Warburton v County Construction (NSW) Pty Ltd - [2022] NSWSC 941

Supreme Court

New South Wales

Medium Neutral Citation: Warburton v County Construction (NSW) Pty Ltd [2022] NSWSC 941
Hearing dates: 7 – 9 and 14, 17 June 2022
Decision date: 15 July 2022
Jurisdiction: Equity - Technology and Construction List
Before: Black J
Decision:
Parties to be allowed opportunity to reach agreement as to costs of rectification as to limited issues where liability established, or make further submissions. Parties also to make submissions as to costs of the proceedings.

Catchwords:
BUILDING AND CONSTRUCTION — Contract — Damages — Defects — Where plaintiff homeowners initially contracted with the defendant builder for the construction of a residential home — Where parties entered into a second agreement by which the plaintiffs took responsibility for the payment of subcontractors and materials, and the defendants undertook to carry out all the work reasonably necessary to manage and supervise the completion of the works — Where the second agreement also included a mutual release — Where plaintiff alleges there are defects with the construction of the home —Whether defects arose from work done prior to or after the second agreement — Whether defects arising from work done after the second agreement resulted from a failure by the defendant to carry out all the work reasonably necessary to manage and supervise the completion of the works — Whether any statutory warranties under the Home Building Act 1989 (NSW) were breached by the defendants

Legislation Cited:
- Civil Procedure Act 2005 (NSW), ss 58-58, s 60, s 64.
- Home Building Act 1989 (NSW), s 18B, s 18E, s 18G.

Cases Cited:
- Amaca Pty Ltd formerly known as James Hardie & Coy Pty Ltd v CSR Ltd [2001] NSWSC 324
- Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; (2009) 258 ALR 14; [2009] HCA 27
- Australia City Properties Management Pty Ltd v Owners - Strata Plan No 65111 [2021] NSWCA 162
- Bank of Credit & Commerce International SA (in liq) v Ali [No 1] [2002] 1 AC 251
- Blatch v Archer (1774) 1 Cowp 63; 98 ER 969
- Cappello v Hammond and Simonds NSW Pty Ltd [2020] NSWSC 1021
- Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35
- D & F Estates Ltd v Church Commissioners for England [1989] 1 AC 177
- Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423
- Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
- Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46
- Florida Hotels Pty Ltd v Mayo (1965) 113 CLR 588
- Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112
- Hampton Court Ltd v Crookes (1957) 97 CLR 367; [1957] HCA 28
- Icon Co (NSW) Pty Ltd v The Owners – Strata Plan No. 97315 [2022] NSWCA 114
- Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; [1973] HCA 23
- Metropolitan Fire and Emergency Services Board v Yarra City Council (2015) 214 LGERA 1; [2015] VSC 773
- Oikos Constructions Pty Ltd v Oston [2020] NSWCA 358
- Owners Corporation of Strata Plan 61390 v Multiplex Corporate Agency Pty Ltd (No 2) [2012] NSWSC 322
- P Ward Civil Engineering Pty Ltd v Civil and Civic Pty Ltd [1999] NSWSC 727
- Re Graziers Pastoral Pty Ltd [2021] NSWSC 1680
- Roberts v Jandson Pty Ltd (Homebuilding) [2011] NSWCTT 105
- Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47
- Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26
- SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132
- Sheldon v McBeath (1993) Aust Torts Reports 81-209
- Sutcliffe v Chippendale & Edmonson (A Firm) [1971] 18 BLR 149
- The Owners – Strata Plan 6511 v Meriton Apartments Pty Ltd [2016] NSWSC 909
- The Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612
- Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
- UBS AG v Tyne as Trustee of the Argot Trust (2018) 265 CLR 77; [2018] HCA 45

Category: Principal judgment
Parties: Mark Warburton (First Plaintiff/First Cross-Defendant)
Jacqueline Warburton (Second Plaintiff/Second Cross-Defendant)
County Construction (NSW) Pty Ltd (First Defendant/Cross-Claimant)
Robert Daryl Hart (Second Defendant)
Representation:
Counsel:
F Hicks SC/B Anderson (Plaintiffs/Cross-Defendants)
M Klooster/F Clark (Defendants/Cross-Claimant)
Solicitors:
William Cotsis & Associates (Plaintiffs/Cross-Defendants)
Somerville Legal (Defendants/Cross-Claimant)

File Number(s): 2019/191970

Judgment

Nature of the proceedings, factual background and chronology

By Amended Statement of Claim filed on 28 October 2021 (“ASC”), the Plaintiffs, Mr Mark Warburton (“MW”) and Mrs Jacqueline Warburton (“JW”) claim damages against the First Defendant, County Construction (NSW) Pty Ltd (“County”) and further relief, including rectification of an agreement dated 27 February 2017 (“Second Agreement”) by altering cl 6.2 of that agreement to delete specified words. Mr and Mrs Warburton did not press a further pleaded claim against the Second Defendant, Mr Robert Hart, at the hearing.
By a First Cross-Claim Statement of Cross-Claim filed on 22 October 2019, County in turn claims specified amounts against Mr and Mrs Warburton. It now only presses a narrower claim for $12,222.23, said to be an unpaid part of the amount of $110,000 payable to County under the Second Agreement. Alternatively, they claim an amount alleged to be payable if the Contract remained on foot after February 2017. By their Defence to the Cross-Claim filed on 19 December 2019, Mr and Mrs Warburton do not admit County’s entitlement to the amounts claimed in paragraphs 9 and 10 of the Cross-Claim, deny County’s entitlement to payment of $12,222.23 as claimed in paragraph 11 of the Cross-Claim, and contend that they are liable to set-off the damages and other amounts claimed by them against the payment of that amount. The parties reached agreement as to that matter.
Turning now to the factual background to the proceedings, it is common ground that Mr and Mrs Warburton are registered proprietors of a property situated in Mosman, NSW (ASC [1]; Defence [1]). The residential building works at the property were the subject of a development application approved under the Environmental Planning and Assessment Act 1979 (NSW) (“EPA Act”) dated 19 September 2012, given by Mosman Council as the relevant statutory authority which, relevantly, required installation of an on-site rainwater re-use system for on-site detention and that all works be carried out in accordance with the requirements of the Building Code of Australia (“BCA”).
On 23 September 2015, County Constructions submitted a tender for proposed demolition and construction works at the property with two alternative options with pricings of $3.5 or $4.9 million (JW 6.8.20 [7], Ex J6 2006 – 2020).
On 30 October 2015, Mr and Mrs Warburton and County entered into a written costs plus contract (“Contract”) for County to undertake building work comprising the demolition of an existing dwelling and the construction of a new residence at that property (“project”) for a then estimated value of $3,500,000 (ASC [5]; Defence [5]; JW 6.8.20 [15]; Ex J6 2031-2069). It is common ground that the relevant building work was residential building work for the purposes of the Home Building Act 1989 (NSW) (“HBA”) (ASC [6]; Defence [6]).
The Contract provided for an estimated cost of works of $3,500,000 (Ex J6, 2033) but identified a number of matters that would give rise to adjustments in that amount, including any discrepancy in drawings and specifications, and whether the work actually done was different to the work contemplated at the time of signing the Contract, for example, because of details provided or choices made after the Contract. The Contract incorporated a specification dated 26 August 2015 prepared by Mr Vitale, an architect then engaged by Mr and Mrs Warburton, and development consent plans. County was required to provide a certificate of insurance under the Home Building Compensation Fund, which remained in place after entry into the Second Agreement, and schedule 1 of the Contract set out costs payable by the Owner and provided for a builder’s mark-up of 9% of the costs of the work. Clause 1 of the Conditions of Contract set out County’s responsibilities and cl 1(b) contained warranties that substantially correspond to those contained in s 18B of the HBA. By contrast with the position which I will find below in respect of the Second Agreement, those warranties plainly applied to the work then being undertaken by County, namely to complete the construction work in accordance with the drawings and as described in the specification, as adjusted under the Contract. The Contract also required, by cl 1(d) of the Conditions of Contract, that work under the Contract comply with the BCA to the extent required under the EPA Act, including any regulation or instrument made under that Act; all other relevant codes, standards and specifications, with which the work was required to comply under any law; and the conditions of any relevant development consent or complying development consent. Clause 2 dealt with the owner’s responsibilities. Under cl 9 of the Contract, County was required to obtain and use materials which complied with the requirements of the Contract. Clause 17 provided for payment by the owner to the builder of the costs of works and schedule 3 listed a number of documents identifying the scope of the work. Plainly, County’s obligations under the Contract were later narrowed by the Second Agreement, which I address below, so far as many of them were directed to work undertaken by a builder, as distinct from the narrower obligation of management and supervision of the project assumed by County under cl 2.1 of the Second Agreement, which I address below.
On 11 November 2015, County obtained a contract of insurance for works at the contract price (JW 6.8.20 [17]; Ex J6, 2078) and, on 13 November 2015, an amended development application approval was issued and a construction certificate was issued (JW 6.8.20, [19]; Ex J6, 2079). County commenced carrying out the building works in about December 2015 (ASC [7]; Defence [7]).
Areas of disagreement then arose between the parties, although there is a contest between the parties as to the outer scope of that disagreement (ASC [8]; Defence [8]). The then architect and contract administrator, Mr Vitale, gave notice that he would no longer act as contract administrator on 24 June 2016 (Ex J6, 2283-2284).
In mid-August 2016, Mrs Warburton made inquiries with County about product warranties for windows and insurance required under the HBA (Ex J6, additional tender). I will address County’s reliance on that matter below.
Mr and Mrs Warburton engaged Mr Brincat as a consultant in respect of the project in early September 2016 (JW 6.820 [79]; Brincat 1.9.20 [4]-[5]; Ex J6 2488-2491) and, by his email dated 11 September 2016 (Ex J6, 2488), Mr Warburton advised Mr Hart that:

“In order to improve the administration of the project from our end, to reduce our stress levels and to hopefully see a smoother process, we have appointed Edward (Ted) Brincat from Auspro Building Services P/L to administer the contact pursuant to the ‘Special Conditions to Enable Architect Administration of BC4 Contract’, clause 4(c).”

That clause provided for an architect to administer the Contract as “the disclosed agent of the Owner” and authorised that architect to provide instructions to the builder concerning variations to the work and undertake other steps in respect of the project (Ex J6, 2051). None of the parties then raised any concern that Mr Brincat was not an architect for the purposes of that clause.

