Metier3 Pty Ltd v Enwerd Pty Ltd (No 3)
[2015] VSC 587
•21 OCTOBER 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
TECHNOLOGY, ENGINEERING AND CONSTRUCTION LIST
No. 06058 of 2013
| METIER3 PTY LTD | Plaintiff |
| v | |
| ENWERD PTY LTD | First Defendant |
| and | |
| S.H.L NOMINEES (1965) PTY LTD | Second Defendant |
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JUDGE: | VICKERY J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 1-3 JUNE 2015 |
DATE OF JUDGMENT: | 21 OCTOBER 2015 |
CASE MAY BE CITED AS: | METIER3 PTY LTD v ENWERD PTY LTD & ANOR (No 3) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 587 |
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BUILDING CONTRACTS – Entitlement to final payment following issue of certificate of Practical Completion - Validity of certificate of Practical Completion issued under Deed of Settlement – Decision made by Principals not to set aside Certificate of Practical Completion – Whether an election between inconsistent rights – Whether gives rise to an estoppel – Construction of Deed of Settlement and related documents as commercial contracts.
CONTRACT – Construction of a commercial settlement under Deed of Settlement – Final instalment payable on issue of certificate of Practical Completion of building works – Certificate issued, but validity challenged – Whether final instalment payable - Whether an election between inconsistent rights – Whether gives rise to an estoppel – Construction of Deed of Settlement and related documents as commercial contracts.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G Golvan QC | Carrick Gill Smyth |
| For the Defendants | Mr M Whitten | Arnold Bloch Liebler |
HIS HONOUR:
Factual Background and Procedural History
The facts giving rise to the dispute, and the procedural history of this matter, have been set out in this Court’s judgments in Metier3 Pty Ltd v Enwerd Pty Ltd & Anor[1] and Metier3 Pty Ltd v Enwerd Pty Ltd & Anor (No 2).[2] For convenience the facts and procedural history are restated here.
[1][2014] VSC 80.
[2][2014] VSC 138.
The Plaintiff, Metier3 Pty Ltd (the “Architect”) is an architectural firm specialising in the design and redevelopment of commercial buildings. It was appointed as the Design Consultant for the redevelopment (the “Project”) of the St James Building and plaza at 555 and 535 Bourke Street Melbourne (the “St James Building”).
The Architect undertook to perform architectural services in relation to the Project pursuant to an agreement called the “St James Redevelopment Architect Consultant Agreement” (the “Architect Agreement”) entered into between it and the First Defendant, Enwerd Pty Ltd and the Second Defendant, SHL Nominees (1965) Pty Ltd who were the client and the principals under the Architect Agreement (the “Principals”). The Architect Agreement is undated, but was entered into between the parties in or about January 2010.
The Architect subsequently made claims against the Principals under the Architect Agreement for payment of fees for its services in respect of the period between December 2008 and December 2011.
Deed of Settlement
The calculation of fees over this period was disputed and following extensive negotiations the parties, being the Architect and the Principals, agreed on the final fees payable, recorded in a Deed of Settlement dated 19 November 2012 called the “St James Redevelopment Deed of Settlement” (the “Deed of Settlement” or the “Deed”).
The Deed of Settlement provided, inter alia, for the total unpaid balance of the outstanding fees due to the Architect to be settled at $1,314,584 (plus GST). This sum was agreed to be paid by instalments which were specified in a schedule to the Deed of Settlement.
The Architect was called the ‘Consultant’ in the Deed of Settlement.
The final instalment payable under the Deed of Settlement was the sum of $300,000 (plus GST) (the “Final Payment”). This was payable at the time specified in Clause 2(e) of the Deed, which was in the following terms:
Payment by the Principal of the last instalment of the Final Payment shall be subject to Practical Completion of the Works (including provision of all construction drawings and any other documents required under the agreement to be provided by the Consultant in respect of the Project, upon, or immediately following, Practical Completion).
Clause 1.1 of the Deed of Settlement defined ‘Practical Completion’ for the purposes of the Deed to mean:
‘Practical Completion’ means the issue of a Certificate of Practical Completion for the Works, or any relevant portion of the Works, in accordance with the contractual arrangements for performance of the Works
Construction Contract
The ‘contractual arrangements for performance of the Works’ as referred to in Clause 1.1 of the Deed of Settlement definition for ‘Practical Completion’ included the ‘St James Redevelopment Design and Construction Contract’ dated 11 July 2011 (the “Construction Contract”). The Construction Contract was entered into for the design and construction of part of the works for the Project comprising certain stages of the re-development and construction of the St James Property (the “Works”). The Construction Contract was entered into between the Principals and Construction Engineering (Aust) Pty Ltd, which was the builder (the “Builder”). The Construction Contract included amended general conditions of contract for a design and construction contract in accordance with the Australian Standard AS 4300 – 1995.
The Architect was not a party to the Construction Contract. It was first provided to the Architect on 22 October 2013 by letter to the Architect’s solicitors.
The firm Case Meallin & Associates Pty Ltd (“Case Meallin”) was appointed as the superintendent pursuant to Annexure A Part A of the Construction Contract (the “Superintendent”).
Certificate of Practical Completion
On 1 March, 2013, Peter Steinschulte of the firm Case Meallin, acting as the Superintendent's Representative, issued what purported to be a Certificate of Practical Completion (the “CPC”) for the Works undertaken on the Project under the Construction Contract and noted that this was also the date for the commencement of the Defects Liability Period.
It is to be noted that the Principals did not take any steps by way of arbitration or litigation to set aside the CPC under the Construction Contract, and no other certificate of practical completion has ever been issued in relation to the Project.
Principal Contentions of the Parties
The Principals say that the CPC was invalid for the purposes of Clause 2(e) of the Deed of Settlement, and accordingly, by reason of non-compliance with Clause 2(e) and the definition of ‘Practical Completion’ in Clause 1.1 of the Deed, the Architect has no entitlement to payment of the Final Payment or any part of that sum because no valid certificate of practical completion ever issued.
The Principals further say that there was a failure on the part of the Architect to comply with the second limb of Clause 2(e) of the Deed of Settlement, namely, upon, or immediately following, practical completion, to “provide all construction drawings and any other documents required under the agreement to be provided by the Consultant in respect of the Project, upon, or immediately following, practical completion”.
In answer to this, the Architect says that it fulfilled its obligations to provide all necessary documents entitling it to payment to the Principal on 20 March 2013, and this was confirmed by email by the Project Manager Anthony Millicer, of Case Meallin.
Preliminary Question and Procedural Steps
At a directions hearing conducted on Friday, 21 February 2014, this Court directed pursuant to the case management provisions of the Civil Procedure Act 2010 (Vic), that a preliminary trial of a contract construction issue be conducted, pursuant to Rule 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) (‘the Rules’). On 26 February 2014, this Court heard submissions on the following question:
Subject to clause 2(e) of the Deed of Settlement, whether the relevant provisions of the Deed give rise to an entitlement for the Plaintiff to be paid the final instalment of $300,000 plus GST upon the issue of a certificate of practical completion by the Superintendent.
This Court delivered judgment on the question in Metier3 Pty Ltd v Enwerd Pty Ltd & SHL Nominees1965 Pty Ltd.[3] The Court determined that the answer to question stated for determination pursuant to r 47.04 of the Rules is: Yes. [4]
[3][2014] VSC 80.
[4][2014] VSC 80 [59].
The Court in its reasons discussed some of the bases upon which a certificate of practical completion may be set aside.[5]
[5][2014] VSC 80 [49]-[58].
However, in answering the question in this earlier part of the proceeding, no account was taken of the facts which were marshalled in the matter heard at trial, being: the effect of the Principals taking no steps by way of arbitration or litigation to set aside the CPC purportedly issued under the Construction Contract; the fact that no other certificate of practical completion has ever been issued in relation to the Project; and the fact of the Principals and the Builder accepting the CPC as issued by the Superintendent on 1 March 2013 as a certificate of practical completion validly issued under the Construction Contract for the purposes of the Construction Contact and the Principals also accepted the validity of the CPC for the purposes of the Architect Agreement and the parties arranged their rights and obligations for the performance of the remaining works under the Construction Contract and the Architect Agreement, including entry into the Defects Liability period and requiring the Architect to perform work in the Defects Liability Period and produce all final design documents issued for construction, on the basis of the CPC as issued.
On 26 March 2014, this Court heard an application by the Plaintiff Architect for summary judgment. On the basis of material put on by the Defendant Principals, it became clear that there was a significant dispute as to whether the requirements for payment under clause 2(e) of the Deed of Settlement had in fact been satisfied.
