Kazzi v KR Properties Global Pty Ltd t/as AK Properties Group

[2024] NSWCA 143

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Kazzi v KR Properties Global Pty Ltd t/as AK Properties Group [2024] NSWCA 143

Hearing dates:

24 April 2024

Date of orders:

07 June 2024

Decision date:

07 June 2024

Before:

Gleeson JA at [1];
Mitchelmore JA at [2];
Basten AJA at [176]

Decision:

(1) Pursuant to s 64 of the Civil Procedure Act2005 (NSW), order that the name of the second respondent and second cross-appellant be amended to Calm Properties Pty Ltd (ACN 602 073 343) ATF Calm Properties Unit Trust (ABN 19 756 796 114) t/as AK Properties Group (ABN 62 971 068 965).

(2)   The appeal is dismissed with costs.

(3)   The cross-appeal is allowed.

(4) Order 3 of the orders made by the court below on 15 August 2023 is set aside, and in lieu thereof, order that judgment be entered for the first and second cross-claimants against the second cross-defendant in the sum of $918,545.46, together with interest thereon from 1 August 2020 pursuant to s 100 of the Civil Procedure Act 2005 (NSW).

(5)   This judgment is to take effect on 15 August 2023.

(6)   Direct the parties to provide to the Registrar an agreed calculation for the prejudgment interest referred to in order 4 above within 7 days. In default of agreement, each party is to provide to the Registrar their proposed calculation of prejudgment interest within 7 days, and the Court will decide the matter on the papers.

(7)   The cross-respondent pay the cross-appellants’ costs of the cross-appeal.

Catchwords:

TORTS – negligence – duty of care – statutory extension – breach of duty by nominated supervisor of works – nominated supervisor directed construction otherwise than in accordance with the approved plans – failure by builder to carry out works in a proper and workman-like manner

NEGLIGENCE – assessment of damages – Hungerfords interest – whether the negligence of the nominated supervisor of building works caused the respondents to incur interest on their borrowings – where the delay in completion of the works resulted from multiple conjunctive causal factors

Legislation Cited:

Civil Procedure Act 2005 (NSW), ss 64, 100

Design and Building Practitioners Act 2020 (NSW), ss 36, 37, 41

Environmental Planning and Assessment Act 1979 (NSW), ss 76A, 96

Home Building Act 1989 (NSW), ss 18B(1), 53(1)

Uniform Civil Procedure Rules 2005 (NSW), r 36.16(3A)

Cases Cited:

Amaca Pty Ltd v Booth (2011) 246 CLR 36; [2011] HCA 53

Bennett v Minister of Community Welfare (1992) 176 CLR 408

Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3) [2012] VSC 99

Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145

Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46

Hungerfords v Walker (1989) 171 CLR 125; [1989] HCA 8

Leighton Contractors Pty Ltd v Kilpatrick Green Pty Ltd [1992] 2 VR 505

McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 at [155]

Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 [2023] NSWSC 343

Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 2) [2023] NSWSC 680

Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 3) [2023] NSWSC 881

Roberts v Goodwin Street Developments Pty Ltd (2023) 110 NSWLR 557; [2023] NSWCA 5

The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301

The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068

Category:

Principal judgment

Parties:

Pierre Kazzi (Appellant / Cross-Respondent)
KR Properties Global Pty Ltd (ACN 602 693 729) t/as AK Properties Group (ABN 62 971 068 965) (First Respondent / First Cross-Appellant)
Calm Properties Pty Ltd (formerly AS Coaching Pty Ltd) (ACN 602 073 343) ATF Calm Properties Unit Trust (ABN 19 756 796 114) t/as AK Properties Group (ABN 62 971 068 965) (Second Respondent / Second Cross-Appellant)

Representation:

Counsel:
M Ashhurst SC / T Poisel (Appellant / Cross-Respondent)
J Horowitz (Respondents / Cross-Appellants)

Solicitors:
Fortis Law (Appellant / Cross-Respondent)
Horowitz & Bilinsky (Respondents / Cross-Appellants)

File Number(s):

2023/00277906

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court

Jurisdiction:

Equity – Technology and Construction List

Citation:

Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 4) [2023] NSWSC 960

Date of Decision:

15 August 2023

Before:

Stevenson J

File Number(s):

2020/00007703

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant and cross-respondent, Pierre Kazzi, was the sole director, shareholder and nominated supervisor of Oxford (NSW) Pty Ltd (Oxford), a building company. The respondents and cross-appellants (the Owners) contracted with Oxford to construct a six-unit apartment building on land in Gerringong. The date stipulated in the contract for practical completion of the building works was 4 July 2017. Oxford did not complete the works by that date. On 5 April 2019, the Owners terminated the contract.

In January 2020, Oxford commenced proceedings against the Owners to recover outstanding amounts pursuant to invoices it had served under the contract. The Owners brought a cross-claim against Oxford and Mr Kazzi, seeking damages from Oxford for breach of contract in relation to the costs they incurred to complete the building works and rectify defective works, and damages from Mr Kazzi for breach of the duty in s 37 of the Design and Building Practitioners Act 2020 (NSW) (the DBP Act) to avoid economic loss caused by defective works. As part of their claim for damages against both Oxford and Mr Kazzi, the Owners sought the interest they incurred on borrowings as a result of the works not being completed by the date of practical completion, relying on Hungerfords v Walker (1989) 171 CLR 125; [1989] HCA 8 (“Hungerfords”).

The primary judge, Stevenson J, delivered four judgments in the proceedings. On 6 April 2023, his Honour handed down the first judgment, rejecting Oxford’s claims and upholding the Owners’ claims in part: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 [2023] NSWSC 343 (“Oxford (No 1)”). His Honour found that Oxford had wrongly purported to suspend the works under the contract, which the Owners then validly terminated. His Honour concluded that the Owners were entitled to damages from Oxford for the costs to complete the incomplete works and to rectify defective works, and for Hungerfords interest albeit from 20 March 2019 (the date on which the Owners demanded that Oxford resume construction), rather than the date of practical completion.

The primary judge dismissed the Owners’ claim against Mr Kazzi. His Honour was not satisfied that the Owners had established a breach of duty on the part of Mr Kazzi personally, or proved what component of the expenses they had incurred related to rectifying the defective works, as opposed to completing incomplete works. As to the latter, his Honour rejected the evidence of Patrick Mahedy, who was the architect who designed the building and whom the Owners retained to supervise the completion and rectification works following termination of the contract with Oxford.

Following Oxford (No 1), the Owners raised with the primary judge that he had not dealt with their claim for Hungerfords interest against Mr Kazzi. In a further judgment delivered on 21 June 2023, his Honour dismissed this claim on the basis that the Owners had not established how Mr Kazzi had breached his statutory duty and what consequences flowed from the alleged breach: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 2) [2023] NSWSC 680 (“Oxford (No 2)”).

Following Oxford (No 2), the Owners raised with the primary judge that Mr Kazzi had in fact admitted, during the hearing, that he had breached his statutory duty in relation to two of the defects on which the Owners relied: the pouring of the ground floor and first floor concrete slabs in a manner that resulted in the building encroaching on adjacent lots (defect B2); and the use of concrete that was below the structural engineer's specifications (defect B10).

On 28 July 2023, following a further hearing, his Honour gave a judgment in which he concluded that in Oxford (No 2) he had overlooked Mr Kazzi’s admitted breaches of duty. His Honour awarded the Owners Hungerfords interest against Mr Kazzi from the same date (20 March 2019) as he had awarded that interest against Oxford: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 3) [2023] NSWSC 881 (“Oxford (No 3)”). On 15 August 2023, his Honour made final orders, including, relevantly, entering judgment for the Owners against Mr Kazzi in the sum of $277,579.50, plus the costs of the cross-claim: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 4) [2023] NSWSC 960.

By his appeal, Mr Kazzi challenged the primary judge’s decision in Oxford (No 3). Grounds 1 and 2 of the appeal alleged that the Owners had not previously articulated a claim for Hungerfords interest against Mr Kazzi in respect of defects B2 and B10. Grounds 3 to 5 challenged the primary judge’s conclusion that those defects caused the Owners to continue to incur interest on their borrowings until July 2020 in circumstances where other works precluded the issuing of an occupation certificate or a strata plan until late June or July 2020.

The Owners filed a cross-appeal which sought judgment against Mr Kazzi in the sum of $918,545.46. The Owners alleged that the primary judge erred in concluding, in Oxford (No 1) and Oxford (No 3), that Hungerfords interest should run only from 20 March 2019, rather than the date of practical completion under the contract (ground 1). The Owners also challenged the primary judge’s conclusion, in Oxford (No 1), that they had failed in their claim against Mr Kazzi for damages for breach of his statutory duty under s 37 of the DBP Act in relation to defects B2, B10, and a further 12 defects. Specifically, the Owners took issue with (1) his Honour’s finding that the Owners had not established that Mr Kazzi breached his statutory duty in relation to those defects (ground 2); (2) his Honour’s finding that the Owners had not proved their loss (ground 3); and relatedly, (3) his rejection of the evidence of Mr Mahedy (ground 4).

The Court held (Mitchelmore JA, Gleeson JA and Basten AJA agreeing), dismissing the appeal and allowing the cross-appeal:

As to grounds 2 to 4 of the cross-appeal:

1. The Owners advanced a claim against Mr Kazzi for breach of the statutory duty of care under s 37 of the DBP Act that was independent of the claim against Oxford for breach of contract: [126].

2. Mr Kazzi breached his statutory duty of care in respect of the defective work on which the Owners relied, by making decisions, as nominated supervisor of the works, as to the progress and manner of the works that gave rise to the defects: [83]-[126].

As to grounds 3 and 4 of the cross-appeal:

1. Where a party by their conduct has made the precise assessment of damages difficult, the court should assess compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and by resolving doubtful questions against the party: [139].

   Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3) [2012] VSC 99; Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46; McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 applied.

2. The primary judge erred in taking the view that Mr Mahedy’s evidence did not provide a sufficiently reasoned methodology on which to rely: [140], [146]. Mr Mahedy’s close involvement in project managing the Building after the Contract was terminated meant he was able to provide detail of what occurred on the site: [132].

As to grounds 1 and 2 of the appeal:

1. The Owners squarely advanced a claim for Hungerfords interest against Mr Kazzi prior to the reopening application: [164].

As to grounds 3 to 5 of the appeal and ground 1 of the cross-appeal:

1. The primary judge did not find that there was an “implied agreement” or “waiver” to extend the date of practical completion: [168].

2. Where an injury is the result of multiple conjunctive causal factors, it is sufficient for a plaintiff to prove that the defendant’s negligence caused or materially contributed to the injury: [169].

   Amaca Pty Ltd v Booth (2011) 246 CLR 36; [2011] HCA 53 applied.

3. Whilst there were concurrent causes of the delay between 20 March 2019 and 30 June 2020, including the outstanding fire safety works, Mr Kazzi’s negligence was a material cause of the delay which extended back to the date of practical completion under the contract: [172].

JUDGMENT

1. GLEESON JA: I agree with Mitchelmore JA.

2. MITCHELMORE JA: The appellant and cross-respondent, Pierre Kazzi, is the sole director, shareholder and nominated supervisor of Oxford (NSW) Pty Ltd (Oxford), a building company. The respondents and cross-appellants, KR Properties Global Pty Ltd and AS Coaching Pty Ltd ATF Calm Properties Unit Trust (collectively, the Owners), purchased the middle lot of a three-lot subdivision on Noble Street in Gerringong (the Property). Since the hearing before the primary judge, the second respondent and second cross-appellant has changed its name to Calm Properties Pty Ltd. I have proposed an order to reflect this change of name.

