Mike & Shan Pty Ltd v SJ Higgins Pty Ltd
[2023] VCC 895
•3 June 2023
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES List
Case No. CI-21-00842
| MIKE & SHAN PTY LTD (ACN 104 466 211) | Plaintiff |
| v | |
| S.J. HIGGINS PTY LTD (ACN 005 648 395) | Defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 to 30 September, 3 and 4 October 2022, final oral closing submissions 25 November 2022 | |
DATE OF JUDGMENT: | 3 June 2023 | |
CASE MAY BE CITED AS: | Mike & Shan Pty Ltd v SJ Higgins Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 895 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS-BUILDING AND CONSTRUCTION
Catchwords: Whether specifications and drawings incorporated into the contract – estoppel – mistake – terms implied by law – nature of obligation to rectify pre-existing defects – effect of the award of practical completion – whether contract validly terminated by owner – nature and extent of defects – application of the reasoning in Armory v Delamirie – assessment of damages
Cases Cited:S.J. Higgins Pty Ltd v Mike & Shan Pty Ltd [2020] VCC 1443; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226; CA and CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd (2017) 55 VR 62; Armory v Delamirie (1722) 93 ER 664; Smith v Gould [2014] VSCA 138; Smith v Gould [2012] VSC 461; McCartney v Orica Investments Pty Ltd [2011] NSWCA 337; Lavender View v North Sydney Council [1999] NSWSC 699; Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; Owners – Units Plan No 1917 v Koundouris [2017] NSWSC 7329; Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504 [2010] NSWCA 23;
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | K Naish | Corrs Chambers Westgarth |
| For the defendant | B Reid | Holding Redlich |
Table of Contents
Summary and outcome
Factual background
Mike & Shan Pty Ltd and the Property
Circumstances of the Contract
Arrangements with subcontractors
Termination of the Contract
History of the proceeding
Witnesses
Terms of the Contract
Issues
Did the relevant specifications and drawings form part of the contract?
Is SJH estopped from denying that the relevant specifications and drawings formed part of the Contract?
Were the relevant specifications and drawings omitted from schedule 3 by mutual mistake, so that the Contract should now be rectified?
Did SJ Higgins’ scope of works under the Contract otherwise include completing the ELC in accordance with the relevant specifications and drawings?
Did the Contract include any implied terms to the effect that the works under the Contract would be carried out with due care and skill, in a proper and workmanlike manner, so that they complied with all Australian standards, laws and legal requirements and would result in a building that was fit for purpose as an ELC?
What is the nature and extent of SJ Higgins’ obligation under the contract to rectify defects and incomplete work of the previous contractor Xerri?
What is the nature and extent of SJ Higgins’ obligation under the Contract to rectify deficiencies or defects in works undertaken by subcontractors approved by Mike & Shan?
What effect, if any, did the award of practical completion have on the parties’ rights and obligations under the Contract?
How and when did the Contract come to an end and what effect, if any, did that have on the parties’ rights and obligations under the Contract?
Did SJ Higgins breach the Contract in relation to the works listed below and, if so, what is the nature and extent of the loss and damage caused by that breach (including any necessary remedial works)?
Application of Armory v Delamirie
Construction of the Station Street and Laneway planter boxes (including contribution to water ingress to basement) (A106)
Construction of the external playground areas, including the installation of proper falls, waterproofing and sealing of penetrations (including contribution to damage to plywood ceiling panels) (A204 and A113)
Construction of light shelves and installation of LED strip lights (A80 and A83)
Construction of waterproofing and drainage at door thresholds on the level 3 terrace (A300)
Installation of sub-sill flashing strip at level 2 external terrace and level 3 external terrace (A202)
Plywood ceilings (A112)
Installation of PVC downpipes (A118)
Installation of vinyl flooring to lift foyers in basement levels (A115)
Installation of stainless steel drainers to sink in kitchen
Supply of operation and maintenance (“O&M”) manuals (A111)
What is the reasonable cost of rectification of the loss and damage for which SJ Higgins is liable?
HIS HONOUR:
Summary and outcome
1The plaintiff (“Mike & Shan”) is the owner of a property at 757 Station Street, Box Hill, Victoria (“Property”). The defendant (“SJH”) was engaged by Mike & Shan under a construction contract dated 9 July 2019 (“Contract”) to complete construction of a “Little Lane” early learning centre (“ELC”) at the Property. There is a threshold question as to whether the drawings and specifications for the development form part of the Contract. The answer to that question then informs the primary questions of whether SJ Higgins breached the Contract by undertaking defective work and, if so, the damages attributable to those defects.
2I am satisfied that the relevant specifications and drawings formed part of the Contract and thus inform the nature and extent of SJH’s scope of works and whether its defective or incomplete work amounted to a breach of the Contract. I have largely accepted Mike & Shan’s submissions on these issues and on quantum. There will therefore be judgment for the plaintiff against the defendant in the sum of $1,532,563, plus interest and costs.
3The parties will be invited to check that my additions and other calculations shown at the conclusion of these reasons are correct and agree on the form of orders to give effect to these reasons, including on interest and costs. Failing agreement, they are directed to submit brief written submissions in support of the orders they seek. Final orders will then be made on the papers.
Factual background
Mike & Shan Pty Ltd and the Property
4Mike & Shan is the trustee of The Wu & Kuo Family Trust, and is a property developer, specialising in the development of ELCs. In broad terms, it purchases, develops and retains ownership of developed ELCs, which are operated by an affiliated entity. In the case of the ELC at the Property, the operating entity is Little Lane Early Learning Hawthorn Pty Ltd (“Little Lane”).
5At the time of trial, Mike & Shan owned 19 ELCs around Australia, with an additional 11 other sites in development. Mike & Shan was founded by Mr Ching-Yang (Mike) Wu and his wife Shan Kuo. Mr Wu is the Chief Executive Officer and Director of Mike & Shan and Ms Kuo is the Chief Education Officer of the ELC operating entities including Little Lane.
6The Little Lane ELC at the Property is a four-level childcare centre with two basement car park levels, located about 750 metres north of Box Hill station and on the corner of Station Street to the east and Thames Street to the north. Its west boundary is on a laneway which runs parallel to Station Street. Pedestrians enter the building via the front door located on Station Street, and the car park is accessed through Thames Street.
Circumstances of the Contract
7On 18 October 2018, Mike & Shan engaged Xerri Group Pty Ltd (“Xerri”) to construct the ELC at the Property. In mid-2019, Xerri became insolvent. At this time construction of the ELC was in the early stages, with essentially only the concrete shell of the building completed. According to Mr Wu’s evidence, this delayed the opening of the ELC by at least nine months and parents who had pre-enrolled their children had to be turned away. Thus, Mr Wu sought to act swiftly in engaging a new contractor to complete construction of the ELC.
8Stephen Milton of Milton Architects Pty Ltd was the architect in relation to the development of the ELC and acted as the Contract administrator. He was assisted by Geoff Kennedy of Whiteroom architects (described in the evidence as Mr Milton’s “sub-consultant”) and Mr Milton’s associate Cyrus Lam.
9What occurred in the lead up to the execution of the Contract is important to the outcome of the proceeding and is discussed in more detail below. In summary:
(a) on 13 June 2019, the parties attended a meeting at the site and SJH submitted a preliminary offer;
(b) on 17 June 2019, SJH submitted a revised tender, which was accepted by Mike & Shan subject to certain conditions, which were in turn accepted by SJH;
(c) on 13, 17 and 20 June, colleagues of Mr Milton (namely Mr Lam and Mr Kennedy) provided “Drop Box” links to SJH giving access to the “For Construction” drawings and the specification that had formed part of Xerri’s contract documentation (“relevant specifications and drawings”);
(d) thereafter, the parties began negotiating the special conditions of the contract – negotiations mainly occurring between Mr Wu and Mr Milton on behalf of Mike & Shan and Carl Scavo, Director of SJH, on behalf of SJH; and
(e) on 9 July 2019, Mike & Shan and SJH duly executed the Contract (an ABIC CP-2014C Commercial Cost-Plus Contract), including special conditions, pursuant to which SJH would complete the construction of the ELC. The relevant provisions of the Contract are set out below.
Arrangements with subcontractors
10Around the time Mike & Shan and SJH began discussions regarding the construction of the ELC, Mr Wu was in contact with subcontractors engaged by Xerri (“Xerri subcontractors”). Mr Wu described these discussions as a series of interviews with the Xerri subcontractors to gauge the final cost of construction (that is, the cost to complete the works under the various subcontracts), to investigate what was owed to the subcontractors’ and the subcontractors’ willingness to come back to work on the ELC.
11SJH ultimately entered subcontract agreements including with PCL Construction Pty Ltd (“PCL”) for plastering and Collins Plumbing Group (“Collins Plumbing”). In particular, on 1 July 2019, by email Collins Plumbing contacted Mr Wu querying whether any progress had been made towards a re-start date on site. Mr Wu then replied to Mr Jay An, the Project Manager from SJH, asking: “Have you not been in contact with all the subcontractors?”.
12There was some discussion by email between Mr An and Collins Plumbing regarding scope and pricing. Following this, Mr An emailed Mr Milton seeking Mr Milton’s “formal approval”, and stated that it would issue Collins Plumbing a subcontract agreement after the receipt of approval. Mr Wu ultimately gave this approval to SJH by email, stating “Yes. We are proceeding with Peter Collins”.
13Mr Wu similarly gave SJH approval to proceed with PCL. In an email from Mr Wu to Mr An dated 5 July 2019, Mr Wu stated: “Please go ahead with Mr Lin’s Quotation. The hourly rate will be 45/hr as per my discussion with him”.
Termination of the Contract
14On 23 April 2020, Mike & Shan issued SJH a “Notice to Contractor to Remedy Substantial Breaches” (“Notice to Remedy”). By this notice, Mike & Shan requested that SJH remedy the following alleged “substantial breaches” within ten working days of the notice (emphasis in original):
“(a)Failure to carry out and conform to the Architects Instructions including Contract Documents issued during the course of the contract, in particular refer defects list prepared by Milton Architects. The Contractor is referred to the enclosed list of defective and non – conforming work and defects rectification, outlining the proposed remedial works to be undertaken by the Contractor, as prepared by Milton Architects, are included in the enclosed list of defective and incomplete work next to the corresponding item of work.
