Re Duke Ventures Wellington Street Pty Ltd
[2025] VSC 75
•6 March 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2024 00974
IN THE MATTER of DUKE VENTURES WELLINGTON STREET PTY LTD
(ACN 645 670 480)
BETWEEN:
| DUKE VENTURES WELLINGTON STREET PTY LTD (ACN 645 670 480) | Plaintiff |
| v | |
| COBOLT CONSTRUCTIONS PTY LTD (ABN 80 152 992 115) | Defendant |
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JUDGE: | Barrett AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 November 2024 |
DATE OF JUDGMENT: | 6 March 2025 |
CASE MAY BE CITED AS: | Re Duke Ventures Wellington Street Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2025] VSC 75 |
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CORPORATIONS – Application to set aside statutory demand pursuant to s 459H(1)(b) of the Corporations Act 2001 (Cth) on the ground that the plaintiff has offsetting claims – Where statutory demand based on adjudication and registered judgment debt under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOPA) – Whether the plaintiff can rely on offsetting claims that were rejected by the adjudicator – Whether plaintiff can rely on offsetting claims to the extent they were partly rejected by the adjudicator – Whether allowing such offsetting claims is contrary to the policy of SOPA, including s 10B – Re Douglas Aerospace (2015) 294 FLR 186 – Re J Group Constructions Pty Ltd [2015] NSWSC 1607 – CBS Commercial Canberra Pty Ltd v Axis Commercial (ACT) Pty Ltd [2022] FCA 544 applied –Held: Offsetting claims that were partly or wholly rejected by the adjudicator are available as offsetting claims to that extent under s 459H – Demand set aside.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Blunt | Thomson Geer |
| For the Defendant | Mr S Minahan | Turks Legal |
TABLE OF CONTENTS
Introduction
Evidence
Background
Building contract
Adjudication under SOPA
Duke’s Offsetting Claims
Principles
Consideration of the Offsetting Claims
Costs to Rectify Defects
Plumbing defects
Make good fire hydrant system
Powdercoat colour window frames
Water tank lining retro-fit
Make good opening to concrete walls
Missing fire rated walls to stairs
Correct reeded glass to windows
Make good window installations (window flashing)
Deficient AcraTex Render
Removal of Reinforcement and framework to suspended slab
Replacement of non-compliant condensate pipework
Preliminaries, margin and GST
Liquidated Damages
Costs to Complete
Conclusion
HIS HONOUR:
Introduction
The plaintiff, Duke Ventures Wellington Street Pty Ltd (ACN 645 670 480) (‘Duke’), applies to set aside a statutory demand served on it by the defendant, Cobolt Constructions Pty Ltd (ABN 80 152 992 115) (‘Cobolt’), pursuant to s 459H(1)(b) of the Corporations Act 2001 (Cth) (‘Corps Act’) on the basis it has offsetting claims greater than the amount in the statutory demand.
By its statutory demand Cobolt claims that Duke owes it $158,422.34, being an amount adjudicated under the Building and Construction IndustrySecurity of Payment Act2002 (Vic) (‘SOPA’) and subsequently ordered in the County Court by judgment entered on 2 February 2024.
Evidence
Duke relies on:
(a)affidavit of Mr Joseph Nicholas Toscano affirmed 5 March 2024;
(b)written submissions filed on 6 September 2024; and
(c)the aide-memoire prepared by Duke and filed on 11 November 2024.
Cobolt relies on:
(a)affidavit of Mr Christian Alexander Munn affirmed 9 August 2024; and
(b)written submissions filed on 10 November 2024.
Background
Building contract
On 19 January 2021, Duke, a special purpose vehicle created to develop property, engaged Cobolt, a builder, to construct a 10-storey apartment building known as the “Duke Apartments” under a “Construct Only” contract (‘the Contract’). On 10 April 2021, the Contract was amended.
The Contract provides that Cobolt was required to bring the works under the Contract to ‘Practical Completion’ ‘16 months from the date of possession of the Site’.[1] The practical completion date was originally 16 June 2022, but was extended by agreement to 23 August 2022.
[1]Construct Contract dated 19 January 2021 (amended by deed dated 10 April 2021), cl 35.2.
