PHHH Investments No 2 Pty Ltd v United Commercial Projects Pty Ltd
[2023] VCC 516
•5 April 2023
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION BUILDING CASES LIST | Revised Not Restricted Suitable for Publication |
Case No. CI-18-01563
| PHHH Investments No 2 Pty Ltd (ACN 602 191 506) | Plaintiff |
| v | |
| United Commercial Projects Pty Ltd (ACN 110 860 369) | Defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22–26 February; 2–5 March and 9 March 2021; final oral closing submissions 19 November 2021 | |
DATE OF JUDGMENT: | 5 April 2023 | |
CASE MAY BE CITED AS: | PHHH Investments No 2 Pty Ltd v United Commercial Projects Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 516 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Building and construction – building contract – whether regime for determination of claims under the contract is exclusive – whether claims can be re-opened either under the contract or because of superintendent’s lack of impartiality – assessment of variations and extensions of time – whether date for practical completion brought forward by owner taking possession for kindergarten open days – calculation of liquidated damages – assessment of defect claims - leave to file and serve further amended defence and counterclaim – admissibility of additional documents following the close of evidence
Legislation Cited: County Court General Civil Procedure Rules 2018 (Vic) (“Rules”); Civil Procedure Act 2010 (Vic)
Cases Cited:Allmore Constructions Pty Ltd v K7 Property Group Pty Ltd [2016] VCAT 1770, Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211, Kane Constructions Pty Ltd v Sopov [2005] VSC 237, Bellgrove v Eldridge (1954) 90 CLR 613, Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, Metricon Homes Pty Ltd v Softley [2016] VSCA 60, The Owners - Strata Plan No 76674 v Di Blasio Constructions Pty Ltd [2014] NSWSC 1067, Turner Corporation Ltd (Receiver and Manager Appointed) v Austotel Pty Ltd (1994) 13 BCL 378, Director of War Services v Harris [1968] Qd R 275, Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1993] 3 All ER 417, De Cesare v Deluxe Motors Pty Ltd (1996) SASR 28, Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253, Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184, Aon Risk Services Australia v Australian National University (2009) 239 CLR 175, Traffic Technique Pty Ltd v Burgmann [2020] VSCA 319
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Richardson | Noble Lawyers |
| For the Defendant | Mr S Stuckey QC with Mr N Andreou | Macpherson Kelley |
Table of Contents
Table of Contents
Summary and Outcome
Factual background
The proceeding
The lead up to trial
Trial and closing submissions
Witnesses
Key terms of the Contract
Issues
Can UCP dispute PC 16 Rev A and the decisions of the architect pursuant to the Contract?
Contract construction
Can UCP dispute PC 16 Rev A and the decisions of the architect due to the conduct of the architect?
Particular variations
Processing variations
Variations register
Communications in relation to variations
Defects
Breach of clause A6.4 of the Contract
PHHH’s submissions
Analysis
Did PHHH breach clause A6.4 of the Contract?
How should the disputed variations be resolved?
Variations which the experts agreed
Variation 48 Rev A
Variation 55
Variation 56 Rev A
Variation 58 Rev A
Variation 59
Variation 62 Rev A
Variation 80
Variation 84
Variation 88
Variation 89
Variation 99
Variation 94 Rev B
Variation 96
Variation 26 and 30
Is PHHH entitled to liquidated damages in the amount certified or some other amount?
Is PHHH is entitled to liquidated damages?
What is the quantum of PHHH’s liquidated damages?
Amounts owed by UCP to PHHH for breach of contract and restitution
Is PHHH entitled to damages for defective work by UCP?
What defects are agreed?
What is UCP’s liability for the disputed defects?
Should PHHH’s damages be reduced because it denied UCP the opportunity to undertake rectification works at lower cost?
Does PHHH’s sale of the property reduce the amount of the defects damages it can claim?
Variation 37 Claim
Utilities Claim
Incidental matters
UCP’s application to file and serve further amended counterclaim
Admissibility of Tranche 14
HIS HONOUR:
Summary and Outcome
1By a contract dated 16 March 2016 (“Contract”), the plaintiff (“PHHH”) engaged the defendant (“UCP”) to construct a childcare centre at 282–284 Victoria Street, Brunswick, Victoria (“Site”), for $3,833,665.00 (inc GST) (“Contract Price”). All dollar sums referred to below include GST, unless stated otherwise.
2During the course of the Contract:
(a) UCP claimed 99 variations. Of these, the architect, Insite Architects (the representative of which was Mr Luciano Palma) (“the architect”), approved variations totalling $416,841.80;
(b) UCP claimed 44 extensions of time (“EOT”) and the architect certified EOTs totalling 4.5 working days (less than the 10-day allowance under the Contract);
(c) PHHH paid UCP a total of $4,539,281.37;
(d) on 23 August 2017, the architect issued progress certificate “No. 016 – Rev A” certifying that $322,493.54 was payable by UCP to PHHH (“PC 16 Rev A”); and
(e) UCP did not pay PHHH the amount certified by PC 16 Rev A.
3The ultimate question for determination in this proceeding is: what is the final adjusted Contract Price? PHHH claims that the adjusted Contract Price taking account of PC 16 Rev A is $4,250,506.80 (comprising the amounts certified in PC 16 Rev A as “Revised Contract Price” of $4,241,638.36 plus the “Total of This Claim” of $8,864.44) and that PHHH is therefore entitled to restitution for overpayments under the Contract in a sum totalling $288,774.57. This comprises an amount of $40,310.37 that UCP admits was overpaid, plus $248,464.20 in payments by PHHH to UCP in respect of unapproved variations. UCP counterclaims that the adjusted Contract Price is $5,463,855.14 and that PHHH owes it $923,689.42.
4In addition to the adjusted Contract Price calculated based on PC 16 Rev A summarised above, PHHH claims the allowances in that Progress Certificate for liquidated damages of $324,000.00 and utilities of $7,361.98. These amounts total $331,361.98.
5Finally, PHHH claims that UCP breached the Contract as:
(a) UCP’s work was defective or incomplete and that PHHH is entitled to damages for such breach; and
(b) UCP failed to pay for utilities incurred during the works and is liable to repay amounts paid by PHHH for utilities.
6For the reasons below, I have determined that the adjusted Contract Price is the $4,250,506.80 as submitted by PHHH, and thus PHHH has overpaid UCP a total of $288,774.57. UCP must give restitution in that sum. Further, UCP must pay PHHH $331,361.98 for the certified amounts of liquidated damages, plus damages for defects totalling $174,191.55. There will therefore be judgment for PHHH against UCP for $794,328.10, plus interest and costs.
7On the question of interest and costs, PHHH is entitled to interest pursuant to the Contract at 10% per annum on the amount certified by PC 16 Rev A and unpaid ($322,493.54), from 10 March 2018, being the date this was due for payment by PHHH. My preliminary view is that the balance of the judgment amount will incur interest pursuant to s60 of the Supreme Court Act 1986 at the penalty interest rate, on and from the date of the writ (12 April 2018).
8On costs, in my view, despite having some claims found against it as set out below, PHHH has been overwhelmingly successful in the pursuit of its claims. Thus, unless a party can point to an offer of compromise or other sustainable basis for a different order, I will order that UCP pay PHHH’s costs of the proceeding (including reserved costs) on the standard basis in default of agreement.
9I also confirm my rulings during the hearing:
(a) refusing UCP’s application to file and serve a further amended defence and counterclaim; and
(b) that the second Powercor invoice is inadmissible.
10The parties will be invited to check my arithmetic on the various sums awarded and agree on the form of orders to give effect to these reasons, including on interests and costs. Failing agreement, they are directed to submit brief written submissions in support of the orders they seek. Final orders will then be made on the papers.
Factual background
11Patrick Honeyborne is the sole director and company secretary of PHHH. In 2014, PHHH purchased the Site with the view to developing it into a childcare centre that PHHH would continue to own after completion, but would be let out on a long-term lease to Happy Hippo Kindergarten and Childcare Pty Ltd (“Happy Hippo”). Mr Honeyborne’s wife, Heather Honeyborne, is the sole director and company secretary of Happy Hippo. Tendering for the development of the kindergarten occurred in 2015 and on 16 March 2016, UCP was contracted by PHHH to complete the project.
12The Contract was a “build only” ABIC SW-2008 Simple Works Contract. The relevant terms of the Contract are set out in the following section of these reasons. As noted above, Insite Architects was appointed to administer the Contract. Mr Luciano Palma, an associate architect and contract administrator with Insite Architects, was appointed as the architect’s representative.
13On or about 1 June 2017, PHHH and Happy Hippo entered a lease of the site, which commenced on 1 July 2017 for an initial 20-year term.
14The certificate of practical completion was not issued by the architect until 21 July 2017 and there was no final certificate issued by the architect. The parties dispute the date on which practical completion of the project was achieved. PHHH asserts that the practical completion was achieved on or about 21 July 2017, as certified by the architect. UCP contends that it occurred when PHHH took possession of the site – in around April or May 2017.
15On 23 August 2017, the architect issued PC 16 Rev A which certified that UCP was to pay PHHH $322,493.54. More particularly, by PC 16 Rev A, the architect certified that:
(a) the revised Contract price is $4,241,638.36;
(b) the progress claim for PC 16 Rev A totalled $8,868.44; but
(c) there is a deduction of $324,000 for liquidated damages;
(d) there is a deduction of $401.98 for water usage paid by PHHH;
(e) there is a deduction of $6,960 for electricity usage paid by the owner; and
(f) therefore the “Amount for Payment to PHHH Investments No. 2 Pty Ltd” was $322,493.54.
16The architect issued the final progress certificate (PC 17) on 20 September 2017, but this did not make any further adjustments to the amounts stated and certified in PC 16 Rev A.
17On 23 February 2018, PHHH delivered PC 16 Rev A and a tax invoice to UCP by email. PHHH claims that UCP’s failure to pay PC 16 Rev A and the associated invoice by 9 March 2018 constitutes a breach of subclause N6.1 of the Contract. UCP asserts that the amounts certified in PC 16 Rev A are incorrect and that it is not liable to pay PHHH. UCP argues that PC 16 Rev A is not of contractual force and the amounts certified in it are re-enlivened for determination in this proceeding.
18In March 2018, PHHH put the Site up for sale and on or about 17 April 2018, it was sold to an unrelated entity, Duongquynh Pty Ltd, for $7,375,000 by contract of sale. Settlement occurred on 22 June 2018. Happy Hippo (under the control of Mrs Honeyborne) remains the tenant of the Site, running its childcare business from the premises.
19Around this time, PHHH and UCP were party to other proceedings related to the project:
(a) In October 2017, PHHH commenced proceedings in the Supreme Court for an injunction or order that UCP provide it with two unconditional bank guarantees. This proceeding was dismissed in March 2018.
(b) In January 2018, PHHH commenced proceedings in the Supreme Court seeking review of an adjudication determine under the Building and Construction Industry Security of Payment Act 2002. This proceeding was dismissed in the same month.
20Following the sale of the Site, on 16 July 2018, the architect issued a defects inspection report by way of “Architects Instruction” (“AI”) No. 649.
