Built Qld Pty Limited v Pro-Invest Australian Hospitality Opportunity

SUPREME COURT OF QUEENSLAND

CITATION: Built Qld Pty Limited v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd [2022] QCA 266

PARTIES: BUILT QLD PTY LIMITED / ACN 108 064 099 / (appellant) / v / PRO-INVEST AUSTRALIAN HOSPITALITY OPPORTUNITY (ST) PTY LIMITED (FORMERLY KNOWN AS AUSTRALIAN HOSPITALITY OPPORTUNITY (ST) PTY LTD) AS TRUSTEE FOR THE PRO-INVEST AUSTRALIAN HOSPITALITY OPPORTUNITY (BRS SPRING HILL) TRUST / ACN 163 479 221 / (respondent)

FILE NO/S: Appeal No 14730 of 2021 / SC No 5426 of 2017

DIVISION: Court of Appeal

PROCEEDING: General Civil Appeal

ORIGINATING COURT: Supreme Court at Brisbane – [2021] QSC 224 (Williams J)

DELIVERED ON: 20 December 2022

DELIVERED AT: Brisbane

HEARING DATES: 12 and 13 September 2022; further written submissions received on 27 September 2022, 17 October 2022 and 14 November 2022

JUDGES: Morrison and Dalton JJA and Bradley J

ORDERS: Appeal allowed.Direct that the parties are to calculate the amount in which the Court ought to order judgment, including the amount for interest.Direct that the parties are to attempt to agree an appropriate order as to costs. If the parties cannot agree, each party is to file written submissions as to costs, no longer than five pages each.The written submissions as to the amount in which the Court should order judgment, and as to costs, are to be filed by 15 February 2023.

CATCHWORDS: CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – where the respondent issued an invitation to tender to design and construct a hotel – where the invitation to tender required that tenders comply with the respondent’s specifications and drawings (the Thwaite Documents) – where the appellant submitted a tender on an alternative basis for air conditioning (the Alternative Proposal) – where the appellant and respondent entered into a contract based on the acceptance of the appellant’s Alternative Proposal, provided it met the performance requirements of the Thwaite Documents – where the respondent issued a defects notice to the appellant (the 11 August notice) – where the 11 August notice asserted that the air conditioning system which was partly installed by the appellant was defective because it did not allow mode control in individual rooms – whether extrinsic evidence could be used to interpret the meaning of the Alternative Proposal – the meaning of “performance requirement” – whether the Thwaite Documents contained a performance requirement as to mode control in individual rooms – whether the air conditioning system which was partly installed by the appellant was defective / CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – VARIATIONS – where the 11 August notice directed a variation to the contract – where the 11 August notice was a “qualifying cause of delay” under the contract – where the contract required the appellant to give the respondent a written claim for an extension of time (EOT) within 14 days of when the appellant should reasonably have become aware of the qualifying cause of delay – whether the primary judge erred in finding that the appellant’s claim for an EOT was delivered outside the 14 day period – when the appellant became reasonably aware of the qualifying cause of delay / CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – where the contract provided that the appellant was not entitled to an EOT if it contributed to the qualifying cause of delay – whether the appellant contributed to the qualifying cause of delay by failing to provide shop drawings when required to do so by the contract – where the shop drawings would have revealed the lack of mode control in individual rooms – where, prior to the contractual date to provide shop drawings, the appellant provided schematics to the respondent which indicated that the system would not have mode control – whether the appellant contributed to the qualifying cause of delay or to the delay in practical completion / CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – where the contract provided that the appellant was entitled to an EOT if the appellant has taken all reasonable steps to mitigate the effect of the delay – where the appellant required equipment to install the new air conditioning system as directed by the 11 August notice – where, despite the appellant’s enquiries, the respondent did not confirm whether it approved of the equipment the appellant required – whether the appellant took all reasonable steps to mitigate the delay caused by the need to order new equipment / CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – where the appellant was entitled to an EOT – where the primary judge did not make findings as to the EOT to which the appellant was entitled – where the primary judge did not give reasons – whether the contract permitted a retrospective or prospective approach to assess the delay to practical completion – whether the Court must determine the EOT only on the material which was available to the superintendent at the time the EOT was assessed – assessment of the EOT / CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – where the contract provided that the appellant was entitled to a claim for delay damages reasonably and necessarily incurred by the appellant by reason of a variation – whether the appellant was entitled to delay damages consisting of time-related on-site overheads incurred during the period of critical delay – what is the time period over which the delay damages were suffered – whether the costs claimed by the appellant were necessarily and reasonably incurred – whether the overhead costs were included in the value of the variation under the contract / Akot Pty Ltd v Rathmines Investments Pty Ltd [1984] 1 Qd R 302, applied / Ascon Contracting Ltd v Alfred McAlpine Construction Isle of Man Ltd (1999) 66 Con LR 119, cited / Bank of New Zealand v Simpson [1900] AC 182; [1900] UKLawRpAC 6, cited / Beale v Government Insurance Office of NSW (1997) 48 NSWLR 430, cited / Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd [1999] 1 AC 266; [1998] 2 All ER 778; [1998] UKHL 19, considered / Bwllfa v Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426; [1903] UKLawRpAC 46, applied / Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2017] QSC 85, considered / CMB No. 1 Pty Ltd v Cairns City Council [1999] 1 Qd R 1; [1997] QCA 456, cited / Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24, applied / Daysea P/L v Watpac Aust P/L [2001] QCA 49, cited / DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; [1978] HCA 12, applied / Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (2013) 41 VR 636; [2013] VSCA 179, considered / Elliott v Lawrence [1966] Qd R 440, cited / Euronav NV v Repsol Trading SA The MT MARIA [2022] 2 All ER (Comm) 65; [2021] EWHC 2565 (Comm), cited / Hope v RCA Photophone of Australia Pty Ltd (1937) 59 CLR 348; [1937] HCA 90, applied / House of Peace Pty Ltd v Bankstown City Council (2000) 48 NSWLR 498; [2000] NSWCA 44, cited / HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54, cited / Johnson Controls Australia Pty Ltd v Webb Australia Group (NSW) Pty Ltd (2003) 96 ACSR 640; [2013] NSWSC 1511, applied / Keays v JP Morgan Administrative Services Australia Ltd (2012) 224 IR 406; [2012] FCAFC 100, applied / Kembla Coal & Coke Pty Ltd v Select Civil Pty Ltd [2004] NSWSC 628, cited / King & Ors v Australian Securities and Investments Commission [2018] QCA 352, cited / Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281; [1995] HCA 4, cited / Macdonald v Longbottom (1859) 1 El & El 977; 120 ER 1177; [1859] EngR 635, considered / Macdonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152; [1998] QCA 53, considered / Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37, applied / Prenn v Simmonds [1971] 1 WLR 1381; [1971] 3 All ER 237, applied / Proctor v Chahl [2008] NSWSC 1252, cited / Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541, applied / Republic of Turkey v Mackie Pty Ltd & Anor [2019] VSC 103, cited / Rightside Properties Ltd v Gray [1975] Ch 72; [1974] 2 All ER 1169, cited / Schelde Delta Shipping BV v Astarte Shipping Ltd (The Pamela) [1995] CLC 1011, cited / SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd & Anor [2016] VSCA 119, cited / Stockland Property Management Pty Ltd v Cairns City Council [2011] 1 Qd R 77; [2009] QCA 311, cited / TAL Life Ltd v Shuetrim; Metlife Insurance Ltd v Shuetrim (2016) 91 NSWLR 439; [2016] NSWCA 68, cited / Thiess Watkins White Construction Ltd v Commonwealth (1998) 14 BCL 61, cited / V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd [2021] VSC 849, cited / Walton v Illawarra [2011] NSWSC 1188, cited / Wesfarmers Kleenheat Gas Pty Ltd v Elgammal [2006] NSWSC 1248, cited

COUNSEL: P L O'Shea KC, with M Steele and B A Reading, for the appellant / T P Sullivan KC, with M Doyle, for the respondent

SOLICITORS: Clayton Utz for the appellant / Thomson Geer for the respondent

1. THE COURT: By a contract, which was a modified version of AS 4902-2000, dated 29 April 2015, the appellant promised to design and construct a building to be known as the Holiday Inn Express Spring Hill Hotel. The appellant was the plaintiff below. It made several claims against the respondent arising out of the building contract. This appeal is concerned with only one of them: the ramifications of a defects notice issued to the appellant by the superintendent¹ on 11 August 2016 (the 11 August notice). It directed the appellant to remove such parts of the air conditioning system as it had installed, and to install an air conditioning system which complied with the contract. The appellant’s case was that the 11 August notice amounted to a direction to vary the contract so that it was entitled to: (1) the price of the varied work; (2) an extension of time (EOT), and (3) delay damages. The appellant was entitled to succeed on these claims below. Therefore the appeal must be allowed.

The tender process

2. The respondent issued an invitation to tender dated 1 November 2014. The invitation to tender provided that the tenderer was to submit a tender in strict conformity with the tender conditions. However, cl 8(4) of the invitation to tender provided:

“The Tenderer may also submit alternative tenders containing qualifying conditions or exceptions and the sums of money which are directly attributable to such conditions or exceptions set out in an Alternative Tender Qualifications Form contained in Schedule 2. The acceptance of any alternative tender subject to qualifying conditions or exceptions is entirely at the discretion of the Principal.”

3. To comply with the tender conditions it was necessary that the appellant specify an air conditioning system which complied with a document called “Mechanical Services Specification Hotel Project 168-184 Wharf Street, Spring Hill, Queensland” prepared by Thwaite Consulting Group, and some drawings (the Thwaite specification and the Thwaite drawings, compendiously the Thwaite documents). In the Thwaite specification, Thwaite described itself as the “Consulting Engineer”, which must mean the engineer consulting to the respondent.² The Thwaite specification also described Thwaite’s role as including the review of tenders received and the analysis of technical data and calculation methods.

4. Despite the fact that the contract was a design and construct contract, the Thwaite specification was prescriptive. It described in close detail a system which was to provide air conditioning from “chilled water and heating hot water from a common air‑cooled 4 pipe chiller (heat recovery type) located on the roof” – cl 2.2.1.

5. The appellant submitted a tender dated 19 January 2015. It provided a price of nearly $34 million for a conforming design and construction, but presented an alternative design and construction price for some elements, including the air conditioning. The appellant’s alternative price for air conditioning was nearly $800,000 cheaper. The tender contained a schedule entitled “Built Design & Construct Alternative Tender Clarifications”. As to air conditioning, this said:

“Built in conjunction with our preferred subcontractors have reviewed the documented design criteria and have offered an alternative Air Conditioning system based on VRF type arrangement.

The system proposed provides a more efficient solution in terms of the running costs due to the equipment operates on a variable power supply and without the need for stand alone controls and variable speed drives which inherently are costly and complex to program and operate. Additionally, the proposal also adopts a revised pipe and duct configuration, thus reducing the initial cost of these components.”

The contract

6. The contract price was based on acceptance of the appellant’s alternative air conditioning tender, and some other alternative tenders.

7. The general conditions of contract obliged the contractor to prepare design documents and then carry out the construction works in accordance with them – cl 2.2(a)(iii) and (iv). This was called WUC (work under contract). This involved an obligation, where there was a preliminary design prepared by the principal, to develop that design into design documents and then construct in accordance with those design documents. In relation to the air conditioning system there was a preliminary design, as that term is defined in the contract; it was the Thwaite documents.³

8. To cater for the fact that the contract was, in some respects, on the basis of alternative (rather than conforming) parts of the appellant’s tender, the contract introduced a defined term, “clarifications”. This meant “the clarifications to the Works or the contract sum set out in Annexure Part O”. Clause 8.1(a)(ii) of the contract then provided for an order of precedence including that “the clarifications have precedence over the preliminary design”.

9. Annexure O containing the clarifications was poorly drafted. It contained only one provision, a cl 1 which began, “WUC includes:”. There followed a very long list of sub‑paragraphs, some of which were capable as being read with the short chapeau of cl 1, and others of which were not. Subclause (u) provided:

“The Contractor’s alternative proposal for structural and mechanical systems on the basis that the Contractor meets the performance requirement of the tender drawings and specifications.”

The description “mechanical systems” can be read as meaning air conditioning, at least for the purpose of this judgment.

10. The last of the sub‑paragraphs in Annexure O, (ag), was not capable of being read as following on from the cl 1 chapeau. It said:

“(ag) Refer VE items listed below:

(i)Mechanical Services: The Contractor, in conjunction with its preferred subcontractors has reviewed the documented design criteria and has offered an alternative air conditioning system based on VRF type arrangement. The system operates on a variable power supply and without the need for stand alone controls and variable speed drives. Additionally, the proposal also adopts a revised pipe and duct configuration.