The Contract also provides that in the event of substantial breach by either party, the other may serve a notice to show cause.[2] In the event of Duke not complying with such a notice, Cobolt may terminate the contract.[3] In the event of Cobolt not complying with such a notice, Duke may either terminate the Contract or take the work out of Cobolt’s hands.[4] If the latter course is taken, the Superintendent shall upon completion issue a certificate certifying Duke’s costs in completing the work and if that certificate specifies that the cost is different to that which would have been payable by Duke to Cobolt, the difference shall be a debt due.[5]
[2]Ibid, cls 44.2 and 44.7.
[3]Ibid, cl 44.9.
[4]Ibid, cl 44.4.
[5]Ibid, cl 44.6.
The parties have exchanged various show cause notices and disagree as to whether they have been responded to appropriately. On 26 September 2023, Duke issued a Notice taking the works out of Cobolt’s hands. Cobolt maintains Duke had no basis to do so.
On 27 September 2023, Cobolt purported to terminate the contract and issued a purported notice of termination under general condition 44.9. On 28 September 2023, Duke subsequently purported to affirm the contract. Cobolt says the affirmation was ineffective.
The present situation is either that the contract has been terminated, or it has not been validly terminated but the works have been taken out of Cobolt’s hands by Duke. It is not appropriate in this application to attempt to resolve the question of the status of the contract. Resolution of that issue will involve questions of construction of the terms of the contract, and consideration of the issues that called for a response in the various notices issued, and whether they were responded to within the terms of the contract. They are matters for trial.
Adjudication under SOPA
On 26 September 2023, Cobolt issued a progress payment claim for the amount of $295,079.71 (‘Payment Claim’). On 25 October 2023, Cobolt applied for adjudication of its Payment Claim pursuant to section 9(b) of the SOPA. On 1 November 2023, Duke filed a formal response.
On 10 November 2023, a determination was made in favour of Cobolt in the sum of $152,376 (including interest and legal costs) of which $142,696.02 was held to be due for works under the contract (‘Adjudication/Adjudication Report’). On 2 February 2024, Cobolt obtained judgment on the adjudicated amount together with fees, interest and costs in the amount of $158,422.34 (‘Judgment Debt’). Duke has not taken any steps to set aside the judgment. The provisions of the SOPA prevent it from doing so unless it paid the amount into Court and further, Duke would be precluded from raising any cross claim under the contract.[6]
[6]Building and Construction IndustrySecurity of Payment Act2002 (Vic) (’SOPA’), s 27(4).
On 16 February 2024, Duke served the statutory demand. On 5 March 2024, Duke applied to set it aside.
Duke’s Offsetting Claims
Duke argues that it has offsetting claims that fall within three broad categories:
(a)rectification costs in relation to defects in the sum of $649,294 (excluding preliminaries, margins and GST);
(b)liquidated damages for Cobolt’s failure to bring the contract to ‘practical completion’ under general condition 35.6 in the sum of $880,000 (excl. GST) up to the purported termination date as at 27 September 2023 and $1,234,200 (excl. GST) as at 5 March 2024 (being the date of Duke’s set aside application).
(c)costs to complete the works under the contract taken out of Cobolt’s hands (including rectification costs) in the sum of $4,500,000 (excl. GST).
By a report dated 30 November 2023, Johns Lyng provided estimates of costs to complete the project (‘Johns Lyng Report’) which in turn relies on some independent assessments of defects requiring rectification, including by VPCO Pty Ltd. Duke relies on this report to quantify its offsetting claims.
Cobolt broadly submits that:
(a)a number of the claims raised by Duke were raised in, and ultimately merged in, the Adjudication;
(b)the claims to complete the works are speculative bold assertions that have no evidentiary value;
(c)the liquidated damages claim is premature and has not crystallised;
(d)to allow the offsetting claims would subvert the terms of the contract and the SOPA regime.
The main issues to be determined in this proceeding are:
(a)What are the principles in relation to the availability of offsetting claims for the purposes of setting aside a statutory demand based on a SOPA judgment debt?
(b)Are Duke’s offsetting claims excluded because allowance was made for them in the Adjudication?
(c)Has Duke otherwise established the offsetting claims to the requisite standard?