3. In October 2015, the Owners and Oxford entered into a contract for Oxford to construct a six-unit apartment building (the Building) on the Property. The date stipulated in the contract for practical completion of the building works was 4 July 2017. Oxford did not complete the works by that date. On 5 April 2019, the Owners terminated the contract.

4. In January 2020, Oxford commenced proceedings against the Owners to recover outstanding amounts pursuant to invoices it had served under the contract. The Owners, in turn, brought a cross-claim against Oxford and Mr Kazzi, seeking damages from Oxford for breach of contract in relation to the costs they incurred to complete the building works and rectify defective works, and damages from Mr Kazzi for breach of the duty in s 37 of the Design and Building Practitioners Act 2020 (NSW) (the DBP Act) to avoid economic loss caused by defective works. As part of their claim for damages against both Oxford and Mr Kazzi, the Owners sought the interest they incurred on borrowings as a result of the works not being completed by the date of practical completion, relying on Hungerfords v Walker (1989) 171 CLR 125; [1989] HCA 8 (“Hungerfords”).

5. The primary judge, Stevenson J, delivered four judgments in the proceedings. On 6 April 2023, his Honour handed down the first judgment, rejecting Oxford’s claims and upholding the Owners’ claims in part. His Honour found that Oxford did not complete the works for which it contracted, and that the work it had performed was defective in significant respects: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 [2023] NSWSC 343 (“Oxford (No 1)”). His Honour also found that Oxford had wrongly purported to suspend the works under the contract, which the Owners then validly terminated. His Honour concluded that the Owners were entitled to damages from Oxford for the costs to complete the incomplete works and to rectify defective works, and for Hungerfords interest albeit not from the date of practical completion.

6. The primary judge dismissed the Owners’ claim against Mr Kazzi. His Honour was not satisfied that the Owners had established a breach of duty on the part of Mr Kazzi personally. Of greater significance to his Honour’s conclusion, however, was that the Owners had not proved what component of the expenses they had incurred related to rectifying the defective works, as opposed to completing incomplete works (subject, perhaps, to three minor invoices which, on their face, appeared to relate to rectification work).

7. His Honour rejected in this respect the evidence of Patrick Mahedy, who was the architect who designed the Building and whom the Owners retained to supervise the completion and rectification works following termination of the contract with Oxford. His Honour considered that Mr Mahedy had not sufficiently exposed his reasoning in allocating expenses as between rectification and completion works. The need to establish such allocation was not critical to the Owners’ claim against Oxford (as that claim encompassed both incomplete works and defective works), but it was critical to their claim against Mr Kazzi as it related only to defective works.

8. Following delivery of the judgment in Oxford (No 1), the Owners raised with the primary judge that he had not dealt with their claim for Hungerfords interest against Mr Kazzi, which did not depend upon acceptance of Mr Mahedy’s evidence. In a further judgment delivered on 21 June 2023, the primary judge dismissed this claim on the basis that the Owners had not established how Mr Kazzi had breached his statutory duty and what consequences flowed from the alleged breach: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 2) [2023] NSWSC 680 (“Oxford (No 2)”).

9. After the primary judge handed down Oxford (No 2), the Owners raised with the primary judge that Mr Kazzi had in fact admitted, in the course of the hearing, that he had breached his statutory duty in relation to two of the defects on which the Owners relied. The first defect involved the pouring of the ground floor and first floor concrete slabs in a manner that resulted in the Building encroaching on lots adjacent to the Property (defect B2). The second defect was the use of concrete that was below the structural engineer's specifications (defect B10).

10. On 28 July 2023, following a further hearing, his Honour gave a judgment in which he concluded that in Oxford (No 2) he had overlooked Mr Kazzi’s admitted breach of his statutory duty in relation to defects B2 and B10. His Honour awarded the Owners Hungerfords interest against Mr Kazzi from the same date (20 March 2019) as he had awarded that interest against Oxford: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 3) [2023] NSWSC 881 (“Oxford (No 3)”).

11. On 15 August 2023, his Honour made final orders, including, relevantly, entering judgment for the Owners against Mr Kazzi in the sum of $277,579.50, plus the costs of the cross-claim: Oxford (NSW) Pty Ltd v KR Properties Global Pty Ltd trading as AK Properties Group ABN 62 971 068 965 (No 4) [2023] NSWSC 960.

12. By his appeal, Mr Kazzi challenged the primary judge’s decision in Oxford (No 3). Grounds 1 and 2 of the further amended notice of appeal filed on 18 March 2024 alleged that his Honour should not have permitted the Owners to advance a claim for Hungerfords interest against Mr Kazzi in respect of defects B2 and B10 which, he contended, had not previously been articulated. Grounds 3 to 5 challenged the primary judge’s conclusion that those two defects caused the Owners to continue to incur interest on their borrowings until July 2020 in circumstances where other works, in particular incomplete fire safety works, precluded the issuing of an occupation certificate or a strata plan until late June or July 2020.

13. The Owners, in turn, filed a cross-appeal, which (pursuant to an amended notice of cross-appeal filed with leave on 2 May 2024) sought judgment against Mr Kazzi in the sum of $918,545.46. The Owners alleged that the primary judge erred in concluding, in Oxford (No 1) and Oxford (No 3), that Hungerfords interest should run only from 20 March 2019, rather than the date of practical completion under the contract (ground 1). More broadly, however, the Owners challenged the primary judge’s conclusion, in Oxford (No 1), that they had failed in their claim against Mr Kazzi for damages for breach of his statutory duty under s 37 of the DBP Act in relation to defects B2, B10, and a further 12 defects. Specifically, the Owners took issue with:

1. his Honour’s finding that the Owners had not established that Mr Kazzi breached his statutory duty in relation to those defects (ground 2); and

2. his Honour’s finding that the Owners had not proved their loss (ground 3) and, relatedly, his rejection of the evidence of Mr Mahedy (ground 4).

14. The Owners did not ultimately press ground 5 of the notice of cross-appeal, which related to minor defects.

15. The focus of Mr Kazzi’s appeal is the primary judge’s award of Hungerfords interest based on his admitted liability for defects B2 and B10. The Owners’ cross-appeal seeks to extend Mr Kazzi’s liability to all of the defects it pressed before the primary judge, in grounds 2, 3 and 4 of the cross-appeal. In view of the breadth of those grounds it is preferable to address them first, noting that Mr Kazzi’s response involved a variation of the argument he advanced on grounds 1 and 2 of his appeal, namely, that the Owners had not articulated a claim of breach of duty sufficiently to warrant a finding of liability on his part, either for Hungerfords interest or for the defects in respect of which he had not admitted liability.

16. An additional reason for first considering grounds 2, 3 and 4 of the cross-appeal is that if a review of the evidence and submissions were to reveal that the Owners did squarely advance a claim against Mr Kazzi for breach of duty under s 37 of the DPB Act, and his liability was not limited to his admitted liability for defects B2 and B10, the question of Hungerfords interest would arise for consideration irrespective of the correctness or otherwise of the circumstances in which his Honour came to consider that issue in Oxford (No 3). I note in this regard that the Owners submitted, and Mr Kazzi agreed, that if this Court concluded that the primary judge should not have dealt with that issue on the Owners’ reopening application (appeal grounds 1 and 2), the Court could deal with it in the context of ground 1 of the cross-appeal. Mr Kazzi’s further grounds of appeal, which concern whether (and, if so, from when) Mr Kazzi’s negligence caused the Owners to incur interest, would also fall for consideration.

17. For the reasons which follow, I would dismiss the appeal and allow the cross-appeal. I consider that the Owners squarely advanced and articulated a claim against Mr Kazzi for breach of the statutory duty of care in s 37 of the DPB Act, and that he was liable for breach of duty with respect to each of the defects on which the Owners relied. His Honour should have awarded the Owners damages against Mr Kazzi for the cost of the rectification works, calculated on the basis of the evidence of Mr Mahedy. His Honour was correct to award Hungerfords interest against Mr Kazzi, but erred in awarding that interest from March 2019 only. I would award interest from the date of practical completion.

Background

18. In the following summary of the background to the appeal, references to paragraph numbers are to the reasons of the primary judge in Oxford (No 1) unless otherwise stated.

19. In November 2014, the Owners entered a contract to purchase the Property. The sale settled in October 2015. The lot immediately to the north (Lot 1) was purchased by Mr Mahedy, the sole director of PRM Architects and Town Planners Pty Ltd (PRM). Mr Kazzi purchased the lot immediately to the south (Lot 3).

20. At the time the Owners purchased the Property, an existing development consent from Kiama Council authorised the construction of five units. In March 2015, the Owners obtained an amended development consent that increased the number of units to six (the Amended Consent). The Owners engaged PRM and MI Engineers to prepare, respectively, construction and structural drawings, and retained Mr Lee Kippax, a director at Building Control Group Pty Ltd, as the principal certifying authority.

21. In August 2015, after the builder the Owners initially engaged went out of business, a director of the first respondent, Elankeeren Eswaran, and the sole director of the second respondent, Ashay Sharma, met with Mr Kazzi to discuss engaging Oxford as the builder. Mr Sharma gave unchallenged evidence that in the course of that meeting Mr Kazzi said to him: “Leave this whole thing to me. I‘ll look after it from start to finish.” Following their meeting with Mr Kazzi, Mr Eswaran and Mr Sharma agreed in principle to use Oxford as the builder and emailed to Mr Kazzi:

1. final construction drawings prepared by PRM;

2. final structural engineering drawings prepared by MI Engineers;

3. a solution, plan and quote for the supply of a suspending concrete floor system; and

4. a survey, a geotechnical report, and a schedule of inclusions compiled for the original builder.

22. On 11 August 2015, Mr Eswaran also emailed the Amended Consent to Myrna Abdallah, the managing director of Oxford.

The Contract

23. On 8 October 2015, Oxford entered into a contract with the Owners for the construction of the Building (the Contract). The Contract provided for a total price of $2,090,000 inclusive of GST, broken down into “Build Fees” of $1,925,000 inclusive of GST and “Professional Fees” of $165,000 inclusive of GST for obtaining a construction certificate. The building works were divided into 10 stages, which were set out in schedule 2 to the Contract. Oxford was entitled to issue an invoice for progress payments following the substantial completion of each stage (cl 15.3).

24. Item 12 of Schedule 1 of the Contract provided that the building works “must reach the stage of practical completion no more than 16 months after the contract period (Clause 8) commences”. It was common ground before the primary judge that the commencement of the “contract period”, being the date Oxford was obliged to commence the building works, was 4 March 2016, and the date for practical completion was 4 July 2017: Oxford (No 1) at [12].

25. It was also common ground that Mr Kazzi was the nominated supervisor for the building works, that he supervised the building works, and that he was required to comply with the obligations imposed on nominated supervisors under the Home Building Act 1989 (NSW) (see the cross-claim and the defence to cross-claim at [35]-[37]).