The proceeding
The lead up to trial
21This proceeding was commenced by PHHH on 12 April 2018, for the recovery of delay liquidated damages. While UCP filed a notice of appearance, UCP failed to file a defence and default judgment was entered on 6 June 2018. This was set aside on 6 July 2018. The proceeding thereafter progressed as follows:
(a) on 1 August 2018, PHHH filed an amended statement of claiming adding various other claims and on 31 August 2018, UCP filed a defence and counterclaim;
(b) on 2 November 2018, the proceeding was fixed for trial on 8 July 2019, on an estimate of 8 to 10 days;
(c) on 5 November 2018, PHHH filed a further amended statement of claim and on 5 and 6 December 2018, UCP filed an amended defence and counterclaim respectively;
(d) on 21 December 2018, UCP made an application by summons for security for costs and in April 2019, this application was dismissed;[1]
(e) a short time later, the trial date of 8 July 2019 was vacated;
(f) the ruling dismissing UCP’s application for security for costs was later overturned by the Court of Appeal, and PHHH was ordered to provide security for costs of the proceeding until the completion of mediation, in the sum of $85,000;[2]
(g) in October 2019, the proceeding was re-fixed for trial on 29 June 2020;
(h) in November 2019, UCP made an application for judgment or to strike out of certain claims made by PHHH pursuant to r23.01(1) of Rules;
(i) on 6 December 2019, this application was dismissed;
(j) on 28 May 2020, UCP made an application to join Mackey Brothers & Company Roofing Pty Ltd (“Mackey Bros”) and Matthew Mackey (together “the Mackey parties”) as third parties to the proceeding and for adjournment of trial;
(k) on 12 June 2020, UCP was granted to leave to file and serve a third-party notice joining the Mackey parties, and the proceeding was re-fixed for trial on 23 November 2020;
(l) on 25 August 2020, the trial date was once again vacated and the proceeding was refixed for trial on 22 February 2021; and
(m) the third party proceeding against the Mackey parties was dismissed by consent of UCP and the Mackey parties on 4 February 2022, following a settlement agreed between those parties.
[1] United Commercial Projects Pty Ltd v PHHH Investments No 2 Pty Ltd [2019] VCC 333.
[2] United Commercial Projects Pty Ltd v PHHH Investments No 2 Pty Ltd [2019] VSCA 192.
22It was revealed during the course of the trial that the settlement between UCP and the Mackay parties included terms for a payment of around $100,000 by the Mackay parties to UCP, with that sum to be held by the solicitors for the Mackay parties and released only by court order or the consent of the Mackay parties and UCP.
Trial and closing submissions
23Trial commenced from 22 February 2021 and the evidence concluded on 9 March 2021. On this date, I ordered that UCP file and serve written closing submissions by 12 April 2021, PHHH do likewise by 23 April 2021 and UCP file and serve any submissions in reply by 30 April 2021. There were some minor delays in the filing and service of written submissions, which ultimately concluded with the filing and service of UCP’s reply submissions on 6 May 2021. I heard brief oral closing submissions on 19 November 2021. The entirety of the hearing (including final oral submissions) was conducted remotely over Zoom.
Witnesses
24The lay evidence-in-chief was given primarily by lengthy witness statements, with some supplementation by oral evidence-in-chief. PHHH called Mr Honeyborne, the architect Mr Palma and Mrs Honeyborne. UCP called Mark Potter, UCP’s construction director and Tamar Soliman, a director of UCP.
25I relation to expert witnesses, PHHH relied on:
(a) David Watson, engineer, in relation to extensions of time;
(b) Trevor Jeffrey, quantity surveyor and project manager, in relation to variations;
(c) Phillip Naughton, building consultant, in relation to defects generally and roofing defects;
(d) Richard Drew, structural engineer, in relation to Variation 37; and
(e) Robert Quick, licensed plumber and consultant in building matters specialising in plumbing and roofing, in relation to roofing defects.
26UCP relied on:
(a) Peter Quigley, architect, in relation to extensions of time, variations and defects generally;
(b) Peter Wenning, plumbing inspector and licensed plumber, in relation to quantum and roofing defects;
(c) Daniel Herbert, structural engineer, in relation to Variation 37;
(d) Douglas Buchanan, quantity surveyor, in relation to defects generally; and
(e) Robert Lorich, building consultant, in relation to defects generally.
27The experts gave evidence by way of expert reports, joint reports and concurrent oral evidence at trial, in a variety of combinations. Generally speaking, the experts worked cooperatively and constructively during the process of the witness conclaves and the concurrent evidence. They were able to narrow down the issues in dispute and made helpful and appropriate concessions. I found the evidence of some of the expert witnesses more persuasive than others, and I give my reasons for this when discussing their evidence below.
Key terms of the Contract
28Schedule 1 of the Contract contains the Contract information, the key items of which are as follows:
(a) the Contract Price is $3,833,665.00 (Item 4);
(b) the interest rate on overdue amounts is 10% per annum (Item 28);
(c) the allowance for disruptive weather is 10 working days (Item 20);
(d) as agreed by the parties, the date for practical completion is 16 March 2016 (Item 22); and
(e) the rate for liquidated damages is $2,000 per calendar day (Item 24).
29The key clauses of the Contract are as follows (emphasis in original):
“A Overview
…
A4 Obligations of the owner
.1The owner must:
asubject to subclause A2.1e, obtain and give to the contractor all *official documents required to begin the *works and any shown in item 30b of schedule 1
…
cgive [access to] to the *site in accordance with this contract
…
A6 Architect to administer contract
…
.3The architect is the owner's agent for giving instructions to the contractor. However, in acting as assessor, valuer or certifier, the architect acts independently and not as the agent of the owner.
.4The owner must ensure that the architect, in acting as assessor, valuer or certifier, complies with this contract and acts fairly and impartially, having regard to the interests of both the owner and the contractor. The owner must not compromise the architect's independence in acting as assessor, valuer or certifier.
…
A8 Disputing architect’s certificate, written decision or failure to act
.1If a *party wishes to dispute a certificate, notice, written decision or written assessment issued by the architect, or to dispute the failure of the architect to do something, the *party must give written notice under this clause within 20 *working days after:
areceiving the certificate, notice, written decision or written assessment or
bbecoming aware of the failure of the architect to issue something.
.2If the *party fails to give a notice under subclause A8.1, the *party will not be entitled to dispute the matter at all.
.3The architect must assess a notice given under subclause A8.1 and give a written decision to the *party and the other *party within 10 *working days.
.4If a *party wishes to dispute a written decision given under subclause A8.3, or the architect’s failure to give a decision, the requirements of section P apply.”
…
F The site
F1 Owner to give contractor possession of the *site
.1The owner must give the contractor [access to] the *site within ten working days after the owner:
…
chas received, or the architect as agent of the owner has received, any *official documents required under item 30a of schedule 1.
…
H Claims to adjust the contract
H1 Time for making a *claim to adjust the contract
.1The contractor is entitled to make a *claim to adjust the contract only if the contractor:
a*promptly notifies the architect in writing of its intention to make a claim after receiving an instruction or, if no instruction is issued, *promptly notifies the architect after becoming aware of an event that will result in a claim and
bsubmits the detailed *claim to adjust the contract to the architect within a time agreed in writing between the contractor and the architect or, if no time is agreed, within 20 *working days after receiving an instruction or, if no instruction is issued, within 20 *working days after becoming aware of the event that has resulted in the claim and, for these purposes, an event is not a consequence of an instruction.
.2If the claim results from an instruction to proceed with a *variation, the requirements for submission of the claim are set out in clause H2.
.3If the claim results from a delay in the progress of the *works, the contractor is not required to give the first notification required under subclause H1.1, but the detailed claim must be submitted within 20 *working days after the delay ends.
H2Details required for claim
.1A *claim to adjust the contract must contain the following details:
aidentification of the architect's instruction, or a copy of the *official document that caused the claim or, where none has been issued, details of the event and the basis for the claim
…
H3 Architect to assess claim
.1The architect must *promptly assess the *claim to adjust the contract and in so doing the architect must consider the detailed claim submitted by the contractor and any further information the architect requests the contractor to supply.
.2If the architect needs additional information to assess the claim, the architect must issue a written request to the contractor.
.3The contractor must *promptly give to the architect any additional information the architect reasonably requests.
H4 Architect to give assessment
.1The architect must, within 20 *working days after receiving the claim, issue to the contractor and to the owner its written decision specifying any adjustment to the *contract price or any adjustment to the date for *practical completion, or both.
.2The contractor may dispute the architect's decision or a failure to issue a decision issued under this clause in accordance with clause A8 but, in accordance with clause P1, must continue to perform its contractual obligations.
H5 Sum recoverable for claim for *adjustment of time costs
.1Where a sum or sums per day is shown in item 18 of schedule 1, a claim by the contractor is limited to that sum [no sum is shown in item 18 of schedule 1]. If no sum or sums per day is shown, the contractor is entitled to an adjustment to the *contract price equal to the loss, expense or damage it incurs as a result of the approval of an adjustment by the architect to the date for *practical completion.
H6 Architect may adjust contract in absence of claim
.1If the contractor has not made a *claim to adjust the contract in relation to any change which results from complying with any instruction under section J for a *variation or from causes of delay noted in clause L1 or L2, the architect may adjust the contract at any time up to the issue of the final certificate under clause N11, or a certificate under clauses Q9 or Q17.
J Variation to the works
…
J5 Adjustment to the contract after written instruction to proceed
.1If the architect issues a written instruction to proceed that confirms acceptance of a quotation, the architect must adjust the *contract price and the date for *practical completion (if applicable) in accordance with the quotation in the next certificate.
L Adjustment of time
L1Causes of delay which entitle making a claim for adjustment of time with costs
.1The contractor may make a claim for an adjustment to the date for *practical completion and *adjustment of time costs in respect of a delay affecting *working days, caused by:
…
bthe owner failing to give [access to] the *site in accordance with clause F1
can architect's instruction
…
.4The requirements for making a *claim to adjust the contract and the procedures to be followed are stated in section H.
L2Causes of delay which entitle making claim for adjustment of time without costs
…
.2The requirements for making a *claim to adjust the contract and the procedures to be followed are stated in section H.
…
L6 Overlapping delays
.1Subject to clauses L4 and L5, when one or more *critical construction activities are delayed by more than one cause at the same time, the architect must assess and *claim to adjust the contract in accordance with this clause L6.
…
M Completion of the works
M1 Practical completion
.1The contractor must bring the*works to *practical completion by the date for *practical completion shown in item 22 of schedule 1 is adjusted in accordance with this contract. The *works are at *practical completion when, in the reasonable opinion of the architect:
athey are substantially complete and any incomplete *necessary work or *defects remaining in the *works are of a minor nature and number, the completion or rectification of which is not practicable at that time and will not unreasonably affect occupation and use
ball commissioning tests in relation to the plant and equipment shown in item 23 of schedule 1 have been carried out successfully and
cany approvals required for occupation have been obtained from the *relevant authorities and copies of the *official documents evidencing the approvals have been provided to the architect.
.2Subject to clause M11, the owner takes possession of the *works at 4.00pm on the date the architect issues the notice of *practical completion.
…
M8 Possession of the *works before *practical completion
.1If the owner takes possession of the *works before the architect issues the notice of *practical completion, the *works are to be treated as having reached *practical completion. The architect must issue to the contractor and to the owner a notice of *practical completion within five *working days after being notified in writing that the owner has taken possession, unless clause M4 applies.
.2If the owner takes possession of the *works before the architect issues a notice of *practical completion, the contractor may make a *claim to adjust the contract.
.3The requirements for making a *claim to adjust the contract and the procedures to be followed are stated in section H.
M9 Liquidated damages may be payable
.1If the *works have not reached *practical completion by the date for *practical completion as adjusted, the architect must *promptly notify the contractor and the owner in writing of the owner’s entitlement to liquidated damages.
.2Up to 20 *working days after the date of issue of the notice of *practical completion, the owner may notify the architect in writing whether it will enforce its entitlement to liquidated damages against the contractor.
.3The contractor is liable to pay or allow to the owner liquidated damages at the rate shown in item 24 of schedule 1.
M10 Deduction of liquidated damages
.1If the owner notifies the architect in writing under clause M9, then the architect must:
anotify the contractor of the owner’s decision within one *working day, and
bdeduct liquidated damages from the next and subsequent progress certificates as applicable.