(b) The Contractor’s repudiation of the contract with respect to carrying out approved works to the footpath. The Contractor has expressly stated an unwillingness and intention not to continue to perform footpath works approved under the Contract in accordance with the payment terms of the Contract. The Owner relies on the Contractors email dated the 20th of April, stating:
“Happy to do the works if all costs are paid in full up front prior to works commencing. The last 2 months has not seen confidence that appropriate costs are going to be paid.”
(c) Failure of the Contractor to attend site and to progress the works including remedial works identified as the contractor’s scope in a timely and diligent manner since Friday the 3rd of April.
(d) Failure by the Contractor to comply with all instructions issued under the contract by the Architect.
(e) Failure by the Contractor to direct the manner of performance of the necessary work to correct any defects within 10 working days after receiving written instructions to do so.”
15The Notice to Remedy was purportedly issued pursuant to clause Q1 of the Contract and, in the notice, Mike & Shan referred to clause Q1.2 of the contract, stating:
“[I]f the Contractor fails to remedy the breaches outlined above within 10 Working Days after receiving this notice the Principal intends to determine set-off monies due under the contract which include but are not limited to valuing additional fees (engineers, quantity surveyor, project management) likely to be incurred as a consequence of the defects that require rectification.”
16In relation to the “defects list prepared by Milton Architects” referred to in the Notice to Remedy, SJH says that the list was “cumulative” and issued as follows:
(a) on 3 April 2020, Mr Milton issued SJH an “internal and external defects list”, to which SJH responded with a list of outstanding items on 6 April 2020 (“6 April list”), in the form of a excel spreadsheet with a column for comments from SJH and one for comments from Mr Milton – SJH noted in submission that the defendant’s witnesses were not cross-examined on the accuracy (or otherwise) of this list;
(b) on 14 April 2020, Mr Milton responded to the 6 April list with comments – many of the comments against line items were “tbc” or “tbc by architect on site”; and
(c) on 20 April 2020, Mr Milton emailed SJH two further defects list, in the form originally provided on 3 April 2020 – these lists comprised one document for “internal” defects and another for “external” defects, and they incorporated all previously issued lists. This is the list that was attached to the Notice to Remedy.
17At trial, Mr Milton confirmed that he never issued SJH a defects list separating existing defects, incomplete works and SJH defects.
18On 27 April 2020, solicitors for SJH served on Mike & Shan a notice that it had failed to provide a payment schedule in response to payment claim 15 (“PC 15”) in accordance with the Building and Construction Industry Security of Payment Act 2002 (“SOP Act”) and stated that if the sum claimed in PC 15 was not paid by 5.00pm on 29 April 2020, from 6.00am on 1 May 2020, SJH would suspend its works pursuant to ss 16(2)(b) and 29(1) of the SOP Act. Mike & Shan did not pay PC 15 in accordance with the notice and on 1 May 2020, SJH suspended works. According to SJH, the suspension did not end until 5 October 2020 as:
(a) pursuant to s29(2)(b) of the SOP Act, the suspension continued until “3 business days after the payment of the outstanding amount was received”; and
(b) payment was not made until 30 September 2020, following the delivery of my reasons for judgment in separate proceedings regarding PC 15 giving judgment for SJH of the outstanding amount in PC 15.[1]
[1] S.J. Higgins Pty Ltd v Mike & Shan Pty Ltd [2020] VCC 1443
19Mike & Shan asserts that SJH failed to remedy the breaches identified in the Notice to Remedy within the 10 working days or at all. Therefore, on 15 May 2020 Mike & Shan issued SJH a further notice purporting to terminate the Contract pursuant to clause Q1.2 of the contract (“Notice to Terminate”). Alternatively, Mike & Shan asserts that as a result of SJH’s alleged failure to act on the Notice to Remedy, SJH repudiated the contract and this repudiation was accepted by Mike & Shan on or about 15 May 2020.
20By a letter emailed to Mike & Shan on 22 May 2020 SJH responded to the Notice to Terminate. The letter referred to the SOP Act suspension and asserted that the purported Notice to Terminate amounted to repudiation by Mike & Shan. Further, SJH purported to accept Mike & Shan’s “wrongful repudiation” and elected to “treat the Contract as at an end”.
History of the proceeding
21On 3 March 2021, Mike & Shan commenced proceedings in this court.
22On 27 April 2021, the proceeding was fixed for trial on 7 February 2022. The proceeding was later re-fixed twice:
(a) first, for 5 September 2022; and
(b) second, for 26 September 2022.
23In September 2022, a judicial resolution conference was conducted before her Honour Judge Burchell, following which some of the issues in the proceeding were resolved. The proceeding otherwise continued to trial on 26 September 2022 and concluded on 4 October 2022, with a further hearing for oral closing submissions on 25 November 2022.
24On Saturday 1 October 2022, a view of the site was conducted. Those attending were myself, my associates, Mr Wootton, Mr Beck and counsel and solicitors for Mike & Shan, and the same for SJH. The view was arranged for a Saturday to minimise disruption to the operation of the Little Lane ELC.
Witnesses
25The lay evidence-in-chief was given primarily by witness statement, with some supplementation by oral evidence-in-chief. Mike & Shan called Mr Kennedy, Mr Wu and Mr Milton. SJH called Mr Scavo, Mr Haddad and Mr de Souza-Bingham. Mike & Shan criticises SJH for its failure to call two lay witnesses – Jay An, who was the project manager and Michael (Mick) Cronin, the site foreman. Mike & Shan submits that SJH provided no explanation for the failure to produce either of these witnesses and therefore a Jones v Dunkel[2] inference ought to be drawn against SJH.
[2] (1959) 101 CLR 298
26Each party made submissions on the credibility of particular witnesses. Subject to some particular matters referred to below, I was generally unpersuaded by those submissions. In relation to the lay witnesses, with limited exceptions identified below, I considered all were generally truthful. In any event, there were relatively few areas of conflict between witness and the issues in the case largely turned on the documents. In relation to SJH’s submissions on evidence of Mr Milton, I agree with Mike & Shan that SJH’s criticisms of Mr Milton are overblown. I accept that Mr Milton was a knowledgeable and conscientious architect.
27Similarly, I consider that SJH’s criticisms of Mr Wootton were unjustified. I agree with Mike & Shan that his evidence was frank and straightforward. He appropriately conceded limitations in his observations, particularly on the subject of falls. I also consider that Mike & Shan’s criticisms of Mr Beck were unjustified. To my observation, both gave considered and helpful evidence, and showed appropriate commitment to the expert witness code of conduct, particularly in their joint work and on the view.
28Mike & Shan called three expert witnesses:
(a) Karl Wootton of Australian Waterproofing Consultants: Mr Wootton is a waterproofing consultant with over 20 years’ experience in “the waterproofing field dealing in the area of both new and remedial construction”. Mr Wootton holds a Certificate III in Construction Waterproofing and a Diploma of Building and Construction and is a Level 1 certified Infrared Thermographer with the Infraspection Institute.
(b) Georgia McKay, Building Consultant and Project Manager of Buildwise Projects: Ms McKay’s expertise includes investigation, analysis and evaluation of building works. Ms McKay holds a Diploma of Building Surveying, and is a Registered Domestic Building Practitioner and Registered Commercial Builder.
(c) Douglas Buchanan of DBQS Consulting Pty Ltd: Mr Buchanan has over 25 years’ experience in quantity surveying (including more than 20 years in Victoria). Mr Buchanan holds a Bachelor of Science in Quantity Surveying, is a Registered Building Practitioner and is a member of the Royal Institution of Chartered Surveyors and the Australian Institute of Quantity Surveyors (“AIQS”).
29SJH called on two expert witnesses:
(a) Jeff Beck, Building Consultant and Principal of JWB & Associates: Mr Beck has experience as a builder, building inspector and building consultant. Mr Beck is a Registered Building Inspector and Registered Domestic Builder. Mr Beck also holds a Diploma of Building Surveying, has various TAFE certificates including Certificate III Waterproofing and Certificate IV Building & Construction, and has completed Level 1 Thermography at the University of Melbourne;
(b) Michael Pavey of Amiens Consulting Pty Ltd: Mr Pavey is a registered quantity surveyor with over 50 years’ experience in “the cost management of building construction” in Australia, Japan, China and the UK. Mr Pavey is an Associate of the AIQS.
30The experts gave evidence by way of expert reports, joint reports and concurrent oral evidence at trial. At trial, concurrent evidence was given by Mr Wootton and Mr Beck, Ms McKay and Mr Beck, and Mr Buchanan and Mr Pavey.
Terms of the Contract
31Under the Contract:
(a) “change to the works” is defined as “any change to the *works instructed by the architect under clauses J1, J5 or J7”;
(b) “contract documents” is defined as “any special conditions shown in schedule 2, the conditions of this contract, the specifications, the drawings and any other documents shown in schedule 3”;
(c) schedule 3 contains the pre-typed pro-forma provisions but is otherwise uncompleted;
(d) “defect or defective work” is defined (as amended by paragraph 8(b) of the special conditions) as (emphasis added):
“work performed by the contractor that is:
.a in breach of any of the warranties set out in the *contract documents
.b not in accordance with the standard or quality of building work specified in the *contract documents”
(e) “practical completion” is defined by reference to clause M1, which provides in sub-clause M1.1 that:
“The *works are at *practical completion when, in the reasonable opinion of the architect:
.a they are substantially complete and any *defects remaining in the *works are of a minor nature and number, the completion or rectification of which is not practicable at that time and will not unreasonably affect occupation and use
.b all commissioning tests in relation to the plant and equipment shown in item 22 of schedule 1 have been carried out successfully and
.c any approvals required for occupation have been obtained *relevant authorities and copies of *·official documents evidencing the approvals have been provided to the architect.”
(f) “works” is defined as “the completed construction set out in the *contract documents (briefly described in item 6 of schedule 1)” (emphasis in original), and item 6 of schedule 1 describes the works as “CONSTRUCTION OF A NEW CHILDCARE BUILDING”.
32Some relevant terms of the Contract (not otherwise referred to in these reasons) are as follows (emphasis in original):
“A Overview
…
A2 Obligations of the contractor
.1 The contractor must:
…
.bdiligently carry out all *necessary work and complete the works to the standard set out in the *contract documents.
.ckeep the *site and any area affected by the *works clean and tidy at all times
.dcomply with all instructions issued under this contract by the architect
.eimmediately comply with an *urgent instruction issued by the architect
.fobtain all *official documents required under this contract to complete the *works, and any shown in item 30a of schedule 1
.g comply with all other obligations under this contract
.h comply with all *relevant legislation
.ibring the *works to *practical completion in accordance with clause M1.
