period and that it should start from the Stage 2 permit. George Dikeakos’s evidence was that he did not hear John Newbold mention that JJ Armstrong would forego any claims for an extension of time or rights in relation to the permit issue.
84 Mr Dikeakos gave evidence that he made a brief hand written note of the discussions at the meeting at about 6.30 to 7.00pm that evening. The note relevantly states:
‑ meeting held 8/11/13
‑ discussion between me, George, Ben, Peter, James, John
‑ talked about LD, loss to Hope St, loss of leases, defects
‑ agreement defects will be completed by the end of June/July limit the LD payable under contract
85 In cross-examination, Mr Dikeakos said that the note was made on a page of a notepad that he was using, and he rejected the suggestion by counsel for JJ Armstrong that the note was not in fact made by him on the day of the meeting. He also disagreed with counsel for JJ Armstrong when she put to him that there was no discussion about there being any condition applied to the agreement for liquidated damages. Neither Michael nor George Dikeakos were tackled in cross-examination about evidence that was later given on behalf of JJ Armstrong to the effect John Newbold said at the meeting words to the effect that the two stage building permit “blurred the lines” on the date for practical completion and that JJ Armstrong would “put that matter to bed” in agreeing to pay half of Hope St’s delay cost.
86 Turning to the JJ Armstrong witnesses, John Newbold recalled that Mr Brown attempted to identify the actual loss incurred by Hope St and figures such as $30,000, $20,000 and $15,000 were “thrown around”. His evidence was that no specific figure for liquidated damages had been agreed upon. Rather, JJ Armstrong would pay half of the amount Mr Brown deemed appropriate. When it was put to him that this evidence was inconsistent with his letter of 8 December 2014, he conceded that his recollection was that the payment would be less than half of $30,000, but reiterated that his agreement was to pay half of whatever Mr Brown determined was appropriate.
87 Mr Newbold agreed that Hope St was looking for reassurance that JJ Armstrong would return to complete the outstanding defects, but denied there ever being a condition to the agreement on liquidated damages. He agreed in evidence that he expressed his commitment to attending to the urgent defects, but attending to other defects would be deferred to the end of the defects liability period. Mr Newbold noted that at the time of the meeting, they were still in the defects liability period and for this reason, he would have rejected a condition on completing defects early forming part of any agreement. He said, no builder attends to defects before the defects period is over.
88 In evidence-in-chief, Mr Newbold stated that he felt the agreement on liquidated damages was a concession to settle the potential issue of a second building permit. He stated that there was “a bit of query about that and we felt that we will concede that, to put the whole matter to bed and get on and finish the job”. In cross-examination, Mr Newbold’s evidence was that the two building permits “blurred the lines” of the practical completion dates. He asserted that he said at the meeting that there was a blurred line with the Stage 2 permit and that if Mr Dikeakos accepted half of whatever sum Mr Brown determined, JJ Armstrong would “take the building permit off the table” and “put that one to bed”. Mr Newbold maintained that this exchange occurred during the meeting.
89 Ben Newbold was not closely involved in the project at Hope St in the period leading up to the meeting. However, he saw some of the correspondence and overheard his father John and James Lenhart in their open plan office both on the phone to PBA and speaking to each other about aspects of the project. He believed that up until the point of the 8 November 2013 meeting, the relationship between JJ Armstrong and Hope St was cordial.
90 Mr Newbold was unaware there had been two stage permits on the project until about the time he first learned that Hope St had raised the issue of liquidated damages. He said this was definitely before the meeting, but he was unsure how long before. Mr Newbold maintained that he was unaware before the meeting that Hope St considered it was entitled to liquidated damages in the order of approximately $228,000. He knew about the $250 per unit per day, but had not calculated the quantum of the actual exposure. His evidence was that he was “looking at it from a stage 2 building permit where…there is no delay”.
91 Ben Newbold saw Mr Brown as the chair of the meeting, who guided the discussion to a resolution of the liquidated damages issue. Mr Newbold gave evidence that, at the conclusion of the meeting, Hope St had accepted John Newbold’s offer that JJ Armstrong would pay half of Hope St’s losses:
“The conclusion to that lunch was that in the interests of putting this to bed, and avoiding an argument regarding LDs regarding permit dates, was, ‘we’ll pay you half. Let’s go halves. We put the contract away and we get on with finishing the defects and finishing this building. In the interests of maintaining a relationship, let’s just put it to bed”.
