Sbs International Pty Ltd v Venuti Nominees Pty Ltd No. Scciv-03-1754

SBS INTERNATIONAL PTY LTD v VENUTI NOMINEES PTY LTD
[2004] SASC 151
Magistrates Appeal

BESANKO J: This is an appeal from the decision of a Magistrate in a civil action. The appeal is brought pursuant to s 40 of the Magistrates Court Act 1991 (“MCA”).
The appellant brought an action against the respondent claiming monies due under a building contract. The appellant was a contractor and the respondent was the principal. The respondent did not dispute that it owed monies to the appellant under the contract and the Magistrate found that there was an amount of $14,276.37 owing by the respondent to the appellant. There was an issue as to whether the respondent was entitled to a 5% discount on the contract price for prompt payment, but in view of the conclusions I have reached on the appeal, that issue does not arise. The respondent brought a counterclaim against the appellant claiming the sum of $34,000. The basis of the respondent’s claim was a liquidated damages clause in the building contract which the respondent said entitled it to liquidated damages for 68 days at a rate of $500 per day. The Magistrate found that the respondent had made out its counterclaim, but he held that the relevant period for the calculation of liquidated damages was 62 days, and he found that the respondent was entitled to the sum of $31,000. He entered judgment in favour of the respondent against the appellant for $16,723.63, being the difference between the claim and the counterclaim.
The main issue at trial and on appeal was whether the respondent had made out its case on the counterclaim.
The Background Facts
In 2001 the respondent built 18 units at 54 Charles Street, Unley, in the State of South Australia. It entered into a number of contracts for the purposes of carrying out the development. Two contracts are relevant in this case.
The respondent entered into a contract with Grobins Constructions Pty Ltd (“Grobins”) to set up and lift into position tilt-up concrete panels which then became the walls of the buildings. After they had been put into position, the panels had to be finished, and caulked and grouted to engineering specifications. Under the building contract between the appellant and the respondent which was dated 28^th March 2001, the appellant agreed to supply and erect steel framing to the tilt-up panels installed by Grobins (“the Works”). A schedule to the contract provided that the Works should commence on 23^rd April 2001, and that they should be completed by 8^th June 2001. The contract also contained a liquidated damages clause. The relevant clauses of the contract are as follows:
“(D)   (i)   Construction Period     Commencement 23/04/2001. Completion: 8/06/2001 (subject to approved extension of time claims – refer Clause 2(b))
(ii)     Liquidated Damages            Liquidated Damages: $500-00 per day.
…
Completion of the works
“2.(a)          If the Contractor fails to complete the Works, or any stage, by the date Specified in the Schedule (or within any extended time approved in writing by the Construction Manager) then the Contractor must pay or allow by way of liquidated damages the sum stated in the Schedule (refer to Point D) for each day during which the Works or the relevant stage remain incomplete.
(b)The Construction Manager must allow a fair extension of time in respect of any delay not caused or contributed to by an act or default of the Contractor.”
The Magistrate found that the appellant completed the Works on 22^nd October 2001. The calculation of liquidated damages put forward by the respondent used a completion date of 24^th October 2001. Unfortunately there are some obvious errors in the dates in the Magistrate’s reasons for judgment, and I can only assume that he used 22^nd October 2001 as the completion date for the purposes of his calculation of liquidated damages. The appellant did not suggest that the Magistrate had erred in finding that the date it completed the Works was 22^nd October 2001, or that in relation to the completion date the Magistrate had erred in his calculation of liquidated damages.
The Calculation of Liquidated Damages
The respondent’s calculation of liquidated damages was based on a period of 68 days. The respondent identified the period from 26^th June 2001 to 24^th October 2001. An allowance of 18 days in favour of the appellant was made, and that allowance is not disputed on appeal. The commencement date for the calculation, namely, 26^th June 2001, was fixed by reference to the date the respondent said that the appellant actually commenced the Works (ie., 8^th May 2001) and then allowing the period fixed under the contract for the performance of the Works.
The Magistrate’s calculation of liquidated damages was based on a period of 62 days. As I understand it, the Magistrate identified the period from 2^nd July 2001 to 22^nd October 2001 and made an allowance of 18 days. The commencement date for the calculation, namely, 2^nd July 2001 was the date the Magistrate found to be the completion date for the Works. The Magistrate found that there had been a variation of the completion date under the contract from 8^th June 2001 to 2^nd July 2001.