…
A7 Architect’s instruction
.1The architect may issue an instruction at any time during this contract provided that the instruction is given in writing.
…
B Documents
B1 Discrepancies or omissions in documents
.1No omission in the *contract documents at the time of execution of this contract prevents the contractor from commencing the *works in accordance with this contract and the contractor may, during the course of carrying out the *works seek an instruction in accordance with clause B1.2 without prejudice to any of its other rights under this contract.
.2If either *party discovers a discrepancy, ambiguity, or omission in, or between, any of the *contract documents, that *party must *promptly give written notice to the architect. The architect must *promptly resolve the discrepancy, ambiguity, or omission by giving a written instruction to the contractor and a copy to the owner.
.3For the purposes of clause B1.1, an omission may include any *contract document that will be brought into existence or a detail or specification which will be determined by the owner in the ordinary course of this contract.
B2Order of precedence of documents
.1Unless otherwise shown in schedule 3, the order of precedence of the *contract documents is as follows:
.aany special conditions shown in schedule 2a
.bany owner occupation special conditions shown in schedule 2b
.cthe conditions set out in this contract and schedule 1
.dthe specifications for the *works in the order shown in schedule 3
.ethe drawings for the *works shown in schedule 3
.fany other document in the order shown in schedule 3.
.2Large scale drawings take precedence over small scale drawings.
.3An instruction from the architect to resolve a discrepancy or ambiguity that is not in accordance with the order of precedence referred to in clause B2, is an instruction for a *change to the works.
…
G Building the works
…
G4 Subcontracting
.1The contractor may subcontract any part of the *works, but not the *works as a whole. The contractor is liable for the *necessary work done by its subcontractors.
.2The contractor must take responsibility for any acts and omissions of its suppliers and subcontractors in relation to the *works.
.3The relevant provisions of this contract must be included in contracts the contractor makes with its suppliers or subcontractors. The contractor must fully inform all potential suppliers or subcontractors of the contractor's relevant obligations under this contract.
…
G11 Owner to instruct use of particular Subcontractor
.1The architect may give an instruction to the contractor that the contractor engage certain subcontractors to perform and carry out any part of the *works including any *necessary work. For the avoidance of doubt the identity of the person may not be known at the date of execution of the contract.
.2 The contractor will engage the subcontractor instructed under clause G11.1 unless the contractor *promptly notifies the architect in writing of any reasonable objection to such engagement, including where the subcontractor:
.adoes not hold the appropriate statutory license to carry out the relevant works; or
.bafter due enquiry, declines to perform the works instructed.
.3If that person does not become a subcontractor under clause G11.2:
.athat person may be engaged by the owner as a separate in accordance with clause G9; and
.b clause G10 applies.
.4The architect may instruct the contractor to obtain and provide to the architect a written detailed quotation for any part of the *works including any *necessary work.
…
J Instructing changes to the works
J1 Architect may instruct *change to the works
.1The architect may give to the contractor a written instruction *change to the works at any time. For this purpose, a written instruction for a *change to the works includes an *urgent instruction given in accordance with clause J7.
.2The contractor may request an instruction from the architect if it considers that a *change to the works may be required. A request by the contractor under this clause must be in writing.
.3A *change to the works means a change to the nature and extent the *works that changes the *cost of building work.
.4If an instruction is given in accordance with this clause J1, contractor must *promptly carry out the instruction, subject to a review requested under clause J2.1.
J2Contractor may seek review of instruction for *change to the works
.1The contractor may request the architect to review any instruction given in accordance with clause J1. A request by the contractor under this clause may be in writing.
J3Architect to issue written decision
.1If the architect receives a request under clause J2 the architect must review the instruction and if the *change to the works is not necessary to complete the *works the architect must issue a written decision.
…
Issues
33A list of issues was prepared in advance of the trial by counsel for the parties, but was subject to further refinement in the course of the trial. A final list of issues settled by me and agreed by counsel was annexed to the orders for written closing submission and comprised the following questions:
(a) Did the relevant specifications and drawings form part of the Contract?
(b) If not:
(i)Is SJH estopped from denying that the relevant specifications and drawings formed part of the Contract?
(ii)Were the relevant specifications and drawings omitted from schedule 3 by mutual mistake, so that the Contract should now be rectified?
(c) Did SJH’s scope of works under the Contract otherwise include completing the ELC in accordance with the relevant specifications and drawings?
(d) Did the Contract include any implied terms to the effect that the works under the Contract would be carried out with due care and skill, in a proper and workmanlike manner, so that they complied with all Australian standards, laws and legal requirements and would result in a building that was fit for purpose as an ELC?
(e) What is the nature and extent of SJH’s obligation under the Contract to rectify defects and incomplete work of the previous contractor Xerri Group?
(f) What is the nature and extent of SJH’s obligation under the Contract to rectify deficiencies or defects in works undertaken by subcontractors approved by Mike & Shan?
(g) What effect, if any, did the award of practical completion have on the parties’ rights and obligations under the Contract?
(h) How and when did the Contract come to an end and what effect, if any, did that have on the parties’ rights and obligations under the Contract?
(i) Did SJH breach the Contract in relation to the works listed below and, if so, what is the nature and extent of the loss and damage caused by that breach (including any necessary remedial works)?
(i)Construction of the Station Street and Laneway planter boxes (including contribution to water ingress to basement).
(ii)Construction of the external playground areas, including the installation of proper falls, waterproofing and sealing of penetrations (including contribution to damage to plywood ceiling panels).
(iii)Construction of light shelves and installation of LED strip lights.
(iv)Construction of waterproofing and drainage at door thresholds on the level 3 terrace.
(v)Installation of sub-seal flashing strip at level 2 external terrace and level 3 external terrace.
(vi)Installation of PVC downpipes.
(vii)Installation of vinyl flooring to lift foyers in basement levels.
(viii)Installation of stainless steel drainers to sink in kitchen.
(ix)Works relevant to the alleged leak in Classroom G28.
(x)Supply of operation and maintenance manuals.
(j) What is the reasonable cost of rectification of the loss and damage for which SJH is liable?
34These issues will be dealt with in turn below.
Did the relevant specifications and drawings form part of the contract?
35The term “contract documents” is defined in the Contract as “any special conditions shown in schedule 2, the conditions of this contract, the specifications, the drawings and any other documents shown in schedule 3”. Schedule 3 of the Contract, which leaves room for the insertion of a description of the specifications and a list of the drawings for the construction of the ELC has the pro-forma provisions, but is otherwise blank. However, before the execution of the Contract, SJH was provided with access to the relevant specifications and drawings.
36Mike & Shan submitted that the relevant specifications and drawings form part of the Contract, relying in substance on the text and commercial context of the Contract and other evidence of relevant surrounding circumstances. It said that the surrounding circumstances include the direct evidence of Mr Wu and Mr Wilton, as well as inferences that can be drawn from SJH’s treatment of the relevant specifications and drawings both before and after execution of the Contract.
37On text and commercial context, Mike & Shan argued that the commercial purpose of the Contract was to carry out the remaining works and to complete the ELC. This was supported by the text of the Contract, notably:
(a) the definition of works, which reference the “contract documents”;
(b) the schedule item referring to “works” as “construction of a new childcare building”; and
(c) clause G12.1 which defined works as including “the rectification of defective and incomplete works which existed as of the date of execution of this contract”.
38Mike & Shan argued that:
(a) the only sensible way to understand what the incomplete works were, is to consider what the completed works would be;
(b) this was confirmed by Mr Scavo’s evidence that “when you are the contractor for a construct only contract, you want to know what the design is”;
(c) no other witness suggested any other source for the for-construction design than the relevant specifications and drawings;
(d) the “ambiguity of what is precisely meant by ‘the construction of a new childcare building’ and what was incomplete works is answered by the parol evidence of the plans and specifications already provided”; and
(e) the present case is similar to Brimelow v Sharpe[3] (“Brimelow”).
[3] [2012] NSWCA 345
39Mike & Shan similarly argued that there were “powerful contextual reasons” for finding that the Contract incorporated a “baseline scope of works”. In particular, the Contract included fixed price elements and also provided that SJH may be entitled to a profit uplift of 50% if it completed the works before 30 November 2019. If failure to meet that date was caused by reasons beyond SJH’s control, then it was be entitled to a 25% uplift (special condition 5, inserting a new clause N1.5). Mike & Shan submitted that if the Contract did not include a baseline scope of works, there was no way of determining if and to what extent any delays and disruptions were beyond SJH’s control.
40Mike & Shan further argued that it was never the parties’ intention that the relevant specifications and drawings be excluded from the Contract. It relied on the evidence of Mr Wu, who denied that Schedule 3 was intentionally left blank. Mr Wu also gave evidence on his intention as follows: “to my understanding… the contract signed with Xerri was with the entire specification drawings, so I need to make sure whatever was… signed between myself and [SJH] should be the same”.
41In contrast, Mr Scavo’s oral evidence was that “it was always my intent that [the plans and specifications] were not to be included [in the Contract]”. However, Mike & Shan submitted that Mr Scavo’s credibility on this issue was undermined by his massaging of evidence and avoidance of making concessions. In particular, Mike & Shan pointed to Mr Scavo’s witness statement which “was much more careful than his oral evidence”, in which he only recited the absence of the relevant specifications and drawings from the Contract, and said nothing about whether this absence accorded with his intention. In contrast, in his oral evidence, Mr Scavo stated for the first time that he “would have been surprised” to see the plans and specifications listed, because “it was always my intent that they were not to be included”.
42Mike & Shan submitted that there was no evidence of any discussion about excluding the relevant specifications and drawings from the Contract, so it could not be said that any intention SJH had on this issue was communicated to Mike & Shan. It submitted that:
“The parties did not mention to each other the exclusion of drawings and specifications from the Contract. It was simply left out of the draft Mr Milton sent to Mr Scavo, in error, along with the parties’ names and details and the address and identity of the project. Just as there could be no intention that there was not to be a builder or an owner (as Mr Scavo understood), [T621 L10-T622 L6] the failure to list the drawings and specifications did not communicate any intention that there be none included in the Contract.
43Mike & Shan noted that Mr Scavo did not notice that there was text missing in schedule 3 of the Contract until the date of execution. In cross-examination, Mr Scavo gave evidence that: “On the day of the execution of the contract, I was assuming that it would have already been completed prior to signing, so I will say that I was surprised it wasn’t complete”.