Principles
Section 459(H)(1)(b) of the Corps Act states:
Determination of application where there is a dispute or offsetting claim
(1) This section applies where, on an application under section 459G, the Court is satisfied of either or both of the following:
(a) that there is a genuine dispute between the company and the respondent about the existence or amount of a debt to which the demand relates;
(b) that the company has an offsetting claim.
(2) The Court must calculate the substantiated amount of the demand in accordance with the formula.
The meaning of ‘offsetting claim’ is defined in s 459H(5) of the Corps Act as follows:
“Offsetting claim” means a genuine claim that the company has against the respondent by way of counterclaim, set -off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).
The relevant test for proof of an offsetting claim is whether the Court is satisfied that there is a serious question to be tried or ‘an issue deserving a hearing.’[7] Duke is required to evidence assertions relevant to whether there is an offsetting claim, but is not required to advance a fully evidenced claim. The application is akin to an application for an interlocutory injunction requiring a plausible contention requiring investigation.[8] The Court must also assess the genuineness of the offsetting claim. It is uncontroversial that building disputes are generally ill-suited to resolution by the statutory demand process. It has been prosaically observed that ‘building disputes are notorious for their mind-numbing complexity and it must be a rare case where a challenge to a party's claim will not be seen as giving rise to a genuine dispute.’[9]
[7]Britten-Norman Pty Ltd v Analysis & Technology Australia Pty Ltd (2013) 85 NSWLR 601, [30] (Beazley P, Meagher and Gleeson JJA).
[8]Malec Holdings Pty Ltd v Scotts Agencies Pty Ltd (In liquidation) [2015] VSCA 330, [47]-[51] (Kyrou, Ferguson and Kaye JJA) cited in MSA Renex Corp Pty Ltd v Create Environment Pty Ltd [2021] VSCA 178, [28] (Fergusson CJ and Walker JA, Kyrou JA agreeing as to the principles [53]).
[9]Anderson Formrite Pty Ltd v Rapid Metal Developments (Australia) Pty Ltd [2002] WASC 232, [23] (Master Sanderson).
The purpose and machinery of the SOPA was not in issue. Generally speaking it provides an expedient process for the recovery of progress payments in the construction industry. A claimant may serve a progress claim, and the recipient may then respond raising aspects of the claim which are disputed. The matter then proceeds to adjudication and such adjudications may be registered as recoverable judgments of the Court. [10] It has been described as a ‘pay now, argue later’ regime. The adjudication, and hence the judgment, do not give rise to any res judicata, and may be challenged in due course.
[10]See discussion in Re J Build Developments Pty Ltd [2022] VSC 434, [35]-[37] (Hetyey AsJ) and Re Dask Entertainment Melbourne Pty Ltd [2023] VSC 660, [28]-[38] (Efthim AsJ) (‘Re Dask’).
Duke accepts that it may not raise a genuine dispute under s 459H in relation to the debt under the SOPA[11] but submits that it may rely on:
(a)offsetting claims raised in the Adjudication to the extent no allowance was made for them, or put another way, to the extent they were rejected in the Adjudication;[12]
(b)any offsetting claim arising from transactions other than the one giving rise to the debt.[13]
[11]Duke has not sought to argue genuine dispute.
[12]Relying on Re J Group Constructions Pty Ltd [2015] NSWSC 1607, [165]-[168] (‘Re J Group’).
[13]This is not disputed.
Cobolt submits that only offsetting claims that arise from ‘transactions separate from the one giving rise to the debt’ are available as offsetting claims under s 459H. I do not agree. The discussion by Brereton J in Re Douglas Aerospace[14] makes it clear that any offsetting claim, whether connected to the debt or not, or arising from the same transaction or not, may be relied on as an offsetting claim except to the extent that allowance has been made for it in the adjudication.[15]
[14](2015) 294 FLR 186 (‘Re Douglas Aerospace’) cited in CBS Commercial Canberra Pty Ltd v Axis Commercial (ACT) Pty Ltd,in the matter of CBS Commercial Canberra Pty Ltd [2022] FCA 544, [54] (Halley J) (‘CBS Commercial Canberra’). See also CBS Commercial Canberra at [55].