The Important Findings of Fact made by the Magistrate
The appellant argued at trial that acts or omissions of Grobins were responsible for at least part of the delay by the appellant in the performance of the Works. The appellant argued that delay by Grobins caused a delay by the appellant in the commencement of the Works on the commencement date in the contract (i.e. 23^rd April 2001). In addition, or in the alternative, the appellant argued that delay by Grobins caused delay to the appellant after it had started to perform the Works. At the same time, the appellant accepted that a good deal of the delay up until 22^nd October 2001 was caused by it.
The Magistrate made the following important findings of fact:
1.The appellant could have commenced performance of the Works on 23^rd April 2001, namely, the commencement date in the contract.
2.The appellant commenced performance of the Works on 7^th May 2001. There is evidence that identifies the 8^th May 2001 as the commencement date, but I do not think the difference is material.
3.The completion date for the Works under the contract was varied from 8^th June 2001 to 2^nd July 2001.
4.There was no conduct by the respondent, or any person for which it was responsible (ie., Grobins), which prevented the appellant from completing the Works by 2^nd July 2001. There is no express finding by the Magistrate that there was no conduct by the respondent, or any person for which it was responsible (ie., Grobins), which prevented the appellant from completing the Works by 8^th June 2001, although it probably follows from his other findings that he would have so found.
5.Grobins completed the setting up of the tilt-up panels by 2^nd July 2001. There were questions asked at the trial as to how much further work Grobins had done by way of finishing and variations by 2^nd July 2001, but the Magistrate did not find it necessary to determine this issue.
6.The appropriate period for the calculation of liquidated damages was the altered completion date for the performance of the Works (2^nd July 2001) and the actual completion date of the Works (22^nd October 2001).
7.The respondent did not prove that it had suffered any loss or damage as a result of the delay by the appellant in the completion of the Works. In other words, it did not prove unliquidated damages. If the liquidated damages clause did not apply, the respondent would fail.
Issues on Appeal
A liquidated damages clause relieves a principal from the obligation to prove that delay by a contractor has caused actual damage. There is a legal principle that if the principal has contributed to the delay in the performance of the Works by the contractor, then it cannot rely on the liquidated damages clause and must prove actual damage if it seeks to recover. The legal principle is often called the prevention principle, and its basis has been variously described as an implied term, implied supplemental contract, waiver or estoppel.
There is relatively little difficulty in applying the principle of prevention in cases in which the principal is responsible for all of the delay. In those circumstances, the principal cannot recover because it cannot benefit from its own wrong. The difficulty arises where the principal and the contractor are both responsible for the delay. It seems that it is not open to the Court in those circumstances to simply determine the period of delay caused by the contractor, and then apply the liquidated damages clause to that period. In those cases where both principal and contractor are responsible for delay, the liquidated damages clause will be held inapplicable unless there is a contractual provision by way of an appropriate extension of time clause which accommodates or deals with the delay caused by the conduct of the principal. In considering whether an extension of time clause allows for an extension of time for delay caused by the principal, the clause is construed strictly against the principal in the sense that it must be clear that the clause allows for an extension of time for that reason. Variations, whether authorised under the original contract or subsequently agreed, are regarded as acts of prevention for the purposes of the doctrine. A summary of the relevant principles is set out in Hudsons Building and Engineering Contracts 11^th ed, Volume 2, at paragraphs 10-040 as follows:
“(a)that acts of prevention by the owner, whether authorised by or breaches of the contract, will set time at large and invalidate any liquidated damages clause, in the absence of an applicable extension of time clause. Variations whether authorised under the original contract or subsequently agreed, will be regarded as acts of prevention (or of waiver) for this purpose;
(b)that where the act of prevention or waiver goes to part of the delay but not of the whole, the entire liquidated damages clause will still be invalidated, unless an applicable extension of time clause exists;
(c)that where there is an extension of time clause, this is regarded as being inserted for the benefit of the owner, to the extent that it may operate to keep alive the liquidated damages clause in the event of delay due to waiver, prevention or breach by the owner or his agents. Where it does not cover the acts of waiver, prevention or breach which have in fact occurred, no decision by a certifier under the clause can bind the builder, or preserve the liquidated damages clause;
(d)that general or ambiguous words in an extension of time clause, such as ‘exceptional circumstances’, or ‘any matters beyond the control of the builder’, or ‘other special circumstances of any kind whatsoever which may occur such as fairly to entitle the contractor to an extension of time’ will not for this reason, be construed to as to cover waiver, prevention or breach of contract by the owner or his A/E;
(e)but that where the extension of time clause sufficiently clearly covers the owner’s waiver, prevention or breach, the liquidated damages clause will be unaffected and will apply;”
There is also an illuminating discussion of the principles and relevant cases by Rolfe J in Turner Corporation Ltd (in prov liq) v Co-ordinated Industries Pty Ltd (1994) 11 BCL 202. It seems that what I might call the outer limits of the prevention principle are not yet clearly defined in the authorities (see the discussion JB Dorter and JJA Sharkey in Building and Construction Contracts in Australia, 2^nd ed, Volume 1, paragraphs [9.80] – [9.110] and [9.720] – [9.760]). However, because of the view I take on the facts, it is unnecessary for me to consider these issues any further.