By an email dated 13 September 2016 (Ex J6, 2490), Mr Brincat advised Mr Hart that he had been “appointed to administer the contract between the parties” and requested that he be referred to as the “superintendent” replacing the previous administrator, Mr Vitale, who was then the architect on the project. By an email dated 27 September 2016 (Ex J6, 2637), Mr Brincat objected to County contacting suppliers engaged by Mr and Mrs Warburton without his permission and advised County’s employee to “ensure you seek permission from me in the future if you need to contact any of the client suppliers etc”.
On 21 September 2016, Mrs Warburton made an inquiry with County about efflorescence on an area of brickwork (Ex J6, 2633). I will address County’s reliance on that email below.
On 10 October 2016, Mr Brincat advised Mrs Warburton that he was concerned about “construction on the run and decision-making on the run”, observed that this is a “recipe for disaster and significant cost blowouts in the future” and recommended that the job be suspended for a month to obtain fixed price quotations from suppliers and contractors and to assess claims made to date (Ex J6, additional tender). That did not occur. By an email dated 11 October 2016 (Ex J6, additional tender), Mr Vitale, the architect then engaged on the project for Mr and Mrs Warburton, sought to set a process for any further design changes in respect of the project. Mr Vitale subsequently withdrew from the project.
By an email dated 25 November 2016, Mr Hart requested Mr and Mrs Warburton to make an advance payment of $110,000 to assist County in meeting its financial obligations (Ex J6, 3461), which they made (Ex J6, 3465). Mr Hart responded (Ex J6, 3466) to the advance payment stating that “We won’t let you down I promise thx Rob”. That was a generous approach on Mr and Mrs Warburton’s part, which regrettably can have no impact on the outcome of the legal issues in these proceedings.
By an email dated 7 December 2016, Mr Hart emailed Mr Brincat (Ex J6, 3467) that:

“… I hope it is apparent to everybody that we are committed to the clients, you and the outcome … Happy to sit down and talk dollars when I spoke to the client I think the bill was circa $40k but id [sic] also like to chat about how we move forward, I would like to discuss a fixed fee with you taking into account your fees etc as I think [Mrs Warburton] will want to pay many of the trades direct, we may be able to get her some better deals if we get her to pay direct and more frequently than builders.”

Mr and Mrs Warburton submit, in closing submissions, that there is no suggestion here that the arrangement would change the obligations of County in relation to completion of the work. While that is so, the effect of the Second Agreement must be determined on its proper construction, where there is no application for rectification of it, other than in respect of a release which I address below.

On 14 December 2016, by its payment claim 12, County acknowledged and identified a substantial credit due to Mr and Mrs Warburton (Ex J6 3474-3476)
In early February 2017, a meeting took place between Mr Hart and the Mr and Mrs Warburton at which, inter alia, reconciliation issues were discussed (JW 6.8.20 [140]; MW 29.9.21 [55]). On Mr and Mrs Warburton’s account, Mr Hart there suggested that:

“Moving forward I think it would work better that you pay the trades direct. Also if they are paid earlier we can get you a discount and I can approach trades and ask for this. We are committed to finishing the job and maybe we can agree then on a fixed fee for County to finish the job and you pay the trades direct.”

He also indicated that:

“Ok, we will come back to you with a formal proposal. We will pay for Ted’s cost. From a cash flow perspective, it would assist us if you could pay the trades directly and we can then finish everything off. At present, we are not in a position to fund everything up front.”

Mr Hicks submits, in closing submissions, that there was no suggestion at this meeting that Mr and Mrs Warburton would become “owner/builders” or that the existing arrangements for performance of the works would be changed. That may be a fair characterisation of the meeting, but it also contemplated that County would put a “formal proposal;” and the effect of the Second Agreement must be determined on its proper construction, as I have noted above, and it plainly redefined the scope of County’s obligations by cl 2.1 of the Second Agreement which I address below.
By an email dated 4 February 2017 (Ex J6, 3688), Mr Hart also advised Mr Brincat of his commitment to the project and his positive view of Mrs Warburton, as follows:

“We are and always have been 100% committed to the [p]roject the clients and you, this will not change. I agree with you re [Mrs Warburton] her work rate is phenomenal, I have never worked with a client like her. I feel a very strong sense of personal commitment to her. … “

It may be unlikely that Mr Brincat would have taken the extravagant rhetoric of that statement at face value, and the second part of the second sentence is not necessarily a compliment, given the views he later expressed, as noted in paragraph 26 below. Mr Hart also there addressed the difference between an earlier option of a “lightweight structure with lower levels of finish at $3.5 million” and a “heavyweight structure with a high level of finish at just under $5 million”, presumably in explanation of the increased cost of the project, and noted that he was not aware of the pricing of trades that Mrs Warburton had directly engaged. He addressed the question of program and put a proposal toward payment of a portion of Mr Brincat’s costs. The attitude to Mrs Warburton expressed in that email is not consistent with the concerns which Mr Hart now identifies as reasons for the release sought in the Second Agreement.

By a further email dated 5 February 2017 (Ex J6, 3690), Mr Brincat expressed a more negative view of the position in respect of delay and indicated that the owners had not had a “good experience” with the project. By his email response dated 6 February 2017 (Ex J6, 3694), Mr Hart again referred to alternate costings of the project, and noted that County could not forecast costs where Mrs Warburton was obtaining quotes directly and not providing it with information as to those costs. He indicated his disagreement with Mr Brincat as to the delays in the trades and advised that:

“… I now spend more time on this job than all others combined which shows you that it is my personal mission to have this [p]roject complete to the highest standard. There will be no compromise on quality and the clients will be able to go away and relax in the full knowledge that we will be completed on time and to the highest standard.”

Mr Hart was cross-examined as to that proposition which did not recognise the prospect that County’s ability to control the quality of construction would be compromised, where its role would be restricted to management and supervision under the Second Agreement and Mr and Mrs Warburton would choose contractors and pay them directly. However, that prospect must have been obvious to Mr Brincat, then acting as Mr and Mrs Warburton’s agent, given his experience in building projects.
Further correspondence between Mr Brincat and Mr Hart followed, addressing the proposed terms of the Second Agreement. By an email dated 11 February 2017 (Ex J6, 3706) Mr Brincat referred to his previous meeting with Mr Hart, suggested that County pay Mr Brincat’s fees “to right a lot of wrongs that have occurred on this [p]roject”; noted a commitment by Mr Hart to be “on site and hands on every day and whatever is required to get the proposal back on track and completed by 16 July 2017”, and referred to a proposal that County forego its margin of 15% (including supervision, a labourer, overheads administration etc) and accept a fixed fee to cover the foreman, labourer and some administrative costs. He also observed that:

“The [p]roject is starting to get momentum but as seen in emails and as discussed at length, I have grave concerns that [the site foreman] is in over his head and he needs for you to be overseeing every part of the construction of this very detailed and quality home.

I have no issues with [the site foreman]. He is a very hard working young man but he needs experience[d] people around him to learn about detail and forward planning. …”

Mr Brincat then adopted an aggressive approach in an email dated 12 February 2017 to Mr Hart (Ex J6, 3723) which observed that if Mrs Warburton and Mr Brincat were not “looking over your supervisor, basic construction issues would have been constructed incorrectly” and went on to observe that:

“I am more than happy to advise the owners of you[r] view of the works and let them to decide as to whether you are to complete the works but if I was to be asked, I would terminate your services at lockup and then complete the project without you, still saving your margin etc. Your reputation would be at risk and future jobs on the North Shore not looking very favourably. … If you are terminated at lock up there would be a strong likelihood of litigation to recover the costs and damages up to until that date. …”

Mr Brincat there referred to County’s “failure to properly administer and construct the works” [emphasis added]. He denied, in cross-examination, that that email indicated a concern that there were defects in the works. I am unable to see that an allegation of a failure properly to construct the works can have any other meaning, and I reject Mr Brincat’s evidence in that regard.

By an email dated 13 February 2017 (Ex J6, 3724), Mr Hart advised Mr Brincat that County was prepared to change its cost-plus margin to a fixed fee of $110,000 inclusive of GST to complete the project; that he agreed to pay Mr Brincat’s fees of $75,000 inclusive of GST at the end of the project; and that that proposal was “subject to a mutual deed of release”.
Later on 13 February 2017 (Ex J6, 3732), Mr Brincat circulated a draft deed which limited the scope of County’s future work on the project, altered the payment arrangements and included a mutual release in connection with the matters described in Recital E. That appears to have been intended to refer to Recital D in that draft, which referred to the accounting of the cost-plus charges by County and the project being late. Recital E referred to payment of the costs of the project by the owners directly, with County to receive a fixed sum for the completion of the works. Mr Brincat initially sent that draft deed to Mr and Mrs Warburton and subsequently to Mr Hart on that date (Ex J6, 3741). This appears to have been the origin of the Second Agreement.
By an email dated 14 February 2017 (Ex J6, 3741), Mr Hart sent his solicitor, Mr Tim Somerville, Mr Brincat’s draft deed of release and explained his perspective on the project, in strikingly different terms to what he had said to Mr and Mrs Warburton, as follows:

“We have a costs-plus build in Mosman that is starting to become a bit of nightmare. The architects were relived back in June last year. The designer quit soon after and all consultants bar us have left the clients.
They hired a building consultant in September who is extremely outspoken and who is quickly making this a battle.
We did have some accounting issues late last year and since our attention was b[r]ought to these, we have since rectified all errors.
Now, with the job growing based on design changes – not because of us – the clients are obviously trying to save costs and Ted Brincat, the consultant, has put this Deed together because of this.
Overall it has become a total nightmare with nightmare clients and nightmare consultant.
I don’t care about the money, I need to close the door really tight and make sure they can’t come back at me.
I need you to look at this quickly please.”

By his response dated 14 February 2017 (Ex J6, 3746), Mr Somerville then drew Mr Hart’s attention to the fact that the proposed Second Agreement would be an agreement to carry out “residential building work” within the meaning of the HBA, because the definition of that term in Sch 1 of the HBA included work involved in “co-ordinating or supervising” work in constructing or altering a dwelling. He drew attention to the requirements under the HBA in respect of the agreement, and it appears those requirements were satisfied in respect of the Second Agreement. Mr Somerville also drew attention to the limited scope of the release in Mr Brincat’s draft of that agreement, which he read as directed to the matters referred to in Recital E, namely the “accounts not being correct”. Mr Somerville observed that:

“I would have thought you would want a more general release than this. You cannot obtain a release from your obligations under the [HBA], such as the obligations to carry out the work in a proper and workmanlike manner. However, I would have thought you would want a release relating to any claim relating to any previous payment to you, or made by the owners to any third party at your direction.”

On 16 February 2017, Mr Somerville, the solicitor acting for County, forwarded a revised draft of the Second Agreement to Mr Brincat for review (Ex J6, 3798). His email noted that:

“I’m sorry it has become so verbose. However, I took the view that, under section 6 of the [HBA], the agreement needs to comply with the relevant provisions of the [HBA], which I have included. Of course, at the time of signing, the agreement will have to have complete schedules attached, including the plans and specifications, the Consumer Building Guide and our client’s insurance”.

The attached deed included mutual releases in the form included in the final version of the Second Agreement.

On 18 February 2017, Mr Brincat responded to Mr Hart identifying “one major issue” with the revised draft of the Second Agreement relating to the reconciliation of three project claims (Ex J6, 3798).
On 27 February 2017, County forwarded the Second Agreement, signed by County but not yet by Mr and Mrs Warburton, to Mr Brincat (Ex J6, 3895). The recitals to that Agreement recorded that:

“D   A dispute arose between the Warburtons and the Builder regarding allegations relating to the accounting under the Original Contract and allegations that the project referred to in the Original Contract was taking longer than it should have taken.
E.   By way of settlement of such dispute, the Parties have agreed that, as from 13 February 2017 that the costs of the project will be paid by the Warburtons directly and the Builder will receive a fixed sum for the completion of the work and as set and defined by this agreement.
F.   Edward Brincat has been engaged by the Warburtons to act as superintendent of the [p]roject.”

