Built Qld Pty Ltd v Pro-Invest Australian Hospitality Opportunity

CONTRACTS - AUSTRALIA - BUILDING AND CONSTRUCTION CONTRACTS IN AUSTRALIA - THE CONTRACT DOCUMENTS - THE INTERPRETATION OF THE CONTRACT DOCUMENTS - where the parties entered into a Formal Instrument of Agreement on or about 29 April 2015 - where Schedule 1 outlines the documents which constitute the contract documents - where the contract documents include the Formal Instrument of Agreement, the General Conditions and Annexures Part A to P - where Annexure Part O contains clarifications - where clause 1(u) of Annexure Part O of the contract provides that work under the contract includes 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 - where the meaning of "performance requirement" is in dispute - where the plaintiff contends that not every aspect of the tender drawings and the specification amounts to a performance requirement - where the defendant submits that the performance requirements are to be found in the tender drawings and the specification - where the plaintiff contends that it is necessary to have regard to extrinsic evidence to identify the "alternative proposal" that the plaintiff was obligated to install - where the plaintiff contends that the words "alternative proposal" used in the contract is a reference to a two pipe VRF heat pump system, which cannot provide mode control to each guest room - whether extrinsic material is admissible to interpret the words "alternative proposal" contained in clause 1(u) of Annexure Part O of the Contract - whether, on the proper construction of clause 1(u) of Annexure Part O, mode control was a performance requirement of the tender drawings and the specification

CONTRACTS - AUSTRALIA - BUILDING AND CONSTRUCTION CONTRACTS IN AUSTRALIA - VARIATIONS - GENERALLY - where the plaintiff and the defendant entered into a contract for the design and construction of a hotel in April 2015 for the sum of $33,366,027.00 - where the hotel includes guest rooms, food and beverage facilities, front of house facilities, back of house facilities, two basement level carparks and a guest gymnasium - where the plaintiff contends that the mechanical works, including the air conditioning and heating system, did not require the mechanical system installed by the plaintiff to provide for mode control in each individual room - where the plaintiff submits that the defendant's requirement notified in correspondence dated 11 August 2016, 16 August 2016 and 17 September 2016 (individually or together the "Mechanical Direction") that the mechanical system being installed be changed was a direction to undertake a variation under the contract - where the defendant disputes this and contends that the notices required that the plaintiff comply with its obligations under the contract and install an air conditioning system in accordance with the contractual requirements - whether the plaintiff was required to design and install an air-conditioning system allowing mode control in each room - whether the notices given in August and September 2016 were a direction to the plaintiff to undertake a variation or alternatively constituted a notice to rectify defective work

CONTRACTS - AUSTRALIA - BUILDING AND CONSTRUCTION CONTRACTS IN AUSTRALIA - VARIATIONS - GENERALLY - where the plaintiff contends that by correspondence there was an express or implied direction for the plaintiff to supply and install certain bathroom fixtures and as a result, this amounted to a variation within the meaning of the contract - where the plaintiff contends that the plaintiff is entitled to an assessment of the costs of the variation - where, if there is no entitlement to the costs of the variation, the plaintiff contends that the defendant is estopped from relying on or has waived its right to insist upon satisfaction of clause 36.1 of the contract with respect to this variation - where the defendant contends that the plaintiff is not entitled to an increase in the contract sum in respect of the alleged bathroom variation - whether there was a change in the work to be undertaken within the scope of clauses 36.1(a) to (e) of the contract - whether there was a direction to perform the variation as required by clause 36.1(f) of the contract - whether the correspondence relied upon by the plaintiff amounts to a direction to perform a variation pursuant to clause 36.1(g)

CONTRACTS - AUSTRALIA - BUILDING AND CONSTRUCTION CONTRACTS IN AUSTRALIA - VARIATIONS - LIABILITY TO PAY - where a number of variations have been approved and certified by the Superintendent - where it is accepted that the work has been carried out and the defendant has paid the plaintiff the amounts claimed, except for the amount identified as representing 7.5 per cent of the certified value of the variations - whether on a proper construction of clause 36.4(d), the plaintiff is entitled to an additional 7.5 per cent for preliminaries

CONTRACTS - AUSTRALIA - BUILDING AND CONSTRUCTION CONTRACTS IN AUSTRALIA - TIME - LIQUIDATED DAMAGES - where the defendant seeks payment of the amount of $196,623.21 by way of additional liquidated damages calculated as a result of the correction of an error in calculating the date for practical completion - where the defendant contends that in calculating the adjusted date for practical completion a five day work week was used when a six day work week should have been used - where the plaintiff contends that the defendant is not entitled to the additional amount of liquidated damages - whether the defendant is entitled to the amount for liquidated damages

CONTRACTS - AUSTRALIA - BUILDING AND CONSTRUCTION CONTRACTS IN AUSTRALIA - DEFECTS AND NEGLIGENCE - LIABILITY - whether the air conditioning system being installed by the plaintiff prior to the notices in August and September 2016 was defective because it did not meet the performance requirements of the contract, or alternatively, of the mechanical services specification and the mechanical services preliminary design drawings

CONTRACTS - AUSTRALIA - BUILDING AND CONSTRUCTION CONTRACTS IN AUSTRALIA - DEFECTS AND NEGLIGENCE - LIABILITY - where the defendant claims the cost to rectify non-mechanical related defects and defects which have been identified in relation to the mechanical services system - whether the works are defective works - whether the defendant is entitled to recover any costs incurred to rectify the defective works

Civil Proceedings Act 2011 (Qld), s 58

Queensland Building and Construction Commission Act 1991 (Qld), s 67P

Australian Development Corporation Pty Ltd v White Constructions (ACT) Pty Ltd (1996) 12 BCL 317, cited

Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253, cited

Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2017] QSC 85, considered

CMA Assets Pty Ltd Formerly Known as CMA Contracting Pty Ltd v John Holland Pty Ltd (No 6) [2015] WASC 217, cited

Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337, followed

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471, followed

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, considered

Opat Decorating Service (Aust) Pty Ltd v Hansen Yuncken (SA) Pty Ltd (1994) 11 BCL 360, cited

Westpac Securities Administration Ltd v Australian Securities and Investments Commission [2021] HCA 3; (2021) 95 ALJR 149, cited

P L O'Shea QC with M Steele and B Reading for the plaintiff

T P Sullivan QC with J Mitchensen for the defendant

• [1] On 29 April 2015, the plaintiff (Built) and the defendant (Pro-Invest) entered into a contract for the design and construction of a hotel located at 168-184 Wharf Street, Spring Hill (Spring Hill Hotel) for the sum of $33,366,027.00 (plus GST) (Contract).[1]
• [2] The Spring Hill Hotel includes guest rooms over 12 levels, food and beverage facilities, front of house facilities, back of house facilities, two basement level carparks and a guest gymnasium located on level one.
• [3] The plaintiff commenced proceedings claiming the sum of $6,158,864.22. The defendant brought a counterclaim in respect of alleged defects, additional liquidated damages and alleged lost wages.
• [4] The proceedings include a number of issues which are in dispute between the parties including the entitlement to variations, costs of alleged variations, extensions of time and delay damages, the defendant's entitlement to liquidated damages for late completion and also amounts in respect of rectification of alleged defective work.
• [5] The issues in dispute have been described under the following general headings:

(j) wrongful set-off, deductions and withholding of payments;

(k) the defendant's claim for additional damages; and

• [6] Depending on the findings in respect of certain issues in dispute, some of the issues identified may not need to be determined. However, due to the nature of the proceedings, these issues will be addressed, to some degree, at this initial stage and relevant findings made.
• [7] The parties have also prepared a list of the issues of law in dispute between the parties to this proceeding. This has been broken down into liability and quantum. These issues will be considered under the headings identified above.

