Rowland v Composition Construction Pty Ltd
[2014] NSWCATCD 32
•14 March 2014
NSW Civil and Administrative Tribunal
New South Wales
Medium Neutral Citation: Rowland v Composition Construction Pty Ltd [2014] NSWCATCD 32 Hearing dates: 24 February 2014 Decision date: 14 March 2014 Jurisdiction: Consumer and Commercial Division Before: K Rosser, Senior Member Decision: Payment of damages
1. The respondent shall pay the applicant the sum of $500,000.00 by 14 April 2014.
2. The respondent shall pay the applicant's costs as agreed or assessed.
Catchwords: Home building; Termination of contract; Damages for defective and incomplete work; Liquidated damages; Damages for loss of use of money. Legislation Cited: Home Building Act (NSW) 1989
Civil and Administrative Tribunal Act (NSW) 2013
Consumer, Trader and Tenancy Tribunal Act (NSW) 2002
Consumer Trader and Tenancy Tribunal Regulation 2009Cases Cited: Hungerfords v Walker (1989) 171 CLR 125
Latoudis v Casey (1990) 170 CLR 534 and Oshlak v Richmond River Council 193 CLR 72Category: Principal judgment Parties: Neil Rowland (applicant)
Composition Construction Pty Ltd (respondent)Representation: Mr To of Counsel for the applicant, instructed by Watkins Tapsell Solicitors and Barristers
Mr Emans (director of the respondent) for the respondent
File Number(s): HB 11/48716
reasons for decision
Application
1. Mr Rowland seeks an order for damages in the sum of $500,000.00 from Composition Construction Pty Ltd [Composition Construction] in respect of the cost of rectification of defective works, completion costs, damages for loss of use of money and liquidated damages. The claim arises from a contract for residential building work dated 27 June 2010.
2. In response to the application, Competition Construction claims that it terminated the contract on 2 April 2014 because of breach by Mr Rowland and that Mr Rowland is therefore not entitled to completion costs and damages for loss of use of money. Composition Construction concedes some but not the entire claim in respect of defective work. In relation to liquidated damages, Composition Construction claims that delays in completion of the works were legitimate and that Mr Rowland had refused to accept applications for extensions of time.
Proceedings in the Tribunal
3. The proceedings were commenced 4 October 2011. The application was originally lodged as a cross-application to Composition Construction's application seeking an order requiring Mr Rowland to accept extensions of time and an order that it did not have to pay liquidated damages. (See HB 11/42940)
4. At that time, the contract between the parties was still on foot. The applications were listed for directions on a number of occasions at which time it was noted that the parties were in negotiations. Mr Rowland was put on notice that a claim in respect of damages for defective work could not proceed while the contract was on foot.
5. At a directions hearing on 27 August 2012, Composition Construction withdrew its application and directions were made for the filing and serving of evidence in relation to Mr Rowland's claim for defective work, completion costs and liquidated damages. Both parties were given leave to be represented.
6. At a directions hearing on 4 February 2013, the Tribunal noted that Mr Rowland's amended claim exceeded the jurisdictional limit of the Tribunal. The parties were advised that on the next occasion the Tribunal was to be advised whether the matter was to be transferred to the District Court or the Supreme Court. At the next directions hearing Mr Rowland agreed to submit to the Tribunal's jurisdictional limit of $500,000.00. A conclave of experts was to be held, but did not proceed because Competition Construction elected not to obtain expert evidence.
7. Further directions were made on 22 July and 14 October 2013, at which Mr Rowland was permitted to provide additional evidence and Composition Construction was directed to provide evidence. On 14 October 2013, the Tribunal noted that Composition Construction had not complied with any directions to date.
8. The matter was listed for a final directions hearing on 12 December 2013. At that directions hearing, the Tribunal confirmed the material on which the parties were relying in relation to the application. The Tribunal noted that Competition Construction had been advised to obtain legal advice and to consider whether it was necessary to obtain evidence to support the opinions expressed by its director, Mr Grant Emans, in the material filed on behalf of Composition Construction.