[15]Re Douglas Aerospace (n 14) [93]-[96].
Cobolt submits broadly that decisions concerned with ‘different (interstate) versions of the SOPA are distinguishable from this case.’ More particularly, Cobolt submits that the ACT Act considered in CBS Commercial Canberra[16], ‘does not specifically carve out claims in respect of “excluded amounts”’ such as those enumerated in s 10B of the SOPA. That section provides that certain amounts ‘must not be taken into account in calculating the amount of a progress payment …’. I do not consider the presence or absence of that section is a sufficient basis to distinguish the principles relied on. I can discern no compelling reason why an offsetting claim that was not dealt with in an adjudication should be treated differently for the purposes of s 459H depending on whether the offsetting claim was rejected or excluded by operation of s 10B, or merely not relied on. In either case, there is an offsetting claim for which allowance has not been made in the adjudication. Further, none of the authorities relied on suggest that the reason an allowance was not made for an offsetting claim was relevant to the question whether it may been available as an offsetting claim under s 459H. No other specific differences between the Victorian Act and other State Acts were relied on.
[16]CBS Commercial Canberra (n 14).
Cobolt also submits that Duke’s attempt to rely on the offsetting claims is ‘an unprincipled attempt to subvert the Contract and the SOPA regime.’ I do not agree that relying on offsetting claims to set aside a statutory demand subverts the SOPA regime. The statutory demand process is ‘a process that defines where the burden of proof lies in winding up proceedings.’[17] The result of a failure to satisfy a demand is a statutory presumption of insolvency for the purposes of a winding up application.[18] That presumption may or may not be displaced at the hearing of that application. The policy of the SOPA upon which Cobolt’s submission rests is the imperative for timely payment of progress claims, but a debtor ‘is in no sense required to comply with a demand,’[19] and may decline to do so. In that sense, setting aside the demand because of an offsetting claim does not subvert the SOPA regime because permitting the statutory demand to stand will not necessarily mean the debt is paid promptly. If the recipient of a statutory demand does not pay the amount claimed, and if they successfully resist a subsequent winding up application, then the statutory demand process will not lead to the payment of the debt at all. That is not to say that a statutory demand may not result in payment of a debt, only that it will not necessarily result in such payment. And the setting aside of the demand does not mean the debt is not recoverable at all. As has been observed, a creditor with the benefit of a statutory debt under SOPA has various means of enforcing the debt that do not involve statutory demands or winding up.[20] Questions have also been raised as to how far the proper interpretation of a Commonwealth Act should be determined by the policy underlying a State Act.[21] I do not consider that the terms of s 10B of the SOPA, or the Contract, compel a different conclusion.
[17]Australian Beverage Distributors Pty Ltd v Cranswick Premium Wines Pty Ltd (2004) 50 ACSR 544, [16] (Barrett J).
[18]Section 459C(2)(a) of the Corporations Act 2001 (Cth).
[19]Ibid.
[20]Demir Pty Ltd v Graf Plumbing Pty Ltd [2004] NSWSC 553, [20] (Campbell J) (‘Demir’); Re J Group (n 12) [150]; CBS Commercial Canberra (n 14) [70]-[71].
[21]Demir (n 20) [70]-[71].
Having regard to the relevant authorities, I consider that the following principles apply in relation to the availability of a genuine dispute or offsetting claim under 459H in the context of a SOPA adjudication. Where a debt arises by reason of an adjudication under the SOPA:
(a)a debtor may not rely on a ‘genuine dispute’ in relation to that debt;[22]
(b)a debtor may not rely on an offsetting claim to the extent allowance has been made for that claim in the adjudication;[23]
(c)a debtor may rely on an offsetting claim to the extent the claim was raised before the adjudicator but was rejected;[24]
(d)a debtor may rely on an offsetting claim that was not raised before the adjudicator;
(e)a debtor may rely on an offsetting claim that arises from transactions separate to the one giving rise to the debt.[25]
[22]Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd [2014] WASCA 91, [77] (‘Diploma’); recently cited in Re Roberts Construction Group Pty Ltd [2024] VSC 679, [17] (Steffensen AsJ).