• [8] The most significant issue in dispute between the parties is in relation to the air conditioning system to be installed at the Spring Hill Hotel. The plaintiff contends that by notices given in August and September 2016 there was a variation to the air conditioning system required to be installed under the Contract (Mechanical Variation). The defendant disputes this and contends that the notices required that the plaintiff comply with its obligations under the Contract and install an air conditioning system in accordance with the contractual requirements.
• [9] The parties have agreed that the following facts and issues are not in contention in respect of the alleged Mechanical Variation:

"1. In respect of the alleged Mechanical Variation:

(a) that the Mechanical Direction (consisting of written notices given on 11 August 2016, 16 August 2016 and 17 September 2016 (together or individually)) was given to the plaintiff [SOC [6]; Def [7]];

(b) that the plaintiff performed the additional works required by the Mechanical Direction [SOC [8]; Def [9]]."

• [10] In respect of the substantial issues of law in dispute between the parties in relation to the Mechanical Variation, the parties have agreed the following:

"1. In respect of the alleged Mechanical Variation:

(a) whether, on a proper construction of the Contract, the plaintiff was required to design and install an air-conditioning system allowing mode control in each room [SOC [7]; Def [8]; R [7];

(b) whether the air-conditioning system being installed by the plaintiff prior to the Mechanical Direction (consisting of written notices given on 11 August 2016, 16 August 2016 and 17 September 2016 (together or individually)) was defective because it did not meet performance requirements [SOC [7]; Def [8(a)(ii)]; R [7](ab)]]:

(ii) of the Mechanical Services Specification and the Mechanical Services Preliminary Design Drawings;

(c) whether, on a proper construction of the Contract, the Mechanical Direction:

(i) was a direction to the plaintiff to undertake a variation in respect of the mechanical works, within the meaning of clause 1 and clause 36 of the Contract [SOC [7]; Def [8]; R [7]]; or instead

(ii) constituted a notice of defective work pursuant to clause 29.3 or alternatively directions under clause 8.1 of the Contract [Def [7]-[8]; R [6]-[7]]."

• [11] The starting point is to consider the terms of the Contract.

• [12] The parties entered into a Formal Instrument of Agreement on or about 29 April 2015.
• [13] Clause 2 states:

(a) The Contractor shall carry out the Works in accordance with the Contract.

(b) The Principal shall pay the Contractor the contract sum at the times and in the manner provided for in the Contract.

(c) Each of the parties shall perform the obligations imposed on it by the Contract."

The Contract comprises the Contract Documents."

• [15] Pursuant to clause 1, the defined terms in the Formal Instrument of Agreement have the same meaning as in clause 1 of the General Conditions.
• [16] Clause 4 states:

(a) The Contract Documents constitute the entire agreement between the parties in respect of the Works and the Contract supersedes all previous agreements.

(b) The Contract may be varied only by written instrument executed by both parties."

• [17] Schedule 1 outlines the documents which constitute the "Contract Documents". The documents include the Formal Instrument of Agreement, the General Conditions and Annexures Part A to P. Relevantly to the current issue, Annexure Part K includes the preliminary design, Annexure Part L outlines the principal's project requirements, Annexure Part O contains clarifications and Annexure Part P contains provisional sums.
• [18] The General Conditions are the Australian Standard General Conditions of Contract for Design and Construct (as Amended) AS4902-2000 (Incorporating Amendment No. 1).
• [19] Clause 1 of the General Conditions contains definitions where the words and phrases have that meaning unless the context requires otherwise.
• [20] The defined terms include as follows:

"all tasks necessary to design and specify the Works required by the Contract, including preparation of the design documents and, if the Principal's project requirements include a preliminary design, developing the preliminary design."

"the Principal's written requirements for the Works described in the documents stated in Annexure Part L which:

(b) may include the Principal's design, timing and cost objectives for the Works; and

(d) WUC (from 'Work under the Contract') means:

"the work which the Contractor is or may be required to carry out and complete under the Contract and includes variations, remedial work, construction plant and temporary works."

• [21] Clause 2 sets out the Nature of Contract and provides as follows:

The Contractor shall carry out and complete WUC in accordance with the Contract and directions authorised by the Contract.

Subject to the express provisions of the Contract and the performance by the Contractor of its obligations pursuant to the Contract, the Principal shall pay the Contractor the contract sum adjusted by any additions or deductions made pursuant to the Contract.

Without limiting the generality of subclause 2.1, the Contractor warrants to the Principal that:

(i) at all times shall be suitably qualified and experienced, and shall exercise due skill, care and diligence in the carrying out and completion of WUC;

(ii) has examined any preliminary design included in the Principal's project requirements and that such preliminary design is suitable, appropriate and adequate for the purpose stated in the Principal's project requirements;

(iii) shall carry out and complete the Contractor's design obligations to accord with the Principal's project requirements and, if subclause 9.4 applies, accept the novation and retain the Principal's consultants for any work the subject of a prior contract with the Principal; and

(iv) shall carry out and complete WUC in accordance with the design documents so that the Works, when completed, shall:

(B) comply with all the requirements of the Contract; and

(b) subject to clause 9, the consultants identified in the Contractor's tender are suitably qualified and experienced.

Where the Principal's project requirements include performance specifications:

(a) the Contractor shall ensure that the performance specifications are satisfied when:

(i) completing the design, specification, documentation and construction of the Works; and

(ii) making any selection of any materials, goods, plant or equipment for inclusion into the Works; and

(i) its obligations under this clause are carried out in accordance with the standard expected of a contractor competent in designing and constructing works of the kind the subject of the performance specification; and

(ii) the works and materials the subject of the performance specification are fit for the purpose."

The parties agree that the clarifications apply to the Works or the contract sum."

• [22] Clause 8 deals with the Contract documents and includes as follows:

When construing the Contract Documents the following rules of construction apply:

(a) in the event of any inconsistency between the Contract Documents:

(i) the formal instrument of agreement and these general conditions have precedence; and

(ii) the clarifications have precedence over the preliminary design;

(i) where inconsistent levels of quality are required, the higher level of quality shall apply;

(ii) figured dimensions shall take precedence over scaled dimensions; and

(iii) drawings made to larger scales shall take precedence over drawings made to smaller scales;

(c) where the requirements of quality or any aspect of WUC is not expressly specified or depicted, the quality shall be consistent with the purpose; and

(d) drawings showing particular parts of WUC shall take precedence over drawings for more general purposes; and

(e) in all cases, the interpretation to be followed by the Contractor will be as reasonably determined by the Superintendent.