92 When pressed on the amount of liquidated damages that was agreed at the meeting, Mr Newbold confirmed his earlier evidence that “$15,000 was the number that I recalled”. He went on to say: “I’m not exactly sure whether they had originally said it was $30,000 and 50% was $15,000 or whether the number they had said was $15,000 and the number became 50% of $15,000”. In the end, Mr Newbold agreed that he left the meeting thinking that the amount to be paid was $7,500.
93 Mr Newbold agreed that he did remember his father saying something to the effect that the Stage 2 building permit “blurred” the issue about completion dates. His evidence was that: “after liquidated damages had been flagged and issues regarding defects had been spoken about and raised, John then had the opportunity to respond and said that, from our side, we still believe that under the second building permit we are not late…so the lines of when that completion date should be is blurred”. He later asserted that his father said: “From where we are sitting with the date of the second building permit, the completion date is blurred. So in the interests of putting it to bed, we will pay 50/50”. During the meeting, claims for extension of time were also raised. However, details were not mentioned.
94 On the issue of defects, Ben Newbold’s evidence was that Hope St were looking for reassurance and a commitment that JJ Armstrong would in fact return to make the defects right and to see them through. However, there was no discussion at the meeting as to when the rectification of the defects were to be completed and there was no condition attached to the agreement on liquidated damages.
95 In his witness statement, Mr Lenhart stated that in the lead up to the lunch meeting, he had been involved in discussions in the office about a possible claim being made by Hope St for liquidated damages:
“Prior to the lunch we had discussed the pros and cons of such a claim and what JJA would say in response. The fact that the project was not late as it had been delivered within 12 months of the date of the second building permit was discussed. We also discussed EOT claims particularly the claim for the late delivery of the vanities and the effect that had on the completion of flow on work and the date for practical completion under the contract.”
96 Mr Lenhart’s witness statement also confirmed that the issue of liquidated damages and losses that Michael Dikeakos claimed he had suffered due to what he claimed was late delivery of the project, was a subject of discussion at the lunch. According to Mr Lenhart, Michael Dikeakos said that he had lost a number of tenants and also talked about the cost of extra interest on his financing. John Newbold mentioned the fact that there were two permits and that the work was completed within the date of the second permit. He also discussed the outstanding EOT claims. After some discussion: “it was agreed that JJA would pay half of the amount Michael Dikeakos set out as his loss at the lunch”.
97 Mr Lenhart confirmed that rectification of defects was also discussed at the lunch. Mr Lenhart stated: “Peter Brown emphasised the two different categories of defects and the need for work to be undertaken on the operational matters as soon as possible. All agreed that was a focus and would be attended to”. In his evidence, Mr Lenhart added that Mr Dikeakos was not satisfied with the state of the defects and the progress that was being made to rectify them. In his statement, Mr Lenhart asserted that the condition to the agreement on liquidated damages set out in Hope St’s pleading was not discussed and was not agreed at the lunch.
98 In cross-examination, Mr Lenhart referred again to having spoken to John and Ben Newbold in advance of the meeting with Hope St, to discuss the issue of liquidated damages. According to Mr Lenhart, they were of the view that the claim was not valid and therefore, took the position that they would make an offer which was half of what the actual loss was. They had come to this position in light of the outstanding EOT claims, power issues and because the issue of the building permits and date of practical completion was “blurry”. This was the first time Mr Lenhart had turned his mind to the issue of liquidated damages. Mr Lenhart recalled doing a calculation of the liquidated damages at $250 per calendar day and stated that he thought the amount was “overinflated”.
99 Mr Lenhart gave evidence that John Newbold acknowledged that Mr Dikeakos had incurred a loss as a result of leases falling through and alternative arrangements having to be made. This led to Mr Newbold offering to pay half of whatever the loss amounted to, “and you know, put it to bed”. On the issue of the amount to be paid, Mr Lenhart could not recall at the time of giving evidence what the amount was, but he accepted that his email of 28 January 2014 (discussed further below) accurately reflected what he remembered at the time he wrote that email.
100 No-one on the JJ Armstrong side could recall making a note of what occurred at the meeting and there was nothing in the evidence to suggest that any of them had.