.2If, after the architect has issued a certificate in which an allowance for the owner’s entitlement to liquidated damages has been made, an adjustment is made to the date for *practical completion, with the result that the owner’s entitlement to liquidated damages is altered, or the owner has advised that it no longer wishes to enforce its entitlement to liquidated damages, the architect must make an appropriate adjustment in the next certificate.
M11 Contractor to correct *defects and finalise *necessary work
.1 The contractor must correct any *defects or finalise any incomplete *necessary work, whether before or after the date of *practical completion, within the agreed time as stated in an instruction or if no time is stated, within 10 *working days after receiving a written instruction from the architect to do so.
…
N Payment for the works
…
N4 Progress claims - procedure for architect
…
.4If the architect reasonably needs additional information to assess the claim, the architect must *promptly ask the contractor for it. If that information is needed to assess only part of the claim, the architect must assess the rest of the claim.
…
SDefinitions
S1Definitions
…
claim to adjust the contract a claim made to the architect to adjust the *contract price (including *adjustment of time costs) or the date for *practical completion or both
Issues
30The key issues at trial were:
(a) Can UCP dispute PC 16 Rev A and the decisions of the architect pursuant to the Contract?
(b) Can UCP dispute PC 16 Rev A and the decisions of the architect due to the conduct of the architect?
(c) How should the disputed variations be resolved?
(d) Is PHHH entitled to liquidated damages in the amount certified or some other amount?
(e) Is PHHH entitled to damages for defective work by UCP?
31These issues will be dealt with in turn below.
Can UCP dispute PC 16 Rev A and the decisions of the architect pursuant to the Contract?
32It is not in dispute that the form of PC 16 Rev A is valid and will bind the parties unless it is tainted by fraud, collusion or other misconduct.[3] However, UCP seeks in effect to re-open the decisions of the architect that are (ultimately) reflected in PC 16 Rev A on either or both of two grounds. UCP’s primary ground is that the architect’s certifications are tainted by misconduct. But it says that if the court rejects its contentions on this ground, the question remains justiciable. It relies for this purpose on a finding by Senior Member R Walker in Allmore Constructions Pty Ltd v K7 Property Group Pty Ltd[4] (“Allmore”). The second ground is more straightforward, so I turn to this first.
[3]LexisNexis, Halsbury’s Laws of Australia (online at 7 December 2021) 65 Building and Construction, ‘III Performance’ at [65-865].
[4] [2016] VCAT 1770.
Contract construction
33Clause H6 is set out above. It provides in effect that if UCP has not made a claim to adjust the Contract in relation to any change which results from a variation to the works or an EOT, the architect may adjust the Contract at any time up to the issue of a final certificate.
34In its written reply submissions, UCP sets out the following passage from Allmore (emphasis added):[5]
“In case I should find the claims made were not in accordance with the requirements of the Contract, counsel for the Builder relied upon Clause H6 of the Contract and submitted that, since a final certificate has not been issued, it is open to me to allow an extension of time pursuant to that clause, even though the requirements of the Contract were not complied with. The full wording of that clause is set out in paragraph 23 above. The power is available ‘If the Contractor has not made a claim to adjust the Contract in relation to any change…’ of the nature described, and if it is available, the Architect is empowered to ‘…adjust the Contract at any time up to the issue of the final certificate…’
Since no final certificate has been issued it is submitted on behalf of the Builder that the power conferred by this clause may still be exercised and that it is open to me to exercise it now.
…
I think the fallacy in this argument [that H6 applies] is that a claim is either a valid claim for an extension of time or it is not. If it is valid, then recourse need not be had to Clause H6. It is invalid, then a claim for an extension of time has not been made because the requirements for it have not been satisfied. If the requirements have not been satisfied it is not a claim of the nature contemplated by the Contract.
It seems to me that I am now standing in the shoes of the Architect and, if I consider that it would be fair and reasonable to grant any of the extensions of time that are sought, I should do so. I should therefore look at each of the claims on the merits rather than ignore them on the basis that the contractual procedures were not followed. That is not to say, of course, that the procedures set out in the Contract should be ignored by the Builder. As was pointed out in the case cited, if a timely claim has not been made, and the ground on which an extension of time is claimed is now difficult to decide because of the time that has elapsed since the time the claim should have been made, that may be a ground on which an extension should fairly be refused. However that does not appear to be the case here”.
[5] [2016] VCAT 1770 at [150]-[151] and [162]-[163], per Senior Member R Walker.
35UCT next submits as follows (references omitted):
“Palma’s evidence regarding the EOT claims is that the claims did not comply with the contractual requirements because there had been no service (or no service in a timely manner) of a Notice of Likely Delay… Alternatively he contends that a claim was not made under the Contract.
On the Owner’s case, the EOTs were either not valid claims under the Contract, or the claims were simply not made. In either case it is submitted that the Court can, as the Tribunal did in Allmore Constructions, assess the merits of the EOT claims. The Owner cannot have its cake and eat it as well.
In any event, and contrary to the Owner’s Closing Submissions, PC 16 Rev A was the subject of a notice of dispute. On 1 September 2017, the Owner issued a notice disputing the Architect’s failure to issue a certificate In response, on 4 September 2017 the Architect issued PC 16 Rev A. On 8 September 2017, the Builder sent an email to the Architect and the Owner disputing PC 16 Rev A. Therefore, it cannot be argued by the Owner that the subject matter of PC 16 Rev A is not justiciable under the Contract (leaving aside that it may be justiciable for other reasons).”
36This argument based on the findings in Allmore was developed for the first time in UCP’s written reply submissions, and was therefore not the subject of submissions on behalf of PHHH until oral closing submissions. Those submissions approached the issue as essentially one of construction of clause H6, in the context of the Contract as whole. The effect of PHHH’s submissions (as I understood them) was as follows:
(a) The expression “claim to adjust the contract” is defined by the Contract as: “a claim made to the architect to adjust the *contract price (including *adjustment of time costs) or the date for *practical completion or both” (asterisked terms are defined terms).
(b) Thus a “claim” is simply a demand to adjust one of those two things – it is not circumscribed by time, nor by whether or not it is accompanied by particular information.
(c) Clause H1 of the Contract deals with timing and clause H2 sets out the details that the claim must contain, but these are not pre-requisites as to whether the claim qualifies as a “claim to adjust the contract”. Rather, these are criteria for the architect to assess whether or not to approve the claim.
(d) Clause H3 sets out the process of that assessment and clause H4.1 obliges the architect to issue its written decision specifying any adjustments within 20 working days after receiving the claim.
(e) Clause H4.2 expressly provides that UCP (emphasis added) “may dispute the architect’s decision or a failure to issue a decision issued under this clause in accordance with clause A8”.
(f) Clause A8 (set out in full above) is the exclusive regime for disputing certifications of claims made – it provides in clear terms that if a party fails to give a notice of dispute under that clause “the party will not be entitled to dispute the matter at all”.
(g) But a claim that fails because it is rejected by the architect or because the contractor fails to dispute it as required by clause A8, is still a claim made. It is analogous to a claim under a claims-made insurance policy. There may be other conditions precedent to indemnity or other conditions or exclusions, but an excluded claim is still a claim.
(h) The effect of UCPs submission is that a claim that (for example):
(i)is out of time under clause H1;
(ii)fails to include the necessary details under clause H2; or
(iii)the contractor fails to dispute under clause A8,
ceases to be a “claim to adjust the contract” within the meaning of the Contract, and thus becomes amenable to an adjustment under clause H6 by the architect, or by the court standing in the shoes of the architect.
(i) This defies common sense. It essentially means that, by the contractor’s recalcitrance or delinquency, it gets a second chance to pursue its claims. This, in turn, would mean that a court or VCAT would be routinely called on to exercise the role of the superintendent under clause H6 (or its equivalents) wherever a significant dispute develops between parties to a standard building contract.
(j) Allmore is wrongly decided. First, contrary to the Senior Member’s finding, it gets no support from the decision of the NSW Court of Appeal in Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd[6] (“Peninsula Balmain”). The clause under consideration in that case is markedly different from clause H6 of the Contract.
(k) Second, the wording of clause H6 could hardly be clearer – it is only engaged if a contractor has not made a claim. The clause does not say: “If a contractor has not made a valid claim”.
(l) Properly construed, clause H6 operates to “sweep up” potential claims under the Contract’s variation or EOT regime, where (for example) the making of a claim has been overlooked. It does not apply where a claim has been made but rejected because the requirements for it have not been satisfied.
(m) Here, the court is not entitled to adjust the contract price in the shoes of the architect pursuant to clause H6 as the adjustments sought by UCP were all submitted to the architect during the course of the Contract and rejected.
[6][2002] NSWCA 211.
37The principles of construction that are to be applied to a commercial contract like the Contract are well established.[7] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. Unless a contrary intention is indicated, the court is entitled to approach the task of giving a commercial contract a businesslike interpretation, on the assumption that the parties intended to produce a commercial result. Put another way, a commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.
[7]Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, per French CJ, Nettle and Gordon JJ at [46]-[52].
38Applying these principles, I agree with PHHH’s submissions. In my view, the language of clause H6 is clear. It is engaged only if the contractor has “not made a claim to adjust the contract” (emphasis added). And “claim to adjust the contract” is likewise clearly defined as “a claim made to the architect to adjust the contract”. I can see no reason to read into that definition words to the effect that the claim must be a valid or compliant claim. Indeed, doing so undermines an important commercial object to be secured by the Contract. Namely, to create in clause A8 an exclusive and self-contained regime for resolving disputes in relation to an architect’s certificate or other decision (or lack of decision).
39Clause H1 specifies the time limits applicable to claims, clause H2 lists the details that a claim must contain and clauses H3 and H4.1 govern the process for the architect to request further information and assess the claim. Most notably, clause H4.2 then provides that the contractor may dispute the architect’s decision or failure to issue a decision in accordance with A8. Despite the use of “may” in clause H4.1, clause A8 itself makes clear that the dispute procedure under that clause is both mandatory and exclusive. Thus, in my view, “may” in clause H4.2 denotes the contractor’s option to dispute or not dispute, not a discretion as to the means of dispute.
40Clause A8 provides that (emphasis added):
(a) if a party “wishes to dispute a certificate…issued by the architect, or to dispute the failure of the architect to do something, the party must give written notice under this clause within 20 working days”; and
(b) if a party fails to give that notice, the party “will not be able to dispute the matter at all”.
41It would undermine the dispute regime provided for by these provisions if a contractor who has made a claim within the meaning of the Contract and had that claim rejected by the architect, can effectively sidestep clause A8 or, worse still, reopen a dispute determined under clause A8, by resort to clause H6.
42Further, it is not an answer to this concern to argue that clause H6 only becomes available if the claim is invalid or non-complaint because (for example) it is to late or incomplete. There could be any number of reasons (or combination of reasons) why an architect may reject a claim. It makes no sense that one basis for rejection (for example, insufficient supporting material) gives a contractor a second chance of a claim, where another basis does not. This is particularly so where the basis enlivening that second chance results from (in PHHH’s words) the contractor’s recalcitrance or delinquency.
43Turning to the decision in Allmore, I agree with PHHH that it is wrongly decided. With respect to the Senior Member, I would make the following observations:
(a) In my view, the argument gets no support from the decision in Peninsula Balmain. In particular, I would not describe the clause under consideration in that case as “somewhat similar”. It provided:
“Notwithstanding that the Contractor is not entitled to an extension of time the Superintendent may at any time and from time to time before the issue of the Final Certificate by notice in writing to the Contractor extend the time for Practical Completion for any reason.”
