Parkview Constructions Pty Ltd v Futuroscop Enterprises Pty Ltd

[2023] NSWSC 178

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Parkview Constructions Pty Ltd v Futuroscop Enterprises Pty Ltd [2023] NSWSC 178

Hearing dates:

29 August 2022, 1, 5, 6, 8, 15 September 2022; last submissions 14 November 2022.

Date of orders:

2 March 2023

Decision date:

02 March 2023

Jurisdiction:

Equity - Commercial List

Before:

Rees J

Decision:

Plaintiff entitled to damages and return of bank guarantee. Defendant entitled to liquidated damages and rectification costs. Parties to bring in short minutes.

Catchwords:

BUILDING AND CONSTRUCTION — design and construct contract AS4902-2000 — contractor to construct two buildings — airport hotel and long stay carpark — to be completed in September 2017 —principal wishes to use hotel rooftop for tenants — development consent does not approve this use — hotel and carpark tenants commence operations in September 2017 – occupation certificate limits use of rooftop terrace to maintenance only – principal maintains practical completion yet to be achieved.

PRACTICAL COMPLETION — superintendent to issue certificate of practical completion — ‘conditional’ certificates issued for each building — retrospective date of practical completion on satisfaction of conditions — whether ‘conditional’ certificates comprise a certificate of practical completion — case law review at [205]-[209] — whether can give a retrospective date at [212]-[213] — ‘conditional’ certificates have no contractual force.

DETERMINATION BY COURT— whether Court can determine date of practical completion — consideration of Abergeldie Contractors v Fairfield City Council — does not depend on Superintendent having been “manifestly unreasonable” – contractual standard is ‘reasonable’ — whether Court can determine liquidated damages.

LIQUIDATED DAMAGES — superintendent’s certificate did not comply with the contract — whether Court can ascertain liquidated damages — liquidated damages calculated using objective criterion — Court can determine correct sum.

DAMAGES — contractual regime for notifying and remedying defects — whether contract ousts common law damages — caselaw review at [248]-[253] — contract created exhaustive code governing parties’ rights regarding defects — common law damages not available — contractual regime not followed — unnotified defects apparent on reasonable inspection — not entitled to costs of rectification for such defects.

BUILDING AND CONSTRUCTION — security — contractor substitutes cash retention for bank guarantee — whether principal entitled to retain GST on cash retention until bank guarantee returned —GST payable on release of retention.

Legislation Cited:

Environmental Planning & Assessment Act 1979 (NSW) ss 4.2, 4.3

A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 9-10, 40-5, 99-1

A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) reg 40-5.09(3)

Cases Cited:

Abergeldie Contractors Pty Ltd v Fairfield City Council [2017] NSWCA 113

Administration of Papua and New Guinea v Daera Guba (1973) 130 CLR 353

Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57

Australian Broadcasting Commission v Australasian Performing Right Assn Ltd (1973) 129 CLR 99; [1973] HCA 36

Bedrock Construction and Development Pty Ltd v Crea [2021] SASCA 66

Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36

Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302

Bitannia Pty Ltd v Parkline Constructions Pty Ltd [2009] NSWSC 1302

Concut Pty Ltd v Worrell (2000) 176 ALR 693; [2000] HCA 64

Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21

Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7

Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689

Hacer Group Pty Ltd v Euro Façade Tech Export Sdn Bhd [2022] VSC 373

Ian Delbridge Pty Ltd v Warrandyte High School Council [1991] 2 VR 545

JR Consulting & Drafting Pty Ltd v Cummings (2016) 239 ALR 625; [2016] FCAFC 20

Kenneth McMahon & Partners Pty Ltd v Domain Investments Pty Ltd (1973) 47 ALJR 240

Legal & General Life Australia Ltdv A Hudson Pty Ltd (1985) 1 NSWLR 314

Lym International Pty Limited v Marcolongo [2011] NSWCA 303

Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749

Metro Edgley Pty Limited v MK & JA Roche Pty Limited [2007] NSWCA 160

MLW Technology v May [2005] VSCA 29

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37

National Roads & Motorists’ Association v Whitlam (2007) 25 ACLC 688; [2007] NSWCA 81

Official Assignee of Hutson v The New Zealand Antimony Company (Ltd) (1890) 10 NZLR 143

Owners - Strata Plan No 74602 v Brookfield Australia Investments Ltd [2015] NSWSC 1916

Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451; [2004] HCA 35

Queensland Phosphate Pty Limited v Korda (as joint and several liquidators of Legend International Holdings Inc (in liq)) [2017] VSCA 269

RCR O’Donnell Griffin Pty Ltd [2015] QSC 186

RCR O’Donnell Griffin Pty Ltd v Forge Group Power Pty Ltd [2016] QCA 214

Re Arbitration between CME Contractors Pty Ltd and Redcliffe City Council (Unreported, Supreme Court of Queensland, Dowsett J, 8 September 1987)

Republic of Turkey v Mackie Pty Ltd [2019] VSC 103

Stuart Pty Ltd v Feteni Pty Ltd; Coogee Sands Apartments Pty Ltd v Stuart Pty Ltd [2004] NSWSC 237

The Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612

Turner Corporation Pty Ltd v Austotel Pty Ltd (1994) 13 BCL 378

Walton v Illawarra [2011] NSWSC 1188

Whitworth Street Estates Ltd v Miller [1970] AC 583

WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489; [1999] WASCA 10

Texts Cited:

Goods and Services Tax Ruling GSTR 2000/29, Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25 (11 December 2013)

A New Tax System (Goods and Services Tax) Act 1999 (Cth); Goods and Services Tax Ruing GSTR 2006/1, Goods and services tax: guarantees and indemnities (11 December 2013)

Category:

Principal judgment

Parties:

Parkview Constructions Pty Ltd (Plaintiff)
Futuroscop Enterprises Pty Ltd as trustee for Mascot Regal Holdings Unit (Defendant)

Representation:

Counsel:
Mr M Ashhurst SC / Mr A Vincent (Plaintiff)
Mr IGB Roberts SC / Mr H Pintos-Lopez / Mr J Pen (Defendant)

Solicitors:
Salim Rutherford Lawyers (Plaintiff)
William Roberts Lawyers (Defendant)

File Number(s):

2018/380964

Judgment

1. HER HONOUR: The defendant, Futuroscop Enterprises Pty Ltd (the Principal), owns a site in Mascot near Sydney International Airport. The plaintiff, Parkview Constructions Pty Ltd (the Contractor), was engaged by the Principal to construct two buildings on the site, being a “Travelodge” hotel and offices (Building A) and a “Wilson Parking” long stay public car park (Building B). The Contractor now seeks to retrieve the security which it provided, whilst the Principal seeks liquidated damages and damages for defective building work. The issues in these proceedings are:

1. When a Contractor substitutes the form of security from cash retention to a bank guarantee, is the Principal entitled to retain GST on the cash retention until the guarantee is returned: see [34]-[42]; the answer is no.

2. Was the Contractor obliged to construct the Works to enable the Principal to use the building in a manner not then approved by the Council: see [186]-[203]; the answer is no.

3. Did two “conditional" certificates of practical completion comprise a certificate of practical completion under the Contract: see [204]-[218]; the answer is no.

4. Can the Court determine the date of practical completion, where the Superintendent contends it is yet to be achieved: see [219]-[224]; the answer is yes.

5. Can the Court ascertain liquidated damages, where the Superintendent has certified liquidated damages, albeit not in accordance with the Contract: see [231]-[242]; the answer is yes.

6. Does the Contract oust common law damages for defective building work: see [248]-[260]; the answer is yes.

2. In what follows, I have omitted claims not referred to by the parties in closing submissions, which I take not to have been pressed. Whilst I have been greatly assisted by the parties’ written submissions, I have, by and large, not repeated those submissions here.

WITNESSES

3. The Contractor relied on the evidence of its director and construction manager, Emile Tabet, together with commercial manager Vladimir Baltovski and plumbing subcontractor, Dimitri Stassos. Mr Tabet and Mr Baltovski were cross-examined. Both were straightforward and knowledgeable. Mr Baltovski was loathe to accept that Parkview was responsible for any defects.

4. The Principal relied on the evidence of its sole director Richard Andary, plumber Adam Tacuri and solicitor Carlos Jaramillo. Mr Andary was cross-examined. His evidence was not entirely satisfactory. Mr Andary initially denied drafting material to be sent by the Superintendent, then said he did not recall preparing the document, then accepted that he prepared a direction to be given by the Superintendent to the Contractor. It was obvious from the contemporaneous documents that the Principal’s solicitors were preparing the documents to be issued by the Superintendent at the time.

5. Whilst Mr Andary gave short and emphatic answers, I was not particularly confident that I could place much weight on those answers. Mr Andary deposed that he had “observed in each of the 209 [hotel] rooms that rubbish has not been removed from the ceiling space.” Mr Andary ultimately agreed that he had not, in fact, put his head into the ceiling space for each room; “I put [my head] into a lot of them”, although he could not recall how many. Mr Andary accepted that his affidavit was “not totally correct … technically … in the way it’s written.”

6. Overall, this project was and is likely of enormous significance to Mr Andary. This may explain the intensity and, on occasion, ferocity of his communications with the Contractor as the project neared practical completion and thereafter. Mr Andary, however, did not profess any particular expertise in construction and I have deferred to the more dispassionate views expressed by the experts and consultants.

7. Both parties submitted that the other should have called a representative of the Superintendent of the Contract, being MMD Construction Consultants Pty Ltd, as a witness. Neither party asked me to draw an Jones v Dunkel inference and I have not done so.

8. A large number of expert witnesses gave evidence in conclave. It was not ultimately necessary to resolve points of difference between most of them. Of the building consultants, Stephen Iskowicz and Steven Abbott, I preferred the evidence of Mr Iskowicz, who appeared sensible and knowledgeable. Mr Abbott tended to add wide-ranging, negative remarks, for example, that an alleged defect was a common problem throughout the development, or that he had been told there were 180 instances of the defects. Mr Abbott was given a defects list and assumed that the particular defect existed in the number of instances instructed; Mr Abbott found one defect and assumed that the other instances were the same. Further, whilst Mr Abbott gave evidence in very emphatic terms, in some cases he may have spoken beyond the areas of his expertise.

9. Mr Abbott also gave evidence on the cost of rectification in a conclave with quantity surveyor David Madden. Mr Abbott was unqualified as a quantity surveyor but had worked in the building industry generally as a contract manager. Ultimately, these experts largely agreed on the items which it was necessary to decide.

PREPARATIONS FOR DEVELOPMENT

10. From 2012 to 2014, the Principal prepared for the development of the site: finalising drawings, assembling consultants and reports, seeking development approval and obtaining finance. The drawings were prepared by the Principal’s architect, Skematics.

11. The Principal retained a project manager, who later became the Superintendent of the Contract, being MMD Construction Consultants. The principal of MMD Construction Consultants was Mr Andary’s cousin, Michael Dakhoul. This later gave rise to controversy, where the Contractor complained – with some foundation – that the Superintendent was simply conveying the Principal’s dictates.