Clause 2 of the Second Agreement substantially narrowed the scope of County’s work, providing that:

“2.1   The Builder shall carry out all the work reasonably necessary to manage and supervise the completion of the Project in accordance with the Plans and Specifications, by providing the following personnel from the date of this Agreement until the Practical Completion Date:
2.1.1   a fulltime supervisor, being Luke Lubrano;
2.1.2   a fulltime labourer;
2.1.3   a project manager, being Robert Hart; and
2.1.4   such office staff as is reasonably necessary to supervise the paperwork relating to the Project.
2.2 The Builder shall have no responsibility for the cost of completing the Project, other than for the provision of the personnel referred to in clause 2.1. Warburtons shall be responsible for all of the other costs of completing the Project, including paying subcontractors and paying for materials.” [emphasis added]

That clause had the effect that County was no longer required to construct the project, but instead to carry out the work “reasonably necessary” to “manage and supervise” its completion and to provide the specified staff, with the construction work implicitly to be completed by subcontractors. The term “Plans and Specifications” in that clause was defined as the Plans and Specifications set out in schedule 4 of the Second Agreement. It is common ground that those plans and specifications differed to those contained in the Contract.

Clause 3 of the Second Agreement provided for County’s remuneration, with Mr and Mrs Warburton to pay County the amount of $110,000 inclusive of GST, by six equal monthly instalments from 28 February 2017, and County to pay $75,000 inclusive of GST in consideration of Mr Brincat’s services as superintendent of the project; within 7 days after the Practical Completion Date (as defined). Clause 4.1 referred to a certificate of insurance contained in Sch 1 of the HBA.
Clause 6 of the Second Agreement contained mutual releases, which were in relevantly the same form so far as releases were given in favour of County and Mr and Mrs Warburton. Clause 6.2 provided that:

“The Warburtons and each of them release and forever discharge [County] from all and any claims, suits, demands, actions and legal or other proceedings including damages for defamation, pain and suffering, which they may have or but for this Deed may have had against [County] in respect of or in connection with any event which has occurred prior to the date of this agreement, including the matters referred to in Recital D above.”

Clause 6.3 provided that the releases did not apply to any right to enforce the provisions of the Second Agreement or any event occurring after the date of that Agreement.

Clause 8, headed “Statutory Warranties by the Builder”, recorded warranties provided by County to Mr and Mrs Warburton. Clause 8.1.1 provided a warranty that the Work (as defined) would be done with due care and skill and in accordance with Plans and Specifications, but, as I noted above, that warranty referred to the work to be carried out by County pursuant to cl 2.1 of the Agreement, which was relevantly to manage and supervise the completion of the project and provide the relevant personnel until Practical Completion, not itself to construct the project after the date of the Second Agreement. Clause 8.1.2 was a warranty as to any materials supplied by County, but there is no complaint as to any such materials. Clause 8.1.3 – 8.1.4 were each limited to the way in which the Work would be done. Clause 8.1.5 was wider, so far as it warranted that the Work “will result, to the extent of the Work conducted, in a dwelling that is reasonably fit for occupation as a dwelling.” Clause 8.1.6 was in turn a warranty as to fitness of the Work and materials used in it, but that was also limited by the narrower scope of work to be performed by County under the Second Agreement. The schedules to the Second Agreement included the Home Building Compensation Fund Insurance Certificate obtained when the Contract was made, the Consumer Building Guide, the Consumer Building Guide checklist and further plans and specifications for the works, which differed from those attached to the Contract.
By an email dated 27 February 2017, Mr Brincat sought Mr Hart’s confirmation that retentions held by County for trades and suppliers would be County’s responsibility to pay when and where required, and Mr Hart provided that confirmation (Ex J6, 4046). Mr Brincat then sent the Second Agreement signed by County to Mr and Mrs Warburton for signature (Ex J6, 4044); Mrs Warburton asked him several questions as to payment arrangements under that agreement (Ex J6, 4070); and, on 5 March 2017, Mr Brincat returned pages of the Second Agreement signed by Mr and Mrs Warburton to Mr Hart, excluding the attached plans which had not been signed by Mr and Mrs Warburton but recognised by them as being part of the agreement (Ex J6, 4199). Although that agreement was dated 27 February 2017, I accept that it did not take effect until Mr and Mrs Warburton (through Mr Brincat) communicated their acceptance of County’s offer (made by County by providing a signed version of the Agreement to Mr Brincat) to County on 5 March 2017. Both the narrowing of the scope of County’s work and the release under that agreement therefore took effect, not on 27 February 2017, but from 5 March 2017.
Mr Brincat’s evidence is that, at the date of the Second Agreement, all demolition, underpinning and bulk excavation works were complete (Brincat 30.5.22 [14(a)-(c)]); the shell of the pool and its concrete surrounds were complete (Brincat 30.5.22 [14(e)]); all structural steelwork was complete (Brincat 30.5.22 [13(h)]); all internal stormwater and sewerage pipes had been completed, other than for rough-in to the ground floor and first floor bathrooms, connection to the rainwater tanks and sewerage pipework to the basins (Brincat 30.5.22 [14(i)-(k)]); and the roof, other than for roof sheeting to the garage and roofing to the front entry was complete (Brincat 30.5.22 [14(g)]). The extent to which work was complete is relevant in two respects. Work which was complete prior to the Second Agreement would have the benefit of the wider release for which County contends if, contrary to my view, that release extended to building defects; and work completed after that date would be subject only to the narrower obligations of management and supervision assumed by County under the Second Agreement.
The property appears to have reached practical completion in about August 2017. About that time, issues also arose in respect of claims from unpaid trades engaged by Mr and Mrs Warburton (Ex J6, 5380).
On 30 September 2017, Mrs Warburton sent emails to Mr Banning of Central Coast Shop Fronts Pty Ltd (“CCSF”) regarding the windows (Ex J6, 5785) and to Mr Hart regarding a lack of pressure in taps (JW 6.8.20 [432]; Ex J6, 5784). On 1 October 2017, Mrs Warburton sent a further email to County regarding concerns with the pool works (JW 6.8.20 [567]). A certificate of compliance for plumbing, stormwater system and gas was issued by the plumbing contractor on 9 October 2017; an interim occupation certificate was issued on 19 October 2017; and Mr and Mrs Warburton moved into the property in October 2017 (ASC [11], Defence [11]).
An initial defects list (Ex J6, 6070-6072; T71-72) was prepared on or about 19 October 2017 by Mr Brincat, and it was then planned that the painter would return to touch up paint work after other trades has carried out rectification work. Mr Klooster points out, and I accept, that a reference in that list to the need to remove blue tape from the window in the upstairs laundry suggests that protective steps were taken to protect the frame from paint, at least in that location, although that finding perhaps does not go very far (Ex J6, 6065, T72). The defects then identified in respect of paint and other substances on window frames were, as Mr Klooster points out, significantly more limited than those for which Mr and Mrs Warburton now contend.
Mrs Warburton prepared a second defects list on 1 November 2017 (Ex J6, 6130-6138) which is detailed, but also identifies a smaller list of paint and substances on window frames and scratches to window frames than that for which Mr and Mrs Warburton now contend. On 1 November 2017, Mr Brincat sent emails to Mr Hart regarding plumbing issues (Ex J6, 6129; 6139-6140) and, on 5 November 2017, Mrs Warburton sent a further email to County regarding plumbing defects (JW 6.8.20 [444]). On 7 November 2017, Mr Samuels of County emailed Mr Azar of Mickemouse Painting, the painting firm, with a list of defects (Ex J6, 6182).
In February 2018, further correspondence took place in respect of invoices that had not been paid by Mr and Mrs Warburton (Ex J6, 6337ff) and, in particular, there was a dispute as to whether Mr and Mrs Warburton would pay the painter for work done in addressing damage caused by other trades, until those other trades had been backcharged and accepted liability for the costs incurred.
A further defects list was prepared by the Department of Fair Trading (“Fair Trading”) on 25 May 2018 (Ex J6, 6401-6416), although one would expect that list to reflect some wear and tear, where it was prepared after Mr and Mrs Warburton had been living in the property for about 15 months. Fair Trading then made a rectification order against County (JW 6.8.20 [743]; MW 29.9.21 [82]; Ex J6, 6400–6408). The parties did not contend that order bound the Court in determining this claim, and it is, regrettably, plain that Fair Trading paid no or no adequate attention to the limited scope of County’s responsibilities under the Second Agreement in making that order.
Mr and Mrs Warburton commenced proceedings in the New South Wales Civil and Administrative Tribunal on 25 June 2018 and the proceedings were then transferred to the District Court. It appears the proceedings were commenced within the period specified in s 18E of the HBA for both major and non-major defects.
It is plain that, even by August 2018, the painter had not been paid amounts due in respect of previous works, although several sub-contractors had agreed that they could be backcharged for the costs of painting work arising from defects in their work. By that time, several third party contractors had also made clear they would not return to repair defects until their outstanding accounts were paid. By an email dated 15 August 2018 (Ex J6, 6572), County noted, inter alia, that the painter was seeking acknowledgement that Mr and Mrs Warburton would honour his final bill of about $6,000 once he completed the rectification works and Mrs Warburton responded that:

“All payments due and payable will be honoured. County still has not verified that the trades being backcharged are aware and they all acknowledge that they will accept the backcharges. This has been requested on numerous occasions. County to provide.”

Plainly, that response left open the question which payments Mrs Warburton considered were “due and payable”. Mrs Warburton then also took the position that she and Mr Warburton did not have to pay contractors’ outstanding accounts until defects were rectified and verified by the Department of Fair Trading (Ex J6, 6573). As I will note below, Mr and Mrs Warburton’s obligations under cl 2.2 of the Second Agreement had no such limitation.

Correspondence as to defects, including difficulties with a sliding door in the dining room, continued at least into September 2018 (Ex J1, 6623).
In early February 2020, there was an entry of water into the property (JW 6.8.20 [729]-[737]). In March 2020, there was sewage spillage into the shower and floor in an upstairs bathrooms (JW 6.8.20 [489]; Ex J6, 6669-6671) and, in late July 2020, a plumbing firm was engaged to undertake emergency plumbing works (JW 11.2.22 [3]; Ex J6, 6682).

Lay and expert evidence

Both parties initially relied on voluminous expert evidence, significant parts of which did not appear to be relevant to any matters in dispute in issue in the proceedings. The parties ultimately read limited parts of those affidavits, narrowed to relevant materials, at the hearing.
Mr and Mrs Warburton relied on two affidavits of Mr Brincat, a building consultant and civil engineer engaged by them from about September 2016, dated 1 September 2020 and 29 September 2021. In his first affidavit, Mr Brincat referred (Brincat 1.9.20 [4]) to an initial conversation in which Mrs Warburton indicated a concern as to the manner in which she and Mr Warburton were being charged for work in respect of the project. He also referred to a meeting with Mr Hart on 8 February 2017, at which Mr Hart agreed that the job had been “mishandled” (Brincat 1.9.20 [39]) and that the foreman on the site had been inexperienced and needed guidance. Mr Hart also indicated that County did not care if it “made no money on the job” and “wanted to do right thing”, and offered a proposal for a reduced flat fee, a contribution to Mr Brincat’s fees, and a “change of contract” which was to be drawn up by Mr Brincat on behalf of Mr and Mrs Warburton. Mr Brincat there characterises the position as that County was to be paid a fixed fee of $110,000 “to complete the job” or “complete the project” (Brincat 1.9.20 [40], [41]). That characterisation is plainly inconsistent with the draft agreement prepared by Mr Brincat and the Second Agreement that was executed by Mr and Mrs Warburton and County, which significantly narrowed the scope of County’s responsibilities, to management and supervision as distinct from construction, at the same time that it fixed the fee payable to County.