In essence, the appellant put three arguments on the appeal. First, the appellant submitted that the alteration of the completion date from 8^th June 2001 to 2^nd July 2001 did not constitute a variation of the contract. Even if it was not prompted by a delay caused by Grobins, it had the effect of rendering the liquidated damages clause inapplicable. By analogy with the prevention principle it had the effect (so it was argued) of rendering it impossible to identify a start date for the application of the liquidated damages clause. Secondly, the appellant submitted that the Magistrate erred in finding that the appellant’s performance of the Works was not delayed by the conduct of Grobins. It was common ground on the appeal that the respondent was responsible for the conduct of Grobins. Thirdly, the appellant submitted that assuming the second argument was made good, the principle of prevention means that the respondent cannot rely on the liquidated damages clause.
Before considering these arguments, it is convenient to consider the evidence called at trial.
A number of documents were tendered at the trial before the Magistrate. The appellant did not call any witnesses. Two witnesses were called by the respondent. Mr Adrian Venuti was the site foreman for the development and he gave evidence. Mr Geoffrey Burdon was the construction manager for the development and he also gave evidence. The respondent was given leave by the Magistrate to call Mr Burdon as a witness after each party had made its closing address. The appellant does not challenge the Magistrate’s decision to allow Mr Burdon to be called, but it does submit that the circumstances in which Mr Burdon came to give evidence were relevant to the decision whether his evidence should have been preferred to that given by Mr Venuti.
In his evidence in chief, Mr Venuti said that the appellant completed its work under the building contract on 24^th October 2001. He was then cross-examined by counsel for the appellant. He agreed that in giving evidence as to the date of completion, he was relying on what Mr Burdon had told him. He said that the work on the units was a continuous process, and that it was not a case of work on one unit being completed before work on another started. He was asked about a construction program prepared by Mr Burdon (Exhibit P3). He agreed that there was problem with the speed at which Grobins was performing the tilt-up contract work. It was slow in finishing its work, and it was still working on site in July and August 2001. He agreed that the plaintiff was delayed at the start because of delay caused by Grobins. At one point he estimated that the delay caused by Grobins was in the order of four weeks. He was asked about the work being performed by Grobins in July and August 2001. He agreed that it had completed the structural work by 2^nd July 2001. In re-examination, Mr Venuti said that the work performed by Grobins in July and August 2001 involved patching and did not affect the steel work. He agreed that the appellant in fact started work on 8^th May 2001, and he said that there were always enough concrete panels for the steel work being performed by the appellant to proceed.