9. The hearing took place on 24 February 2014. Mr To of Counsel appeared for Mr Rowland. Mr Emans appeared for Composition Construction.
Background
10. As noted above, the application concerns building works the subject of a contract dated 27 June 2010. The contract is a standard residential building contract with an additional clause, clause 31, which is specified to take precedence over other contractual documents except where statutory provisions provide otherwise. The property to which the contract relates consists of two lots, one with an existing dual occupancy building (units 4 and 5) and an adjacent lot. The work under the contract was to be done in two stages.
11. Stage 1 consisted of clearing the adjacent lot, which involved demolishing a house, providing an absorption pit, connecting it to the adjacent dual occupancy building, providing a garage and driveway for one of the units in the dual occupancy, road frontage works, modifications to unit 4 and landscaping to the unit 4 and 5 courtyards. Stage 1 was to be completed 10 weeks after the start of the contract.
12. Stage 2 consisted of the remaining works, namely the construction of two townhouses (units 1 and 2) and a villa (unit 3) and landscaping works for the whole site. Stage 2 was to be completed in 52 weeks. Clause 31 of the contract provided that Stage 2 works could be done concurrently with Stage 1 works, but other than the ground floor slab, would not be paid for until Stage 1 works were complete.
13. The parties fell into dispute about delays in construction and other matters. Composition Construction suspended works by a notice given on 13 February 2012 and purported to terminate the contract on 2 April 2012. After the contract ended, Mr Rowland engaged a new builder, Mr Broach, to complete the works.
Evidence and submissions
14. Mr Rowland relied on the following documents in support of his claim:
- A statement dated 23 August 2013 and attachments to the statement contained in four folders;
- A further statement dated 31 January 2014;
- Two reports by Mr Lloyd Austin of LF Austin Pty Ltd dated May 2012 and August 2013 and an amended Scott Schedule dated 23 August 2013;
- A statement of Mr David Broach dated 23 August 2013
- A folder marked "Evidence Folder" which includes the points of claim;
- A folder marked "Contract Folder";
- An amended schedule of damages submitted on 31 January 2014;
- Written submissions dated 31 January 2014.
15. Composition Construction relied on a bundle of documents received by the Tribunal on 25 November 2013. As noted above, Composition Construction did not file any expert evidence.
Jurisdiction
16. I am satisfied that Mr Rowland's application is a building claim as defined in s 48(1) of the Home Building Act (NSW) 1989. The proceedings were commenced in the Consumer, Trader and Tenancy Tribunal [CTTT] when the Consumer Trader and Tenancy Tribunal Act (NSW) 2001 and the Consumer Trader and Tenancy Tribunal Regulation 2009 were in force. As of 1 January 2014 the Consumer Trader and Tenancy Tribunal Act and Regulation were repealed and the CTTT was abolished and replaced by the New South Wales Civil and Administrative Tribunal. As the application was not determined prior to 1 January 2014, the proceedings were incomplete.
17. Transitional provisions in relation to part heard (that is, incomplete) proceedings are set out in Clause 7 of Schedule 1 of the Civil and Administrative Tribunal Act (NSW) 2013. Pursuant to Clause 7(3), the current Tribunal has and may exercise all the functions that the CTTT had immediately before its abolition, and the provisions of the Consumer Trader and Tenancy Tribunal Act and Regulation continue to apply to incomplete proceedings. The application has therefore been determined in accordance with the transitional provisions of the Civil and Administrative Tribunal Act.
Issues
18. The issues to be determined in this matter are:
- Did Composition Construction have a valid basis for terminating the contract?
- If Composition Construction did not have a valid basis for terminating the contract, to what (if any) completion costs has Mr Rowland established an entitlement?
- Is Mr Rowland entitled to damages for loss of use of money?