By his second affidavit dated 29 September 2021, Mr Brincat referred (Brincat 29.9.21 [19]-[20]) to correspondence with Mr Hart, explaining concerns which he had as to aspects of the installation of the spa, pool and cover, at a time that County’s responsibility had been limited to management and supervision and the pool and spa was being constructed by a third party contractor, albeit one in which County appears at one point to have had an interest. Mr Brincat’s evidence is that he did not have instructions from Mr and Mrs Warburton about providing any release in respect of any defects in County’s work, at the time of entry into the Second Agreement (Brincat 29.9.21, [159]). I note, however, that Mr Brincat had been appointed as their agent in respect of the project and acted on their behalf in initially drafting and negotiating the Second Agreement and, in any event, they executed that Second Agreement. Mr Brincat’s evidence is that he did not discuss defects in County’s work at the property with Mr Hart or anyone on County’s behalf at the time of entry into the Second Agreement, or with Mr and Mrs Warburton and that the dispute at that time concerned “only the overcharging” by County (Brincat 29.9.21 [161]-[162]). I bear in mind that the discussions to which I referred above extended to the wider proposition that the job was “mishandled” and included reference to the inexperience of the foreman on the site. Mr Brincat asserts that the basis on which he negotiated the Second Agreement “required County to remain responsible for any defects in its work at the Property”, but that question must be determined as a matter of construction of the Second Agreement, and not by reference to Mr Brincat’s understanding of what it achieved (Brincat 29.9.21 [163]). Mr Brincat also referred to the attachment of the Home Owners Warranty Insurance Certificate to the Second Agreement (Brincat 29.9.21 [164]), which is explicable by the fact that County was continuing to undertake supervision and management works in respect of the project, and does not support Mr Brincat’s asserted understanding that “County was responsible for defects in any of its work carried out at the Property”. Mr Brincat also refers to photographs of work undertaken in March, May and August 2017 and to the inspection undertaken by Fair Trading in May 2018 and to the rectification order made by Fair Trading to which I referred above (Brincat 29.9.21 [165]-[167], [196]ff).
By a third affidavit dated 30 May 2022, Mr Brincat responded to aspects of Mr Hart’s affidavit dated 17 May 2022, to which I refer below. He outlined the process by which copies of the draft Second Agreement were provided to Mr and Mrs Warburton and the final Second Agreement was signed by them. He addressed the question of work which had been completed prior to the Second Agreement, and noted that significant aspects of the installation of internal stormwater and sewerage pipes were not complete as at the date of the Second Agreement; installation of hot and cold water pipework was not complete as at the date of the Second Agreement; rainwater tanks were not connected or tested or working as at the date of the Second Agreement; electrical cabling work in the house was not completed by the Second Agreement, and the installation of ground floor windows and doors was not complete by the date of the Second Agreement. That evidence is adverse to Mr and Mrs Warburton’s interests, so far as County’s obligations were narrowed by the Second Agreement.
Mr Brincat was cross-examined. Some aspects of Mr Brincat’s evidence were implausible, including his denial (T42) that he had formed the view early in his engagement that the construction process was being undertaken “on the run” or that numerous design changes were occurring, where that is apparent from contemporaneous correspondence. His evidence (at T51) that his reference, in his email dated 12 February 2017 (to which I referred above) to a concern as to County’s ability to “construct the works” was limited to the cost and time of construction, and not the quality of construction, reflected a narrow, but not impossible, reading of those words. Mr Brincat was at times, argumentative and defensive, and I approach his evidence with a degree of caution.
Mr Brincat was cross-examined to seek to establish that Mr and Mrs Warburton, or at least he (as their agent) was on notice of issues which may have given rise to defects in the work undertaken by County, prior to the entry into the Second Agreement. Those included the inexperience and lack of knowledge, as to some matters, of the foreman who County originally appointed to the project (T36). Mr Brincat indicated those matters did not cause concern, because the project manager, implicitly Mr Hart, would be overseeing the works and assisting and directing his employees, although he also acknowledged that the foreman was not appropriate for the project, because of its detail and complexity (T36) and his later evidence was that the foreman had ability but also “needed guidance” (T49). Although Mr Brincat’s cross-examination demonstrated that there was plainly a potential issue as to the foreman’s experience, which at least raised a risk that work might be undertaken inefficiently, it did not seem to me to indicate that there was any real recognition, as at February or March 2017, of any substantial risk of defects in the work undertaken to date, and Mr Hart’s evidence (to which I refer below) supports that conclusion. Mr Brincat was also cross-examined as to the photos which had been taken of work at site, to seek to establish that they were taken to show whether the works were defective. Mr Brincat responded that those photos were directed to documenting the status of the work, as distinct from defects (T40). While Mr Brincat and Mrs Warburton took numerous photos of that work, that is readily explicable by the then concerns as to delays and overcharging, and does not give rise to any inference that there were then recognised defects in the work.
Mr Brincat was cross-examined as to the circumstances in which he prepared the initial draft of the document that became the Second Agreement and consulted with Mr and Mrs Warburton as to the terms of that agreement and as to the execution of that agreement (T48ff). His evidence was that he formed the view that the scope of the release in his original draft of that agreement and in the further draft prepared by County’s solicitors was “similar”, and he accepted that he formed that view without any encouragement from County (T56). Mr Brincat was also cross-examined as to the delay after the execution of the Second Agreement by Mr and Mrs Warburton, after he had sent it to them, and its return to him on or about 28 February 2017; his attendance at the site on 1 March 2017, at which he took multiple photographs; and his then returning the executed Second Agreement to County on 5 March 2017 (T65). His evidence is that he could not recall the extent of any discussions he had about the Second Agreement with Mr and Mrs Warburton in that period, although he accepted that it was likely that he had such discussions (T66). Mr Brincat was not cross-examined as to the whether the narrowing of County’s obligations under the Second Agreement, which he had negotiated with County on Mr and Mrs Warburton’s behalf, was disadvantageous to Mr and Mrs Warburton and I reach no finding as to that question, although that possibility plainly arises from the findings that I reach below.
Mr Brincat was also cross-examined as to the extent of communications received from Mrs Warburton (T67), with the implication that she was a demanding client, and as to the fact that some subcontractors were paid directly by Mr and Mrs Warburton, from February 2017 and after the entry into the Second Agreement. He acknowledged that, on one weekend, Mrs Warburton had sent over 30 emails to County although his evidence was that that was not a typical exchange between Mr and Mrs Warburton and County (T68). He a was also cross-examined as to Mr and Mrs Warburton’s withholding payment of contractors in the latter part of the project, and as to the difficulties which the painting contractor encountered in being paid for that work, where Mr and Mrs Warburton sought to have those costs backcharged to other subcontractors (T75ff). Mr Brincat also accepted that his position, in early February 2018, was that he was not prepared to make payments to contractors until works had been rectified (T76); plainly, that approach exposed Mr and Mrs Warburton to the risk that contractors would take the view (as some did) that they were not prepared to undertake rectification work if they had not been paid amounts that were already due and payable to them.
Mr and Mrs Warburton also relied on the affidavit of Mr Warburton dated 29 September 2021, which was in relatively narrow scope, and only parts of which were read. Mr Warburton referred to the execution of the Contract; to the fact that he was working fulltime during the works at the property and was, obviously enough, unable to be on site “all the time”; and indicated the nature of his involvement, which appears to have been less extensive than Mrs Warburton’s (MW 29.9.21 [14]-[16]). He refers to the engagement of Mr Brincat to act as contract administrator in September 2016 and to the concern as to whether he and Mrs Warburton were being charged correctly by County at that time; and to his advice on 11 September 2016 to Mr Hart of Mr Brincat’s engagement and the contractual basis on which that engagement took place (MW 29.9.21 [43], [45]).
Mr Warburton also refers to the identification, in about mid-December 2016, of the fact, which now appears to have been common ground, that Mr and Mrs Warburton had overpaid an amount of about $428,700 at that point, being an overcharge for County’s labour of about $196,000; an overcharge by third parties of nearly $58,000 and the amount of the deposit of $175,000 (MW 29.9.21 [48]). Mr Warburton also refers to a meeting between himself, Mrs Warburton and Mr Hart in early February 2017, at which Mr Hart apologised for accounting errors and the three of them discussed the mechanism for payment of trades and of a fixed fee, and of payment of Mr Brincat’s costs by County (MW 29.9.21 [55]).
Mr Warburton referred to the receipt of the draft Second Agreement from County (MW 29.9.21 [57]). That evidence is plainly in error, since the first draft of that agreement had been prepared by Mr Brincat and the drafts of that agreement were provided by County or its solicitors to Mr Brincat, and then by Mr Brincat to Mr and Mrs Warburton. Mr Warburton indicated that he never had discussions with Mr Brincat, Mr Hart or anyone from County about giving County a release in relation to defects before signing the Second Agreement, and that he would not have signed that Agreement if he knew that Mrs Warburton or he were giving County any release in relation to defects (MW 29.9.21 [57]). I will return to questions of construction of the Second Agreement below. I note, at that this point, that evidence as to Mr and Mrs Warburton’s subjective intentions is of less assistance where they had appointed Mr Brincat as their agent for relevant purposes, and left him to negotiate the Second Agreement which they signed. Mr Warburton’s evidence, which can go no further than his understanding, was that defects were “not an issue at this time” and “only arose after the works were completed” (MW 29.9.21 [57]).
Mr Warburton’s evidence is also that he would never have agreed to manage the project or the subcontractors, and the Second Agreement did not provide for that to occur, so far as it left the responsibility for supervision and management with County (MW 29.9.21 [60]-[61]). The difficulty for Mr and Mrs Warburton, which will arise below, is that the Second Agreement removed construction responsibilities from County, and limited their responsibility to management and supervision of the project. Mr Warburton also refers to issues which he identified in respect of the pool and spa in about November 2017 (MW 29.9.21 [76], [78]) and refers to a complaint to Fair Trading made in May 2018, as to which Fair Trading expressed certain views and issued a rectification order (MW 29.9.21 [79]ff). As I have noted above, the content of that order does not bind the Court in determining these matters on the evidence before it, and it is apparent that Fair Trading paid no attention to the scope of County’s contractual obligations under the Second Agreement in making that order.
Mr Warburton was briefly cross-examined briefly, and had a limited recollection of some matters, which is understandable given the passage of time. He readily acknowledged that he and Mrs Warburton could have obtained legal advice as to the Second Agreement if they wished to do so, and his evidence was that he, Mrs Warburton and Mr Brincat had discussed that Agreement and its purpose (T83). He fairly accepted that he did not rely on advice provided by Mr Brincat with respect to the execution of that Agreement (T84).
The Plaintiffs rely on the more extensive evidence of Mrs Warburton, in five affidavits dated 6 August 2020, 29 September 2021, 11 February 2022, 6 May 2022 and 27 May 2022, although large parts of those affidavits were not relevant to the matters in issue in the proceedings, and narrower portions of those affidavits were read at the hearing.
By her first affidavit dated 6 August 2020, Mrs Warburton referred to the initial engagement of an architect in respect of the project, who subsequently withdrew from the project and was not replaced, and to a tender received from County in September 2015 (JW 6.8.20 [5]-[7]). She referred to the execution of the Contract and to the insurance policy obtained by County reflecting an initial contract price of $3,500,000 and to the issue of a construction certificate and other documents in relation to the project (JW 6.8.20 [15], [17]). Mrs Warburton referred to the subsequent engagement of Mr Brincat, as a result of concerns as to the accounting for the project, and to the subsequent meeting between her, Mr Warburton and Mr Hart in February 2017, prior to the entry into the Second Agreement, and to correspondence from Mr Brincat concerning drafts of that Agreement and its execution (JW 6.8.20 [140]ff]). Mrs Warburton also gave evidence of her subjective understanding of the Second Agreement, which I admitted so far as a rectification claim was brought in respect of that Agreement (JW 6.8.20 [154]).
Mrs Warburton there addressed the identification of concerns as to defects in plumbing work, from September 2017 onwards, and correspondence concerning those defects, continuing through until March 2019, with a further difficulty arising in March 2020 (JW 6.8.20 [432]-[489]). She also referred to correspondence in respect of defects in the swimming pool during April 2016, correspondence as to concrete finishes in June 2017, and further correspondence concerning defects with the pool, and surrounding decking and addressing other matters from August 2017 (JW 6.8.20 [498]). Mrs Warburton refers to water entry into the property in February 2020 and to a rectification order issued by Fair Trading (JW 6.8.20 [729]). I have referred above to the limited relevance of that order in these proceedings.
By her second affidavit dated 29 September 2021, only a small part of which was read, Mrs Warburton again addresses her intent in respect of the Second Agreement, in evidence of subjective intention which I admitted where a rectification claim was brought, as follows (JW 29.9.21 [214]):