Where the Contractor considers that there is any ambiguity or discrepancy between the Contract Documents, it shall promptly advise the Superintendent in writing, who shall, subject to this subclause 8.1, give the Contractor a direction as to the interpretation to be followed.

The Contractor shall have no entitlement as a consequence of a direction given by the Superintendent under this subclause 8.1 which is consistent with the rules of construction in this clause 8.1.

8.4 Contractor's obligations in relation to the Principal's project requirements

(a) ensure that the information provided by the Superintendent defines the Principal's project requirements in sufficient detail for the Contractor to complete the design documents;

(b) determine what additional information it needs from the Principal to clarify the Principal's project requirements; and

(c) make requests in writing to the Superintendent to provide that information and include with those requests whatever information the Principal may reasonably require in order to make a decision.

If in the Superintendent's opinion the information sought by the Contractor under this subclause is reasonably necessary to clarify the Principal's project requirements, the Superintendent may refer the request to the Principal and obtain a response to such request.

Neither the Superintendent nor the Principal shall be bound by any information provided to the Contractor in relation to the Principal's project requirements unless it is in writing and signed by the Superintendent and expressly provides that the information forms part of the Principal's project requirements.

The Contractor shall as part of the Contractor's design obligations:

(a) ensure that the design documents (including any design documents which were not produced by the Contractor or are Principal's materials) satisfy the Principal's project requirements;

(b) ensure that the design documents contain sufficient detail to construct the Works so that the Works, when completed, satisfy the warranties in subclause 2.2;

(c) ensure that the details contained in any design documents are co-ordinated with the details contained in all other design documents;

(d) ensure that any approval that needs to be obtained, can be obtained from the relevant authority in relation to the design documents;

(e) allow the Superintendent, the Principal or any person nominated by the Principal access to partially completed design documents at any time;

(f) keep the Superintendent informed of the progress of the design documents;

(g) conduct sufficient investigations to ascertain the existence and extent of any latent conditions which may have an effect on the Works."

• [23] Clauses 29.3 and 29.4 deal with Defective work and provide as follows:

If the Superintendent becomes aware of work done (including material provided) by the Contractor which does not comply with the Contract, the Superintendent shall as soon as practicable give the Contractor written details thereof. If the subject work has not been rectified, the Superintendent may direct the Contractor to do any one or more of the following (including times for commencement and completion):

(c) redesign, reconstruct, replace or correct the work; and

(a) the Contractor fails to comply with such a direction; and

(b) that failure has not been made good within 5 days after the Contractor receives written notice from the Superintendent that the Principal intends to have the subject work rectified by others,

the Principal may have that work so rectified and the Superintendent shall certify the cost incurred as moneys due from the Contractor to the Principal.

Instead of a direction pursuant to subclause 29.3, the Superintendent may direct the Contactor that the Principal elects to accept the subject work, whereupon there shall be a deemed variation."

• [24] In addition to the entire contract clause in the Formal Instrument of Agreement, clause 44.5 of the General Conditions provides:

(a) is the entire agreement and understanding between the parties on everything connected with the subject matter of the Contract; and

(b) supersedes any prior agreement or understanding on anything connected with that subject matter.

Each party has entered into the Contract without relying on any representation by any other party or any person purporting to represent that party."

• [25] Annexure Part L sets out the Principal's project requirements as follows:

(a) all work necessary for the development of the preliminary design;

(b) all work necessary to comply with legislative requirements;

(c) all work necessary for the design and construction of the Works;

(d) all work to be completed pursuant to the Contract.

(a) the Contractor shall carry out and install all incidental services and works to achieve practical completion in accordance with the Contract whether or not those incidental services are specifically identified in the Contract; and

(b) to the extent qualified within Annexure Part O, the Contractor is responsible pursuant to Annexure Part J to negotiate as required with all authorities having jurisdiction over WUC to obtain at the Contractor's cost all necessary permits, consents, approvals, certificates and the like from authorities that have not already been obtained by the Principal prior to the date of the Contract in order to complete the whole of the Works by the date for practical completion."

• [26] Annexure Part O sets out the clarifications and includes:

(u) 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.

(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 standalone controls and variable speed drives. Additionally, the proposal also adopts a revised pipe and duct configuration. ..."

• [27] The preliminary design documents include the Mechanical Services Specification reference 3235 dated October 2014 prepared by Thwaite Consulting Group (Specification).[2]
• [28] The Specification contains a number of relevant provisions including:

• The intent of this Specification and the associated documents is:

II. To allow competent Contractors to price the works

1. To provide documentation to demonstrate to the Client the scope and quality of the project
2. To define the expectations upon the installer, by the Consulting Engineer

• In writing this Specification the Client expects and relies upon the tenderers' possessing specialist trade expertise necessary to complete the works in accordance with the documentation
• To raise in good time, issues requiring design input or clarification from the Consulting Engineer, particularly in respect to:

1. omissions from the tender documents
2. suggested alternatives/substitutions

• To provide fully co-ordinated mechanical services shop drawings with adequate provision for access and maintenance
• To certify compliance with Contract documents, including all variation instructions, at Practical Completion as required by this Specification

• [29] 1.3 MECHANICAL CONTRACTOR'S DESIGN RESPONSIBILITY
  • The mechanical contractor shall be responsible for ensuring that the detailed design which they undertake is fully co-ordinated and compatible with the remainder of the project design
  • The mechanical contractor's design obligation shall include all:

1. Duct work and pipe work distribution system design ..."

• [30] Clause 2 of the Specification identifies the scope of work as follows:

• The general scope of work of the mechanical services shall comprise:

1. Detailed thermal and/or capacity calculations as required to size all plant and equipment

2. Detailed design and documentation of the mechanical services layout

5. Preparation of work shop drawings for review prior to ordering or commencing fabrication of plant and duct work systems

6. Supply and installation of complete and operating mechanical systems and associated controls and electrical works

• The specific scope of work of the mechanical services shall comprise the following:

1. Central air-cooled chilled water and heating hot water system serving the building

22. All associated controls works and BMCS to provide complete and operating mechanical systems

• The mechanical contractor shall provide all necessary heat load calculations, ventilation rate calculations, system operating pressures calculation, duct sizing and pipe sizing calculation etc. to support the selection of all plant and equipment used in the installation
• The calculations shall be presented to the consultant who will check that they meet specification requirements. The mechanical contractor shall ensure that they are technically correct and in accordance with their or an appropriate quality assurance system.