- Did Composition Construction perform any works which are defective in such a way as to breach the statutory warranties set out in s 18B of the Home Building Act and if so, what is the reasonable cost of rectification?
- Was Composition Construction entitled to any extensions of time to complete the contract works?
- If not, to what liquidated damages (if any) has Mr Rowland established an entitlement under the contract?
Determination of the issues
Did Composition Construction have a valid basis for terminating the contract?
19. Composition Construction purported to terminate the contract on the basis that the works had been suspended by a notice dated 13 February 2012 because Mr Rowland had not provided information to Composition Construction and that the failure to provide the information had not been remedied.
20. At the hearing, Mr Emans confirmed that in issuing the suspension notice dated 13 February 2013, he was relying on that part of clause 24 of the contract which refers to the owner preventing the contractor from carrying on the work. The suspension notice specified four matters in relation to which information had not been provided: kitchen design drawings, the selection of the front door, the selection of the handrail and the location of external lights.
21. On the material provided, I find that Composition Construction was responsible for the kitchen design and that in particular it was responsible for designing a kitchen for unit 3 which met the accessibility requirements of the development consent. I am satisfied that on 19 December 2011 Composition Construction advised Mr Rowland that further design work had to be undertaken in relation to this issue. I find that the design for unit 3 was obtained by Mr Rowland from the designer between 7 and 10 February 2012 and that Mr Rowland notified his approval of the design to Composition Construction on 10 February 2012. In these circumstances. I am not satisfied that there was any basis for suspending work in relation to the kitchen design. I find that the real cause of the delay was Composition Construction's failure to fulfil its obligations in relation to obtaining an accessible design for unit 3. Further, I am satisfied that Composition Construction received signed kitchen designed drawings on 15 and 16 February 2012. I further find that the choice of front door was finalised on 20 January 2012, the choice of handrail was made on 19 December 2011 (and reconfirmed on 16 February 2012) and that the location of the external lights was determined in September 2011. Overall, I am not satisfied that as at 13 February 2012 Composition Construction had a reason for suspending.
22. The evidence given by Mr Emans during the hearing was to the effect that the termination notice was given because Mr Rowland had indicated that he would not pay for the outstanding works. However, the weight of the evidence - including Mr Emans' oral evidence at the hearing - leads me to find that the termination notice was given because the parties were in dispute about Mr Rowland's refusal to grant extensions of time and his indication that he might rely on the liquidated damages clause of the contract. That this was the real reason for the dispute is indicated by the orders sought in Composition Construction's own application which was withdrawn in August 2012.
23. The dispute concerning extensions of time and possible liability for liquidated damages should have been dealt with in accordance with clause 27 of the contract. This clause states that even if a dispute has arisen, "the parties must, unless acting in accordance with an express provision of this contract, continue to perform their obligations under the contract so that the work is completed satisfactorily within the agreed time".
24. I am not satisfied that the dispute about extensions of time and liquidated damages was a valid reason for Composition Construction to terminate the contract. There is no other valid basis upon which Composition Construction was entitled to terminate the contract on 2 April 2012. I find that the purported termination of the contract was not valid and constituted a repudiation of the contract which was accepted by Mr Rowland.
To what completion costs has Mr Rowland established an entitlement?
25. As I am satisfied that Composition Construction repudiated rather than validly terminated the contract, I find that Mr Rowland is entitled to damages in the form of completion costs.
26. After Mr Rowland accepted Composition Construction's repudiation of the contract, he engaged Mr Lloyd Austin of LF Austin Pty Limited to identify the extent of defective and incomplete works. In relation to incomplete works, Mr Austin identified the works to be completed in a report dated May 2012. Mr Rowland then engaged KK Civil to complete the road frontage works and Mr David Broach to complete the remaining incomplete work. I am satisfied that the works completed were the works specified in the contract between the parties. It is not in dispute that at the time the contract came to an end through Mr Rowland's acceptance of Composition Construction's repudiation, the amount outstanding under the contract was $79,106.00.