“The February 2017 Agreement only arose as a result of the change in payment terms at the request of Mr Hart so as to assist County in meeting their financial obligations Mark and I were asked to pay contractors direct. We did not have any discussions about defects at that time or beforehand as the works were far from complete as at February 2017. I was not asked to provide a release in respect of any defects in County’s work.”

It may be that this was Mrs Warburton’s subjective intention in respect of the Second Agreement, but it is not consistent with the circumstances in which that Agreement was negotiated by Mr Brincat. In negotiating that Agreement, Mr Brincat had made criticisms of the quality of the level of experience of County’s foreman on the site, and his suggestion that the foreman was inexperienced and not up to the job plainly carried an implication that the work may have been done inadequately, giving rise to a risk of defects; and the proposition that Mrs Warburton was not asked to provide a release in respect of any defects in County’s works must be qualified by the fact that Mr and Mrs Warburton then signed the Second Agreement in the form provided to them by Mr Brincat.
Mrs Warburton also gives evidence of an issue with the performance of the dining room sliding door (JW 29.9.21 [277]); criticises the manner in which the pool cover operates (JW 29.9.21 [390]); refers to the installation of the spa between June and July 2017, after the entry into the Second Agreement (JW 29.9.21 [409]); refers to a comment made by a contractor as to whether timber decking would be required to be maintained or oiled on a regular basis (JW 29.9.21 [422]); refers to a comment made by a contractor as to the poor finish of outdoor stairs (JW 29.9.21 [437]); contends that water is penetrating the wall of the barbeque (JW 29.9.21 [442]); gives evidence that the control panel, light and speakers for the spa cannot be accessed since they are under the pool deck (JW 29.9.21 [445]); and also addresses the payment of an invoice (JW29.9.21 [457]-[460]).
By her third affidavit dated 11 February 2022, Mrs Warburton refers to the engagement of a plumbing firm to do emergency plumbing works in July 2020. By her fourth affidavit dated 6 May 2022, Mrs Warburton refers back to her third affidavit and says that the ceiling linings and finish services removed to access plumbing works were not reinstated, By her fifth affidavit dated 27 May 2022, Mrs Warburton repeats her earlier evidence that she did not discuss defects with County at the time of entry into the Second Agreement (JW 27.5.22 [15]). Mrs Warburton denies that concreting, with the exception of the concrete driveway, was complete prior to the date of the Second Agreement, and her evidence is that the basement topping slab and stairs, external front door stairs, front balcony and living room topping slab were not complete by February 2017; there was outstanding blockwork to the barbeque area and landscaping as at the date of the Second Agreement; brickwork was still being carried out internally as at that date; and the common brickwork has not commenced on the garage as at March 2017. Her evidence is also that plumbing works were still taking place at the property after the date of the Second Agreement, and the garage was not built at that stage that included a kitchenette and roof drainage; the rough-in for the hot water system had not been installed as at that date; the hot water system was not installed as at 31 July 2017; the rainwater tanks were also not installed by the date of the Second Agreement; most of the electrical work was not completed at the house by the date of the Second Agreement; and the ground floor windows and doors were not installed by the date of the Second Agreement. Mrs Warburton’s evidence is also that the air-conditioning works were not completed by the date of the Second Agreement (Warburton 27.5.22 [20]). This evidence is largely adverse to Mr and Mrs Warburton’s case, so far as the responsibilities of County were narrowed by the terms of the Second Agreement.
Mrs Warburton was cross-examined and accepted that construction drawings were still being prepared for the project in the period up to October 2016 (T103). She did not recall a number of matters, including the discussion with Mr Brincat as to whether works should cease for a period in October 2016, although that is also understandable given the passage of time. Her evidence was that she had not formed the view that the foreman on the site was inexperienced by February 2017, although that was not entirely consistent with her observation in email correspondence at that time that he seemed “a little green” to her (T105). She accepted that she would have read the Second Agreement when it was sent to her, although not that she read it “carefully”, and acknowledged that she would have understood that it was an important document and that she had the ability to seek legal advice about it (T106). She referred to discussions with Mr Brincat as to that document, although she fairly accepted that she did not rely on him for legal advice as to that document, where he was not legally qualified, although she had relied on him to accurately convey its content (T107). She also accepted that she formed her view as to the operation of the Second Agreement from her own reading of it and from Mr Brincat (T108) and, it follows, not from anything County or Mr Hart had communicated to her.

Mrs Warburton was also cross-examined as to the non-payment of trades in the latter part of the project, while issues as to alleged defects in the work were being addressed; her evidence was that many trades had been fully paid (T110) but plainly some were not. Her evidence was that payments were made to contractors in the reconciliation period after practical completion but, to the extent that questions of non-payment continued until September 2018, her position was then that payments would not be made where defective works existed on a “large scale”, although some payments were made in that period” (T111).
Mr and Mrs Warburton also read the affidavit dated 22 September 2021 of Mr Tom Kowalczuk, a director of a business that supplies and instals glass, who referred to the supervision of his work on site and to the way in which his invoice was addressed. An affidavit dated 23 September 2021 of Mr Danny Canal, an air conditioning contractor; an affidavit dated 23 September 2021 of Mr Michael Luciani, a tiler; and an affidavit dated 24 September 2021 of Mr Carlos Soares, a director of a company which undertakes rendering, addressed similar matters. By his affidavit dated 31 March 2022, Mr Philip Banning, formerly the general manager of CCSF, which installed windows and doors at the project, gave evidence as to how work was done and invoices issued. He was briefly cross-examined, although his evidence was of limited assistance where he had not attended the site until works were “just about complete” when he met Mr Hart on site to go through a defects list in about mid-2017 (T118).
The Defendants read a small part of the affidavit dated 7 May 2021 of Mr Robert Hart, a director of County. Mr Hart refers to his background in the building industry, in which he has worked for approximately 28 years, almost exclusively in residential construction. Mr Hart refers to the Contract and to the commencement of the project in December 2015, and the entry into the Second Agreement. Mr Hart refers to a quotation provided by CCSF to resolve a difficulty in opening the living room sliding door, by removing the doors, shaving a few millimetres from them and reinstalling them, at a cost of $1,639.00 including GST (Hart 7.5.21 [103]).
By a second affidavit dated 19 May 2022, Mr Hart led evidence of correspondence with his solicitor, waving legal professional privilege in respect of that correspondence, in respect of the Second Agreement, which was admissible to establish County’s subjective intention where the Plaintiffs brought a rectification claim. Mr Hart also exhibited a program of the works that were finalised and in progress as at 1 February 2017, which is relevant to determining the nature of the work undertaken after the Second Agreement was executed. Mr Hart referred to an email sent by Mrs Warburton, in August 2016, regarding the warranty period for claiming for defective windows and an email dated 19 September 2016 from Mrs Warburton regarding “efflorescence” forming on the brickwork which are relevant to whether defects had been claimed at the time the release in the Second Agreement was given. Mr Hart also led evidence as to his concerns in late 2017, prior to the entry into the Second Agreement, which was admissible as to County’s subjective intention where a rectification claim was brought, and he referred to the meeting with Mr Brincat concerning the entry into the Second Agreement.
Mr Hart was cross-examined as to the circumstances of Mr Brincat’s engagement and the overcharge by County which had been identified at that time, and readily conceded the facts relating to that overcharge. He was also cross-examined as to his email dated 6 February 2017 to Mr Brincat, referring to his strong personal commitment to Mrs Warburton, to which I referred above, and to his meeting with Mr Brincat to discuss accounting issues in the project and the offer that he had made at that time (T174-175). He accepted that the substance of the dispute at that time related to accounting for the project (T176). He was also cross-examined as to the drawings attached to the Second Agreement, and acknowledged that those drawings would ordinarily call up engineering drawings in relation to matters such as stormwater details (T180). He was also cross-examined as to the rectification order made by the Department of Fair Trade to which I have referred above (T181-182) and his position was that the order related partly to defective work and partly to incomplete work, which was a matter between the relevant contractor and Mr and Mrs Warburton (T182).
Mr Hart maintained the position in cross-examination that the Second Agreement released County for defects and any breaches of the statutory warranties under the HBA that arose from events prior to February 2017, and that he had contemplated that there would be such a release in respect of any such defects (T183). He accepted that there was no mention in the correspondence with Mr Brincat at that time that County would no longer be liable for defects in the works performed to date and that he was not then aware of any defects in those works (T184). He also accepted that, where works were in the process of being completed, it would then not have been possible to determine whether there were any defects in the completed works (T185). He accepted that earlier communications had repeated his and County’s commitment to completion on time and to the highest standard, but contended that position was changed by the Second Agreement and that the quality of the project would subsequently depend on the contractors that were selected, implicitly by Mr and Mrs Warburton (T185). He cogently explained (T187) the difference in the position, before and after the Second Agreement, as follows:

“Once the [Second Agreement] was signed, I lost control, or County lost control of the contractors that could be appointed, and our regular contractors, who we use, project in, project out, were not selected on the basis of cost, and we were left to supervise and manage contractors who, in my opinion, were not up to the quality of the work and had not performed that quality of work previously.”