• The mechanical contractor shall prepare workshop drawings of their design layouts
• All workshop drawings shall be submitted in accordance with program requirements for the approval of the Superintendent prior to installation. Approval, as appropriate, shall be granted by the Superintendent in principal only, such approval does not relieve the Contractor of their responsibility to comply with the requirements and intent of the specification and drawings.

• Provide details of all proposed equipment, including but not limited to equipment schedules and technical data, method of support, platforms.

2.1.7 SAMPLES, PROTOTYPES AND APPROVED EQUIPMENT

• Samples of materials and items required to be approved shall be delivered to site a minimum of 10 working days prior to approval being required. Sample fittings and accessories are required to be approved include but are not limited to:

• A schedule of approved equipment manufacturers is detailed below. The contract is deemed to include equipment of this standard or 'approved equal' as approved by the Consultant.

• [31] Section 2.2 outlines the Mechanical Systems Description.
• [32] Section 2.2.1 deals with the "central air-cooled heat recovery chiller CH-1, CH-2 CHW/HHW" and states as follows:

"The entire hotel (excluding specialist areas which have stand-alone DX air conditioning systems) shall be provided with chilled water and heating hot water from a common air-cooled 4 pipe chiller (heat recovery type) located on the roof ..."

• [33] Clause 2.2.3 deals with the "guest room air conditioning FCU's". "FCU" refers to Fan Coil Unit. This includes the following:

• 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 (discharge and suction sides) connecting to a wall mounted linear grille

• 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."

• [34] Clause 3 of the Specification deals with the design criteria.
• [35] Clause 3.1 states as follows:

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

External ambient conditions (for air conditioning plant full load performance)

Internal conditions (for conditioning plant full load performance) general

+/-2.0℃ dry bulb at point of control (+/- 1.0℃ dead band)

To meet the Local Authority requirements nominated in the Development Application conditions and Wilkinson Murray Acoustic Report

Tactile structure vibration levels due to plant not to exceed the lower end of the range specified in AS 2670.2.

• Acceptance of Practical Completion and of Final Completion will require at least the following:

(a) Compliance Certification to the requirements of Statutory Authorities.

(b) Signed off commissioning schedules to confirm that systems operate in a stable and automatic manner under all conditions of full and partial load - full commissioning data and operating and maintenance manuals.

(c) Certification that capacities and efficiencies of equipment and systems satisfy specified requirements where specifically nominated to do so in the Specification."

• [36] Relevantly, clause 9.8.2 deals with "CHW/HHW fan coil units guest rooms" and outlines certain mandatory items and control functions to be provided for each FCU system which includes:

• - Wall mounted combined FCU controller with ON-OFF switch
• - Interface with guest room energy management system provided by the electrical trade

• - 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 ..."

• [37] The plaintiff contends that on the proper construction of the Contract, the mechanical works, including the air conditioning and heating system, did not require the mechanical system installed by the plaintiff to provide for "mode control" (as opposed to temperature control) in each individual room. As a result, the defendant's requirement notified in correspondence dated 11 August 2016, 16 August 2016 and 17 September 2016 (individually or together, the "Mechanical Direction") that the mechanical system then being installed be changed was a direction to undertake a variation within the meaning of clauses 1 and 36 of the Contract, being the Mechanical Variation.
• [38] There is no dispute that the plaintiff performed the work required (subject to the defects which are alleged by the defendant).
• [39] The plaintiff also contends that the Mechanical Variation caused a delay to the date for practical completion of 117 days.
• [40] Overall, in respect of the Mechanical Variation, the plaintiff contends that the defendant is liable to the plaintiff in the amount of $2,076,392.25 (plus GST), being $1,074,577.25 (plus GST) for the WUC and $1,001,815 (plus GST) for delay damages.
• [41] The first step in the plaintiff's case is to consider what the Contract required the plaintiff to build and install by way of the mechanical system. The plaintiff refers to clause 1(u) of Annexure Part O and also clause 1(ag) of Annexure Part O.
• [42] The plaintiff contends that these two clauses are insufficient to identify the alternative proposal and as the plaintiff had an obligation to install the alternative proposal (on a certain basis), the first step is to identify that proposal.
• [43] The plaintiff concludes that:

"It is necessary, and entirely orthodox, to have regard to extrinsic evidence to answer [the question 'what was that alternative proposal?']. After examining the legal principles, the evidence is analysed, and the alternative proposal is identified as a two pipe VRF heat pump system."

• [44] To reach this conclusion, the plaintiff in its closing submissions, undertakes the exercise of examining case law in relation to the use of extrinsic evidence identifying the subject matter of a contract, consideration of the relevant clauses in the Contract and also extrinsic evidence relevant to the alternative proposal consisting of a number of documents and emails exchanged as part of the precontractual negotiations leading up to the Contract being entered into.
• [45] It is necessary to consider each of these steps in turn.

• [46] The plaintiff acknowledges that on the settled authorities in respect of the objective theory of contract, the following principles apply:

(a) The meaning of a contract is to be decided in accordance with what the terms of the contract would convey to a reasonable person in the position of the parties, rather than by reference to the subjective intentions of one, or even both, parties to the contract.

(b) In determining the meaning of the terms for a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean.

(c) Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result, and to avoid working "commercial inconvenience".

(d) Determining the meaning of a written contractual term, or words used in a contract, ordinarily occurs by reference to the contract alone, being the contractual text and contextual matters.

(e) There are a number of recognised exceptions that allow reference to be made to contextual matters which are extrinsic to the language used in the contract to determine the meaning of words used in a contract.

• [47] The principal exception to the parol evidence rule is as framed by Mason J (as his Honour then was) in Codelfa Construction Pty Ltd v State Rail Authority (NSW):[3]

"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning."

• [48] After referring to this quote from Codelfa, the written submissions on behalf of the plaintiff go on to state:

"Another exception to the parol evidence rule referred to by Mason J in Codelfa was extrinsic evidence which assists in the identification of the subject matter of the contract. At 349, his Honour cited with approval Lord Davey in Bank of New Zealand v Simpson[4] who in turn quoted with approval the remarks of Lord Campbell in Macdonald v Longbottom[5] as follows:

'I am of opinion that, when there is a contract for the sale or [sic] a specific subject-matter, oral evidence may be received, for the purpose of shewing what that subject-matter was, of every fact within the knowledge of the parties before and at the time of the contract.'"

• [49] It is important to note that this reference to Macdonald v Longbottom occurs in the reasons of Mason J when he is undertaking a review of the then authorities in relation to recourse to extrinsic evidence. This occurs prior to his statement at page 352 that is referred to as "the true rule". The plaintiff's submissions suggest that Mason J identified the circumstances in Macdonald v Longbottom as a specific exception to the parol evidence rule. Rather, a reading of the reasons of Mason J tends to support that this needs to be considered in light of the statement of principle as set out in the "true rule".
• [50] The statement of principle of the "true rule" by Mason J continues on after the quote that has been identified in the plaintiff's submissions. It is necessary to consider the whole of the statement of principle which continues:

"Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.