The Court was satisfied that the question of whether the Architect had complied with the obligations in Clause 2(e) of the Deed of Settlement could not be determined summarily. Accordingly, the Court in Metier3 Pty Ltd v Enwerd Pty Ltd & SHL Nominees1965 Pty Ltd(No 2),[6] determined that the Plaintiff's application for summary judgment should be dismissed, and pursuant to Rule 45.05(8), it was appropriate to proceed to a trial and give directions for the further conduct of the proceeding.
[6][2014] VSC 138.
The Final Instalment of $300,000 was ultimately paid by the Defendant Principals on 28 November 2014, on an express disclaimer of any liability.
However, the Architect now contends that it is entitled to interest on the Final Payment sum of $300,000, calculated at the Supreme Court Penalty Interest Rate from 21 March 2013 (when it says payment was due) to 28 November 2014 in the amount of $48,069.86,[7] together with its costs.
[7]557 days at $86.30 per day at 10.5% p.a.
Regrettably, the parties have not been able to settle their differences arising from the claim for interest and costs. This part of the proceeding determines that claim.
Construction Contract Provisions Relating to CPC
General condition 42.3 of the Construction Contract provides in relation to the issue of a Certificate of Practical Completion:
42.3 Certificate of Practical Completion
The Contractor shall give the Superintendent, the Principal and each Tenant at least 14 days’ notice of the date upon which the Contractor anticipates that Practical Completion will be reached. When the Contractor is reasonably of the opinion that Practical Completion has been reached, the Contractor shall:
a)provide to the Superintendent, drafts of all documents required to be provided to the Superintendent at Practical Completion;
b)in respect of the Major Tenancy, in writing request a joint inspection of the Works by the Superintendent, the Principal and the Major Tenant; and
c)request the Superintendent to issue a Certificate of Practical Completion.
Within 14 days of the receipt of the request, subject to satisfaction by the Contractor of all requirements under the Agreement for Lease for the completion of all relevant elements of the Works to enable the commencement of the lease of the Major Tenancy, the Superintendent shall give to the Contractor and to the Principal a Certificate of Practical Completion certifying the Date of Practical Completion or give the Contractor in writing the reasons for not issuing the Certificate.
When the Superintendent is of the opinion that Practical Completion has been reached; the Superintendent may issue a Certificate of Practical Completion, whether or not the Contractor has made a request for its issue.
Within 30 days after the Date of Practical Completion, the Contractor must provide to the Superintendent, all warranties, guarantees, operation manuals and other documents and information required under the Contract for the use, operation and maintenance of the Works, to the extent not provided prior to Practical Completion.
General condition 2 of the Construction Contract defines ‘Practical Completion’ as follows:
[The] stage in the execution of the work under the [Construction] Contract when:
a) the Works are complete except for minor omissions and minor defects:
i which do not prevent the Works from being reasonably capable of being used for their stated purpose and, in respect of the Major Tenancy, do not prevent the occupancy and use of office premises of the Major Tenancy in accordance with the Major Tenant Requirements;
ii which the Superintendent determines [that the Builder] has reasonable grounds for not promptly rectifying; and
iii rectification of which will not prejudice the convenient use of the Works;
b)those tests which are required by the [Construction Contract] to be carried out and passed before the Works reach Practical Completion, have been carried out and passed;
c)documents and other information required under the [Construction Contract] which, in the opinion of the Superintendent, are essential for the use, operation and maintenance of the Works, have been supplied;
d)all Planning Permit Requirements have been completed to the satisfaction of the Superintendent;
e)Separate Contractors have been afforded access to each Tenancy for the performance of tenancy fitout work for not less than the applicable Tenancy Fitout Period (unless the relevant tenancy fitout work is completed earlier);
f)[the Builder] has obtained and provided to the Superintendent the original Contractor Approvals, including all necessary Occupancy Permits, required for the Works including Approvals and other documents provided by or received by [the Builder] to or from the Building Surveyor, any Government Agency, the Major Tenant and any Utility, except to the extent unable to be obtained in respect of any retail tenancies only required under the [Construction Contract] to be completed to a shell and core standard, for subsequent fitout by a tenant;
g)[the Builder] has obtained and provided to the Superintendent a certificate from a licensed surveyor which confirms that the whole of the Works have been constructed in accordance with locations marked on the approved Design Documents and which certifies the Lettable Area of the Major Tenancy;
h)all services and installations incorporated in the Works, including mechanical, electrical, hydraulic, water and fire protection services are:
i physically completed and commissioned;
iiinitially and finally tested as any Government Agency may require; and
iiiin a continuously useable condition which is appropriate in a particular case and this has been demonstrated under normal and emergency operating conditions, to the satisfaction of the Superintendent;
i)all necessary infrastructure work, including Utilities’ services connections, have been completed to the satisfaction of the responsible authority and the relevant Utilities;
j)[the Builder] has provided to the Superintendent a final certificate from the principal architectural and engineering Consultants, addressed to [the Principals] and the Major Tenant, in or substantially in the form in Annexure Part L, which confirms that, for their respective disciplines, and based where necessary on periodic inspections of the Works, the design and construction of the Works are in accordance with the Design Documents prepared by it and all relevant Legislative Requirements;
k)[the Builder] has provided to the Superintendent those warranties, guarantees and operation manuals required for the immediate use of the Works, including those required by the commencement of the lease under the Agreement for Lease;
l)all rubbish, surplus materials, Temporary Works and Constructional Plant have been removed from the Site, except for those items, if any, which the Superintendent directs in writing may remain on the Site; and
m)training in the use, operation and maintenance requirements for all building services and systems has been provided to [the Principals] and the Major Tenant, to the reasonable satisfaction of the Superintendent.
Contractual Provisions Relating to the Defects Liability Period
The contractual provisions relating to the operation of the defects liability period (the “Defects Liability Period”) assume some importance in this case.
Clause 37 of the Construction Contract provided for the Defects Liability Period to commence upon the issue of a certificate of practical completion. Clause 37 was in the following terms:
37 Defects liability
The Defects Liability Period in Annexure Part A shall commence at 4:00pm on the Date of Practical Completion.
Within the times directed by the Superintendent, and in respect of the Major Tenancy within 10 days, and otherwise as soon as possible, after the Date of Practical Completion, the Contractor shall rectify any defects or omissions in the work under the Contract existing at the Date of Practical Completion.
At any time during the Defects Liability Period, the Superintendent may direct the Contractor to promptly rectify any omission or defect in the work under the Contract for which the Contractor is responsible. The direction shall identify the omission or defect and state a date by which the Contractor shall complete the rectification work and may state a date by which the rectification work shall commence. The direction may provide that in respect of the rectification work there shall be a separate Defects Liability Period of a stated duration not exceeding the period stated in Annexure Part A. The separate Defects Liability Period shall commence on the date the rectification work is completed. This clause 37 shall apply in respect of the rectification work and the Defects Liability Period for that rectification work.
If the rectification work is not commenced or completed by the states dates, the Superintendent may have the rectification work carried out at the Contractor’s expense, but without prejudice to any other rights that the Principal may have against the Contractor with respect to such omission or defect and the reasonable cost of the rectification work incurred by the Principal shall be a debt due from the Contractor to the Principal.
If it is necessary for the Contractor to carry out rectification work, the Contractor shall do so within the times for commencement and completion (if any) specified in the Superintendent’s direction, or otherwise promptly upon receipt of the Superintendent’s direction, and in a manner which causes as little inconvenience to the Principal, the Tenants and any other occupants or users of the Site or the Works as is possible. Wherever possible, the repairs must be carried out outside each Tenant’s usual trading hours, unless they are to be carried out in an area where the Tenant agrees that undertaking such repairs during each Tenant’s usual trading hours would not cause unreasonable inconvenience to each Tenant.
The Contractor’s obligations under this clause 37 shall be in addition to any liability of the Contractor under any warranty required under the Contract.
The Deed of Settlement also referred to the Defects Liability Period. Clause 2(f) provided in this respect:
(f)notwithstanding payment of the Final Payment, the Consultant agrees to continue to perform its Services required under the Agreement during and in respect of the Defects Liability Period for the Works.
Further, for the purposes of the Deed of Settlement, the “Defects Liability Period” was defined to mean:
the period of 12 months following Practical Completion of the Works, for the identification, monitoring and inspection of rectification by the Contractor or subcontractors of any defects and omissions in the Works.