In his evidence in chief, Mr Burdon said that the commencement date under the contract was 23^rd April 2001, and that the plaintiff could have commenced work on that date. In fact, the plaintiff did not commence work until 8^th May 2001. He said that the concrete panels were always well ahead of the steel work. In calculating the claim for liquidated damages, he took the initial contract period of 35 days, and applied it to the date the appellant actually commenced work (ie., 8^th May 2001). Accordingly, he used a notional completion date of 26^th June 2001. In cross-examination, Mr Burdon agreed that before the contract was signed it was planned that the appellant would commence work in March 2001, but that did not eventuate because of delay caused by Grobins. Mr Burdon said that although the units were divided into two blocks (units 18 – 10 and units 1 – 9), it was not necessary that all the tilt-up work on say units 18 – 10 be completed before the steel work commenced, by way of example, on unit 18. Mr Burdon prepared three construction programs which in order of the date of their preparation became Exhibits P9, P3 and P4. It is convenient to refer to these programs by reference to their exhibit number. P9 was prepared before the contract with the appellant was signed. It became otiose once the contract was signed and may be put to one side. P3 was a construction program which was prepared by Mr Burdon at some stage after the contract between the appellant and the respondent dated 28^th March 2001, and it was placed in the construction hut on the site of the development for inspection by the various contractors. It showed different periods for the performance of various aspects of work on the site and was an attempt to co-ordinate the work schedules of the various contractors. Mr Burdon said that the contractors were expected to follow the periods specified in their contracts, but that his construction program contained “buffer periods” for delays and other contingencies. It showed the appellant commencing its work on 25^th April 2001 and completing its work on 2^nd July 2001. Mr Burdon said that the appellant could carry out its work even though Grobins were still working. Grobins might be finishing off on the outside, and the appellant could be building the steel frames on the inside.
P4 was a construction program showing the timing of the work as it was actually carried out. It showed Grobins finishing the tilt-up work on 2^nd July 2001, although Mr Burdon said that this included finishing and other work by Grobins and not just the erection of the concrete panels.
Mr Burdon denied the suggestion that in using a commencement date of 8^th May 2001 in his calculation of the respondent’s liquidated damages he was acknowledging that there was a delay at the commencement of the contract period for the Works for which the appellant was not responsible. In fact, he said that he gave the appellant a period of grace. Mr Burdon was asked to be precise about the work Grobins were being directed to perform in July and August. I do not think that on his evidence it is possible to make a precise finding on this topic.
I turn now to the three arguments advanced on the appeal by the appellant.
1. Was there a Contractual Variation of the Completion Date?
The appellant submitted that the construction program (P3) which showed a completion date for the Works of 2^nd July 2001 did not amount to a variation of the completion date under the contract. The appellant submitted that it might have constituted a binding direction or instruction by the construction manager under the contract, but it was neither a variation of the contract, nor an extension of time under the extension of time clause (clause 2(b)).
The Magistrate found that there was a variation of the contract. He seems to have relied on the fact that the construction program (P3) was placed on display in a construction hut on the site of the development. Although he does not expressly say so, he seems to have inferred that it was seen by the appellant and accepted by it.
I do not think the Magistrate erred in finding that there was a contractual variation of the completion date. It was open to him to draw that inference on the evidence before him. It was convenient to the respondent to fix a time for completion of the Works of 2^nd July 2001, and that position was accepted by the appellant.
In any event, absent a finding that the change in the completion date from 8^th June 2001 to 2^nd July 2001 was due to delay caused by Grobins, and therefore the respondent or a request for the performance of variations to the Works, the appellant’s argument must fail because I would not be prepared to extend the prevention principle beyond such circumstances. There is no question of variations in this case, and the Magistrate did not make a finding that the change in dates was due to delay caused by Grobins. The evidence is not so clear as to suggest that such a finding should be made.

The respondent submitted that the Magistrate should have used 26^th June 2001 as the commencement date for the calculation of liquidated damages, and I gave the respondent leave to file a cross-appeal to raise this issue. In view of my conclusion that the Magistrate did not err in finding that there was a contractual variation of the completion date from 8^th June 2001 to 2^nd July 2001, the respondent’s submission must fail.
2. Was there delay caused by the Respondent?
The appellant submitted that the Magistrate erred in not finding that Grobins had caused the appellant to be delayed in the commencement of the Works, and then during the carrying out of the Works. The appellant relied on the following matters:
1.Mr Venuti said that there was a delay caused by Grobins which he thought was of the order of four weeks. The appellant submitted that Mr Venuti’s evidence was spontaneous whereas Mr Burdon’s evidence was given after submissions and consisted of bare assertions. The Magistrate was wrong to classify Mr Venuti’s evidence as no more than a commentary. The Magistrate should have preferred Mr Venuti’s evidence that the appellant was delayed by Grobins at the outset of the contract period for the Works to the evidence of Mr Burdon. The fact that there was delay at the outset was, it was submitted, established by the following:
(a)Mr Burdon’s calculation of liquidated damages used a commencement date of 8^th May 2001 rather than 23^rd April 2001, and was an acknowledgement by Mr Burdon that Grobins had caused delay at the outset of the contract period for the Works.