101 The architect Mr Brown brought to the meeting his own views on the state of the “ledger” in the dealings between JJ Armstrong and Hope St as at 8 November 2013 and how he felt a resolution could and should be achieved. It is clear that Mr Brown considered the ledger favoured JJ Armstrong. Mr Brown referred on more than one occasion in his evidence to JJ Armstrong being “fair” in their dealings during the building phase and not making nit-picking claims for variations and time delays that it might have made. And he was encouraging Hope St (for example, in his email of 6 November 2013, referred to above) to reciprocate that approach by compromising their claim for liquidated damages. Notably, when asked why the dispute over Hope St’s liquidated damages claim mattered to him, Mr Brown responded: “I just didn’t think it was fair”. In that sense, he was not a wholly disinterested observer of how the negotiation at the meeting unfolded. However, of all the people present, he was the closest to what might be described as an objective bystander.
102 Mr Brown’s evidence was that by the time of the meeting, the relationship between JJ Armstrong and Hope St had been good, but was deteriorating. He was eager to see them reach an agreement that was equitable for them both and put the dispute behind them. According to Mr Brown, the discussion at the meeting proceeded along the lines that there was information from Hope St that there had been some actual losses incurred and that the precise figure something like $31,800, comprising loss of rental income and extra interest on borrowings.
277 In evidence, Mr Brown accepted that the revised FCC and the various assessments and adjustments represented effectively a negotiated settlement and his intent in issuing the FCC was to try to get the parties to resolve their differences. When Mr Brown prepared the FCC and nominated the dollar amounts that he did, he was looking for a “fair outcome” that would lead to an amicable settlement between JJ Armstrong and Hope St. He could not recall any final claim having been made by JJ Armstrong and confirmed that he did not issue a written request for a final claim under clause N11.4 of the Contract.
278 Clause N11.4 provides that the contractor must submit a final claim within 20 working days after receiving a written request to do so. There is an interesting question as to whether clause N11.4 contemplates that a written request can be made by the architect at a time when the contractor’s entitlement to submit a claim has not yet crystallised under clause N11.1. My tentative view is that it does not, but it is unnecessary for me to reach a concluded view because no such written request was made in this case.
279 Similarly, there is an interesting question about whether the architect’s power to determine the final claim under clause N11.5 of the Contract arises upon a failure by the contractor to issue a final claim in response to a written request under clause N11.4 (as JJ Armstrong submits), and thus the cross-reference in clause N11.5 to “a written request under subclause N11.2” must be an error. In view of the consecutive positioning of clauses N11.4 and N11.5 and the fact that clause N11.2 does not prescribe any form of “written request”, my tentative view is that clause N11.5 intended to cross-reference clause N11.4, not N11.2. But again it is unnecessary to reach a concluded view, because no written request under any provision of clause N11 was made in this case.
280 The absence of any final claim by JJ Armstrong is apparent both from the evidence of Mr Brown discussed above, as well as from the fact that there is no reference to a final claim in any of the documents before the Court. Most notably, the correspondence and documents accompanying Mr Brown’s first FCC and revised FCC state in unequivocal terms that PBA has determined itself to populate and calculate the various components of each FCC. There is nothing in that material to suggest any reliance on information, calculations or claims submitted by JJ Armstrong; quite the contrary.
281 In my view, the purported issue by Mr Brown of a final certificate under clause N12 of the Contract in the absence of a final claim by JJ Armstrong under clause N11.1 (or, if relevant, in the absence of a written request by Mr Brown to JJ Armstrong under clause 11.4 to submit such a claim), is a sufficient basis on which to find the revised FCC is invalid. The Contract clearly contemplates that the architect certifies “a claim”, and thus it is the builder (not the architect) who sets the parameters of the issues that the architect must consider before issuing a certificate.
282 Further, that claim must be supported by a declaration made by the contractor that the contractor has performed its obligations under the Contract and all monies due to subcontractors at the date of the declaration have been paid (clause N11.2). In this case, the need for such a declaration would have required JJ Armstrong to confront during November 2014 at the latest, the impact of outstanding defects and incomplete work on its entitlement to be paid the retention sum.
283 Instead, Mr Brown issued the first FCC under cover of his 26 November 2014 email, and then issued the revised FCC on 24 April 2015. The actions of Mr Brown preparing and issuing these FCCs bore little resemblance to the procedure provided for in the Contract. This is not a case of a minor or technical departure from the strict terms of the Contract. It involved a fundamental recasting of the roles and responsibilities of each of the owner, contractor and architect as provided for in the Contract.