The events leading to termination of the Contract

26. As originally designed by Mr Mahedy, the Building was to have a lift from the carpark to the upper levels. Ultimately, no lift was installed. As the primary judge noted, much time was devoted to this issue at the hearing: at [94]. His Honour’s findings on the issue provide relevant context for the cessation of building works on the Property and the Owners’ termination of the Contract with Oxford.

27. In April 2016, at Oxford’s request, a representative from the “Lift Shop”, Mr Mulkearns, sent Oxford two quotations for supplying an “Elfolift” to the Property. The specifications for the Elfolift included an internal width of 1550mm and depth of 1740mm. Mr Kazzi accepted that he received this information before pouring any of the concrete slabs: at [98]-[99].

28. On 2 or 3 May 2016, Oxford poured the basement slab. On 26 July 2016 or 3 August 2016, it poured the ground floor slab, and on 10 October 2016 it poured the first floor slab: at [99]. Mr Kazzi’s evidence was that he had caused Oxford to build in accordance with “whatever [the] specs was”: at [101]. However, as constructed the lift shaft had an internal width of 1250mm and a depth of 1500mm: at [102]. Those dimensions were too small to accommodate the Elfolift: at [106].

29. In December 2016, Mr Kazzi informed the Owners that it was necessary to amend the lift shaft and to redesign and redraw the fire stairs: at [114]. In January 2017, the Owners agreed to pay, and did pay, $30,000 to Oxford for those purposes, with Mr Kazzi stating that practical completion would be achieved by the end of April 2017: at [132]-[134], [138]. At the same time, the Owners sought to confirm that an application would be made pursuant to s 96 of the Environmental Planning and Assessment Act 1979 (NSW), to modify the Amended Consent. Mr Kazzi replied that he would try and avoid a s 96 application. However, in March 2017, Ms Abdallah indicated to the Owners in correspondence that they would need to lodge a s 96 application: at [138]-[141].

30. As the primary judge noted, April 2017 “came and went”, as work on the Building ceased pending consideration of the proposed s 96 application: at [144]. The same position obtained as at 4 July 2017, being the date of practical completion under the Contract. His Honour stated:

“[153] I was not taken to any evidence of what, if any, building work was done on the site during the period in which the s 96 application was evidently prepared, being between around July 2017 and March 2018. Nor was I taken to any evidence showing that the Owners were seeking to press [Oxford] to accelerate the progress of the s 96 application during this period.

[154] In those circumstances, [Oxford] submitted that ‘the parties accepted that from about July 2017, pending approval of the s 96 application, there was very little that could be done towards completing the development’ and that July 2017 ‘was implicitly or tacitly abandoned as the date for practical completion without another date having been agreed, and in any event a new date was dependent on the date of determination of the proposed s 96 application’.

[155] That may be a correct assessment of the situation, as far as it goes. But the reason for the s 96 application and the delay beyond July 2017 that was thereby caused was that, as Mr Kazzi agreed on 25 January 2017, the staircase and lift shaft had to be amended, this being a matter for which Mr Kazzi then agreed to be responsible, as part of the ‘variations’ for which the Owners paid $30,000 on 31 January 2017.

[156] And although Mr Kazzi then said ‘we are going to try and avoid making a s 96 application’, Ms Abd[a]llah said that one was necessary on 17 March 2017. This was all caused by [Oxford’s] failure to construct the foyer and stairs in accordance with the approved plans and its failure to construct the lift shaft with sufficient dimensions.

[157] Nonetheless, it appears that the Owners let the matter drift in the period leading up to March 2018.”

(Footnote omitted.)

31. In the face of his Honour’s statement that the Owners “let the matter drift in the period leading up to March 2018”, Counsel for the Owners pointed out in oral submissions on the cross-appeal that the s 96 application took a significant time to prepare, and Mr Kazzi was heavily involved in the process. In his affidavit sworn 27 October 2021, Mr Kazzi stated that “[t]he work involved in the preparation of the section 96 application for a project of this kind was considerable” and required regular meetings with the Owners, Mr Kippax, the Council and other consultants “to discuss the flow on effects of the design changes required at the Property” (at [57]). Counsel pointed in this regard to an email dated 22 November 2017 to Mr Sharma from Ms Dodd, the project manager for Oxford, noting that Mr Kazzi had met with “Council on site on your behalf” and listing some matters discussed, including the need to install ramps for accessible access.

32. On 1 March 2018, Ms Dodd sent the Owners revised s 96 plans, which they forwarded to Mr Kippax (who had been involved in communications with Oxford about the s 96 application). The Owners then sent Ms Dodd an email outlining Mr Kippax’s concerns with the revised plans, requesting that his concerns be addressed with the architect and revised drawings be provided. In his expert report in reply dated 10 February 2022, Mr Mahedy gave evidence that the s 96 plans as at March 2018 did not comply with the Building Code of Australia (BCA) in several respects (at [7]-[9]).

33. When the Owners followed up with Ms Dodd about the revisions (as they were planning to travel to Gerringong to lodge the application), she replied that Mr Kazzi would discuss all of that at a meeting with the Owners. As the primary judge stated, “[t]here the proposed s 96 application rested”: at [162].

34. On 20 March 2018, Oxford purported to suspend the works pursuant to cl 32.1 of the Contract, which entitled Oxford to suspend the carrying out of the works if the Owners were in breach of the Contract: at [164]. There was no challenge on the appeal to his Honour’s conclusion that the Owners were not in breach, and, therefore, that Oxford was not entitled to suspend the works: at [203]-[204]. In those circumstances, Oxford was in substantial breach of the Contract: at [218].

35. On 23 March 2018, the Owners engaged a quantity surveyor, John Portelli, to determine how much work had actually been completed: at [205]. Mr Eswaran gave evidence in his affidavit of 21 July 2021 that he attended the site at least twice a month in April and May 2018 and saw that no work had been carried out (at [153]). On 22 May 2018, the Owners issued a breach notice to Oxford due to the lack of progress. The notice stated that it was “the opinion of the independent quantity surveyor that has undertaken an inspection of the project to assess the value of the works to be completed” that Oxford had been overpaid for the works completed.

36. Between June and August 2018, Oxford resumed building works, only to cease all work on the site by about October 2018: at [196]-[198], [222]. Around the time that Oxford again ceased all works, National Australia Bank advised the Owners that it would not pay any further progress claims without a report from a quantity surveyor, and suggested they engage Mr Portelli. On 6 March 2019, Mr Portelli provided his report on the cost to complete the Building. As the primary judge observed, Mr Portelli’s report confirmed that a substantial amount of work remained to be done: at [215].

37. In a letter dated 20 March 2019, the Owners gave Oxford a notice of breach, demanding that work resume immediately: at [224]-[228]. On 27 March 2019, a structural engineer, David Tarlinton of Inglis Engineering, instructed by the Owners, attended the site to undertake an inspection. He retrieved two concrete cores from the site and sent them for testing on the same day. As Counsel for the Owners submitted orally, the work necessary to rectify the defective concrete thus commenced very shortly after the breach notice was sent (cf Oxford (No 3) at [19]).

38. On 5 April 2019, when Oxford failed to resume work on the Building, the Owners sent a notice of termination of the Contract: at [237]. Thereafter, the Owners caused the Building to be completed: at [240].

39. On or about 29 June 2020, the Owners obtained an occupation certificate for the Building, and the strata plan was registered at about that time: at [241]. In Oxford (No 3), the primary judge referred (at [20]) to Mr Mahedy’s unchallenged evidence that “although practical completion of the building works occurred in late 2019, he was unable to register the strata plan or obtain an occupation certificate for the development until mid-2020, because of the encroachment over Mr Kazzi’s property”, the encroachment being the product of defect B2. It was only following registration of the strata plan that the Owners were able to give effect to the pre-sales of the six units in the Building, which had been sold by the time of Oxford (No 1): at [242].

40. Ultimately, the primary judge found that the date for practical completion came and went “because of the manner in which the Builder wrongly constructed the foyer and stairway, leading to the s 96 application; which did not proceed because of the Builder’s wrongful purported suspension of the works in March 2018”: at [302].

The Owners’ cross-claim against Oxford and Mr Kazzi

41. Although Oxford commenced the proceedings that were heard by the primary judge, his Honour’s dismissal of its statement of claim is not the subject of the appeal or cross-appeal. The focus of the proceedings in this Court was the Owners’ cross-claim against Mr Kazzi. Nonetheless, in light of Mr Kazzi’s arguments it is necessary to consider the Owners’ claims against Oxford, which is now in liquidation.

42. As I noted above, the claim against Oxford was for breach of the Contract. The pleading of breach comprised two allegations, the first of which related to non-completion of the works required under the Contract (cross-claim [30]):

“In breach of the Contract, Oxford:

(i)   failed to carry out the Building Works with due diligence;

(ii)   made claims for progress payments in relation to stages of the Building Works which had not been substantially completed;

(iii)   failed to complete the Building Works by 4 July 2017;

(iv)   ceased carrying out the Building Works in or about September 2018; and

(v)   failed to complete the Building Works.”

43. By way of particulars to that allegation, the Owners referred to Oxford’s failure to complete the building works listed in Annexures A, B and C to the cross-claim. The loss and damage claimed as a result of this pleaded breach included the cost to complete the incomplete works, the cost of rectifying defects, and interest as a result of the delayed completion of the Building (cross-claim [31]).

44. The Owners then alleged a further breach of contract that related to the defective works alone (cross-claim [32]):

“In further breach of the Contract, Oxford failed to:

(i)   carry out the Building Works with due care and skill and in accordance with the plans and specifications set out in the Contract;

(ii)   supply materials that were good and suitable for the purpose for which they were used;

(iii)   carry out the Building Works in accordance with, and in compliance with, the Home Building Act 1989 and the Environmental Planning and Assessment Act 1979;

(iv)   ensure that the Building Works resulted, to the extent of the Building Works conducted, in a dwelling that was reasonably fit for occupation as a dwelling; and

(v)   ensure that the Building Works and materials used in doing the Building Works were reasonably fit for the specified purpose or result, being the construction of an apartment building in accordance with the Development Consent.”

45. The particulars to this allegation specified the defective works listed in Annexure C to the cross-claim. The damages the Owners claimed as a result of the further alleged breach included approximately $400,000 “to rectify the defects in the Building Works listed in Annexure C hereto”, and interest costs of approximately $400,000 “as a result of the delayed completion of the Building Works, including the rectification of all defects in the Building Works and dealing with the encroachment of the Building onto the properties to the north and south of the Land” (cross-claim [33]).

46. In relation to their claim against Mr Kazzi, the Owners pleaded that, as the nominated supervisor, he was responsible for carrying out all relevant work for the Contract and ensuring that Oxford complied with all relevant codes of practice, laws and regulations (cross-claim [35]). The Owners pleaded that Mr Kazzi carried out all relevant work for the Contract on Oxford’s behalf, and that he owed the Owners a duty to exercise reasonable care to avoid economic loss caused by defects in or related to the Building, or arising from the building works (cross-claim [36]-[37]). The Owners alleged that the duty arose at common law and pursuant to s 37 of the DBP Act.