44Mike & Shan also pointed to Mr Scavo’s evidence that he accepted that “you need… the drawings and specifications or you don’t know what you’re building”. Similarly, Mr Haddad admitted “[d]ocument register or not, it didn't matter, because we asked for the documents, because we needed to build off something”.
45Finally, Mike & Shan relied on an email dated 3 April 2020 from Mr An to Mr Haddad and Mr de Souza-Bingham (copied to Mr Cronin), as showing that Mr An had assumed until shortly before sending that email that the relevant specifications and drawings were part of the Contract. The email stated: “I have gone through the contract and can find NO [sic] drawings or specifications listed to the executed contract documents” (“3 April 2020 email”).
46SJH asserted that the relevant specifications and drawings were never part of the Contract. Unsurprisingly, it relied primarily on the fact that the “Contract is silent and it does not refer to any drawings or specifications”. It accepted that it received the relevant specifications and drawings, but asserted that these were not provided as part of the contractual document set and “should not be elevated to be so”. It said that the purpose of the provision of the relevant specifications and drawings was “to enable SJH, and others, to provide a tender/letter of offer to” Mike & Shan, not with the intent that these documents be contractually binding.
47SJH said that this was confirmed by:
(a) the fact that the relevant specifications and drawings were not the only document provided to SJH and other prospective tenderers; they were also provided with Xerri’s construction program and the trade quotations submitted by Xerri’s subcontractors;
(b) Mike & Shan is not seeking to elevate the construction program to be contractually binding, despite the fact that this was sent with the relevant specifications and drawings;
(c) Mr Milton’s evidence that “I believe we would have sent drawings and specifications to all of the tenders to accommodate them providing a price”; and
(d) the built form of the ELC at the time of the Contract did not match the design detailed in the relevant specifications and drawings – for example, there was a void introduced on the southern elevation on level 2 and changes to the construction of the capping beam and shotcrete walls in the basement, not reflected in the relevant specifications and drawings.
48SJH also relied on evidence that:
(a) Mike & Shan (via Mr Milton) drafted the Contract;
(b) the drafting process took weeks and that “the draft contracts were reviewed numerous times to ensure that everything that was required to be included was inserted prior to execution”;
(c) there was never any draft of the Contract that included the relevant specifications and drawings;
(d) Mr Wu was an accomplished developer of ELCs, was experienced in negotiating construction contracts and made a deliberate choice to prepare the Contract without legal assistance;
(e) the drafter of the Contract, Mr Milton, was “familiar with the ABIC contracts” and assisted Mr Wu in drafting and providing feedback in relation to the special conditions of the Contract;
(f) despite this, Mr Milton did not thoroughly check the schedules, could not recall reading the Contract in its entirety and sent the draft Contract off to Mr Wu in haste; and
(g) the relevant specifications and drawings were not said to be contractual documents in and of the contemporaneous communications between any of Mr Wu, Mr Milton and Mr Kennedy.
49I note in passing that the evidence referenced by SJH in support of the submission in (b) above does not go as far as SJH asserts. Mr Wu’s evidence was that:
(a) the negotiation (not the drafting) of the Contract conditions occurred over a “few weeks”; and
(b) he reviewed the Contract before he signed it “on the high level” and that “he had Mr Milton review the contract before he [Mr Wu] signed it” – it is doubtful that this amounts to the Contract being reviewed “numerous” times.
50SJH said that the evidence of Mike & Shan is consistent with the evidence of SJH that it “did not conduct itself in a manner which would suggest that it intended for the drawings and specifications to have contractual status”. In particular, it referred to:
(a) Mr Scavo’s evidence to the effect that if the drawings and specifications form part of the Contract, he typically would go through each individual drawing to check that they were consistent with what SJH received and priced off, and he did not bother with that in this case;
(b) Mr Scavo’s evidence that it was always his intent that the drawings and specifications were not to be included in the Contract;
(c) Mr Haddad’s evidence that he did not deny that SJH were building to the drawings, but “…what was in the Contract is irrelevant because we asked for the documents anyway, and we were building to them, we had to tie our subcontractors into fixed price contracts”; and
(d) Mr de Souza-Bingham’s evidence that SJH’s works were not strictly based on the drawings and specifications, and instead SJH’s scope of works was “…to rectify any incomplete works or existing defects as identified and instructed by the Architect”.
51Finally, SJH pointed to the fact that following the execution of the contract, SJH had requested “stamped / signed building permit drawings”. According to SJH, it had requested these drawings to comply with its statutory obligation to construct work which complied with the building permit.[4] It says that these requests “would be redundant if SJH was of the view that the relevant specifications and drawings formed part of the contract”.
[4] It cites Building Act 1993, sections 16, 179(1)(a)
52On 13 June 2019, Mr Wu and Mr Milton on behalf of Mike & Shan met with representatives of SJH including Mr Scavo at the property. Mr Scavo’s role at SJH involved estimating and business development for SJH in Victoria, including reviewing projects at the tender stage and finalising submissions for tender with SJH’s estimating department. Later that day:
(a) SJH submitted a preliminary offer to Mike & Shan “to carry out the remaining building works at [the ELC]”; and
(b) Mr Josh Toy, Estimator at SJH, emailed Mr Milton requesting drawings, a list of subcontractors and the program current at the time, and Mr Lam responded with links to the requested documents and information.
53On 17 June 2019, SJH submitted to Mike & Shan their tender. The letter included under the heading “Form of Contract” the following:
“We accept the Owner’s preferred form of Contract: ABIC CP-2014 C (Cost Plus) subject to agreement of any reasonable and market-standard Special Conditions which are required to suit the nature of the project ant the continuation of works performed by the previous builder.”
54It included as item 2 (emphasis added): “Our offer is subject to agreement of the proposed contract conditions and review of documentation (e.g. CMP, TMP, subcontractor agreements and the like)”.
55Shortly after receiving the letter, Mr Wu emailed Mr Scavo a letter accepting SJH’s tender. The cover email stated: “Can you please confirm that this is satisfactory and I can now instruct Steve [Milton] to start drafting the contact based on the terms and conditions agreed”. The acceptance letter contained 12 conditions, all of which SJH accepted by in an email from Mr Scavo to Mr Wu sent at around 8.30pm on 17 June 2019.
56As noted above, also on 17 June, Mr Kennedy forwarded to Mr An of SJH the “Drop Box” link to the “For Construction” drawings that had been sent by Mr Lam to Mr Toy a few days earlier, and on 20 June 2019 Mr Kennedy sent to SJH the Specification that had formed part of Xerri’s documentation (these documents comprise what I am calling the “relevant specifications and drawings”). On 24 June 2019, Mr Milton sent to Mr Scavo a list of draft special conditions to be included in the Contract, which the parties proceeded to negotiate.
57At the time, Mr Wu had not engaged any lawyers and Mr Wu and Mr Milton, negotiated the Contract themselves. Mr Wu gave evidence that he had negotiated contracts previously and could, to an extent, confidently do so. Indeed, Mr Wu had directly negotiated the contact with Xerri.
58In his witness statement, Mr Wu said that over the weeks following 17 June 2019, he was involved in negotiations with Mr Scavo over the terms of the special conditions to be included in the Contract. He said that the negotiations took longer than he had anticipated and, as a result, the date for practical completion in the contract was changed to 30 November 2019. On 8 July 2019, Mr Wu emailed Mr Scavo to arrange a meeting at his Hawthorn childcare centre at 11.30 the following day to sign the Contract. Mr Scavo’s witness statement is broadly to the same effect, except he adds that; “The executed Contract for the Project does not contain any drawings or specifications”.
59As Mike & Shan noted in its submissions, the absence of a listing of drawings and specifications was not the only thing missing from the contract when Mr Scavo and Mr Wu met on 9 July 2019 to sign the Contract. Mr Scavo accepted in evidence that the copy of the Contract submitted for signing omitted all of the schedule 1 Contract information comprising the details of the owner and the contractor (including name, ABN, address for service and so on). Mr Scavo agreed that on the day of signing he got his pen out and filled that information in. He said:
“On the day of the execution of the contract, I was assuming that it would have already been completed prior to signing, so I will say that I was surprised it wasn't complete”.
60Mr Scavo denied that when he filled out the missing text he did not notice that there was anything missing from schedule 3. Asked: “You noticed but you didn't say anything, is that your evidence?”, he responded: “If things were correct in the contract and I was satisfied with [it], I would not feel the need to say anything about it”. For their part, both Mr Wu and Mr Milton gave evidence to the effect that the omission of the relevant specifications and drawings from schedule 3 of the Contract was not intended and was an error.
61In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. As the High Court has made clear:[5]
“That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.
Ordinarily, this process of construction is possible by reference to the contract alone… However, sometimes, recourse to events, circumstances and things external to the contract is necessary…
Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.
…Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties … intended to produce a commercial result’. Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”
[5]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at 116-117, per French CJ, Nettle and Gordon JJ (citations omitted)
62In applying those principles to this case, I begin with a statement of the obvious. I disregard the evidence of Mr Scavo and Mr Wu about what they did or did not intend in relation to the omission of the relevant specifications and drawings from schedule 3 of the Contract. However, I agree with Mike & Shan that Mr Scavo’s assertion for the first time in his oral evidence that it was “always his intent that” the relevant specifications and drawings were not to be included in the Contract, does not reflect well on his credibility. In his witness statement, Mr Scavo had simply attested to the absence of the details of any specifications or drawings from schedule 3. In my view, this oral evidence was opportunistic and contrived and I reject it as not credible. (This finding is relevant to the estoppel and mistake claims below.)
63Turning to relevant objective factors, both the language and the broader scheme of the Contract point to an intention by the parties that the relevant specifications and drawings formed part of the Contract. Starting with language:
(a) the definition of “contract documents” expressly references (emphasis added) “the specifications, the drawings and any other documents shown in schedule 3”;
(b) it is tolerably clear that, when read with schedule 3, the definition contemplates that each of the specifications, drawings and “other documents” would be listed in schedule 3;
(c) however, the definition clearly gives pre-eminence to the specifications and drawings;
(d) this is reinforced when regard is has to the definition of “works”, namely: “the completed construction set out in the *contract documents briefly described in item 6 of schedule 1”;
(e) the term “works” is pivotal to understanding the nature and extent of SJH’s obligations under the Contract, particularly the provisions of clause G12 of the Contract limiting SJH’s responsibility for existing defects, which Mr Scavo said were of crucial importance to SJH during his negotiation of the special conditions of the Contract;
(f) it defies commercial common sense to suggest that the parties intended a term of such central significance rested entirely on the so-called “brief description” in item 6 of schedule 1, that is: “construction of a new childcare building”;
(g) indeed, the expression “brief description” in item 7 itself invites a search for the source of the “full” description;
(h) in my view, that is supplied by the relevant specifications and drawings.