284 While I accept that the consequences of that departure in this case are not as profound as those that can flow from some alternative contract forms commonly used for large-scale construction projects (such as Australian Standard Contract AS4300, as discussed in Lysaght v Building Solutions Pty Ltd v Blanalko Pty Ltd [No 3][44]) (“Lysaght”), they are nevertheless significant. Indeed, their potential significance is exemplified by the detailed submissions by JJ Armstrong on the prominence that I should afford the revised FCC in determining the issues in this case. Accordingly, I am guided in the approach I should take to the construction of provisions of this kind by authorities faced with similar issues. In Southern Region Pty Ltd v State of Victoria (No 3) [2001] VSC 436 (“Southern Region”), Byrne J said at [13]:
I approach the question presently before me from the position that the procedures for certification, both progressive and final, in cl.42.1 carry with them serious consequences for the parties. This leads to the conclusion that a strict approach should be taken to their construction. These considerations have even more force where the procedure is leading to a Final Certificate for, as will be seen, the consequences of this are more significant for the parties than those flowing from progress payment certificates.
[44][2013] VSC 435
285 And as Vickery J later found in Lysaght, (citing Byrne J in Southern Region at [25]):
It follows that a certificate purportedly issued under cl 42.1 which does not satisfy the formal requirements of the clause is ineffective and invalid, or as Byrne J said in Southern Region: “… It was as if no certificate had issued at all”.
286 In response to this basis of invalidity of the revised FCC, JJ Armstrong has submitted that at no stage has Hope St pleaded that JJ Armstrong as contractor has not made any final claim at all (as opposed to pleading that the final claim made by JJ Armstrong was invalid). It further submitted that: “Such a pleading could have been met with contrary evidence by JJA”. It is true that Hope St did not in terms plead the failure by JJ Armstrong to submit a final claim as an element of the alleged invalidity of the revised FCC. However, the pleading in paragraph 5 of Hope St’s further amended defence and counterclaim dated 10 August 2016 was, in my view, sufficient to enliven the absence or otherwise of a final claim by JJ Armstrong as an issue in the proceeding. In particular, had such a final claim (or anything that might be alleged to constitute a final claim) in fact been submitted by JJ Armstrong to PBA, it would have constituted a substantial (if not complete) answer to the allegations of invalidity on behalf of Hope St.
287 Further, I accept the submission on behalf of Hope St that the issue was only fully exposed during evidence at trial; notably the evidence of Mr Brown referred to above, and thus gave JJ Armstrong every opportunity to adduce evidence of the making of such a claim from both John Newbold and Ben Newbold. Counsel for JJ Armstrong has not identified either the category or content of any contrary evidence that JJ Armstrong might have produced and, as indicated above, the detailed documentary and oral evidence dealing with both versions of the FCC all points the other way. In the circumstances, I am satisfied even if the issue of the existence or otherwise of a final claim by the builder was not expressly raised on the pleading, this has not resulted in any relevant disadvantage to JJ Armstrong.
288 The revised FCC therefore satisfies at least two of the grounds for invalidity set out by Vickery J in Metier3 Pty Ltd v Enwerd Pty Ltd & Anor,[45] namely, it has not been issued in accordance with the terms of the Contract and is otherwise shown to be beyond the contractual power conferred on the architect. For completeness, I should also note my agreement with the other grounds for invalidity referred to in the Hope St’s submissions, being:
[45][2014] VSC 80 at [51]
· there is no provision in the Contract for PBA to withdraw the first FCC and replace it with the revised FCC and, more generally, Mr Brown had no power to deploy the FCC procedure to impose his own attempt at “mediating” the dispute between the parties; and
· PBA had no power under the Contract to impose the asserted agreed liquidated damages amount or to value the outstanding defects and uncompleted work.
289 Finally, even if the FCC were valid, it stands only as evidence of the matters stated in it. The Contract eschews any express statement of the quality to be ascribed to that evidence: it is neither “conclusive” nor even “prima facie” evidence of the parties’ entitlements under the Contract. Thus it might provide a basis for a claim by a party, but only to the extent that there is no evidence to the contrary. In my view, for the reasons explained above, there is evidence to the contrary on both the key issues of the liquidated damages amount and the defects. In this context, epithets such as “significant weight” and “powerful, independent, contemporaneous” do not assist me. It is merely evidence; no more no less.