(b) Thus, and in contrast to clause H6, it expressly confers on the superintendent the power to extend the time for practical completion notwithstanding that the contractor is not entitled to an extension of time. Indeed, the Court of Appeal relevantly stated that (emphasis added):
“I accept that, in the absence of the superintendent’s power to extend time even if a claim had not been made within time, Abigroup would be precluded from the benefit of an extension of time and liable for liquidated damages, even if delay had been caused by variations required by Peninsula and thus within the so-called ‘prevention principle’.”[8]
(c) This aspect of the Peninsula Balmain decision was otherwise primarily concerned with whether a superintendent was obliged to act honestly and impartially in deciding whether to exercise this power – and it was the Court of Appeal’s approach in finding that the superintendent was so obliged that found favour in later cases including Kane Constructions Pty Ltd v Sopov[9] (“Kane Constructions”).
(d) The Senior Member referred to submissions before him highlighting the distinction between the clause in Peninsula Balmain and clause H6, but does not directly address the argument. Nor does he deal with the construction issue more broadly.
(e) In particular, the Senior Member makes no reference to the dispute regime under clause A8 and the implications for the operation of that regime of reading “claim” in clause H6 as applying only to a “valid” claim (that is, a claim where the applicable pre-requisites have been satisfied).
[8]Peninsula Balmain at [78] per Hodgson JA, Mason P and Stein JA agreeing.
[9][2005] VSC 237.
44UCP is seeking adjustment of the Contract price for variations and EOTs submitted to the architect and already claimed by UCP during the course of the Contract. UCP is not seeking to challenge the architect’s assessment of these claims pursuant to clause A8 – which in my view operates as the exclusive dispute resolution mechanism for such disputes. It has belatedly asserted that it did issue a notice of dispute under clause A8 in response to PC 16 Rev A, but has not challenged PC 16 Rev A on that basis.[10] On the proper construction of clause H6, UCP is therefore not entitled to an adjustment of the Contract price for the variation and EOT claims subject of this proceeding pursuant to clause H6.
[10]UCP’s application to amend its statement of claim to plead reliance on notices of dispute under clause A8 was refused, as discussed below.
Can UCP dispute PC 16 Rev A and the decisions of the architect due to the conduct of the architect?
45UCP submits that Mr Palma failed to act fairly and impartially in administering the contract, resulting in the architect’s certifications being vitiated and of no effect. In its closing submissions, UCP particularised a range of conduct on the part of the architect. UCP begins by pointing to the longstanding relationship between Insite Architects and PHHH. In particular, UCP relies on the following matters:
(a) Mr Honeyborne is a practicing accountant and by his various companies had developed five separate childcare centres;
(b) three of those centres involved the sale of the site and the business, and another two involved only the sale of the business; and
(c) three out of the five centres developed involved Insite Architects.
46However, the bulk of UCP’s submissions on this issue concern the nature and extent of the communications between PHHH and the architect in relation to variation claims. These comprise:
(a) submissions focussing on particular variations;
(b) the way variation claims made by UCP to the architect were processed;
(c) the architect’s management and changes to the spreadsheet maintained by the architect listing variations and their status over time (described during the evidence as the variations register) (“variations register”); and
(d) the nature and the content of communications between PHHH and the architect.
47UCP also points to the architect’s handling of defects as demonstrating PHHH’s efforts to influence the architect and the architect’s failure to act impartially.
Particular variations
48Turning first to particular variations, UCP’s submissions about these include the following:
CV 14
(a) On 20 July 2017, PHHH wrote to the architect raising issues with variations, asserting that UCP is responsible for the cost of, among other things, locating Telstra existing services, permits and fees. This is notwithstanding the architect’s and PHHH’s own approval of the cost of locating Telstra services a year earlier, as shown in the architect’s variation adjustment for CV 14 dated 12 July 2106 and the variations register dated 22 July 2016.
CV 50
(b) On 2 March 2017, UCP issued CV 50, landscape drainage cell. According to AI 419, CV 50 was to be assessed by a quantity surveyor. The Builder performed the work.
(c) UCP submits that CV 50 remained “under review” from at least 5 April 2017 and on 25 July 2017, some four months after CV 50 had been claimed by UCP, PHHH emailed the architect requesting “all the details of this claim”, which the architect then proceeded to provide to PHHH.
(d) UCP notes that on 26 July 2017 PHHH emailed the architect as follows:
“Have a think about this and please discuss at length with Luc and Kim. Before this variation gets approved…
…Also if we have don’t the above as designed I would not have had the crisis with regards to the drainage and inadequate drainage from the play surfaces we had right at the end [sic].”
(e) UCP submits that on 22 August 2017, variation 50 was marked “additional information” and then rejected on 23 August 2017. No quantity surveyor assessment was arranged by the architect.
(f) I note in passing that UCP omits from its submissions the part of the email of 26 July 2017 where Mr Honeyborne sets out in some detail the reasons why he was concerned to ensure that the architect “have a think about” the variation, including copies of extracts from relevant plans.
CV 64
(g) On 28 July 2016, AI 119 requested a quotation to install five additional Braille exit signs to comply with the new standard NCC2016. This varied the original specification. This was increased again to 18 signs as specified in drawing A-50/2.
(h) The variations register of 5 July 2017 and 20 August 2017 showed CV 64 “ticked” as approved by the architect. However, the variations register dated 22 August 2017 bore an “x” against client approval and an “x” against architect approval.
(i) Mr Honeyborne gave evidence that he had spoken with Mr Palma as to why the variation had been approved. His evidence was that:
“I discussed with [Mr Palma] as to why this variation came about when the items were in the original documents and tender documents and then he went back and he said okay, and he reviewed it and said well, then he must have been wrong to approve it… I didn't remonstrate with him. I discussed it and I said look, it's in the tender documents…[The reason Mr Palma changed the acceptance of that item was not] because I objected to it. It was because I pointed out to him it was wrong to approve that.”
CV 66, 73 and 79
(j) Mr Honeyborne was asked in evidence about each of these variations, which were shown as approved in earlier versions of the variations register. But in the second version of the variations register of 22 August 2017, the variations were changed to “further information” or rejected.
CV 94
(k) On 3 July 2017, PHHH wrote to the architect and UCP, agreeing to UCP conducting overflow works at a price of $46,619 plus GST and to “pause” liquidated damages for 4 weeks. The variations register dated 4 July 2017 shows CV 94 as under review at $7,500.00.
(l) The variations register is then updated to reflect the agreement. The variations register dated 5 July 2017 has CV 94 under review at $46,619.00.
(m) UPC submits that this was based on discussions Mr and Mrs Honeyborne had with Amiens Consulting, “in which they falsely represented the works only took 3 days to complete”. I note that these discussions (including the alleged falsity of the representations) were not put to Mr or Mrs Honeyborne in the course of their evidence.
(n) UCP submits that On 7 July 2017, in AI 545, the architect approved CV 94 Rev B (overflow works). However, it seems that there was some confusion over whether an earlier requirement that the final price be subject to review by a Quantity Surveyor still applied and there is also uncertainty over whether PHHH’s offer to “pause” liquidated damages had lapsed. Mr Honeyborne asserted it had.
(o) UCP then asserts that Mr Honeyborne wrote to Cherys Gatt of Insite Architects on 26 July 2017, instructing her to “… discuss this at length with Luc and Kim. Before this variation gets approved” and CV 94 Rev B then became “not approved” in the variations register of 22 August 2017. UCP submits that this was a change that “can only be explained by the architect succumbing to pressure from PHHH”.
(p) However, as UCP itself later acknowledges (at paragraph 111 of its written submissions) this email in fact related to CV 50, not CV 94 (see above).
Processing variations
49UCP submits that Mr Honeyborne’s evidence establishes that:
(a) variations which were not yet carried out but were in contemplation were often sent by Insite Architects to Mr Honeyborne;
(b) Mr Honeyborne and Insite Architects would then have a “lengthy discussion… about what caused the variation and what ‘we’ could do about it,” before Mr Honeyborne agreed to pay the variations;
(c) Mr Honeyborne would have variations brought to him by the architect and Mr Honeyborne would then identify the kind of information he wanted before he would agree to the variation;
(d) Mr Honeyborne would ask the architect for more information or ask the architect to seek more information from UCP before he would resolve the variation;
(e) where variations were not being assessed by the architect, it was because Mr Honeyborne himself was seeking more information on the variation, and would identify that further information;
(f) Mr Honeyborne would be given the variation and he would have the opportunity to review the variation and discuss with Mr Palma whether the architect was right or wrong in approving it;
(g) Mr Honeyborne would tell the architect what to do and it was Mr Honeyborne that was challenging the decisions of the architect;
(h) Mr Honeyborne would get Mr Palma to “withdraw” his approval of variations, but “not a lot”; and
(i) the normal process of assessing a variation involved the architect then PHHH looking at it.
50UCP argues that, for his part, Mr Palma:
(a) conceded that Mr Honeyborne purported to dictate to him how he should assess the variations;
(b) acknowledged that his assessment was the same as what had been directed by Mr Honeyborne a day earlier;
(c) only two variations were accepted by Mr Palma, the remaining variations were accepted by his colleagues.
51In relation to each of these submissions, I note that:
(a) before accepting that Mr Honeyborne purported to dictate how he should assess the variation, Mr Palms stated: “I assessed it and I was asking for additional information. Mr Honeyborne does not dictate how I am to assess the variations”;
(b) Mr Palma’s evidence was that he made his assessment independently of Mr Honeyborne’s suggestions and it was in fact Mr Honeyborne who came to the same conclusion as Mr Palma, not the other way around; and
(c) in the particular passage of transcript on which UCP relies for this submission, I am satisfied that Mr Palma is limiting his answer to the period during which he was on leave.
Variations register
52In relation to the variations register more generally, UCP relied upon the following:
(a) Mr Honeyborne was familiar with the variations register maintained by the architect, and the iterations of the register were provided to him from time to time.
(b) In the variations register dated 19 July 2017, some 20 variations had not been assessed by the architect, many of these are highlighted in yellow on the document. Two columns on the register provide for “Approved by Architect” and “Approved by client”. CVs 58, 64, 66, 73, 79, 80, 81, 82, 83, 84, 85, 87, 89 and 90 are all approved by the architect and the column for “Approved by client” is blank.
(c) Variations registers were produced by the architect dated 1, 9, 16, 20, 21, 22 June 2017. On 21 June 2017, many variations which were “under review” are approved (CV 78 to 90 - CV 86 withdrawn). These approvals are all later rejected on 22 August 2017.
Communications in relation to variations
53UCP points to two communications by Mrs Honeyborne, which it suggests show a willingness to subvert the proper conduct of the variations process. These are:
(a) on 19 December 2016, Mrs Honeyborne stated that she “had no choice” but to sign CV 1, but wanted further investigations as to whether the hydraulic engineer had been sent the landscape plans when they were completed in 2015, because she still wanted to determine where the “blame lays for this blunder”; and
(b) on 16 February 2017, after the architect drew PHHH’s attention to the fact that all shelving to the storerooms were nominated as “by others”, Mrs Honeyborne directed the architect to “keep quiet” about it (although there is no evidence that the architect acted on this suggestion);
54UCP made similar observations about Mr Honeyborne’s antagonistic approach to dealings with UCP. For example, upon receipt of a notice of mediation dated 24 July 2017, PHHH wrote to the architect stating: “Can you please tell Hamish [UCP’s construction manager] to get lost. The EOT (sic) have been assessed twice already yet he keeps coming back. Is there anything we can do to stop this harassment”.
55UCP is also critical of other aspects of the architect’s conduct in relation to variations. For example, UCP submits that:
(a) while the Contract required the architect to identify what information was required, the architect largely did not identify the information it required, and failed to document any discussions he said he had where he asked for further information;
(b) particular communications between Mr Honeyborne and Mr Palma showed that Mr Honeyborne sought to dictate to Mr Palma how variations ought to be assessed;
(c) the fact that Mr Palma’s final assessment of PC16 Rev A matched that of PHHH showed that Mr Palma was influenced by pressure from Mr Honeyborne; and
(d) Mr Palma’s was ignorant of various notices of dispute.