12. The Principal retained a fire engineer, AE&D Fire, to carry out a fire safety analysis and assessment of the proposed development. The fire engineer circulated its first report in February 2014, and a series of revisions in the ensuing years to address various issues raised by Fire & Rescue NSW.

13. In 2014, the Contractor engaged in a tender process. As part of that process, the Contractor assisted the Principal by engaging in “value engineering”. This involved an audit of plans and specifications in conjunction with the client to see whether changes could be made to save money without taking away the design intent or compromising any compliance issues. The product of this exercise was a “Value Engineering Register” produced by the Contractor, which later became part of the Contract.

14. In June 2015, the City of Botany Bay issued the necessary approval, being a modification of an earlier development consent. The Principal Certifying Authority (PCA) was the Council.

THE CONTRACT

15. On 4 September 2015, the Principal and the Contractor executed a contract (the Contract) being, essentially, Australian Standard AS4902-2000 General conditions of contract for design and construct as amended by special conditions.

16. Various reports and specifications also formed part of the Contract, including the development approval, the “Value Engineering Register” and the Principal’s Project Requirements Document Register. The Principal’s Project Requirements Document Register listed tender documents and “CC/Contract Documents” including architectural specifications and drawings prepared by Skematics, structural engineering specifications and drawings prepared by AECOM Pty Ltd, electrical, mechanical, hydraulic and fire drawings prepared by Abacus Engineering Pty Ltd, stormwater and civil drawings prepared by S&G Consultants Pty Ltd and a landscape design prepared by Isthmus Pty Ltd.

17. The order of precedence of the Contract Documents was set out in Schedule 1, which was to be used to resolve any ambiguity or inconsistency between the Contract Documents: clause 6.2, Formal Instrument of Agreement; preamble, Special Conditions of Contract. Relevantly, special conditions had precedence over general conditions, which had precedence over the development approval, which had precedence over the Value Engineering Report and so on.

Contractor’s obligations

18. Under the Contract, the Contractor was obliged to carry out and complete WUC (work under the Contract) in accordance with the Contract and directions authorised by the Contract: clause 2.1. Clause 29.1 obliged the Contractor to “use suitable new materials and proper and tradesmanlike workmanship”.

19. The Contractor warranted that it was suitably qualified and experienced and would exercise due skill, care and diligence in carrying out and completing WUC: clause 2.2(a). The Contractor warranted that it would carry out and complete WUC in accordance with the design documents so that the Works, when completed, were fit for their stated purpose and complied with the requirements of the Contract: clause 2.2(a)(iv).

20. Although the plans and drawings had been prepared before the Contractor was retained, the Contractor warranted that it had examined and checked the design of the Works, the drawings and documents provided by the Principal and the preliminary design and considered these suitable for the Works: clause 2.2(a)(ii.a).

21. The Contractor agreed to carry out and complete the Contractor’s design obligations to accord with the Principal’s project requirements: clause 2.2(a)(iii). The Principal’s project requirements were described in the Principal’s Project Requirements Document Register. The Contractor’s design obligations comprised all tasks necessary to design and specify the Works required by the Contract, including preparation of the design documents (the drawings, specifications and other information required by the Contract and created (including those to be created by the Contractor) for the construction of the Works) and developing the preliminary design in the Principal Project Requirements Document Register.

22. Special Condition 52 provided, “The Contractor must at its own cost ensure that the WUC is executed in such a way as not to breach the Development Approval.” “Development Approval” meant any applicable development approvals granted by the relevant Authority in regards to the Works: clause 1. As a special condition, this obligation prevailed over the general conditions in the event of ambiguity or inconsistency.

Superintendent

23. The Superintendent was conferred with an extensive role and powers under the Contract, including approving variations and extensions of time, giving directions to the Contractor, approving progress claims and – critically in this case – certifying practical completion and liquidated damages.

24. Directions were to be given orally and confirmed in writing: clause 20. The Superintendent could direct the Contractor to rectify defective work on becoming aware that work done by the Contractor did not comply with the Contract and at any time before the expiry of the last defects liability period: clause 29.3.

25. Clause 20 provided: (emphasis added)

The Principal shall ensure that at all times there is a Superintendent, and that the Superintendent fulfils all aspects of the role and functions reasonably and in good faith.

26. The Contractor contends that the Principal failed to ensure that the Superintendent fulfilled its role reasonably, to which I will return at [243].

Practical completion

27. Clause 34 of the Contract provided:

34   Time and progress

34.1   Progress

The Contractor shall ensure that WUC reaches practical completion by the date for practical completion.

28. The parties agreed that, taking into account extensions of time (EOT), the date for practical completion was 4 September 2017. As amended by the Special Conditions of Contract, practical completion was defined as:

Practical completion is that stage in the carrying out and completion of WUC when:

a)   the Works are complete except for minor defects:

(i)   which do not prevent the Works from being reasonably capable of being used for their stated purpose;

(ii)   which the Superintendent determines the Contractor has reasonable grounds for not promptly rectifying; and

(iii)   the rectification of which will not prejudice the convenient use of the Works;

(b)   those tests which are required by the Contract to be carried out and passed before the Works reach practical completion have been carried out and passed; and

(c)   documents and other information required under the Contract which, in the Superintendent’s opinion, are essential for the use, operation and maintenance of the Works have been supplied;

(d)   the Contractor has done all things that it is required to do under the Contract to enable the Principal to obtain a certificate of occupation from the applicable Authority;

(e)   the testing and commissioning of all electrical plant and equipment, electronic devices, light fittings and the like have been completed;

(f)   the Contractor has provided to the Superintendent one pdf electronic copy and two hard copies of the completion folders including all certificates, as-built drawings, manuals, warranties, keys and the like to the satisfaction of the Superintendent.

29. A central issue in this case is whether practical completion was reached and, if so, when. This largely turns on whether the Superintendent gave a certificate of practical completion in accordance with the Contract. In this regard, Clause 34.6 provided:

34.6   Practical completion

The Contractor shall give the Superintendent at least 14 days written notice of the date upon which the Contractor anticipates that practical completion will be reached.

When the Contractor is of the opinion that practical completion has been reached, the Contractor shall in writing request the Superintendent to issue a certificate of practical completion. Within 14 days after receiving the request, the Superintendent shall give the Contractor and the Principal either a certificate of practical completion evidencing the date of practical completion or written reasons for not doing so. …

30. The primacy of this obligation is highlighted by clause 39.7(b), which specified that a substantial breach of the Contract by the Principal – entitling the Contractor to issue a notice to show cause – included “the Superintendent not giving a certificate of practical completion or reasons as referred to in subclause 34.6”.

31. To facilitate the achievement of practical completion, clause 35 provided:

Clause 35   Defects liability

The following method and procedures for rectifying defective work immediately prior to practical completion shall be incorporated by the Contractor into the master programme so as not to affect the date for practical completion:

(a)   within 14 working days of the Contractor submitting to the Superintendent a notice of final inspection prior to practical completion for Building B and then for Building A, the Superintendent will inspect the Works and provide to the Contractor a list of defects;

(b)   the Contractor will be given a reasonable period after receipt of the defects list from the Superintendent to rectify all defects …;

(c)   the Superintendent shall reinspect the Works when advised by the Contractor that the listed defects have been rectified and subsequent periods of 2 weeks and one weeks will be given if further defect rectification is required; …

32. Clause 35 also dealt with the rectification of defects after the date of practical completion, to which I will return at [256].

Disputes

33. As soon as practicable after a party became aware of any claim in connection with the subject matter of the Contract, other than a claim for payment, the party was obliged to give the other party and the Superintendent written notice of the general basis and quantum of the claim or a notice of dispute under clause 42.1: clause 41.1.

UNPAID GST

34. Pursuant to clause 5.1 of the Contract, the Contractor was obliged to provide security in the form of cash retention or an unconditional bank guarantee for 5% of the contract sum: clause 5.1, Item 14, Annexure Part A. The contract sum was $37.6 million plus GST: clause 1, Special Conditions of Contract; clause 48.2.

35. Security was initially provided in the form of cash retention, with the Principal withholding 5% of the contract sum, or $1.88 million, from progress claims.

36. The Contractor was entitled to change the form of security: clause 5.3. In November 2016, the Contractor provided two bank guarantees to the Principal, each for $940,000 and together $1.88 million. On 13 December 2016, the Contractor issued a tax invoice to the Principal for “Retention Release in lieu of Bank Guarantee” in the sum of $1.88 million plus GST, totalling $2.068 million.

37. On 22 December 2016, the Contractor received $1.88 million. The GST was not paid. Mr Tabet discussed the matter with Mr Andary, who said “the GST is not due until I have to release the bank guarantees”. Mr Andary maintains that the Principal does not have to pay any GST until such time as all the bank guarantees are returned.

38. The Contractor submitted that, where the Principal had retained “security” from progress payments to the amount of 5% of the “contract sum” plus GST, the Principal was required to pay the GST on the retention moneys which it was no longer entitled to retain. The Contractor relied on clause 48.7, which provides that, where a party is required under the Contract to pay or reimburse an expense or outgoing of another party, the amount to be paid or reimbursed is the amount of the expense or outgoing and, if the payment or reimbursement was subject to GST, an amount equal to that GST: clause 48.7. The Principal maintained that the Contractor was only entitled to be paid this sum once the Contractor was entitled to make a final payment claim.

39. I do not consider that clause 48.7 applies to security, which is neither an expense nor outgoing. Rather, the obligation to pay GST on retention amounts is governed by legislation. Section 99-1 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) provides:

GST does not apply to the taking of a deposit as security for the performance of an obligation (unless the deposit is forfeited or is applied as consideration). GST is not attributable prior to forfeiture.

40. That is, GST was not payable on the cash retention when provided by the Contractor. GST became payable when the retention amounts were released to the builder, in the same way as it applies to progress payments under the building contract: Goods and Services Tax Ruling GSTR 2000/29, Goods and services tax: attributing GST payable, input tax credits and adjustments and particular attribution rules made under section 29-25, (11 December 2013) at [172]-[189].

41. Nor, as I understand it, was the Contractor obliged to pay GST on the bank guarantee. Guarantees are ‘financial supplies’ and treated as input taxed supplies on which no GST is payable: section 40-5, A New Tax System (Goods and Services Tax) Act 1999 (Cth); sub-regulation 40-5.09(3), A New Tax System (Goods and Services Tax) Regulations 2019 (Cth). Similarly, should the Principal call on a guarantee, any money paid by the surety is not subject to GST as is not a taxable supply for consideration to which GST applies: section 9-10(4), A New Tax System (Goods and Services Tax) Act 1999 (Cth); Goods and Services Tax Ruing GSTR 2006/1, Goods and services tax: guarantees and indemnities, (11 December 2013) at [74]-[78].