Given the form of the release provided by Clause 2(d) of the Deed of Settlement, the Architect was obligated under Clause 2(f) to undertake work during the Defects Liability Period by way of identification, monitoring and inspection of rectification by the Contractor or subcontractors of any defects and omissions in the Works, and to do so for a period of 12 months, and to further do so for no additional fee or remuneration from the Principals. The release in Clause 2(d) provided:
(d)subject to clause 3.2, the Final Payment shall be paid in full and final settlement and satisfaction of all Claims which the Consultant has or might otherwise have had, including for variations and interest, against the principal or the Contractor for or in respect of the Services and the Project, whether under the Agreement or otherwise at law, and shall comprise the Principal’s and the Contractor’s sole and final liability to the Consultant in respect of all such matters;
Certificate of Practical Completion
The Certificate of Practical Completion issued by the Superintendent, Case Meallin, dated 1 March 2013, was in the following form:
CERTIFICATE OF PRACTICAL COMPLETION
Date: 1st March 2013
Project: St James Redevelopment
Principal: Enwerd Pty Ltd and S.H.L. Nominees (1965) Pty Ltd
Contractor: Construction Engineering (Aust) Pty Ltd
The Superintendent refers to the Contractor’s request for Practical Completion under the Amended form of AS4300-1995 Design and Construct Contract between the Principal – Enwerd Pty Ltd and S.H.L. Nominees (1965) Pty Ltd and the Contractor – Construction Engineering (Aust) Pty Ltd.
Pursuant to Clause 42.3 of the Amended form of AS4300-1995 Design and Construct Contract between the Principal and the Contractor, the Superintendent notifies the Contractor and the Principal that the Superintended certifies that Practical Completion has been achieved for the remaining Works not included in Separable portions 1 through 5 previously issued.
It is acknowledged that certain work is incomplete and is to be completed by 28th March 2013. These items include:
· Works to interior of 535 lobby.
· Additional disabled toilet to level 4.
The following Works are considered building enhancements and Construction Engineering are requested to provide Juilliard Group a completion program for review and agreement within 7 days. Building enhancements outside the contract scope of works include:
·Bourke Street terrace, disabled access ramp and façade enhancements to Tenancy 1.
· Addition of enclosure to the Bike Store entrance.
· Addition of glass shopfront above entrance to Tenancy 7.
Pursuant to Clause 37, the Contractor must ensure outstanding defects included in lists submitted by the Consultants are completed or corrected to the satisfaction of the Superintendent as soon as possible after the Date of Practical Completion. The failure to include any items on such lists does not relieve the Contractor of responsibility to complete all Works in accordance with the Contract Documents.
The Date of Practical Completion is the date established by the issuance of this Certificate, which is also the date of commencement of the defects liability period and applicable warranties required by the Contract Documents.
In accordance with the Contract the following documentation must be submitted within 30 days of Practical Completion:
·Provision of remaining commissioning data for review and verification by Services Consultants;
·Final copies of all Operation and Maintenance Manuals for Stage 1 and 2 of the Works;
· Updated and finalised copies of the as-built drawings;
· Collated list of all warranties, guarantees and service agreements;
·Training of the Principals representatives in the use of associated services must be completed.
The release of security will be certified upon fulfilling the conditions of Clause 5.8 of the Contract.
[Signature] Superintendent Representative
Peter Steinschulte
Senior Project Manager
Distribution:
Principal: Mr Shlomo Werdiger, Juilliard Group [of the Principals]
Contractor: Mr Mark Lewis, Construction Engineering (Aust) Pty Ltd [the Builder]
File:Mr Peter Meallin, Case Meallin & Associates Pty Ltd [the Superintendent]
Architect’s Submissions
The Architect makes the following principal submissions:
(a)The Architect was entitled to be paid the Final Instalment of the agreed settlement sum in the sum of $300,000, plus GST, forthwith after 20 March 2013, following the issue of the CPC by the Superintendent and compliance with the requirement of clause 2(e) of the Deed of Settlement relating to the provision of documents. The Architect placed reliance on what is says was a broad discretion on the part of the Superintendent under the Construction Contract to issue a certificate of practical completion;
(b)The Principals, on a proper construction of the Deed of Settlement, are precluded from asserting that the CPC issued by the Superintendent was invalid, and the Date of Practical Completion was not the date certified by the Superintendent, because CPC has not been set-aside by an arbitrator or a court in an application by either the Principals or the Builder, under the Construction Contract;
(c)The Principals, by their conduct, are precluded and/or have waived any entitlement they may have had to assert that the CPC was invalid and that the requirements of Clause 2(e) have not been complied with;
(d)The Architect supplied all the necessary documents to the Principals in accordance with Clause 2(e) of the Deed of Settlement; and
(e)The Architect is entitled to Judgment for interest and the costs of pursuing the recovery of the Final Payment, including reserved costs.
Principals’ Submissions
The Principals contend that Clause 1.1 in combination with Clause 2(e) of the Deed of Settlement provided for a two part ‘trigger’ for the payment of the Final Payment under the Deed, namely:
(a) the provision of a valid Certificate of Practical Completion by the Superintendent under the Construction Agreement; and
(b) the provision by the Architect to the Principals of all construction drawings and any other documents required under the [Architect Agreement] to be provided by [the Architect] in respect of the Project, upon, or immediately following, Practical Completion.
Without both of these components of Clause 2(e) being satisfied, it was submitted, the Architect had no entitlement to the Final Payment.
The Principals advance two principal contentions for alleging that the requirements of Clause 2(e) of the Deed of Settlement had not been met, and for this reason, the ‘Instalment Event’ for the payment of the Final Payment never arose:
(a) the CPC was invalid; and
(b) as at 21 March 2013, the Architect had not provided all documents required under the Architect Agreement.
Alleged Grounds of Invalidity of the CPC
The Principals submitted that the CPC was invalid for two principal reasons:
(a) it was invalid on its face;
(b) alternatively, the CPC is invalid because:
(i)the Works were not at Practical Completion so defined as at 1 March 2013; and
(ii)the issue of the CPC in the circumstances was so unreasonable that no reasonable Superintendent could ever have made a decision to issue it consistently with the terms of the contract.[8]
[8]Yarraman Pine Pty Ltd v Forestry Plantations Queensland [2009] QCA 102 [42]-[44], cited in Metier3 Pty Ltd v Enwerd Pty Ltd & Anor [2014] VSC 80 [51(c)].
In relation to the submission that the CPC was invalid on its face, the Principals relied upon a number of matters, which are set out below.
On 1 March 2013, the Superintendent issued what purported to be a CPC for the balance of the project.
The CPC made reference to the Contractor’s request for Practical Completion. However, there is no evidence before the Court that the Contractor fulfilled any of the requirements referred to in the ‘mandatory’ regime in the first part of clause 42.3. Nor is there any indication on the face of the CPC that the Superintendent acted under that part or the ‘permissive’ regime which immediately follows in that clause.
Reference is made to the text of the CPC which included the following statements:
It is acknowledged that certain work is incomplete and is to be completed by 28th March 2013. These items include:
·Works to interior of 535 lobby.
·Additional disabled toilet to level 4.
The following Works are considered building enhancements and Construction Engineering are requested to provide Juilliard Group a completion program for review and agreement within 7 days. Building enhancements outside the contract scope of works include:
·Bourke Street terrace, disabled access ramp and façade enhancements to Tenancy 1.
·Addition of enclosure to the Bike Store entrance.
·Addition of glass shopfront above entrance to Tenancy 7.
Further, the Superintendent added in the CPC:
In accordance with the Contract the following documentation must be submitted within 30 days of Practical Completion:
·Provision of remaining commissioning data for review and verification by Services Consultants;
·Final copies of all Operation and Maintenance Manuals for Stage 1 and 2 of the Works;
·Updated and finalised copies of the as-built drawings;
·Collated list of all warranties, guarantees and service agreements;
·Training of the Principals’ representatives in the use of associated services must be completed.
It was contended by the Principals that the Construction Contract did not provide for or empower the Superintendent to issue a CPC in the form it was issued and with the content described above.
In doing so, the Superintendent, it was submitted:
(a)effectively altered the definition of Practical Completion in the Construction Contract;
(b)alternatively, disregarded the definition of Practical Completion;
(c)carved out and excluded significant parts of the Works;
(d)unilaterally characterised other parts of the Works as ‘building enhancements’, a term which is not found anywhere in the Construction Contract, and sought to exclude them from the operation of the Contract in respect of Practical Completion;
(e)further, it was submitted that the CPC appears to have treated the so called ‘building enhancements’ as variations to the original scope of works as a basis for excluding them from the requirements for Practical Completion, contrary to the definition of “work under the Contract” and “Works” in clause 2 of the Construction Contract both of which expressly include ‘variations’;
(f)permitted the required documents as described above to be provided at some later date when in fact they were express requirements for Practical Completion and not within the categories specified in the last paragraph of Clause 42.3 of the Construction Contract.
It was submitted that the above defects in the CPC were not matters the subject of any discretion conferred on the Superintendent by the Construction Contract.