…”

11. We were told the “VE” meant “value engineering”. It appears that sub‑paragraph (ag) lists (at least initially) information relevant to parts of the appellant’s alternative (non‑conforming) tender which are taken from the descriptions it provided of those non‑conforming items in its tender document. The information in subclause (ag)(i) is of this type. Trying to give some meaning to subclause (ag)(i) in accordance with the principles in Mount Bruce Mining v Wright Prospecting Pty Ltd,⁴ we interpret it as giving some further information as to what “the Contractor’s alternative proposal” in subclause (u) is. This interpretation is based on the substance of the information in cl (ag)(i).

Types of air conditioning systems

12. A difficulty which is at the factual centre of this dispute is that, even with the additional detail contained in subclause (ag)(i), the contract contains little meaningful definition about the alternative air conditioning system which the appellant contracted to provide. The conforming system specified in the Thwaite documents was for a 4 pipe heat pump system which air conditioned by providing chilled water, or heated water, to each individual room on demand from the occupant of that room. A guest in a hotel room equipped with the Thwaite designed air conditioning system could select whether they wanted the system to provide heating or cooling (mode control), and could specify the temperature (within a range) that the room was to reach. The air would be conditioned by means of heated or chilled water being piped to a fan coil unit (FCU) located in the ceiling of each individual room.

13. The appellant’s alternative VRF (aka VRV) system was not a heat pump system, but a reverse cycle system. It did not use heated or chilled water, but a piped system of refrigerant gas. The occupant of the room had no option to choose between a heating or cooling function, but simply an option to specify a desired room temperature.

14. Not all VRF systems are the same. They come in 2 pipe and 3 pipe systems. Unlike the 2 pipe system which the appellant proposed in its alternative tender, a 3 pipe VRF system will give the occupant of a room mode control. One manufacturer, Mitsubishi, makes a 2 pipe VRF system which gives the occupant of each room mode control. Two pipe VRF systems (other than Mitsubishi systems) work according to zones ascribed to parts of the building which experience similar thermal conditions. For example, if an individual room is located in a zone which is particularly sunny, the air conditioner in that room is likely to operate primarily on cooling mode.

15. The description of the appellant’s alternative proposal in its tender, and ultimately in the contract, allowed the conclusion that it was obliged to provide a VRF system, but did not allow a conclusion as to whether or not the occupant of each individual hotel room would have mode control. An inherent feature of the 4 pipe chiller system prescribed by Thwaite was that the occupant of each individual room would have mode control.

CHARACTERISATION OF THE 11 AUGUST NOTICE

16. On its face, the 11 August notice was a defects notice given pursuant to cl 29.3 of the contract. That clause provided that if the superintendent became aware of work performed by the contractor which did not comply with the contract, the superintendent could order the contractor to demolish the work; remove it from site, and make good the work. The 11 August notice specified 11 respects in which it was said the air conditioning works installed to that point did not comply with the contract. It was scattergun in its approach. Some of the complaints lacked particularity;⁵ others did raise specific points said to be not in accordance with the performance requirements of the contract.⁶ Some complaints seemed to cavil with the fact that essential elements of a chilled water system, rather than a VRF system, had not been provided.⁷

17. The dispute litigated related only to complaints 10 and 11 which relied upon cll 9.4.2 and 9.4.5 of the Thwaite specification. These paragraphs of the 11 August notice said:

“10. 9.4.2 Chiller Sequencing … This specification allowed fan coil units in individual rooms to provide either cooling or heating independently across all individual hotel guest rooms. The Alternative VRV system offered by the contractor does not comply with the Contract.

11. 9.4.5 CHW/HHW FCUS FOH+BOH areas … This specification allowed different coils in rooms to have different cooling or heating demands – this has not been satisfied with the installed alternative.”

18. The respondent’s case in this litigation was that the partly installed air conditioning system was defective because it did not give the occupant of each individual room mode control. It was not in dispute that the 2 pipe VRF system which the appellant had installed prior to 11 August 2016 did not allow mode control in individual guest rooms. The appellant’s case was that the contract did not oblige it to make provision for mode control in individual guest rooms. This argument had two independent limbs. First, subclauses (u) and (ag)(i) did not give proper definition to the appellant’s obligation to build the air conditioning system, so that resort to extrinsic evidence was necessary and permissible to define its obligation. Secondly, subclauses (u) and (ag)(i) obliged it to install a VRF system which complied with the performance requirements of the Thwaite specification, and that there was no performance requirement that each individual room have mode control. We will deal with each of these limbs in turn.

Extrinsic evidence

19. The appellant submitted that there was uncertainty in the contract as to what was meant by the expression “the Contractor’s alternative proposal” in subclause (u). In those circumstances, it asked the Court to look at emails exchanged between the appellant and respondent between tender and contract in order to understand what it was the parties had agreed the appellant would design and construct by way of air conditioning system for the hotel. A summary of the emails which do no more than describe the system the appellant proposed to design and construct is as follows.(a)On 30 March 2015 the appellant wrote to the respondent’s project manager. One of the attachments to the email was a drawing called “Typical Floor VRF 2‑pipe.pdf”. The body of the email read:

“Please see attached the proposed AC layout and piping configuration … for your acceptance prior to documenting the design.

We note that A/C zones will be divided into two zones to cater for different heat loads on the building façade and units will be combined vertically over a number of floors off the same condenser …

…

Could you please provide your approval/acceptance so we can commence design documentation.”

The attached schematic drawing showed a 2 pipe VRF system and bore, in red, the proprietary brand name Toshiba next to the depiction of the condenser.

(b)The project manager replied to the appellant on the same day saying that Thwaite had raised a number of issues which needed clarification “on [or] prior to confirming acceptance”. One issue raised by Thwaite was, “Are the VRV systems proposed to be heat recovery type or reverse cycle type? If the former are they 3 pipe or 2 pipe type? If the latter is the placement of FCUs proposed to be consistent with the façade they are mounted on (similar thermal zone)”.

(c)The appellant replied on 31 March 2015:

“Our proposal utilises reverse cycle 2 pipe configuration. All FCU’s will be located as per original design and all condensers will be located on mechanical plant deck on roof”.

The reply discloses the use of Toshiba equipment.

The appellant ended this email, “Please let me know if further clarification or a meeting is required to discuss”.

(d)The appellant’s 31 March email was sent by the project manager to Thwaite. Thwaite responded with an email sent to both the appellant and the project manager saying, “I note your other comments and they are OK with the exception of [a matter not relevant to this appeal]”.

Thwaite went on to say:

“The meeting proposed is to dot the iiiiis over what is the actual scope of work of the mechanical services contract which you believe that you have signed up for and to look at where it differs from the specified/tender documents. The hotel operator also has particular requirements which will need to be addressed as line items and presented to them so that any non-compliances with their standard brief are itemised and explained.

…

Regardless I think it is encumber on you to provide a signed off ‘contract document’ that clearly explains where you differ from the tender documents so that it is recorded and leaves no doubt on the scope.”

(e)The appellant responded to that email saying:

“We have not been provided with a [hotel operator] Brief other than the Tender Drawings and specification, and as such this is all we have to work with in terms of criteria (despite the conforming being a Chilled Water System which is obviously different in many ways). The offer of a conforming and alternative were provided at Tender with the Client electing to adopt the alternative at a significantly reduced price.

…

… We will certainly be providing an Engineered Certified system, Form 15 with drawings. Prior to documenting we are seeking acceptance of the system in terms of meeting the performance requirements stipulated by the tender documents and its ability to satisfy the clients requirements. Once agreed we will formalise the design by way of Engineered drawings and a Form 15 design certificate.

...”

(f)The other relevant email is one from the appellant to the project manager dated 9 April 2015. It read:

“See attached below and attached our Mechanical Consultants comments regarding the proposed design as well as their comments in relation to the [hotel operator] standards.

Please note that largely the [hotel operator] Standard and Thwaite design is based on Chilled Water therefore large sections of the design are not applicable hence we have not marked up the specification but rather commented separately.

…

We therefore seek your urgent approval of the proposed so we can move forward on Design.”

The attached letter from the appellant’s mechanical consultants included the following:

“Air conditioning for the building is proposed to be of the Variable Refrigerant Flow (VRF) type, in lieu of chilled water systems, with condensing units located on Level 1 podium and roof (refer attached sketches).

The VRF systems will be of the 2-pipe heat-pump type, and zoned such that areas with different solar loads are served by separate plant.

…

In general, the remainder of the current building mechanical services design (documented by Thwaite Consulting Group) will not be altered in principle.”

20. The appellant relied upon a series of cases, beginning with Macdonald v Longbottom,⁸ for the proposition that facts known to both contracting parties could be referred to in order to give meaning to the expression “the Contractor’s alternative proposal” in subclause (u) of Annexure O. The primary judge rejected this contention but erred, with respect, in thinking that the Macdonald v Longbottom line of cases required ambiguity in the contract before resort was had to extrinsic evidence to identify the meaning of a descriptive term in the contract. That is not so, and it is not a conclusion required either by the judgment of Justice Mason in Codelfa Construction Pty Ltd v State Rail Authority (NSW)⁹ or any of the judgments in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd.¹⁰

21. Like the job description in Keays v JP Morgan Administrative Services Australia Ltd,¹¹ the expression in subclause (u), “the Contractor’s alternative proposal”, has virtually no meaning unless reference can be made to extrinsic circumstances. In that sense it is like the expressions “my motor car” or “my shop” referred to by Latham CJ in Hope v RCA Photophone of Australia Pty Ltd,¹² and the expression “your wool” in Macdonald v Longbottom. It fits comfortably within the exception to the parol evidence rule recognised by Lord Wilberforce in Prenn v Simmonds: “Moreover, at any rate since 1859 (Macdonald v Longbottom) it has been clear enough that evidence of mutually known facts may be admitted to identify the meaning of a descriptive term”.¹³ This passage was cited with approval in DTR Nominees Pty Ltd v Mona Homes Pty Ltd¹⁴ and both those cases were cited by Mason J in Codelfa Construction.¹⁵

22. The judgment of McPherson J in Akot Pty Ltd v Rathmines Investments Pty Ltd is on point. It concerned the sale of a residential unit yet to be constructed. The only information in the contract was the description “unit sold … 115 Level 15 Tower”. There were five units on Level 15 of the Tower. McPherson J allowed the seller’s real estate agent to give evidence that the purchaser had identified a particular unit on a plan shown to him at the time he inspected the site where the units were to be built. McPherson J referred to the rule that “extrinsic evidence to a written contract, in itself apparently entire and complete, is not ordinarily admissible to add to, subtract from, vary or contradict the terms of the written instrument”. He cited established English authority for this, and noted that it had been recently referred to by Mason J in . He then went on to describe the exception which had “long been established by which extrinsic evidence is admitted to identify the subject matter and, to a much lesser extent, the parties to a written instrument”. McPherson J cited a deal of authority for this proposition, including which he noted had been approved both by Lord Davey in and by Mason J in .

“It is well established that parol evidence is admissible to identify the subject matter of a written contract. A recent example, which in some ways resembles the present, is Akot … in that instance, and in the decisions discussed in it, the written contract was, as regards subject matter, expressed in an uncertain or ambiguous fashion.”

24. Subclause (u) only defined the air conditioning work to be completed in the terms of “the Contractor’s alternative proposal”. Subclause (ag)(i) added the information that the contractor’s alternative air conditioning system was a VRF type, which would have different pipe and duct configurations from the configurations shown in the Thwaite documents. In truth this is not a much more useful definition.

25. In these circumstances the authority discussed above supports resort to extrinsic evidence to discover what the contractor’s alternative proposal was. The term in the contract was not so much ambiguous as uncertain, to use McPherson JA’s term. To use the term in Prenn v Simmonds and DTR Nominees Pty Ltd, it was a “descriptive term” which lacked meaning unless resort was had to extrinsic evidence.

26. Entire agreement clauses in the contract do not prevent resort to extrinsic evidence in such a case, for the extrinsic evidence is not to add to or change the meaning of the contract, but to know what the contract means.

27. Nonetheless, the appellant’s case as to the use of the email correspondence as extrinsic evidence fails not at a legal hurdle, but at a factual one. The email correspondence does not show the parties had a common understanding of what air conditioning system the words in subclauses (u) and (ag)(i) referred to. To the contrary, the email correspondence was no more than continued negotiations between the parties as to the detail of the air conditioning system to be provided. The appellant does not simply tell the respondent that it will be providing a Toshiba 2 pipe heat pump system; it asks for approval of such a system, initially perhaps only in respect of the piping configuration, but by the last email the appellant was “seeking acceptance of the system in terms of meeting the performance requirements stipulated by the tender documents”.