42. As such, once the cash retention was released to the Contractor, GST applied to the cash retention in the same way as other progress payments made under the Contract. The Principal is not entitled to retain GST on the cash retention until it returns the bank guarantee. The Contractor is entitled to the damages it seeks in respect of unpaid GST, being $188,000. Interest is to be paid after the date of default in payment at the prescribed rate provided in section 101(7) of the Civil Procedure Act 2005 (NSW): clause 37.5, Item 35, Annexure Part A.

PROBLEMS POSED FOR PRACTICAL COMPLETION

43. Work began on 1 March 2016. Before considering the evidence in respect of practical completion, it is necessary to describe three substantive problems which were said, at the time, to stand in its way. In addition, a further difficulty was posed by a last-minute variation and EOT.

Rooftop terrace: Building A

44. Building A is a 12 storey building. The ground floor and levels 1 to 6 is a hotel. Levels 7 to 12 are office space and associated facilities for commercial tenancies. The plans for Building A included stairs from Level 12 to a sliding glass roof hatch, giving access to the rooftop. According to the roof plan, the rooftop was to contain various infrastructure, including water tanks, hot water and outlets.

45. Whilst the original development consent is not in evidence, I infer that it did not permit those occupying the building to use the rooftop area. I say this as, some years later in 2020, the Principal lodged an application to modify the development consent by “the addition of roof top deck area”. The attached submission stated: “it is the applicant’s view that making provision for the roof terrace within the development is an important ancillary use that would complement the approved uses under DA#12/087/07.”

46. As earlier noted, the Principal had retained AE&D Fire to address fire safety in respect of the development. In May 2016, the fire engineer proposed Alternative Solution 11 (AS 11) to enable the safe egress from the “rooftop plant area” on Building A, together with Alternative Solution 12 (AS 12) to enable the safe egress from the “rooftop entertainment area”. Fire & Rescue NSW sought further details on these proposed solutions.

47. In March 2017, AE&D Fire provided Revision 14 of its fire engineering report, from which it is clear that the Principal then intended to delineate the rooftop of Building A into an area for plant (accessible by two fire stairs) and two public terraces – on the eastern and western side of the building – described in the report as “rooftop entertainment area”. According to diagrams included in the fire engineering report, access to the “Public Terrace” was via “Public Stairs”.

48. The Principal contended that the diagram was submitted on the instructions of the Contractor, pointing to a table towards the end of the fire engineering report which listed stakeholders, in which Phil Agius of the Contractor as referred to as the “Client”. I note, however, that the title page for the fire engineering report stated that it was prepared for the Principal. The opening words of the report stated that AE&D Fire “have been commissioned by Futuroscop”. Whilst Mr Baltovski accepted that Mr Agius was the person within the Contractor who was instructing on this issue, Mr Baltovski did not join the Contractor until six months after the report: see [94]. Who commissioned the diagram is unclear.

49. In any event, in Revision 14, the fire engineer explained that AS 11 addressed the problem that the fire stairs terminated at Level 12 and rooftop access and egress to the rooftop plant area was via a steel ladder and a manually operated access hatch. The hatch needed to remain closed in order to maintain stair pressurisation. AS 12 was designed to address the problem that occupants of the rooftop entertainment area did not have direct access to fire stairs but needed to pass down a non-fire isolated stair to reach Level 12, from where they could access fire stairs.

50. In March 2017, the Contractor retained a fire engineer, Olsson Fire & Risk Pty Ltd, to undertake a peer review of the fire engineering report. Olsson Fire & Risk generally supported AS 11 and AS 12, suggesting that a restriction be placed on the maximum number of occupants on the roof, say, 50 people. The Contractor must have then been aware that the Principal wished to use the rooftop area in this manner.

51. In June 2017, AE&D Fire produced a further report, Revision 15, which was submitted to the Council in support of a Stage 6 Construction Certificate, presumably to effect the work referred to in the report. On 4 August 2017, the Council issued a Stage 6 Construction Certificate in respect of the fire engineering report prepared by AE&D Fire, Revision 15. The roof plan the subject of Stage 6 Construction Certificate was further revised. The Contractor constructed the roof area in accordance with Revision 10. I will return to the Contractor’s obligations in respect of the rooftop terrace at [186].

Carpark crash rails: Building B

52. Building B is a 5-storey carpark. The 2014 drawings for the carpark included crash rails on the perimeter of the carpark, together with a façade as follows:

53. The Façade Legend for “CRL-06” was “Safe Erection P/L or similar carpark crash rails. Rhinostop, fixing to manufacturer’s details. Refer to plans and specifications.” The Façade Legend for “FCD-01” stated “Cantilevered balustrade with perforated & corrugated metal panels” fixed to a galvanised frame. That is, the plans proposed a crash rail and a separate façade structure, with the façade extending to cover the slab edge.

54. In the Value Engineering Register, the Contractor proposed an integrated crash rail system with composite cladding, that is, one system to act as a crash rail and façade structure. As I read the drawing, corrugated metal panels would be attached to the crash rail. Revisions were made to the carpark drawings in October and November 2015. On 10 December 2015, the Contractor sent an email to the architect confirming the different types of crash rails proposed for Building B.

55. Revised carpark plans were issued on 15 January 2016 and 22 April 2016. The Façade Legend for “FCD-01” became: (emphasis added)

SAFE DIRECTION P/L RHINO-STOP ‘ELITE’ SYSTEM OR SIMILAR CAR PARK CRASH RAILS, COMBINED WITH CANTILEVERED BALUSTRADE WITH PERFORATED & CORRUGATED METAL PANELS FIXED TO 150x50 G AL. M.S. R.H.S FRAME AT 2500mm NOM. CRS. (TBC).1 500mm NOM. 0/A HEIGHT 1100mm A.F.L. REFER TO SPECIFICATION & STRUCTURAL ENG. DETAILS

56. The Façade Section detail, now “29/AT11” had also changed as follows:

57. That is, the crash rail and façade were now integrated into a single structure, as had been suggested by the Contractor during the “value engineering” process. Based on these drawings, the Contractor awarded the contract for the work. The sub-contractor installed RhinoStop with hand rail and anti-climb mesh, RhinoStop sky edge with hand rail and anti-climb mesh and RhinoStop Elite in accordance with the manufacturer’s recommendations and the Building Code of Australia. The crash rails are shown here:

58. On 23 May 2017, the Superintendent advised the Contractor that the crash rails had not been installed correctly and were not the specified design as per the architectural drawings. The works would not be accepted until rectified. The Contractor disagreed. The Contractor advised that, in December 2015, the architect was consulted and issued floor plans indicating the proposed crash rails and façade treatments. The architect provided a hand sketch identifying a mesh screen fixed to posts as a suggestion. The Contractor had installed a similar looking product, together with Armco railing for crash resistance, a hand rail along the ramps and anti-climb mesh similar to the drawing provided by the architect. The Contractor referred to the updated Façade Legend for “FCD-01” and advised “Parkview have provided a compliant integrated crash rail and façade screen system from Rhino (in accordance with value engineering), and in the colour required to meet DA drawings. The PCA has inspected these works and [is] satisfied with the construction.” The Contractor would be painting the slab edges in green. “The end result will be as per DA colours and in accordance with our D&C obligations.”

59. The architect was most displeased, suggesting that what had been installed was “totally incorrect and wrong” and never approved by him. The intent in the contract documentation detail was to produce single coloured bands along the façade, with perimeter bands to cover the slab edges. Painting the slab edges green was a “cheap fix”.

60. On 28 May 2017, the Superintendent instructed the Contractor to rectify this matter as soon as possible, where the Superintendent had not approved the use of a similar product, “It is not for the Contractor to decide which product is similar.” On 28 June 2017, the Contractor sent a detailed email to the Superintendent, outlining the history of the contract drawings in respect of the crash rails, including the revisions of the Façade Legend for FCD-01. The Contractor considered that it was obliged to install one structure which acted as a crash rail and façade, and had done so within the description of FCD-01. The Contractor had painted the external slab edges to provide a finish in line with the “DA documentation”.

61. The Superintendent did not agree, where the section drawings showed the perforated and corrugated screen covering the slab edge, and the type of crash rail used. The Contractor was asked to rectify the defect. This debate continued (to this day). The architect complained that the crash rail / balustrade detail installed was incorrect, of “lesser extent, value & detail than contract documents”. I will return to whether the Principal is entitled to the cost of rectifying this alleged defect at [287].

Concrete finishes: Building B

62. In January 2014, the Principal’s architect, Skematics, and structural engineer, AECOM, prepared specifications in respect of concrete. Neither document was in evidence (or, at least, not the correct revision) but the requirements were recounted by concrete experts, David Mahaffey and Dr James Aldred.

63. In short, the columns in the carpark were to comply with a “Class 2” finish in accordance with Australian Standard AS3610.1, having “uniform quality and texture over large areas”.

64. The underside of the carpark slabs (the soffit) were to comply with a less onerous “Class 3” finish, being “good visual quality when viewed as a whole”.

65. Complaints were made about concrete finishes when Building B was nearing practical completion. On 15 June 2017, the Superintendent wrote to the Contractor following a site visit by Mr Andary, who had “provided some alarming points which require your immediate action.” Amongst the issues identified, numerous leaks throughout the carpark were said to be causing notable discolouration to the carpark soffits, “When will this issue be rectified and confirmed as a class 3 finish.” The Contractor’s comments were sought by close of business. On 1 August 2017, the architect wrote to the Superintendent following an inspection of the concrete works in Building B. The architect considered that the concrete finishes failed to meet the specification for class 2 and class 3, recommending inspection by a structural engineer or specialist in concrete works.

66. At trial, Mr Mahaffey and Dr Aldred agreed that the finishes met the required standard.

Second pump room

67. Turning to the late variation, under the Contract, the Contractor was required to construct and commission one pump room. In June 2016, the engineer who was designing the fire hydrant system for the carpark suggested that a pump also be installed for Building B, particularly if the building was to increase in height by two levels. If a pump was installed, then a compliant pump room would also be needed.

68. The Contractor issued a variation to supply and install a hydrant pump set to Building B “to allow sufficient water flow rates for futureproofing of additional carpark levels proposed.” The variation set out two options, being provision of a full hydrant pump room or provision of the hydrant pump only. On 31 August 2016, the Principal approved the second option less a few items, “Approved with NO further variation to this item.”

69. The water pressure and flow relied upon to identify the need for a pump for Building B was based on simulated tests conducted by Sydney Water, where the water main had not then been constructed and permanent water had yet to be connected. Once water was connected, the need for a pump – and a pump room – became clear. After Sydney Water tested water pressure to Building B for hydrant services on 14 June 2017, Mr Tabet met with the certifier and Mr Andary concerning a pump room in order for the Principal to obtain a ‘sign off’ from the certifier. The Contractor was instructed to price construction of a pump room with the details requested by the certifier, including lodgment of a Stage 7 Construction Certificate.