The Principals pointed to qualified or conditional CPCs being held to be invalid in a number of cases, namely: Official Assignee of Hutson v The New Zealand Antimony Company Ltd;[9] Kenneth McMahon & Partners Pty Ltd v Domain Investments Pty Ltd[10] where the commencement of a tenancy was subject to the architect issuing a certificate of practical completion under the building contract. The certificate was issued but added that it was subject to the completion of a number of defects listed and the completion of certain described work, which a witness said was minor work. It was held that the certificate was not a valid certificate: Re Arbitration between CME Contractors Pty Ltd and Redcliffe City Council, unreported decision of Dowsett J of the Supreme Court of Queensland;[11] and Ian Delbridge Pty Ltd v Warrandyte High School Council.[12]
[9](1890) 10 NZLR 143.
[10](1973) 47 ALJR 240; McMahon has been referred to in a number of leading texts and commentary, for example: J Bailey, Construction Law (Informa Law, 2011) 347 [5.22]; and Damien Cremean, Michael Whitten and Michael Sharkey, Brooking on Building Contracts, (5th edition, LexisNexis Butterworths, 2014) 9.23.
[11]No. 257 of 1986, judgment date 27 February, 2 and 3 March 1987 and 8 September 1987 [BC8701739].
[12][1991] 2 VR 545.
The Principals supported their submissions with the expert evidence of Andrew Fortey. Mr Fortey has expertise in project management and contract administration, including as a superintendent of project works on a range of construction projects. Mr Fortey made the following principal points in his evidence:
As to the First Question put to Mr Fortey – ‘Did the Superintendent have evident and intelligible justification to issue the Certificate?’, it was Mr Fortey’s opinion, albeit based on the limited materials and documents provided to him, that the requirements for Practical Completion had not been strictly satisfied and thus on these grounds the Certificate should not have been issued.
He noted that the form of Certificate was ‘unusual’ and not set out in a manner consistent with the requirements of the Construction Contract.
He further opined that the inclusion of numerous conditions in the Certificate was unusual because the Construction Contract provided for Practical Completion to be granted on an ‘unconditional’ basis, unless otherwise agreed between the Principal and Contractor.
For these reasons, the Principals contended the CPC was invalid on its face for the purposes of triggering entitlement to the Final Instalment under the Deed of Settlement by reason that it:
(g)was not a document of that character as contemplated or provided for by the Construction Contract;
(h)lacked an evident and intelligible justification; and
(i)was beyond the contractual power conferred on the Superintendent.
The Principals also contended that the CPC is invalid because the Project works were not in fact at the stage of Practical Completion as at 1 March 2013, and, by reason of that fact, the issue of the CPC was so unreasonable that no reasonable Superintendent could ever have made a decision to issue it consistently with the terms of the contract, with the result that the discretion to do so miscarried.[13]
[13]That is, it did not fall within a range of reasonable decisions determined in accordance with the discretion afforded by the Contract: Yarraman Pine Pty Ltd v Forestry Plantations Queensland [2009] QCA 102 [42]-[44], cited herein in Metier3 Pty Ltd v Enwerd Pty Ltd & Anor [2014] VSC 80 [51(c)].
It was submitted by the Principals that any determination, opinion or discretion exercised by the Superintendent that the Works were at the stage of Practical Completion must accord with the contractual context, having regard to the facts and circumstances of the project,[14] and be based on, and give effect to, the definition of Practical Completion under the Construction Contract. It is not a discretion ‘at large’.
[14]WMC Resources Ltd v Leighton Contractors Pty Ltd (2000) 16 BCL 53, cited herein Metier3 Pty Ltd v Enwerd Pty Ltd & Anor [2014] VSC 80 [51(d)].
The Principals pointed to the definition of ‘Practical Completion’ under the Construction Contract as providing a list of requirements to be met. Some involve an assessment by the Superintendent, while the majority of the requirements are objective criteria which are either fulfilled or they are not.[15] However, even a discretion as to an assessment of, for example, “minor omissions and minor defects” in subparagraph (a) is qualified or conditioned by the considerations in the following three subparagraphs. Thus it was put that, if part of the lobby entrance to the building cannot be used or the building cannot be properly secured at night, or statutory requirements for disabled access or emergency signage have not been completed, then it cannot reasonably be said that the building is capable of being used for its stated purpose.
[15]Laing O’Rourke Construction Ltd v Healthcare Support (Newcastle) Ltd & Ors [2014] EWHC 2595 [41].
The Principals also referred to the actual terms of the CPC issued by the Superintendent. The very fact that the Superintendent identified works which were incomplete it was contended, provided powerful evidentiary support for the inference that those items were incomplete as at 1 March 2013.
The Principals pointed to the Superintendent’s discretion to issue a CPC arising in the circumstances described in Clause 42.3 of the Construction Contract, including the facility where the superintendent may issue a CPC whether or not the Contractor has made a request. However, that only arises where the Superintendent is ‘properly’ of the opinion that Practical Completion has been reached. That opinion must be formed by the process and with due consideration of all relevant matters.
The Principals contend that, on the evidence including that of their principal Mr Shlomo Werdiger as to the actual state of the works as at 1 March 2013, at that time the Project works were not complete within the definition of ‘Practical Completion’ found in the Construction Contract, and in the circumstances the issue of the CPC could not be justified.
Accordingly, it was submitted that the discretion of the Superintendent clearly miscarried, and consequently the CPC should be set aside and declared invalid for the purposes of these proceedings, with the result that no liability to pay the Final Payment arises under the Deed of Settlement.
Alleged Failure to Provide All Documents
The Principals relied upon Clause 2(e) of the Deed of Settlement, which they describe as the second trigger for payment of the Final Instalment, which required provision of “all construction drawings and any other documents required under the Agreement to be provided by [the Plaintiff] in respect of the Project, upon, or immediately following, Practical Completion.”
The Principals contended that this requirement of Clause 2(e) was not met because certain design documentation required to address outstanding items of work was not provided by the Architect as at 20 March 2013.
They referred to a chain of emails between 13 and 20 March 2013 between the Principals’ project manager and the Architect concerning provision of documents by the Architect which culminated in the then project manager confirming that “the register of drawings represents the full set of construction documentation as required to be provided by Metier3”. The Principal says that this apparent admission does not does not assist the Architect’s claim.
Annexure Part E to the Architect Agreement sets out a description of the services to be provided by the Architect. The documentation to be provided lists not only construction drawings but also other categories of documentation, such as:
·Documentation of statutory signage;
·Documentation and drawings of statutory and architectural way-finding signage.
However, it is submitted by the Principals that this documentation has not been provided.
While it appears that, based on the evidence given by Mr Werdiger, some issues in relation to the provision of documentation by the Architect have since been resolved, the design documentation and drawings for the remaining items were not provided by 20 March 2013.
Further, the Principals contend that, in any event, it would not be possible for the Architect to provide a complete set of project documentation until all the work under the Architect Agreement has been completed, and, on the evidence, the Principals submit that the architectural work remains incomplete.
Approach to Construction of Clause 1.1 of the Deed of Settlement
It is important to observe that the Deed of Settlement in fact incorporated part of the Construction Contract for relevant purposes by Clause 1.1 of the Deed. Clause 1.1 defined ‘Practical Completion’ for the purposes of the Deed to mean: “the issue of a Certificate of Practical Completion for the Works, or any relevant portion of the Works, in accordance with the contractual arrangements for performance of the Works” [Emphasis added]. The “contractual arrangements” referred to in Clause 1.1, I construe, included a reference to the Construction Contract.
However, there was, in my opinion, an additional element to the “contractual arrangements” referred to in Clause 1.1. Clause 1.1, in providing a definition of ‘Practical Completion’ for the purposes of the Deed of Settlement. The term could have been expressed simply as: “the issue of a Certificate of Practical Completion for the Works, or any relevant portion of the Works, in accordance with the St James Redevelopment Design and Construction Contract” [ie the Construction Contract]. However, the words used in Clause 1.1: “in accordance with the contractual arrangements for performance of the Works” introduce a quite different concept.
In Metier3 Pty Ltd v Enwerd Pty Ltd & SHL Nominees1965 Pty Ltd [16] the relevant legal principles to be applied in the interpretation of commercial contracts are set out.
[16][2014] VSC 80 [35]–[47].
Clause 1.1 of the The Deed of Settlement in this case is to be construed in accordance with these principles. As Gleeson CJ said in International Air Transport Association v Ansett Australia Holdings Limited:[17]
In giving a commercial contract a businesslike interpretation, it is necessary to consider the language used by the parties, the circumstances addressed by the contract, and the objects which it is intended to secure.An appreciation of the commercial purpose of a contract calls for an understanding of the genesis of the transaction, the background, and the market.
[17](2008) 234 CLR 151 [8] (citations omitted).