47. The Owners also pleaded that the risk that they could suffer economic loss caused by defects was not insignificant and was foreseeable because it was a risk of which Mr Kazzi was aware (cross-claim [38]-[39]). They alleged that in the circumstances, a reasonable person in Mr Kazzi’s position would have taken precautions against the risk (cross-claim [40]). The particulars to that allegation were as follows:

“As the nominated supervisor for Oxford, Kazzi should have ensured that:

(a)   the Building Works were carried out with due care and skill and in accordance with the plans and specifications set out in the Contract;

(b)   the materials supplied were good and suitable for the purpose for which they were used;

(c)   the Building Works were carried out in accordance with, and in compliance with, the Home Building Act 1989 and the Environmental Planning and Assessment Act 1979;

(d)   the Building Works resulted, to the extent of the Building Works conducted, in a dwelling that was reasonably fit for occupation as a dwelling; and

(e)   the Building Works and materials used in doing the Building Works were reasonably fit for the specified purpose or result, being the construction of an apartment building in accordance with the Development Consent.”

48. The Owners then alleged that Mr Kazzi breached his duty of care by failing to (cross-claim [41]):

“(a)   carry out the Building Works, and/or ensure that the Building Works were carried out, with due care and skill and in accordance with the plans and specifications set out in the Contract;

(b)   supply materials, and/or ensure that materials were supplied, that were good and suitable for the purpose for which they were used;

(c)   carry out the Building Works, and/or ensure that the Building Works were carried out, in accordance with, and in compliance with, the Home Building Act 1989 and the Environmental Planning and Assessment Act 1979;

(d)   ensure that the Building Works resulted, to the extent of the Building Works conducted, in a dwelling that was reasonably fit for occupation as a dwelling; and

(e)   ensure that the Building Works and materials used in doing the Building Works were reasonably fit for the specified purpose or result, being the construction of an apartment building in accordance with the Development Consent.”

49. The particulars to this allegation cross-referred to the defective works listed in Annexure C to the cross-claim.

50. Mr Kazzi admitted that he was the nominated supervisor, that he supervised the building works, and that he was required to comply with the obligations imposed on nominated supervisors under the Home Building Act. He otherwise denied the allegations (defence to cross-claim [35]-[41]).

51. As is apparent from a comparison between the extracts in [44], [47] and [48] above, the breach of the statutory duty of care alleged against Mr Kazzi was in substantially similar terms to the allegation of breach of contract against Oxford with respect to defective work. The claim for loss and damage as a result of the pleaded breach of duty by Mr Kazzi included the same amounts as the Owners pleaded against Oxford, to which I referred in [45] above. However, it does not follow, as Mr Kazzi contended in response to the cross-appeal, that the Owners did not advance a case against Mr Kazzi that was separate from their contract claim against Oxford. Nor was it the case, as was also central to Mr Kazzi’s response, both generally and in respect to individual defects, that the Owners relied on the existence of the pleaded defects, without more, to establish that Mr Kazzi had breached the statutory duty of care.

The evidence of Mr Mahedy

52. Much of the evidence on the issue of Oxford’s defective work was given by Mr Mahedy: at [41]-[42]. As well as being the architect who designed the Building, in about mid-March 2019 the Owners retained Mr Mahedy’s firm to project manage the completion of the building works and the rectification of defective building work that Oxford had performed. In his first affidavit sworn on 27 July 2021, Mr Mahedy stated that he was assisted in the work for which the Owners retained him by an employee, Simon Howard, who was an architecture graduate. The Owners also engaged a licensed builder, Shayne Seage (at [12]-[16]).

53. Mr Mahedy prepared an expert report, dated 27 July 2021, in which he answered a series of questions relating to the construction of the Building. In preparing the report, Mr Mahedy had regard to the Contract, the documents listed in Annexure A to the report, the documents included in the Appendices to the report, the BCA, and what he described as “my own knowledge of the Development” (at [5]). The documents in Annexure A included the various development consents, the construction certificates, an engineering assessment report dated 12 June 2019 prepared by Mr Tarlinton, and an item described as the “Invoices for Completion Works”.

54. In relation to Mr Mahedy’s knowledge of the development, I have noted above that he was the owner of the Lot next door. In his first affidavit, Mr Mahedy noted that this was where PRM’s offices were located (at [8]). In his affidavit sworn on 16 November 2022, Mr Mahedy gave evidence that during the period that Mr Seage was doing work on the site (between about April and October 2019), he did multiple walk-throughs of the Building on most days; and he met Mr Seage on site most days to discuss the works and programming priorities (at [12]-[13]). Mr Mahedy also gave evidence that he undertook a process of reviewing all invoices issued by contractors and suppliers to ensure that they were correct and should be paid (at [15]). The measures he took to ensure that payments to Mr Seage were justified included requiring Mr Seage’s subcontractors to complete timesheets, and requiring Mr Seage to submit invoices substantiating the costs of materials and equipment (at [15]).

55. Relevantly to the cross-appeal, Mr Mahedy was instructed to answer the following question in his report:

“As at 5 April 2019, so far as the Development was concerned, what defects were there in the building works that had been carried out by Oxford?”

56. In response to a question from his Honour, Mr Mahedy gave the following explanation of the distinction between incomplete works and defective works (Tcpt, 9 February 2023, p 299(13)-(15)):

“Works that are contractually required to be undertaken that weren’t finished are incomplete works, works that were defective that could not be easily rectified were defects.”

57. In response to the question he was asked in the report, Mr Mahedy set out, in the first column of the schedule in Appendix B, the major defects in the building works as at 5 April 2019, by reference to the development consents, the two construction certificates, the BCA and Australian Standards, and “standard construction industry practice” (at [8]). The primary judge ultimately characterised two of the 16 defects included in Appendix B as incomplete works: [70]-[73]. The Owners have not challenged that characterisation, leaving 14 defects in issue on the cross-appeal.

58. Mr Mahedy was also asked what steps were taken to rectify the identified defects and what were the costs of those steps. In the second column of the schedule in Appendix B, Mr Mahedy set out the works that were undertaken to rectify the major defects he had identified (at [33]). By way of example, in relation to defect B2 the first two columns of the schedule in Appendix B provided:

Item	Defective Building Works Summary	Rectification Works Undertaken
B2	Boundary encroachments to the north (Lot 1), south (Lot 3), and west (Council land) Oxford failed to construct the building within the boundaries of Lot 2: (i) the northern wall of the building encroached on Lot 1 by up to 50mm; (ii) the south-eastern corner of the ground floor slab encroached on Lot 3 by 175mm; (iii) the slabs and block walls of the western balconies of units C1 and C2 encroached on Council land by up to 45mm; (iv) the slabs of the western balconies of units C3 and C4 encroached on Council land by up to 55mm; and (v) the western pergolas for units C3 and C4 encroached on Council land by up to 240mm.	• Easements had to be obtained over Lots 1 and 3. • The block walls on the western balconies of units C1 and C2 were demolished. • The concrete slabs of the western balconies of units C1, C2, C3 and C4 were shaved. • The western pergolas for units C3 and C4 were demolished.

59. In the third column of the schedule in Appendix B, Mr Mahedy set out the “[p]recautions which a reasonable person would have taken”. The primary judge rejected that column as evidence of the facts asserted. Nonetheless, as his Honour stated, it served to put Oxford on notice of the nature of the Owners’ case against Mr Kazzi: at [344]. As Counsel for the Owners submitted on the cross-appeal, the matters to which Mr Mahedy referred in this column were not a matter for expert evidence.

60. As to the cost of the rectification works, Mr Mahedy referred to Appendix C of his report (at [36]). The final version of Appendix C formed part of the judgment in Oxford (No 1).

61. Mr Mahedy first referred to Appendix C in response to a question about the costs to complete the incomplete building works, stating at [30]:

“[30] Appendix C hereto is a schedule I have prepared listing all of the costs involved in the incomplete building works and rectifying the defects in the building works (together, the Completion Works). Those costs (including the two invoices referred to in paragraph 40, below) totalled $1,074,327 (excl. GST).”

(Emphasis in original.)

62. In [31] of his report, Mr Mahedy noted that he had broken down the costs of the Completion Works into three categories, the last of which was “the costs of rectifying the defects in the building works (which totalled $408,115)” (emphasis in original). Returning to this part of Appendix C in answer to the question about the cost of rectifying the defects, Mr Mahedy stated:

“37   Appendix C includes the project management fees charged by my firm. For invoices issued in relation to project management services from June 2019 onwards, the work that I did spanned all of the Completion Works, and I have apportioned my fees as follows:

(i)   30% towards completing the incomplete works pre-Stage 9;

(ii)   30% towards completing the incomplete works Stages 9 and 10; and

(iii)   40% towards rectification works.

38   The above apportionment is based upon the total value of the work done in each of the above three categories (ie $336,371, $324,305 and $408,115).

39   The work done by my employee, Simon Howard, was in relation to the defect rectification works. Accordingly, all of his fees have been apportioned to that category.”

63. Appendix C was organised according to the invoices issued by each supplier, with the final column providing an evidentiary reference to the relevant invoice(s). The products and services invoiced included sundry contracts, skip bin hire, plumbing and electrical works, construction works (including the builder and sub-contractors), and project management and other consultants. After setting out the total invoice amount, Mr Mahedy allocated the amount (exclusive of GST) into one or more of the three categories to which he referred in 37, each of which had its own column in the schedule.

64. In the case of most of the invoices listed in Appendix C, Mr Mahedy allocated the invoice amounts to only one of the three categories. By way of example, invoices issued by the surveyor, the engineering consultant, the access consultant and the fire consultant were allocated in their entirety to rectification works. However, as Mr Mahedy foreshadowed in his report, he apportioned some of the invoices as between one or more of the three categories, including PRM’s invoices (being Mr Mahedy’s firm) and those of the builder, Mr Seage.

65. Oxford did not object to Appendix C or to the evidence that Mr Mahedy gave concerning his allocations. Mr Mahedy was also not cross-examined on the subject or the document: Oxford (No 1) at [272].

66. By way of an aide memoire, the Owners annexed to their supplementary written submissions to the primary judge (which were filed before his Honour handed down Oxford (No 1)) a compilation of invoices and timesheets that related to the rectification works carried out in respect of certain defects (B1, B2, B4, B10, B11 and B13-B16). As Counsel for the Owners explained to this Court, the Owners also provided a further aide memoire to the primary judge in the context of the hearing leading to Oxford (No 2). This aide memoire (which the primary judge declined to consider: see Oxford (No 2) at [34]-[39]) was provided in support of a submission that various invoice items could be seen on their face to relate to the rectification works that Mr Mahedy identified in Appendix B for defects B2, B4, B5, B8, B10, B12 and B14-B16.

Determination of the Owners’ cross-claim against Mr Kazzi

67. The primary judge found that the evidence established “a significant number of defects”, observing that “[i]n closing submissions, this was barely contested by the Builder”: at [40]. However, his Honour considered that the Owners had not proved what component of the expenses they incurred related to the cost of rectifying those defects, as opposed to completing the work: at [347]. His Honour stated that it was “[f]or that reason alone” that the Owners’ claim against Mr Kazzi failed: at [352]. Nonetheless, the primary judge also briefly considered whether the Owners had established that Mr Kazzi breached the duty in s 37 of the DPB Act. His Honour did not accept that the Owners had established such breach.