70. On 26 June 2017, the Contractor issued a variation claim in relation to the construction and commission of the second pump room. This was rejected by the Superintendent on the basis that it was not necessary, albeit later accepted. Mr Tabet said he was becoming concerned about how the Superintendent was doing its job.

NEARING PRACTICAL COMPLETION

71. As the construction manager responsible for the project, Mr Tabet attended the site twice a week, together with site meetings and inspections as needed. From early August 2017, Mr Tabet observed people engaged by Travelodge installing equipment, such as computer systems and furniture. Travelodge commenced its fit out.

72. It will be recalled that, under clause 35 of the Contract, the Contractor was to submit a notice of final inspection to the Superintendent prior to practical completion, so as not to affect the date for completion: see clause 35 at [30]. The minutes of a site meeting held on 7 August 2017 record that the Contractor had submitted their status of defects rectification works for levels 1 to 6 of Building A. The Superintendent had attended the site for a defects inspection of the commercial levels 7 to 11 of Building A on 14 July 2017, but the levels were not ready to be inspected. Whilst the Contractor advised that the carpark was also ready for a defects inspection, the Superintendent was “not confident it is”; the Principal had retained a consultant to inspect the concrete and a report was expected shortly. The fact that the Contractor and the Superintendent were engaged in the process specified by clause 35 suggests that construction was now nearing completion.

71. On 8 August 2017, the Principal’s concrete consultant, John Worthington, issued a preliminary report in respect of the concrete finish on the carpark, following an inspection accompanied by the Superintendent and the Contractor’s project engineer. Mr Worthington considered that the finishes were not acceptable as they did not meet the relevant Australian Standards. The Contractor’s engineer advised that it was a work in progress and agreed that further works were required. Where ‘hand over’ of the project was to occur on 1 September 2017, Mr Worthington recommended that the Contractor provide a schedule for the completion of the works, following which he would inspect the completed works and provide a second report.

72. Perhaps somewhat ambitiously, on 9 August 2017, the Contractor gave notice pursuant to clause 34.6 of the Contract that it anticipated achieving practical completion by 28 August 2017. The pump room for the fire hydrant in Building B had then yet to be designed, this being the late variation earlier described. The Superintendent pressed the Contractor to identify where the pump room would be located, suggesting that the obligation to design a pump room compliant with Australian Standards and the Building Code of Australia fell on the Contractor. The Contractor disagreed, “Our scope included what was on the tender drawings which form part of the Contract. … We provided you a variation many months ago for approval in which you partially approved … this remains a variation under the Contract. We will be submitting a revised variation for your approval.”

73. A report prepared by the Contractor for a Project Control Group meeting on 14 August 2017 advised that documentation was currently being sourced from all trades to support an Occupation Certificate. ‘As built’ documentation was in the final stages of submission. Handover manuals were being prepared for practical completion. ‘Red flags’ then noted included a delay in completion due to an upgrade in the water main, said to be the responsibility of the Principal. Further, the Contractor had informed the Principal that a hydrant pump was required to Building B, as indicated by the results from the simulated flow and pressure test. A proposed pump room was currently being modified, “however these costs will be chargeable to the client.” Approval of a construction certificate and building certificate associated with the new pump room was awaited. The PCA had commenced regular inspections of the hotel and commercial floors, with rectification lists being provided on a per visit basis, “minimal issues have been raised.”

74. On 21 August 2017, the parties held a site meeting. The Contractor was then rectifying the ceilings on levels 10 to 12 of Building A. The Contractor was “to proceed with providing a compliant pump room in Building B as per [the Superintendent’s] instruction”. The Contractor was to begin works once the construction certificate had been obtained. The Contractor confirmed that it would require up to two weeks to finalise provisions for the pump room after receiving the construction certificate. Hydrant testing had been booked, although the PCA advised “he will not notify Fire Brigade if the site is not accessible”.

75. As for the carpark, the Superintendent noted that the carpark “will require extensive cleaning and works to rectify concrete finish. [The Contractor] to attend to rectification ASAP.” The Contractor was to review the report obtained from Mr Worthington and complete rectification work accordingly. The parties remained at odds in respect of the crash barriers in the carpark. As for the construction program, the Contractor confirmed that the corridors and commercial levels 7 to 12 of Building A were ready for defects inspection to be conducted by the Superintendent. Building B was also ready for defects inspection.

76. On 22 August 2017, the Council issued a Stage 7 Construction Certificate for the construction of an additional fire hydrant pump room on the ground floor of Building B. The Contractor submitted a variation to the Superintendent in respect of installation of the fire hydrant pump and builder’s works to Building B, seeking an extension of time of two weeks. The Contractor proceeded to construct the pump room in accordance with the variation.

77. On 28 August 2017, a site meeting was held. A fire engineer inspection was scheduled for the next day, with commissioning of the pump room in Building B to commence on 30 August 2017. The Superintendent conducted a site inspection and sought advice from the Contractor pursuant to clause 34.6 of the Contract as to when practical completion would be reached, “In light of today’s inspection, it is evident that you are behind the current program.”

78. On 29 August 2017, the Contractor reminded the Superintendent that a Notice of Delay had been issued by the Contractor in respect of the pump room, with 12 days required to complete this item from approval of the construction certificate. The Contractor intended to achieve practical completion on or before 5 September 2017. Presumably, this was intended to be a notice under clause 34.6 of the Contract, as had been sought by the Superintendent.

79. On 31 August 2017, Mr Andary expressed concern to the Contractor that outstanding works and the state of the site might delay practical completion, where the PCA was concerned that the fire brigade “may turn up to the site but refuse inspection”. On 1 September 2017, the PCA submitted a Request for a Final Fire Safety Report to Fire & Rescue NSW. The Contractor responded to Mr Andary, advising that the PCA was not concerned with the construction works and had submitted the necessary application, “We have done everything we can to expedite the final testing and commission so the PCA can notify Fire & Rescue NSW since the permanent water issue was resolved.” On 2 September 2017, Mr Andary replied, advising that he had insisted that the PCA book the fire brigade irrespective of the condition of the site, but the PCA had “clearly stated that should the fire brigade choose to come to site and see it in its unfinished state they may choose not to inspect hence delaying [practical completion]”. Mr Andary was “very concerned about the lack of trades and more so the lack of urgency to finish for Monday”, pointing to various parts of the works which remained incomplete and attaching photographs. A “defective external driveway” had still not been rectified.

80. Mr Tabet recalls that the certifier was undertaking inspections in the preceding weeks in order to determine if the works were at a point when application to Fire & Rescue NSW could be made for them to inspect the building. On about 4 September 2017, the certifier told Mr Tabet that he was confident that the fire brigade could be called for an inspection. At a site meeting on 4 September 2017, the Contractor confirmed that the pump room had been built, with signage to be installed. Landscaping would be completed by 5 September 2017. The new anticipated practical completion date was 8 September 2017.

81. On 6 September 2017, the Superintendent informed the Contractor of points of concern noted by Wilson Parking that day, including that signage, lighting and painting and line marking had not been done. The Contractor updated the Principal and the Superintendent that final commissioning of “Skidata” would be completed by 8 September 2017. (Skidata are the machines used to access and pay for parking.)

82. On the evening of 5 September 2017, the Superintendent sent the Contractor and the Principal a Notice of Assessment of Practical Completion pursuant to clause 34.6 of the Contract, following a site inspection on 4 September 2017. I take this to be “written reasons” for not giving a certificate of practical completion as requested by the Contractor: clause 34.6 (“Within 14 days after receiving the request [for a certificate of practical completion], the Superintendent shall give the Contractor and the Principal either a certificate … or written reasons for not doing so.”) The Superintendent advised that practical completion had not been achieved on 4 September 2017 and listed ten items “which do not constitute the development being Practically Complete” being:

1.   Ponding at the Eastern and Southern Driveways.

2.   External Façade (Painting/Cladding) not complete.

3.   Driveway asphalt/stencilling not complete.

4.   Major water leaks within the kitchen and lobby male bathroom.

5.   Skidata commissioning.

6.   Security Cameras installation.

7.   Item “f” within appendix 1.

8.   Internal Works within Hotel Lobby.

9.   Landscaping Works.

10.   Wheel stops which do not prevent collisions with barriers or other vehicles.

Appendix 1 to the letter set out the definition of practical completion in the Contract, accompanied by 15 photographs taken in Building A and Building B in respect of the items listed in the letter.

85. On 6 September 2017, the Contractor advised the Superintendent that practical completion would be achieved by 8 September 2017. Mr Tabet inspected the project shortly before 8 September 2017 and observed that the works were complete other than minor issues that needed to be addressed, such as minor cleaning and painting. He formed the view that these issues were minor defects or omissions and did not prevent practical completion from being reached. The works at the carpark had been completed other than some cleaning. The crash barriers, wheel stops and louvres had been installed, the lines had been painted for the carpark spaces and the bathroom had been painted. Landscaping had yet to be mulched. Wilson Parking’s fit out had yet to be completed. Wilson Parking had an issue with its payment system that was being installed at the carpark, although this did not form part of the Contractor’s scope of works. (Mr Andary maintains that the machines were part of the Contractor’s works under contract.) Mr Tabet observed that people engaged by Wilson Parking appeared to be working on the wireless operation of the boom gate, which he understood was the issue with the payment system. Mr Tabet determined that the Contractor should proceed with obtaining certification from the Superintendent that practical completion had been achieved.

86. On 7 September 2017, Fire & Rescue NSW inspected the project. On 11 September 2017, Fire & Rescue NSW sent a letter to the certifier, advising that it had not been provided with the fire engineer’s most recent report. Fire & Rescue NSW had the Revision 13 report issued in February 2017, which is not in evidence. Fire & Rescue NSW recommended that the occupation certificate for the building not be issued until it was supplied with the report. Further, “The access and egress provisions of the rooftop of the commercial part of the building are not suitable for members of the general public. Access to the rooftop should be restricted for maintenance purposes only.”

87. The obvious first step to resolve Fire & Rescue NSW’s concerns was to supply AE&D Fires most recent report, Revision 15, together with the peer review undertaken by Olssen Fire & Risk. Presumably, AS 11 and AS 12 had ‘moved on’ since the Revision 13 report considered by Fire & Rescue NSW. It would appear, however, that neither the Contractor nor the Principal wished to take this step for fear of thereby accepting responsibility for this part of the works.

88. On 11 September 2017, the certifier advised the Contractor of the matters which needed to be attended to following Fire & Rescue NSW’s report, in particular:

Certification

Item 2 - a statutory declaration from the builder stating that the locks to the rooftop access panels have been removed and are now unable to be locked.

89. The Contractor promptly provided a statutory declaration, together with photos, confirming that the access hatches to Building B rooftop were no longer lockable, “locks have been removed/cut entirely”. As I understand it, this meant that no one would be trapped on the roof in the event of a fire.