[23]CBSCommercial Canberra (n 14) [82].
[24]ReDask (n 10)[38]; Re Douglas Aerospace (n 14); Re J Group (n 12); CBS Commercial Canberra (n 14) [56].
[25]Diploma (n 22) [68]; CBS Commercial Canberra (n 14) [50]-[51]; Demir (n 20) [17]; Re Dask (n 10) [28]-[29].
Accordingly Duke may, subject to sufficient proof, rely on any offsetting claims whether or not arising under the contract, including claims insofar as they were rejected by the adjudicator. That is to say, if a claim is totally rejected by an adjudicator, then the whole claim may be relied on as an offsetting claim. If the claim is partially rejected by the adjudicator, then the rejected part only may constitute an offsetting claim.
Consideration of the Offsetting Claims
Costs to Rectify Defects
Duke raises a number of specific offsetting claims which I will deal with in turn. Three of the offsetting claims relied on were raised in the Adjudication being in relation to plumbing, fire hydrants and powder coating windows.
Plumbing defects
These are described in the Adjudication as ‘replacement sewer stormwater pipes as per specifications,’ and quantified in the amount of $23,798.81 (excl GST). The adjudicator considered this defect and determined that there was ‘not [sic] defective and/or incomplete work and the amount to be paid in respect of this item is nil’. Duke raises plumbing defects as an offsetting claim in the amount of $80,000 to $100,000 for replacement of sewer stormwater pipes as per specifications in the Adjudication.
The claim for plumbing defects was rejected by the adjudicator and therefore, consistently with the principles discussed above, is a claim that may be raised as an offsetting claim. In support of this claim Duke relies on a report from Clarity Acoustics, a consultant engaged by Duke, and a report from the Victoria Property Consulting Organisation which concludes that the works do not accord with the specifications. Johns Lyng estimates that the costs to rectify this will be between $80,000 and $100,000. Cobolt submits this claim was rejected by the adjudicator and therefore should be excluded.
I am satisfied that Duke has adduced sufficient evidence to raise a plausible contention requiring investigation in relation to plumbing defects. This is not a case where Duke is merely asserting an offsetting claim without any independent assessment. As is also noted above, the bar to establishing an offsetting claim is not a high one, and an application to set aside a statutory demand is not generally an appropriate vehicle to resolve building disputes.
I am satisfied Duke has an offsetting claim for plumbing defects in the amount of $80,000 to $100,000 that may be relied on for the purposes of s 459H.
Make good fire hydrant system
On 3 May 2023, the Superintendent issued a notice to Cobolt identifying defects in the fire hydrant system. A further notice was issued on 13 September 2023 requesting Cobolt to test the system, which it did not do. Duke subsequently engaged Aspinall Fire testing to perform those tests and on 13 October 2023 Aspinall issued a report noting non-compliance with the relevant Australian Standard. Duke claimed in relation to these defects in the Adjudication. Duke claimed an offset of $15,000 (excl GST) as per the Adjudication Report. The adjudicator considered this defect and determined that there was ‘not defective and/or incomplete work and the amount to be paid in respect of this item is nil’.
Duke relies on the Johns Lyng report which assesses the cost to rectify in the amount of $98,500. The costs include:
(a)$44,500 for work associated with plumbing aspects of the rectification;
(b)$54,000 for other works as assessed by South East Fire as necessary to rectify the defects. The documents relied on by Duke for this amount are at pages 436 to 439 of the exhibit to Mr Toscano’s affidavit affirmed 5 March 2024. The email of 30 November 2023 from South East Fire provides a list of various matters that need to be attended to but includes costings for only three of them which total $43,000. It is unclear how the figure of $44,500 was reached, but the difference is immaterial for present purposes.
Cobolt submits this claim was rejected by the adjudicator and therefore should be excluded.
This is in the same category as plumbing defects. It is adequately evidenced and is available as an offsetting claim for the same reasons.