It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract."[6]

• [51] The plaintiff's submissions contend that the relevant principle is that "if the subject matter of a contract cannot be ascertained by reference to the terms of the contract itself, then extrinsic evidence may be referred to, and relied upon by the Court 'to identify the meaning of a descriptive term'."[7]
• [52] The plaintiff refers to a number of relevant circumstances in the current matter:

(a) The Contract does not define the words "alternative proposal".

(b) There were no drawings or specifications with respect to the alternative proposal.

(c) The tender drawings and the Specification set out details of the mechanical system in accordance with the original tender proposal.

• [53] The plaintiff contends that the tender drawings and the Specification cannot be used to define the alternative proposal.
• [54] In relation to clause 1(u) and clause 1(ag) of Annexure Part O, the plaintiff submits:

"Clause 1(u) does nothing to describe the alternative proposal, other than to refer to the fact that the alternative proposal exists. However, this clause does say, unambiguously, that the WUC which Built was obliged to perform included the installation of the alternative proposal. It is therefore critical that the alternative proposal be accurately identified in order for the Court to know what Built's obligation to perform the WUC was with respect to the mechanical system."

• [55] In relation to clause 1(ag) the plaintiff also submits that whilst this does provide some assistance, it does not provide enough information to make any concluded findings as to what the alternative proposal was.
• [56] The reference in clause 1(ag) to "VRF type arrangement" assists in showing that the obligation was to build a VRF type arrangement, and not a chilled water system which was originally in the tender proposal. However, the plaintiff submits that there are at least two different types of VRF systems and a generic reference does not assist in determining which of the two different systems was to be installed.
• [57] Evidence was led at trial in relation to the two different types of VRF system, namely:

(a) A VRF heat pump system where all indoor units can either heat or cool, but not at the same time. This system requires two pipes to operate, where one pipe delivers either cooling or heating and the second pipe extracts air.

(b) A VRF heat recovery system where cooling and heating may be available to each indoor unit, independently, at the same time. This usually requires three pipes to operate, although the plaintiff recognises that Mitsubishi does manufacture a two-pipe heat recovery system. Under this system, the first pipe delivers cooling, the second pipe delivers heating and the third pipe is a return pipe.

• [58] The plaintiff submits that the other words in clause 1(ag) do little to assist the Court in identifying what was the alternative proposal other than the words "the proposal also adopts a revised pipe and duct configuration". Whilst these words do not identify a specific pipe and duct configuration, they make it clear that the pipe and duct configuration was not to be the same as that set out for the mechanical system in the tender proposal.
• [59] The plaintiff also acknowledges that the words "has reviewed the documented design criteria and has offered an alternative air conditioning system" may also be of assistance in construing the words "performance requirement" in clause 1(u).
• [60] Ultimately, the plaintiff contends that:

"Extrinsic evidence must be admitted in order to ascertain what the alternative proposal was. That is critical to understanding Built's obligations, including assessing Built's claim for a variation to the mechanical system".[8]

• [61] Prior to undertaking a review of the extrinsic evidence, the plaintiff also submits that when considering the extrinsic evidence it is important to "contemplate the caveat on the alternative proposal, that is, '... on the basis that the Contractor meets the performance requirement of the tender drawings and specification'."
• [62] The plaintiff contends in this respect that:

"Considered objectively and leaving aside any express requirement to the contrary, the 'performance requirement of the tender drawings and specification' could not include a 'performance requirement' that the alternative proposal could never achieve, or was, in fact, not designed to achieve - imposing such a requirement would be fundamentally inconsistent with the alternative proposal being part of the agreed WUC. Accordingly, identifying the alternative proposal is a critical first step before considering what the performance requirement of the tender drawings and specification was".[9]

• [63] This statement is relevant to what the plaintiff is attempting to achieve by resort to the extrinsic evidence. This will be further explored later in these reasons.

Extrinsic evidence sought to be relied upon by the plaintiff

• [64] The plaintiff seeks to rely upon the following extrinsic evidence:

(b) correspondence evidencing negotiations between the submission of the plaintiff's tender on 19 January 2015 and the execution of the Contract on 29 April 2015.

• [65] The documents relied upon in relation to the tender process establish that the invitation to tender allowed, and the plaintiff submitted, a conforming tender and also an alternative tender. The tender summary identified a cost difference between the conforming tender and the alternative tender with respect to the alternative mechanical system in the amount of $786,567.00. Further, reference is made to a statement under the heading "Schedule Two - Section One - Built Design & Construct Alternate Tender Clarifications" at page 62, where it states under subheading four "Mechanical Services":

"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 standalone 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."

• [66] The language used is reflected (largely) in clause 1(ag) of Annexure Part O and clause 1(u) of the Contract. The plaintiff submits that this is relevant as "objectively, it may be inferred that the parties intended to adopt the alternative proposal envisaged by Built's 'non-conforming' tender".
• [67] The second category of extrinsic evidence sought to be relied upon by the plaintiff is the precontractual negations from the period between when the tender response was submitted and the Contract was signed. The plaintiff identifies that there are numerous meetings, discussions and extensive correspondence between the plaintiff and the defendant, including through the defendant's agents:

"(a) to clarify what was included in, and excluded from, Built's tender; and

(b) to negotiate the terms of the Contract, with a focus on the final scope of the WUC and the final Contract price."

• [68] The plaintiff also seeks to rely on information in relation to its subcontractor, Batec, continuing to develop the design and provide further details of the alternative proposal.
• [69] This evidence includes:

(a) An email on 6 March 2015 from Mr Collison of Tactical to Mr Thwaite stating "Pro Invest have agreed to proceed with a VRV system"[10] and Mr Thwaite's response "[h]ow interesting. After all the words from holiday inn about complying with their brief".[11]

(b) Email dated 30 March 2015 at 2.35pm from Mr Meredyth of the plaintiff to Mr Collison of Tactical which attached a proposed air conditioning layout and piping configuration sample "for your acceptance prior to documenting the design". The email states that the "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". The email confirms the temperature set point will range between 22 and 24 degrees celsius and requests approval/acceptance.[12]

(c) An email dated 30 March 2015 at 5.30pm from Mr Collison of Tactical to Mr Meredyth of the plaintiff,[13] which includes in the email chain as follows:

(i) At 2.46pm Mr Collison forwarded Mr Meredyth's email to Mr Thwaite asking for advice and stating that subject to that advice he would "issue appropriate instructions to Built".

(ii) At 4.54pm, Mr Thwaite responded to Mr Collison including as follows:

"7. 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)."

(iii) At 5.30pm, Mr Collison forwarded Mr Thwaite's comments to Mr Meredyth and requested clarification prior to confirming acceptance.

(d) An email dated 31 March 2015 at 2.31pm from Mr Meredyth of the plaintiff to Mr Thwaite responding to the questions as follows:

"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."[14]

(e) The same email contained a further response from Mr Meredyth stating that "[m]aximum allowable refrigerant lift for Toshiba VRF system is 80metres".