In construing Clause 1.1 of the Deed of Settlement, I assign to the clause its natural and ordinary meaning in the context of the Deed as a whole, with the object discovering and giving effect to the contractual obligations that reasonable persons in the position of the parties would objectively have intended the language of the clause to create.
Three matters are of importance to the construction of Clause 1.1.
First, assigning the natural and ordinary meaning to the words “in accordance with the contractual arrangements for performance of the Works” found in Clause 1.1, in my opinion this text is intended to go beyond the confines of the Construction Contract. The breadth of Clause 1.1, which is expanded by the phrase “contractual arrangements”, must be taken to have this intended commercial effect in its context.
In my opinion, the phrase ‘contractual arrangements’ is intended, in addition, to include what may be described as any ‘arrangements’ the parties to the Construction Contract effected for the purpose of conducting the Project works in the light of the issue of a Certificate of Practical Completion for the works. Such ‘arrangements’ may include arrangements which arise between the parties which are to be implied. For example, by the Principals refraining from taking any proceedings to set aside the CPC on any potential ground of invalidity and both the Principals and the Builder accepting the document on its face as a valid certificate of practical completion for the purposes of the Construction Contract and the performance of the remaining works and obligations under it, including any necessary rectification works to be undertaken by the Builder during the Defects Liability Period.
Second, the use of the word ‘Works’ in the phrase is broadly defined in the Deed of Settlement to relevantly mean: “all construction work for the redevelopment …”. This would include rectification works to be undertaken by the Builder during the Defects Liability Period, which commences on issue of the certificate of practical completion.
Third, the context of the Deed of Settlement assumes importance. Through the Deed of Settlement the Principals and the Architect intended to record their agreement in relation to a dispute between them as to claims made by the Architect for payment for fees for its services provided to the Principals on the Project, including claims for variations to those services. They record that they reached agreement upon the total fees payable to the Architect in respect of the Project: $6,000,000 - Clause 2(a). The parties agreed upon the amount of progress payments paid to the Architect: $4,685,416 – Clause 2(b). The parties also agreed upon the unpaid balance that was due to the Architect: $1,314,584 (plus GST) (the “Final Payment”) – Clause 1(c) and agreed that the Final Payment was to be paid by instalments as set out in Schedule 1 to the Deed of Settlement.
Payment of the instalments under the Deed of Settlement was predicated upon there being fixed times for performance.
This was provided for by Schedule 1, set out below:
SCHEDULE 1 – FINAL PAYMENTS
Instalment Event Instalment Amount (excluding GST) On Signing $714,584 Handover of the Plaza Areas or 9 February 2013, whichever occurs earlier $60,000 Handover of William Street Areas or 22 January 2013, whichever occurs earlier $60,000 Handover of Little Collins Street Areas or 22 January 2013, whichever occurs earlier $60,000 Handover of Bourke Street Areas or 22 January 2013, whichever occurs earlier $60,000 Handover of B1M/B1/B2 Basement Areas or 22 January 2013, whichever occurs earlier $60,000 Practical Completion of the Works (refer clause 2(e)) $300,000
The word “Handover” as used in Schedule 1 is defined in Clause 1.1 of the Deed of Settlement to mean: “when the relevant area of the Works has reached Practical Completion and is able to be opened to the public or, in the case of tenancy areas, is able to be handed over to tenants or their contractors to commence fit out work.”
Thus, with the exception of the first instalment of $714,584 which was payable on the signing of the Deed of Settlement, the concept of achieving “Practical Completion” was used as a trigger for the payment of all other instalments under the Deed.
In my opinion, in the context of the parties intending to settle their differences as to the payment of the disputed fees, and to do so by agreed instalments paid over time, each of the “Instalment Events” referred to in Schedule 1 of the Deed of Settlement, including that for the Final Payment in contention, were each events which were intended to be capable of being determined with certainty by reference to objective facts in order to fix a precise date when the payment of each instalment would be due.
It follows that a construction of Clause 1.1 in combination with Clause 2(e) which, consistently with the text, better provides for certainty of the payment due under Clause 2(e), is a construction which is to be preferred as the objective intention reflected in the text to achieve the commercial purpose of the payment of the Final Payment by the due date.
Relevant ‘Contractual Arrangements’ for Performance of the Works
For the purposes of Clause 1.1 of the Deed of Settlement I find in summary that the ‘contractual arrangements’ for the performance of the ‘Works’, which included work to be undertaken by the Builder during the Defects Liability Period consequent on the issue of a certificate of practical completion, were:
(a)neither the Principals nor the Builder taking any steps by way of arbitration or litigation to set aside the CPC purportedly issued under the Construction Contract, and no other certificate of practical completion ever been issued in relation to the Project; and
(b)the Principals, the Builder and the Architect accepting the CPC as issued by the Superintendent on 1 March 2013, as a Certificate of Practical Completion validly issued under the Construction Contract, for the purposes of the Construction Contact, the Architect Agreement and the Deed of Settlement and arranging their rights and obligations for the performance of the remaining works on the basis of the CPC as issued.
Each of these ‘contractual arrangements’ will be examined in turn.
Principals and Builder Take No Steps to Set CPC Aside
Mr Shlomo Werdiger, the principal of the Principals, conceded in his cross-examination in relation to the CPC that the Principals:
(a) made no application in a court or an arbitration to set the CPC aside;
(b) wrote to the project manager objecting to the issue of the CPC, but for commercial reasons which he briefly referred to, took the position not further; and
(c) were aware that they were entitled to issue a proceeding to have the CPC set aside.
As to the documentary evidence, on 9 April 2013 Mr Werdiger sent a letter to the Superintendent disputing the validity of the issue of the CPC in 1 March 2013.
This was responded to by the Superintendent in a long email letter dated 12 April 2013 which disputed Mr Werdiger’s claim about the alleged invalidity of the CPC. The Superintendent’s letter said as to the main ground for its position:
The assessment to issue Practical Completion on 1 March 2013 was determined after detailed review of the Works and the requirements under the Contract and the Superintendent’s determination was made on the basis that the Works were complete except for minor omissions and minor defects and these items did not prevent the Works from being reasonably capable of being used for their stated purpose. The Superintendent was satisfied that there was nothing to prevent an incoming tenant from reasonably being capable of using the Works for their stated purpose.
We recognise that at the time of Practical Completion some minor works and defects remained incomplete, and these were assessed in line with the Contract, that rectification or completion would not prejudice the convenient use of the Works.
These observations provided by the Superintendent were generally consistent with General condition 2 of the Construction Contract which defined ‘Practical Completion’ as that stage in the execution of the Work under the Construction Contract when:
the Works are complete except for minor omissions and minor defects:
which do not prevent the Works from being reasonably capable of being used for their stated purpose and, in respect of the Major Tenancy, do not prevent the occupancy and use of office premises of the Major Tenancy in accordance with the Major Tenant Requirements;
which the Superintendent determines that [the Builder] has reasonable grounds for not promptly rectifying; and
rectification of which will not prejudice the convenient use of the Works.
On 17 June 2013 a draft letter to the Builder (the “Draft Letter”) was under active consideration within the organisation of the Principals pursuant to an initiative of Mr Werdiger. The draft letter, which was set out in an internal email dated 17 June 2013, proposed a settlement of outstanding claims for payment by the Builder in relation to “Payment of Preliminaries Claims beyond the Practical Completion Date of 28 February 2013”. It is to be inferred that the draft letter, which was proposed to have been signed off for the Principals by Mr Michael Shinton, their Chief Financial Officer, was likely to have been prepared with his knowledge. The draft letter relevantly stated:
St James Redevelopment – Works Post Practical Completion
I refer to previous correspondence between Simon Barker and our office with respect to payment of your Preliminaries Claims beyond the Practical Completion Date of 28 February 2013.
Notwithstanding that we believe there were grounds open to us to dispute the validity of the issuance of the Certificate of Practical Completion in February, for the purposes of our agreement, we have accepted that Practical Completion has been reached, and that the defects and omissions rectification period has commenced. That is the basis upon which we are approaching the payment certificates we have received from our Superintendent which cover preliminaries since 1 March 2013.
Yours sincerely
Michael Shinton
Chief Financial Officer.
The draft letter was never sent. However, it further evidenced the knowledge and belief of the Principals at the time in about mid–June 2013 that they believed they had grounds open to them to dispute the validity of the CPC. I accept that was in fact their belief at the time.
In spite of this belief, the Principals never took any step to set aside the CPC. This was the product of a commercial decision on the part of the Principals. Some of the factors behind this commercial decision were recorded in a letter sent by Mr Werdiger to Mr Andrew Norbury, a principal of the Architects, dated 13 September 2013 in relation to the claim by the Architects for payment of $330,000, being the Final Payment, inclusive of GST. Mr Werdiger relevantly said in this letter:
Case Meallin and Associates were premature in issuing a Certificate of Completion. Juilliard issued a Notice of Dispute. Subsequently Case Meallin’s services on the project were terminated, a new superintendent was appointed and it appeared to be moot to follow the contractual process formally overturning the Certificate of Completion. Without question that the certificate is meaningless and ineffectual.