28. In circumstances where that acceptance was not given before the contract, the parties chose to document the provision of the contractor’s alternative VRF system in general terms, and on the basis that it satisfied the performance requirements in the Thwaite documents, see the terms of subclause (u). It is this contractual obligation which must be examined in order to determine whether or not the 2 pipe VRF heat pump system installed by the appellant prior to 11 August 2016 was defective, as the respondent contended below.

Performance requirement – meaning

29. The primary judge consulted a dictionary to ascertain what the words performance, and separately, requirement, in subclause (u) meant. This led to the unsurprising, but unhelpful, finding that the words performance requirement referred to “… a requirement relating to performance. In this case, a requirement relating to performance of a mechanical services system, being the air conditioning system.” The primary judge then used a dictionary meaning of the word performance, namely, “identifies a capability of a machine which is measurable”. She concluded that the question for consideration was whether or not mode control was a measurable capability of the air conditioning system which was required by the contract.

30. The primary judge should not have used a dictionary.¹⁹ First, “performance requirement” is a composite expression.²⁰ Secondly, this is a case concerning a building contract. Within the subset of contract cases dealing with building contracts, there is a well known concept of a performance specification which has a recognised meaning in the case law.²¹ In Johnson Controls Australia Pty Ltd v Webb Australia Group (NSW) Pty Ltd²² McDougall J discussed this:

“… it is a statement of the standard of performance that the works are to meet or to achieve. In essence, such a specification would tell potential tenderers what it is that the works to be done and equipment to be supplied are required to do, whilst leaving it up to the tenderers as to the precise means by which they would achieve the specified result.

… The essential feature is that the new generator set must be capable of working in parallel with the existing generator sets (in this case, with their neutral terminals interconnected). That was what the tenderers were required to achieve. It was up to them to work out how to achieve it.” (underlining added).

31. A performance specification may be contrasted with a prescriptive specification in a building contract. A prescriptive specification will result from the owner having chosen the exact system or equipment it wishes to have built, the role of the specification is to name or describe it.

32. When one looks at the phrase “performance requirement” in the context of subclause (u); against the facts known to both parties ([2], [4], [5] and [6] above), and in the context of the parties having tried and failed to agree on a precise description or prescriptive specification of the alternative system prior to contract ([19](a)-(f) above), it is clear that the expression “performance requirement” was one very closely related to the notion of performance specification, and was designed to fill the same, or a very similar, contractual purpose as the term performance specification. The parties knew that they had contracted for the appellant’s alternative air conditioning system, not the Thwaite specified system. However, it was up to the appellant in this case to work out how its alternative system was to achieve any results specified by the Thwaite documents, to draw on the language of McDougall J in the quotation above.

Performance requirements in the Thwaite Documents

33. Having reached that point, there was an enquiry to be made as to whether or not the Thwaite documents contained a performance requirement as to mode control. It was conceded on the hearing of this appeal that the Thwaite drawings were irrelevant to this enquiry.²³ The enquiry is thus limited to the Thwaite specification, but it is a difficult enquiry because: (1) largely the Thwaite specification is a prescriptive, rather than a performance, specification, and (2) it is a prescriptive specification for a 4 pipe chilled and heated water system, not a VRF system.

34. The parties were agreed that cl 3.1 of the Thwaite specification contained performance requirements. Relevantly here it provided as follows:

“3. DESIGN CRITERIA

3.1 DESIGN CRITERIA

• Design criteria presented herein form the basis for the design of the works and for any alternative proposals submitted.

Item Design Criteria

External ambient conditions / (for air conditioning plant full / load performance) / Based on Brisbane (AIRAH) / Internal conditions (for / conditioning plant full load / performance) general / Controls tolerance for air / conditioning system / Outside Air / Exhaust Air / Occupancy / Hours of Operation Summer / 33.1°C dry bulb maximum / 24.8°C wet bulb maximum / Winter / 6.0°C dry bulb minimum / Summer / 23°C dry bulb maximum at / point of control / Winter / 21.5°C dry bulb at the point of control / +/-2.0°C dry bulb at point of / control (+/-1.0°C dead band) / In accordance with AS 1668.2 / 2013 requirements / In accordance with AS 1668.2 / 2013 requirements / Refer Table A / Continuous

…” (underlining added).

35. This part of cl 3.1 contains criteria which the installed air conditioning system must meet, but does not prescribe how the system is to achieve those criteria. It is that characteristic which means it contains performance requirements. In fact, the part of the Thwaite specification extracted above is a performance specification. The appellant submitted, and we accept, that the underlined words are relevant here as an indication that this part of the Thwaite specification contains performance requirements within the meaning of subclause (u). Whether the Thwaite‑prescribed air conditioning system, or an alternative air conditioning system, forms part of the work under contract, the air conditioning system which is designed, built and installed, must meet the criteria, or performance requirements, in cl 3.1.

36. Apart from two irrelevant occasions, the Thwaite specification does not otherwise mention the possibility of an alternative proposal. We agree with the point made by the appellant that that is an indication that the rest of the specification is largely prescriptive, rather than based on criteria to be achieved, or performance requirements. That prescriptive, rather than performance, nature of the Thwaite specification is evident from the substance of the document (apart from cl 3).

37. It was not controversial between the parties that the 2 pipe VRF system installed prior to 11 August 2016 met the criteria in cl 3.1 of the Thwaite specification. For example, on a summer day when the outside temperature was 33.1°C or less, the occupant of a hotel room could control the temperature down to 23°C, and on a winter day where the outside temperature was 6°C or more, the occupant of a room could bring the room temperature to 21.5°C. The occupant of the room could do these things using the thermostat control in the room. That is, the occupant could do so without the need for mode control in the room.

38. The appellant submitted that nowhere in the Thwaite specification is there a performance requirement that the occupant of the room have mode control. The two clauses of the Thwaite specification referenced in the 11 August notice as requiring mode control to individual rooms were not relied upon by the respondent in this litigation. Nor were they relied upon by the primary judge as supporting the idea that the Thwaite specification required mode control in each room.

39. The primary judge found that there were performance requirements of the Thwaite specification which required mode control to individual rooms:

“[158] While the drawings and the Specification were prepared on the basis that the mechanical services system to be installed was a ‘four pipe chiller (heat recovery type)’, there are several aspects of the drawings and the Specification which support a construction that the Independent Heating/Cooling Function was a requirement applicable to an alternative proposal based on a VRF air conditioning system. These include:

(a)Clause 2.2.1 of the Specification provides for an ‘air‑cooled four pipe chiller (heat recovery type)’ system which has a specific function that it can perform independent heating/cooling. The requirement of an Independent Heating/Cooling Function is an inherent capability of that air conditioning system.

(b)Clause 2.2.3 of the Specification stipulates that each guest room is to have its own indoor FCU with Chilled Water Coils (CHW) and Heated Hot Water Coils (HHW), together with wall mounted electronic controls. Inherently, this would enable each guest to adjust the heating and cooling in their room.

(c)Clause 9.8.2 of the Specification provides details about the wall mounted controls to be installed in each room, including functions for temperature control specifically ‘[c]hilled water and heating hot water control valve modulation to satisfying [sic] cooling and heating load’. The wall mounted controller was to be capable of modulating the heating and cooling in the individual guest room by controlling the CHW and HHW coils in the FCU. Whilst under a VRF system CHW and HHW coils would not be relevant, this requirement to be able to modulate heating and cooling in an individual room tends to support a requirement that whatever system was actually installed, it was to be able to achieve this outcome.

[159] The particular wording in clause 2.2.3 of the Specification provides ‘[e]ach guest room shall be individually air conditioned … which supply conditioned air to the room …’. This reference to each room being individually air conditioned and to conditioned air being supplied, tends to support the construction as contended for by the defendant.

[160] The plaintiff argues that in effect, guests in individual rooms are able to obtain temperature control with the two-pipe heat pump system that was partially installed, by in effect, moderating the zone temperature by switching off the conditioned air and introducing ventilation. The use of the ventilation was a means by which the guests could achieve temperature control within the practical temperature range allowed. However, this is not achieved by way of supply of ‘conditioned air to the room’, but rather it is the use of ‘unconditioned air’ to the room in order to achieve the temperature moderation.

[161] A reasonable businessperson in the position of the parties at the time the Contract was entered into would understand that the reference to ‘conditioned air’, either as heated or cooled, was what was to be provided, not merely using ventilation to moderate or control temperature in an individual guest room.

[162] Further, the Specification uses specific language to describe when ventilation was to be provided as opposed to ‘conditioned air’. For example, the requirements for mechanical ventilation in clauses 2.2.13 to 2.2.19.”

40. The primary judge erred in concluding that there were performance requirements in the Thwaite specification requiring mode control in each individual room. We examine the three parts of the Thwaite specification relied upon by the primary judge.²⁴

41. (1) Section 2.2.1 of the Thwaite specification is located in section 2, headed “Description and Scope of Work”. Section 2.2 is headed “Mechanical Systems Description” and section 2.2.1 is headed “Central Air‑Cooled Heat Recovery Chiller”. These are indications which tend against section 2 containing performance requirements, and which tend to show it was descriptive, ie., a prescriptive specification for a heat recovery chiller, rather than VRF, system.

42. The first dot point in section 2.2.1 is that part of the Thwaite specification referenced by the primary judge at [158](a) below: “The entire hotel … shall be provided with chilled water and heat[ed] hot water from a common air-cooled 4 pipe chiller (heat recovery type) located on the roof”. This is not a performance requirement. It is a prescriptive specification for the Thwaite system (chiller not VRF) of air conditioning to the hotel. Conforming tenders had to be on the basis that they were a chilled water and heated hot water 4 pipe system. The appellant provided a conforming tender, but it was its alternative proposal which was accepted. The alternative proposal was not a chilled water and heated hot water system, and it was not a 4 pipe system; it was a VRF system.

43. The parties accepted the primary judge was correct to say at paragraph [158](a) of the judgment below, that mode control, or as she calls it, “Independent Heating/Cooling Function”, is an inherent capability of the air conditioning system described at cl 2.2.1 of the Thwaite specification. It is not an inherent capability of a system simply described as a VRF system. Some VRF systems will have that capability; some will not. Clause 2.2.1 of the Thwaite specification did not contain a performance requirement that any alternative proposal was to have mode control.

44. (2) Section 2.2.3 of the Thwaite specification is still under the general heading “Mechanical Systems Description”. It is under a sub‑heading “Guest Room Air Conditioning FCU’s”. FCU stands for fan coil unit. Section 2.2.3 says at dot point one, “Each guest room shall be individually air conditioned by ceiling mounted FCU’s which supply conditioned air to the room served via acoustically insulated sheet metal duct work …”. At the third dot point, it says that the FCUs shall each have a chilled water and heated water coil. In the final dot point it says that “[impliedly, the installed air conditioning system will] provide electronic controls with a wall mounted temperature sensor/switching/adjustment to control the FCU and interface with the guest room energy management system provided as part of the electrical trades work”.

“9.8.2 CHW/HHW FAN COIL UNITS GUEST ROOMS

The following mandatory items and control functions shall be provided for each FCU system:

(b) Start Stop Control and Indication

- Wall mounted combined FCU controller with ON-OFF switch

- Interface with guest room energy management system provided by the electrical trade

(c) Temperature Control

- Space temperature sensor integral to ON-OFF switch

- Chilled water and heating hot water control valve modulation to satisfy cooling and heating load

- Each fan coil unit (and associated fans as applicable) shall be started individually according to a pre-set schedule of daily operation

- Control dead band to be +/-1.0°C from set point” (underlining added).

49. The initials CHW/HHW in the heading to this clause referred to chilled water and heated water. A VRF system will not have chilled water and will not have heated water. This clause could not contain a performance requirement for a VRF system; it is a description of a fan coil unit in a 4 pipe chiller system.

50. It is not sufficiently clear that the second dash point under sub‑paragraph (c) does prescribe mode control for each individual room, rather than a control in each individual room to modulate or regulate the temperature in every room. The words themselves are not clear, particularly when there is no other requirement in this sub‑paragraph for each guest room to have a control function to specify what temperature the guest desires, and the sub‑paragraph is headed “Temperature Control”.

51. Even if it is assumed that the second dash point does refer to mode control, it specifies a “chilled water and heating hot water control valve modulation”. This is something which a VRF system will never have; for it will not have a chilled water coil and a hot water coil. We cannot see an implication from this dash point that the alternative VRF system which the appellant promised to provide was required to have individual mode control in every room, rather than have a mechanism to satisfy the “cooling and heating load” required; cl 3.1 speaks in terms of “load performance”.