56UCP also relies upon:
(a) meetings between the architect and PHHH’s lawyers in relation to progress claims 15 and 16 (which it alleges showed further influence of Mr Honeyborne in Mr Palma’s decisions);
(b) Mr Palma’s failure to meet UCP on or about 21 August 2017 to try and assess variations being claimed; and
(c) Mr Palma’s alleged reversal of approved variations (after having discussed those variations with PHHH).
Defects
57Turning to the handling of defects, UCP submits that:
(a) in continuance of the pattern of behaviour exhibited by Mr Honeyborne in relation to variations, on 16 July 2018, Mr Honeyborne directed the architect to send notices of defects to UCP;
(b) Mr Honeyborne went on to say “I will be very cross if the builder gets away with not having to make the repairs due to you not sending the notice out. Don’t go blaming me as I was on leave”;
(c) that same day, the architect issued the following AIs:
(i)AI 648, requiring the Builder to rectify a water leak to the entry soffit (CB4208-4211);
(ii)AI 649, containing a report prepared by Mr Naughton of VPCO Pty Ltd dated 18 June 2018, referring to all defects; and
(iii)AI 650, attaching a report from Adams Consulting Engineers Pty Ltd dated 20 June 2018, referring to drainage defects;
(d) two days later, on 18 July 2018, the architect issued AI 651, instructing UCP to rectify the height of the balustrades, an alleged defect, by the end of the defects liability period; and
(e) a great number of the defects identified in these AIs arose from defective design, Insite were the designing architects and thus the architect’s and PHHH’s interests were aligned in making design defects UCP’s responsibility.
58Based on the evidence summarised above, UCP asserts:
(a) requests for information were ultimately a mechanism used by PHHH (and acquiesced to by the architect) to delay the assessment of UCP’s variations;
(b) avoiding notices of dispute were also part of delaying the assessment of variations (and their accompanying EOTs);
(c) ultimately the assessments of the variations could not be postponed any longer, the parties were in dispute and had a payment claim before an adjudicator, which was determined in favour of UCP;
(d) PHHH had no intention of paying the adjudicated amount and was determined to have an assessment by the architect which would result in a net payment to itself;
(e) in order to achieve this assessment, PHHH directed the architect and the architect complied, to reverse previously approved variations, reject variations which were long overdue for assessment, so called “under review” and to adopt PHHH’s erroneous calculation of liquidated damages; and
(f) PHHH could then use the certificate in its favour to offset against the amount adjudicated by the adjudicator.
59UCP argues that PHHH exercised “improper pressure, influence or interference” upon Mr Palma. UCP further says that Mr Palma engaged in “conduct which falls short of the proper standard of fairness, independence and impartiality”.
Breach of clause A6.4 of the Contract
60In its written reply submissions and oral closing submissions, UCP’s focus shifted somewhat from that developed in some detail in its initial written closing submissions. It describes Mr Palma’s alleged willingness to accede to PHHH’s improper demands as a “secondary argument” and gives primacy to PHHH’s express contractual obligation to uphold the architect’s independence. In particular, UCP argues that:
(a) unlike most of the authorities where the court finds an implicit contractual obligation on the part of the owner to ensure that its architect acts impartially in carrying out certifications, in this case there is no room for uncertainty or ambiguity;
(b) clause A6.4 of the Contract expressly imposes an obligation on the owner to “ensure that the architect, in acting as…certifier, complies with this contract and acts fairly and impartially, having regard to the interests of both the owner and the contractor” and not to “compromise the architect's independence in acting as…certifier”;
(c) the only basis on which any sensible builder would enter into an agreement where the owner is engaging the certifier, is if the builder is assured that there will not be any attempts to sway the certifier’s impartiality – UCP has accepted somebody who is in a prima facie position of conflict, but has done so married with a promise by PHHH not to seek to place any pressure or to do anything to rely upon that conflict;
(d) if PHHH breaches that obligation, it poisons the well of impartiality in a way that UCP, in agreeing to that arrangement, legitimately expects will not occur;
(e) PHHH’s own evidence establishes that it is seriously (and not merely incidentally) in breach of clause A6.4 – Mr Honeyborne acted consistently, vigorously and repeatedly to attempt to compromise the impartiality of the architect;
(f) PHHH had the right or the advantage of holding everyone to the process laid down by the Contract but elected to suborn that process, and there is no good reason to put PHHH back into the position it would have been if this had not occurred;
(g) in those circumstances, PHHH can no longer rely upon the determinative nature of the architect’s decisions – UCP’s obligation to treat the architect’s decisions as binding falls away, because the basis on which that obligation was accepted by UCP has been defeated by PHHH’s conduct; and
(h) it is irrelevant that the architect “manfully resisted such interference and coincidentally came to the result being demanded. The contention is risible. But even if it were not, [UCP] contracted for an assessment process that did not lay itself open to question in that way”.
PHHH’s submissions
61PHHH submits that the architect acted fairly and impartially. It distils the evidence on which UCP relies into five broad categories:
(a) PHHH was keen to keep costs down;
(b) Mr Honeyborne and Mr Palma would discuss the variations, and Mr Honeyborne would seek explanations for the variations;
(c) unbeknownst to UCP, Mr Palma adjusted his internal variations register;
(d) the architect arrived at the same calculation of liquidated damages as Mr Honeyborne; and
(e) Mr Palma eventually did not admit the outstanding variations.
62As to (a), PHHH submits it is “somewhat axiomatic” that an owner would not wish to pay more than it has to for a project. But this does not inform whether it acted improperly in achieving this end. Further, Mr Honeyborne’s evidence was that PHHH’s financial position was not an issue albeit that he was keen not to pay more than required.
63As to (b), PHHH argues that Mr Honeyborne’s request for information does not of itself evince the required degree of interference or influence, and does not affect the architect’s independence.
64As to (c), PHHH submits it is difficult to see how this evinces any relevant conduct on the part of the architect. It argues that the registers were internal documents, not seen by UCP at the relevant time and, at best, reflected the architect’s view of the status of the variation claims from time to time.
65It further contends that whatever the status of those internal documents, variations that were approved or denied retained their status. The registers did not alter that fact, “and the Defendant had a contractual mechanism available for it should it wish these matter to be determined”. PHHH continues (references omitted):
“Mr Palma’s evidence was clear insofar as he was awaiting further information on these claims. Tellingly, Mr Potter gave credence to Mr Palma’s evidence by saying the Defendant decided to stop providing the information sought by Mr Palma in around late 2016/early 2017 (that is, months before the impugned conduct), notwithstanding that he fully accepted that without this the architect could not fulfil his function.
Further, it is noteworthy that event the Defendant’s own experts were unable to assess many of the variation claims some three years plus hence, and with the benefit of both a complete suite of documents and (presumably) in circumstances where the defendant was not refusing to provide further information…[O]f the variations assessed by the experts in their joint report, thirteen were agreed as requiring more information, which included CV 48, CV 50, CV 53, CV 55, CV 56, CV 58, CV 59 and CV 62, which is the entirety of the variations cited by the Defendant in paragraphs [108] and [109] of it Closing Submissions in support of its allegations impugning the architect’s conduct.”
66As to (d), PHHH says this is of no merit as this was a function of rudimentary arithmetic.
67PHHH does not address (e) directly, but submits in conclusion that:
(a) The conduct relied upon does fall foul of the indicia set out in Kane Constructions (UCP has not attempted to characterise the conduct).
(b) UCP has failed to identify what is says the consequences are. Specifically, and with respect to the focus on events in August 2017, what actions are impugned and why?
(c) Even if the conduct satisfied the requisite standard, UCP’s claim would be for breach of contract, and it has not pleaded such a claim.
(d) Even if UCP had pleaded a claim for breach of contract:
[T]he architect’s conducts was not causative of its loss and damage in circumstances where (a) it had a contractual mechanism for challenging variations, including failures to assess, (b) by its own evidence, it had reached the conclusion in late 2106/early 2017 that the architect was not independent, and (c) that, again by late 2016/early 2017, it had opted not to provide any further information to the architect, notwithstanding that it was aware that this was necessary for his assessment task.”
(e) Critically, in circumstances where UCP’s claims relate to claims made to adjust the contract, clause H6 does not apply to the claims made.
68In oral closing submissions, PHHH responded briefly to UCP’s submissions relying on clause A6.4 of the Contract. I understood it to be submitting that, regardless of PHHH’s obligation under that clause and its conduct, the court is still required to make an objective assessment of whether the architect has in fact been suborned. Further, in the case of an architect who can be assumed to ordinarily act in a professional manner, it is going to take a reasonable amount of effort to demonstrate that he has been suborned. PHHH also emphasised that UCP must establish that is had suffered loss by reason of any conduct by PHHH in breach of A6.4.
Analysis
69The law regarding the architect’s role in the administration of a construction contract is well established and was recently and conveniently summarised by Digby J in V601 v Probuild,[11] The architect has two separate and distinct roles:[12]
(a) to act as an agent for the principal; and
(b) to act as an independent assessor and certifier.
[11] [2021] VSC 849.
[12]V601 v Probuild [2021] VSC 849 at [238], citing Dixon v SA Railways Commissioner (1923) 34 CLR 71, 112.
70In the former role, the architect is to act in the principal’s best interests and in the latter, the architect must ordinarily act independently and in an impartial and fair manner so as not to advance the principal’s interests over that of the contractor.[13] This is reflected in clause A6.2 and 3 of the Contract, which provides:
“.2 The architect is appointed to administer this contract on behalf of the owner and the owner warrants that the architect has authority to administer this contract.
.3The architect is the owner’s agent for giving instructions to the contract. However, in acting as assessor, valuer or certifier, the architect acts independently and not as the agent of the owner”
[13] V601 v Probuild [2021] VSC 849 at [239].
71The faithful performance of these two roles may give rise to tension.[14]
[14]V601 v Probuild [2021] VSC 849 at [253], citing Peninsula Balmain.
72As discussed above, in addition to the architect’s obligations to act independently, under clause A6.4 pf the Contract, PHHH must ensure that the architect discharges this obligation. If the architect does not act independently, the architect’s certificates may be set aside.[15] A certificate which is produced by fraud or improper collusion between the architect and a party is vitiated and has no effect.[16]
[15]V601 v Probuild [2021] VSC 849 at [253], citing Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322.
[16]V601 v Probuild [2021] VSC 849 at [253], citing Attorney-General v McLeod (1893) 14 LR (NSW) 246; Perini Corporation v Commonwealth of Australia [1969] 2 NSWR 530; Redmond v Wynne (1892) 13 LR (NSW) L 39; 8 WN (NSW) 103.
73Circumstances in which the architect’s conduct may be impugned cannot be stated exhaustively.[17] Although, in Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd,[18] Finkelstein J identified the following broad categories suggested in Hudson’s Building and Engineering Contracts, 11th ed 1995: (1) where the decision-maker has a special interest in the result; (2) fraud or collusive conduct; (3) improper pressure, influence or interference by the owner; (4) conduct which falls short of the proper standard of fairness, independence and impartiality; (5) breach of contract or other act or omission of the owner having the effect of preventing the builder obtaining a decision; (6) unreasonable refusal by the decision-maker to consider the matter; and (7) taking improper considerations into account.
[17]Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2003] FCA 174 at [89], quoted in V601 v Probuild [2021] VSC 849 at [260].
[18] [2003] FCA 174.