290 In this regard, I agree with Hope St’s submissions that the decision of the New South Wales Court of Appeal in Abergeldie Contractors Pty Ltd v Fairfield City Council,[46] applies to a very different contractual paradigm than the one operating under the Contract. As Hope St submitted:
“There the reference to driving a “horse and cart (or perhaps a B-Double)” was in relation to the Security of Payments legislative scheme. The parties could not contract out of the legislative scheme and it was held that “knowledge of that legislative scheme is part of the context which must be considered in construing the Contract”. The relevant context in which the FCC here must be considered includes provisions such as A8 and Section P concerning disputes in relation to the Architect’s assessments contained in any purported FCC.”[47]
[46][2017] NSWCA 113 (Basten JA, [47]; Beazley ACJ and Meagher JA agreeing)
[47]At Appendix A [6]
291 As Hope St further submitted, where the parties here have adopted ABIC MW - 2008 Standard Form Contract and the terms of clause N15, they must be taken to have agreed to the effect of the FCC as not being conclusive evidence, and always subject to dispute under clause A8 and Section P:
“[T]he qualification in clause N15 read together with clause A8 and Section P makes it plain that either party had the right to dispute the Architect’s assessment as contained in the Final Certificate. There is no provision which effectively requires the parties to “pay now and argue later” (a well known theme to the Security of Payments legislation). The reference in clause N14 to “must be paid”, must also be read in light of clause P7.1 which permitted the Builder to apply for Summary Judgment on the Final Certificate, which it chose not to do.”[48]
[48]At Appendix A [9]
Site ownership
292 JJ Armstrong’s substantive submissions on this issue[49] bear no relation to its pleaded case, which relied on the alleged failure by Hope St to obtain permission of the property owner Galbonti Pty Ltd (“Galbonti”) for the works to be carried out. While JJ Armstrong does not appear to have wholly abandoned its pleaded case,[50] it has not advanced any argument to support that case beyond the pleading itself. Accordingly, on the pleaded case, I need say no more than I agree with Hope St’s submissions that it is not supported either on the facts (permission was given) or on a proper construction of clause A4.3 of the Contract. The clause is intended to absolve the builder from commencing work where permission from the owner is in doubt, not to absolve the builder from obligations under the Contract once works are complete.
[49]At [38] to [41]
[50]See JJ Armstrong’s submissions at Schedule 1 [11]
293 The case now advanced by JJ Armstrong apparently in addition to its pleaded case, is that Hope St is unable to claim for the cost of rectification of defects, as the right to make such a claim resides with Galbonti. Galbonti is not a party to the proceeding and has made no such claim, nor does it have a right to make any such claim on grounds of lack of privity. I reject this argument on two bases. First, it has not been pleaded and was advanced for the first time in JJ Armstrong’s closing submissions. Unlike other instances where the facts and arguments in this case have departed from the pleadings as discussed above, in this instance:
· it was not foreshadowed at any time during the evidence; and
· I accept as submitted by Hope St that it is an issue about which further evidence could have been adduced, particularly evidence going to the nature of the contractual and ownership relationship between Hope St and Galbonti.
294 Secondly, and in any event, I agree with Hope St’s submission that the argument is misconceived:
“Hope St’s claim for damages for defects in the works the subject of the Contract, arises by reason of the fact that pursuant to the terms of the parties’ promise, the Builder was required to provide to Hope St (no-one else) the full scope of works free of defects, and for which, Hope St (and no-one else) was required to pay the Contract price. Hope St has fulfilled its promise, but the Builder has not. That the structure or works which are the subject of the Contract is on land owned by Galbonti Pty Ltd is immaterial to any entitlement to claim damages for breach under this Contract. The defects do not affect Galbonti’s land. They affect the structure on the land which, on the evidence, all parties plainly knew was being commissioned by Hope St under the Contract for the purposes of Hope St conducting a student accommodation business in that structure.”
The net result
295 The question of what is payable and to whom is answered in the following table:
Description Amount Delay damages (payable to Hope St):
$86,062.00Defects damage (payable to Hope St):
$58,549.00TOTAL damages (payable to Hope St)
$144,611.00LESS Retention money (payable to JJ Armstrong):
$91,579.35TOTAL
(payable by JJ Armstrong to Hope St):
$53,031.65
296 I note that Hope St has included in its final reconciliation additional amounts for building reports and for interest on delay damages. As to the amounts for the building reports, as I understand it, these were the amounts paid to Mr Johnson for his expert reports relied on by Hope St in the proceeding. These seem to me to be costs of the proceeding and should be dealt with as part of the orders on costs, not as a separate head of damages.
297 On the question of costs more generally, Hope St has essentially succeeded on both of its claims for delay damages and for defects damages, albeit for sums assessed to be lower than the sums claimed (and, in the case of the defects damages, considerably lower). On the other hand, those sums in total are more than sufficient to account for the retention amount claimed by JJ Armstrong. Thus if costs were to follow the event, I would be inclined to order that JJ Armstrong pay Hope St’s costs on the standard basis, in default of agreement.