It seems to me that that evidence highlights the difference between a builder’s overall responsibility for the completion of a project, using subcontractors which it would ordinarily choose and retain, and a narrower supervision and management obligation, where contractors are chosen and retained by the client. I return to issues associated with that difference below.

Mr Hart nonetheless accepted that, at the time the Second Agreement was signed, he intended that County would complete the work to the highest standard, without compromise on quality (T188). He then gave a somewhat more qualified answer as to whether it remained his intention, as and from the Second Agreement, in performing the work of management and supervision under the Second Agreement, to achieve completion of the project to the highest standard, as follows:

“Yes. When – in – in the normal course of construction, when we have our contractors and architect, who[se] documenting changes, and we’re left alone to do what we specialise in, we could have done that, absolutely, and we could have finished probably before that time.”

That answer implicitly drew attention to differences between that normal course, and the position which arose in this case, where Mr and Mrs Warburton chose a number of the contractors to be used in the project and the architect had withdrawn as result of the difficulties with design changes to which I referred above.

The Defendants also read the affidavit of Ms Mariarosa Caccamo dated 7 May 2021, which referred to her involvement with contract administration work on the project from about October 2015 to February 2016 and from October 2016 to the completion of the project. Ms Caccamo referred to meeting Mrs Warburton and providing quotations from subcontractors to her, and to discussions of monthly progress claims, in the course of the project. Ms Caccamo also referred to the nature of landscaping defects claimed by Mr and Mrs Warburton as at 31 July 2018 and to emails sent to subcontractors who worked on the project, identifying alleged defects which were relevant to their work on the project. Ms Caccamo also referred to work she had done to identify any charge-back to relevant contractors, in respect of defects in painting as a result of their work, and referred to an email she had sent to Mrs Warburton suggesting that the charge-backs be deducted against amounts that Mrs Warburton had not paid the relevant contractors. She referred to her working fulltime at the site from early August 2018 to coordinate contractors to rectify alleged defects. She exhibited an email dated 2 June 2017 from the site supervisor, Mr Lubrano, to Mrs Warburton providing a warning concerning the manner in which the designers had specified that the floor waste for the terrace should be constructed, and noted a risk of pooling of water if the terrace was constructed in that way, and to Mr Brincat’s instruction to proceed in that manner. Ms Caccamo was not cross-examined.
The Defendants also read the affidavit dated 7 May 2021 of Mr Julien Roy, a landscape architect, who is involved with swimming pool construction through Land Forms Pty Ltd (“Land Forms”), of which he and Mr Hart were each 50% shareholders until 2018 and in which he is now the sole shareholder. He refers to the entry into an agreement for the design of landscaping and a swimming pool for the home on 28 September 2015. He refers to his invoice for work carried out pursuant to the agreement and to the initial estimate for landscaping work and construction of the swimming pool and spa, and to Mr and Mrs Warburton’s acceptance of a reduced quote for those works. He describes the form of swimming pool covers which are available, either floating on the surface of the water of suspended above the water, and he refers to emails and drawings concerning the form of pool cover that was used. His evidence is that the pool cover was installed by its manufacturer or distributor, Remco Australia Pty Ltd (“Remco”), rather than by Land Forms and to a confirmation received from Remco in response to Mr and Mrs Warburton’s complaints about the height of the swimming pool cover. Mr Roy also responds to complaints made as to the operation of the pool cover.
Mr Roy also addresses the plan prepared and emailed to Mrs Warburton, in relation to the installation of a fibreglass spa and further emails concerning that matter, which identified options to resolve the difficulty of the location of the control panel of the spa, including moving the control panel or installing a wireless control. Mr Roy also gives evidence as to the fact that the timber deck had not been oiled when he visited the property in September 2020. He also refers to his recommendation to address imperfections in the surface of steps installed by Land Forms. Mr Roy’s evidence is that the barbeque bench was poured and finished in polished off-form concrete and he also refers to approval of a quotation to lay additional ground covers between stepping stones instead of lawn as originally planned. Mr Roy also refers to an instruction given by Mr Brincat to proceed with a suggested resolution of a complaint as to the concrete finish on steps. Mr Roy was not cross-examined.
Mr and Mrs Warburton tendered a report (Ex P2) and supplementary report (Ex P3) of Mr Laurie, and County tendered a report and supplementary report of Mr Brown in respect of hydraulic matters (Ex D1); Mr Laurie and Mr Brown in turn prepared a joint report (J1), and they gave helpful and constructive concurrent evidence, in which the areas of agreement between them somewhat expanded. Mr Laurie had attended the site and conducted the investigations reflected in his report in June 2020 and Mr Brown did not do so until March 2021 (T149) and that difference in the time of their inspections explained some differences in their observations. I will address their evidence below in dealing with the hydraulic defects for which Mr and Mrs Warburton contend. Mr Laurie and Mr Brown also recorded their observations from an attendance at the property after they had given concurrent evidence, in a further report (Ex J7).
Mr and Mrs Warburton tendered the report of Mr Zakos (Ex P4) and County tendered the report of Mr Nesbitt as to building defects, and Mr Zakos and Mr Nesbitt also prepared a joint report (Ex J2) and gave oral concurrent evidence. Mr Zakos and Mr Nesbitt undertook a further inspection of the property on 14 June 2022, after their concurrent evidence was complete, and delivered a further report (Ex J3), which was in a somewhat abbreviated form, and did not draw express conclusions as to the implications of what they had observed for their evidence. I will return to their observations in dealing with particular issues below and also address a wider difficulty that arises from the lack of conclusions from them below. I have had regard to that evidence, although it is not necessary to summarise it in detail, and I address the relevant issues below.

The effect of entry into the Second Agreement

I now turn to several of the issues in the proceedings. I have had the benefit of very detailed written submissions, and briefer oral submissions, although the changes in Mr and Mrs Warburton’s position at the point of written reply submissions have given rise to the difficulties noted below. I have had careful regard to those submissions, even when I did not find it necessary to summarise or specifically address them, which would not have been feasible given their volume and detail. In particular, I have not considered it necessary to summarise Mr Hicks’ reply submissions at length, to the extent that they address material that had already been raised in chief, although I have identified matters may have been first raised in reply above. I have had regard to the entirety of those submissions, even where I do not summarise them. I have also had regard to, but need not separately address, Mr Hicks paragraph by paragraph response to aspects of Mr Klooster’s submissions, in reaching conclusions as to those submissions above.
It will be convenient to address Mr and Mrs Warburton’s claim by reference to the case set out in the Amended Statement of Claim and County’s response to it, although I will also address other issues which arose in the course of submissions below. Mr and Mrs Warburton contend (ASC [9]) that the Second Agreement “varied their Contract” but omit reference to County’s amended scope of work under cl 2.1 of that agreement in pleading that variation. County denies that the Second Agreement constituted a variation of the existing Contract and, not surprisingly, deny that Mr and Mrs Warburton’s identification of its terms (omitting that reference to cl 2.1) accurately set out its terms.
In his opening written submissions, Mr Hicks, who appears with Ms Anderson for Mr and Mrs Warburton, submitted that County’s obligations in relation to the statutory warranties and the Contract (so far as it relates to the quality and standard of works required in relation to the Contract, plans and specifications) were not impacted by the entry into Second Agreement. I do not accept that submission for the reasons noted below. In closing submissions, Mr Hicks submits that the Second Agreement was a variation to the Contract and “both remained on foot”, implicitly operating concurrently. He points out that the Second Agreement contains no express statement that it replaces the Contract and does not include an “entire agreement” clause. He submits that this “supports the proposition that it was a variation to the contract”. I am not persuaded of that proposition, at least if it is intended to suggest that the Contract and the Second Agreement could continue concurrently, where they contained inconsistent obligations and no mechanism to resolve the inconsistency between them. I return to that matter below.
Mr Hicks also points to cl 10.3 of the Second Agreement, which records that there is no agreement between the parties relating to variations under that Agreement. It is not apparent, and Mr Hicks does not explain, how that clause supports an inference, which he seeks to draw from it, that the Contract was still on foot. Mr Hicks also submits that various things would have been done if the residential building works were to be undertaken by the owners as “owner/builder”, including revising insurance requirements. That submission also does not seem to me to support any inference that the Contract remained on foot, where an arrangement where County undertook to “carry out all the work reasonably necessary to manage and supervise the completion of the [p]roject” in accordance with specified Plans and Specifications, and third party contractors performed the works, which would not necessarily be an “owner/builder” arrangement in any common sense.
Mr Hicks in turn submits that:

“As and from the Second Agreement, and pursuant to the Contract, the builder remained responsible for the residential building works and for bringing those works to completion pursuant to the statutory warranties and the plans and specifications.”

That proposition depends on the concurrent operation of the Contract and the Second Agreement, although the concept of “responsibility” which it adopts is plainly not directed to carrying out the building works, since cl 2.1 of the Second Agreement made clear that County would not do so. For the reasons noted below, it seems to me that the Contract and the Second Agreement were not capable of operating concurrently and did not do so. Mr Hicks goes further to contend that:

“There is no rational basis to conclude that the Second Agreement brought the Contract to an end.”

It is settled law that a subsequent agreement may operate to vary or instead replace an original agreement. As the plurality explained in Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 at [22]–[24]:

“[22] When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration. For example, something may turn upon the place, or the time, or the form, of the contract, and it may therefore be necessary to decide whether the original contract subsists. …
[23] In Tallerman & Co Pty Ltd v Nathan’s Merchandise (Vict) Pty Ltd Taylor J said:
It is firmly established by a long line of cases … that the parties to an agreement may vary some of its terms by a subsequent agreement. They may, of course, rescind the earlier agreement altogether, and this may be done either expressly or by implication, but the determining factor must always be the intention of the parties as disclosed by the later agreement.

[24] That passage was cited with approval by Wilson and Dawson JJ in Dan v Barclays Australia Ltd. It accords with principle and with authority.” [citations omitted]

Those passages were approved by the Court of Appeal in Australia City Properties Management Pty Ltd v Owners - Strata Plan No 65111 [2021] NSWCA 162 at [334] (Bathurst CJ with whom Payne and McCallum JJA agreed). Here the question is therefore whether the intention of the parties, objectively construed and as disclosed by the Second Agreement, was to vary the obligations under the Contract or to instead rescind the Contract and replace it with the Second Agreement.

It seems to me that County’s obligations were plainly impacted by the restriction of the scope of its work under cl 2.1 of the Second Agreement, and its obligations in relation to the plans and specifications attached to the Contract were affected by the replacement of those documents by the different plans and specifications attached to the Second Agreement. Third party contractors then undertook particular areas of works after the Second Agreement, where County’s responsibility was limited to carrying out the work “reasonably necessary to manage and supervise” the project’s completion in accordance with specified plans and specifications, by providing specified personnel until practical completion.