Failure to establish breach of the s 37 duty (cross-appeal, ground 2)

68. In rejecting the Owners’ argument on breach of duty, the primary judge first extracted a passage from The Owners – Strata Plan No 87060 v Loulach Developments Pty Ltd (No 2) [2021] NSWSC 1068 (“Loulach”), in which his Honour had considered an application by the plaintiff to amend its pleading to allege breach of the duty in s 37 of the DBP Act. The pleading relied on the existence of defects alone as giving rise to the alleged breach of duty. In dismissing the application in Loulach, his Honour had observed that it was necessary for a plaintiff alleging breach, by a builder, of the statutory duty of care to “identify the specific risks that the builder was required to manage, and the precautions that should have been taken to manage those risks”: at [42].

69. In the cross-claim in the present case, the particulars of Mr Kazzi’s alleged breach of duty referred only to the existence of the defects in Annexure C of the cross-claim. However, his Honour accepted that the Owners had put Oxford on notice of the nature of their case by reason of the third column of the schedule in Appendix B to Mr Mahedy’s report, notwithstanding that he had rejected the material in that column as evidence of the facts asserted therein: at [342]-[343]. Significantly for the purposes of the cross-appeal, his Honour then stated:

“[344] As the Owners pointed out, many of the defects in the work that I have identified were the consequence of the Builder’s failure to carry out the building works in accordance with the construction certificate plans and specifications. The Builder accepted that it had acted in breach of its duty of care in relation to the boundary encroachments defect and the concrete strength issue.

[345] As the Owners also pointed out, the defence offered by the Builder in relation to many of the other defects was that the work was incomplete, rather than completed defectively, or that the Builder had approval to build otherwise than in accordance with the construction certificate plans and specifications. I have dealt with those matters above.

[346] Precisely how these matters bespoke a breach of duty by Mr Kazzi personally was not clearly developed in the Owners’ submissions.”

(Footnotes omitted.)

70. If the primary judge was intending to summarise the Owners’ arguments on breach in [344] and [345], those paragraphs did not encapsulate the submissions they advanced.

Section 37 of the DBP Act

71. Part 4 of the DBP Act, which includes s 37, is titled “Duty of care”. Section 36 sets out a number of definitions which apply in Part 4, including “construction work”, which is defined to include, in paragraph (a), “building work”, and, in paragraph (d), “supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any work referred to in”, relevantly, paragraph (a). The term “building work” is also defined in s 36(1) to include “residential building work within the meaning of the Home Building Act 1989”. In Roberts v Goodwin Street Developments Pty Ltd (2023) 110 NSWLR 557; [2023] NSWCA 5, Kirk JA and Griffiths AJA concluded that the general definition of “building work” in s 4 of the DBP Act also applied in Part 4, “but only as regards the first topic addressed in the general definition”, namely, the type of work undertaken: at [230]. Their Honours had earlier identified the type of work that the definition in s 4 encompassed as: “construction of a building; making of alterations or additions to a building; and the repair, renovation or protective treatment of a building”: at [189].

72. Section 37 of the DBP Act provides:

37 Extension of duty of care

(1)   A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects—

(a)   in or related to a building for which the work is done, and

(b)   arising from the construction work.

(2)   The duty of care is owed to each owner of the land in relation to which the construction work is carried out and to each subsequent owner of the land.

(3)   A person to whom the duty of care is owed is entitled to damages for the breach of the duty as if the duty were a duty established by the common law.

(4)   The duty of care is owed to an owner whether or not the construction work was carried out—

(a)   under a contract or other arrangement entered into with the owner or another person, or

(b)   otherwise than under a contract or arrangement.

73. Section 41 of the DBP Act provides:

41 Relationship with other duties of care and law

(1)   The provisions of this Part are in addition to duties, statutory warranties or other obligations imposed under the Home Building Act 1989, other Acts or the common law and do not limit the duties, warranties or other obligations imposed under that Act, other Acts or the common law.

(2)   This Part does not limit damages or other compensation that may be available to a person under another Act or at common law because of a breach of a duty by a person who carries out construction work.

(3)   This Part is subject to the Civil Liability Act 2002.

74. In The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2023] NSWCA 301, Basten AJA (Ward P and Adamson JA agreeing) (“Pafburn”) stated that to give effect to the deeming in s 37(3) of the DPB Act, the duty in s 37 was to be treated as a common law duty and that a claim under the provision “must be treated as one brought under the common law for all purposes, including in addressing the application of the Civil Liability Act”: at [70]; see also at [11] (Adamson JA). ^[1] The duty in s 37 is non-delegable (s 39) and may not be contracted out of (s 40).

The Owners’ case against Mr Kazzi for breach of the duty in s 37

1. The High Court has granted special leave to appeal from the decision of the Court of Appeal: [2024] HCASL 96.

75. In Oxford (No 1), the primary judge considered that on a fair reading of the pleaded claim against Mr Kazzi, what was being alleged against him was that he “acted in breach of a duty to exercise reasonable care”: at [338]. In their submissions to the primary judge, the Owners articulated that breach of duty with respect to most of the defects as involving a failure on the part of Mr Kazzi, as the nominated supervisor of the works, to take reasonable care that the building work was done in accordance with the plans and drawings that were approved for the Building. The Owners called attention in this context to the scope of “improper conduct” on the part of a nominated supervisor under the Home Building Act, and the more general obligation, in s 76A of the Environmental Planning and Assessment Act (since renumbered to s 4.2), to comply with development consents.

76. Thus, s 53(1) of the Home Building Act provides that the holder of an endorsed contractor licence or supervisor certificate “who has control over the carrying out of residential building work or specialist work of any kind” is guilty of improper conduct if:

(a)   the requirements applicable to the work made by or under this Act or any other Act are not complied with, or

(b)   a breach of a statutory warranty occurs in the course of doing that work, or

(c)   in the case of specialist work, the work is done otherwise than with due care and skill or faulty or unsuitable materials are used in the course of doing the work.

77. The statutory warranties referred to in s 53(1)(b) of the Home Building Act include, in s 18B(1):

(a)    a warranty that the work will be done with due care and skill and in accordance with the plans and specifications set out in the contract,

(b)     a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new,

(c)     a warranty that the work will be done in accordance with, and will comply with, this or any other law,

…

78. Although Mr Kazzi was critical of the Owners’ reliance on these provisions, their purpose in doing so was to inform the content of the duty of care in s 37, as opposed to being prescriptive of it. As the primary judge found, Mr Kazzi “supervised, and had substantive control over, the building work at the site in that he was able to control how the work was carried out”: at [331]. Most of defects alleged were the product of decisions made by Mr Kazzi to depart from the approved planning and engineering documents for the Building, in circumstances where he was provided with those documents and had arranged for the two construction certificates to be issued. In oral closing submissions before the primary judge, counsel for the Owners put the claim as follows (Tcpt, 14 February 2023, p 413(1)-(6)):

“… the failure to follow the plans is a breach of the duty of care. The failure of the supervisor to ensure that the building work is done in accordance with the plans is a breach of the duty of care. Where there’s an obligation to ensure under the law that it’s done, and Mr Khazi [sic] builds the building in complete disregard of the legal requirement, then he has breached his duty of care.”

79. A subsequent exchange between the primary judge and counsel for the Owners further clarified the argument (Tcpt, 14 February 2023, p 423(36)-(49)):

“HIS HONOUR: … I need you to explain all this in detail, to me, that’s important but --

HOROWITZ: But a central issue is whether they’re complete or defects, so I have to go through this process. I’m also going through the process to indicate what the breach of duty by Mr Khazi [sic] was, and --

HIS HONOUR: Your point is, they’re all defective work – and you say, and breach of duty – because, as you say, they result from a failure to follow what the plans mandated.

HOROWITZ: Yes. In nearly all cases – with the parapet walls I can’t point to a particular plan that says that a double-brick wall needs to have a flashing, that’s an obvious part of building practice.”

(Emphasis added)

80. The Owners repeated this submission in the supplementary written submissions they filed after the hearing, dated 20 February 2023. The Owners there contended that for each of the defects on which they relied save for three, Mr Kazzi breached his duty of care by “failing to carry out the Building Works, and/or ensure that the Building Works were carried out, in accordance with the construction certificate plans and specifications”. The Owners noted in this regard that Mr Kazzi admitted a want of reasonable care in relation to defects B2 and B10. As to the remaining three defects (B8, B13 and B14), the Owners submitted that Mr Kazzi breached his duty of care by failing to carry out the building works with due care and skill, and failing to ensure that the works resulted in a dwelling that was reasonably fit for occupation as a dwelling.

81. By contrast with what was sought to be pleaded in Loulach, the Owners did not rely on the existence of defects alone to establish a breach of duty on the part of Mr Kazzi. Nor did the Owners rely, as might be suggested by [345] of the primary judge’s reasons, upon the limited nature of Oxford’s and Mr Kazzi’s defence as determinative.

82. His Honour summarised the defects on which the Owners relied drawing “largely” on their closing submissions: at [41]. In what follows I have adopted the primary judge’s summary of the defects, referring in addition to evidence that the Owners drew to this Court’s attention in their written and oral submissions.

Defect B1: failure to build a retaining wall along Noble Street boundary; and
Defect B3: change to basement perimeter load bearing walls

83. On the appeal, the Owners addressed defects B1 and B3 together because they both involved a decision on the part of Mr Kazzi not to follow the structural engineering drawings.

84. As the primary judge observed of defect B1, the approved construction certificate plans required a retaining wall, consisting of piers and shotcrete, to be built along the western boundary of the site. The plans also provided that the piers were to support the balconies on the western side of the Building: at [43]. Oxford did not build the retaining wall or provide the balcony support for which the plans provided: at [44].

85. The approved plans also required the basement perimeter load bearing walls to be constructed using concrete block work which was externally waterproofed: at [52]. According to Mr Mahedy, defect B3 arose because Oxford built those walls using a product called Rediwall, which is a PVC framework into which concrete is poured. Oxford constructed the perimeter walls in such a way that they shifted off the edge of the basement slab during the concrete pour, leaving them overhanging without full structural support. Additionally, the joint between the western and southern walls leaked groundwater into the stairwell.

86. In cross-examination, Mr Kazzi’s explanation for defect B1 was that “we got the other diagram which relies on a Rediwall system and cantilever the balconies”. However, as the primary judge stated, there was no reference in any of his three affidavits to obtaining any “other diagram” that permitted Oxford to depart from the approved plans: at [46].

87. Mr Kazzi also relied on the Rediwall system in answer to defect B3. According to Mr Eswaran, when he visited the Property on or about 8 March 2016, he saw workmen in the process of setting up Rediwall system walls on the basement slab. When Mr Eswaran raised with Mr Kazzi that he thought the builders were to use concrete blocks, Mr Kazzi replied, “It’s cheaper and easier to do this” (Affidavit, Elankeeren Eswaran, 11 February 2022 at [15]).

88. The primary judge referred in Oxford (No 1) to Mr Kazzi having agreed in cross-examination that the approved plans required the basement walls to be constructed using concrete block work, and to be externally waterproofed. Mr Kazzi asserted that he had approval to build the basement using Rediwall, and that the Rediwall system was certified by an engineer: at [53]. The primary judge, however, found that the certificate “did no more than certify that the structural integrity of the Rediwall had not been affected by the removal of the concrete wall encroaching onto Mr Mahedy’s property to the north”: at [53]. As to the waterproofing, the primary judge noted that Mr Kazzi initially sought to defend its absence on the basis that the BCA did not require it for basements, before asserting in cross-examination that the waterproofing was incomplete, rather than defective, work. The primary judge rejected that claim: at [54].