Conclusions as to characterisation of 11 August 2016 notice

52. In our view, contrary to the findings of the primary judge, the air conditioning system which had been partly installed by the appellant prior to the receipt of the 11 August notice was in accordance with the contract. It follows that the work was not defective, and the respondent was not entitled to the damages for defective work awarded by the trial judge.

VARIATION

53. It also follows that the 11 August notice required the appellant to design and construct an air conditioning system other than that which the contract required. Clause 36.1 of the contract provided for variations:

“36 Variations

36.1 Directing variations

The Contractor shall not vary WUC except as directed in writing.

The Superintendent, before the date of practical completion, may direct the Contractor to vary WUC by any one or more of the following which is nevertheless of a character and extent contemplated by, and capable of being carried out under, the provisions of the Contract (including being within the warranties in subclause 2.2):

(a)increase, decrease or omit any part including the omission of any part of WUC with a view to retaining a third party to perform that part of WUC either prior to or after the date of practical completion (with no liability to compensate the Contractor for any loss of profit);

(b)change the character or quality;

(c)change the levels, lines, positions or dimensions;

(d)carry out additional work;

(e)demolish or remove material or work no longer required by the Principal.

The Principal shall only be liable to the Contractor for the price of a variation calculated in accordance with subclause 36.4 or for an EOT for a variation where either:

(f)the direction to perform the variation given by the Superintendent is in writing, expressly states that the direction constitutes a direction for a variation and identifies the work the subject of the direction; or

(g)before performing the variation and in any event within 5 business days of receiving the direction to perform the variation, the Contractor has given the Superintendent a notice in writing which identifies:

(i)the date the direction was given;

(ii)whether the direction was given orally or in writing;

(iii)the substance of the direction and, if it was in writing, a copy of the direction must be attached;

(iv)the approximate cost of the variation including a detailed breakdown calculated in accordance with subclause 36.4;

(v)whether a claim for an EOT will be made as a consequence of the variation and if so, an estimate of the period; and

(vi)where the variation relates to the design documents or the Principal’s project requirements, by identifying the relevant requirement and the change to that requirement.

(h)Except where the Contractor is entitled to make a claim under this subclause 36.1, the Contractor shall have no entitlement as a consequence of complying with a direction for a variation.

(i)Where the Contractor wishes to make a claim for an EOT as a consequence of a variation, in addition to the notices it is required to give under this subclause 36.1, the Contractor shall give all notices required under clause 34.”

54. It was not in dispute on this appeal that if the 11 August notice was not correctly given as a defects notice pursuant to cl 29.3, the work of removing the air conditioning system installed prior to 11 August 2016, and complying with the direction to install a different air conditioning system, should be regarded as a variation to the contract works on the basis that the appellant did comply with cl 36.1(g). The price of the variation was not in issue on this appeal.

EXTENSION OF TIME

55. Clause 34.3 of the contract dealt with the contractor’s entitlement to extensions of time:

“34.3 Claim

The Contractor shall be entitled to such EOT for carrying out WUC (including reaching practical completion) as the Superintendent assesses, if:

(a)the Contractor is or will be delayed in reaching practical completion by a qualifying cause of delay;

(b)the Contractor gives the Superintendent, within 14 days of when the Contractor should reasonably have become aware of that qualifying cause of delay occurring, a written claim for an EOT evidencing the facts of causation and of the delay to WUC (including extent);

(c)the qualifying cause of delay was beyond the reasonable control of the Contractor and affects the critical path of the activities required to complete WUC as shown on the approved construction program;

(d)the Contractor or others for whom it is responsible did not contribute to the cause;

(e)the Superintendent is satisfied that WUC was actually delayed;

(f)the Contractor has taken all reasonable steps to mitigate the effect of the delay; and

…” (underlining added).

Time for written claim, cl 34.3(b)

56. The 11 August notice was sent by email at 7.20 pm. The relevant site personnel from the appellant were still at the site office because they were waiting for some type of direction in writing to come from the superintendent that evening. In fact one of them, Mr Cook, had been encouraging the superintendent to give a direction of some kind to break the impasse which had prevailed since June when the superintendent asserted that the air conditioning installed was non-compliant, and the appellant had not accepted that characterisation.

57. Six days previously, on 5 August 2016, Mr Cook had sent an email to the superintendent asking for “a clear direction to proceed”. That email had discussed the time and cost implications of the works the subject of such a direction, and expressly mentioned that an EOT would be required if a direction was given. Mr Cook agreed that at the time he wrote the 5 August 2016 email he was contemplating that if the appellant was instructed to install a new air conditioning system, there would be a requirement for an EOT (t 2-6). He agreed that when the 11 August notice arrived he held the view that the direction contained in it would be a qualifying cause of delay within the meaning of cl 34.3, and that there was likely to be the need for an EOT (t 2-7).

58. Mr Cook’s evidence was that once the 11 August notice had arrived, he immediately telephoned more senior personnel of the appellant, including its Commercial Manager and General Manager. He thought that he probably emailed the 11 August notice to those people that night.

59. Mr Cook was asked whether or not he started drafting the EOT claim on the evening of 11 August 2016. He could not recall. He was then asked:

“Whether or not you started drafting that, I take it there was discussion on the evening of the 11th of August that you had to send the various notices which you ultimately send on the 12th?--- Not necessarily. I think the first step was just understanding exactly what they were requesting from this notice, rather than, you know, quickly trying to reply.

No, I don’t think – sorry. Please finish?--- No, I just – I think the first steps were just to understand exactly what the notice provided and the information as part of the notice.” (t 2-7).

60. Oddly, the building contract did not contain a typical clause providing for when notices would be deemed to have been sent and accepted, and neither side before us contended that there was any contractual implication to be made in that regard.²⁵ It was argued on both sides simply that the notice was given on 11 August 2016, and that on the fifteenth day following, 26 August 2016, a written claim for an EOT was given by the appellant to the superintendent.

61. The respondent claimed, and the primary judge found, that the claim for an EOT was delivered too late to be effective and that, as a consequence, the contractor was not entitled to any EOT for carrying out the works under the contract. In our view, that finding was in error.

62. The primary judge referred to authority, which is not in doubt, to the effect that time periods stipulated in clauses such as cl 34.3(b) of this contract mean what they say, and will be enforced accordingly by the courts.

63. Clause 34.3(b) does not provide that the contractor is to give the superintendent a claim for an EOT within 14 days of a qualifying cause of delay occurring. It requires that the claim for an EOT is given “…within 14 days of when the Contractor should reasonably have become aware of that qualifying cause of delay occurring …”.

64. At 7.10 am on 12 August 2016, Mr Cook sent an email to the appellant’s National Commercial Director which attached the 11 August 2016 direction and asked how the director wished to proceed. At 11.00 am on 12 August 2016 a meeting invitation was sent, and later that day the Managing Director of the appellant, together with General Counsel employed by the appellant, and Mr Cook, amongst others, met to discuss the 11 August notice. On 12 August 2016 the appellant issued at least five notices under the contract. These included a notice to the effect that the appellant considered the 11 August notice was a direction to perform a variation – cl 36.1(g) of the contract, and that it was an event which would cause delay to the work under the contract – cl 34.2 of the contract.

65. The primary judge thought that the evidence of the appellant’s preparedness, and indeed anticipation, of a notice of some kind being received on 11 August, together with its ability to give some contractual notices in response on 12 August 2016, meant that, “not only did the [appellant] actually become aware of the qualifying cause of delay on 11 August 2016, it also ‘should reasonably’ have become aware that same day”. In our opinion, this conclusion is erroneous. Even against the background of Mr Cook requesting and anticipating that a direction would be given in relation to the air conditioning on 11 August 2016, we reject the idea that 11 August 2016 was the date when the appellant should reasonably have become aware of that qualifying cause of delay occurring.

Contractor’s contribution to qualifying cause of delay

68. Below, the respondent argued that, even if the appellant had delivered its claim for an EOT within the period limited by cl 34.3(b), the appellant was still not entitled to an extension of time, because of the provision at cl 34.3(d). It argued that the appellant contractor had contributed to the qualifying cause of delay in that it had failed to provide shop drawings of the air conditioning system when required to do so by the contract, 3 November 2015. It argued that, had the shop drawings been provided, they would have revealed the lack of mode control in individual rooms, and an equivalent to the 11 August notice would have been issued six months earlier.

69. The appellant says that there was no evidence that the shop drawings would have revealed that the air conditioning system the appellant intended to install did not allow for mode control in individual rooms. We think the primary judge was correct in finding that, probably, shop drawings would have revealed this. Under the contract shop drawings were to, “show sufficient information to enable the Superintendent and other appropriate consultants to check that the equipment can be installed, operated, adjusted and maintained in the manner for which the system, into which they are to be incorporated, was designed” – cl 8.8(f).

70. The type of air conditioning system being installed by the appellant emerged as an issue in June 2016 when one of Mr Thwaite’s employees, Mr Van Grootel, received a schematic diagram of air conditioning piping. On 10 June 2016 he wrote to the respondent’s project manager saying that “The piping systems indicate that individual rooms cannot run heating and cooling when required” and that this was a “major concern” because it meant that the air conditioning system was “outside our specifications and [hotel operator] guidelines”.²⁷

71. On 14 June 2016 the respondent sent Mr Van Grootel’s email to the appellant and said, inter alia:

“…

● Room heating and cooling – Each room must have the ability to call for heating or cooling independently of other Guestrooms. Again this is non negotiable and is in accordance with the original design intent.

It should be noted that I believe the preparation and issuing of workshop drawings for review prior to ordering or commencing fabrication in accordance with Item 2.1.1.5 of the mechanical specification would have assisted in identifying and resolving these issues earlier.”

72. The respondent’s project manager gave evidence that:

“I am firmly of the belief that the issues identified in Thwaite Consulting Groups mechanical contractor’s submissions tracking document would have been identified a lot sooner and before any mechanical work had commenced on site.”

73. The appellant did not dispute that it was in breach of its obligation to provide shop drawings on or about 3 November 2015. However it argued that by 3 November 2015 (at least) the respondent’s air conditioning consultants, Thwaite, knew that the air conditioning system being installed by the appellant did not provide mode control, so that the appellant’s failure to provide shop drawings on time was irrelevant or immaterial. The difficulty with that argument is that Mr Thwaite was not called by either party, so there is no evidence of what he knew. There is, however, evidence of the information with which he was provided, see paragraph [19] above. On 30 March 2015 information was sent by the appellant to the respondent, and by the respondent to Thwaites – see [19](a) and [19](b) above. The words of the email from the appellant raised the high likelihood that the system which the appellant intended to install would not have mode control.²⁸ Conclusively though, the schematic diagram attached to that email was to all intents and purposes identical to the one sent to Thwaites in June 2016, from which Mr Van Grootel discerned the information that there was no mode control in individual rooms. In our view then, whether or not Mr Thwaite knew before the contract that the appellant intended to install an air conditioning system which would not allow mode control to individual rooms, he ought to have known that.

74. The primary judge found that had the shop drawings been provided by 3 November 2015, an equivalent notice to the 11 August notice “could” ²⁹ have been issued “in late 2015 or early 2016 and the consequential delay could have been substantially mitigated” – [1119]. She said, “Accordingly, … I find that the plaintiff contributed to the cause of delay by the failure to provide design documents and shop drawings as required by clause 8.5 and clause 8.8 of the Contract” – [1120].

75. Shorn of irrelevant parts, cl 34.3(d) says that a contractor is entitled to an EOT if it will be delayed in reaching practical completion by a qualifying cause of delay and if it “did not contribute to the cause”. The words “the cause” in subclause (d) are untidy because elsewhere in cl 34.3, where the “qualifying cause of delay” is referred to, it is named in full and put in italics. Sensibly, the only other concept which subclause (d) could be referring to is the delay in reaching practical completion. Subclause (f) does refer to “the delay”, and we interpret those words in (f) as meaning the delay in reaching practical completion.

76. The parties agreed, and we are independently of the view, that the words “the cause” in cl 34.3(d) must be interpreted as a short form of “the qualifying cause of delay”.³⁰ This is the most natural meaning of the words where the contract otherwise is concerned to distinguish between the concepts of delay and its causes – cll 34.2 and 34.4. Thus, properly interpreted, cl 34.3(d) does not call for a factual enquiry into whether or not the contractor contributed to the delay in practical completion, but whether it contributed to the qualifying cause of delay. Here the qualifying cause of delay was the direction for a variation given on 11 August 2016 – see the definition of qualifying cause of delay, subclause (i).