298 As to interest on delay damages, these turn out to be less than the retention amount and so, in my view, should not accrue interest without an appropriate allowance being made for Hope St’s continued holding of that retention amount. My tentative view is that potentially competing interest claims should be dealt with by awarding interest to Hope St at the rate specified pursuant to s2 of the Penalty Interest Rates Act 1983 (Vic) on the net amount of its recovery ($53,031.65) on and from the date of its counterclaim, being 9 June 2016.
299 Based on the above analysis, my tentative view is that the orders in the proceeding should be in terms as follows:
(a) There be judgment for the defendant against the plaintiff in the sum of $53,031.65.
(b) The plaintiff pay the defendant interest on the judgment sum at the rate prescribed from time to time under s2 of the Penalty Interest Rates Act 1983 (Vic), on and from 9 June 2016.
(c) The plaintiff pay the defendant’s costs of the proceeding (including reserved costs) to be taxed on the standard basis in default of agreement.
300 I will hear further from the parties on the terms of final orders.
- - -
Certificate
I certify that these 111 pages are a true copy of the reasons for Judgment of His Honour Judge Woodward delivered on 8 September 2017.
Dated: 8 September 2017
Simon Bobko
Associate to His Honour Judge Woodward
ANNEXURE
Schedule 1 Contract Information
Item 18
Clause F1Date by which the owner must give possession of the *site DATE OF BUILDING PERMIT ISSUE
Item 27
Clause M1Date for *practical completion 12 MONTHS AFTER
ISSUE OF BUILDING PERMIT
Item 30
Clause M12Rate for liquidated damages $250 PER DAY PER UNIT
$ per calendar day incl *GST
Item 31
Clause M16Defects liability period for the *works 12 months
If nothing stated, 12 months
Item 34
Clause N16Interest rate on overdue amounts 10%
If nothing stated, 10% per annum
Schedule 2a Special Conditions
9. CONDITION OF PRACTICAL COMPLETION IS THE CONTRACTOR TO PROVIDE ALL PRODUCT & EQUIPMENT MANUALS, CERTIFICATES, WARRANTY DOCUMENTS, AND AS‑BUILT DRAWINGS
Schedule 3 Order of precedence
The order of precedence of *contract documents is:
Clause B2
1. Any special conditions shown in schedule 2a.
2. Any owner occupier conditions shown in schedule 2b.
3. The conditions set out in this contract and schedule 1.
4. The specifications described below:
...
A Overview
A1 Cooperative contracting
.1Under this contract, the contractor and the owner must:
aact reasonably
bcooperate in all matters
cavoid obstructing the other and
...
A2 Obligations of the contractor
.1The contractor must:
abegin the *works within 10 *working days after being given possession of the *site
bdiligently carry out all *necessary work and complete the *works to the standard set out in the *contract documents
...
ibring the *works to *practical completion in accordance with clause M1.
A2 Obligations of the owner
.1The owner must:
...
cgive possession of the *site in accordance with this contract.
A6 Architect to administer contract
.1The architect for the purposes of this contract is shown in item 2 of schedule 1.
.2The 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.
.3The 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.
.4The owner must ensure that the architect, in acting as assessor, valuer or certifier, complies with this contract and acts fairly and impartially, having regard to the interests of both the owner and the contractor. The owner must not compromise the architect’s independence in acting as assessor, valuer or certifier.
.5The architect is not the owner’s agent for giving or receiving notices under clause A8, section P and section Q.
A8 Disputing architect’s certificate, written decision or failure to act
.1If a *party wishes to dispute a certificate, notice, written decision or written assessment issued by the architect, or to dispute the failure of the architect to issue something, the *party must give the architect written notice under this clause within 20 *working days after:
areceiving the certificate, notice, written decision or written assessment or
bbecoming aware of the failure of the architect to issue something.
.2If the *party fails to give a notice under subclause A8.1, the *party will not be entitled to dispute the matter at all.
A10 Compensation is sole remedy
.1Where the contractor or the owner is entitled to compensation as determined under this contract, that compensation, when paid in full, is the sole and complete remedy for the contractor or the owner under this contract.”
B Documents
B2 Order of precedence of documents
.1Unless otherwise shown in schedule 3, the order of precedence of the *contract documents is as follows:
aany special conditions shown in schedule 2a
bany owner occupation special conditions shown in schedule 2b
cthe conditions set out in this contract and schedule 1.