In his letter of 13 September 2013, Mr Werdiger proposed a solution to move forward to complete the Project which would include the further involvement of the Architects.
I am satisfied that the Principals made a deliberate decision on commercial grounds to take no step to set the CPC aside, and made this decision with full knowledge that they had grounds for commencing proceedings, either in a court or in arbitration, with a view to achieving this outcome.
I am further satisfied that no certificate of practical completion, other than the CPC, was ever issued for the Project.
Principals and Builder and Architect Accept CPC
Two items of conduct point to the Principals and the Builder treating the CPC issued on 1 March 2013 as a valid and operative certificate of practical completion under the Construction Contract.
First, the Builder gave up possession of the St James Building site to the Principals on or shortly after 1 March 2013. This conduct was consistent with the issuance of the CPC by Case Meallin and was treated by both the Principals and the Builder as having been validly issued pursuant to clause 35.2 of the Construction Contract, which provided that “Upon the Date of Practical Completion” the Builder “shall give possession of the Site and the Works to the Principal”.
Second, the Draft Letter prepared internally for the Principals in the email dated 17 June 2013 was premised on the defects liability period commencing immediately following, and triggered by, the issue of the CPC on 1 March 2013 under the Construction Contract.
Pursuant to Clause 37 of the Construction Contract, the Defects Liability Period was expressed to commence “at 4.00 pm on the Date of Practical Completion” which was in turn relevantly defined in the dictionary to the contract as: “the date certified by the Superintendent in a Certificate of Practical Completion to be the date upon which Practical Completion was reached.” From this date the Builder became liable to rectify defects under the Construction Contract.
I accept that the defects liability period for the purposes of the Construction Contract commenced on 1 March 2013, immediately following, and indeed was triggered by, the issue of the CPC.
From that date the Builder assumed liability under Clause 37 of the Construction Contract to carry out rectification works for the Principals as follows:
Within the times directed by the Superintendent, and in respect of the Major Tenancy within 10 days, and otherwise as soon as possible, after the Date of Practical Completion, the Contractor shall rectify any defects or omissions in the work under the Contract existing at the Date of Practical Completion.
Further, the Architect itself participated in the defects liability process during the Defects Liability Period. Defects reports were prepared by the Architect after the issue of the CPC on 1 March 2013. I accept that these defects reports were prepared for the purpose of listing defects in the St James Building to be rectified during the defects liability period.
This was conceded by Mr Werdiger of the Principals in cross-examination in the following exchange:
So the plaintiff was required to undertake works during the defects liability period? --- Yes.
And can I suggest to you that under the document issued by the superintendent that commenced on 1 March? --- Well, it’s one of the reasons we’re here.
I take Mr Werdiger’s non-responsive answer to the second question put to him above as a concession that in fact the Defects Liability Period commenced on 1 March 2013 for the purpose, amongst other things, of the Architect undertaking works during the Defects Liability Period.
In relation to this issue, Mr Andrew Norbury, Chief Executive Officer of the Architect, said in his evidence:
Following the issue of the Certificate of Practical Completion, the 12 month Defects Liability Period (the ‘DLP’) commenced. Andrew White, a senior architect at Metier3 was involved with the ‘day to day’ DLP issues. However, I attended meetings and inspections from time to time to monitor the progress of the DLP and the ongoing rectification of defects during the DLP. I consider that the number of defects involved was normal for a large renovation project of this size and complexity.
Further to its obligations under the Architect Agreement, the Architect prepared a defects report following an inspection of the Project undertaken on 19 April 2013. The report listed numerous defects which required the attention of the Builder in different parts of the Works. This report was prepared by the Architect pursuant to the obligation it assumed under Annexure Part E “Services By Architect” annexed to the Architect’s Agreement, which provided, amongst other things, that the Architect was required to:
·Carry out inspections prior to the expiration of the Defects Liability Period and the preparation of a list of defects for the attention of the Head Contractor
The report prepared by the Architect was noted as having been distributed to the project manager newly appointed by the Principals, Napier & Blakely Pty Ltd, and to key operatives within the organisation of the Principals, including to their Chief Financial Officer, Mr Michael Shinton.
It is to be inferred that the Architect, to the knowledge of the Principals, carried out the inspection and provided the report of defects requiring rectification by the Builder during the defects rectification period and did so for no additional charge pursuant to its contractual obligations, which were triggered by the issue of the CPC.
Further, the issue of the CPC was acted upon by the Principals and their agents requiring the Architects to provide to the Principals all final design documents issued for construction. This was required under Clause 17.3 of the Architect Agreement, to be provided within 14 days of the date of Practical Completion of the Works under the Construction Contract (unless another time was agreed).
Between 13 March 2013 and 20 March 2013 the Principals and the Architect entered into an email dialogue as to how the Clause 17.3 obligation should be carried out. The full exchange is set out below. This culminated in Mr Andrew White of the Architect on 20 March 2013 sending by courier to Mr Anthony Millicer, the Principal’s Project Manager, a USB stick containing the Architect’s drawing register. On the same day, Mr Millicer reviewed the drawing registers and confirmed that the register represented, as he said in his email of that date “the full set of construction documentation as required to be provided by Metier3”.
It is clear from this conduct that the Principals were insisting on the Architect providing the documents as they were required to do under Clause 17.3 of the Architect Agreement within 14 days of the Practical Completion of the Works under the Construction Contract (unless another date was agreed).
In these ways, the issue of the CPC on 1 March 2013 fixed the date for Practical Completion, not only as between the Principals and the Builder, but also as between the Principals and the Architect for the purposes of the commencement of the Architect’s obligations in the Defects Liability Period, and the provision by the Architect of all final design documents issued for construction pursuant to Clause 17.3 of the Architect’s Agreement. The Principals insisted on exercising their rights under these clauses of the Deed of Settlement and the Architect Agreement, which were triggered by the issue of the CPC, and the Architects complied with their obligations.
Conclusion
In my opinion, applying the construction of Clause 2(e), when read alongside the definition of ‘Practical Completion’ in Clause 1.1 of the Deed of Settlement as found in Metier3 Pty Ltd v Enwerd Pty Ltd & SHL Nominees1965 Pty Ltd,[18] the entitlement of the Architect to payment of the Final Payment under the Deed of Settlement arose when the CPC was issued by the Superintendent on 1 March 2013. This Certificate of Practical Completion was duly issued in accordance with the terms of the Deed of Settlement by reason that, pursuant to the contractual arrangements between the Principals and the Builder, it operated between them for all purposes, and was accepted by them as operating as a valid certificate of practical completion duly issued under the Construction Contract.
[18][2014] VSC 80.
The fact that there may well have been grounds to set aside the CPC as between the Principals and the Builder is not to the point. The fact is that neither of those parties acted upon those potential grounds, and the CPC remained valid as between them and was accepted by them as regulating their rights under the Construction Contract.
Further, in my opinion, this construction serves to fix the obligation to make the Final Payment by the readily ascertainable date of issue of the CPC. Even though it suffered from exposure to potentially being set aside on a ground of invalidity, and therefore was voidable, its issuance and continued operation in the absence of any declaration as to invalidity by a court or arbitrator, served the ends of certainty in fixing an objectively ascertainable date upon which the Final Payment was to be made under the Deed of Settlement.
In these circumstances, pursuant to the Deed of Settlement on its proper construction, the CPC as issued amounted to a valid CPC for the purposes of Clause 1.1 and Clause 2(e), and remained so in the absence of being set aside by a court or in an arbitration.
Waiver, Estoppel and Election
By reason of the determinations made in relation to the construction of Clause 2(e) of the Deed of Settlement, and the findings made as to its application to the facts, there is no necessity to deal with the pleas of the Architect founded on estoppel, election and waiver. However, because the issues were pressed, I will here deal with them briefly.
Consideration of these concepts is undertaken against the background of the Deed of Settlement being entered into on 19 November 2012, and the CPC being issued by the Superintendent on 1 March 2013.
Waiver
An intentional act, done with knowledge, whereby a person abandons a right by acting in a manner inconsistent with that right has been described as the "waiver" of that right: Craine v Colonial Mutual Fire Insurance Co Ltd;[19] Grundt v Great Boulder Pty Gold Mines Ltd;[20] Agricultural and Rural Finance Pty Limited v Gardiner.[21]
[19](1920) 28 CLR 305, 326.
[20](1937) 59 CLR 641, 658 (Latham CJ).