90. Mr Baltovski said that all items in the letter from Fire & Rescue NSW that were the responsibility of the Contractor had been completed. Mr Baltovski was of the view that the Contractor had done all it was required to do in order for the Principal to obtain a final occupation certificate for the roof terrace; the remaining items that were incomplete were the responsibility of the Principal.

91. On 11 September 2017, the architect issued a report following a site inspection on 4 September 2017, listing various items which required attention, including a number of concerns with “stairs to private roof space”. The Superintendent also advised the Contractor that Wilson Parking had inspected the site and raised issues regarding carpark safety “which are worrying at this stage of the project … They will NOT take possession of the carpark due to these issues.” This was said to be a matter of extreme urgency. The Contractor was to action these items as soon as a list of issues was provided by Wilson Parking.

Travelodge opens

92. On 12 September 2017, the Council issued an Interim Occupation Certificate “excluding public access to the roof top terrace – access for maintenance only”. According to a letter from Travelodge, the hotel opened its doors. Mr Andary agreed that Travelodge commenced operations that day.

93. Also on 12 September 2017, the Contractor submitted a payment claim and issued As Built drawings, certificates, manuals and warranties. Some of the paperwork obtained by the Contractor’s plumbing subcontractor cannot be found. Mr Stassos is the general manager of Pipeline Plumbing Services and said that, in about September 2017, he observed his supervisor undertaking flow testing of the fire hoses to the carpark. This process involved engaging a testing contractor to do the test and send the results to Pipeline Plumbing, which then prepared the certificate for the certifier. These results are needed to obtain an occupation certificate. Although Mr Stassos has been unable to find a copy of the certificate provided by the testing contractor, he is confident that the information set out in the occupation certificate in respect of the fire hose wheels came from the information provided by the testing contractor to Pipeline Plumbing and forwarded to the certifier. Mr Stassos was not required for cross-examination and I accept his evidence.

94. Mr Baltovski also started working for the Contractor on 12 September 2017 and went to the site, although at that stage he was not familiar with the contract documents. Before joining the Contractor, Mr Baltovski had worked in the construction industry as a contracts manager for several years. On observing the construction work, Mr Baltovski understood that the work was complete save for a few minor defects such as paint touch ups. The Travelodge hotel was operating. The construction of the commercial spaces on levels 7 to 12 was, as he understood it, complete save for minor defects. Mr Baltovski also inspected the carpark: all crash barriers, louvres and wheel stops had been installed and the lines for the car spaces had been marked. The bathroom was painted. The landscaping had been mulched. A final clean was required. The carpark operator was finalising its fit out, including installing and commissioning pay machines.

95. From what he observed and based on his experience, Mr Baltovski understood that the works were complete save for a few minor defects. Thereafter, it became Mr Baltovski’s job, as part of the Contractor’s client services team, to manage the post-practical completion defects management process. Mr Baltovski agreed that he has been sending people out to the site to undertake work from time to time to rectify suggested defects ever since.

96. On 13 September 2017, the architect issued a further report based on a site inspection on 8 September 2017. The architect identified problems in respect of the driveway, façade blades, driveway line marking, sliding glass doors, ground floor hotel walls, the hotel lobby ceiling, restaurant dining room, ground floor aluminium screens and a range of other matters. On 15 September 2017, the Superintendent asked the Contractor to urgently apply the approved finish to the carpark entry.

97. On 18 September 2017, Travelodge announced that the hotel had officially opened for business “this past week”. The hotel had 209 rooms and offered all-day dining and a late night bar, together with an 800-bay carpark. According to an email from the Contractor to the PCA, copied to the Superintendent and the Principal, the PCA “advised that no further [occupation certificate] will be issued … the interim [occupation certificate] … should be treated as FINAL.” The Contractor sought confirmation of this in writing.

“Conditional” notices of practical completion

98. It will also be recalled that clause 34.6 of the Contract provided that, within 14 days of receiving a request from the Contractor to issue a certificate of practical completion, “the Superintendent shall give the Contractor and the Principal either a certificate of practical completion evidencing the date of practical completion or written reasons for not doing so.” Here – somewhat curiously – the Superintendent issued two “conditional” notices of practical completion to the Contractor: one for Building A and one for Building B. The proper construction of these notices and their contractual effect, if any, was the subject of extensive debate.

99. As to the first of these notices, on 20 September 2017, the Superintendent issued the Contractor with a “Notice of Practical Completion (Conditional) – Building A”, which stated: (emphasis in original)

Pursuant to Clause 34.6 of the … Contract the Superintendent hereby issue a Conditional Notice of Practical Completion for Building A and External Areas only. This notice is to take effect as of the 12^th of September 2017.

For clarity, this is not Notice of Practical Completion for Building B (conditional or otherwise). The tenant for Building B has not taken possession of Building B on the 12^th of November 2017 (sic) due to major unfinished construction items and safety concerns.

There are many items outstanding to achieve full completion for Building A and the external Areas. However, as the Tenants for Building A have taken occupation (excluding the roof terrace due to noncompliance by the Contractor) and the Interim Occupation Certificate has been received from Council (received 12^th September 2017), this Practical Completion Notice will be issued Conditionally.

This Notice of Practical Completion being finalised and serving its full purpose under Clause 34.6 (being the full project completion), is dependent, but not limited, on the conditions that the Contractor complete, rectify or otherwise fix the Works noted within Appendix A to the satisfaction of the Superintendent.

100. It is not entirely clear what the Superintendent had in mind when referring to “full completion”, but in any event, the notice concluded, “The Works are to be completed by the 30th of September 2017.” Appendix A listed 29 items, being: (emphasis added)

1   Clean and seal external hardstand

2   Replace rain water tank with Slim Line Tanks

3   Awning above common lobby to be finished as per design

4   Finalise cladding to the south façade of Building A

5   Finalise columns on south entry port cochre

6   Render block work around substation

7   Render wall and paint between site and Jet Pets

8   Finish roof awning on Building A West elevation

9   Install missing Louvres to west wall Building A ground floor

10   Replace all mulch with that which is fit for purpose

11   General finalization to café

12   Stairs to mezzanine café needs cleaning and light missing

13   Unisex toilet on the mezzanine level need to be cleaned

14   Complete the waterproofing in the mezzanine plant room

15   Install detail around letterboxes

16   Finish porte cochre kerb rectification

17   Finish column skirtings in lobby

18   Install floor mat on entry from courtyard to lobby

19   Seal courtyard

20   Clad courtyard parapet

21   Install missing kick plates to kitchen

22   Epoxy lift landings on commercial levels

23   Clean and finish off bathrooms on commercial levels

24   Protection to commercial lifts and plasterboard on commercial floors to remain

25   Lobby to pass acoustic reverberation test as required by Toga

26   All items highlighted by Skematics within their site visits and reports including all future issues

27   Solution to allow access to roof terrace

28   All defects highlighted by [Travelodge] during their defective inspections and all future issues

29   All defects highlighted by [the Superintendent] during their defect inspections and all future issues

Items 26, 28 and 29 referred to items to be identified by Skematics, Travelodge and the Superintendent “including all future issues”.

101. Mr Tabet was shown some of the photographs accompanying the notice and agreed that one of the entries to the hotel was not completed, where the final cladding had yet to be installed and an electrical cable was dangling down. However, he said these could be minor works which did not prevent the use of the building as intended, particularly where Travelodge had opened the hotel to the public as soon as the interim occupation certificate was issued. There were a number of access points to the hotel, of which this was but one, “Travelodge were very thorough in how they operated and they wouldn’t have opened to the public if they … deemed it to be unsafe to the public.”

102. Also on 20 September 2017, the Superintendent provided the Contractor with a carpark defect report, noting that Wilson Parking had advised that it could not operate the carpark in its current state. The Contractor was requested to note that “liquidated damages will continue as [practical completion] for this building has not yet been issued.”

103. Also on 20 September 2017, the financier’s quantity surveyor recommended payment of the Contractor’s progress claim of 12 September 2017 save for some $3,000 (being provisional sum adjustments for section 73 works and signage). Whilst the quantity surveyor understood that practical completion had not been reached due to a number of defects to Building A and Building B, “We understand these defects to be minor and once completed by the Contractor, practical completion to both Buildings A and B will be issued by yourselves [the Superintendent] and a final occupation certificate will also be issued.” On 22 September 2017, the Superintendent recommended payment accordingly.

Wilson Parking opens

104. Wilson Parking commenced operations on 25 September 2017. The Contractor also wrote to the Superintendent, confirming that the PCA had advised, “NO further certification will be issued and that the Interim Certificate provided is to be treated as final certification for the project.” The Superintendent was asked to discuss the matter with the PCA and advise “how this is to be closed out for all stakeholders involved.”

105. On 26 September 2017, the Superintendent provided the Contractor with the architect’s site inspection report, conducted on 15 September 2017. The Superintendent noted a “number of worrying issues” which required immediate action, albeit noting that some of the items may have been attended to since the date of inspection. Comments were sought on all items by close of business.

106. Later that day, the Contractor advised the Superintendent that all outstanding and rectification works for the carpark had been attended to, “We understand that the carpark is now in operation”. In accordance with clause 34.6 of the Contract, the Contractor was of the opinion that practical completion had been reached for Building B and requested the Superintendent to issue a certificate of practical completion.

107. On 29 September 2017, the Superintendent sought comments from the Contractor as to how it proposed to correct two carpark defects, where the crash rails were not in accordance with approved documentation and the sofit and columns did not comply with the specified concrete finishes.

108. On 6 October 2017, the Superintendent sent a stern email to the Contractor, advising that the current rate of defect rectification was considered “unprofessionally slow and grossly unacceptable” where two labourers were on site rectifying “the enormous amount of defects” without the assistance of professional tradesmen or contractors. The Superintendent advised, “We have fire alarms still going off, there are water and FUEL leaks occurring, guests are complaining, Travelodge are complaining, the Client is complaining. You have failed to achieve the PC date, you have failed to then meet the 4th of September date and now you have again failed to meet your self imposed date of the 30th of September.” The Superintendent advised that, if the remaining defects were not completed by 13 October 2017, the Principal would begin engaging contractors to complete the works at the cost of the Contractor, pursuant to clause 35 of the Contract.

109. This brings us to the second notice. On 10 October 2017, the Superintendent issued “Notice of Practical Completion (Conditional) – Building B” to the Contractor, which followed the format of the first notice. The notice was said to be given pursuant to clause 34.6 of the Contract. The notice was to take effect as of 25 September 2017. Many items were said to be outstanding to achieve “full completion”, however, as the tenants had taken occupation, and an Interim Occupation Certificate had been received on 12 September 2017, the practical completion notice was issued “Conditionally”. Further:

The Notice of Practical Completion being finalised and serving its full purpose under Clause 34.6 (being the full project completion), is dependent, but not limited, on the conditions that the Contractor complete, rectify or otherwise fix the Works noted within Appendix A and those noted within Aconex correspondence MMD CC-GCOR-OOO579 dated 22^nd September 2017 [not in evidence] to the satisfaction of the Superintendent. In addition, The Contractor is to note that the concrete finish across the whole carpark is not the class finishes as specified within the contract (refer to report within appendix B). The Contractor is to provide a report on completion, confirming that the concrete finish meets the specifications as outlined within the Contract.