74In Kane Constructions, Warren CJ also cited with approval commentary in Hudson’s Building and Engineering Contracts in Australia (“Hudsons”), as follows:
“It is submitted that fraudulent motion is irrelevant in considering [interference] which is sufficiently wide to cover any improper interference with the certifier’s independence and function by either party. It is, of course, both usual and proper for both parties to make representations, however strongly worded, to the certifier upon any matter or dispute upon which the contract requires him to certify. The dividing line between such representations and pressure of an improper kind is not difficult to discern in practice, and broadly speaking any pressure or action which goes beyond representations confined to the merits of the matter in question, or which does not expressly or impliedly recognise the certifier’s ultimate right and duty to decide the matter impartially on its merits, will be suspect. [19]
[19]Kane Constructions at [620], citing Hudson’s at p822.
75However, her Honour went on to refer to a passage in Hudson’s relied on by UCP in its reply submissions:
“No doubt where interference or pressure by an owner results in no certificate being given, the prevention principle will apply but the cases show that other forms of influencing or interference need only be such as to cast doubt on the certifier’s independence...once the certifier’s independence has become suspect, the courts will not concern themselves unduly with the extent or degree of influence over the certifier, or its precise impact on the certificate in question.”[20]
[20]Kane Constructions at [621], citing Hudson’s at p822.
76Her Honour next provided a non-exhaustive summary of indicia for determining whether the architect’s conduct is impugned (citations omitted):
“…when the superintendent allows judgment to be influenced; when the superintendent is in a position whereby the certificate is deprived of value; when the superintendent acts in the interests of one of the parties and by their direction; when the position is misconceived and the superintendent acts as mediator; when there is not sufficient firmness in order to decide questions based on his or her own opinion; where judgement and conduct are controlled by the principal; and where the superintendent considers the assent of the principal to be necessary, has ceased to be a free agent and does not give full disclosure of every communication between the superintendent and the principal. Finally, the superintendent may lose independence without actually intending to do so or even without knowledge they have done so.
In relation to the principal, interference will arise where there is an attempt to lead the superintendent astray in the interests of the principal; and where there is correspondence and communication of an improper character between the principal and the superintendent. In relation to the contractor, interference will arise where the contractor has no knowledge of the interfering conduct so as to prevent the builder raising the point.” [21]
[21] Kane Constructions at [623]-[624], quoted in V601 v Probuild [2021] VSC 849 at [259].
Did the architect fail to act fairly and impartially?
77Determining the answer to this question has not been easy. I accept that there were aspects of the conduct of both PHHH and the architect that raise legitimate questions about the latter’s independence. However, I have concluded on balance that the architect did not fail to act fairly and impartially (or otherwise fail to act independently) in carrying out his obligations as certifier under the Contract. I am also not persuaded that that PHHH acted in breach of clause A6.4 of the Contract.
78I accept that Mr Palma routinely passed UCP’s claims on to PHHH for comment, and thereafter often engaged in unilateral discussions or communications about the claims with Mr and Mrs Honeyborne (usually the former). However, this alone does not constitute a lack of impartiality or independence. As observed in Bailey’s Construction Law:[22]
“The fact that the contract administrator may have communicated or met with the owner unilaterally, to obtain the owner’s views on a matter in respect of which the contract administrator is required to make a decision, does not of itself suggest unfairness…A contract administrator is not required – unlike a judge – to give the appearance of being impartial. What matters is that the contract administrator is not actually partial between the contracting parties, or at least there is not a material probability of the contract administrator being biased.”
[22] Julian Bailey, Construction Law (London Publishing Partnership, 3rd ed, 2020), 373.
79The learned authors of Building and Construction Contracts in Australia also suggest that “the mere fact of private communications from principal to the [architect] will not result in actionable breach”.[23]
[23]John Dorter and John Sharkey, Building and Construction Contracts in Australia (Thomson Reuters, online) at [7.500].
80Mr Honeyborne is an experienced property developer. As UCP submitted, he is a practising accountant and has been involved in the development of five separate childcare centres. He presented as someone with a detailed understanding of construction practices and contracts, including the Contract. Mrs Honeyborne is also generally familiar with construction projects and has considerable experience in the regulation and operation of childcare centres. Further, I accept PHHH’s submission that it is axiomatic that any owner would not wish to pay more than it is obliged to for a project.
81Against this background, the evidence that PHHH was diligent, pedantic and persistent in ensuring that it only paid what the Contract required, is unsurprising. And I reiterate part of the passage from Hudson’s cited in Kane Constructions and set out above that (emphasis added): “It is, of course, both usual and proper for both parties to make representations, however strongly worded, to the certifier upon any matter or dispute upon which the contract requires him to certify”.
82I accept that PHHH had a relationship with Mr Palma that went beyond this project. It is likely that in the course of that relationship, Mr Palma came to recognise PHHH’s expertise and concern to provide input in relation to all aspects of the Contract, particularly any variations and EOTs that were likely to impact the price. But I agree with PHHH’s submission that evidence of a pre-existing or broader relationship is not proof of a lack of independence, particularly if that relationship is primarily or solely professional.
83Based on my observations of both Mr Honeyborne and Mr Palma, I am satisfied that their relationship was entirely professional and not particularly close – there was no evidence of any personal dealings between them. I have no doubt that Mr Palma respected Mr Honeyborne’s experience and opinions. However, Mr Palma’s responses and general demeanour also suggested that he often found Mr Honeyborne cantankerous, argumentative and difficult. Indeed, it is this factor that has caused me the greatest difficulty in assessing this issue.
84More particularly, I have asked myself whether Mr Palma’s frustrations in his dealings with Mr Honeyborne might have led him to capitulate on some issues in the face of Mr Honeyborne’s persistence, in order to avoid an argument. Had this been the case, I would have been obliged to find that the architect had been suborned by PHHH. Such a finding would have been mandated by Warren CJ’s observation in Kane Constructions extracted above that the form of influence “need only be such as to cast doubt on the certifier’s independence...once the certifier’s independence has become suspect, the courts will not concern themselves unduly with the extent or degree of influence over the certifier, or its precise impact on the certificate in question”.
236UCP submits that the fact that the works will not in fact be carried out and the sale of the property are relevant to the reasonableness of rectification. It argues that where PHHH has elected to sell the building without carrying out the repairs, where it has refused UCP the opportunity to effect the repairs, and where it has presented a grossly inflated damages claim, “the conclusion asserts itself that this is not an action to recover bona fide loss, but rather to extract a windfall at the expense of the Builder”.
237PHHH submits in response that whether the rectification works were carried out before selling the property is irrelevant, provided the amount claimed is reasonable. It adds that the reasonableness question is one of fact, it does not depend upon the likelihood of the works being completed and UCP (as the party bearing the onus of establishing unreasonableness) has not produced evidence that any of the rectification works were unreasonable. PHHH further argues that:
(a) much of the cost of rectification works has already been incurred;
(b) Mr Honeyborne gave evidence that PHHH intends to reimburse the landlord for the completion of these works;
(c) UCP’s submission that PHHH is seeking to “extract a windfall” and that “there will be no rectification” are baseless and cannot be asserted as they were never put to Mr Honeyborne; and
(d) UCP has been indemnified by the third parties in the sum of $100,000 for the roofing defects. Therefore, UCP is suggesting it is unreasonable for PHHH who paid for UCP to carry out this work (which was defective) to receive this money as it no longer owns the premises, and it is more reasonable for UCP, who was responsible for the defective work, to be paid twice over for the defective work.
238As noted above, the submissions differ on whether the sale of the property, or the likelihood of the works being carried out, are relevant to the reasonableness question.
239In Bellgrove, the High Court held that the possibility that rectification work will not be carried out does not prevent a claim for damages.[37] In Director of War Services v Harris,[38] Gibbs J held that a sale of the property does not of itself affect the right to damages, but may be relevant to the question of reasonableness:
“…If the owner subsequently sold the building, or gave it away, to a third person, that would not affect his accrued right against the builder to damages according to the same measure. The fact that the building had been sold might be one of the circumstances that would have to be considered in relation to the question whether it would be reasonable to effect the remedial work.” (at 278)
[37]Bellgrove at p620.
[38][1968] Qd R 275.
240In Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd,[39] Griffiths LJ (with whom Keith, Bridge, Ackner and Browne-Wilkinson LLJ agreed) held (citations omitted):
“In contracts for the sale of goods, the purchaser is entitled to damages for delivery of defective goods assessed by reference to the difference between the contract price and the market price of the defective goods, irrespective of whether he has managed to sell on the goods to a third party without loss..”
[39][1993] 3 All ER 417.
241In De Cesare v Deluxe Motors Pty Ltd,[40] Doyle CJ, Bollen and Nyland JJ held that Gibbs J was “correct in saying that in principle the relevance of the sale of the building is limited to its relevance to the question of whether it would be reasonable to effect the remedial work”.[41]
[40](1996) SASR 28.
[41]Ibid at 35.
242In Westpoint Management Ltd v Chocolate Factory Apartments Ltd,[42] Giles JA (with whom McColl and Campbell JJA agreed) noted the tension between the undesirability of extensive evidentiary inquiries, and the compensatory principle of damages, his Honour held:[43]
“Ordinarily the court is not concerned with the use to which a plaintiff puts its damages, and if the likelihood of the plaintiff carrying out the rectification work were a consideration in the award of damages there would be the potential for expensive and time-consuming factual enquiries. On the other hand, adherence to the compensatory nature of damages suggests that, if the plaintiff will not put itself in the position it would have been in had the contract been performed, the plaintiff should not be given the means of doing so.”
[42][2007] NSWCA 253.
[43][2007] NSWCA 253 [54].
243His Honour went on to say:[44]
“Relevance of the plaintiff's intention to carry out the rectification work to reasonableness is accepted in, for example, Chitty on Contracts, 29th ed, at 20-016, and Hudson's Building and Engineering Contracts, 11th ed at 8-138. It appears to have been accepted in De Cesare v Deluxe Motors Pty Ltd - indeed, sale of the building may have relevance through whether or not the rectification work will be carried out. If truly going to reasonableness, I do not think consideration of whether or not the plaintiff will carry out the rectification work is inconsistent with Bellgrove v Eldridge, since the regard to it is part of arriving at the plaintiff's compensable loss. Once there is compensable loss, the court is not concerned with the plaintiff's use of the compensation.
But the plaintiff's intention to carry out the rectification work, it seems to me, is not of significance in itself. The plaintiff may intend to carry out rectification work which is not necessary and reasonable, or may intend not to carry out rectification work which is necessary and reasonable. The significance will lie in why the plaintiff intends or does not intend to carry out the rectification work, for the light it sheds on whether the rectification is necessary and reasonable. Putting the same point not in terms of intention, but of whether or not the plaintiff will carry out the rectification work, whether the plaintiff will do so has significance for the same reason, and not through the bald question of whether or not the plaintiff will carry out the rectification work. That question is immaterial, see Bellgrove v Eldridge.
So if supervening events mean that the rectification work cannot be carried out, it can hardly be found that the rectification work is reasonable in order to achieve the contractual objective: achievement of the contractual objective is no longer relevant. If sale of the property to a contented purchaser means that the plaintiff did not think and the purchaser does not think the rectification work needs to be carried out, it may well be found to be unreasonable to carry out, the rectification work. An intention not to carry out the rectification work will not of itself make carrying out the work unreasonable, but it may be evidentiary of unreasonableness; if the reason for the intention is that the property is perfectly functional and aesthetically pleasing despite the non-complying work, for example, it may well be found that rectification is out of all proportion to achievement of the contractual objective or to the benefit to be thereby obtained.”
[44]Ibid at [59]-[61].
244In Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd,[45] Bathurst CJ (with whom Macfarlan and Meagher JJA agreed) cited and applied the above passage. The court held that a lack of intention to carry out the rectification work, the transfer of the property from the defendant to an owners corporation and the absence of any evidence that the defects were affecting the use and occupation of the building or the common property, indicated that rectification works were unreasonable.[46]
[45][2012] NSWCA 184.