89. His Honour found that Oxford was obliged to construct the Building in accordance with the approved construction certificate drawings: at [46]. That included the walls being waterproofed externally: at [54].

90. Mr Kazzi submitted, for these and other defects, that the Owners did not lead any evidence that the decision to use Rediwall was negligent, and did not contend for any negligence on behalf of Mr Kazzi beyond the breach of contract. However, as counsel for the Owners submitted, it was Mr Kazzi who decided to use Rediwall, and to build otherwise than in accordance with the approved structural engineering drawings. That decision, and the departure from the approved drawings that it entailed, involved a breach on the part of Mr Kazzi of the duty in s 37 to take reasonable care to avoid economic loss caused by defects.

91. Mr Mahedy gave evidence in Appendix B that by way of rectification of defect B1, on the recommendation of the structural engineer, Mr Tarlinton, the western balconies of units C1 and C2 had to be underpinned with concrete piers down to excavated rock. As to defect B3, Mr Tarlinton instructed that when the concrete driveway to the basement car park was completed, the concrete was formed up to the basement slab to support the overhanging perimeter walls. In relation to the waterproofing issue, the primary judge noted that “the Owners were advised to cause the Builder’s successor to excavate the ground around the corner junction of the western and southern perimeter walls to install the waterproofing”: at [54]. Additionally, the internal joint between the two walls was sealed to halt water penetration into the basement stairwell.

Defect B2: boundary encroachments

92. I have extracted, in [58] above, the first two columns in Appendix B to Mr Mahedy’s report in relation to this defect. Mr Kazzi admitted that he had breached the s 37 duty in respect of this defect, with the primary judge making the following observations about his evidence:

“[48] Mr Kazzi agreed that a builder is responsible for doing check surveys on each level of construction after the formwork has been put in place and before the concrete is poured to make sure that the Building is within the property boundaries.

[49] Mr Kazzi also agreed that the Builder did not undertake check surveys but only set-out surveys.”

Defect B4: Entry foyer below Noble Street level

93. The BCA required street level access from Noble Street to the Building’s entry foyer to the west. However, the foyer slab was constructed below street level: at [55]. His Honour found that this defect was the product of Oxford’s non-compliance with the approved structural engineering plans, which required the surface of the western half of the ground floor slab (being the part closest to Noble Street) to be built 350mm higher than the eastern half. As built, the western half of the ground floor slab was only 115mm higher than the eastern half: at [56].

94. Although Mr Kazzi submitted on the appeal that he did not make any admissions with respect to this defect, the absence of check surveys (which he admitted in the context of defect B2) was also relevant to this defect, as the primary judge noted: at [57]. Mr Kazzi’s failure to undertake the necessary check surveys, or cause them to be performed, involved a breach of the duty of care in s 37 of the DBP Act with respect to this work, in circumstances where he had confirmed:

1. by a letter to the certifying authority dated 17 December 2015, which formed part of the first construction certificate, that a registered surveyor would be engaged to confirm the reduced level at each level; and

2. by a letter to the certifying authority dated 30 June 2016, which formed part of the second construction certificate, that an accessible path of travel would be built through the foyer to the entrance doorway to unit C1 (which was on the ground floor).

95. According to Appendix B of Mr Mahedy’s report, a new concrete slab had to be poured on top of the ground floor slab at the Building’s entry so as to raise it to street level; and two steel columns were installed in the basement to support the ground floor slab in the area where the new slab was poured. Additionally, the stairs from the basement to the foyer had to be demolished and rebuilt, so as to arrive at the higher level of the new slab.

Defect B5: failure to construct the foyer façade and roof in accordance with the Amended Consent and construction certificate drawings

96. In Appendix B, Mr Mahedy stated that Oxford “departed from the DA and CC drawings in very significant respects when constructing the building’s stairwell, foyer façade, first and second floor slabs, and roof”. In Oxford (No 1), his Honour extracted the following drawings from Appendix B, which demonstrate the departures:

97. Mr Mahedy identified four aspects of the defective work, the first of which related to the stairs:

“The stairs from the basement to the ground floor:

• were built the wrong way around – the first flight going up was built to the south and the second flight going up was built to the north, instead of vice versa; and

• were built 1.2 metres too far to the west.

These defects resulted in there not being the minimum circulation area (approx. 1550mm x 1550mm) in front of the lift required by the BCA for disabled access.”

98. Apart from the stairs, the first floor concrete slab extended too far to the west; half of the foyer façade had been built out of concrete blockwork when it should have been built out of glass; and a concrete blockwork wall had been built on the southern side of the lift shaft between the ground floor and the second floor slab, when the engineering drawings required a (brick) wall in that location between the ground floor and the first floor only.

99. Mr Kazzi repeated his submission that the Owners did not lead any evidence that his decision to build otherwise than in accordance with the approved plans was negligent, and did not argue that this decision demonstrated any negligence on his part. Again, this submission demonstrated a misunderstanding of the Owners’ case. Mr Kazzi’s breach of duty lay in the deliberate decisions he made, as the nominated supervisor, to deviate from the approved structural engineering plans and to construct the foyer and façade in a way that led to the significant defects that Mr Mahedy identified (Tcpt, 14 February 2023, p 416(1)-(8)). Mr Kazzi did not contend that he was not responsible, but instead sought to explain what had happened, in a manner that the primary judge did not accept.

100. Thus Mr Kazzi gave evidence, in cross-examination, to the effect that he had not built the stairs in accordance with the approved plans because the plans did not work for the lift. By contrast, in his affidavit evidence Mr Mahedy said that he only found out in early November 2016 that the lift supplier could not supply and install a lift to fit the constructed dimensions. As the primary judge observed, the timing of those two aspects of his evidence could not sit together, as Mr Kazzi’s alleged discovery about the lift dimensions in November 2016 was “long after the foyer and stairs had been constructed”: at [60]. Mr Kazzi also asserted that the engineer, private certifier and architects were parties to the rearrangement of the foyer. His Honour rejected that assertion, there being no mention of any such arrangement in Mr Kazzi’s affidavits and no documentary evidence to support it: at [61].

101. By causing Oxford, under his supervision, to construct the foyer and façade in a manner that significantly departed from the approved plans, Mr Kazzi breached the duty of care in s 37 of the DBP Act. The primary judge found that as a consequence, the Building’s façade, and much of its lower foyer, had to be demolished and rebuilt: at [62]. The lift was also deleted from the Building: at [63].

Defect B8: defective wiring in basement

102. The Owners did not articulate Mr Kazzi’s breach of duty associated with this defect as a failure to follow the approved plans, but rather a failure on his part, as the supervisor, to see that Oxford carried out the work in a proper and workman-like manner. Against Mr Kazzi’s standard submission that the Owners did not lead evidence of his breach of duty, the Owners relied on Mr Kazzi’s acceptance that Oxford had left electrical wiring hanging out of the walls and ceilings all over the development for a number of years, to which the primary judge referred at [74]. Mr Kazzi also accepted that “a builder doing a proper job would not leave wires hanging out of walls and ceilings for years, exposing the wires to the risk of corrosion”: at [76]. The Owners emphasised in this respect that Mr Kazzi agreed that between June and September 2018, when Oxford returned to the site, the wiring was not fixed.

103. As the Owners contended before the primary judge in closing oral submissions, “there were leaks in the basement for a number of years, there were wires hanging out in the basement for a number of years, and Mr [Kazzi], as the supervisor, didn’t take any steps to ensure that that work was done in a workman-like manner, and that that wiring was all finished off so that it wouldn’t corrode” (Tcpt, 14 February 2023, p 416(41)-(45)). Mr Kazzi’s failure to take any steps to cause the electrical wiring work to be completed constituted a breach of the s 37 duty of care.

104. His Honour found that water had leaked through the wall and slab penetrations of the Building, and that when an electrician tested the wiring in the basement some of it was found to be unusable: at [75]. Mr Mahedy gave evidence in Appendix B, which the primary judge summarised in [75], that an electrician was required to replace all defective wiring.

Defect B9: failure to install fire-rated door jambs on basement and unit fire doors; and
Defect B16: failure to comply with fire resistance requirements

105. Before the primary judge, Mr Kazzi accepted that fire-rated door jambs were required on the basement and unit fire doors, pursuant to the BCA and the construction certificate drawings. The primary judge found that those door jambs were not installed: at [77]. The primary judge found that Oxford also failed to comply with a number of BCA requirements for fire resistance levels, including a failure to provide fire protection for the external walls of units C5 and C6, and to create a fire separation between the top level of the stairwell and unit C5: at [91].

106. Mr Kazzi’s evidence was that these failures were not defects because Oxford intended to develop a “Performance Solution” in order to comply with the BCA. The Owners relied on Mr Kazzi’s evidence as revealing a deliberate decision on his part to adopt an approach that did not involve constructing the Building in accordance with the fire protection requirements in the drawings and the BCA. The Owners also relied on a letter from Mr Kazzi to Mr Kippax, dated 30 June 2016, in which Mr Kazzi acknowledged and confirmed that the Building would comply with the various fire resistance requirements prescribed in the BCA. In addition to that letter, the Owners noted that the stamped plans required compliance with the BCA requirements.

107. As Mr Mahedy stated in his expert report in reply in relation to the door jambs, Mr Kazzi’s evidence appeared to suggest that Oxford deliberately took the course that it did with the intention of subsequently retaining a fire engineer to develop a performance solution to overcome the non-compliances (at [37]). Mr Mahedy’s opinion was that it was “very poor building practice to deliberately install non-compliant door jambs with the intention of subsequently paying a fire engineer to develop a performance solution to overcome that non-compliance – especially when compliant door jambs cost very little extra”. Of broader application was his further observation that there was “no guarantee that a performance solution will be available”. In the case of the door jambs, if no performance solution was available, rectification works would have to be undertaken “at a significantly greater cost than the difference in price between the compliant and non-compliant door jambs” (at [40]).

108. Given Mr Kazzi’s position as the nominated supervisor, his involvement in the decision to install non-compliant door jambs in favour of a performance solution constituted a breach of the statutory duty of care. The non-compliances with fire resistant requirements which were the subject of defect B16, which included the installation of non-fire rated cladding on the external walls of units C5 and C6 without installing any fire protection beneath that cladding, also involved a breach on the part of Mr Kazzi of his statutory duty of care in supervising the building works.

130. The need for allocation as between completion and rectification works arose because of the need for both kinds of work on the site, and the capacity for certain suppliers simultaneously to be undertaking both (eg, the builder and PRM), or meeting the needs of both (such as the supply of skip bins). That was the position in which Oxford and Mr Kazzi left the Owners, with a Building that was both incomplete and beset with significant defects. In so far as Mr Mahedy’s allocations were of a general nature, the Owners relied, with some force in my view, upon statements, in cases such as Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3) [2012] VSC 99 and Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 (“Houghton”), about approaching the question of damages in circumstances where the defendant has by its conduct made a precise assessment difficult. In Houghton, for example, Handley JA (with whom Mason P and Beazley JA agreed) stated at p 59:

“In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party ‘whose actions have made an accurate determination so problematic’”.

See also McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 at [155].

140. The primary judge accepted that the methodology that the Owners adopted to prove their loss should be seen in the light of those authorities, but did not consider that Mr Mahedy’s evidence provided a sufficiently reasoned methodology on which to rely: at [288]-[291]. His Honour erred in taking that view. Where an allocation could not be made with any significant degree of precision, the Owners relied on Mr Mahedy to make an assessment, on the basis of his direct knowledge of all aspects of a project in which he was closely involved. As the Owners observed in their supplementary submissions to the primary judge, the entries in the invoices that Mr Mahedy issued demonstrated the depth of his knowledge regarding the building works and their costs.