64Similarly, the broader scheme of the Contract points strongly to an intention to incorporate the relevant specifications and drawings into the Contract. As Mike & Shan has submitted, this is best illustrated by the pricing mechanism in the Contract. Clause N1.5 of the Contract provides that SJH may be entitled to an uplift as follows (italics in original, underline added):
“.5 At *practical completion, the owner will pay an additional *contractor's fee to the contractor calculated as follows:
a.2% of the total *cost of building work (excluding *GST) where the *works achieved *practical completion on or before 30 November 2019; or
b.1% of the total *cost of building work (excluding *GST) where the works achieved *practical completion after 30 November 2019 a result of delay and disruption caused by reasons beyond the contractor's reasonable control (such as authority approvals, pre-existing defects, works to be undertaken by authorities, etc.).”
65I agree with Mike & Shan that this mechanism requires a “baseline scope of works” that the words “construction of a new childcare building” clearly do not supply. In particular, except in the clearest case, an assessment of whether a “delay and disruption” was caused by “reasons beyond the contractor’s reasonable control” will almost invariably require an assessment of how the factors said to be beyond the contractor’s control impinged on the time to complete individual elements comprising the scope of works. That assessment could only be undertaken by reference to the scope of works set out in the relevant specifications and drawings.
66The absurdity of the alternative explanation is illustrated by Mr Scavo’s tortured attempt to explain it, in the following passage of evidence:
“ And for a fixed price job in particular, the estimator works out how much it will cost SJ Higgins to perform the given scope of work, do you agree?---Yes.
And then you add a contingency, perhaps with a margin, to that, would you agree?---Ah, a margin, yes, maybe not a contingency.
It depends on the job?---Correct.
And then you bid for the work?---Correct.
And you would do that, I suggest, by having a look at the plans and specifications for the particular job, to know what was involved?---No.
No?---No, I don't agree with that. Depending on the type of the contract.
It depends on the type of contract?---Correct.
…
Normally the place you find that is in the contract itself, do you agree?---Well, no, I don't agree.
It refers to the drawings and specifications in the contract, and if there are changes thereafter they're handled by the variations clause, aren't they?---Typically.
Typically. That's usual, do you agree?---It's usual for a type of contract where a builder does not take over that of another.
No, no, a fixed price contract is usual where a builder doesn't take over from another, but not to refer to the drawings and specifications is unusual in any contract, I suggest to you?---Well, I don't agree.”
67Mr Scavo ultimately conceded that it was SJH’s intent to build to the relevant specifications and drawings: “Yeah, I’m not denying that our intent was to build that building in accordance with the drawings and specifications, not denying that at all”. Yet he was still careful to maintain, what Mike & Shan refers to as “the party line”, and followed the above phrase with “we need [the drawings and specifications] to build, but what I’m saying is we weren’t contractually obliged or contractually bound by those documents”. The inherent inconsistency in these statements is self-evident.
68Another relevant objective factor (if one were necessary) is the timing and circumstances of the provision of the relevant specifications and drawings by Mike & Shan to SJH. This essentially coincided with Mike & Shan’s acceptance of SJH’s tender and marked the beginning of the process of negotiating the contract and liaising with subcontractors. There was no evidence of any further direct engagement with, or discussion of, the content of the relevant specifications and drawings.
69In my view, this was not because the parties regarded these as irrelevant to the works that were to be undertaken pursuant to the Contract. On the contrary, I am satisfied that this demonstrates that the parties proceeded on the assumption that these were the specifications and drawings that would define those works (as they had under Mike & Shan’s contract with Xerri), and nothing more needed to be said.
70SJH has submitted that the reason for the provision of the relevant specifications and drawings to SJH and other parties was to “to enable SJH, and others, to provide a tender/letter of offer to” Mike & Shan, not with the intent that these documents be contractually binding. I accept that this was the reason for the provision of the relevant specifications and drawings, but that is not inconsistent with those specifications and drawings forming part of the Contract, following acceptance of the tender and completion of negotiations. Indeed, the fact that they informed the offer in the tender that was later accepted is an important surrounding circumstance that reinforces their connection to the Contract that the parties later negotiated and executed a few weeks later.
71To my mind, this explains why (and I find) the failure to list the specifications and plans in schedule 3 was overlooked at and before the time of signing of the Contract. The relevant specifications and drawings having already been supplied and worked on by SJH, listing them in the Contract was a minor matter of detail, much like the names, addresses and ABNs of the parties in schedule 1. Similarly, I am unpersuaded by Mr Scavo’s suggestion that if the drawings and specifications had formed part of the Contract he would have gone through each of them to check that they were consistent with what SJH received and priced off. The relevant specifications and drawings were the very documents he and his team worked with to price the Contract – there was no need to go through them again.
72I accept Mr Wu and Mr Milton’s evidence to the effect that their attention was elsewhere and they did not notice the absence of the description and listing of the relevant specifications and drawings in schedule 3 (or the party details in schedule 1). It reflects the fact that Mike & Shan had already provided SJH with the specifications and drawings that defined the works within the meaning of the Contract, and the parties accepted that SJH was building to these. Accordingly, the drafting and negotiations focussed on the special conditions and how they defined the extent of SJH’s obligation to complete those works.
73I agree with Mike & Shan that the facts of this case are similar to Brimelow. In that case, the issue was whether the builder Mr Sharpe was contractually obliged to install solar panels and a water tank as part of renovation works. Ms Brimelow claimed that Mr Sharpe was so obliged, as they were shown on plans supplied by her to Mr Sharpe. Mr Sharpe argued that he was not, because they were not included in the work described in a written quotation he provided to Ms Brimelow.
74The parties had signed a “NSW Residential Building Contract for Renovations & Additions”, and the “building works” were defined by reference to the “contract documents”. “Contract documents” was in turn defined as “these general conditions, any special conditions, the plans, the specifications and other documents specified in Item 14 of Schedule 1”. Like the present case, no documents were identified in Item 14 of Schedule 1, and there was no definition for “plans” or “specifications”. There were also no plans attached to the form of the contract.
75The NSW Consumer, Trader & Tenancy Tribunal (“CTTT”) found that the installation of the solar panels and water tanks were not part of the contract. Ms Brimelow appealed that decision to the District Court, and Sidis DCJ found that, for the purpose of ascertaining the work to be done, Item 14 of Schedule 1 required reference to the amended plans as well as the quotation, and Mr Sharpe was not contractually obliged to provide solar panels or the water tank as these items were not included in the quotation. Ms Brimelow appealed this decision to the NSW Court of Appeal, which upheld the primary judge’s decision that the quotation comprised the specifications under the terms of the contract. McFarlan JA held:
“Although not expressly stated, the effect of her Honour's decision was that for the purpose of ascertaining the work contracted to be done, Item 14 of Schedule 1 of the form of contract…required reference not only to the amended plans submitted by Ms Brimelow to Mr Sharpe but also to the Quotation which was to be regarded as constituting the ‘specifications’ referred to in that Item. This reasoning was correct, and obviously so.”[6]
[6] Brimelow v Sharpe [2012] NSWCA 345, per Macfarlan JA, Meagher JA and Tobias AJA agreeing
76I respectfully reach the same conclusion as the judge at first instance and the Court of Appeal in that case. I agree that on the face of the Contract, the meaning of “the construction of a new childcare building” and “incomplete works” is ambiguous and that this ambiguity is answered by the relevant specifications and drawings. Put in terms of Brimelow, for the purposes as ascertaining the work contracted to be done, schedule 3 of the Contract required reference not only to the special conditions and the conditions set out in the Contract and schedule 1, but also to the relevant specifications and drawings supplied by Mike & Shan to SJH in June 2019.
77I am satisfied that on a proper construction of the Contract, the relevant specifications and drawings form part of the Contract and SJH was contractually obliged to complete construction of the ELC in accordance with the Contract, including the relevant specifications and drawings. However (as provided for in schedule 3), the special conditions in schedule 2a took precedence over the relevant specifications and drawings with the result that under clause G12 (among other things) SJH had no liability in relation to any defective or incomplete works which existed at the date of execution of the Contract.
78It is convenient to note at this point that, that Mr An was directly involved in receiving the relevant specifications and drawings in June 2019 and thereafter managed the build in accordance with those specifications and drawings. Mr Scavo gave evidence that Mr An (and Mr Haddad) became involved right after SJH’s tender was provided to Mike & Shan, before the Contract was signed.
79Given his role, it is likely that Mr An would have been able to give relevant evidence on how the relevant specifications and drawings informed SJH’s approach to the works in the lead up to the signing of the Contract. This is reinforced by his email of 3 April 2020 referred to above which suggests that he was surprised when he discovered in April 2020 that the list of the relevant specifications and drawings was nowhere to be found in the Contract.
80However, as noted above, SJH did not call Mr An and Mike & Shan argued that I should draw a Jones v Dunkel inference about the evidence he might have given. SJH submitted that the rule in Jones v Dunkel does not apply “where the calling of a witness is outside of the control of a party, or where an explanation has been given for a person’s non-attendance assuming that person’s evidence is relevant in any event”. But SJH’s only explanation for its failure to call Mr An is that Mr An is working on another childcare centre for Mike & Shan.
81In oral closing submissions, SJH added that “as noted in Mr de Souza-Bingham’s material, [Mr An] is currently working on another child centre for Mr Wu. So he is not [SJH’s] employee anymore, he is in fact working for the plaintiff”. I understood this to be a reference to Mr de Souza-Bingham’s witness statement, in which he said (emphasis in original):
“Jay An resigned his employment with SJ Higgins and ceased work on 9 April 2020. Jay An now works for Erilyan Commercial Builders, another commercial builder. On 16 March 2021, I contacted Jay An by text message about his current employment. He informed me the following ‘Hi Kenny, We got PM working on that one. They came back to us after they sack a builder that started the job last year.’ Jay is referring to working on another childcare centre for a company associated with Mr Wu, a director of the Plaintiff after they terminated the builder on another project.”
82In response to this, Mike & Shan argued that there is no evidence that Mr An was working for Mike & Shan directly and “[t]here was no evidence of animosity towards SJH from him and he was clearly in its camp”. I agree. The only evidence regarding Mr An’s current employment is in Mr de Souza-Bingham’s witness statement extracted above. I agree with Mike & Shan that this is not evidence that Mr An is currently working for Mike & Shan.