110. These works were to be completed by 13 October 2017. Attached to the notice was a report by the Superintendent detailing 65 items requiring attention in the carpark, together with a list of defects and Mr Worthington’s report of 8 August 2017, referred to at [73].

111. On 11 October 2017, the Contractor replied to the Superintendent, suggesting that the Superintendent’s Notices of Practical Completion dated 20 September 2017 and 9 October 2017 evidenced that practical completion had been achieved on 12 September 2017 for Building A and 25 September 2017 for Building B, presumably relying on the retrospective dates in each notice. The Superintendent’s suggestion that the Contractor had failed to achieve practical completion and that liquidated damages were ongoing was said to be nonsensical, where both the hotel and the carpark had been in operation for a number of weeks. The Contractor advised that it would review and respond to the consolidated defects list in due course.

112. The Superintendent responded that the practical completion notices issued were conditional only, where the roof terrace for Building A was non-compliant and not legally accessible. Building B was not fit for purpose until certain defects were rectified and the tenant confirmed its acceptance to take over the building. The Superintendent provided a calculation of liquidated damages, being until 25 September 2017 for Building B, “When Wilson’s confirmed acceptance”, and continuing for Building A, but only in respect of the roof terrace.

113. On 13 October 2017, the Contractor responded to the Superintendent and the Principal, advising that there was no mechanism under the Contract for the Superintendent to issue a conditional notice of practical completion. Rather, the notices issued evidenced that the Contractor had achieved practical completion for both buildings. I will return to the meaning and effect of the “conditional” notices at [204].

Request for partial return of security

114. Clause 5.4 of the Contract provided:

5.4   Reduction and release

Upon the issue of the certificate of practical completion a party’s entitlement to security … shall be reduced by [50% of amount held], and the reduction shall be released and returned within 14 days to the other party.

115. On 16 October 2017, the Contractor requested return of 50% of the security, on the basis that the two “conditional” notices of practical completion comprised, in effect, a certificate of practical completion under the Contract. The first bank guarantee was not returned.

116. On 23 October 2017, the Principal, the Contractor and the Superintendent met to discuss remaining issues. A note of the meeting was circulated by the Contractor, on which the Superintendent provided its response. The parties disagreed on a number of matters: whether roof access to Building A was compliant; whether responsibility to obtain a final occupation certificate rested with the Principal; whether practical completion had been achieved; and, whether the Contractor was entitled to the return of 50% of its security.

117. Following the meeting, Mr Andary emailed the PCA requesting confirmation as to why the roof terrace was not approved as part of the interim occupation certificate and what was required to remedy this. On 24 October 2017, the PCA advised that the internal stairs providing access to the rooftop terrace were unsafe given the potential for occupants to be trapped on the rooftop. Alternate access down the maintenance ladder in the case of an emergency was not practical and was also unsafe. Fire & Rescue NSW did not consider the access to the rooftop to be suitable for members of the public. On 25 October 2017, the Superintendent provided the PCA’s advice on the roof terrace to the Contractor and asked how the Contractor would rectify the issue, suggesting that financial losses were being incurred by the Principal due to the reduced value of the building and the income which would have been generated by the area, “This matter is critical as it is a clear requirement under the contract to have this area accessible by tenants.” The Contractor disagreed, stating that it had done everything it was required to do to enable the Principal to obtain an occupation certificate.

118. On 26 October 2017, Mr Baltovski circulated an updated defects list, advising that the last few outstanding items would be completed the following week. Mr Baltovski said all items were completed by 1 November 2017. The Contractor had then addressed all of the defects set out in the two “conditional” certificates of practical completion for which it was responsible.

119. Wilson Parking served a notice of default on the Principal in respect of the carpark. The Superintendent forwarded the notice to the Contractor, requesting that the list of defects in the notice be rectified within 14 days. On 30 October 2017, the Contractor replied, having inspected each of the listed items, with comments and actions against each item which was the responsibility of the Contractor. The Contractor also followed up its request for release of 50% of the security, suggesting the Principal was now in breach of contract.

120. On 2 November 2017, the Superintendent advised the Contractor that, following an inspection that day, the Superintendent was not satisfied that the Contractor was rectifying defects satisfactorily. Major defects included the crash rails, concrete finishes within the carpark and “slurry, rubbish and marking which has been sealed over”. The Superintendent also advised that Wilson Parking had been notified that five cars had been damaged by leaking water and calcification falling onto cars. The costs in respect of the cars would be passed on to the Contractor, “All car spaces under the expansion joints need to be barricaded off to avoid people parking there”.

121. The Superintendent also provided photographs following an inspection of levels 7 to 11 of Building A, “Note that within the commercial levels defects are general across all floors.” Mr Tabet was shown some of these photos, but did not agree that the photographs recorded major defects. Although some of the concrete floors on the commercial levels were uneven, this was a “base building” handed over to the commercial tenants for fit out. Any floor undulations would be corrected by a floor topping laid to suit whatever floor covering the tenants required.

122. On 3 November 2017, the Contractor advised that it did not accept the suggestion that cars were damaged by reason of any defect, absent further evidence, noting that it had not rained recently and so the joints would not have leaked. A waterproofer was inspecting the joints that day with a view to commencing rectification the following week. On 6 November 2017, the Contractor sought access to the carpark for its sub-contractor to carry out rectification works on leaking joints on level 5 of the carpark. The sub-contractor would saw cut the joints to 25mm, apply a water based epoxy membrane and sealant to complete the works.

123. The Superintendent confirmed access but noted “it is NOT only the level 5 joint which requires rectification …but it is in fact ALL levels.” The Contractor did not agree, noting that “driving rain which enters the sides of the carpark (being an open carpark) and rain that comes in through the opening in the middle of the carpark is not the responsibility of Parkview.” The Superintendent did not agree, stating that the Contractor was responsible for ALL of the expansion joints leaking, irrespective of where the water came from.

124. On 10 November 2017, the Contractor submitted a progress claim for $217,920 and the unpaid GST of $188,000. The Principal submitted that the issuing of a further progress claim was inconsistent with the suggestion that practical completion was achieved in either September or October 2017. If such works only related to defect rectification, then the Contractor was not entitled to claim for them.

125. The Contractor did not address this submission, which had merit. Perhaps, where the Superintendent had disclaimed that practical completion had been achieved, the Contractor took the opportunity to recoup some of the expenses being incurred in remedying defects. Ultimately, the Contractor’s action in this regard does not assist greatly in determining whether practical completion had been reached, where the critical opinion on this subject under clause 34.6 of the Contract is that of the Superintendent. The Contractor’s state of mind is not particularly relevant. In any event, the progress claim was assessed at nil after deducting liquidated damages of $177,767 as calculated by the Superintendent, and given the Superintendent’s advice that practical completion had not been achieved due to defects and incomplete works. A further $45,000 was deducted for incomplete works associated with the roof terrace.

126. On 10 November 2017, the Superintendent provided the Contractor with photographs and videos of the carpark and expressed concern that cars were being damaged due to calcification. The Contractor was requested to provide comments as soon as possible “with this issue constantly compounding at a rapid rate”. On 13 November 2017, the Contractor advised that all movement joints on level 5 of the carpark had been remedied. The photographs and videos provided by the Superintendent showed ponding on the slabs of each floor, said by the Contractor to be due to rainwater entering the open sides of the carpark or through the main void which ran the entire height of the carpark. The Contractor did not accept responsibility for the ponding.

127. While the Contractor and Superintendent had been exchanging and updating defects lists, on 15 November 2017 the Contractor provided the Superintendent with a compilation of all defects lists, which the Contractor aimed to have completed by 24 November 2017. This ‘master defects list’ was updated from time to time thereafter.

128. On 25 November 2017, the Superintendent forwarded a number of invoices rendered by NSW Fire Brigade for attending to false alarms at the hotel. The Contractor advised that it was working with its fire engineer, Precision Fire, to find a solution to the problem. Meanwhile, the Superintendent pressed the Contractor to pay the invoices, said to be the Contractor’s responsibility. The Contractor did not agree, advising that the fire services and mechanical services on the project had been constructed and were operating in accordance with the contract documentation.

129. On 7 December 2017, following a meeting with the Council, the Superintendent reported that any solution for the roof terrace should not require a new fire engineering report, as this would mean that the proposal would need to go through Fire & Rescue NSW again. The Council was happy to review any options and advised that the solution did not need to go back to the fire brigade if the following was implemented:

●   Stairs to roof top to be made compliant. This includes, width, head heights, hand rails, landing, etc.

●   Enclosure of the stairs and inclusion of a door to the stairs. This will provide the new barrier for the pressurisation instead of the hatch.

●   Step caused by hatch frame when exiting onto the roof terrace removed.

Where the Principal had advised that “tenants are moving in within the month”, the Contractor was asked to provide sketches and options for review.

130. On 8 January 2018, the Contractor was asked to advise when it would “start sealing the concrete cold joints ALL Levels”, as the issue was affecting numerous bays which were still being blocked off by Wilson Parking. The Contractor advised that all joints which had previously leaked had been waterproofed and sealed. The Contractor was provided with photographs, “the leaks are clearly still there.” The Contractor advised it would inspect the leaks shown in the photographs and the remainder of the carpark and rectify accordingly.

131. The Contractor also followed up its request for return of 50% of the security, “On any view, the project has reached practical completion. Parkview maintains that practical completion was achieved by no later than 4th September 2017. We do not accept that practical completion was achieved on 10th October 2017, but even if it were, the release of the 1st 50% of security is still months overdue.” The Contractor advised that it would continue to carry out its obligations under the Contract by closing out defects.

132. On 10 January 2018, the Principal replied, suggesting that the conditional notices of practical completion issued by the Superintendent did not evidence the Superintendent’s opinion that the works had reached practical completion at the date of each notice. Rather, the notices appeared to evidence that the Superintendent had formed the opposite opinion, namely, that practical completion had not been reached. As such, the Principal did not agree to release the security. Further, “It would appear that all parties would benefit from the Superintendent clarifying matters raised in the Conditional PC Notices. The Principal requests that the Superintendent clarify and confirm their opinion as to whether Practical Completion … had been reached for the Works … at the time the Conditional PC Notices were issued.”

133. To this, the Contractor replied that it was “absurd” to suggest that practical completion had not occurred. Further, “Parkview no longer has possession and/or control of the site. The Principal has taken possession of the site and given occupation to its tenants. The tenants are operating their businesses with full use of the property and the Principal is receiving a rental income …”. Further, the Contractor complained that the Principal now appeared to be performing the role of the Superintendent, contrary to clause 20 of the Contract. (As far as Mr Baltovski recalls, the Superintendent had not attended a site inspection since December 2017, although he has continued to receive emails from the Superintendent raising alleged defects based on the advice received from the Principal.)