27. In relation to the road frontage works, I am satisfied that the cost to complete was $21,120.00.
28. In relation to the other incomplete works, Mr Rowland entered into a costs plus contract [the completion contract] with Mr Broach on 28 May 2012. The estimated cost of completing the works set out in the completion contract was $120,000.00. This estimate was subject to clause 30 of the completion contract, which states amongst other things that "the estimation will not be of any contractual significance whatever between the parties or deemed to be a representation innocent or otherwise as to the amount or approximate amount that will become payable by the owner".
29. As it turned out, what was paid to Mr Broach to complete the works was $366,714.69. That Mr Rowland paid this sum to Mr Broach has not been disputed. However, Mr Emans argued that this was excessive, given the estimate of $120,000.00 provided in the costs plus contract and the outstanding contract sum of $79,106.00.
30. I am not satisfied that the outstanding amount payable under the contract between the parties is a reliable indicator of the cost of completing incomplete works. Further, while it is clear that the cost to complete the work substantially exceeded the original estimate given by Mr Broach, Mr Broach's evidence in relation to this issue was persuasive. I accept Mr Broach's evidence that until he commenced undertaking the work, it was not possible to identify with precision the exact extent of the completion works required.
31. In the absence of evidence from Composition Construction demonstrating that the work undertaken by Mr Broach was not required under the contract, I am satisfied that what was actually paid to complete the work is the best evidence of the costs of completion. I am therefore satisfied that the cost to complete the incomplete work ($366,714.69 + $21,120.00), less the amount to be paid under the contract ($79,106.00) equals $308,728.69. I find that Mr Rowland has established a claim for damages in this sum in respect of incomplete work.
Is Mr Rowland entitled to damages for loss of use of money?
32. Mr Rowland also claims damages for loss of use of money. Common law damages may include a claim for wrongly and foreseeably caused loss of use of money arising from interest charged on borrowed money or on the loss of an opportunity to earn interest. (See Hungerfords v Walker (1989) 171 CLR 125 at 143-146 (Mason CJ and Wilson J)).
33. I accept that Mr Rowland paid Mr Broach for the incomplete works from money he borrowed from an investment loan or from drawing down on a line of credit. I accept that interest of $34,001.67 was charged on this borrowed money. Composition Construction has not disputed this calculation. I am satisfied that the claim for damages for loss of use of money has been made out in the sum claimed.
Did Composition Construction perform any works which are defective in such a way as to breach the statutory warranties set out in s 18B of the Home Building Act and if so, what is the reasonable cost of rectification?
34. The claim in respect of defective building works is set out in the two reports of Mr Austin and a Scott Schedule. I am satisfied that Mr Austin's reports and the accompanying Scott Schedule can be accepted as expert evidence. At the hearing Mr Emans confirmed that the respondent did not dispute the items set out in the Scott Schedule, save in relation to two items, item 13 (drummy tiles) and item 17 (retaining wall). Mr Rowland withdrew the claim in relation to the retaining wall. In submissions provided prior to the hearing it was noted that item 10 (downlights) was not pressed. I note that items 15 and 16 referred to in the Scott Schedule were not subject to Mr Austin's expert opinion, but were not disputed by the respondent during the hearing. On the basis of Mr Eman's evidence at the hearing, I am satisfied that the only item remaining in dispute is the drummy tiles. Composition Construction's defence to this part of the defects claim is that not all of the tiles had to be replaced and that the original tiler had agreed to do the work.
35. I am satisfied on the basis of the expert reports and of Mr Austin's evidence during the hearing that the drummy tiles constitute defective work in breach of the warranty set out in s 18B(a) of the Home Building Act. I am not satisfied that Composition Construction's tiler was available to replace the defective tiles and I am further satisfied on the basis of Mr Austin's expert evidence that the appropriate method of rectification of the drummy tiles was for all of the tiles to be replaced.