[21](2008) 238 CLR 570 [56] (Gummow, Hayne and Kiefel JJ, with Heydon J in agreement, save for two qualifications, which for present purposes are not relevant).
In Commonwealth v Verwayen[22] a majority of the Court (Deane, Dawson, Toohey and Gaudron JJ) held that the Commonwealth, by reason of its conduct in defending the litigation against it, was not free to dispute its liability to the plaintiff founded on a limitations defence. Deane and Dawson JJ each rested that conclusion in estoppel; Toohey and Gaudron JJ each concluded that the Commonwealth had waived its right to rely on a limitations defence.
[22](1990) 170 CLR 394.
However, the concept of waiver in Verwayen was examined and applied by Toohey and Gaudron JJ in the context of the conduct of litigation which was then on foot. As the High Court said later in Agricultural and Rural Finance Pty Limited v Gardiner:[23]
The application was, therefore, overlaid by considerations of the fair and just conduct of the proceedings. Considerations of that kind are not relevant to the identification of the rights and obligations of parties to contracts.
[23](2008) 238 CLR 570 [89] (Gummow, Hayne and Kiefel JJ, with Heydon J in agreement, save for two qualifications, which for present purposes are not relevant).
Further, as Kirby J observed in the same case, the doctrine of "waiver" as a stand-alone defence (or possibly a cause of action) in Australia is not settled.[24]
[24]Ibid [143].
I take it from the way the case was put for the Architect, what in fact is relied upon under the rubric of ‘waiver’ are the equitable doctrines of estoppel, on the one hand, and election between inconsistent rights, on the other.
Estoppel
The defence of estoppel may be stated as that applied by Mason CJ in Verwayen, where the Chief Justice described the elements of the doctrine in the following way:
a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be a proportionality between the remedy and the detriment which is its purpose to avoid. It would be wholly inequitable and unjust to insist upon a disproportionate making good of the relevant assumption.
I find that the Architect was induced by the issue of the CPC by the Principal’s Superintendent and by the reliance of the Principals upon it as a valid certificate of practical completion to act to its detriment. There were three principal heads of detriment suffered by the Architect which were open on the evidence to found an equitable estoppel:
(a)the carrying out of work by the Architect during the Defects Liability Period following the issue of the CPC, including attending meetings and inspections from time to time to monitor the progress and the ongoing rectification of defects during the period. This work also included the inspection conducted on 19 April 2013, from which a written defects repost was prepared. As earlier found, the performance of these works by the Architect during the Defects Liability Period was not the subject of any additional fee or charge by the Architect, but were obligations assumed under the Deed of Settlement to be paid from the total outstanding fee agreed to;
(b)the provision by the Architect to the Principals of all final design documents issued for construction, which was required under Clause 17.3 of the Architect Agreement, to be provided following within 14 days (or otherwise agreed) of the date of Practical Completion of the Works under the Construction Contract, which was triggered by the issue of the CPC; and
(c)in undertaking this exercise the Architect assumed a level of detriment, not only in undertaking the work, but in taking responsibility for it to be prepared with all due care and attention.
The inducement proffered by the Principals for the Architect to act in this way, I find is to be inferred from the following conduct on the part of the Principals:
(a)requiring the Architect to carry out of work by the Architect during the Defects Liability Period. This requirement could only be pressed by the Principals pursuant to the obligation assumed by the Architect under Annexure Part E “Services By Architect” annexed to the Architect’s Agreement, which provided, amongst other things, that the Architect was required to “carry out inspections prior to the expiration of the Defects Liability Period and the preparation of a list of defects for the attention of the Head Contractor”. This obligation arose following the issue of a certificate of practical completion which in turn commenced the Defects Liability Period; and
(b)requiring the Architect to provide to the Principals of all final design documents issued for construction. This requirement could only be pressed by the Principals pursuant to Clause 17.3 of the Architect Agreement following the issue of a certificate of practical completion.
In order to justify a finding of estoppel, however, there must also be proportionality between the remedy and the detriment. This is not something that is capable of a mathematical calculation, but ought to fall within a range of reasonable values. For this purpose, there needs to be evidence upon which an assessment can properly be founded.
I am not satisfied that there is sufficient evidence to make the necessary finding of proportionality. No evidence was given as to the precise work undertaken by the Architect during the Defects Liability Period; the hours spent; and a reasonable charge out rate for this work. Likewise, no evidence was given as to the hours spent; and a reasonable charge out rate for the work in providing to the Principals all final design documents issued for construction. As to measuring what was involved for the Architect in undertaking these exercises and in taking responsibility for the work done, without the work being sufficiently defined, providing the necessary assessment is not possible.
For this reason, the plea of equitable estoppel advanced by the Architect must fail, and the Principals are not estopped from asserting that the CPC is not a valid certificate of practical completion for the purposes of Clause 2(e) of the Deed of Settlement.
Election
An actionable election may arise where: A party, faced with inconsistent alternative rights and being aware of those rights, or at least the facts forming the basis for them, makes a choice to act in a manner consistent with one right and inconsistent with the other.
When the principle is applied to the facts of this case, the following issue arises for determination: whether the Principals, having knowledge of the potential invalidity of the CPC, made a conscious decision not to exercise a legal right to commence proceedings, either in court or arbitration, to set it aside. Rather, for the purposes of both the Construction Contract and the Architect Agreement, whether the Principals elected to treat the CPC as being a certificate of practical completion which had been validly issued under the Construction Contract.
Based on the facts earlier found, I am satisfied that as from 1 March 2013 when the CPC was issued, the Principals knew they had grounds to challenge the validity of the CPC and had a right to challenge its validity in Court or at arbitration. However, they made a conscious commercial decision not to do so.
Viewing the position adopted by the Principals objectively, they clearly waived any right they may have had to treat the CPC as invalid. Rather they proceeded, as against both the Builder and the Architect, to treat it not only as valid, but they insisted on pressing their contractual rights against both on the basis of it being treated as a valid certificate of Practical Completion duly issued under the Construction Contract.
For this reason, the plea of election advanced by the Architect succeeds, and the Principals are effectively precluded from asserting that the CPC is not a valid certificate of practical completion for the purposes of Clause 2(e) of the Deed of Settlement.
Provision of Documents
The second element of Clause 2(e) of the Deed of Settlement requires provision by the Architect of the defined documents. Clause 2(e) provides in this respect:
Payment by the Principal of the last instalment of the Final Payment shall be subject to Practical Completion of the Works (including provision of all construction drawings and any other documents required under the Agreement to be provided by the Consultant in respect of the Project, upon, or immediately following, Practical Completion).
The Architect Agreement was defined in the Deed of Settlement as the ‘Agreement’ referred to in Clause 2(e).
The Architect Agreement included the following obligation assumed by the Architect in relation to the provision of documentation following the Date of Practical Completion:[25]
17.3 Design obligations
(i)The Consultant must within 14 days (or other time period agreed between the parties) of the Date of Practical Completion of the Works under the construction contract provide to the Client:
(i)all final design documents issued for construction; [Emphasis added]
[25]Clause 17.3 of the Australian Standard General conditions of contract for engagement of consultants.
For present purposes it is important to note that the word “issued” as used in Clause 17.3(i) is in the past tense. It does not give rise to any future obligation to provide documents issued for construction at a later time beyond the period defined in the clause. The obligation of the Architect to provide documents under the clause is confined to “all final design documents” that have been “issued” for construction.
Mr Werdiger gave evidence that there were some 26 categories of design documentation that he believed were required to have been provided by the Architect pursuant to Clause 2(e) of the Deed of Settlement before an entitlement to payment of the Final Payment arose, but were not and have not been provided.
However, no evidence at all was given as to whether the design documentation within the 26 categories described by Mr Werdiger was in fact “final design documents issued for construction”. Indeed, these categories of drawings and other documents, on the evidence were not “final design documents” that had been issued for construction at all. They were described by Mr Werdiger in his evidence given in his affidavit as: “a number of drawings and other documents” ... which relate to the outstanding matters referred to in paragraph 58.” Yet in paragraph 58 Mr Werdiger says: “... there are substantive works still to be completed by Metier [the Architect] so that the St James Building is reasonably capable of being used for its stated purpose. These works include: ...”. Then follows a list of 27 items which correlate directly with the list of documents claimed by Mr Werdiger to be outstanding for the purposes of Clause 2(e) of the Deed of Settlement.
Two examples may assist.
The first example is provided by Mr Werdiger in relation to what is described as the “Bike store intercom”. In paragraph 58 he lists as incomplete works:
(f)Bike store intercom: The intercom in the bike store has been installed without a clear purpose. Depending on the action taken in respect of the two exits from the bike store (referred to in sub-paragraph (c), above), it will either need to be replaced or removed by Metier.