141. Turning to the specific allocations that Mr Mahedy made in relation to the project management fees of PRM, he stated in his July 2021 report that the work done by his employee, Mr Howard, was directed solely to rectification works (at [39]). In Appendix C, he separately itemised the amounts of Mr Howard’s work and attributed the entirety of that amount to rectification. As to his own fees, Mr Mahedy recorded in his report at [37]-[38] (extracted in [62] above) that he apportioned 40% towards rectification works, which he described as consistent with the proportion of the total value of the work that he had allocated as rectification works.

142. As to the builder’s costs, Mr Mahedy explained the apportionment he undertook in his third affidavit:

“[36] The new eastern pergolas were constructed by the builder, Shayne Seage. Mr Seage was retained to complete the Development, including all necessary rectification works. Under Mr Seage’s building contract, Mr Seage charged:

(a)   a fixed sum of $72,727.27, payable as follows:

(i)   $50,000 over the course of 26 weeks of scheduled construction work; and

(ii)   $22,727.27 upon practical completion being reached in a timely fashion;

(b)   various hourly rates for labour by workers other than Mr Seage; and

(c)   materials at cost.

[37] Mr Seage’s charges for labour and other material (excluding the fixed sum of $72,727.27) totalled $139,542.50. In Appendix C, I apportioned 40% of this amount to completion costs and 60% to rectification costs. I made this apportionment based upon my intimate knowledge of the building works as both architect and project manager. I consider this to be a conservative apportionment, as the rectification work undertaken by Mr Seage and his workers took significantly more time – and used significantly more materials – than the completion works undertaken by them.

[38] Because all of the materials bought from Gerringong Hardware were used by Shayne Seage and his workers, I also apportioned 40% of the Gerringong Hardware invoices to completion costs and 60% to rectification costs in Appendix C.

[39] However, I incorrectly apportioned the fixed sum of $72,727.27 to completion costs in Appendix C, when that sum should be apportioned in the same way as all of the other amounts charged by Mr Seage under the building contract – i.e. 40% to completion costs and 60% to rectification costs.”

143. The primary judge was critical of Mr Mahedy’s “sweeping statement” that Mr Seage spent “significantly more” time and materials on rectification than completion: at [269]. The statement is broad, but it was made against the background of Mr Mahedy’s intimate knowledge of the completion and rectification works, which he itemised in Appendices A and B respectively, in making an apportionment that he described as “conservative”. The detail in which he itemised the works also supported the apportionment of 70% of the cost of the skip bin hire to rectification works and 30% to completion works. As Counsel for the Owners submitted in this Court, the nature of the rectification works, which encompassed demolition (including of staircases, parts of the façade and pergolas), was far more likely to require skip bins than the completion works described in Appendix A.

144. As to the electrician’s costs that Mr Mahedy allocated to rectification works, that allocation was ultimately very specific. In their supplementary written submissions, the Owners reduced the amount allocated to rectification works for the electrician, from $9,240.07 to $5,596.18, stating that they claimed only:

“(a)    Item V2 [D5/2403]: ‘Install conduits, cables, outlets, circuits, switches, in basement carpark & storage units’ – $3,280.48. These costs were incurred in relation to Item B8 in Appendix B (defective wiring in basement).

(b)   Item V27 [D5/2048]: ‘Rough in cabling for entry, install FTA & intercom cabling’ – $624. These costs arose in connection with the rectification of foyer (being Item B5 in Appendix B).

(c)   Item V28 [D5/2048]: ‘Install cable trays, rough in ground floor stair & entry, changes to the 1^st floor stairwell, install cables to cable tray’ – $1,691.70. These costs arose in connection with the rectification of foyer (being Item B5 in Appendix B).”

(Emphasis in original; footnotes omitted.)

145. Consistently with this submission, the final page of Appendix C included an entry with an amount of $3,643.89 (being the difference between $9,240.07 and $5,596.18), which was described as a reduction in the amount of rectification costs pressed for the electrician. The primary judge appears to have misunderstood the effect of this submission, stating at [262]:

“Mr Mahedy has then identified payments made for electrical works to Evision Little, totalling $101,993.50, in respect of which, without explanation, Mr Mahedy allocated $9,240.07 to rectification work. However, in supplementary submissions, Mr Horowitz has identified three invoices, totalling $5,596.18 which, on their face, appear to be in respect of rectification work.”

146. The primary judge accepted that the evidence revealed “that Mr Mahedy had a very detailed involvement with the progress of the work, in the course of which he took very detailed notes of his regular inspections of the works as they progressed”: at [270]. However, his Honour also accepted Oxford’s submission that what was absent from Mr Mahedy’s evidence was “any of the implicit assumptions or material facts relied upon which informed his opinions and the allocations that he made”: at [271]. Reading his evidence as a whole, and in light of what I have set out above, I do not accept that characterisation of his evidence.

147. In his submissions on the appeal, Mr Kazzi sought to defend the primary judge’s rejection of Mr Mahedy’s evidence in relation to the rectification costs, submitting that the Owners had made no real attempt to isolate the cost of those works, consistently with the lack of any real attempt to bring a claim against Mr Kazzi. He described the compilation document that accompanied the Owners’ supplementary submissions as a belated attempt in this regard, which was prepared and submitted without leave, and which should be disregarded. As I have noted above, the compilation sought to isolate the rectification costs by reference to particular defects. In circumstances where each of the defects that the Owners pressed was accepted, it is unnecessary to consider the compilation.

The additional invoices

148. Finally in relation to these grounds, the Owners referred to two invoices that related to foyer rectification work and in respect of which the primary judge found Oxford liable, in Oxford (No 2), having previously overlooked them: at [15]. Consistently with the conclusion his Honour reached in relation to the Owners’ claim against Mr Kazzi, his Honour allowed the claim in respect of those invoices but only as against Oxford: at [17]. In view of my conclusion on the appeal, Mr Kazzi is liable to compensate the Owners in respect of those invoices, in the amount of $18,545.46.

149. Grounds 3 and 4 of the cross-appeal are made out.

The Owners’ claim against Oxford and Mr Kazzi for interest on their borrowings

150. In their outline of opening submissions dated 4 August 2022, and their outline of closing submissions dated 13 February 2023, the Owners summarised their claim for interest as follows:

“Finally, the Owners claim as a head of damage the additional interest that they had to pay as a result of the Building Works not being completed by 4 July 2017 (the date required for practical completion under the Contract). This claim is made on the following basis:

(a) the Owners took out various loans to fund the Building Works;

(b) the Owners sold a number of apartments in the Building off the plan;

(c) the sales of those apartments could not settle until all the defects in the Building had been rectified – including by registering an easement over [Mr Kazzi’s lot] to cure the encroachment of the Building onto that property; and

(d) as a consequence, the Owners were unable to repay their loans until late August/early September 2020 – instead of July 2017.

In the circumstances, the loss suffered by the Owners in having to pay three additional years of interest was caused by the defects in the Building.”

(Footnotes omitted.)

151. As I have noted above, Mr Kazzi conceded that he had breached his statutory duty in relation to defects B2 and B10. In his closing address, Counsel for the Owners submitted that this concession meant that Mr Kazzi was responsible for the additional interest incurred during the period of delay whilst the defects were being rectified:

“HOROWITZ: … So the encroachments in B2 occurred because Mr Khazi [sic] didn't ensure the check surveys were done to make sure the building was built within the boundaries, and they had serious consequences, especially the encroachment over Mr Khazi's property because the easement for that property was not granted by Mr Khazi until the middle of 2020, and was not registered until July of 2020, and the contracts for the sale of the properties couldn't be completed until the easement was registered, obviously enough. And so, there was a delay as a result of Mr Khazi's breach of duty in relation to B2.

And that's going to be relevant to the question of interest, which I'll come to later on, but my friend raises the liquidated damages clause as a defence interest. That, of course, doesn't apply to Mr Khazi, it only applies to Oxford. And where Mr Khazi admits a breach in relation to the check surveys, and that resulted clearly in a delay of the works being completed until July of 2020. And Mr Khazi, in my submission, is responsible for the additional interest that the owners incurred during that period.

…

The next item is the low concrete strength which resulted in significant rectification works having to be undertaken. And again, is the subject of the concession that there was a breach of Mr Khazi's duty so far as that is concerned. And this is another aspect which is relevant to the question of interest because - and I'll take your Honour to it subsequently - but the rectification work in relation to supporting the rest of the building included putting various columns around the place to make sure it didn't collapse from the very low concrete strength.

And that work wasn't completed until June of 2020. So Mr Khazi was responsible to ensure that the slabs were all laid with the correct strength. He breached that duty and that resulted in the works not being able to be complete until June of 2020, and so, in my submission, he's responsible for the interest that runs or it was incurred by the owners during that time.”

(Emphasis added.)

152. Counsel for the Owners submitted that even if Mr Mahedy’s evidence was not probative of damages they were entitled to Hungerfords interest on the basis of Mr Kazzi’s concession:

“HOROWITZ: … The basis for the interest claim is Hungerford and Walker's interest. Even if my friend were right and all of Mr Mahedy's evidence about rectification costs was deemed to be not probative of damages, my client would still be entitled to interest because there has been what I characterise as an admission – perhaps my friend puts it differently, but what I understood was an admission that Mr Khazi [sic] had breached his duty with respect to the concrete and he breached his duty with respect to the encroachments.”

(Emphasis added.)

153. Mr Kazzi’s submissions in reply to the Owners’ oral closing disputed that he had breached his duty, but did not refer in terms to the claim for Hungerfords interest against Mr Kazzi or his concession in relation to items B2 and B10.

154. In allowing Hungerfords interest as against Oxford, the primary judge was satisfied that practical completion was not achieved by 4 July 2017 by reason of “the manner in which [Oxford] wrongly constructed the foyer and stairway, leading to the s 96 application; which did not proceed because of [Oxford’s] wrongful purported suspension of the works in March 2018”: at [302]. The fact that Oxford did not know of the Owners’ borrowings when entering the Contract was not a reason to deny an award of Hungerfords interest, with that interest falling within the first limb of Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145: at [317].

155. Nonetheless, his Honour considered that the “correct exercise of direction” was “to allow the Owners Hungerfords interest from the date they demanded the Builder to resume work”, being 20 March 2019: [326]. In reaching that conclusion, his Honour considered that the delay in prosecuting the project from January 2017 was, in a general sense, caused by Oxford’s defaults relating to the lift, but the Owners “let the matter drift”, particularly from the date of the purposed suspension of works in March 2018 until their final decision a year later to demand that the Builder resume the work: at [325].

156. The issue of Hungerfords interest as against Mr Kazzi did not arise for consideration in Oxford (No 1) because the primary judge found that the Owners did not establish a breach of his duty under s 37(1) of the DBP Act, and, as his Honour acknowledged in Oxford (No 3), he had overlooked Mr Kazzi’s concession that he had breached the statutory duty in respect of defects B2 and B10.