[46]Ibid at [230].
245In my view, the weight of the authorities distils to the proposition that the sale of the relevant property can be evidence of a lack of intention to carry out works, which in turn can inform the question of unreasonableness. However, it is clear that a sale by itself does not prove unreasonableness. I would add that the decision of the High Court in Tabcorp strongly reinforces the proposition that the starting point is the innocent party’s strict contractual entitlement. Great care should be taken with submissions that “rested on a loose principle of ‘reasonableness’ which would radically undercut the bargain which the innocent party had contracted for an make it very difficult to determine in any particular case on what basis damages would be assessed”.[47]
[47]Tabcorp at [19].
246The substance of UCP’s submissions is that:
(a) PHHH completed the sale and parted with any interest in the property after commissioning the defects report, and before giving any notice of the defects to UCP;
(b) PHHH therefore had no interest in the defects being repaired, or any ability to carry them out; and
(c) PHHH refused to allow UCP to rectify the defects under the contractual regime.
247In my judgment, none of these facts come close to establishing unreasonableness of the kind discussed in the authorities. Further, it is clear (as submitted by PHHH) that:
(a) most of the rectification work had in fact been carried out by the time of the trial regardless of the sale; and
(b) no attempt was made by UCP in the cross-examination of Mr Honeyborne to gainsay his evidence that he intended to reimburse the landlord or to identify particular items of rectification that would never be undertaken or were otherwise unreasonable.
248Finally, and perhaps most importantly, the expert evidence (and most notably the evidence of UCP’s own expert Mr Buchanan) established to my satisfaction that each item of rectification work for which I have assessed damages was objectively necessary and reasonable.
249I therefore award PHHH damages for defects totalling $187,490.31, less the $13,298.76 for the margin on the works UCP offered to rectify, resulting in a damages award to PHHH for defects of $174,191.55.
Variation 37 Claim
250On 12 December 2016, the architect certified that UCP was entitled to variation 37 and PHHH was liable to pay $167,608.54 for this variation. PHHH paid the assessed variation amount on 21 January 2017. On about 6 July 2018 (over 18 months after certification), PHHH served a dispute notice in respect of variation 37. PHHH pleads an entitlement to repayment of the $167,608.54, on the basis the Contract documents obliged UCP to construct steel framing to support the timber floor joists in the level 2 floor structure of the building and it failed to do so. On that basis, it submits that it “primarily claims damages for breach of contract in respect of Variation 37”.
251UCP pleads in response that it was only required to construct in accordance with the contractual drawings, which “stipulated steel beams of 300mm depth (1B4), timber floor joists of 400mm depth and 10mm thick cleat plates with two M20 bolts located within each steel beam” and that the structural design was changed in September 2016 “to enable connection between the 400mm joists and the 300mm beam by extending the cleats and specifying three rather than two M20 bolts”. UCP asserts that the contractual drawings did not require connection between the steel beam and timber floor joist and that PHHH was required to supplement the design. UCP also points to the very late service of PHHH’s notice of dispute
252There was discrete and detailed expert engineering evidence given on this issue from Mr Drew for PHHH and Mr Herbert for UCP. Based on this evidence, PHHH characterises the issue as “boiling down to a question on ultimate responsibility for shop drawings from a sequencing as opposed to a structural perspective”. UCP submits that describing the dispute of this variation as a sequencing issue is a mischaracterisation that assumes the answer to the question. It says that: “At its heart, the dispute over CV 37 is a documentation issue and the extent to which the design intent was expressed in the documentation”.
253In my view, for the same reason that UCP cannot rely on clause H6 to review the architect’s assessments of variations, PHHH is unable to circumvent the procedure under clause A8 to re-open the architect’s certification of variation 37. PHHH’s dispute notice was submitted more than a year after 20 working days of the architect’s variation 37 on 12 December 2016. Thus, PHHH is not entitled to dispute variation 37 at all, whether it purports to do so on the basis of breach of contract or otherwise. PHHH has not argued that the architect’s decision in relation to variation 37 is open to re-assessment by reason of partiality or on any other ground.
254For completeness, had it been necessary to determine the validity of variation 37, I would have endorsed the architect’s approval of the variation essentially for the reasons stated by UCP, including that I generally preferred the evidence of Mr Herbert where it conflicted with Mr Drew. There is also force in UCP’s submission that the variation was supported by Amiens Consulting, whose assessment had been commissioned by the architect, and Mr Palma’s evidence that he accepted the variation was not UCP’s fault. I agree with UCP that: “The relevant engineering drawings did not provide section details for the connection ultimately used by the engineer and built by the builder”.
Utilities Claim
255As with variation 37 and for the same reasons, in my view the last word on this issue is PC 16 Rev A, which certifies utilities totalling $7,361.98, comprising $401.98 for water usage and $6,960 for electricity usage. It is not open to either party to now seek to challenge that certification for the reasons previously explained.
256If the position were otherwise, I would have agreed with PHHH that utilities are payable by UCP under Contract on the basis that:
(a) pursuant to clause N1.1a of the Contract, the Contract Price allows for “everything reasonably required in accordance with the contract to complete the *works”;
(b) Mr Palma gave unchallenged evidence that “I understand this to include the provision of power and water to the site, both of which are essential to carrying out the works”; and
(c) Mr Honeyborne gave evidence that the utilities claim included amounts that were, on reflection, not due to UCP’s usage, resulting in an allowance for utilities of $4141.79, not $10,006.31 set out in the statement of agreed facts.
Incidental matters
257There are two incidental matters that arose during proceedings, which I indicated would be the subject of further elucidation in these reasons. These were:
(a) UCP’s application to amend its counterclaim; and
(b) the admissibility of pages that UCP sought to add to the tender list after the evidence at trial had concluded.
UCP’s application to file and serve further amended counterclaim
Background
258On 31 August 2018, UCP filed its original defence and counterclaim. On 4 December 2018, UCP filed an amended counterclaim, separating its counterclaim from its defence. By paragraph 47 of its original defence and counterclaim (which became paragraph 9 of the amended counterclaim, but was otherwise unamended), UCP pleaded that:
“In breach of clauses A6.4, H6 and J5, the Plaintiff has failed to ensure that the Architect, as certifier, adjusted the contract price and the date for practical completion fairly and honestly in accordance with the relevant quotations/variations”.
259Thus at all times up to and including the start of the trial, UCP essentially relied only on clause H6 (together with the allegation of the architect’s impartiality and the breach of clause A6.4) as the source of its entitlement to have the architect’s certifications of variation and EOTs revisited by the court, standing in the shoes of the architect. Neither party relied on, or otherwise referenced, the regime for disputing the architect’s certificates under clause A8.
260On the first day of the trial (22 February 2021), both parties sought to make what were, for the most part, uncontroversial amendments to their pleadings. PHHH sought to rely on a draft amended defence to amended counterclaim that updated details of the alleged Contract Price, amended paragraph numbering and sought to amend paragraph 4 and add a new paragraph 4A. This had apparently been sent to UCP’s solicitors about a week before trial.
261UCP sought to rely on a draft amended counterclaim (also updating details of the alleged Contract Price and revising and further particularising its claim amounts), and a draft reply to PHHH’s draft amended defence and amended defence to amended counterclaim. These had apparently been provided to PHHH’s solicitors a day or so before trial.
262PHHH’s proposed amendments to paragraph 4 and its proposed paragraph 4A was the first substantive pleading referring to the dispute regime in paragraph A8 of the Contract. The proposed amendment to paragraph 4 essentially recited the alleged effect of clauses H6 and A8 of the Contract. The proposed new paragraph 4A positively asserted that UCP had failed to dispute the architect’s certifications (or failure to certify) under clause A8 and was therefore not entitled to raise such a dispute.
263In its proposed reply to the proposed new paragraph 4A, UCP denied the effect of clause A8 as alleged by PHHH and, “further or alternatively”, sought to raise an argument to the effect that PHHH had waived reliance, or was estopped from relying, on strict compliance with the time limits imposed by the Contract. UCP’s proposed reply generated debate on the first day of trial. In particular, while UCP initially disclaimed any need to plead relief under clause A8, PHHH was concerned to ensure that UCP did not use the proposed reply or other amendment as a “Trojan horse” – to introduce an estoppel or other fresh claim that went beyond reliance on clause H6.
264The debate continued on the second day of trial, in the course of and after each party’s openings. By the end of that day, it had become apparent that UCP was seeking to agitate issues that necessitated additions to UCP’s draft further amended counterclaim. An updated draft was provided by UCP overnight and was discussed at the commencement of the third day. Given the extent of the amendments and the importance of the application for the future conduct and, potentially, the outcome of the trial, I adjourned the trial for the rest of that day to allow the parties time to file and serve any affidavits and outlines of submissions.
265UCP duly filed and served submissions and an affidavit of Ms Nomikos, the principal lawyer of Macpherson Kelley, UCP’s solicitors. PHHH filed submissions and an affidavit of Mr Honeyborne and Mr Noble, the principal lawyer of Noble Lawyers, PHHH’s solicitors. I heard the application on 25 February 2021 and gave my preliminary ruling that day. I indicated to the parties that I would settle and elaborate on that ruling in my final reasons for decision in the proceeding, unless either party needed the settled ruling sooner. Neither party expressed such a need.
Summary and outcome
266UCP’s proposed amendments are in two categories. First, revisions and some further particulars to its claim amounts and what it alleged is the correct Contract price. Second, amendments alleging that:
(a) UCP had issued notices of dispute pursuant to clause A8 during the course of the Contract;
(b) PHHH is estopped from relying on strict time limits in the Contract;
(c) UCP had suffered loss and damage by reason of PHHH’s alleged failure to ensure the architect acted fairly and impartially; and
(d) UCP had suffered damages in the amount of variations and prolongation claims, that ought to have been granted by the architect.
267The first category of amendments were essentially agreed, although there was a dispute over some of UCP’s revised figures. This was resolved in UCP’s further amended counterclaim as filed. PHHH objected to all of the second category of amendments.
Submissions
268In both oral and written submissions, UCP identifies a number of reasons why leave ought to be granted. These are (in summary):
(a) the pleadings in relation to clause A8 and estoppel are necessary to respond to PHHH’s reliance on clause A8 as a bar to UCP’s claim, which PHHH raised for the first time in opening submissions;
(b) the interests of justice would favour the amendments being allowed and any inconvenience and delay would be ameliorated because the interests of justice would be met;
(c) not allowing the amendments could radically change the outcome of the final trial; UCP would suffer irreparable prejudice as the true issues in controversy could not be determined;
(d) the amendments sought were not markedly different from the existing case and stood within the parameters of the current dispute – UCP was simply seeking to impose a recognised category of relief on what was already alleged;
(e) this was not the case where UCP was seeking to waste court resources and time by “seeking to treat the trial hearing as a bargaining counter in the strategic forensic activities”; and
(f) on the question of whether those behind PHHH would suffer significant personal stress if the trial were vacated after three days, UCP submitted that while the stress to litigants is “a respectable and proper consideration”, stress is inherent to a commercial undertaking for profit on both sides and would be experienced by litigants in any event.
269In respect of the reason for the lateness of the amendment application, UCP submitted it was not aware that clause A8 was being raised as a bar to its counterclaim until opening submissions and, in any case, UCP had never suggested that clause H6 was the sole clause of the Contract being relied on. UCP argued that: “it can[not] seriously be said that… the defendant’s plan, considered plan was to argue all of this on the basis only of [clause] H6”.