(b)Mr Burdon’s construction program showed a completion date of 2^nd July 2001 and this also was an acknowledgment by him that Grobins had caused delay at the outset of the contract period for the Works.
(c)The date upon which Grobins completed the tilt-up work (or at least the substance of the work) as shown on the construction program (P4), namely, 2^nd July 2001, supported the inference that there had been delay by Grobins at the outset of the contract period for the Works.
The appellant also said that the Magistrate, by adopting a starting date of 2^nd July 2001 for his calculation of liquidated damages, must have rejected Mr Burdon’s evidence insofar as he suggested that the appellant (like other contractors) was expected to finish its work on the date specified in the contract (ie., 8^th June 2001).
2.The fact that Grobins did not finish the tilt-up work until 2^nd July 2001 was a strong indicator that at some stage during the contract period for the Works, there had been delay by Grobins which had in turn caused delay to the appellant.
In dealing with differences between Mr Venuti’s evidence and Mr Burdon’s evidence the Magistrate said:
“Mr Venuti was called by Mr Milazzo to prove only one fact namely the date upon which the plaintiff left the job site. He was then cross-examined at length by Mr Dal-Cin. This evidence was led on 14^th July 2003 and after argument as to whether SBS should be allowed to amend its claim and its reply to defence and defence to counterclaim.
The cross-examination of Mr Venuti related to a program of works that Mr Burdon had prepared showing the order in which trades would carry out their work upon the job and the expected completion and starting dates of the work of each trade. The evidence that Mr Venuti gave was to a large extent comment upon documents that Mr Burdon had prepared rather than documents that he himself had prepared.
I gained the impression that Mr Venuti was not expecting to be cross-examined at any length. That is not surprising. It is plain that Mr Milazzo called him in the expectation that his evidence would be confined.
Many of the matters put to Mr Venuti were based upon propositions arising from the manner in which Mr Burdon had programmed the works. Mr Burdon, being the author of those documents, is likely to be a more reliable witness than Mr Venuti as to the purpose and content of this material.
By the time Mr Burdon was called, Mr Milazzo had a much better understanding of the nature of the argument which Mr Dal-Cin relied upon by way of defence to the liquidated damages provision. My impression is that Mr Burdon came to court better prepared than Mr Venuti to give evidence in the matter. My overall impression is that Mr Burdon is a more reliable witness than Mr Venuti.”
The appellant referred to Fox v Percy (2003) 77 ALJR 989, and submitted that in the circumstances I should not hesitate to overturn the Magistrate’s decision to prefer Mr Burdon’s evidence to that of Mr Venuti.
The appeal to this Court under s 40 of the MCA is governed by Rules of this Court including r96B and r97 (Supreme Court Rules 1987). Under r97 the appeal in this matter is by way of a rehearing. My powers on appeal are extensive and include a power in my discretion to receive further evidence on any question of fact, a power to draw any inferences of fact and a power to give any judgment or make any order which might have been made by the Court or tribunal appealed from and to make such further or other order as the justice of the case may require (r97.18). I do not think Fox v Percy (supra) changed the law in the sense that it affirmed the well established principle that appellate courts must always bear in mind that they have neither seen nor heard the witnesses, and should make due allowance for that fact. However, in the joint reasons of Gleeson CJ, Gummow and Kirby JJ their Honours make it clear that the mere fact that the trial judge had preferred one witness over another does not relieve the appeal court from properly exercising its appellate function. Their Honours said (at [28] – [29]):
“However, the mere fact that a trial judge necessarily reached a conclusion favouring the witnesses of one party over those of another does not, and cannot, prevent the performance by a court of appeal of the functions imposed on it by statute. In particular cases incontrovertible facts or uncontested testimony will demonstrate that the trial judge’s conclusions are erroneous, even when they appear to be, or are stated to be, based on credibility findings.