Mr and Mrs Warburton also point to a defect (MFI 1A, item G33) concerning light fittings, where Mr and Mrs Warburton contend that downlights are not flush and that there are other inconsistencies in the lighting. Mr and Mrs Warburton accept that lighting work was undertaken by a contractor, Innuku, which they submit was a contractor to County. The parties, by their Agreed Statement of Facts dated 8 July 2022, recorded their agreement that this work was completed after the Second Agreement was made and I proceed on that basis, so that County’s narrower obligations under the Second Agreement therefore apply. I accept that these matters may have given rise to a claim against Innuku, had it been joined as party to the proceedings. It may be that I could find, without expert or other evidence as to the content of accepted or appropriate industry practice in respect of supervision and management in respect of this matter, that County’s management and supervision obligation under cl 2.1 of the Second Agreement would have required it to identify this issue and raise it with Innuku, and that its not doing so (if it did not do so) would have breached the warranties under the HBA in respect of the scope of its work. There is no evidence that Innuku would have accepted that the defects existed, had they been raised with it, or whether it would have rectified them, and County did not guarantee other contractors’ performance under the Second Agreement. Even if a breach was established, it does not seem to me to give rise an obligation on County to rectify defects in Innuku’s work, where it is not shown that performance of its management and supervision obligations would have avoided or brought about rectification of those defects.
Mr and Mrs Warburton also raise a multitude of suggested defects in relation to the swimming pool (MFI 1A, item G34). There is some complexity in the claim in respect of swimming pool defects, where Mr Hicks contends that defects relating to the location of the skimmer box, the dividing wall between the bench seat and pool shadow, and the installation of the spa are consequential on the concrete pour of the pool shell which occurred in May 2016, and County’s obligations were governed by the Contract rather than the Second Agreement. However, the parties appeared to accept at the hearing that at least the dividing wall was laid before the Second Agreement was made, and the parties, by the Agreed Statement of Facts dated 8 July 2022, also recorded their agreement that the slimmer box was completed before the Second Agreement was made and I proceed on that basis.
A further difficulty arises because Mr Zakos appears to have relied, when addressing the defects, on documentation issued in 2016 in respect of a quote by Land Forms which was not accepted by Mr and Mrs Warburton, rather than on the different and less expensive quote which was ultimately accepted by them at a later date. Mr Zakos’ focus on the earlier drawings in turn obscures the question of the extent to which any difficulties have arisen from later changes in the scope of the pool design or pool work. It is ultimately not necessary to address these difficulties, given the wider difficulties to which I refer below.
Mr and Mrs Warburton initially accepted that a contractor, Land Forms, was engaged in respect of the swimming pool, and that the works were largely done in July 2017. It appears that an issue as to the location of the skimmer box is an exception, because that arose from pouring the concrete shell of the pool prior to the date of the Second Agreement, and I have noted the parties agreement as to that matter above. Other than in respect of the location of the skimmer box, County’s obligations were therefore narrowed to the obligation of supervision and management under cl 2.1 of the Second Agreement in respect of these matters. I have referred to the affidavit evidence led by Mr Roy of Land Form in respect of this work above. Mr and Mrs Warburton’s claim that the skimmer box for the pool is in an incorrect location depends on inferences to be drawn from earlier drawings and appears to be inconsistent with the information contained in Land Forms’ quote for the relevant works. I am not persuaded that any breach of the Contract, so far as the parties now agree that the work was done prior to the entry into the Second Agreement, is established in this respect.
Mr and Mrs Warburton also point to an additional defect in the swimming pool, that a dividing wall has been constructed between the bench seat and the pool shallows, and it appears this took place in May 2016, prior to the entry into the Second Agreement, although it was not addressed by parties’ Agreed Statement of Facts dated 8 July 2022. It is common ground that this defect exists and I am satisfied that a breach of the Contract and statutory warranties is established in that regard.
Mr and Mrs Warburton also point to several “deficiencies” that are alleged to have arisen in respect of the installation of the pool cover, and Mr Zakos addressed that matter in his evidence, although it emerged that he had no experience in installing the brand and type of pool cover that Mr and Mrs Warburton had chosen and, it seems to me, no basis on which to determine whether these matters were deficiencies in the installation of the pool cover or simply the characteristics of that brand and type of pool cover, which necessarily followed from Mr and Mrs Warburton’s choice of that brand and type of pool cover. Mr and Mrs Warburton did not press their attempt to shift their position, in reply, to contend that this work was done prior to the Second Agreement. I am not persuaded that the relevant defects arise from a construction defect, still less from a breach by County of any duty of management or supervision under cl 2.1 of the Second Agreement, as distinct from the performance characteristics of that pool cover.
Mr and Mrs Warburton also refer to missing grout, chipped tiles and hardwood staining to the tiles, although the evidence does not establish when or how those defects arose or by whom they were caused. They may or may not have given rise to claims against the relevant contractors, but I am not persuaded that they establish a claim against County in respect of its narrower duty of supervision and management under cl 2.1 of the Second Agreement or the relevant statutory warranties. Mr and Mrs Warburton also contend that the fibreglass spa control panel has been installed such that it cannot be accessed without difficulty. That contention seems to me to misstate the nature of the difficulty, because the control panel was an integral part of the fibreglass spa, Mr Roy’s evidence establishes that its location was dictated by the need to install that spa in a manner that allowed access to its access panel. It seems to me that this difficulty arose from the choice of that spa, where it was to be installed adjacent to a concrete pool and timber decking, which dictated the manner of its installation, and I have referred above to Mr Roy’s evidence as to steps which were available, but not taken by Mr and Mrs Warburton, to mitigate that difficulty. I am not persuaded that a breach of the Contract, in respect of pouring of the shell of the spa prior to March 2017, or a duty of supervision and management by County or any statutory warranty has been established in that respect.
A defect in respect of termite protection (MFI 1A, item G35) is now not pressed. Mr and Mrs Warburton also identify a defect in respect of external render (MFI 1A, item G36) and contend that there are no expansion joints on the north and east elevations of the first floor, that there is cracking to planter boxes, and that there are several other defects. Mr and Mrs Warburton accept that this work was undertaken by a contractor, Lisbon Rendering. The parties, by their Agreed Statement of Facts dated 8 July 2022, recorded their agreement that this work was completed after the Second Agreement was made and I proceed on that basis. It follows that County is only subject to the narrower obligations arising under the Second Agreement in that respect. Mr Zakos and Mr Nesbitt agree as to the scope of the defect and as to the appropriate rectification, although neither address the steps which should have been taken by County to perform any supervision or management obligation in respect of this matter, or how the performance of those steps would have impacted upon the ultimate quality of the render work undertaken by Lisbon Rendering. I will assume, without deciding, that it might be open to find, even without expert or other evidence as to the content of accepted or appropriate industry practice in respect of supervision and management in respect of this matter, that adequate supervision and management would at least have identified a lack of expansion joints on the first floor, although the question whether and what expansion joints were required may have been open to dispute. It is not apparent, in any event, what would have occurred had County, having identified that matter, drawn it to the attention of Lisbon Rendering, which had undertaken the relevant work. While this matter might have given rise to a claim against Lisbon Rendering, which was also not joined as party to the proceedings, I am not persuaded that a claim against County is established in this respect.
Mr and Mrs Warburton also point to suggested defects in landscaping works undertaken by Land Forms (MFI 1A, item G37) and point out that Land Forms’ invoices were issued to County and then by County to Mr and Mrs Warburton from June 2017 to completion in respect of this work. The parties, by their Agreed Statement of Facts dated 8 July 2022, recorded their agreement that this work was completed after the Second Agreement was made and I proceed on that basis. Mr and Mrs Warburton identify criticisms including water retention in the treads on the front porch steps, questions as to the basement terrace steps and outdoor stairs, allegations of a poor finish and cracking and moisture on the concrete barbeque area. They also point to floor tiles removed but not replaced, although the evidence as to when those floor tiles were removed and by whom is unclear. Mr Zakos and Mr Nesbitt agree that there is a defect as to the porch steps and agree as to the method of rectification; they disagree as to whether any issue as to the outdoor stairs will be rectified when any issue as to the porch stairs is rectified; they also disagree as to the extent of any defect in respect of cracks in the outdoor stairs, and as to whether they should be rebuilt; and they agree as to a defect in respect of the tiles to the outdoor barbeque area and as to the method of rectification of that defect, but not as to any question as to moisture and efflorescence to the concrete barbeque area. Again, it is not self-evident that a defect in the quality of the work performed by a contractor, Land Forms, establishes a breach of County’s management and supervision obligations under cl 2.1 of the Second Agreement or of the statutory warranties, which it seems to me would be a matter for expert evidence as to the scope of that duty and what would or would not have been undertaken by a project supervisor and manager in performing it in the relevant circumstances.
I am not persuaded that the relevant breach of the Second Agreement or the relevant statutory contractual warranties under the HBA is established, and it is therefore not necessary to determine any question as to the scope of rectification work. Mr and Mrs Warburton’s claim, so far as waterproofing issues are raised in respect of landscaping, would also fail by reason of their non-payment of Smithy’s Contracting, so that it declined to return to site, for the same reasons as their claim in respect of MFI 1A, item G28, which I have addressed above.
Mr and Mrs Warburton identify a defect in respect of missing air conditioning grill vents (MFI IA, item G38) and contend the relevant work was undertaken by an air conditioning contractor, New Edge, which was engaged by County. The parties, by their Agreed Statement of Facts dated 8 July 2022, recorded their agreement that this work was completed after the Second Agreement was made and I proceed on that basis. It follows that County owed the narrower obligations under the Second Agreement in respect of this work. Mr Zakos and Mr Nesbitt have agreed the defect and agreed the scope of rectification. I will assume, without deciding, that the air conditioning grills were not installed at the completion of the work, and that adequate supervision and management by County would have identified that matter. It is not, however, apparent whether County identifying that defect would have caused it to be remedied by New Edge, and County did not guarantee New Edge’s work by the terms of the Second Agreement . While this matter may have given rise to a claim against New Edge, which is again not party to the proceedings, it is not apparent that any breach of the duty of supervision and management by County in this respect gives rise to a basis for County to be required to bear the costs of rectification of deficiencies in New Edge’s work.
Mr and Mrs Warburton advance allegations of poor finish in the garage and basement terrace slabs (MFI 1A, item G39) which they initially accepted were constructed by a contractor, Tony Sarkis Contracting, in work done after February 2017. Mr and Mrs Warburton did not press their attempt to shift their position put during the trial, in reply, to contend that this work was done prior to the Second Agreement. I proceed on the basis that County was again subject to the narrower obligations under cl 2.1 of the Second Agreement in respect of this work. Mr Zakos and Mr Nesbitt disagree as to whether a defect is established, and Mr Nesbitt expresses the view that the crack width is less than 1.0mm, there has been no change in slab level and there is no evidence of moisture and the cracking does not require rectification under Australian Standard AS2870. There is no basis to prefer Mr Zakos’ position to Mr Nesbitt’s position in that respect and, in any event, there is no evidence that appropriate supervision and management of the project by County would have identified cracks of this character, which partly depends on when they developed, or that identification of those cracks at any earlier point would have led Tony Sarkis Contracting to remedy them, particularly where there is at least an arguable case that are not properly treated as defects. No basis for an order for compensation against County is established in respect of this matter.
Mr and Mrs Warburton identify an issue as to polished concrete in respect of an outdoor terrace (MFI 1A, item G40), which Mr and Mrs Warburton accept was installed by a contractor, Norcrete Group. The parties, by their Agreed Statement of Facts dated 8 July 2022, recorded their agreement that this work was completed after the Second Agreement was made and I proceed on that basis. It follows that County again owed the narrower obligations under cl 2.1 of the Second Agreement in that respect. Mr Zakos and Mr Nesbitt are agreed as to the scope of the relevant defect and agreed as to the scope of rectification. Again, absent adequate evidence, I cannot find that the defect in the ultimate quality of the work undertaken by Norcrete Group establishes a defect in supervision or management by County, without evidence as to what should have been undertaken by a person with supervisory or management responsibility in respect of the relevant works. The basis for the claim against County, as distinct from Norcrete Group, in respect of this matter is not established.
Mr and Mrs Warburton also point to defects in electrical works (MFI 1A, item G41) and accept that this work was undertaken by Innuku, a contractor, although they contend that County engaged that contractor. The parties, by their Agreed Statement of Facts dated 8 July 2022, recorded their agreement that this work was completed after the Second Agreement was made and I proceed on that basis. Mr Zakos maintains that the work is defective; Mr Nesbitt accepts that the electrical work appears to be incomplete, although observing that it is a matter outside his expertise, and advising that an electrician should be engaged to complete the work. For the reasons which I have addressed above in respect of other issues, I am not able to conclude, without expert or other evidence as to the content of accepted or appropriate industry practice in respect of supervision and management of electrical contractors, that a deficiency in the ultimate quality of the work performed by Innuku is sufficient, in itself, to establish a breach of the narrower duty of management and supervision owed by County under the cl 2.1 of the Second Agreement or the corresponding contractual or statutory warranties under the HBA.
I have held that County is liable in respect of several aspects of the work done before the Second Agreement took effect (items H2, H3, H13 and G34, in respect of the dividing wall only) as to which it had assumed the wider obligations under the Contract, and the statutory warranties had wider effect, and that liability is not released by the release in the Second Agreement. I will allow the parties an opportunity to reach agreement as to the quantification or works relating to those items, or make further submissions, given the difficulties as to the expert quantification evidence, to which I refer below. Mr and Mrs Warburton have otherwise not established their claims for breach of the Contract, the Second Agreement or the statutory warranties against County.