Failure to mitigate

79. This appeal ground is based on cl 34.3(f) which provides that the contractor is entitled to such EOT as the superintendent assesses if “the contractor has taken all reasonable steps to mitigate the effect of the delay”.

80. The air conditioning system which the appellant had partly installed before the 11 August notice was manufactured by Toshiba. Having received the 11 August notice, the appellant proposed to convert its system to a 3 pipe system. The most obvious way to do that was to ask Toshiba to supply the necessary equipment to make the conversion (condensers, flow selector boxes and branch boxes). However, there was a difficulty with the appellant doing this because the 11 August notice complained that the respondent required equipment manufactured either by Mitsubishi or Daikin to be used and that “the manufacturer of the alternate VRV system [Toshiba] is not an approved equipment manufacturer”.

81. On 16 August 2016 the appellant received an email from its air conditioning engineer with designs to convert the air conditioning system to a Toshiba 3 pipe system. The appellant sent that to the respondent the same day saying that the new proposal would “have the ability to simultaneously heat and cool each room when required”. The letter also said:

“Please also note the following:

● This design takes into consideration minimal impact and cost implications to change over from 2 pipe system.

● Currently the condensing units selected are available in Australia and New Zealand, which have a lead time of 9 days.

● The condensers selected within the proposed design are currently set up for approx. 60% load as these condensers have a lead time that suits the project. If alternative condensers are required the lead time on these items would be between 8‑10 weeks.

● There are 24 flow selector boxes available immediately, with the remainder 4 weeks away with a supply from the Toshiba workshop in Japan.

● The Branch boxes will be installed utilising the access panels within each room thus reducing the impact on the finishes.

Could you please provide a response on the above proposal or alternatively we are happy to arrange a meeting or teleconference to further discuss.”

82. The respondent replied that the conversion proposal would be the subject of discussion at a without prejudice meeting on 18 August 2016. Nothing was resolved at the meeting. On 22 August 2016 the respondent raised issues with the proposed conversion process. These issues were answered by the appellant’s air conditioning engineer on 24 August 2016. On 25 August 2016 there was another meeting. The appellant asked for a clear direction as to the principal’s requirements, and in response received an email from the superintendent saying:

“The [11 August notice] was issued in accordance with the Contract and is current.

There is no qualifying cause of delay to warrant an EOT. The EOT is assessed as 0 days.”

83. We accept the appellant’s submission that this response continued to assert that Toshiba equipment was unacceptable.

84. On 16 September 2016 the appellant sent advice in relation to the costing and timing of alterations to be carried out to the air conditioning system. A response was sent on 17 September 2016 which said:

“Thank you for providing this information.

We are assessing this final information for compliance with the Contract, with discussions to progress on a Without Prejudice basis between the representatives of the Contractor and Principal.

We advise that the notice issued under sub clause 29.3 for Defective Works remains valid and current.

We look forward to resolution of the situation and progression of the works.” (underlining added)

85. We accept the appellant’s submission that this response continued to assert that Toshiba equipment was not acceptable.

86. On 19 September 2016 the appellant wrote to the superintendent saying:

“…

All parties are aware there is a difference of opinion as to what the requirements of the Contract are in respect to mechanical services. Given that difference of opinion, advice as to what the Principal’s requirements are is critical to ensure that when completed, the mechanical services operate as the Principal expects. This has been the subject of meetings, correspondence and discussions. …

Built is, as at today, still awaiting confirmation as to the Principal’s requirements in respect of the mechanical services.

Given the difference of opinion as outlined above, assessment of what Built has provided ‘for compliance with the Contract’ as you have indicated, is not likely to assist resolving this matter and will likely further cause delay.

We await your clear direction as to the Principal’s requirements.”

87. It seemed that some solution to the impasse may have been reached on 20 September 2016 when the managing director of the respondent wrote to his counterpart in the appellant saying, “We confirm that the proposed 3 pipe system should achieve our objectives and our position is that it meets the objectives of the Contract”. That same email posed questions about the system the appellant then proposed, which were addressed by the appellant’s air conditioning engineers and sent back to the superintendent on 23 September 2016. Unfortunately, that response met with the following email from the superintendent:

“Thanks for your below response.

We are assessing your responses for compliance with the Contract.

We confirm that no direction has been given to proceed with any pre‑conditioning option or any other element of the mechanical system that is outside of that required under the Contract.”

88. On 30 September 2016 the appellant wrote to the superintendent asking him to, “Please confirm whether the Superintendent considers that all Toshiba equipment is to be removed and replaced”. The letter ended saying:

“Upon receipt of the above clarification, Built will proceed with implementation of the material elements of the Principal’s requirements outlined within the ‘Defective Works’ notice, specifically that ‘fan coil units in individual rooms [are to] to provide either cooling or heating independently across all individual hotel guest rooms’. Built acknowledges that it is the opinion of the Superintendent that this requirement forms part of the Contract scope.”

89. This letter was sent as an attachment to an email. The email was sent in the same thread as the email of 16 September above. The superintendent’s response to the appellant’s letter of 30 September was, “Please issue under the correct thread”. That was sent on 4 October 2016 and attached a letter which said:

“In relation to the notice received on 30 September 2016 pursuant to CA57 – Mechanical 3 Pipe Alterations and the 30 September 2016 Letter requesting Clarification contained therein, the Superintendent advises the Contractor the communication has been issued under an incorrect Acconex thread.

The correct thread for the subject notice from the Contractor relates to the Defective Works Notice pursuant to Sub Clause 29.3 of the Contract and issued under Acconex thread ID Tactical-GCOR-000371 by the Superintendent on 11 August 2016. The Contractor is requested to reissue the clarification notice under the correct thread to which it relates.

The Superintendent also explicitly confirms the following:

The notice pursuant to subclause 29.3 of the Contract dated 11 August 2016 issued by the Superintendent to the Contractor (Subclause 29.3 Notice):

(a)was not issued in error; and

(b)does not involve a variation;

Any communication from the Superintendent to the Contractor pursuant to CA57 – Mechanical 3 Pipe or any other communication related to mechanical installations installed or otherwise:

(c)does not constitute a variation under subclause 36.1 or 36.2 of the Contract.”

90. On 11 October 2016 the appellant sent a letter to the superintendent, this time in a thread of emails which had a re line “Superintendent Direction 9 – Mechanical System Specification – Defective Work Notice Pursuant to Subclause 29.3 of the Contract”. The email said:

“Just to confirm that we have not in our request for clarification, requested ‘approval’ for Toshiba. We simply requested clarification of your 11 August 2016 direction – the clarification request was simply: ‘Can you please confirm whether the Superintendent has any objection to Toshiba as an equipment manufacturer if the equipment complies with the performance requirements set out in the direction dated 11 August 2016 and the Contract.’ This question is capable of response now and continued delay [in] answering this is further delaying the project. …”

91. The response was sent on 12 October 2016, “The Superintendent looks forward to receiving the Contractor’s submission for approval of an alternate manufacturer in accordance with the Contract”.

92. On 14 October 2016 the appellant responded as follows:

“It is clear that you will not respond to our specific request for clarification of your direction dated 11 August 2016 issued under cover of Tactical-GCOR-000371 (‘Direction’) and instead require Built to submit certain information in order to facilitate ‘approval’ of the equipment manufacturer.

In the absence of the requested clarification, Built will implement the Direction, on the assumption there is no objection to Toshiba as equipment manufacturer. As advised in previous correspondence and notices, Built considers that the Direction involves a Variation and will cause delay.

In relation to the equipment manufacturer, Built does not consider that ‘approval’ is required for Toshiba as equipment manufacturer but will nevertheless endeavour to provide the information requested. If following the provision of information the Superintendent subsequently directs that Toshiba is not an approved manufacturer, Built will consider that a further variation will have been directed.”

93. In accordance with what is stated in its 14 October 2016 email, the appellant went ahead and ordered the condensers and flow boxes necessary to convert the air conditioning system to a 3 pipe system. It ordered the equipment from Toshiba, essentially taking the risk on its interpretation of the contract, despite the respondent’s insistence, current as at that date, that Toshiba was not an approved manufacturer of air conditioning equipment under the contract.

94. The primary judge’s findings as to these matters were as follows:

“[1081] From [the time of delivery of the 11 August notice] onwards, the plaintiff acting reasonably would have been aware that the delay would increase if steps were not taken to order the necessary equipment.

[1082] The [appellant’s] design for the three-pipe mechanical system was finalised on 23 August 2016, which included the number and type of condensers and branch boxes.

[1083] Accordingly, a contractor acting reasonably would have taken steps to mitigate the delay at least by 23 August 2016 when the design was finalised.

[1084] Whilst the plaintiff says the use of Toshiba was still uncertain, that did not mean that the plaintiff was entitled to take no steps. Reasonable steps would include considering arrangements to reserve condensers so they were available. This is particularly so given the awareness that the condensers were time sensitive.

[1085] It is clearly open that the plaintiff should have taken reasonable steps to mitigate the effect of delay from 11 August 2016 when the [11 August notice] was received. It was clear that the procurement time for the necessary equipment was a key factor in the delay. Pursuant to clause 34.3(f), this would result in the plaintiff not being entitled to an extension of time for the whole period claimed.

[1086] However, I accept that until the design was finalised, arguably it was not reasonable to be required to place orders for equipment as the number of branch boxes and condensers was not known.

[1087] If it is necessary to consider the operation of clause 34.3(f) of the Contract, I find that the plaintiff should have placed the order for the condensers no later than 23 August 2016. Placing the order for the condensers after that was a failure to take all reasonable steps to mitigate the effect of the delay.”

95. The decision of the primary judge based on this finding must be set aside. It fails to deal with the evidence outlined above.

96. At [1084] the primary judge reasoned that the appellant ought to have taken steps to “reserve condensers so they were available”. In fact, the evidence before the primary judge was that the appellant did attempt to reserve the condensers, but failed in that attempt through no fault of its own.³¹ The primary judge did not deal with that evidence either. In any event, the conclusion at [1087] of the reasons below is not based on a failure to reserve condensers, but a failure to order them by 23 August 2016.

97. Having regard to the evidence we have set out above, the appellant did not act unreasonably and did not fail to take any reasonable steps to mitigate the delay caused by the need to order (and await arrival of) new equipment for the Toshiba 3 pipe system.

98. In written submissions before this Court, the respondent said that the appellant ought to have sought approval for the use of Toshiba equipment as and from 23 August 2016. There is no reason to think that an earlier enquiry as to this would have produced any earlier clarification or better co-operation from the superintendent.

Conclusions as to extension of time

99. As explained above, our view is that the appellant was entitled to an EOT consequent on the issue of the 11 August notice.

QUALIFICATION OF DELAY CAUSED BY 11 AUGUST NOTICE

100. Because we have concluded that the appellant was entitled to an EOT, it is necessary to assess the delay to practical completion caused by the 11 August notice. Each of the appellant and the respondent called a programming expert. The appellant’s expert, Mr Bell, made a prospective analysis of the delay caused by the 11 August notice. It was said both at the trial, and on appeal, that Mr King, the respondent’s expert, took a retrospective approach to the task. In fact, as discussed below, that might not be entirely accurate, however, the dichotomy is central to the first point we must determine as to this issue.

The judgment below

101. Although the primary judge did not find that the appellant was entitled to an EOT, she should have gone on to assess the EOT which ought to have been granted, if her conclusion was wrong.³² The primary judge heard the expert programmers cross‑examined; had the opportunity to ask them questions to clarify her understanding of the evidence, and heard full submissions as to the issue. To an extent the primary judge essayed this task. At [1133]‑[1167] the primary judge describes some aspects of the competing expert views, and some aspects of the competing submissions about the expert views. She then said:

“[1168] If it is necessary to consider the plaintiff’s claim for an extension of time and it is necessary to consider the expert reports in respect of the analysis of the delay. I make the following findings:

(a) Consistent with my earlier findings under the Contract it is open to consider a prospective or a retrospective delay analysis.

(b) Mr King’s incremental delay analysis is to be preferred as it more closely accords with the requirements of the Contract in clauses 1, 32.2 and 34.3(c).

(c) Mr King’s analysis needs to be further considered in light of the other findings in these reasons, including in respect of the Christmas shutdown period.”

102. The appellant challenges the finding that the contract permits either a prospective or a retrospective methodology to determine the extent of an EOT; challenges the preference expressed for Mr King, and challenges the failure to find that Mr Bell’s calculation of EOT was correct. As well, ground of appeal 2(f) is that the judge gave no reasons in relation to her findings. That must be accepted; but there is a more fundamental point, the judge did not make a finding as to the EOT due to the appellant.