Powdercoat colour window frames
On 24 May 2023, the Superintendent issued to Cobolt a notice identifying that the powder coat colour used by Cobolt on the window frames did not accord with specification. Duke claimed an offset amount of $114,603 (excl GST) referred to as ‘Replacement Window Frames powder coat colour specified’ in the Adjudication. This was based on Prowse Quantity Surveyors preliminary assessment of the cost of removing and replacing the window frames. The adjudicator considered this defect and determined that there was ‘not defective and/or incomplete work and the amount to be paid in respect of this item is nil’. The cost has been included in the Johns Lyng report.
Cobolt submits this claim was rejected by the adjudicator and should be excluded.
This is in the same category as plumbing defects. It is adequately evidenced and is available as an offsetting claim in the amount of $114,603 (excl GST) for the same reasons.
The above reasons are a sufficient basis upon which to set aside the statutory demand as the offsetting claims exceed the amount claimed in the statutory demand. Other offsetting claims are relied on by Duke that were not dealt with in the Adjudication. I will deal with each in turn below.
Water tank lining retro-fit
Duke claims that the water tank is not lined in accordance with Australian Standards. This is based on an email from South East Fire dated 30 November 2023 that identified this issue[26]. The email from South East Fire states:
Stage 5 Tank liner and required components by others. Quote to be provided upon further assessment by others. - $80,000.
[26]Affidavit of Joseph Toscano affirmed 5 March 2024, [34]-[35], 436.
The figure of $80,000 (which is in red type in the email) appears to have been inserted by Johns Lyng, who have not included detail as to how the amount of $80,000 is made up.
Cobolt says the evidence in support of this claim is ‘embarrassing and should not be given any weight’.
While there is very little by way of detail in the assessment, there is an assessment of cost prepared by Johns Lyng based on the defects identified by South East Fire and the quotation in the email dated 30 November 2023. This is not a case of mere assertion. For those reasons I am satisfied that the offsetting claim is sufficiently quantified. I note also that Cobolt does not suggest how much it says it would actually cost to perform such works, if $80,000 is incorrect.
Make good opening to concrete walls
Duke claims $15,000 on the basis that Schindler Lifts had identified the need to widen openings for the lift and Johns Lyng has allowed a contingency of $15,000 to rectify this[27]. The Schindler Lift report states[28]:
(444) Rebates not cut in on all levels. Rough door opening have been constructed of concrete level instead of FFL so rough door opens may need to be cut as they may be to (sic) low to fit door frames in.
[27]Affidavit of Joseph Toscano affirmed 5 March 2024, 299, 388 and 441-446.
[28]Affidavit of Joseph Toscano affirmed 5 March 2024, 299.
The Johns Lyng Report states:
(299) We have allowed a Provisional Sum of:
-$2,500 per defective shaft opening based on Schindler’s inspection report x 5 openings (pending engineers details to be provided)
…
(388) Recommended lift installation contingency for errors in lift shaft (PC $15,000).
Cobolt disputes that there is evidence of any defect as the report says ‘rough door opens may need to be cut as they may be to (sic) low …’.
I am satisfied the offsetting claim has been evidenced sufficiently in the amount of $15,000. There is a degree of uncertainty as to the necessity and quantum of the remedial works but the defect is adequately identified and, particularly given this is a building dispute, I accept that the proposed cost may be attributed to it for the purposes of quantifying the offsetting claim.
Missing fire rated walls to stairs
Duke claims that Cobolt constructed the stairwell’s eastern walls between levels two and four in the wrong location and were demolished by Cobolt[29]. By email to Cobolt dated 24 May 2023, the senior project manager notes that Duke had agreed to vary the contract to deal with this defect. Duke claims $18,527 which is the figure quantified by Johns Lyng. Duke relies on a letter from Legata, Senior Project Manager, Jon Benjamin, which records that the stairwell’s eastern walls between level two and four were built in the wrong location[30]. The letter also records that the parties had agreed to an alternative construction system.
[29]Affidavit of Joseph Toscano affirmed 5 March 2024, 459 312-313.
[30]Affidavit of Joseph Toscano affirmed 5 March 2024, 459.
Cobolt submits that this is not a defect but rather is a variation that has been agreed so it is properly dealt with as incomplete works.
It does appear that the defects in relation to the fire walls are subject to a variation. But it remains unclear whether the claimed cost of the works has been duplicated in the cost to complete works.