258. I consider that, by these clauses, the Contract established a regime indistinguishable from those analysed in Turner and Bitannia. I note that, in clause 35, the Principal was entitled to have rectification works carried out by others if the Contractor did not rectify a defect by the date directed by the Superintendent, “without prejudice to any other rights and remedies the Principal may have”. However, the Contract envisaged that a final certificate would be later issued, evidencing the moneys finally due and payable “on any account whatsoever in connection with the subject matter of the Contract”: clause 37.4. Any other rights and remedies which the Principal may have against the Contractor for failing to rectify defects in accordance with the Superintendent’s direction would surely fall within this description.

259. Unlike Hacer, the Contract does not contain detailed indemnities which suggest that the Principal was permitted to rely on its common law right to damages even if it had not complied with the contractual regime governing the notification and rectification of defects.

260. As such, I conclude that, by clear words, the parties to the Contract have surrendered their common law right to damages. Where practical completion was achieved on 25 September 2017, the final certificate produced by the Superintendent on 6 November 2018 (at Schedule 3) was served in accordance with clause 37.4 of the Contract. It follows, pursuant to clause 37.4, that the final certificate constituted "conclusive evidence" regarding defects, subject to the exceptions described in that clause.

Reasonable inspection

261. Save for defects referred to in the notices of dispute “served before the 7^th day after issue of the final certificate”, clause 37.4 provides that the Contractor is discharged from any liability under the Contract except for any defect “which was not apparent at the end of the last defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate”. Reasonable inspection does not involve having to undertake invasive procedures or access areas that are not readily visible, absent some reason to suspect the existence of a defect: Owners Corporation Strata Plan 61288 v Brookfield Multiplex [2012] NSWSC 1219 at [70]-[71] (per McDougall J).

262. The only expert evidence as to whether the alleged defects were apparent at the end of the last defects liability period, or which would have been disclosed upon reasonable inspection at the time of the issue of the final certificate, was that of the Contractor’s experts, who opined that all of the defects would have then been apparent. Other than the use of a ladder, the experts were able to identify the alleged defects with relative ease.

263. The Principal submitted that the expert evidence on this topic was bare assertion and the Court would pay it no regard: Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588 at 604; [2011] HCA 21 at [37] (per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ). Rather, extensive inspections and investigations of the building were undertaken in 2017 and 2018, which did not reveal the defects identified after the commencement of the proceedings. Therefore, the Court ought conclude that such defects “would not have been disclosed upon reasonable inspection” prior to the commencement of the proceedings in December 2018.

264. I agree that the expert evidence of the Contractor’s witnesses was simply stated, but so was the question posed: would this defect have been apparent to you upon reasonable inspection? By and large, the Principal’s expert witnesses also agreed that the defects would have been apparent at the relevant time.

265. Further, whilst it is evident that, by the hearing, the Principal and its experts had gone over the buildings with a ‘fine tooth comb’, the extent to which the buildings were inspected for defects in the defects liability period – between September 2017 and October 2018 – is not entirely clear. Mr Worthington inspected the carpark in August 2017, referred to at [73]. This was before practical completion, when the Contractor’s engineer accepted that further works were required. Where ‘handover’ of the project was then to occur on 1 September 2017, Mr Worthington recommended that he reinspect the completed works and provide a second report. No second report is in evidence. Mr Worthington’s report was obviously preliminary in nature and not intended to capture defects in the work as completed.

266. The Superintendent and the architect inspected the buildings at about the date of practical completion – on 4, 8 and 15 September 2017 and 4 October 2017 – presumably for the purpose of ascertaining whether practical completion had been achieved. Their reports did identify a number of defects, presumably to be attended to either before practical completion was considered to have been achieved or during the defects liability period.

267. Ten months later, in June 2018, the Principal obtained an engineering report in respect of the carpark only, concerning concrete finish and construction joints. It was then not until four months later – and after the Contractor had issued its final payment claim – that the Principal proceeded to obtain a flurry of expert reports on the building.

268. That is, as far as the evidence reveals, there was no careful or detailed inspection of Building A and Building B for defects after Travelodge and Wilson Parking commenced operations in September 2017, save for a report obtained on the carpark in June 2018, which focused on particular concerns. The apparently fairly limited investigations undertaken by the Principal at the time do not lead me to infer that the defects for which damages are now sought were not apparent at the time on reasonable inspection. Rather, I infer that the Principal and the Superintendent may have been proceeding on the assumption that practical completion had not been achieved, and would not be achieved, until the rooftop terrace was approved for public use. Consequently, they may have been unprepared for the final payment claim when it came and undertook what inspections they could in the limited time they had to respond to the claim. Given time constraints, or a conviction that the final payment claim was invalid, it appears that only a limited inspection was done at the time. The contractual regime for the notification and rectification of defects applied nonetheless.

269. The schedule of defects served by the Principal on 6 November 2018 listed 150 items. The Principal’s Scott Schedule served in June 2020 comprised 382 items. On the basis of the expert evidence adduced by the Contractor, I am satisfied that the defects in the Scott Schedule were apparent at the end of the defects liability period, being 25 September 2018, or would have been disclosed upon reasonable inspection at the time of the issue of the final certificate on 6 November 2018. To the extent that the defects in the Scott Schedule go beyond the schedule of defects served on 6 November 2018, the Principal is not entitled to seek the cost of rectifying such defects, where the contractual regime for the notification and rectification of the defects was not deployed.

Remaining defects

270. Many items in the Scott Schedule had been rectified by the conclusion of the hearing or were not pressed, leaving about 100 items. Ultimately, the Principal sought $1,691,403.90 for acoustic, concrete, fire, hydraulic, mechanical and general defects.

271. The Contractor accepted 25 items. The parties agreed that $21,872.17 was payable in respect of these items. The parties recorded their remaining disagreement in a Scott Schedule. Most of the remaining items were not included in the schedule of defects served by the Principal on 6 November 2018. I did not understand the Principal to cavil with the Contractor’s categorisation of defects as to those which were included in the 6 November 2018 schedule and those which were not. I have removed the items which were not notified in accordance with the Contract and recorded my conclusions in relation to the remaining items under a further heading “Decision” in the Scott Schedule, a copy of which is attached to these reasons. The major items in the Scott Schedule are explained further below.

272. In considering the remaining items, I have applied the principle that, where building works are defective because they are not in conformity with contractual requirements, the court will award damages by reference to the costs of rectification, where this is reasonable and necessary: Bellgrove v Eldridge (1954) 90 CLR 613 at 617-618; [1954] HCA 36 (per Dixon CJ, Webb and Taylor JJ); Owners - Strata Plan No 74602 v Brookfield Australia Investments Ltd [2015] NSWSC 1916, [38]-[40] (Stevenson J). The Court may draw an inference about the existence of defects generally based on the presence of defects in samples, particularly where the evidence points to the existence of a design issue rather than an issue of poor workmanship: The Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612 at [185]-[191] (per Ward J).

Item 30: Face plates on ceiling in every guest room need to be replaced, patched and painted

273. Mr Abbott was instructed that the smoke alarm had been installed in 180 hotel rooms on the lower ceiling in the incorrect location. The smoke alarm was moved and a blank face plate installed in its place. Mr Abbott did not physically count the number of times he saw the face plate, but stated “there was lots of them.” Mr Abbott considered that the use of a face plate was unsatisfactory; rectification had not been completed in an acceptable tradesmanlike manner and to an accepted industry standard. The cost of rectifying this visual defect was estimated at $28,662.40. Mr Abbott agreed that there was no code or specification that prevented blanks being used for this purpose, “only good workmanship”, where experts may differ on what they consider to be good workmanship.

274. Mr Iskowicz observed that the smoke alarm had not been moved in several rooms and remained in the location identified on the design plans. Where the smoke alarms had been relocated from the bulkhead to the room ceiling, he considered that the work had been carried out in a tradesmanlike manner and any defect was aesthetic only. Mr Iskowicz agreed that, “In a perfect world”, a hole in the gyprock ceiling would be plastered, sanded and painted so that the previous hole could not be seen, “that would depend on the nature of the discussions that took place”.

275. As far as the contemporaneous records reveal, there was a problem with false fire alarms. On 12 January 2018, the Superintendent complained that the hotel had multiple false alarms and associated charges from the fire brigade, and suggested that the Contractor was obliged to pay these charges. On 16 January 2018, the Superintendent gave approval to the Contractor to commence rectification of the smoke detector issue by moving the smoke detectors, “This approval is not an instruction on how to rectify the issue, only that [the Contractor] may proceed with the option they see fit.” Mr Baltovski said that, while the Contractor was not responsible for the fire alarms being falsely activated, it relocated the fire alarms and placed blank plates over their original locations, to assist Travelodge. The Contractor also assisted Travelodge to submit a waiver application for reimbursement of the invoices.

276. On 22 January 2018, the Superintendent advised the Contractor that the repair to the hole following the relocation of the smoke detectors was “NOT acceptable. A cover plate was never relayed nor approved by Travelodge. The hole must be repaired, patched and painted.” On 13 March 2018, the Superintendent requested the Contractor to remove the face plates that had been installed where smoke detectors had been relocated, and to patch and paint the area to ensure a uniform finish across the ceiling, at no cost to the Principal; “This methodology was never approved by the client nor Travelodge.”

277. As I understand Mr Iskowicz’s evidence, the smoke alarms were installed in the correct location according to the plans. However, this location led to a series of false fire alarms, apparently due to steam from the bathroom or a nearby kettle. While the Principal has not established that the smoke alarm was installed in the wrong location, the fact that the location specified on the plans proved unworkable points to a defect, where the Contractor warranted that the drawings, including those provided by the Principal, were suitable for the Works: clause 2.2(a)(ii.a).

278. It is clear from the contemporaneous records that there was no discussion between the Superintendent and the Contractor as to how the hole left in the gyprock ceiling following the removal of the smoke alarm would be treated. Instead, the Superintendent left it to the Contractor to “proceed with the option they see fit”. Presumably, installing a blank over the hole was quicker and cheaper.

279. I accept that the blank is less aesthetically pleasing than the treatment now sought by the Principal. The question is whether the blank is inconsistent with the Contractor’s obligations under the Contract. Clause 29.1 obliged the Contractor to “use suitable new materials and proper and tradesmanlike workmanship”. On balance, I consider that using a blank to cover the hole, rather than plaster and paint did not “use suitable new materials and proper and tradesmanlike workmanship” in the absence of the Superintendent or Principal agreeing that the quick, cheap solution was acceptable.

280. Ultimately, the Principal said the defect was present in 193 guest rooms. Extrapolating from Mr Abbott’s calculations based on 180 rooms, the Principal submitted that the cost of fixing the defect in 193 rooms was $30,067.72. Mr Madden accepted Mr Abbot’s calculations (based on 180 rooms) and thus I have accepted the extrapolated calculations put forward by the Principal.