(f) An email dated 31 March 2015 at 2.47pm from Mr Thwaite responding as follows:

"... I note your other comments and they are OK with the exception of the ground floor AC systems. The location of any condensing units at low level would be a point of great concern for the architect ...The meeting proposed is to dot the iiiis [sic.] over what is the actual scope of work of the mechanical services contract which you believe that you have signed up for ... The hotel operator also has particular requirements which will need to be addressed ..."[15]

(g) An email dated 31 March 2015 at 3.11pm from Mr Meredyth responding to Mr Thwaite's comments as follows:

"We have not been provided with a [sic] IHG 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."[16]

(h) Meeting minutes dated 25 February 2015 between various personnel of Aurecon, Tactical and the defendant recorded under the heading "VRV - Chilled Water" which state as follows:

"It was agreed that VRV is the solution for HIE, subject to the system being designed with belts and braces to ensure issues such as gas leakage are covered, as well as servicing.

JR noted that VRV can and has been used successfully up to 30 stories and can be used in mixed-use however the metering issue needs to be addressed.

JR will seek to meet with IHG in Singapore next week to outline the background to the proposal to use VRV as IHG have a preference for a traditional chilled water system.

GC [Glenn Collison] noted the savings in Spring Hill were in the order of $700,000 (in mechanical and structure).

The Ibis Adelaide has a VRV system and the Ibis Brisbane will have an [sic] VRV system."[17]

(i) An email dated 9 April 2015 from Mr Meredyth of the plaintiff to Mr Collison of the defendant forwarding an email from Cushway Blackford.[18] Mr Meredyth's covering email refers to the email from Mr Brock of Cushway Blackford and stated:

"Please note that largely the IHG 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."

(j) The email from Mr Brock of Cushway Blackford stated:[19]

"... please find attached concept sketch & supporting brief description of the proposed mech systems.

Note there is only one (1) material change from the current mechanical design, which is VRF in lieu of chilled water.

Detailed summary of current proposal (for reference):

- 2-pipe heat pump VRF systems, zoned north/south over 2 floors each (total 12x systems + ground) ..."

(k) Attached to the email was also a letter from Cushway Blackford dated 9 April 2015,[20] which stated:

"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.

The above proposal is based on our understanding of the IHG Engineering Standards (Asia Pacific) Section 9 (Holiday Inn Express Supplement), generally as follows:

- Clause 9.2.1 nominates VRF as an option for air conditioning

- Clause 9.2.3 allows the use of 2-pipe systems, with electric re-heat in temperate climates only (Brisbane is sub-tropical climate).

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

(l) An email dated 15 April 2015, from Mr Collison of Tactical responding to Mr Meredyth's email of 9 April 2015 stating:

As discussed, we have received confirmation from the Principal to proceed with the mechanical design development in accordance with information summarised in the email below..."[21]

• [70] The plaintiff contends that based on this extrinsic evidence the words "alternative proposal" used in the Contract, is a reference to a two-pipe VRF heat pump system. Further, the plaintiff contends that it "is uncontroversial that this type of system [a two-pipe VRF heat pump system] cannot provide mode control to each individual guest room".[22]
• [71] The submissions made by the plaintiff from paragraphs [50] to [79] of the plaintiff's written closing submissions contain commentary based on each of the pieces of extrinsic evidence claimed to be admissible on the approach identified above.
• [72] Some of the submissions contain conclusions based on knowledge outside of what is stated on the face of the documents. For example, in paragraph [52] reference is made to the email of 6 March 2015 referring to a VRF system. Discussion then ensues as to the two different types of VRF system being the heat pump system where units can either heat or cool, but not at the same time, and heat recovery systems where cooling and heating are available independently, at the same time.
• [73] Further, at [55] in considering the email dated 30 March 2015 the inference is drawn from the reference to "A/C zones" and "two zones to cater for different heat loads on the building façade" as being a statement that "could only be a reference to a VRF heat pump system". This seeks to infer a conclusion that the referenced words support a conclusion that the alternative proposal could not heat or cool at the same time.
• [74] At this point in the submissions, reference is also made to evidence from Mr Lord in his expert report dated 22 July 2019. This was obviously not material that was known to the parties as an independent objective fact prior to the Contract being entered into. Submissions occur in paragraphs [57] to [59] in relation to the operation of a two-pipe VRF heat pump system which is not apparent from the extrinsic material referred to above.
• [75] For example, paragraph [58] involves a discussion of how the occupants in rooms within the "zoned" areas do have temperature control under a two-pipe VRF heat pump system. An occupant is said to be able to adjust the temperature by regulating the amount of cooling received (if the system is in cooling mode) or the amount of heating received (if it is in heating mode). Further, it is identified that if the system was in cooling mode and an occupant wanted a warmer temperature, the occupant could select the temperature and the system would respond by providing ventilation, not chilled air. Thus, the temperature in the room would change as requested by the occupant. This also applies in the reverse scenario where the system is in heating mode and an occupant wants a cooler temperature.

• [78] The submissions again extrapolate from this evidence that the piping schematic could "only be depicting a VRF heat pump system" because that system uses two pipes and it could not be a heat recovery system, as that system uses three pipes.
• [79] Further, at paragraph [64] of the plaintiff's written closing submissions, reference is made, in particular, to comments from Mr Thwaite by email dated 30 March 2015 at 4.54pm containing comment number seven. The submission is phrased as being that Mr Thwaite "was clearly mindful of the fact that if the system was a heat pump VRF system it would be designed such that there would be 'zones' and that those 'zones' would need to be 'consistent with the façade they are mounted on'." Again, it is extrapolated that the reason for the zoning is that it is a heat pump system and simultaneous heating and cooling would not be provided to the individual indoor units.
• [80] At paragraph [70] of the submissions, the plaintiff mixes what it is seeking to rely on from the extrinsic material with the current expert evidence. The plaintiff refers to the conclusion in Mr Dowden's report[24] that a reverse cycle system or heat pump system can only distribute heating or cooling at one time and not simultaneously to establish that "an inherent feature of a heat pump system is that it can only distribute heating or cooling at one time and not simultaneously". This is not an objective fact established by the extrinsic material, but the plaintiff seeks to use it to bolster its case through an interpretation of the extrinsic material that it seeks to rely upon.

Performance requirement of the tender drawings and the Specification

• [81] The second aspect to be considered is the phrase in clause 1(u) of Annexure Part O:

"on the basis that the Contractor meets the performance requirement of the tender drawings and specifications".