36. I find that the items claimed by Mr Rowland to be defective work constitute defective works in breach of the statutory warranty set out in s 18B(a) of the Home Building Act. In the absence of expert evidence disputing the quantum of the claim for damages in respect of defective work, I find that Mr Rowland has established the basis for an order for damages under this heading in the sum of $58,518.90.
Was Composition Construction entitled to any of the extensions of time to complete the contract works?
37. Clause 6 of the contract between the parties provided for a completion date of 52 calendar weeks from the date work was required to commence. During the hearing, Mr To conceded that on the basis of the date of all relevant approvals, the date by which work was to commence was 1 August 2010. This means that the completion date was 31 July 2011.
38. This date was subject to adjustment in accordance with the extension of time provision in the contract. Two extensions of time (one of two business days in respect of the sewer encasement and the other of three business days for wet weather) are not in dispute. Composition Construction claims that extensions of time also apply in respect of the following issues:
A need to amend the architectural plans;
A suspension of work in respect of a failure by Mr Rowland to make payments;
A delay in obtaining windows, which resulted from the windows not being ordered because of the suspension of work referred to above;
The 2011 Christmas shutdown;
The issue of the kitchen design;
The suspension of work from 3 February 2012 to 1 March 2012 and
Rain delays claimed on 2 March 2012.
39. The contract specifies how claims are to be made for extensions of time. Clause 7 permits a claim to be made only on specified grounds, when proper notice is given, when notice is given within 10 business days of the relevant event and when an estimate of the length of the delay is given.
40. Clause 28 of the contract specifies how notice is to be given. This clause states that a notice must be in writing and must be delivered to the other party in person, by post to the party's residential or business address or by registered post to the party's last known address.
41. I make the following findings about the extensions of time which are in dispute.
42. In relation to the plans, I am not satisfied that a claim was made in accordance with clause 7 of the contract or that notice was given in accordance with clause 28. Accordingly, I am not satisfied that there is a valid basis for extending time under the contract.
43. In relation to the failure to make payments, I am satisfied that the payments requested by Composition Construction were in relation to Stage 2 works and were made at a time when Stage 1 works were not complete. In accordance with clause 31 of the contract, Stage 2 works were not payable prior to the completion of the Stage 1 works. The payments sought by Composition Construction were therefore not due under the contract. I am not satisfied that there was a valid basis for suspending work or obtaining an extension of time in respect of the suspension.
44. In relation to the extension of time claimed for the windows, I am satisfied that the claim arises from the suspension of work relating to payments which were not due. In such circumstances, there is no basis under the contract for extending time. In any event, I am not satisfied that proper notice was given in accordance with clause 28 of the contract.
45. In relation to the 2011 Christmas shutdown, the contract does not provide for such a shutdown not to be counted for the purpose of determining the completion date. This was conceded by Mr Emans during the hearing. In any event, there was no claim for an extension of time in accordance with clause 7 of the contract given in accordance with clause 28.
46. In relation to the kitchen design, I am not satisfied that Composition Construction was justified in suspending work in relation to the kitchen design as I am satisfied that the major cause of the delay in relation to the kitchen was the delay by Composition Construction in obtain an accessible kitchen design for unit 3. Further, I am not satisfied that the claim for an extension of time was validly made under the contract, as no estimate of the delay was provided until 19 March 2012, which is outside the 10 business day period provided for by clause 7 of the contract. I am not satisfied that the kitchen design issue gives rise to a valid extension of time.
47. In relation to extensions of time claimed for work suspensions, I am not satisfied that Composition Construction had a valid reason for the suspension notice dated 13 February 2012. I note that a further suspension notice on the same grounds was given on 29 February 2012. The evidence indicates that the real reason for work not continuing at this time was the dispute about extensions of time and liquidated damages. I am not satisfied that either suspension notice had any valid basis. I am therefore not satisfied that there is a basis for an extension of time in respect of the periods of suspension.