83In relation to the SMS message quoted in the extract, I also do not accept that the message is evidence that Mr An is working for Mike & Shan. It is unclear who “We”, “PM”, and “They” are. Given that the message was sent by Mr An, Mr de Souza-Bingham’s evidence as to what it meant is entirely speculative. At best, Mr An may have been working for another commercial builder, and that that builder is contracted by Mike & Shan. Even if I were to accept this as a fact, I would not find this to be an adequate explanation for SJH’s failure to call on Mr An. In the circumstances, I infer that any evidence Mr An may have given would not have assisted SJH’s case on this (and other) issues.
Is SJH estopped from denying that the relevant specifications and drawings formed part of the Contract?
84As I have found that the Contract includes the relevant specifications and drawings, it is not necessary for me to determine whether SJH is estopped from denying this conclusion, whether there has been a mistake in the Contract or whether the SJH’s scope of works otherwise includes completing the ELC in accordance with the relevant specifications and drawings. I nevertheless briefly set out my views on those issues.
85SJH’s submissions include a succinct and helpful summary of the law of estoppel in pais (and conventional estoppel, in particular). I respectfully adopt that summary, noting in addition that conventional estoppel is included in the broader rubric of estoppel in pais, which also includes estoppel by representation (among other overlapping doctrines).[7] Further, I agree with SJH that a significant obstacle faced by Mike & Shan, at least in pursuing a claim based on any category of estoppel by representation, is the dearth of evidence of any active inducement by SJH. In its reply submissions, SJH argued:
“The Plaintiff has not relied upon, nor has it identified, a single conversation or communication that the plans were to be included in the Contract. The Plaintiff’s case, at its highest, is inference and speculation. What is agreed is that “The exclusion of those documents was not discussed at any stage between the parties” however, nor was the inclusion of those documents ever discussed.”
[7]Legione v Hateley (1983) 152 CLR 406 at 430, per Mason and Deane JJ, see also Moratic Pty Ltd v Gordon [2007] NSWSC 5, per Brereton J at [32]
86I accept that inducement sufficient to found estoppel by representation or by acquiescence or encouragement, can be based on inference arising from silence and other conduct. However, in the absence of clearer acts of inducement by SJH, to my mind the principles of estoppel by convention provide a more apt framework for examining the conduct of the parties in this case.
87The law on conventional estoppel is well established. As stated in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd:[8] “Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying”. For conventional estoppel to be established, the parties must have mutually assumed a state of affairs to be an assumed state of fact.[9]
[8] (1986) 160 CLR 226 at 244
[9] Ibid at 244-245
88Citing the decision of Brereton J in Moratic Pty Ltd v Gordon[10] (“Moratic”), SJH submitted that what is required is some mutually manifest conduct by the parties which is based on a common but mistaken assumption. In Moratic,[11] Brereton J stated the matters necessary to establish conventional estoppel as being that:
(a) the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant;
(b) the defendant has adopted the same assumption;
(c) both parties conducted their relationship on the basis of that mutual assumption;
(d) each party knew or intended that the other act on that basis; and
(e) departure from the assumption will occasion detriment to the plaintiff.
[10] [2007] NSWSC 5
[11] Ibid at [32]
89SJH further noted that in Queensland Independent Wholesalers Ltd v Coutts Townsville Pty Ltd,[12] McPherson J, speaking for the Full Court, required “demonstrable acceptance” of the assumption. He said:
“The word “conventional” in this context carries connotations of agreement, not necessarily express but to be inferred, or at least a demonstrable acceptance of a particular state of things, as the foundation for the dealings of the parties.”
90SJH argued that where the convention concerns legal rights, what must be shown is that the party making a concession evinces by his or her conduct that he or she is abandoning the right to later go behind the concession. It continued:
“That is not the case here. Here, there was a contract being negotiated, and concluded, that governed the rights and obligations of the parties. This Contract was drafted by the Plaintiff and its advisors and at no stage did SJH (nor did the Plaintiff) make any representation as to the inclusion of the relevant plans and specifications into the Contract. The present case involves no more than… a statement of belief that… relies upon matters that were unknown to SJH or relies upon post contractual conduct…which matters could not possibly be represented by SJH at the time of entry into the Contract… There is no detriment and no loss suffered, where the Plaintiff has not paid for items (each of the below items were not claimed nor paid for) for which it now claims damages”.
91Mike & Shan submitted that the conduct of the parties in relation to the relevant specifications and drawings is sufficient for me to find a conventional estoppel. It argued that the parties behaved as though the relevant specifications and drawings were binding, and relied on matters including that:
(a) all parties on site behaved as if the relevant specifications and drawings were binding and that is in part because those on site believed they were binding;
(b) Mr Wu and Mr Milton both considered the relevant specifications and drawings formed part of the contract;
(c) Mr An clearly thought the relevant specifications and drawings were part of contract (at least until April 2020);
(d) Mr De Souza-Bingham referred to a drawing as a ‘Contract Document’ in correspondence with Mr Milton as late as 18 March 2020;
(e) Mr Haddad also “generally” agreed that he understood the drawings and the specifications that SJH had been sent set out the work that SJH was obliged to perform, absent variations, and he was evasive as to the circumstances when that would not apply;
(f) as contract administrator for SJH, Mr Haddad, sought to bind subcontractors by reference to the relevant specifications and drawings; and
(g) Mr Haddad also admitted SJH was “building to the drawings” and agreed that except to the extent SJH received an instruction to change a drawing or a red-line markup, that’s what SJH had to build, and it knew that’s what it had to build.
92In relation to SJH’s assertion that there was no detriment, Mike & Shan argued that if compliance with the plans and specifications was required to be expressly instructed by Mr Milton and was not (and even on SJH’s case it could have been until practical completion), that chance was lost for practical purposes because SJH did not seek to resile from the common assumption until late April 2020. This was after practical completion when any further variations to scope would not be required to be complied with. The only way to remedy the detriment is to give effect to the assumption.
93In relation to SJH’s reliance of the decision of Brereton J in Moratic, I note that His Honour went on to observe (citations omitted) that:[13]
“Promissory estoppel, a creature of equity, is, typically, focussed on the conscience of the defendant: it operates when the defendant has induced or acquiesced in the adoption by the plaintiff of an assumption that the defendant will not assert its strict legal rights, so to prevent unconscionable (or unconscientious) insistence by the defendant on its strict legal rights. On the other hand, conventional estoppel, a creature of the common law, is focussed on the consensual basis of the parties’ relationship: it operates when both parties have adopted the same assumption as the basis of their relationship, often without appreciating that any departure from the strict legal position is involved, so as to hold both parties to their common understanding.
…
Thus, in promissory estoppel, it is the defendant’s knowledge of the potential for the plaintiff to incur detriment if it remains silent that may impose on the defendant’s conscience an obligation to speak… In a case of conventional estoppel, however, all that is required is the mutual adoption of the relevant assumption…
Although I accept that detriment is an element of conventional estoppel, and that each party must know or intend that the other act on the relevant assumption, there is no requirement that either have induced, or acquiesced in, the adoption of the assumption by the other, and in particular there is no requirement that either know that the other may incur detriment by reliance on the assumption. To the contrary – since the assumption is one common to both parties, and may involve a mistaken interpretation of the contract – the possibility that either party might incur detriment by reliance on it will usually not occur to the other.
[13] Moratic Pty Ltd v Gordon [2007] NSWSC 5 at [33] and [35]-[37]
94Thus, contrary to SJH’s submission, conventional estoppel does not require proof on any representation or inducement by SJH as to the inclusion of the relevant plans and specifications into the Contract. It matters not that SJH may have been unaware that there had been a departure from the strict contractual position or that Mike & Shan may suffer detriment as a result of the assumption. I have already accepted the evidence of Mr Wu and Mr Milton to the effect that they assumed the relevant specifications and drawings had contractual force. Thus, for a finding on favour of Mike & Shan on this issue it is necessary only that I be also satisfied that:
(a) SJH acted on the same assumption;
(b) both parties conducted their relationship on the basis of that mutual assumption;
(c) each party knew or intended that the other act on that basis; and
(d) departure from the assumption will occasion detriment to the plaintiff.
95In my view, each of those elements is satisfied. The evidence discussed above in relation to my finding that the relevant specifications and drawings formed part of the Contract, also show that SJH shared Mike & Shan’s assumption to that effect, and that each party conducted their relationship on that basis. The factors relied on by Mike & Shan on the estoppel issue listed above provide further support. I am also satisfied that those factors show that both parties knew or intended that each was treating the relevant specifications and drawings as having contractual force in defining the “works” to be undertaken pursuant to the Contract. I have rejected Mr Scavo’s evidence that he had a contrary intention.
96Finally, on the issue of detriment, I agree with Mike & Shan. SJH has argued forcefully that it was not bound by the scope of works as stated in the relevant specifications and drawings, and made no assumption that it was. Rather, it has submitted in effect that the scope of works was defined by instructions issued by Mr Milton from time to time. It has done this because a more narrowly defined scope of works diminishes its potential liability for defective or incomplete works that were outside that narrower scope. In those circumstances, I accept that Mike & Shan would have taken a materially different (and ultimately more advantageous) approach to the issuing of instructions and management of the Contract in the period before practical completion, had it known or anticipated that SJH would resile from that assumption.
Were the relevant specifications and drawings omitted from schedule 3 by mutual mistake, so that the Contract should now be rectified?
97In Mike & Shan’s further amended statement of claim, Mike & Shan plead “[t]he [Contract] was drawn up and signed under a mutual mistake of fact”, the mistake being that it did not attach the relevant specifications and drawings. Mike & Shan relies on the evidence of Mr Wu and Mr Milton discussed above.
98Mike & Shan also pointed to the following evidence:
(a) Mr Scavo said that he did not inform Mr An that the Contract did not refer to any plans or specifications;
(b) when it was put to Mr Haddad in cross-examination that he “didn’t delve into the detail of what was in the particular contract document, you were just going off the plans and specifications because you needed to build something”, Mr Haddad agreed; and
(c) an email from Mr de Souza-Bingham referring to the drawings as “Contract Documents”.
99SJH began by submitting that Mike & Shan had pleaded mutual mistake, not common mistake. It asserted that the former is “when the parties are both mistaken, but about different things” and the latter is “when the same mistake is shared by both parties”.[14] It continued:[15]
“Mutual mistake, unlike common mistake, has no recourse in equity.[16] This is because parties must have a common intention in order for a court to order equitable rectification. Mutual mistake is instead relevant in determining whether a contract is void or voidable.”