103. Reasons for judgment must describe the conflict between the parties in sufficient detail that someone reading the judgment understands the factual basis for the judge’s decision. However, reasons for judgment need not, and indeed should not, contain any more descriptive detail than that.³³ They should not aim to provide a comprehensive description of the dispute. There will be much evidence and many submissions which at the end of a trial will fall away as not being relevant to the findings of fact and determinations of law which are necessary to resolve the dispute according to law.

104. Separately, reasons for judgment must expose the reasoning process which has led to the judge’s determination. This will include explaining why the judge has made findings of fact; explaining preferences for one part of the evidence over other parts, and an analysis and resolution of the conflicts thrown up by the factual and legal aspects of the case.³⁴

105. The judgment below expresses a conclusion as to the interpretation of the contract, and a preference for one aspect of Mr King’s evidence, but there is no analysis or reasoning exposed to support the preference. There is no factual finding as to the EOT to which the judge considered the appellant was (hypothetically) entitled. This means that this Court must undertake the task.

Approaches to assessment of delay under the contract

106. The primary judge found that the building contract permitted either a retrospective or prospective approach to assess delay under the contract. We think this conclusion was correct based on the language of cl 34.3. That clause provides that the contractor “shall be entitled to such EOT … as the Superintendent assesses, if: (a) the Contractor is or will be delayed in reaching practical completion … [and] (e) the Superintendent is satisfied that WUC was actually delayed” (underlining added). It seems to us that this language is sufficiently similar to the language in Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd (WICET),³⁵ “has been or will be actually delayed”, that the reasoning in that case applies here. In WICET Flanagan J said:

“[657] The issue is whether the Contract permits both a prospective and retrospective delay analysis. WICET submits that Mr King’s retrospective delay analysis in respect of Delay Event 9 using an ‘as planned’ v ‘as built’ analysis is not permitted by clause 35.5 of the Contract.

[658] In my opinion the better view is that the Contract permits both a prospective and retrospective delay analysis.

[659] Paragraph 3 of clause 35.5 provides that:

‘If the Contractor is or will be delayed in reaching Practical Completion … and within 28 days after the delay occurs the Contractor gives the Principal’s Representative a written claim … the Contractor shall be entitled to an extension of time for Practical Completion.’

Clause 35.5 further provides:

‘The Contractor will only be entitled to an extension of time for Practical Completion pursuant to this Clause if –

(B)the Contractor –

(5) demonstrates to the satisfaction of the Principal that the Contractor has been or will be actually delayed in achieving Practical Completion.’

[660] The use of the disjunctive ‘or’ gives the Contractor a choice to demonstrate that either it has been actually delayed or it will be actually delayed in achieving Practical Completion. The past tense ‘has been’ as CMC submits, contemplates looking backwards, after the delay event has expired, to demonstrate that (with knowledge of hindsight) the Contractor has actually been delayed in achieving Practical Completion. CMC further submits that the retrospective approach is particularly appropriate if the activity delayed occurs towards the end of the project, such that the time at which the claim for the extension comes to be assessed is after Practical Completion has been achieved.

[661] WICET makes the following submission:

‘Whilst the word “has” (much like the word “is”) might, viewed in isolation, suggest a retrospective analysis, the word is immediately followed the critical words by “or will be”. The phrase “has or will be actually delayed” should have the same meaning as “is or will be delayed”. Further the insertion of the word “actually” does not require a retrospective analysis. If that were intended, the word “actually” would not have been proceeded by “will be”. On a proper construction, the word “actually” simply emphasises that CMC is only entitled to a EOT if Practical Completion is affected.’

[662] I do not accept this construction. The use of the words ‘has been … actually delayed’ addresses past delay permitting or indeed inviting retrospective analysis. A Contractor would be entitled to an extension of time for Practical Completion if it demonstrates either a past or future delay. Further as CMC correctly submits, WICET’s construction does not give the word ‘actually’ any work to do.

[663] My interpretation of clause 35.5 as permitting both a prospective and retrospective delay analysis rest on the ordinary meaning of the term ‘has been or will be actually delayed’. …”

107. In arguing that the contract did not permit a retrospective analysis as the basis for assessment of delay, the appellant said that for delays longer than about 12 days, the contractor could only submit a claim on a prospective basis because it was obliged by cl 34.3(b) of the contract to make its claim to the superintendent within 14 days. For that matter, the superintendent was obliged to assess the claim within 28 days.

108. The time limits in cl 34.3 may affect what course is taken by the parties as a matter of practicality in cases of lengthy delay. But in our view, this cannot affect the language discussed at [106] above which allows claims to be made and assessed on either basis.

109. In considering the time limits in cl 34.3, questions will arise as to whether or not the superintendent’s initial assessment of delay and allowance of EOT is final, having regard to the second paragraph of cl 34.5:

“Notwithstanding that the Contractor is not entitled to or has not claimed an EOT, the Superintendent may at any time and from time to time before issuing the final certificate direct an EOT. The Superintendent is under no obligation to exercise this discretion reasonably, fairly or for the benefit of the Contractor.”

110. This clause might well be interpreted in accordance with well-established case law³⁶ that certificates other than the final certificate have a provisional effect only, which common law rule is a term of cl 37.2 of this contract, at least so far as progress certificates are concerned. Assessment of EOT is directly related to monies certified to be due and owing between the contractor and principal because of its connection to the owner’s entitlement to liquidated damages, and the builder’s entitlement to delay damages. One can imagine circumstances where, say, a lengthy extension of time was granted on the basis that procurement of relevant equipment would take months but then, by chance, a third party cancelled an order with the same manufacturer, and the equipment became available immediately. It is hard to imagine that the superintendent would not have the right to issue a further assessment of EOT, effectively a negative one.

111. The appellant argued that if cl 34.3 permitted either a prospective or retrospective methodology, the superintendent ought to have assessed delay on a prospective basis because the appellant chose to submit its claim on a prospective basis. We reject that as a general proposition. Having regard to the language used in this contract, if the appellant contractor lodged a claim on the basis of a prospective assessment, it was open to the superintendent to assess it on a prospective basis, a retrospective basis, or on an incremental basis.

Assessment of delay by a court or arbitrator

112. We also reject the related submission by the appellant that this Court “stands in the shoes of the superintendent” and must assess the delay caused by the 11 August notice as the superintendent should have assessed it, ie., in this case, on a prospective basis. The case cited as authority for these propositions was Beaufort Developments (NI) Ltd v Gilbert-Ash NI Ltd.³⁷ This case is not authority for the propositions put forward by the appellant, and in fact is to the opposite effect. It is a well‑known case largely because it overruled obiter dicta in Northern Regional Health Authority v Derek Crouch Construction Co Ltd³⁸ to the effect that the court has no authority to open up a certificate given by, relevantly here, a superintendent under a building contract. A summary of the particular obiter dicta in Derek Crouch is:

“Derek Crouch was a decision of the Court of Appeal in the United Kingdom which involved a construction contract which provided for reference to arbitration in the event of any dispute or difference arising between the parties. The arbitration clause expressly empowered the arbitrator ‘to open up, review and revise the architect’s certificates, opinions, decisions, requirements or notices’.

Disputes arose concerning decisions of the architect extending time. … The Principal under the contract sought and failed to obtain injunctions restraining the Contractor from proceeding to arbitration. The appeal was dismissed.

In the course of argument a submission was made that unless the court did have power to do all the things the arbitrator could do, it would be unfair to deprive a party of the right to arbitrate. Although it was not necessary to rule on that argument to dispose of the appeal, the Court expressed the view that whilst the arbitrator had powers to open up, review or revise the architect’s certificates, the Court did not. That conclusion was founded upon the contractual intention revealed by the conferral of the express open up and review power on the arbitrator but not on the Court.”³⁹

113. The same commentator said this of the decision in Beaufort:

“The effect of the decision of the House of Lords is correctly summarised by the headnote:

‘The arbitration clause was intended to confer on the arbitrator the plenitude of powers possessed by the court to determine the rights of the parties; … it was necessary to spell out those powers in the case of the arbitrator but not in the case of the court since his powers were derived from the contract under which he was appointed, whereas the court’s jurisdiction was unlimited; … therefore, the fact that power to open up, review and revise was expressly conferred upon the arbitrator but not upon the court could not be construed as removing the court’s power; … .’”⁴⁰

114. Beaufort Developments made a distinction between contracts which use machinery to give effect to the terms of the contract, and contracts which provide that parties’ rights are to be determined only by means of prescribed machinery.⁴¹ In the former case, the court or an arbitrator will have power to determine whether or not the machinery in the contract has been properly applied by, say (relevantly), a superintendent under a building contract. The contract here is within this first category.⁴²

115. One result is that if this court finds the superintendent wrongly determined a matter, we are not bound to determine the question only on the basis of material which could have been known to the superintendent. Authority for that stretches back at least to Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co.⁴³ In a passage which has become famous, Lord Macnaghten held that:

“If the question goes to arbitration, the arbitrator’s duty is to determine the amount of compensation payable. In order to enable him to come to a just and true conclusion it is his duty, I think, to avail himself of all information at hand at the time of making his award which may be laid before him. Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark?”

116. This passage was approved in this Court in CMB No. 1 Pty Ltd v Cairns City Council⁴⁴ and by the High Court in Kizbeau Pty Ltd v WG & B Pty Ltd.⁴⁵ The passage from Kizbeau and the passage from Bwllfa was approved in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd.⁴⁶ Bwllfa was approved as applicable in a building contract case – V601 Developments Pty Ltd v Probuild Constructions (Aust) Pty Ltd.⁴⁷ We would extend this to say that if, because of time limitations in the contract, the superintendent had no option but to assess delay on a prospective basis, that does not mean that, years after the relevant events, the court must do the same. Further, even though the contractor has chosen to submit a claim based on a prospective analysis, neither the superintendent, nor a court or arbitrator need assess the claim on a prospective basis.

117. In summary, as to the basis for assessment of delay in this case, based on the reasoning in WICET, we find that the appellant was allowed by the contract to prepare its delay claim under cl 34.3(b) of the contract based on a prospective analysis. The superintendent assessed it at nil. That was because he was mistaken about the nature of the 11 August notice. It was open to the primary judge to assess delay on a prospective basis as the appellant urged; it was also open to her to assess it on a retrospective, or partly retrospective basis, even though that course would not have been available to the superintendent (at least on an initial assessment) because of the time constraints on his response to the appellant contractor’s claim for an EOT.

Assessment of the programming evidence in this case

118. The appellant’s expert, Mr Bell, said an EOT of 117 days was warranted. The respondent’s expert, Mr King, said 83. The difference between them came down to three matters which we deal with in turn. The first is by far the most significant.

(1) Starting date for calculation of delay

119. Clause 1 of the building contract defined the term “approved construction program” as being one of the documents annexed to the building contract, and “any revised approved construction program approved by the Superintendent from time to time pursuant to subclause 32.2”. Clause 32.2 obliged the contractor to issue a revised approved construction program at least once a month and provided that the current construction program was to be used to “assess delays and any EOT”.⁴⁸

120. The additional activities necessary by reason of the 11 August notice were assessed by Mr Bell to be:

“(a) A mobilisation period of 1 week for design and ordering of plant and equipment. There would be two separate crews working on the corridor works impacted by the Mechanical Variation; one team from Levels 1 to 6 and another from Levels 7 to 12;

(b) A 12-week procurement period for the condensers and a further 12 days for installation; and

(c) A 5-week procurement period for the branch boxes and a further 14 days for installation over the 12 floors.”

121. This was not controversial between the parties. Nor was it controversial that the condensers did not arrive for 10 days after they were scheduled to arrive.

122. A particular feature of the activities made necessary by the 11 August notice (emphasised by both Mr King and Mr Bell in their evidence) was that the delay consequences were largely in procuring the necessary equipment.

123. Another feature of the effect of the 11 August notice was that it added over three months delay to the project at a time when the programming showed that there would otherwise have been only around three months of work still to be performed under the contract.⁴⁹

124. The third peculiar feature relevant to assessing delay caused by the 11 August notice was that, because the appellant contractor was uncertain as to what it was required to do to comply with the 11 August notice, see [81]-[91] above, it did not write this additional work and associated delay into its construction program until 28 October 2016.

Mr Bell’s analysis

125. The appellant’s expert, Mr Bell, took the view that the appropriate program to use as the starting point for assessment of delay was the 1 August 2016 program. This was the most recent version of the program before the 11 August notice. It was not impacted by the delay due to the 11 August notice. Mr Bell took the 1 August program, rewrote it to include the activities necessary as a result of the 11 August notice, and added time to reflect the actual date of the condensers arriving on site.