C Security
C7 Owner’s release of security on *practical completion
.1When the architect issues the notice of *practical completion, the contractor is entitled to the release of 50% of the amount of the security then held.
F The site
F1 Owner to give contractor possession of the *site
.1The owner must give the contractor possession of the *site from the date shown in item 18 of schedule 1.
G Building the works
G2 Contractor’s obligations
.1The contractor must:
...
csupervise the *necessary work competently.
G4 Subcontracting
.1The contractor may subcontract any part of the *works, but not the *works as a whole. The contractor is liable for the *necessary work done by its subcontractors.
.2The contractor must take responsibility for any acts and omissions of its suppliers and subcontractors in relation to the *works.
G9 Architect may instruct amendment to program
.1At the owner’s request, the architect must instruct the contractor in writing to amend the program. When the contractor receives the instruction, it must amend the program and comply with the amended program unless it *promptly gives the architect written notice that it cannot reasonably comply with the amended program.
.2An instruction issued under this clause is to be treated as an *urgent instruction.
H Claims to adjust the contract
H1 Time for making a *claim to adjust the contract
.1The contractor is entitled to make a *claim to adjust the contract only if the contractor:
a*promptly notifies the architect in writing of its intention to make a claim after receiving an instruction or, if no instruction is issued, *promptly notifies the architect after becoming aware of an event that will result in a claim and
bsubmits the detailed *claim to adjust the contract to the architect within a time agreed in writing between the contractor and the architect or, if no time is agreed, within 20 *working days after receiving the instruction or, if no instruction is issued, within 20 *working days after becoming aware of the event that has resulted in the claim and, for these purposes, an event is not a consequence of an instruction.
.2...
.3If the claim results from an *urgent instruction, suspension of the *works or a delay in the progress of the *works, the contractor is not required to give the first notification required under subclause H1.1, but the detailed claim must be submitted within 20 *working days after the *urgent instruction is issued or the suspension ends or the delay ends, whichever occurs first.
H2 Details required for claim
.1A *claim to adjust the contract must contain the following details:
…
H3 Architect to assess claim”
.1The architect must *promptly assess the *claim to adjust the contract and in so doing the architect must consider the detailed claim submitted by the contractor and any further information the architect requests the contractor to supply.
H4 Architect to give assessment
.1The architect must, within 20 *working days after receiving the claim, issue to the contractor and to the owner its written decision specifying any adjustment to the *contract price or any adjustment to the date for *practical completion, or both.
.2The contractor may dispute the architect’s decision or a failure to issue a decision issued under this clause in accordance with clause A8 but, in accordance with clause P1, must continue to perform its contractual obligations.
H6 Architect may adjust contract in absence of claim
.1If the contractor has not made a *claim to adjust the contract in relation to any change which results from complying with any instruction given under section J for a *variation or from causes of delay noted in clause L1 or L2, the architect may adjust the contract at any time up to the issue of the final certificate under clause N12, or a certificate under clauses Q9 or Q17.
M Completion of the works
M1 Practical completion
.1The contractor must bring the *works to *practical completion by the date for *practical completion shown in item 27 of schedule 1 as adjusted in accordance with this contract. The *works are at *practical completion when, in the reasonable opinion of the architect:
athey are substantially complete and any incomplete work or *defects remaining in the *works are of a minor nature and number, the completion or rectification of which is not practicable at that time and will not unreasonably affect occupation and use.
M2 Inspection by the contractor
.1At least 10 *working days before the date the contractor expects that *practical completion will be reached, the contractor must inspect the *works and prepare a detailed schedule of *defects and incomplete work and give a copy of the schedule to the architect.
.2At the same time, the contractor must give the architect a written timetable for the correction of *defects and completion of incomplete work.
M3 Notification to architect of *practical completion
.1When the contractor considers that the *works are at *practical completion, the contractor must notify the architect in writing and give a copy of the detailed schedule of *defects and incomplete work to the architect indicating that each item has been corrected or completed to the satisfaction of the contractor.
.2The architect must commence its inspection of the *works *promptly and complete the inspection within an agreed time or, if none is agreed, within 10 *working days. The architect must issue a notice or instruction under clause M4, M5 or M6.
M4 Architect to decide if the *works have reached *practical completion
.1If the architect decides that the *works have reached *practical completion, the architect must give written notice of *practical completion to the contractor and to the owner within 5 *working days after completing the inspection. The notice must state the date when *practical completion was reached.
.2The architect must also notify the owner in writing that security must be released in accordance with clause C7.