[14]Citing Hudson v Jope (1914) 14 SR (NSW) 351 at 359; Scriven Bros & Co v Hindley & Co [1913] 3 KB 564
[15] Citing Scriven Bros & Co v Hindley & Co [1913] 3 KB 564
[16] Citing Halsbury’s Laws of Australia [110-5425] updated by B. Sangha on 26 February 2020
227I accept Ms McKay and Mr Beck’s evidence that there is no sign of existing damage as a result of the absence of sub-sill flashings. However, I also agree with Ms McKay that just because there is no current damage, that does not mean that no rectification is required. In my view, rectification works are required to ensure the sub-sill flashings are compliant with the cladding manufacturer’s guidelines and architectural drawings and to prevent potential problems in the future.
228In Mr Wootton and Mr Beck’s joint report, the experts agree that “lightweight cladding (at the base of the wall only) is to be removed to ensure a compliant wall/floor flashing is installed and the base of the cladding reinstated to ensure there is separation of the material from the finished floor surface to allow moisture within the wall cavity to discharge away from the building”. Mr Wootton and Mr Beck give the locations for rectification in their joint report.
Plywood ceilings (A112)
229SJH submitted that this defect is caused by two factors. The first is the water leaks at penetrations which are identified at defect A113. The second is a design defect which causes water staining from the external soffits at the north and south perimeters of the building. It argues that SJH is only liable for the first cause not the second. SJH relies on Ms McKay (Mike & Shan’s expert) and, in particular, her evidence that after her inspection:
(a) she noted “there are water stains and damage to the plywood sheets in many locations around the perimeter” (being the ground floor, level 1 and level 2); and
(b) she concluded that the water damage to the perimeter of the plywood cladding is a design defect and not a builder’s defect because the builder has constructed the works in accordance with the contract drawings and has installed a drip edge to the Exo Tec cladding.
230SJH said that it is common ground between the parties that there are a total of 19 damaged plywood panels. There are seven damaged plywood panels on level 1, five of which are along the southern boundary and two water damaged panels on the Ground Floor. The ground floor damage panels, are, it is inferred, the panels at either the northern and southern extremities as noted by McKay. SJH therefore argued that it is not responsible for nine of the damaged panels. The nature and extent of the loss and damage is the replacement of 10 panels only with no other remedial work.
231Mike & Shan submitted in response in effect that Ms McKay’s evidence was addressing a different issue, and she did not address waterproofing. This was undertaken by Mr Wootton and Mr Beck, whose joint opinion was that the staining in the 19 panels was due to water leaks at penetrations. Mike & Shan submits (and I agree) that the defect and necessary rectification extends to all 19 plywood panels because:
(a) SJH has conceded it is liable where there are defects caused by water leaks at penetrations;
(b) SJH acknowledges there are 19 panels in issue;
(c) Mr Beck has agreed with Mr Wootton and attributed the staining in the 19 panels to water leaks at penetrations; and
(d) the QS experts have costed replacement of 19 panels.
Installation of PVC downpipes (A118)
232The specifications required that Colourbond downpipes be installed in the outdoor play area on level 2 of the ELC. The downpipes installed by SJH are PVC. SJH asserts that this item is not defective because it was not paid for the installation of Colourbond pipe work. I discuss below when considering the reasonable cost of rectification, SJH’s repeated argument that not having been paid somehow absolves it from responsibility for a failure to supply. In simple terms, I have found that the relevant specifications and drawings form part of the Contract and articulate SJH’s scope of works. Thus, subject to any contrary instruction from the architect, SJH is contractually obliged to supply what the specifications dictate and a failure to do so is a breach of the contract.
233In any case, SJH relies on what it alleges is an ambiguity in the specifications which require Colourbond downpipes and the hydraulic drawings which it says require “stormwater drains and down pipes to rainwater tanks to be formed of UPVC”. SJH says that Mr Milton resolved this ambiguity by instructing SJH to engage Collins Plumbing to complete plumbing work, including the installation of PVC pipe work. SJH says that consistent with this, Mr Milton instructed that SJH remove Colourbond pipework on the site by way of a defect list dated 20 April 2020.
234Mike & Shan refers to the evidence of Ms McKay and Mr Beck, both of whom agreed that this item constitutes defective works. In relation to SJH’s assertions of an ambiguity between the specifications and hydraulic drawings, Mike & Shan refers to the oral evidence of Ms McKay, who during cross-examination gave evidence that the hydraulic drawings relate to the pipes to be installed to the rain water tank, “not to the general downpipes on the building”.
235I agree with the evidence of Ms McKay and Mr Beck and I find that is item is a defect. I accept Ms McKay’s evidence regarding the hydraulic drawings and I agree that the specifications, which I have found do form part of the Contract, make clear that the roofing downpipes are to be “Circular Colourbond downpipes”.
Installation of vinyl flooring to lift foyers in basement levels (A115)
236This item concerns water damage to the vinyl floor and wall linings in the basement. According to SJH, this is not a defect under the contract as the leaks in the basement are caused by works not completed by SJH, but by Xerri or otherwise, for which SJH received no instruction from the architect to rectify. It submitted that there is no material that identifies failures with the waterproofing applied by SJH as referred to in its submissions concerning the planter boxes. It said that this is consistent with the instructions given by the Plaintiff to Mr Wootton that “it is the understanding of the author that a number of active leaks have been resolved by the owner, however a number remain”.
237Mr Wootton and Mr Beck agree that water is entering the basement and that “it is likely there is no water stop between the concrete capping beam and shortcrete wall flooring the basement level 1”. SJH argued that this this work or lack of work is Xerri’s work and is the cause of water ingress into the basement. According to SJH, Mr Wootton also concluded that the “southwest corner storage area leaks are due to the cladding having been sealed to the base of the concrete slab”[51]. Again these are Xerri’s works which SJH was not instructed to rectify.
[51] Ibid
238Mike & Shan acknowledged that there were leaks in the basement caused by Xerri’s works. But it said that SJH identified these leaks and proposed a rectification solution, consistent with clause G12.3 of the Contract. That clause provides that “the contractor warrants that any remedial works undertaken to rectify those defective or incomplete works will be performed in accordance with, and subject to, the requirements of this contract”. Mike & Shan argued:
(a) SJH charged M&S for two variations (VQ 30 and 71) totalling $15,782 excl GST that were not successful in rectifying the defect;
(b) Mr Milton’s evidence is that Mr An had represented to him that those rectification works would resolve the basement issues;
(c) these were the waterproofing works that were undertaken by Bravada under SJH’s supervision:
(d) Mr Wootton’s opinion was that waterproofing applied to the inside face of the concrete block had been ineffective in resolving leaks;
(e) it is not the case that full rectification of the basement leaks was never possible – the experts have agreed a rectification solution; and
(f) rather, there were deficiencies in what SJH proposed, performed and charged M&S for.
239I agree with Mike & Shan that SJH identified problems with leading into the basement and proposed a solution, later subcontracting with Bravada to that end. However, email correspondence exchanged between Mr Milton and Mr An on around 28 January 2020 suggests that the assurances about work preventing future leaks were more equivocal than Mike & Shan contends. Among other things SJH was asserting that the basement had been designed as a “wet basement”. Further, it is clear that:
(a) many of the underlying problems leading to leaking into the basements resulted from Xerri works that SJH was not instructed to fix, such as the installation of a shotcrete wall; and
(b) the experts identify numerous potential locations for the source of the leaking and the likelihood is that all these potential sources play a part.
240In my judgment, the evidence is not sufficient for me to be satisfied on the balance of probabilities that the leaks into the basement leading to the damage to the vinyl floors is attributable to a breach of the Contract by SJH. Given that it is not in dispute that Xerri works created the original problem and the notorious difficulties associated with finding sourced for water ingress, particularly in basement areas, SJH should be given the benefit of the doubt about cause of the leaking. For completeness, I note that Mike & Shan do not mount an alternative claim based on the alleged representation that the remedial works would fix the problem.
Installation of stainless steel drainers to sink in kitchen
241This item relates to the set down drainers installed to the sink in the ELC kitchen, which are not free draining to the sinks. SJH asserted that this item is not a defect because SJH was not paid nor did SJH supply stainless steel benchtops with falls towards the sink. It further said that there is no safety hazard or prevention of operation of the ELC caused by the supplied sinks.
242Mike & Shan referred to the expert evidence of Ms McKay and Mr Beck, both of whom agree that the drainers do not comply with the specifications. However, Mr Beck points out that they do comply with the architectural drawings. In response to this, Mike & Shan rely on the Contract, which provides that the specifications take precedence over the drawings.
243I accept the evidence of Ms McKay and Mr Beck. This item does not comply with the specifications and is clearly a defect in SJH’s works and a breach of the Contract.
Supply of operation and maintenance (“O&M”) manuals (A111)
244Mike & Shan claimed that SJH failed to provide complete O&M manuals. SJH submitted that Mike & Shan has not proven its case and that it has not identified what manuals are missing. It further submitted that it has provided O&M manuals to Mike & Shan twice, including once during discovery. SJH waived the implied Harman Undertaking for any manuals and warranty materials provided to Mike & Shan during discovery and preparation of the court book for trial.
245Mike & Shan conceded that draft O&M manuals were supplied in 2019 and in discovery. However, it says that those supplied were incomplete. In particular, they did not contain as-built drawings. In relation to the identification of missing O&M manuals, Mike & Shan referred to Mr Milton’s evidence clarifying the missing manual as: fire detection services as-built drawings, roof safety system as-built (as opposed to the manufacturer's data on components, which were supplied), as-built audio-visual systems drawings, irrigation systems as-built drawings, fire hydrant verified as-built drawings, stormwater drainage as-built drawings, electrical services and lighting as-built drawings. These are all documents required to be provided under the specification.
246Ms McKay and SJH’s expert Mr Beck both agreed that SJH had not provided O&M manuals for several elements of building works in hard copy format, as required under the Contract. They also agree that the O&M manuals must set out the maintenance and servicing recommendations, including as-built plans and warranty information and any certificates.
247I accept the evidence of the experts and Mr Milton. The failure to supply O&M manuals is a defect and SJH should pay damages to compensate Mike & Shan for the cost of re-creating these. However, there should be an appropriate discount to reflect the fact that the outdoor play areas and planter boxes will undergo major renovation based on my findings above, which will necessarily involve the production of O&M manuals reflecting this renovation work. To require SJH to pay separately for manuals for these areas would amount to requiring it to pay for them twice.