48. In relation to rain delays, I am not satisfied that proper notice was given of the claim for rain delays prior to an email sent to Mr Rowland by Composition Construction on 2 March 2012, which attached a schedule of claimed days. However, according to Mr Eman's evidence during the hearing, this was a schedule prepared by the supervisor, not the records of the Bureau of Meteorology specifying the amount of rainfall on the relevant dates. Further, the list of dates does not establish that rain fell on those dates, the extent of the rainfall, or that it delayed the work. Moreover, the email and the attached schedule do not comply with the requirements of clause 7 of the contract and were not served in accordance with clause 28. I am not satisfied that the claimed rain delays constitute a valid extension of time, other than the three days conceded by Mr Rowland.
49. I therefore find that the only valid extensions of time under the contract are the five working days which have been conceded. During the hearing, it was conceded that the completion date was 31 July 2011, as the 52 weeks construction time commenced on 1 August 2010. This means that the adjusted date for completion was 6 August 2011.
What liquidated damages (if any) has Mr Rowland established an entitlement under the contract?
50. Clause 31 of the contract provides for liquidated damages in the sum of $450.00 per calendar day if the works do not reach practical completion by the completion date; that is, by 6 August 2011. Mr Emans did not argue that the daily rate of liquidated damages was extravagant or unconscionable or that it did not reflect Mr Rowland's likely losses. Rather, he argued that he should obtain the benefit of extensions of time. His argument in this regard has been dealt with above. I note that the contract was of a commercial nature, in that Mr Rowlands was undertaking the works to sell the residences constructed. In such circumstances, I accept that Mr Rowland would suffer significant losses arising from a delay in completing the works. I further note that clause 31 provides for a bonus to be payable if the works were completed within 36 weeks.
51. In the circumstances, I am satisfied that the liquidated damages clause is enforceable and that Composition Construction is liable to pay Mr Rowland liquidated damages of $450.00 per calendar day from 7 August 2011 to 2 April 2012, when the contract was repudiated. I calculate this to be 240 days and the sum payable to be $108.000.00.
Conclusion
52. In summary, I find that Mr Rowland has established a claim for damages in the following amounts:
Completion costs:
$308,728.69
Damages for loss of use of money:
$ 34,001.67
Damages for defective work:
$ 58,518.90
Liquidated damages:
$108.000.00
Total:
$509,248.36
53. As this exceeds the Tribunal's jurisdictional limit of $500,000.00, an order has been made for $500,000.00.
Costs
54. As noted above, this application has been determined under the transitional provisions of the Civil and Administrative Tribunal Act. This means that the issue of costs is to be determined in accordance with s 53 of the Consumer Trader and Tenancy Tribunal Act and in Clause 20 of the Consumer Trader and Tenancy Tribunal Regulation. Clause 20(4) of the Regulation states that in any proceedings in respect of which the amount claimed or in dispute is more than $30,000.00, the Tribunal may award costs "in such circumstances as it thinks fit". The amount claimed in this case exceeds $30,000.00. The Tribunal therefore has a wide discretion in relation to making an order for costs.
55. The purpose of making a costs order is to provide compensation to the party in whose favour the order is made for the expense the party has been put to in prosecuting or defending legal proceedings. In general terms, a party who is successful is entitled to an order for costs in its favour, subject to certain limited exceptions generally involving misconduct on the part of that party. (See, for example, Latoudis v Casey (1990) 170 CLR 534 and Oshlak v Richmond River Council (1998) 193 CLR 72)
56. Mr Rowland has been successful in these proceedings. There was no misconduct during the proceedings which would preclude him from being awarded costs on the usual basis. An order for costs in his favour has been made accordingly.
K Rosser
Senior Member
Civil and Administrative Tribunal of New South Wales
20 March 2014
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
Decision last updated: 20 June 2014
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