M11 Possession of the *works before *practical completion
.1If the owner takes possession of the whole of the *works or a separable part of the *works before the architect issues the notice of *practical completion, the whole of the *works or that separable part, as the case may be, are to be treated as having reached *practical completion. The architect must issue to the contractor and to the owner a notice of *practical completion for the *works or that separable part, as the case may be, within 5 *working days after being notified in writing that the owner has taken possession, unless clause M4 applies.
.2Possession of the whole of the *works or a separable part of the *works, as the case may be, before the architect issues the notice of *practical completion, is to be treated as an instruction to amend the program under clause G9 and the contractor may make a *claim to adjust the contract.
.3The requirements for making a *claim to adjust the contract and the procedures to be followed are stated in section H.
M12 Liquidated damages may be payable
.1If the *works or a separable part of the *works identified in item 29 of schedule 1 have not reached *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.
.2Up to 20 *working days after the date of 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.
.3The contractor is liable to pay or allow to the owner liquidated damages at the rate shown in item 30 of schedule 1.
M13 Deduction of liquidated damages
.1If the owner notifies the architect in writing under clause M12, then the architect must:
anotify the contractor of the owner’s decision within one *working day, and
bdeduct liquidated damages from the next and subsequent progress certificates, as applicable.
M14 Contractor to correct *defects and finalise work
.1The contractor must correct any *defects or finalise any incomplete work, whether before or after the date of *practical completion, within the agreed time as stated in an instruction or if no time is stated, within 10 *working days after receiving a written instruction from the architect to do so.
M16 Defects liability period
.1The defects liability period is shown in item 31 of schedule 1 and commences on the date of *practical completion of the *works.
M17 Contractor’s obligations during and after defects liability period
.1If there is any remaining *defect or incomplete work, or the contractor becomes aware by instruction from the architect or from its own observations of any *defect or incomplete work during the defects liability period, it must *promptly return to the *site and correct the *defect or finalise the incomplete work. This obligation continues until the *defect is corrected or the incomplete work is finalised, and does not come to an end when the defects liability period is over.
.2The architect cannot give a first instruction to correct an outstanding *defect or to finalise any incomplete work after the end of the defects liability period, unless it is for the rectification of a latent *defect and the final certificate has not been issued.
N Payment for the works
N11 Final claim – procedure for contractor
.1The contractor is entitled to submit to the architect a final claim for payment for a separable part, or the whole of the *works as the case may be when:
aall defects liability periods have ended
bthe contractor has rectified all *defects and finalised all incomplete work it became aware of by instruction from the architect or from the contractor’s own observations during the defects liability period and
cthe *works have been completed in accordance with this contract.
N12 Final certificate – procedure for architect
.1The architect must *promptly assess the final claim. If the architect reasonably needs additional information to do so, the architect may ask the contractor for it. The contractor must *promptly give the architect any additional information the architect requests. The architect must, within a reasonable time (not exceeding 10 *business days) after receiving the final claim (or the additional information if requested) issue to the contractor and to the owner a final certificate setting out the amount due for payment.
N15 Effect of final certificate
.1The final certificate must state the architect’s assessment of all outstanding entitlements under this contract. The final certificate is evidence of the *parties’ entitlements under this contract and that the contractor has performed its obligations under this contract, subject to any matter already in dispute under section P.
N16 Interest on overdue amounts
.1Each *party must pay interest on any money that it owes the other but fails to pay on time. In the case of the owner, this includes any delay caused by the failure of the architect to issue a progress certificate on time.
.2The interest rate is shown in item 34 of schedule 1.
.3The interest is calculated daily, from the date the money should have been paid. The interest must be paid on the last day of each month. If interest due on the last day of a month is not paid, it is immediately capitalised and added to the money outstanding.”
R Miscellaneous
R4 Entire contract
.1This contract contains everything the owner or the architect has agreed with the contractor in relation to the matters it deals with. Neither *party may rely on an earlier contract, or on anything else said or done by the other *party (or by an officer, agent or employee of the other *party) before this contract was entered into.
R14 General interpretation
.1A reference to the singular includes the plural and the plural includes the singular.
S Definitions
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claim to adjust the contract a claim made to the architect to adjust the *contract price (including *adjustment of time costs) or the date for *practical completion or both
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defect or defective work work that is:
ain breach of any of the warranties set out in the *contract documents
bnot in accordance with the standard or quality of building work specified in the *contract documents”
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promptlyas soon as practicable
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