157. I have addressed the chronology of his Honour’s decisions at [5] to [10] above. Relevantly for present purposes, on 22 May 2023, following delivery of Oxford (No 1), the Owners filed further submissions asking his Honour to deal with certain matters that the Owners raised at the hearing but were not addressed in the judgment. In further written submissions, the Owners submitted that the Court did not address their claim for Hungerfords interest against Mr Kazzi, and that:

“Hungerfords interest ought be awarded against Mr Kazzi in the same amount that it was awarded against Oxford – and for the same reasons (namely, that [defects B2 and B10] were not fully rectified until June/July 2020).”

158. In the written submissions the Owners filed in support of their subsequent application to recall Oxford (No 2), they submitted that “Mr Kazzi’s breaches of duty in respect of Items B2 and B10 were causative of delay during the entire period from late March 2019”, notwithstanding that there were concurrent causes of delay between 20 March 2019 and 31 December 2019 (the Owners having adjusted the date of the claim for interest to coincide with his Honour’s conclusion regarding Oxford).

159. In oral submissions on 6 July 2023, the Owners submitted that the primary judge had “overlooked the admission made by the [O]wners that Mr [Kazzi] was, himself, in breach of his duty in relation to B2 and B10”. In response, Counsel for Mr Kazzi argued that a claim for Hungerfords interest was not now available against Mr Kazzi because the Owners never developed in the final hearing what Hungerfords interest loss “flowed from what Mr [Kazzi] didn’t do, or what Mr [Kazzi] was negligent in doing”.

160. In Oxford (No 3), the primary judge accepted the Owners’ submission that he had overlooked Mr Kazzi’s concession. His Honour referred to a schedule annexed to the Owners’ 5 July 2023 submissions, which summarised several invoices and timesheets relating to the rectification of defects B2 and B10, and found that:

1. in respect of defect B2, “the necessary work commenced on 30 May 2019 with demolition of the western pergolas encroaching on the Council land fronting Noble Street and was not concluded until an easement from Mr Kazzi over his land to the north was registered in July 2020”: at [20]; and

2. in respect of defect B10, “the work necessary to rectify the [defect] commenced on 17 July 2019 and was not complete until 1 December 2019”: at [19].

161. His Honour also noted Mr Mahedy’s evidence that “although practical completion of the building works occurred in late 2019, he was unable to register the strata plan or obtain an occupation certificate for the development until mid-2020, because of the encroachment over Mr Kazzi’s property”: at [20].

162. Thus, his Honour concluded that the Owners were correct to submit that “those defects alone caused the Owners to continue to incur interest on their borrowings beyond the date of practical completion, until July 2020”. His Honour found that both defects existed when the Owners demanded that Oxford resume work on 20 March 2019 (notwithstanding that the work necessary to rectify the defects commenced slightly later), and thus Hungerfords interest should also commence as against Mr Kazzi on 20 March 2019: at [22]. His Honour did not consider that a formal order recalling Oxford (No 2) was necessary, as the reasons in the judgment would “speak for themselves”: at [23].

The challenges to the primary judge’s determination of interest

163. Although the Owners did not challenge his Honour’s conclusion in Oxford (No 1) as to the Hungerfords interest that Oxford was liable to pay, they took issue with his Honour’s reasoning as it applied to their claim for interest against Mr Kazzi. Ground 1 of the cross-appeal challenged his Honour’s conclusion that the Owners were not entitled to Hungerfords interest from the date of practical completion of the Contract and were only entitled to such interest from a later date.

164. In light of the conclusion that I have reached above in relation to the case that the Owners ran in relation to Mr Kazzi, and my conclusion that Mr Kazzi was liable in respect of each of the identified defects, there is limited utility in addressing grounds 1 and 2 of Mr Kazzi’s amended notice of appeal, which alleged that the primary judge erred by permitting the Owners to address the claim for interest on the reopening application. In any event, those grounds were premised on the Owners having not previously enunciated a claim for interest against Mr Kazzi, and it is apparent from the submissions to which I have already referred that such a claim was squarely advanced.

Ground 1 of the cross-appeal: date from which interest should run

165. The Owners submitted that Mr Kazzi should have been found jointly and severally liable with Oxford to pay Hungerfords interest for the period from 4 July 2017 for the following reasons:

1. The primary judge’s reference to an “exercise of discretion” to award Hungerfords interest from 20 March 2019 was erroneous because damages payable under the Hungerfords principle are payable as of right by virtue of the common law: Leighton Contractors Pty Ltd v Kilpatrick Green Pty Ltd [1992] 2 VR 505 at 520 (Fullagar J, McGarvie J and Ashley J agreeing).

2. Mr Kazzi and Oxford were both responsible for practical completion not being achieved by 4 July 2017.

3. The fact that there were concurrent causes of delay between July 2017 and July 2020 did not relieve Mr Kazzi of liability for the delay caused by him. The Owners relied in this regard on Bennett v Minister of Community Welfare (1992) 176 CLR 408; [1992] HCA 27 (“Bennett”), in which, in the context of whether the later negligence of one of two tortfeasors broke the chain of causation, McHugh J stated at 429:

“It is ‘a well settled principle that when separate and independent acts of negligence on the part of two or more persons have directly contributed to cause injury and damage to another, the person injured may recover damages from any one of the wrongdoers, or from all of them’.”

166. Critically, Mr Kazzi did not allege that the Owners had failed to mitigate their loss and did not raise a proportionate liability defence (nor would such a defence appear possible: Pafburn (special leave granted)). On the appeal, he submitted that whilst the appropriate starting date for the award of Hungerfords interest was “not a question of discretion”, the primary judge did not err because:

1. Mr Kazzi was not responsible for the defects which led to practical completion not being achieving by 4 July 2017.

2. The primary judge found that there was an implicit agreement or some form of waiver between the contracting parties to extend the date for practical completion to 20 March 2019.

3. In any event, the date for practical completion was simply the date by which Oxford made a promise to the Owners to complete the Building, and had no nexus with any damage to the Owners arising from Mr Kazzi’s negligence.

4. Mr Kazzi’s negligent acts could not be said to have caused the Owners any loss unless the building works were otherwise able to be completed but for the effect of those acts; and, here, the Owners would have been in the same position of being unable to obtain registration of the strata plan given Oxford’s failures under the contract.

167. The Owners’ submissions have force, particularly in light of my conclusions on ground 2 of the cross-appeal. I note in this respect that Mr Kazzi accepted the primary judge’s finding that practical completion was not achieved by 4 July 2017 because of “the manner in which [Oxford] wrongly constructed the foyer and stairway, leading to the s 96 application”: Oxford (No 1) at [302]. Construction of the foyer and stairway were the subject of defects B4 and B5, in respect of which I have found that Mr Kazzi breached his statutory duty of care.

168. I also do not accept Mr Kazzi’s submission that the primary judge found an “implied agreement” or “waiver” to extend the date of practical completion. The paragraph in Oxford (No 1) on which Mr Kazzi relied for this submission was [325], in which his Honour said no more than the following:

“Although, in a general sense, and as I have set out, the delay in prosecution of the project from January 2017 was caused by the Builder’s defaults relating to the design of the foyer and lift shaft, the Owners do seem to have let the matter drift, particularly from the date of the Builder’s purported suspension of the works in March 2018 until their final decision a year later to demand that the Builder return to the site and complete the work.”

169. As to Mr Kazzi’s third submission, that the contractual date for practical completion was not inherently relevant to Mr Kazzi’s duty in tort, it is difficult to understand why that would be the case. As a matter of fact, the Owners paid interest on their loans beyond the date of practical completion, at least one cause of which was defective works as to which I have found that Mr Kazzi breached his statutory duty of care. Where an injury was the result of multiple conjunctive causal factors, it is sufficient for a plaintiff to prove that the negligence of the defendant “caused or materially contributed to the injury”: Amaca Pty Ltd v Booth (2011) 246 CLR 36; [2011] HCA 53 at [70] (Gummow, Hayne and Crennan JJ); see also at [47] (French CJ). The relevant question is whether Mr Kazzi’s breaches of duty were a material cause of the Owners having to make those payments.

Grounds 3 to 5 of the appeal: fire safety works

170. Mr Kazzi submitted that practical completion did not occur before 26 June 2020 because fire safety works needed to be completed before an occupation certificate could be issued for the Building. The fire safety issues, which were identified in an email dated 10 June 2020 from Mr Kippax to Mr Mahedy, related to installing fire protection and stopping in the basement. In an email from Mr Mahedy to Mr Kippax on 25 June 2020, Mr Mahedy stated that the issues had been remedied and that “[w]e trust this now completes the outstanding works to enable you to release the OC”. The occupation certificate was issued on 26 June 2020.

171. On the basis of this chronology, along with the other defects which existed in the property, Mr Kazzi submitted that the primary judge’s finding, in Oxford (No 3), that the B2 and B10 defects “alone caused the Owners to continue to incur interest on their borrowings beyond the date of practical completion, until July 2020” was erroneous, or at least they could “only have been the sole cause from between 26 June 2020 (when the occupation certificate was issued) to July 2020”. The outstanding fire safety works in particular prevented the issuing of an occupation certificate and thus negatived any causal link between Mr Kazzi’s negligence and the delay.

172. I do not accept Mr Kazzi’s submission. There were evidently concurrent causes of delay between 20 March 2019 and 30 June 2020, but Mr Kazzi’s negligence was a material cause of the delay which extended back to the date of practical completion under the contract, especially in light of the further breaches that I have found. As I have noted above, Mr Mahedy’s evidence was that although practical completion of the building works occurred in late 2019, he was unable to register the strata plan or obtain an occupation certificate for the development until mid-2020 because of the encroachment over Mr Kazzi’s property (which was the result of defect B2).

173. I have referred above to the chronology that followed the defective construction of the foyer and the stairway. Although the primary judge considered that the Owners had “let the matter drift” following the purported suspension of works in March 2018, I accept the submission of Counsel for the Owners that the chronology demonstrated that the Owners were taking steps to chase Oxford. There was no delay on the part of the Owners that would disentitle them to damages from July 2017.

Conclusion

174. I propose the following orders:

1. Pursuant to s 64 of the Civil Procedure Act 2005 (NSW), order that the name of the second respondent and second cross-appellant be amended to Calm Properties Pty Ltd (ACN 602 073 343) ATF Calm Properties Unit Trust (ABN 19 756 796 114) t/as AK Properties Group (ABN 62 971 068 965).

2. The appeal is dismissed with costs.

3. The cross-appeal is allowed.

4. Order 3 of the orders made by the court below on 15 August 2023 is set aside, and in lieu thereof, order that judgment be entered for the first and second cross-claimants against the second cross-defendant in the sum of $918,545.46, together with interest thereon from 1 August 2020 pursuant to s 100 of the Civil Procedure Act 2005 (NSW).

5. This judgment is to take effect on 15 August 2023.

6. Direct the parties to provide to the Registrar an agreed calculation for the prejudgment interest referred to in order 4 above within 7 days. In default of agreement, each party is to provide to the Registrar their proposed calculation of prejudgment interest within 7 days, and the Court will decide the matter on the papers.

7. The cross-respondent pay the cross-appellants’ costs of the cross-appeal.

175. For the avoidance of doubt, the freezing orders that I made against Mr Kazzi on 5 June 2024, on the application of the Owners, continue for 14 days from the date of this decision or until further order.

176. BASTEN AJA: I agree with Mitchelmore JA.

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Endnote

Decision last updated: 07 June 2024