• [82] The meaning of "performance requirement" is in dispute. It is not defined in the Contract.
• [83] It is accepted by the plaintiff that the reference to "tender drawings and specifications" is a reference to the tender drawings and the Specification.
• [84] Whilst both parties have referred to expert evidence in relation to the meaning of "performance requirement", the plaintiff's primary position is that the question of interpretation of the Contract is a matter for the Court and not expert evidence. That is the correct approach.
• [85] The plaintiff contends that not every aspect of the tender drawings and the Specification amounts to a performance requirement. That is, it is relevantly a subset of statements within those documents where there is a requirement for performance of the mechanical system. The plaintiff also seeks to distinguish the method by which that performance is achieved.
• [86] This consideration leads to the contention as outlined in paragraph [89] of the plaintiff's written closing submissions as follows:

"Because Part O, clause 1(u) limits Built's obligation to the performance requirement of the tender drawings and specification, the methods by which these systems achieve particular minimum and maximum temperatures is immaterial - what matters is whether the systems in fact achieve particular minimum and maximum temperatures because that is the performance requirement of the Thwaite specification."

• [87] This contention is reliant upon the plaintiff's focus on the design criteria set out in clause 3.1 of the Specification. The argument proceeds that the alternative proposal originally being installed by the plaintiff could have achieved the temperatures set out in the design criteria in clause 3.1 of the Specification and therefore the performance requirement of the Contract had been met.
• [88] The plaintiff also seeks to rely on the expert evidence in relation to the practical realities of an occupant of a room being able to control the temperature outside a designated temperature range. However, there is no articulation of the basis upon which it is contended that this extrinsic evidence can be relied upon to interpret the clause in the Contract.
• [89] This contention is expressed at paragraph [104] of the plaintiff's written closing submissions as follows:

"In Built's submission the ability of the air conditioning system to achieve particular temperature ranges was the relevant performance required by the Thwaite Specification ... The fact that the Thwaite specification offered a different method of achieving that same performance cannot mean that the particular method adopted in that case (i.e. mode control to each individual guestroom) was the relevant performance requirement. The requirement was to achieve a particular temperature range. Guests using the alternative proposal would have ... been able to achieve that range of temperatures. That a different method was to be utilised is of no relevance."

• [90] There is a difference between the plaintiff's written closing submissions and the oral submissions made on 13 November 2020. At paragraph [106] of the written closing submissions it states "[a] reasonable person in the position of the parties at the time of contract would not consider clause 2.2.1 (and those that follow) of the Specification to have any relevance in circumstances where the alternative proposal was not an 'air-cooled 4 pipe chiller (heat recovery type)'". However, at the hearing it was conceded that there may be some performance requirements contained in the Specification and drawings that were not contained in clause 3.1 Design Criteria.[25] However, this was not explored further but the concession was made and it was noted by Senior Counsel for the defendant.[26]
• [91] Further, the plaintiff contends that hotel guests in individual rooms had the ability to heat or cool their rooms and that "the alternative proposal allowed individual guests to set their thermostat so as to achieve their desired temperature within those limits, by way of obtaining conditioned air or simply ventilation".[27]
• [92] The plaintiff also submits that the parties cannot have intended the Contract to mean that the requirements of virtually all parts of the Specification were performance requirements as this would in effect negative the obligation to install the alternative proposal. Further, it is contended the parties cannot have intended the Contract to mean that the alternative proposal should be installed on the basis that it meets a requirement of the Specification that the alternative proposal, of its very nature, could not meet.
• [93] Reference is made to the fact that clause 1(u) of Annexure Part O uses the singular "performance requirement", rather than the plural "performance requirements". While the Contract provides that words in the singular include the plural "according to the requirements of the context", the plaintiff contends that the context here means that the use of the singular indicates the performance outcome set out in the design criteria in clause 3.1 of the Specification. The plaintiff says this is also reinforced in clause 1(ag) of Annexure Part O by the reference to "documented design criteria".
• [94] Reliance is also placed on the introductory words to clause 3.1 of the Specification which state as follows:

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

• [95] The plaintiff points to the absence of similar words in relation to sections 2.2 and 2.3 of the Specification as the basis for the submission that they do not have any application to an alternative proposal.

• [96] The defendant contends that the Contract required that the mechanical services system meet "the performance requirement of the tender drawings and specifications". A key requirement was that the mechanical services system be capable of independently heating and cooling individual guest rooms. This meant that each guest could choose heating or cooling, independently from other guests.
• [97] The defendant's position is that the Mechanical Direction was a notice to rectify defective work as the system being installed by the plaintiff did not perform the Independent Heating/Cooling Function.
• [98] Further, the defendant contends that whilst there was correspondence between the parties between the submission of the tender proposal (including the alternative proposal) and the Contract being executed, the Contract itself is what needs to be considered as being the agreement reached between the parties.
• [99] The defendant submits as follows:

"Rather, what the parties did was the exact opposite. They chose to insert a 'clarification' in the Contract that specifically allocated the risk to Built that the alternative mechanical services system would meet the performance requirement of the Tender Drawings and Specification. There are two sophisticated commercial parties entering into a $32 million Contract for the design and construction of a hotel. This is how the parties chose to deal with any risk which existed in respect of this particular issue. The basis for this agreement of course is consistent with the entire understanding clause contained in clause 44.5 of the Contract ..."[28]

• [100] In respect of the approach to the proper construction of the Contract, including clause 1(u) of Annexure Part O, the defendant submits:

(a) it is not permissible to use the functionality of the alternative proposal to dictate what the performance requirement is.[29]

(b) the knowledge or understanding of the defendant in respect of the two-pipe VRF system is not relevant to the operation of clause 1(u).[30]

(c) the evidence does not support a fact objectively known by the defendant that the alternative system did not provide the Independent Heating/Cooling Function.[31]

(d) the parties could have included particulars of the alternative proposal in the Contract. However, this was not done. Clause 1(u) was inserted, together with two entire agreement clauses in the Contract.[32]

(e) clause 1(u) refers to the performance requirements of the "tender drawings and specifications". This is a compound expression, and the phrase must be read together. The words support reading "performance requirement" in the plural.[33]

(f) every word in clause 1(u) must be given effect to "so as to preserve the bargain reached between these two commercial parties". The plaintiff's construction does not do this.[34]

(g) the parties intended that the performance requirements be found in both the tender drawings and the Specification.[35]

(h) this construction is consistent with clause 1(u) being a risk allocation provision. That is:

"It provides that in exchange for a $33 million contract, it is Built who assumes the risk that the mechanical services system it designs and constructs will meet the performance requirements of the tender drawings and specifications."[36]

(i) clause 1(u) does not use the phrase "the documented design criteria" and the deliberate choice of words used tends to support a different meaning. This in turn, tends to support a construction that the performance requirements are to be found in both the tender drawings and Specification.[37]

• [101] As to the approach to the construction of clause 1(u) of the Contract, the defendant contends:

(a) it is not correct to undertake the exercise proposed by the plaintiff to identify the alternative proposal.