That this is so is demonstrated in several recent decisions of this court. In some, quite rare, cases, although the facts fall short of being ‘incontrovertible’, an appellate conclusion may be reached that the decision at trial is ‘glaringly improbable’ or ‘contrary to compelling inferences’ in the case. In such circumstances, the appellate court is not relieved of its statutory functions by the fact that the trial judge has, expressly or implicitly, reached a conclusion influenced by an opinion concerning the credibility of witnesses. In such a case, making all due allowances for the advantages available to the trial judge, the appellate court must ‘not shrink from giving effect to’ its own conclusion. Finality in litigation is highly desirable. Litigation beyond a trial is costly and usually upsetting. But in every appeal by way of rehearing, a judgment of the appellate court is required both on the facts and the law. It is not forbidden (nor in the face of the statutory requirement could it be) by ritual incantation about witness credibility, nor by judicial reference to the desirability of finality in litigation or reminders of the general advantages of the trial over the appellate process.”
Their Honours also referred to the dangers of relying on the appearance of witnesses as they give their testimony. They said (at [31]):
“Further, in recent years, judges have become more aware of scientific research that has cast doubt on the ability of judges (or anyone else) to tell truth from falsehood accurately on the basis of such appearances. Considerations such as these have encouraged judges, both at trial and on appeal, to limit their reliance on the appearances of witnesses and to reason to their conclusions, as far as possible, on the basis of contemporary materials, objectively established facts and the apparent logic of events. This does not eliminate the established principles about witness credibility; but it tends to reduce the occasions where those principles are seen as critical.”
I bear those observations in mind in considering the appellant’s arguments.
I have read carefully the evidence of Mr Venuti and Mr Burdon. I think that it was open to the Magistrate to prefer the evidence of Mr Burdon, although I would not express the reasons for doing so in precisely the way in which the Magistrate did. It was open to the Magistrate to accept Mr Burdon’s evidence that there were sufficient tilt-up panels for the appellant to commence work and that there were always enough tilt-up panels for the appellant to work continuously thereafter. Mr Burdon was the man who prepared the construction programs, and he had the best knowledge of the construction programs and how the various jobs were proceeding. Mr Venuti, on the other hand, was less well informed on these matters, and in fact his estimate of a four week delay at the commencement of the contract period for the Works could not be right bearing in mind that the appellant started work on 7^th May 2001.
I do not think the Magistrate did describe Mr Venuti’s evidence as no more than a commentary, nor do I think it is right to describe Mr Burdon’s evidence as consisting of no more than bare assertions. A number of Mr Burdon’s answers on relevant matters were quite clear. The particular matters identified by the appellant, and referred to above, were put to Mr Burdon in cross-examination. It was open to the Magistrate to accept his explanation as to why, in his calculation of liquidated damages, he used a commencement date for the Works of 8^th May 2001, and why his construction program (P3) showed a completion date for the Works of 2^nd July 2001, and it cannot be said that his explanations were glaringly improbable.
The Magistrate was faced with a difficult task. No one from Grobins was called. No one from the appellant was called, and beyond being told by the appellant’s counsel that the workers engaged in the performance of the Works were no longer in the employment of the appellant, he was given no reasons as to why they were not called. The Magistrate had to do the best he could on the evidence put before him. It was open to him to accept the evidence of Mr Burdon which was not contrary to incontrovertible testimony or glaringly improbable. Nor were the matters identified by the appellant and set out above such that it can be said that Mr Burdon’s evidence was contrary to compelling inferences.
The fact that the tilt-up contractor (Grobins) did not complete its work until 2^nd July 2001 and the Magistrate found that there was no delay by Grobins which would have prevented the appellant from finishing on 2^nd July 2001 is a point which required careful consideration. The Magistrate found that Grobins had completed the tilt-up work by 2^nd July 2001. It seems that some finishing and/or remedial work was done after 2^nd July 2001, but how much work of this nature was done before 2^nd July 2001 is unclear. In the end, I am not persuaded that the Magistrate erred in finding that the appellant was not prevented by any delay on the part of Grobins from completing its work by 2^nd July 2001.
For these reasons, I reject the appellant’s challenge to the Magistrate’s findings that there was no delay caused by the respondent which prevented the appellant from completing the Works on or before 2^nd July 2001.
3. Does the Prevention Principle render the Liquidated Damages clause inapplicable?
In view of my conclusion that the Magistrate did not err in the findings of fact he made, it is not necessary for me to consider this issue.
Conclusions
The appeal and the cross-appeal must be dismissed.

[2004] SASC 151

28 May 2004