Given the uncertainty, I am not satisfied that the offsetting claim has been evidenced sufficiently. In any event, having regard to the conclusions I have reached the application does not turn on this claim.
Correct reeded glass to windows
Duke claims $50,000 for installation of glass that did not match the design[31]. Duke says Cobolt agreed to replace this but has not done so. Johns Lyng has estimated the cost to rectify at ‘circa $50,000-$60,000’. Mr Munn deposed that Cobolt’s subcontractor who installed the windows had conceded that they had been installed incorrectly and that they were willing to rectify the error at no cost. Therefore, Cobolt does not deny it agreed (via its subcontractor) to replace the glass but says the works were taken out of its hands before it was able to do so and that Duke ought to have raised it in the Adjudication. Mr Munn says the amount to rectify in the Toscano Affidavit is overstated and that ‘the cost of the replacement windows is approximately $15,000’ but it is unclear what that costing is based on as it has not relied on any report or evidence to the contrary.
[31]Affidavit of Joseph Toscano affirmed 5 March 2024, 460-461.
I am satisfied the offsetting claim has been evidenced sufficiently in the amount of $50,000.
Make good window installations (window flashing)
Duke claims that the windows installed by Cobolt do not have flashings and at least one window has a subsill without stop ends[32]. Duke relies on Johns Lyng correspondence dated 24 November 2023 which identifies this issue and estimates a cost to rectify of $40,000 to $50,000. Cobolt says this claim is a mere assertion for which there is no evidence. I disagree. There is evidence of the defect being Johns Lyng’s identification of it and the cost of rectification.
[32]Affidavit of Joseph Toscano affirmed 5 March 2024, 345.
Deficient AcraTex Render
Duke claims that the render applied by Cobolt does not comply with the specifications in applying render to AFS Logicwalls. Duke relies on a Dulux Technical Service Report which identifies non-compliance. Duke calculates the area to be rectified at 400 square metres. Cobolt did not contend that 400 square metres was an incorrect measurement of the render area. Duke further relies on a costing from Dulux that estimates $105 to $150 per square metre. Duke has used the upper end of that range. On that basis, Duke says the cost of rectification is $60,000.
Cobolt says that the defective render was considered in the Adjudication process and was in part allowed by the adjudicator and so is not available as an offsetting claim.
The adjudication deals with render in two sections: first as claimed by Cobolt and secondly as to defects alleged by Duke. In relation to the amount claimed for rendering work, Cobolt claimed $34,116 and Duke said the works were incomplete and valued at $11,940.60 (without taking into account defects). The adjudicator accepted that the rendering works had not been 100% complete and accordingly reduced the amount claimed to $11,940.60 (excl GST). But that assessment of the value of the works did not take into account defects in relation to which the adjudicator stated ‘I assess the defect issue below.’ The defects were considered separately under the heading ‘Deductions re defective and/or incomplete work.’ In that section, the adjudicator states in relation to AFS Logicwalls:
12.On the material before me, there was defective and/or incomplete work.
13. In this case, on the material before me:
a.The liability for the AFS Logicwall failure is disputed between the parties.
b.The project QS has costed the rectification of this defect at $91,455 (excl GST).
14.On the material before me, this claim does not reflect “the estimated cost of rectification work”, within the meaning of Section 11(1)(b)(iv), but rather, is in the nature of “a claim for damages” of the nature described in Maxstra as a claim for damages arising from breach of a contractual warranty or a fundamental failure to perform the contract as a whole, such as compensation for consequential loss arising from delay.
15. I determine that the amount to be paid in respect of this item is nil.
Accordingly, an allowance was made in the sense that Cobolt’s claim was reduced having regard to the work that was actually performed. But there was no reduction in respect of defects. If the defect considered by the adjudicator is not related to render, then no allowance has been made for it either. That being the case, I consider that Duke has established it has an offsetting claim for $60,000 in respect of render for the purpose of s 459H.
Removal of Reinforcement and framework to suspended slab
Duke claims that some of the formwork has been exposed to the elements since Cobolt suspended works and that it will need to be replaced. The John Lyng report states that ‘due to weather exposure we assume (emphasis added) none of the reinforcement and form work can be reused.’ Duke relies on Johns Lyng’s estimate to rectify this defect in the amount of $33,663.85.