In paragraph 59 he includes documents that have not been provided in relation to it:
(f)Bike store intercom: revised drawings to reflect the change (if any) to the intercom system in the bike store.
A second example is provided by Mr Werdiger in relation to what is described as the “Concierge Desk Moss Garden”. In paragraph 58 he lists as incomplete works:
(n)Concierge desk, moss garden: The concierge desk was also not properly designed and as a consequence, is not fit for its intended purpose. Again, Metier has sought to downplay the issues. The first issue is that the concierge desk, as designed by Metier, is a fall hazard. A moss garden at the north end of the concierge desk was proposed as a solution to the deficient design. I agreed to this solution, but Metier has done nothing to progress and implement its design.
In paragraph 59 he includes documents that have not been provided in relation to it:
(n)Concierge desk, moss garden: Drawings and designs in respect of the moss garden bed to be installed at the north end of the concierge desk.
Putting aside the question as to whether the creation of a moss garden is something which can appropriately be the subject of construction drawings, and assuming for present purposes that it is, on Mr Werdiger’s evidence, there could have been no final design documents issued for the construction of either bike store intercom or the moss garden, because neither had ever been designed or constructed. A like analysis can be undertaken for all of the other 26 categories of design documentation claimed by Mr Werdiger to be outstanding for the purposes of Clause 2(e) of the Deed of Settlement. No documents of the kind had in fact ever been “issued” within the meaning of the Architect Agreement at the time when the CPC issued, or by 20 March 2013 when all of the final design documents which had been issued for construction, were in fact provided by the Architect to the Principals.
I find that the 26 categories described by Mr Werdiger were not in fact “final design documents issued for construction” within the meaning of Clause 17.3 of the Australian Standard General conditions of contract for engagement of consultants incorporated into the Architect’s Agreement.
Further, the Architect placed reliance on a chain of emails between 13 and 20 March 2013 between the Principals’ project manager and the Architect concerning provision of documents by the Architect which culminated in the then project manager on behalf of the Principals confirming that “the register of drawings represents the full set of construction documentation as required to be provided by Metier3”. The email chain was in the following relevant terms, set out in chronological order:
13 March 2013, 1:17 pm
From Michael Shinton [for the Principals] to Anthony Millicer [Principals’ Project Manager] and others, copied to Andrew Norbury [for the Architects]
Anthony,
I refer to the payment schedule and in particular Clause 2 e of the agreement, can you confirm that you have in your possession all construction drawings and any other documents required under the Architect Consultant Agreement to enable finalisation of the Deed of Settlement.
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18 March 2013, 9:24 am
From Anthony Millicer to Michael Shinton, Andrew Norbury, Graham Fraser, Peter Steinschulte, Justin Naylor and Peter Meallin
Michael,
We have reviewed the Deed of Settlement with Metier3 and the Architects Consultant Agreement.
The Consultant Agreement requires that within 14 days of Practical Completion, the Consultant provides “all final design documents issued for construction.” The form of providing these documents is not specified. We can confirm that all design documentation is loaded and available on Aconex. We do not believe that this is ultimately suitable for Juilliard Group and recommend that documentation should be provided in pdf format on disc (or USB drive) with a full register of all drawings. Our opinion is that provision of full size hard copy drawings is not practical. We would recommend that a single copy of A3 size drawing prints be provided for easy reference. Any specifications, door schedules, finishes schedules etc should be provided in electronic format only.
It is our view that throughout the project, Metier3 has generally updated the construction documentation to reflect changes requested or required due to site conditions. There has however been numerous Architect’s Advice issued by Metier3. We believe that some of the more recent Architect’s Advice may not have been updated into the Construction drawings. We believe that Metier3 should conduct a review of the Architect’s Advice and where they make a material change, they should be incorporated into the drawings.
In addition to the above, Metier3 need to provide a statement as required under the publication “Designing Safer Buildings and Structures”. This has been requested by CM&A to Metier3 on Aconex.
Could you please confirm that you are in agreement with the form of documents to be provided to Juilliard Group and CM&A will coordinate Metier3 to provide this?
Best regards,
Anthony Millicer
Project Manager
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20 March 2013, 10:07 am
From Andrew White to Anthony Millicer and others
Anthony,
This morning I hand-delivered Stage 1 & 2 St James drawings at A2 size including a USB key of all PDF drawings and schedules to Juilliard.
CM&A have also confirmed receipt of our Section 28 statement.
I trust this closes-out matters in relation to our most recent invoice?
Regards,
Andrew White
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20 March 2013, 12:17 pm
From Michael Shinton to Anthony Millicer, [email protected]
Anthony,
I can confirm that I have received a package of plans and a USB stick but I have no way of knowing if this is what we should have received.
Can you confirm how this can be handled – do you want to pick them up and check them or propose some other method.
Regards,
Michael
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20 March 2013, 1:50 pm
From Anthony Millicer to Michael Shinton and Andrew White
Michael,
I spoke to Andrew White earlier about this and requested that a full register of the documents be provided. I have little doubt that you have been given everything, but if I am provided with the register, I can check this against my list of documents. I did also request that CMA also be provided with the same information electronically only and I have not received this yet.
If you have the register, please send it to me, if not can Andrew please provide it.
Best Regards,
Anthony Millicer
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20 March 2013, 2:23 pm
From Andrew White to Anthony Millicer, Michael Shinton, Justin Naylor, Graham Fraser and Judy Chan
Anthony,
I have a USB Stick I will courier to you today.
X2 drawing registers are on the USB stick and also attached to this email
Regards,
Andrew White
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20 March 2013, 3:01 pm
From Anthony Millicer to Andrew White, Michael Shinton, J Hustin Naylor, Graham Fraser and Judy Chan
Andrew/Michael,
Based on my review, I can confirm that the register of drawings represents the full set of construction documentation as required to be provided by Metier3.
I note that the Transmittal for Stage 1 (09015) repeats 4 times and total 48 pages. This is a bit confusing as it gives the impression that there are more drawings than actually provided. Andrew, could you please re-save the pdf file for the Stage 1 drawing transmittal and re-send this. It should be about 12 pages, not 48.
I am satisfied that this email exchange evidences the provision of the documents required by Clause 2(e) of the Deed of Settlement, when that clause is read alongside Clause 17.3 of the Architect’s Agreement, as it ought to be.
I find that all of the final design documents issued for construction, as required by Clause 17.3 of the Australian Standard General conditions of contract for engagement of consultants incorporated into the Architect’s Agreement, were in fact provided by the Architect to the Principals in accordance with Clause 2(e) of the Deed of Settlement, and this was achieved on 20 March 2013, just short of three weeks from the issue of the CPC.
Thus, by 20 March 2013, the Architect had provided to the Principals all the Construction Drawings as required under clause 2(e) of the Deed of Settlement.
I find further that, despite numerous requests by the Architect directed to the Principals between May 2013 and September 2013, they refused to pay the Final Payment to the Architect until the sum of $300,000 was paid on 28 November 2014.
Declaratory Relief
The Principals as Defendants claim the following declarations by way of counterclaim that:
(a) The purported CPC issued by the then Superintendent on 1 March 2013:
i.Was not issued in accordance with the contractual arrangements for the performance of the Works; and
ii.Is invalid and of no effect for the purposes of Clause 2(e) of the Deed of Settlement;
(b)As at 1 March 2013, the Works had not reached Practical Completion within the meaning of that term in the D&C Contract;
(c)The Plaintiff has failed to provide all construction drawings and any other documents required under the Architect Agreement to be provided by the Plaintiff in respect of the project; and
(d)In the premises, the Plaintiff is not entitled to payment of the Final Instalment under clause 2(e) of the Deed of Settlement.
The grant of the declarations in (a) and (b) above should be refused in the exercise of the Court’s discretion by reason that the outcome, even though binding as between only the parties to the present proceeding, which do not include the Builder, would be inconsistent with the manner in which the Construction Contract was actually administered, and inconsistent with the position which the Principals adopted in relation to the CPC for the purposes of the Construction Contract and the Architect Agreement, which was to accept the CPC as valid and binding. Further, in the light of the findings made in these reasons, declarations (a) and (b) would serve no useful purpose.
Declarations (c) and (d) are directly contrary to the findings made in these reasons and will not be made.
Conclusion and Orders
It follows that the Architect was entitled to be paid the Final Payment of the agreed settlement sum in the sum of $300,000, plus GST, forthwith after 20 March 2013, following the issue of the CPC by the Superintendent and compliance with the requirements of clause 2(e) of the Deed of Settlement in relation to the provision of documents.
There will be judgment in the proceeding for the Plaintiff.
The counterclaim is dismissed insofar as it relates to the claims for declaratory relief described in paragraph 148 of the reasons.
The Defendants are ordered to pay the costs of the Plaintiff of the proceeding, including reserved costs.
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