126. Mr Bell used a prospective delay analysis because he thought the contract required it⁵⁰ (wrongly on our analysis). He acknowledged both in his report,⁵¹ and when he was cross-examined,⁵² that such an analysis is to some extent hypothetical and thus may be inaccurate. A passage in his cross‑examination was as follows:

“So do you accept that one – that is, the retrospective as-planned as‑built – captures the actual delay and the other only captures the hypothetical possible likely delay?---Well, an as-planned versus as‑built, if it’s properly done or done at all, will capture – it will rely on the events as they actually unfolded and requires judgment of the analyst to work out why or what was going on or – or what the cause of those events was. The prospective approach, if not corrected for actual dates, will be a theoretical forecast of what was expected at that time, but, in this instance, it’s been corrected for the actual date of delivery.” – t 10-38.

127. This cross-examination highlighted that one difficulty with a prospective approach is that it assumes that the forecast of time necessary to attend to new activities is accurate. A little later in cross-examination Mr Bell acknowledged that, apart from the adjustment to account for late delivery of the condensers, he had simply adopted the appellant’s estimates of the activities, and durations of those activities, as being the basis for impacting the 1 August program – tt 10-41-42.

128. A second factor capable of producing inaccuracy when a prospective approach is taken, is that events which occur after the impact analysis, and which delay the works, are ignored. In fact it is possible to perform a prospective analysis and then, as an additional step, consider the later history of the works shown in revised programs in order to “determine whether the criticality of the relevant activity [is] maintained”.⁵³

129. In cross-examination Mr Bell acknowledged that this second factor might be a problem “in different circumstances”. However, he thought it was not a problem in the current case because at August 2016 the project had about three months left to run and in effect a single activity (most of which consisted of procurement time) was impacted into the program – t 10-42, and see t 10-81 ll 5-15.

Mr King’s analysis

130. Mr King chose a different starting point for his analysis. He looked for the first program to show the effect of critical delay⁵⁴ resulting from the 11 August notice and found that it was a program produced on 28 October 2016. Mr King then chose the preceding program, dated 18 October 2016, as the starting point to calculate the effect of the 11 August notice.⁵⁵

131. There was no case run by the appellant that there was any theoretical or methodological error in Mr King’s selecting the 18 October 2016 program as his starting point. The argument was that he ought not to have done so in this case because, although the program of 18 October 2016 did not show air conditioning as on the critical path, that was because the appellant had not yet made a decision as to what works were required by the 11 August notice, and therefore had not revised its program to show the effect of delay caused by the 11 August notice. In effect, the appellant said delay existed but had not been recorded in the program. We accept the logic of the appellant’s argument to this point.

132. The appellant’s argument continued that, because the court is undertaking this assessment with the benefit of hindsight, the court knows the duration of the extra activity required by the 11 August notice and therefore the court can conclude that, although it was not documented in the 18 October 2016 program, air conditioning was in fact on the critical path and a cause of critical delay as at that date.⁵⁶ It was said therefore, to be an error on Mr King’s part to use the 18 October 2016 program.

133. The fallacy in this argument is that although one might readily accept that, in fact, there was critical delay caused by the 11 August notice as at 18 October, that delay had not been written into the 18 October 2016 program. Other delays, caused by other things, to other parts of the work, had been. These things had an effect on the time of performance of the air conditioning works which was independent of the effect of the 11 August notice: the 1 August 2016 program showed that air conditioning installation was to finish on 1 September 2016 and the 18 October 2016 program showed it finishing on 2 November 2016, a difference of 32 days.⁵⁷ In our view, it was correct to take that independent delay to the air conditioning works into account in assessing delay to practical completion attributable to the 11 August notice.

134. In fact, Mr Bell explained how an incremental or windows analysis is performed at t 10-81 ll 10-15. The programmer is required to take the programs subsequent to the emergence of delay; remove the delayed activity, and then re-impact the programs, month by month, with the delay to be assessed. In this way other events causing delay on site and thus potentially reducing critical delay caused by, in this case the 11 August notice, are accounted for, and the assessment of delay becomes less prospective and theoretical, and more realistic. By using the 18 October 2016 program this is what Mr King was doing, the only difference (which is immaterial) is that because the appellant had been unable to write the delay into the program at that stage, Mr King did not have to first “remove the delay[ed] activity”, to use Mr Bell’s words.

“… the ongoing mechanical design issues started to impact the progress of works on site. Next to no mechanical work was being done, and the word had got out to many other trades about what was likely to happen - that is, work that had been completed, or was being carried out, would probably need to be demolished and re-done.

As a result, the motivation of the workers on site was low and productivity began to be impacted. I remember that during this period, many subcontractors were ringing me asking what was going on but I could not tell them as Built did not know ourselves.”

(b)by September 2016:

“… All mechanical works had stopped, as Batec’s⁵⁹ workers had all walked off site due to the ongoing uncertainty and would not come back. All other trades were moving very slowly up the building; their numbers were down and there was little momentum.”

138. The highest the evidence got at an expert level was Mr Bell who said, of the slippage in the date for practical completion between August and October, “Well, I’m not sure if it is unrelated to the [11 August notice]. There’s a range of matters that it’s my understanding weren’t progressed during that period pending resolution of the scope. And, depending on those items, that may well have had an impact on the critical path as it progressed.” – t 10-67. Mr Bell also made mention of the fact that by the 18 October 2016 program one of the critical paths ran through finishes, and he said that finishes would have been affected by the work required by the 11 August notice – t 10-74. He could not articulate any more precise concern than this, and he did accept that finishes were on what he called a “secondary critical path, not the primary critical path” – t 10-74.

139. It may be that there was some indirect effect of the 11 August notice which contributed to the slippage in the date for practical completion between 1 August 2016 and 18 October 2016. If there was, it was not able to be articulated or quantified by any witness. The slippage in practical completion was through the critical path showing façade works to be critically delayed, and in cross-examination Mr Bell agreed that: (1) that work was not related to the air conditioning work, and (2) work on the façade continued into February 2017, beyond the period he had identified as the period of critical delay attributable to the 11 August notice – t 10-70 and t 10-77. In these circumstances we do not consider that any adjustment to Mr King’s figure is warranted in respect of this point.

(2) Further reduction to 81 days

140. Mr King gave it as his view that his 83 day figure ought to be reduced by another two days. We reject this. Eighty-one days is the measure of time between the late completion date for the air conditioning in the 18 October 2016 program and 28 January 2017, which is the date the air conditioning equipment arrived on site. Clause 34.3 allows an extension of time if the contractor is “delayed in reaching practical completion”. The correct analysis should rest on the comparison of the dates for practical completion in the 18 October program and 26 October program (adjusted to allow for delayed delivery of the condensers on 28 January 2017).

(3) Christmas shutdown

141. The building site was programmed to be shut down between 18 December 2016 and 3 January 2017. The period of delay caused by the necessity to comply with the 11 August notice spanned that shutdown period.

142. Mr King does not go so far as to say that it is correct to take that period into account; he simply does the mathematics to say that if it were taken into account, the period of delay is only 64 days.

143. We cannot see that there is any sound reason to reduce the EOT period by the Christmas shutdown period. The procurement period was measured as the time it actually took to get the relevant equipment on site. It seems to us that that is the only relevant fact in calculating the EOT period.

144. We find that the EOT ought to have been 83 days.

DELAY DAMAGES

145. Clause 34.9 of the contract provided as follows:

“34.9 Delay damages

For every day the subject of an EOT for a compensable cause, the Contractor shall be entitled to give the Superintendent a claim for delay damages reasonably and necessarily incurred by the Contractor by reason of that compensable cause. The Principal must pay the amount of the delay damages certified by the Superintendent pursuant to this subclause 34.9.

The maximum amount payable by the Principal to the Contractor for every day the subject of an EOT for a compensable cause is the actual cost incurred by the Contractor up to the maximum specified in Item 31A.

Nothing in this subclause 34.9 shall oblige the Principal to pay delay damages for:

(a) the costs of delay which have already been included in the value of a variation or any other payment under the Contract; or

(b) any qualifying cause of delay which is not a compensable cause of delay.”

146. A compensable cause is defined to include a variation. The appellant’s case at trial was that, pursuant to cl 34.9, it was entitled to delay damages consisting of: (1) on‑site overheads incurred during the period of critical delay, and (2) off-site overheads incurred during the period of critical delay. The trial judge was against the appellant on both claims. The appeal is only against the finding in relation to on-site overheads.

On-site overheads

147. The appellant made a claim for delay damages for on-site overhead costs during the period of critical delay caused by the 11 August notice. As described in its submissions in this Court, “These costs are not directly related to any particular item of work, but are time related, essentially for Built’s on-site costs of being at the Project Site for a prolonged time due to the [11 August notice]”.

148. A claim was allowed on this basis in WICET.⁶⁰ The relevant clause in WICET was differently worded to cl 34.9.⁶¹ The clause in WICET made it clear that on‑site overheads attributable to delay were recoverable, and identified that category of costs separately from costs “necessarily incurred by the Contractor by reason of the delay”. Nonetheless, the respondent did not challenge the idea that time‑related on‑site overheads could be the subject of delay damages within the meaning of cl 34.9. Its submission was that the evidence did not show that the amounts claimed by the appellant were “reasonably and necessarily incurred by the Contractor by reason of [the 11 August notice]”, within the meaning of cl 34.9. The respondent argued that the appellant had failed to prove this aspect of its case. The appellant’s case for delay damages was advanced on a minimum of evidence. We deal with the arguments in three stages.

1. Incurred

149. Mr Bell was briefed with the part of the appellant’s job costs for the project categorised as ‘preliminaries’, which term was used to mean on-site overheads.⁶² He prepared a report in which he assumed those costs were incurred, and were on‑site overheads. He examined them, and deleted from the list those costs which he thought were not time‑related.⁶³ It was only those costs which were time‑related which he used to assess delay costs. He did that by calculating an average daily time-related, on-site overhead cost for each month occurring in the period of delay caused by the 11 August notice, and applied those average daily cost rates to the number of days in the months during the period of critical delay.

150. The appellant proved the costs in the preliminaries document provided to Mr Bell were actually incurred, as that document was tendered by consent.⁶⁴ It was thus evidence of what it appeared to be. It was not put to any witness that the costs were not actually incurred.

2. Necessary by reason of 11 August notice

151. So far as the requirement that the costs be necessarily incurred by reason of the 11 August notice, the appellant relied upon the same argument which was accepted in WICET, namely that, as compliance with the 11 August notice caused it to take extra time to achieve practical completion thus justifying an EOT, it incurred a corresponding number of days on‑site overheads.

152. There were some areas of agreement between Mr Bell and the respondent’s expert, Mr Hardiman, about this issue. In Mr Hardiman’s report he says:

“6.2.37 In my opinion, on-site overheads comprise both fixed costs (i.e. costs that do not have a relationship to time at site such as setting up site offices, installation of temporary telephones) and time‑related costs. On-site overheads are distinct from the cost of the resources (production resources) that create revenue by working at site.”

153. Mr Hardiman reviewed Mr Bell’s assessment of what were time‑related, on‑site overheads and he agreed with it, “with the possible exception of the Ambiguous Items” – paragraphs 6.2.31 – 6.2.38 of Mr Hardiman’s report. The Ambiguous Items were four costs (casual labour; leading hand/carpenter; hoist driver, and nipper) which, in Mr Hardiman’s view, related “to costs which, based on their description, could either be costs relating to direct work on site or could be overheads or a combination of the two” – paragraph 6.2.32. Mr Hardiman said that in order to work out which the costs were, he would need to examine documents such as site diaries, job sheets, timesheets, etc, but had not been provided with them. In response to this aspect of Mr Hardiman’s opinion Mr Bell conceded that the item for casual labour should not be included in his calculations, and further conceded that an arbitrary amount of 50 per cent of the costs associated with leading hand/carpenter should be excluded from his assessment.⁶⁵ Mr Bell continued to claim the full amounts for hoist driver and nipper on the basis that these costs related to persons performing support roles, and undertaking other tasks which were not direct costs of any particular productive work.⁶⁶

154. We would resolve such conflict as exists as to the items to be classified as time-related on-site overheads in favour of Mr Bell’s evidence. First, because Mr Hardiman did not give a definite view that Mr Bell’s categorisation was wrong, but merely raised a question. Secondly, because Mr Bell responded with concessions to Mr Hardiman’s queries and, after that, Mr Hardiman said nothing more.