What is the reasonable cost of rectification of the loss and damage for which SJ Higgins is liable?
248Mike & Shan asserts that SJH is liable for the costs to bring the ELC into conformity with the Contract – being what is required by the relevant drawings and specifications and as adjusted by variation or instructions. I agree. I also agree with Mike & Shan that it is important to properly apply the test in Bellgrove v Eldridge,[52] (“Bellgrove”) particularly as it has been discussed in more recent cases, and notably Tabcorp Holdings Ltd v Bowen Investments Pty Ltd[53] (“Tabcorp”).
[52] (1954) 90 CLR 613, per Dixon CJ, Webb and Taylor JJ (at 617-8)
[53](2009) 236 CLR 272
249SJH submits that there is no defect that threatens the stability or indeed the operation of the Plaintiff’s child care centre or any real risk of these matters occurring.[54] It says that the centre has been operating for the last 2.5 years. It then relies on the decision in Wilshee v Westcourt Ltd,[55] as authority for the proposition that whether rectification is reasonable depends on the purpose of the building work and why the rectification work is sought. It asserts that rectification is sought on either the expectation of a future loss and damage or is based on an interpretation that is not consistent with a cost plus contract and is akin to a lump sum contract.
[54] Citing Kirkby v Coote [2006] QCA 61 at [50] – [54]
250SJH continues:
“This lack of understanding by the Architect as to how a cost plus contractor operates is revealed in the Plaintiff’s claim for items that it now says SJH should have supplied but the Plaintiff did not pay for. It is not claimed that these items are defective per se but rather a different product (despite the Plaintiff not paying for and SJH not claiming) should have been provided:
·Defect A118 (replace PVC Pipes);
·Defect 8.11 (replace kitchen drainers);
·Defect A83 (alternate external LED);
·Defect A80 (plywood lining to bulkheads); and
·Defect A300 (terrace door thresholds).
In relation to each of the above, the Plaintiff has been provided what it paid for and in some instances what it itself negotiated and agreed with the relevant supplier before being engaged for that price, and scope, by SJH. It is neither reasonable nor necessary to award damages against SJH for items it did not supply, did not seek payment for, and was not paid for. Any damages, if awarded, would result in a windfall to the Plaintiff.
A plaintiff is to be placed in the same position as if the defendant’s tort or contractual breach did not occur [citing Tabcorp]. In instances for alleged defects where the Plaintiff did not pay for, but now an alternate product is claimed, any award based upon the alternate product will place the Plaintiff in a better position, as the reinstated property is better or improved when compared with the original. Consequently, the principle of compensation would be infringed if the reinstatement cost is not reduced to account for the alleged betterment.”
251Mike & Shan has argued that SJH’s submissions above “do not grapple with the central proposition of Bellgrove; as the innocent owner, M&S is entitled to get a building that conforms with the Contract”. I agree. SJH’s assertion that there is no defect threatening the stability of the ELC and references to an “alternate product” being claimed highlight SJH’s mischaracterisation of the applicable principle. The decision of the High Court in Tabcorp strongly reinforces the proposition that the starting point is the innocent party’s strict contractual entitlement. Great care should be taken with submissions that “rested on a loose principle of ‘reasonableness’ which would radically undercut the bargain which the innocent party had contracted for and make it very difficult to determine in any particular case on what basis damages would be assessed”.[56]
[56]Tabcorp at [19]
252Two authorities cited by Mike & Shan provide useful illustrations of the application of this proposition:
(a) In Owners – Units Plan No 1917 v Koundouris,[57] a substantial number (but not all) of the waterproofing membranes on the balconies of units failed. Mossop AsJ held that “the past decision to replace the whole of the waterproofing membranes on the balconies of the units was a reasonable one and hence the whole of that cost constitutes damages incurred”;[58] and
(b) in Building Insurers’ Guarantee Corporation v The Owners – Strata Plan No 57504,[59] timber hobs (rather than concrete or brickwork hobs as specified) were used on a balcony. It was a fact that “there was no evidence that the hobs had failed, or were likely to fail within the design life of the building”.[60] Yet, referring to Bellgrove, Handley AJA (Tobias and Campbell JJA concurring) held: [61]
“There was a breach of contract affecting the waterproofing defences of the building, inferior hobs was installed, there was uncertainty about their effectiveness and a risk that they would fail. Demolition and reinstatement was the only way, on the evidence, that the risk of water penetration could be eliminated. It was reasonable for the owners’ corporation to undertake that work, and damages could properly be awarded on that basis.”
[57] [2017] NSWSC 7329
[58] Ibid, 458 [489]
[59] [2010] NSWCA 23
[60] Ibid, [59]
[61] Ibid, [83]
253SJH’s frequent refrain that the Contract was a “cost plus” contract and Mike & Shan is not entitled to be compensated for items that it hasn’t paid for, is similarly misconceived. In each of the examples given, items were in fact supplied by SJH as provided for under the Contract, but they failed to conform with the contract specifications or drawings, as follows:
(a) PVC downpipes were installed when the Contract specified Colourbond;
(b) kitchen sinks and drainers were provided, but there were no falls in the drainers to the sinks;
(c) LED light strips were installed, but in the wrong position and without extrusions;
(d) some plywood linings to bulkheads were supplied but most were missed;
(e) terrace door thresholds were installed, but without drains; and
(f) most notably, outdoor playground surfaces were installed, but without screeds or other measures to ensure the falls demanded by the Contract.
254There was some debate in oral closing submissions as to whether there might be a basis for a credit in cases where SJH could show that the rectification work might result in Mike & Shan receiving something it had not paid for under the Contract. For example, SJH will now be paying Mike & Shan for the supply of Colourbond downpipes when Mike & Shan had only paid for PVC downpipes, or will be getting screeding of playground areas that it has never paid for. Mike & Shan in effect conceded that there might be a theoretical basis for claiming such a credit in some instances, but observed that there was no evidence of the value of those credits. SJH did not submit otherwise.
255With these considerations in mind, I have examined the competing evidence on quantum in respect of all items that I have determined to be defective in breach of the Contract. As noted above, the expert evidence on quantum is contained in the various reports of Mr Buchanan (for Mike & Shan) and Mr Pavey (for SJH). I make the following general observations about this evidence before turning to the particular items:
(a) Mr Buchanan and Mr Pavey both have considerable relevant experience and their qualifications were not in issue – I reject SJH’s submission that Mr Buchanan did not have experience in relation to ELCs, for the reasons submitted by Mike & Shan;
(b) both clearly put considerable effort and thought into their reports and, most importantly, worked cooperatively and constructively in the preparation of their joint Scott Schedule – I have been greatly assisted by the summaries and explanations in that Scott Schedule;
(c) both gave considered evidence and made appropriate concessions;
(d) I agree with Mike & Shan that SJH’s closing submissions misconstrue Mr Pavey’s third report – he is clearly referring to additional not updated assessments – and there is no basis for SJH’s criticism of Mr Buchanan’s opinion on programming;
(e) in particular, I agree with Mike & Shan that temporary relocation of the ELC during the works is not a viable option and accept Mr Wu’s explanation of why this is so;
(f) more generally, while not intended as a criticism of Mr Pavey, I considered Mr Buchanan’s reports (including both his methodology and analysis) more robust, and his oral evidence more persuasive;
(g) on the other hand, I accept that some of Mr Buchanan’s programming and other calculations are overly conservative, and so some reduction of his estimates is appropriate, although not to the extent suggested by Mr Pavey; and
(h) such reductions are necessarily arbitrary, but providing they fall within the range determined by the experts and have due regard to the competing submissions of the parties, they are no more arbitrary than other possible approaches to choosing between a range of competing expert valuations (such as “splitting the difference”).
256As the parties have submitted, the experts largely agreed on base costs for most items, and to the extent they have not, I prefer Mr Buchanan’s approach. It is the amount that should be allowed for preliminaries that is the main area of dispute. As Mike & Shan submitted Mr Buchanan’s preliminaries worked out to $12,614 per week (30 weeks), while Mr Pavey’s worked out to $10,273 per week (16 weeks). Mike & Shan notes that, by comparison, the preliminaries charged by SJH during the project were $75,425 per month, that is, approximately $17,600 per week. Mike & Shan submits, and I broadly agree, that:
“Given the extensiveness and unavoidable complexity of the proposed rectification works (having regard to the fact that the ELC is operating) a higher figure for preliminaries is entirely reasonable in the circumstances.”
257Having regard to these findings (and the careful and thorough submissions of the parties), with one exception, I propose to take Mr Buchanan’s figures but apply an across the board 10% reduction to his assessment of preliminaries. The exception concerns the O&M manuals. Because of the risk of double damages and also my concerns that Mr Buchanan’s assessment on these seem particularly high, I will adopt Mr Pavey’s figures for the O&M manuals. I also accept that there should be an uplift to update costs from August 2021 to the time of trial for the reasons set out in Mr Buchanan’s second further report dated 17 August 2022 at page 3. I consider that 6.6% proposed by him is modest and appropriate. The resultant calculations are set out in the table below.
Item Base Out of hours Prelims A106 Planter boxes $17,869 $0 $6,272 A112 Plywood ceiling $9,682 $1,600 $3,960 A204 Concrete screed falls $243,535 $60,823 $106,830 A113 Waterproof remedial works $326,620 $83,000 $143,777 A300 Terrace door thresholds $16,903 $1,000 $6,284 A80 Plywood bulkhead shelves $7,730 $956 $3,049 A83 LED strips $42,591 $3,740 $18,069 A111 O&M manuals $19,600 $0 $1,372 A118 PVC downpipes $29,600 $4,000 $11,795 8.11 Kitchen drainers $8,526 $500 $3,168 A202 Subsill flashing $9,600 $2,400 $4,212 TOTALS $732,256 $158,019 $308,788 TOTAL base, out of hours and preliminaries: $1,199,063 · Uplift 6.6%
$79,138
TOTAL COSTS $1,278,201 · Margin 9%
$115,038
TOTAL DAMAGES (ex GST) $1,393,239 · GST
$139,324
TOTAL DAMAGES (inc GST) $1,532,563
- - -
Certificate
I certify that these 101 pages are a true copy of the judgment of his Honour Judge Woodward delivered on 3 June 2023.
Dated: 3 June 2023
Darcy White
Associate to his Honour Judge Woodward
[12] [1989] 2 Qd R 40 at 46
[55] [2009] WASCA 87
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