270PHHH in its oral and written submissions identified a number of considerations that weighed against the grant of leave. These are (in summary):
(a) while clause A8 is a bar to claim, this bar was not raised as a defence by PHHH – clause A8 was only referred to as part of PHHH’s defence to identify that it was relevant to the construction of clause H6;
(b) the case in UCP’s counterclaim (relying on clauses H6 and A6.4 of the Contract) is the case that was pleaded for two-and-a-half-years and was the case UCP opened on in written and oral submissions. The addition of clause A8 to its counterclaim drastically departs from this position; and
(c) the claim UCP sought to add in relation to clause A8 was “markedly different” to the claim pursued pursuant to clause H6 and would necessitate new evidence including the deposition of different witnesses.
271Further, counsel for PHHH submitted that even if the further amendments then proposed by UCP were allowed, this would not have the effect UCP sought (that is, forming the basis of an increase to the Contract Price). For UCP to be able to rely on clause A8, it would need to first allege that clause H4 had been breached, and then particularise each variation claim and EOT it was entitled to under clauses J to L of the Contract (as applicable), clause H4 and then clause A8. PHHH submitted that by only including pleadings in relation to clause A8, UCP was seeking to bypass the relevant questions of entitlements that were a necessary prerequisite to such a pleading.
Ruling
272Having considered both the written and oral submissions of the parties, on 25 February 2021, I ruled that UCP’s application to introduce a claim involving reliance on clause A8 of the contract and notices purportedly served thereunder, would be dismissed. More specifically I ordered that UCP’s “application to file and serve a proposed further amended counterclaim in the form of the document exhibited to the affidavit of Victoria Nomikos sworn 24 February 2021, by adding proposed paragraphs 9A-E, 12, and C in the prayer for relief and by making any further amendment to paragraph 9, is dismissed”.
273I otherwise allowed both applications, made further orders for the filing and service of further pleadings accordingly and ordered that UCP pay PHHH’s costs of and incidental to the UCP’s application. As noted above, I gave brief reasons for my ruling, but indicated that I would elaborate on those reasons in my reasons for judgment in the proceeding generally. I do so as follows.
Reasons for ruling
274It is trite that the power to grant leave to amend a statement of claim is discretionary. The High Court in Aon Risk Services Australia v Australian National University[48] (“Aon”) held:
“An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed.”[49]
[48] (2009) 239 CLR 175.
[49] Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at 217 [111].
275The question is “what do the interests of justice dictate?”.[50] The interests of justice will vary greatly depending on the circumstances.[51] I am to consider and weigh a wide range of factors as set out in Aon, including:[52]
(a) whether there will be a substantial delay caused by the amendment;
(b) the extent of any wasted costs;
(c) whether there is an irreparable element of unfair prejudice caused by the amendment;
(d) concerns of case management arising from the stage in the proceeding when the amendment is sought;
(e) whether allowing the amendment will lessen public confidence in the judicial system; and
(f) whether a satisfactory explanation has been given for seeking the amendment at the stage when it is sought.
[50]Traffic Technique Pty Ltd v Burgmann [2020] VSCA 319 at [58].
[51] Traffic Technique Pty Ltd v Burgmann [2020] VSCA 319 at [58].
[52]Caroll v Goff [2021] VSCA 267 at [75].
276These factors are echoed in the provisions of Civil Procedure Act 2010 (“CPA”), including:
(a) section 7, which provides that the overarching purpose of the CPA is to “facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute”;
(b) section 8, under which the court must give effect to the overarching purpose in the exercise of its powers; and
(c) section 9, under which the court may further the overarching purpose in making any order or giving any direction.[53]
[53] Civil Procedure Act 2010 (Vic) s 9.
277Like in Traffic Technique Pty Ltd v Burgmann,[54] the matters to be considered in this case are finely balanced. On the one hand, UCP ought to be able to have the substantive merits of its case heard and determined. On the other hand, PHHH should not suffer irreparable prejudice as a result of allowing the contested amendments. I was satisfied on balance that the interests of justice lie in denying the contested amendments.
[54] [2020] VSCA 319.
278The contested amendments would have caused substantial delay. Had those amendments been allowed, the trial would be adjourned for a fourth time. At the time, there was no available trial date until at least August 2021 and thus the delay would have been at least another six months.
279A delay of this duration was unacceptable because, at the time of UCP’s application, there had already been substantial delay to the proceedings:
(a) PHHH had commenced these proceedings in April 2018; and
(b) the trial had been adjourned three times:
(i)the first listed trial date was 8 July 2019, which was adjourned due to appeal of the court’s decision regarding security for costs;
(ii)the second listed trial date was 29 June 2020, which was adjourned due to the defendant’s joinder of third parties; and
(iii)the third listed trial date was 23 November 2020, which was adjourned to give the third parties additional time to prepare for trial.
280Further, the prejudice this delay would cause to PHHH would be irreparable and was unacceptable. First, the contested amendments and the delay they would have occasioned would have cause significant financial hardship for PHHH. I agree with PHHH’s submission that:
(a) PHHH had been preparing for the trial of the case in the amended counterclaim for almost two years, and the claims it sought to add materially differed from (and added to) this case; and
(b) had the amendments been allowed, PHHH would be required to re-do and substantially add to witness statements, and undertake extensive investigations into the dozens of alleged dispute notices and any responses, before to be able to respond to the new allegations.
281Second, in my view, UCP’s proposed new pleading relying on clause A8 of the Contract and estoppel itself constituted a substantive new claim. However, I agree with PHHH’s submission that amendments proposed by UCP at the time of the application were an incomplete articulation of a fresh claim relying on clause A8. As UCP effectively conceded, to constitute a complete claim, it would have been necessary for UCP to add pleadings and particulars of breaches of clause H4.
282More particularly, as I noted in the course of oral submissions, to substantiate claims under clause A8, UPC would first need to establish entitlement to each variation or EOT claim under the relevant provisions of the Contract. It would then need to identify and particularise the architect’s alleged failure under clause H4 (that is, whether it was a failure to decide within 20 days or whether it was decided in 20 days but decided incorrectly). At the time of the application, there was no claim made pursuant to clause H4. Further, none of the proposed amendments in relation to clause A8 informed UCP’s allegation of PHHH’s breaches of clauses A6.4, H6 or J5 – provisions which UCP had relied on for over two years.
283Third, in my view, the financial and non-financial difficulties that PHHH would suffer as a result of the amendments could not be adequately compensated by an order for costs. I was satisfied that PHHH would suffer substantial and probably irreparable prejudice in the form of considerable stress and anxiety for the director Mr Honeyborne, and Mrs Honeyborne, which would be prolonged and exacerbated by the substantial further delay and the additional legal and other expenses the amendments would cause. In an affidavit of Mr Honeyborne dated 25 February 2021, Mr Honeyborne deposed (and I accepted) that:
(a) disputes relating to this development had been “a constant source of stress and anxiety” for Mr Honeyborne and his wife, Mrs Honeyborne, and an adjournment would exacerbate these circumstances;
(b) Mr Honeyborne had been personally bearing the expenses incurred as a result of the proceedings (in addition to other proceedings relating to this development);
(c) Mr and Mrs Honeyborne’s family finances had been strained due to the expenses incurred as a result of the proceeding and they had to enter a loan agreement to provide working capital for the childcare business run by Mrs Honeyborne;
(d) during June 2020, Mr and Mrs Honeyborne “came seriously close to losing [their] business” as a result of the financial stress caused by the expense of the proceedings; and
(e) Mr Honeyborne had been “barely able to contain the elevated levels of [his] anxiety and stress” since the defendant’s solicitors served Mr Honeyborne (and thereby PHHH) with a statutory demand for payment of $100,000 on the second day of trial.
284Fourth, as I also noted during the trial, the amendments sought could not be explained by anything other than an oversight. UCP had elected to pursue its claim through the narrow window of clause H6. Its proposed amendments sought to open a second window, to an entirely new claim. I do not accept UCP’s submission that the amendment was necessary to respond to PHHH’s reliance on clause A8 as a bar. PHHH did not raise clause A8 in this way – clause A8 was raised to inform the construction of clause H6, which UCP had relied on in its counterclaim. UCP now contends that its success at trial could depends on an alternative ground based on an alleged failure in the dispute resolution procedure under clause A8, that ground ought to have been pleaded well before the three days into the trial.
Admissibility of Tranche 14
Background
285On 13 April 2021, by email, UCP provided copies of documents it sought to the court book and, namely tender drawings, a second Powercor invoice and payment records from UCP (“Tranche 14”) and an amended court book index. PHHH objected to the purported addition of Tranche 14 to the court book and requested that the court disregard Tranche 14, on the basis that it was not appropriate for UCP to attempt to introduce further document after evidence in the proceeding was closed and given that PHHH had not agreed to the documents.
286Shortly thereafter, I indicated my preliminary view that Tranche 14 would not be received as part of the tender for the reasons provided by PHHH. I invited parties to make submissions, if UCP were to press the issue, and I indicated that I would address the issue in these reasons. On 20 April 2021, UCP filed submissions in relation to the inclusion of Tranche 14, and PHHH did the same on 23 April 2021.
287In its written submissions, UCP narrowed the tender drawings it sought to add to a single tender drawing, drawing H05 Rev T1 – a civil engineering tender drawing prepared by Perrett Simpson and Stantin Consulting Engineers, which relates to the overflows issue and variation 94. UCP submitted that this drawing was important for the court’s deliberation, given that it was referred to in the expert report of Mr Jeffrey,[55] one of PHHH’s experts, and UCP’s written closing submissions. According to UPC, it was only seeking to correct an administrative error by adding the drawing to the court book, since the drawing was referenced in the court book index.
[55]The written submissions refer to this being a report by Mr Naughton, but this was corrected in an email on behalf of UCP dated 22 April 2021.
288In its written submissions, PHHH agreed to the inclusion of the drawing as a document referred to by Mr Jeffrey, but on the basis that no witnesses had been taken to the document during oral evidence.
289In relation to the second Powercor invoice and associated payment records (“Powercor documents”), UCP sought to tender these on the basis that, absent those documents, there was a “serious risk of a mischaracterisation of UCP’s credit”. UCP noted that the invoice was the subject of oral evidence of Mr Potter, who stated that the invoice had been claimed twice, but he “wouldn’t say it was double dipping”. And, as I observed during the trial, there was only one invoice in evidence before me at that time. UCP further submitted that “such mischaracterisation of UCP’s conduct may result in a miscarriage of justice”, when there is evidence available to support that there were two discrete invoices.
290PHHH submitted that UCP sought to add the Powercor documents to make good its claim to variation 99, by providing a narrative around matters that were not the subject of evidence at trial. PHHH submitted that it was unfair to include the Powercor documents, since Mr Palma was cross examined on the one Powercor invoice in the court book. In relation to UCP’s concern about a suggestion that it had engaged in double-dipping, PHHH agreed not to allege double-dipping in relation to the Powercor invoices.
Ruling
291It was not in dispute that the question of whether UCP ought be given leave to (in effect) reopen its case and tender any of the Tranche 14 documents, is a matter entirely within my discretion. I also note that Rule 34A.29 of the Rules provides that: “Save with the leave of the Court or by consent of the parties, a party shall not tender in evidence at the trial of a proceeding a document a copy of which the party was required to include in the court book of the party but which the party did not include”.
292Since PHHH consents to the addition of drawing H05 Rev T1, the tender of this drawing is accepted by consent, in accordance with rule 34A.29.
293In respect of the Powercor documents, I agree with PHHH’s submissions that it would be unfair to admit this document after the evidence has closed, particularly as PHHH is effectively denied the opportunity to put the document to Mr Palma. Further, since PHHH has not pressed the “double-dipping” argument, the admission of Powercor documents is not necessary to head off any suggestion of sharp practice by UCP.
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Certificate
I certify that these 114 pages are a true copy of the judgment of his Honour Judge Woodward delivered on 5 April 2023.
Dated: 5 April 2023
Darcy White
Associate to his Honour Judge Woodward
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