Item 35: carpet at doorway not level with corridor

281. Mr Andary said he had inspected the carpets of each room and observed that the carpet inside the room is higher than the entry threshold below the door. Mr Abbott did not inspect every room and produced photographs of one room. Mr Abbott added that the fire seal on the bottom of the door was inconsistent in that some dragged on the carpet and some sat above the threshold. He considered this to be a visual defect which also damaged carpet and was a potential trip hazard. On the basis that the defect existed in every room, Mr Abbott estimated that the cost to rectify this was $16,385.60.

282. Mr Madden agreed with the estimated cost but disagreed as to the existence and scope of the defect. Mr Iskowicz noted that the specifications for the carpet in the room were different to those in the hallways. Underlay was specified for the rooms but not the hallways. The threshold for each room and the hallways was required to have a fire compliant transition, being a gap not greater than 10mm between the floor and the bottom of the door. Mr Iskowicz observed the required clearance had been provided and did not observe evidence of damaged carpet or trip hazards. He considered that the transition between the hallway surface and the room surface was consistent and compliant and there was no defect.

283. Mr Abbott said that it was typical in any development where different carpets were being used “to humour one or the other by way of another topping … to bring the two together … It’s usually a quick swipe of … another topping that does that, it’s not a big deal when a carpet goes down.” A screen of a cement-based product was used to build one level up to match the two carpet heights. Mr Iskowicz disagreed as cut cement-based products were not used up against the carpet to lay the next carpet. The difference between the carpet heights was within a millimetre or two, “It’s not really something I think that the people would have worried about when they were building.”

284. Whilst I accept the Principal’s submission that it may be reasonable to infer that the difference in carpet heights observed by Mr Abbott and Mr Andary was present for all hotel rooms, the evidence does not establish that any difference in the carpet heights at the door threshold is a defect, a trip hazard, or was caused by any breach by the Contractor of its obligations under the Contract. In particular, there was no evidence as to what the difference in height between the two carpets was and whether this posed any particular problem to hotel guests or staff. This defect is not established.

Item 149: The green external barricades were not approved by the client

285. Returning to the carpark crash rails, the Principal submitted that the plans and details consistently showed the crash barrier extending to cover the slab edge. The crash rail system as a whole was required to meet the architectural intent of the contract drawings. The crash rail supplied and installed by the Contractor is fixed to the top of the slab with the slab edge exposed. There is no evidence that any variation was sought by the Contractor, or directed or approved, in order to carry out these works in the manner it did. The Contractor's response to the Principal's complaint was to paint the slab edge green. The appropriate method of rectification is the replacement of the existing crash rails with a compliant system, at an estimated cost of $97,238.

286. The Contractor submitted that there was no expert evidence to establish a breach of contract. The scope of works mentioned nothing of the screens or façade. The complaint made by the Principal was said to be new. The Scott Schedule was said to relate to a different defect.

287. The history of the development of the plans in respect of the carpark crash rails is earlier described at [52]-[61]. The design for the crash rails moved from a crash rail with a separate façade structure to a combined structure following the “value engineering” process. However, the revised plans and details continued to refer to crash rails “combined with cantilevered balustrade with perforated & corrugated metal panels”. The details continued to depict the panels extending over the slab edge.

288. I agree that what has been installed does not comply with this detail and, whilst the architect appears to have been consulted as to the crash rails to be installed, the Contractor does not appear to have sought, or obtained, a variation from the Superintendent, as required by the Contract. Clause 36.1 of the Contract provided that the Contractor was not to vary the works except as directed (including, approved) in writing. Installation of the crash rails drew the immediate protest of the architect and the Superintendent. I am satisfied that the Contractor breached the Contract.

289. More difficult is what damages, if any, should be awarded. The Scott Schedule in respect of this item claimed, “The green external barricades were not approved by the client”. Mr Abbott requested more information from the Principal as to the suggested breach. Mr Iskowicz agreed that more information was required in order to assess this item.

290. Mr Abbott’s costing for this item involved removal of the existing green barricades and replacement by Rhinostop Elite type 1 system and the installation of a new hand rail. However, the Principal’s complaint is not that the crash rail does not comply with the Contract but that the external façade was not installed in accordance with the plans and details. Mr Abbott has not costed the installation of this façade. Rectification in the manner costed by Mr Abbott would not accord with the plans and details either and, presumably, would be less satisfactory than the current structure. Thus, the costings provided do not assist.

291. Further, from the photographs of the crash rails as installed (see [57]), it appears that the crash rails protrude beyond the slab edge such that it may not be possible to install corrugated metal panels on the outer edge of the crash rail to align with the slab edge.

285. Whilst I accept that the crash rails installed may not meet the architectural intent of the contract drawings, the costs of entirely removing the crash rail system and re-installing a structure which precisely accords with the drawings and plans may be difficult to justify, that is, the cost of rectification may not be reasonable or necessary. In any event, there is no evidence as to what that cost may be where Mr Abbott has estimated the cost of rectification in a manner which is not, in fact, what the Principal wants to occur.

Preliminaries and Builder’s Margin

293. Mr Abbott allowed 15% for preliminaries. Mr Madden agreed with that figure if the defects were found to exist and were as extensive as suggested.  However, if the defects were limited in quantum to $170,000, then it would not be reasonable to allow a cost for a contractor to undertake all these works. The works would most likely be undertaken by contractors already engaged for maintenance works. In that event, Mr Madden allowed $18,000 for a facilities manager to manage the works, being approximately 200 hours. This represented preliminaries of about 10.5%.

294. The Principal submitted that it was not a builder nor was it involved in the construction industry. It would have to appoint a building or project manager to administer the work necessary to rectify the defects. Nor was it reasonable to expect a facilities manager to undertake the role of builder or project manager. I agree and will allow preliminaries at the percentage suggested by Mr Abbott.

295. Mr Abbott also allowed 15% for the builder’s margin. Mr Madden suggested 10% as, based upon his recent review of tenders, the normal builder’s margins were now in the vicinity of 3% to 6%.

296. The Principal submitted that Mr Madden’s view appeared to be heavily influenced by his experience with greenfield projects, something that Mr Abbott identified as a distinguishing feature in the present case. In the circumstances, the allowance by Mr Abbott should be accepted. Where Mr Abbott had no formal qualifications as a quantity surveyor, the Contractor submitted that the evidence of Mr Madden would be preferred by the Court. I generally preferred the evidence of Mr Madden and will adopt his figure of 10%, noting that it exceeds the figure he is presently seeing by a healthy margin in any event.

297. The total of the agreed defects and the defects which I have found to be established in the attached Scott Schedule total $164,445. Adding preliminaries and builder's margin, this becomes $208,023.

ORDERS AND COSTS

298. Whilst the Contractor is entitled to judgment and orders in respect of unpaid GST and the bank guarantees, the Contractor invited the Court to deduct any sums which the Court determined were payable for building defects. I request the parties to confer and provide final orders to reflect the set-off between the Contractor’s claim and the Principal’s cross-claim, noting (without including interest calculations):

1. the Contractor is entitled to $188,000 for unpaid GST, damages of $27,025 in respect of the first bank guarantee, damages of $43,240 in respect of the second bank guarantee and an order that the Principal release and deliver up second bank guarantee; and

2. the Principal is entitled to liquidated damages of $254,100 and rectification costs of $208,023.

299. As to costs, the Contractor submitted that the Principal has had the benefit of the use of the site since 12 September 2017, more than 5 years ago, leasing the premises to lessees including Travelodge and Wilson Parking. Notwithstanding this, the Principal refused to concede that practical completion of the works had been achieved. The Principal maintained a cross-claim for a significant award of damages for defective works, initially said to be $8.85 million but ultimately reduced to $1.7 million. The Contractor contended that the Principal was only entitled to a modest award of $72,503. Whilst the Contractor had returned to perform further works at the premises over the past five years, this was done without admission and on a commercial basis. The Contractor was entitled to the return of its bank guarantee and damages. Overall, the Contractor submitted that it was entitled to its costs of the proceedings.

300. The Principal submitted that many of the defects about which it complained were only rectified after the commencement of proceedings in December 2018 or after the bringing of a cross-claim in March 2019. While no damages were claimed for rectification of such defects, the scope of the dispute between the parties would have been substantially narrower if these defective works had been performed in accordance with the Contract. Further, the existence of these (now remedied) defects was said to demonstrate that it was reasonable for the Principal to commission experts to undertake relevant investigations. Irrespective of the final quantum of the unremedied defects, the Principal should have the costs of its expert evidence, including in relation to the hydraulic defects.

301. The Contractor has substantially succeeded in respect of the relief which it sought. The Principal succeeded on its cross-claim, although the degree of success may be described as modest indeed. To some extent, that is because the Contractor has already rectified defective building work during the pendency of these proceedings. However, there is a limit to which I should treat this rectification as an acceptance by the Contractor that the building works were defective and its responsibility. First, the rectification was expressly undertaken on a commercial and without admission basis. Second, as these defects were not the subject of contest at trial, I have not considered the expert evidence in relation to these defects nor made any findings. Third, a party should not be discouraged from rectifying suggested defects on a without admissions basis. If the court was to proceed to take such rectification work as evidence that the defect in fact existed, including by awarding costs in favour of the other party, there would be little reason to resolve complaints in this manner.

302. As to the suggestion that the Principal should, at least, have its costs in respect of its expert reports, it does appear that the Contractor reviewed these reports and proceeded to propose solutions to fix the problems identified by the experts and to undertake rectification works. However, if the Principal had used the contractual regime for notification and rectification of defects by informing the Contractor of these defects in the defects liability period, then the extent of defects to be determined in these proceedings may have been far less or these proceedings may have proved unnecessary.

303. Further, the expert reports also considered a wide range of defects which were not identified in the schedule of defects provided by the Principal on 6 November 2018 and thus were not actionable in these proceedings where the defects were apparent, or would have been apparent on reasonable inspection, on that date. The Contractor was put to the expense of meeting that evidence, including by commissioning a large number of experts itself. A large portion of the hearing was devoted to defects which ultimately do not form part of this judgement.

304. Overall, I consider that the Contractor is entitled to the costs of its claim whilst the Principal should receive a portion of its costs of the cross-claim commensurate with its degree of success. Where the Contractor’s costs of its claim are likely far less than the Principal's costs of the cross-claim, a portion of the latter commensurate with the Principal's degree of success is probably roughly equivalent to the Contractor’s costs of its claim. In the result, I consider it appropriate in the circumstances to make no order as to costs.

305. For these reasons, I make the following orders:

1. Direct the parties to confer and, within 14 days, provide short minutes of order, preferably agreed, which reflect these reasons for judgment.

2. Direct the parties to notify any errors or omissions within 14 days.

**********

Scott Schedule (302889, rtf)

Amendments

06 March 2023 - Correction of date on coversheet.

Decision last updated: 06 March 2023