Matters that cannot presently be determined

I would ordinarily now proceed to determine the issues as to the disputed scope of defects, rectification works, their disputed costs and damages, as to which I have not found County’s liability was established, against the contingency of an appeal, although those questions do not arise on the findings I have reached above. However, it is likely not possible, and it is certainly not practical, now to do so, rather than to deal with those matters on remittal from any successful appeal. First, the experts' positions continued to change until the last day of the hearing, and those changes and their implications were neither fully nor clearly integrated into any final position. I do not say that critically where it resulted from further attendances at site and attempts to narrow their differences. To allow these questions to be determined, I would first have to direct the parties to provide an updated joint report as to the matters as to which the experts now agree and disagree, updated for their changes in position, and then updated quantification reports. There is no utility in doing so where it will make no difference to the result at first instance and may make no difference on any appeal, particularly if the Court of Appeal accepts the view I have formed as to matters of construction and the absence of evidence as to the content of County’s obligations.
Second, there is presently no basis to generally prefer the expert witnesses of one party over the other as to the hydraulic and building issues on which consensus had not been reached, where each is experienced and credible and, given the nature of the issues, their differing views are largely based on the application of their experience to reach difference results. This could be addressed in a not particularly satisfying way by reference to the onus of proof, by generally adopting the narrower scope of work conceded by County or not ordering work where there was no such concession, in the many cases where I could not conclude, on the balance of probabilities, that the wider scope preferred of work by Mr Laurie or Mr Zakos should be adopted in preference to Mr Brown’s or Mr Nisbett’s views, where both are reasonably open. A second possibility would be now to appoint a court-appointed expert, with appropriate expertise, to express a view as to the matters on which the parties' experts differ. There is no reason to think the parties would wish to incur the costs of the latter course, or that there is any utility in it, where it will make no difference to the result at first instance and possibly no difference to the result on any appeal for the reasons noted above.

Third, and most fundamentally, it is impossible to determine the question of the quantum of rectification costs and the amount of any damages on the quantification evidence as it stands. As counsel acknowledge, the joint quantification reports quantify rectification costs on the basis that I accept one or other of the hydraulic and building expert reports in its entirety and without modification as to each issue, although there are multiple disagreements between the quantification experts as to the costs of remedial work even on that basis. The quantification reports do not allow costs to be determined unless I make a binary choice of that kind as to each issue. It is plain that I could not proceed in that way, unless I simply determine that the there is no basis to prefer the expert evidence called by Mr and Mrs Warburton to that called by County as noted above, where several issues have sub-issues and raise questions of degree, and the result as to particular issues will also depend on which of the two approaches noted in the second point above was adopted. Once one of those approaches was taken and the many issues and sub-issues as to the scope of rectification works were determined, further quantification reports would then need to be prepared on that basis or this issue would need to be referred to a referee. It is again unlikely that the parties would wish to go to the costs of preparing those reports now or a reference now, after they had incurred any costs associated with the second step above, where the result will again make no difference at first instance and may make no difference on appeal for the reasons noted above.
For these reasons, these issues cannot be determined now, against the contingency of appeal, and may need to be addressed on a remittal in the event of a successful appeal. Although the costs of doing may well likely then be (as they would now also be) disproportionate to the amounts in issue, at least they would not then be wasted in their entirety.

Mr and Mrs Warburton’s monetary claim

Mr and Mrs Warburton also contend and County implicitly accepts that, in breach of the Second Agreement, County failed to pay Mr and Mrs Warburton an amount of $75,000 (ASC [15], Defence [15]). County contends that it is entitled to set-off that amount against the monies referred to in its Cross-Claim in the proceedings. It appears that there is no real dispute that, after setting off the amount claimed by County against the amount due to Mr and Mrs Warburton, an amount of $62,777.77 is due by County to Mr and Mrs Warburton. There should be judgment for Mr and Mrs Warburton against County in that amount.

Orders

For these reasons, Mr and Mrs Warburton’s claim against County in respect of three defects and one aspect of a fourth and their money claim, which occupied little time at the hearing, have succeeded, and the large part of their claim will be dismissed, after issues as to the quantification of damages relating to these several defects are agreed or are resolved. As I noted above, Mr and Mrs Warburton did not press their claim against Mr Hart at the hearing, and the proceedings will be dismissed as against him. My preliminary view is that, in these circumstances, Mr and Mrs Warburton’s limited success, in respect of a much larger and longer case, means that they must pay County’s and Mr Hart’s costs of the proceedings as agreed or as assessed. However, I will give the parties an opportunity to be heard in that regard.

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Decision last updated: 18 July 2022

Medium Neutral Citation:	Warburton v County Construction (NSW) Pty Ltd [2022] NSWSC 941
Hearing dates:	7 – 9 and 14, 17 June 2022
Decision date:	15 July 2022
Jurisdiction:	Equity - Technology and Construction List
Before:	Black J
Decision:	Parties to be allowed opportunity to reach agreement as to costs of rectification as to limited issues where liability established, or make further submissions. Parties also to make submissions as to costs of the proceedings.
Catchwords:	BUILDING AND CONSTRUCTION — Contract — Damages — Defects — Where plaintiff homeowners initially contracted with the defendant builder for the construction of a residential home — Where parties entered into a second agreement by which the plaintiffs took responsibility for the payment of subcontractors and materials, and the defendants undertook to carry out all the work reasonably necessary to manage and supervise the completion of the works — Where the second agreement also included a mutual release — Where plaintiff alleges there are defects with the construction of the home —Whether defects arose from work done prior to or after the second agreement — Whether defects arising from work done after the second agreement resulted from a failure by the defendant to carry out all the work reasonably necessary to manage and supervise the completion of the works — Whether any statutory warranties under the Home Building Act 1989 (NSW) were breached by the defendants
Legislation Cited:	- Civil Procedure Act 2005 (NSW), ss 58-58, s 60, s 64. - Home Building Act 1989 (NSW), s 18B, s 18E, s 18G.
Cases Cited:	- Amaca Pty Ltd formerly known as James Hardie & Coy Pty Ltd v CSR Ltd [2001] NSWSC 324 - Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; (2009) 258 ALR 14; [2009] HCA 27 - Australia City Properties Management Pty Ltd v Owners - Strata Plan No 65111 [2021] NSWCA 162 - Bank of Credit & Commerce International SA (in liq) v Ali [No 1] [2002] 1 AC 251 - Blatch v Archer (1774) 1 Cowp 63; 98 ER 969 - Cappello v Hammond and Simonds NSW Pty Ltd [2020] NSWSC 1021 - Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd (2000) 201 CLR 520; [2000] HCA 35 - D & F Estates Ltd v Church Commissioners for England [1989] 1 AC 177 - Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423 - Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 - Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303; [2013] HCA 46 - Florida Hotels Pty Ltd v Mayo (1965) 113 CLR 588 - Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 - Hampton Court Ltd v Crookes (1957) 97 CLR 367; [1957] HCA 28 - Icon Co (NSW) Pty Ltd v The Owners – Strata Plan No. 97315 [2022] NSWCA 114 - Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; [1973] HCA 23 - Metropolitan Fire and Emergency Services Board v Yarra City Council (2015) 214 LGERA 1; [2015] VSC 773 - Oikos Constructions Pty Ltd v Oston [2020] NSWCA 358 - Owners Corporation of Strata Plan 61390 v Multiplex Corporate Agency Pty Ltd (No 2) [2012] NSWSC 322 - P Ward Civil Engineering Pty Ltd v Civil and Civic Pty Ltd [1999] NSWSC 727 - Re Graziers Pastoral Pty Ltd [2021] NSWSC 1680 - Roberts v Jandson Pty Ltd (Homebuilding) [2011] NSWCTT 105 - Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 - Qantas Airways Ltd v Gubbins (1992) 28 NSWLR 26 - SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2017] NSWCA 132 - Sheldon v McBeath (1993) Aust Torts Reports 81-209 - Sutcliffe v Chippendale & Edmonson (A Firm) [1971] 18 BLR 149 - The Owners – Strata Plan 6511 v Meriton Apartments Pty Ltd [2016] NSWSC 909 - The Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612 - Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 - UBS AG v Tyne as Trustee of the Argot Trust (2018) 265 CLR 77; [2018] HCA 45
Category:	Principal judgment
Parties:	Mark Warburton (First Plaintiff/First Cross-Defendant) Jacqueline Warburton (Second Plaintiff/Second Cross-Defendant) County Construction (NSW) Pty Ltd (First Defendant/Cross-Claimant) Robert Daryl Hart (Second Defendant)
Representation:	Counsel: F Hicks SC/B Anderson (Plaintiffs/Cross-Defendants) M Klooster/F Clark (Defendants/Cross-Claimant) Solicitors: William Cotsis & Associates (Plaintiffs/Cross-Defendants) Somerville Legal (Defendants/Cross-Claimant)
File Number(s):	2019/191970