155. Mr Bell and Mr Hardiman used different periods for the calculation of delay damages. Mr Bell took the view that the calculation involved the costs relevant to the days of critical delay. Mr Hardiman did not give his view on this issue; he said he was instructed to assume the period ending on the “adjusted date for practical completion”.⁶⁷ These approaches may be philosophically different, however in practical terms the period identified by each expert was not much different. Both calculations were based on the programming evidence.⁶⁸

156. The condensers necessary for the air conditioning works, as varied, arrived on site on 28 January 2017. Mr Bell’s unchallenged view was that as at that date the appellant was back in the position it would have been had the 11 August notice not been issued – t 10‑18. It seems to us that this ought to be the end date of the period for delay damages. The point of delay damages is to compensate the contractor for the delay costs actually incurred. To do this, the actual period of critical delay should be used, rather than an equivalent number of days at the end of the building works. The “cost” of days in the two different periods will not necessarily be the same. In general, it might be assumed that the closer to the end of the building job, the less on-site overhead costs will be incurred on a daily basis.

“6.2.39 However, a delay to construction work does not automatically produce a commensurate retention of all site overhead resources throughout a period of prolongation.

…

6.2.42 To determine whether the ‘time related site overheads’ identified represent actual costs which were reasonably and necessarily incurred by reason of the [11 August notice] under clause 34.9, I have considered whether there is any documentation or other evidence to show that each item of time‑related overhead resource was on site during the Assessment Period because of the [11 August notice], and that such time-related overhead resource would not have been on site at that time if the [11 August notice] had not occurred.” (underlining added).

158. Mr Hardiman notes (and it was uncontroversial), that there were other works, unrelated to the works caused by the 11 August notice, continuing on site at all times. He then concludes:

“6.2.44 Based on the documents provided to me, it is not possible to identify that any of the ‘time-related site overheads’ were necessarily retained on site during the assessment period because of the [11 August notice] rather than because of other work. …

6.2.45 Based on my review of Mr Bell’s report, he also has not identified documents or other evidence showing that the costs he identifies would not have been expended in any event, if the compensable cause of delay had not occurred.

6.2.46 For these reasons, I am unable to conclude that [the appellant] actually incurred additional time-related overhead resources during the Assessment Period. Accordingly, I have assessed [the appellant’s] claim for time‑related site overhead costs at $NIL.”

159. Mr Bell accepted that there were other activities on‑site during the period of critical delay – t 10-10. He accepted that labour costs which were included in his time‑related on‑site overhead category were not shown to be the costs of working on the mechanical services variation brought about by the 11 August notice. He said:

“The measure of inclusion is not that [the persons concerned] are directly working on the mechanical variation, but that they are working during the period of time which arises due to the mechanical variation, and they are entirely different things”. – t 10-20.

160. In cross-examination Mr Bell explained:

“So time-related overheads costs are by definition not attributable to particular pieces of work. If they were attributable to particular pieces of work they would simply not be in the overhead category at all; they would be in the façade category or the, you know, plasterwork category. So what we’re really saying is that we have to have a certain level of time-related resources which are on-site for a given month whether façade works are going on or whether they’re not or whether mechanical works is going on or whether they’re not. The – the linkage I have drawn between these costs and the mechanical variation is that the period of time that arises due to the mechanical variation is a period of time that would otherwise not be incurred on-site by the [indistinct] and, therefore, it is additional for that reason.

… There would be all sorts of work, I would expect, going on between the dates of October and January which would need to be carried out and would need supervision or management. The whole concept is that but for the [11 August notice] those things would have been carried out and the resources would have been incurred in a different time.” – tt 10-15-16.

161. Thus it can be seen that the appellant’s case was that it had to keep its site open and operating for the period of the EOT, and that it should be entitled to its time-related on-site overhead costs of doing so. Some of those costs were labour costs, but labour costs which were for supervision, rather than productive work, for example project managers, not bricklayers. The costs of Mr Meredyth as project manager were included as time-related on-site overheads. There was cross-examination as to whether Mr Bell contended that he was supervising air conditioning works for the period of the delay costs. Mr Bell did not know, and did not regard it as relevant. His point was that to have the site open and functioning, the project manager needed to be there, and that because of the 11 August notice that requirement was extended for the period of the EOT granted.⁷⁰

162. The respondents cited Gemmell in support of the idea that it was necessary for the appellant to show that labour costs included in time-related on-site overheads were costs of working on the air conditioning system: “In relation to site staff, it will be necessary to identify the functions of the staff being claimed and that their tasks undertaken correspond to the reason(s) for delay.”⁷¹ We certainly agree that it is necessary to identify the functions of the staff being claimed in order to decide whether their costs are in truth time-related on-site overheads, or should be categorised as belonging to other particular productive work, eg façade work. However, so far as Mr Gemmell’s passage says that the costs of staff which are properly characterised as time-related on-site overheads must be costs of staff actually employed on work the subject matter of the variation before their costs are delay costs, we respectfully disagree.

163. As Giles J said in Thiess Watkins White Construction (above), whether or not costs are caused by delay, is a question of fact. What will amount to sufficient proof in one case may not be sufficient in another. Here, there was a relatively large project underway, meaning that there was a large building site and many different resources deployed on it. The 11 August notice was given at a time when (as programmed) there were three months of the contract to run. In fact there was around seven months’ work completed after it was given. In those circumstances it is not unreasonable for the appellant to have put forward its delay damages claim on the basis that it did. Had the respondent wished to argue that some of the resources (human or otherwise) classified by the appellant as preliminaries ought to have been otherwise classified, it was open for it to do that. Likewise, had it wished to argue that some of the resources classified as preliminaries ought to have been demobilised, and then remobilised towards the end of the EOT period, it was open for it to do that. However, that was not the approach taken by the respondent. The only cross-examination by the respondent as to this topic was conducted at a level of philosophical approach to the question.

3. Reasonably incurred

165. The only question remaining as to the application of the first paragraph of cl 34.9 is whether or not the appellant proved that the costs in Mr Bell’s time-related on-site overhead schedule were reasonably incurred by reason of the 11 August notice. Again, the appellant did the bare minimum to make its case.

166. Mr Bell gave evidence that he thought the fact that costs were incurred was an indication that they were reasonably incurred: “in my experience, it typically is a good indicator that costs were reasonably incurred, because contractors seldom spend money they don’t have” – t 9-105. He made no investigation as to whether or not the costs were reasonably incurred. He was not provided with the source documents which underlay the entries in the accounting document showing preliminaries.

167. Proof that costs were reasonably incurred by reason of the 11 August notice is a matter of fact. What will need to be proved in any particular case may differ. Here, the costs were put forward as costs necessary to keep the site open and functioning. The type of costs in each case was apparent from its description in the appellant’s preliminaries document. In the context described at [163] keeping the site open and functioning was apparently reasonable. If there were types of cost, or amounts of particular costs, which the respondent wished to challenge as unreasonably incurred having regard to the 11 August notice, it was able to do so by obtaining and briefing Mr Hardiman with the documents he said he needed to perform such an exercise. The respondent chose not to do it.

168. While it is somewhat unsatisfactory that determination of questions such as this come down to narrow considerations based on the onus of proof, in our view the appellant did prove a basis for its costs as reasonably and necessarily incurred by reason of the 11 August notice; it was up to the respondent to challenge it, and it did not.

169. We allow the appeal as to on-site delay damages. The primary judge’s conclusion was incorrect. She said:

“[1220] The difficulty with the plaintiff’s proposition is highlighted by the consideration of the onsite labour costs claimed in respect of Mr Meredyth. There is no consideration of what Mr Meredyth was doing on site during this period. He may have been doing work totally unrelated to the Mechanical Variation. He may have been doing a mixture of work and some component may have related to the Mechanical Variation. The plaintiff would only be entitled to the costs in respect of Mr Meredyth if they were reasonably and necessarily incurred by reason of the Mechanical Variation. On the evidence, it is established that he was on site during the period of critical delay. But it is not established that the costs for his labour were “by reason of the Mechanical Variation”.

[1221] On the evidence it is not possible to be satisfied that the onsite overhead costs claimed were reasonably and necessarily incurred by reason of the Mechanical Variation as required by clause 34.9. The plaintiff has not established an entitlement to the costs under clause 34.9 of the Contract. Accordingly, if it is necessary to consider the claim in respect of delay damages, this part of the plaintiff’s claim must fail.”

170. These paragraphs reveal that the primary judge failed to appreciate the nature of the appellant’s claim, as explained at [161] above.

Overhead costs included in value of variation

171. The respondent argued that the third paragraph of cl 34.9, see [145] above, meant that the appellant was not entitled to delay damages because part of the cost to which it was entitled for a variation of contract included an amount allowed for overheads. Clause 36.4(d) of the contract provided, that in pricing variations, the superintendent was to include, “reasonable rates or prices, which shall include an amount equivalent to the percentage set out in Item 32A for profit and overheads”. Item 32A of the schedule to the contract provided that the percentage for profit and overheads in cl 36.4 was “10% of the cost of the work comprising the variation”. It was common ground between Mr Bell and Mr Hardiman that the 10 per cent represented 8 per cent for overheads and 2 per cent for profit.⁷³ Further, both experts agreed that Item 32A did not distinguish between on-site and off-site overheads, and thus was attributable to both. As noted above, it was not for the building experts to be proffering opinions on the construction of the contract. As the parties, in effect, allowed the experts to define the issues in dispute, we deal with the question of construction of Item 32A on the basis that it was agreed between the parties, and thus not a matter for our determination.

172. As a matter of construction of the contract, the respondent’s argument must be rejected. The 8 per cent allowed for overheads as part of the value of a variation is a nominal figure agreed in advance of any dispute. Its relation to delay damages caused by a variation will vary from case to case. We do not construe cl 34.9(a) as disentitling a contractor from making a claim for delay damages which includes overhead costs. Very often overhead costs will be a significant part of a delay claim. It would require clear express language to bring about the result contended for by the respondent. There is no such language in either cl 34.9 or cl 36.4(d).

173. The respondent argued in the alternative, that if delay damages included on-site overheads, the amount of overheads included in the 8 per cent allowed by Item 32A should be deducted, because those costs had already been included in the value of the variation. Mr Bell’s report expressly did not address this question, see section 4.1. Mr Hardiman expressed the view relied upon by the respondent, but gave no reasons for it – paragraph 6.2.35.⁷⁴ In the joint report, Mr Bell argued against Mr Hardiman’s proposition. First, he said that a valuation made under cl 36 for a variation did not preclude a claim for delay damages. That is so, but could not be regarded as decisive of this alternative point. He then remarked on the differences between the 8 per cent allowance for overheads and delay damages namely: (1) that the 8 per cent figure applied in an automatic way, whether there was associated delay or not; (2) that the percentage allowed could not constitute delay damages because it was not an actual cost incurred; and (3) that delay damages are applicable to the period of delay only, whereas the applied percentage is not applicable to any time period.

Appropriate orders

176. We allow the appeal. Our factual findings as to EOT will have ramifications for the calculation of delay damages; the amount of liquidated damages which must be refunded to the appellant, and the amount of damages for defective work which will need to be refunded to the appellant. The parties did their best to calculate these amounts at or soon after the hearing of the appeal. However, because the EOT which we find was not assumed by either party in their calculations, there is a need to recalculate. Accordingly we direct that the parties are to calculate the amount in which this court ought to order judgment, including the amount for interest. We further direct that the parties attempt to agree an appropriate order as to costs. If they cannot, each party is to file written submissions as to costs, no longer than five pages each. These further documents are to be filed by 15 February 2023.

Footnotes

1. Under the building contract the superintendent was the principal’s agent, cl 20. ↩

2. This was apparently by way of a subcontract; Thwaite’s contract was with the respondent’s project manager. ↩

3. Definition of preliminary design in cl 1 means “the documents stated in Annexure Part K”. In Part K items M00 - M12 are the Thwaite drawings; the Thwaite Mechanical Services Specification October 2014 is a separate item in Annexure K. ↩

4. (2015) 256 CLR 104. ↩

5. Complaint 2.1.2, “The alternate VRV system offered by the Contractor is required to meet the performance requirements of the Chilled Water (CW) system”. ↩

6. For example, complaints 2.2.1 and 2.2.2. ↩

7. See complaints 2.2.1 and 4.2. ↩

8. (1859) 1 El & El 977; 120 ER 1177. ↩

9. (1982) 149 CLR 337, 352. ↩

10. Above. ↩

11. (2012) 224 IR 406, 422, [69]. ↩

12. (1937) 59 CLR 348, 356. ↩

13. [1971] 1 WLR 1381, 1384; [1971] 3 All ER 237, 240.