Cobolt says that the maintenance and waterproofing of the construction site since the termination date of the contract is a matter for Duke.
I am not satisfied that Duke has established an offsetting claim for this defect. It is unclear whether there is a defect. The Johns Lyng opinion, to the extent it is one, is based on an assumption, but the basis for the assumption is not clear. I presume that some assessment of the form work could have been made.
Replacement of non-compliant condensate pipework
Duke claims that the air-conditioning units were constructed with non-compliant materials and will need to be replaced. Duke relies on a quote for these works from Jamir Mechanical Services in the amount $59,000 (excl GST). Cobolt submits this is mere assertion for which there is no evidence. I agree. In the absence of any report or correspondence identifying the defect in question, I am not satisfied that the offsetting claim has been evidenced sufficiently. In any event, having regard to the conclusions I have reached the application does not turn on this claim.
Preliminaries, margin and GST
Duke claims that the raw cost for rectification works is $649,294. Duke also claims preliminaries margin and GST in the amount of $254,198.60[33] being 15% preliminaries, 10% margin and 10% GST, bringing the total to $903,492.60.
[33]Affidavit of Joseph Toscano affirmed 5 March 2024, [66]-[68].
Cobolt does not dispute as a matter of principle an entitlement to preliminaries and margin but for reasons set out above, denies there is merit to any of the defect claims.
Having regard to the conclusions I have reached above, and having regard to Cobolt’s position, I am satisfied that Duke has an offsetting claim for the preliminaries, margin and GST on the established offsetting claims.
Liquidated Damages
Duke submits that by clause 35.2 of the Contract, as amended, Cobolt was obliged to bring the works to practical completion by 23 August 2022, and by clause 35.6, if Cobolt failed to do so, it would be liable for liquidated damages at a daily rate of $2,200 exclusive of GST for each day until Cobolt brings the works to practical completion.
Duke submits that the purported termination date of the contract was 400 days late and accordingly, by operation of clause 35.6, Cobolt is liable for liquidated damages in the amount of $880,000 (excl of GST) as at 27 September 2023 and $1,234,200 (excl GST) as at 5 March 2024.
Cobolt disputes the practical completion date and says a number of extensions of time have not been taken into account. It further states that in the event that the Superintended does not respond to, or grant, a reasonable extension, which it says the Superintendent has not, the date for completion is not set until the issue of the Final Certificate, which Cobolt says remains outstanding. Cobolt therefore claims that liquidated damages cannot be claimed until that certificate has been issued.
In my opinion, the issues are sufficiently articulated that they raise an issue deserving a hearing. Questions of whether, and if so when, the contract was terminated, and how that informs the entitlement to liquidated damages under the terms of the contract are not sufficiently clear to suggest there is not an issue for hearing. The terms of the contract provide for liquidated damages in an amount, and it is clear that works have not been completed. Whether the circumstances are such that failure to complete will trigger an entitlement to liquidated damages in accordance with the terms of the contract is a matter for trial. The claim is sufficiently raised for present purposes.
Costs to Complete
Duke acknowledges that the works have not been completed but nonetheless claims that the costs of completion, including costs to rectify defects, are estimated at $7,673,721, from which the balance payable to Cobolt (had it completed the works) of $3,267,634.86 must be subtracted leaving a claim for approximately $4,500,000 (excl GST). Cobolt submits that the claim is utterly contingent as the works have not been completed and further that there has been a failure to take into account extensions of time.
The question of extensions of time is a matter for trial. In this case it is not appropriate, or even viable, for the Court to descend into the details of the contract and the communications between the parties, and their purported performance or non-performance of contractual obligations, sufficiently to preclude a serious question that I consider is otherwise raised by Duke. The contract contains a liquidated damages clause. There is evidence from apparently independent third parties that there are defects and incomplete works. If the works were not complete on time as alleged by Duke, then it is arguable that it has an offsetting claim for liquidated damages. I am unable on the material before me to preclude that argument.
Conclusion
For the reasons stated above, the statutory demand will be set aside. I will ask the parties to provide orders to the Court, including as to costs. If costs cannot be agreed, I will list the matter for further argument.
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