(b) but, even if that is done, and the alternative proposal is a "VRF two pipe heat pump system", it is still to meet the performance requirements in the tender drawings and the Specification.[38]

• [102] Further, the defendant submits there is no ambiguity in clause 1(ag) of Annexure Part O - it says a VRF type arrangement. But even if it is assumed to be a two-pipe VRF system, the risk allocation remains in favour of the defendant.[39]
• [103] The defendant acknowledges that parol evidence is admissible to identify the subject matter of a written contract but this is in circumstances where the subject matter is expressed in an uncertain or ambiguous fashion. That is not the case here.[40]
• [104] In response to the plaintiff's submission on the correct construction of the Contract, the defendant refers to and relies on MacDonald v Shinko Australia Pty Ltd.[41]
• [105] In that case, McPherson JA stated:[42]

"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 Pty Ltd v. Rathmines Investments Pty Ltd [1984] 1 Qd.R. 302. But 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. Here there is no uncertainty or ambiguity in the contractual identification of the subject matter. The designation in the written contract of 29 August 1995 may have been the result of a mistake; but on its face it is perfectly plain. Parol evidence of pre-contractual statements is not needed in order to identify it from the description given in the written contract."

• [106] Further, Davies JA stated:[43]

"... the appellant submits that because of cl. 28.1 of the instrument of contract between the parties the respondent cannot refer to evidence outside the instrument to prove a prior oral contract or a continuing common intention of the parties to buy and sell a unit different from that identified in the contract in order to seek rectification of that instrument. The clause is in the following terms:

This Agreement constitutes the entire agreement of the parties as to its subject matter and supersedes and cancels all prior arrangements, understandings and negotiations in connection with it.'

The purpose of that clause, it seems to me, is to exclude any such evidence either to prove terms additional to or different from the written instrument or collateral contracts or to construe the instrument in a way different from the meaning to be inferred solely from its terms."

• [107] As there is no uncertainty or ambiguity here, the defendant contends it is not permissible to undertake the task as proposed by the plaintiff of looking at the pre-contractual documents.
• [108] On the proper construction of the Contract, the defendant's position is that the plaintiff was required to build a mechanical services system that satisfied the performance requirement of the Contract to provide the Independent Heating/Cooling Function. In these circumstances, the Mechanical Direction was not a variation but was a notice to rectify defective work.

• [109] Following consideration of the relevant authorities and submissions on behalf of both parties, I have reached the conclusion that extrinsic material is not admissible to interpret the words "alternative proposal" contained in clause 1(u) of Annexure Part O of the Contract.
• [110] This conclusion is reached on the following reasoning.
• [111] The "true rule" as identified by Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) remains binding authority in relation to this issue.
• [112] Often reference is made to the first two sentences of "the true rule" without consideration of the discussion which immediately follows that statement. It is necessary to consider the full statement of the rule.
• [113] Further, the decision of the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,[44] considered the applicable legal principles. French CJ, Nettle and Gordon JJ in joint reasons stated as follows:[45]

"The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties ... intended to produce a commercial result'. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.

These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority (NSW) and Electricity Generation Corporation v Woodside Energy Ltd." (Footnotes omitted)

• [114] The reasons of Kiefel J (as the Chief Justice was then) and Keane J recognise that the "ambiguity" referred to in Codelfa arises when the words are "susceptible of more than one meaning". However, their Honours noted:

"His Honour did not say how such an ambiguity might be identified. His Honour's reasons in Codelfa are directed to how an ambiguity might be resolved."[46]

• [115] Their Honours then considered the refusal of special leave to appeal in the matter of Western Export Services Inc v Jireh International Pty Ltd.[47] In the reasons for refusal of special leave, reference was made to a requirement that it is essential to identify ambiguity in the language of the contract before the Court may have regard to the surrounding circumstances and the object of the transaction. Their Honours noted "[t]here may be differences of views about whether this requirement arises from what was said in Codelfa. This is not the occasion to resolve that question."[48] French CJ, Nettle and Gordon JJ in their joint reasons agreed with the observations of Kiefel and Keane JJ in respect of this issue.[49]
• [116] The appeal in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd proceeded on the basis that any possible ambiguity as to the meaning of the words being considered in that case arose from the terms of the clause in the contract itself. Whether an ambiguity in the meaning of terms in a commercial contract may be identified by reference to matters external to the contract did not arise in that case.[50]
• [117] This may be relevant to considerations in the current case as discussed further below.
• [118] While Codelfa remains binding authority, the question whether ambiguity must be shown before a Court interpreting a written contract can have regard to background circumstances has received differing applications. It could be said that the existence and scope of the ambiguity required is a matter of judicial controversy. A consideration of this controversy is summarised by Jackson J of this Court in a first instance decision in Aurizon Network Pty Ltd v Glencore Coal Queensland Pty Ltd & Ors.[51] Whilst this matter was overturned on appeal, and the Court of Appeal reached a different construction of the contract, the summary of some of the relevant issues and differing views as to the approach to extrinsic evidence as set out in paragraphs five to 122 has not been disturbed.
• [119] One of the difficulties identified in the overview of the authorities and approaches is "drawing the line between admissible evidence of extrinsic facts that are raised in negotiations and inadmissible evidence of prior negotiations that would tend to reveal or prove the parties' subjective intentions". That line is also relevant here when consideration is given to the particular extrinsic material that the plaintiff has sought to rely on and also other material including the current expert reports and inferences sought from what appears to be a combination of the pre-contractual negotiations and the opinions contained in the expert reports. It is important to keep in mind that it is "objective facts" known to both parties that may be admissible if the ambiguity "gateway" is established. The consideration of extrinsic facts, being facts that were known to all relevant parties at the time of making the contract, is substantially different to attempts to find meaning of terms in pre-contractual negotiations and then to import them into terms used in the contract.

"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".

• [122] There is no ambiguity as to what the alternative proposal is. It is a VRF air conditioning system. The second and third sentences in clause 1(ag) also add a level of detail to the "alternative proposal".
• [123] In these circumstances I do not consider that the "gateway" has been satisfied so as to enable recourse to extrinsic material to interpret clause 1(u).
• [124] It is not expressly raised in submissions but it is open to be inferred from the plaintiff's submissions that they are seeking to identify the ambiguity through the extrinsic material itself. This is the issue that was identified in the reasons of Kiefel and Keane JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd. The issue is therefore whether reference to matters external to the Contract can be relied on to identify the ambiguity.
• [125] This appears to be directly at odds with the parol evidence rule itself and also with the fact that there are two entire agreement clauses in the current Contract: one in the Formal Instrument of Agreement and one in the General Conditions.
• [126] The parol evidence rule remains a fundamental rule in relation to the construction of contracts. This was confirmed by the decision of the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd.[53] In the joint judgment of Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ, their Honours stated:

"The respondents each having executed a[n] ... agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it ...

There are reasons why the law adopts this position. First, it accords with the 'general test of objectivity [that] is of pervasive influence in the law of contract'. The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions ...

Where parties enter into a written agreement, the Court will generally hold them to the obligations which they have assumed by that agreement. At least, it will do so unless relief is afforded by the operation of statute or some other legal or equitable principle applicable to the case ...

It is a time to maintain those rules. They are not unbending. They allow for exceptions. But the exceptions must be proved according to established categories. The obligations of written agreements between parties cannot simply be ignored or brushed aside."[54] (Footnotes omitted)

• [127] The parol evidence rule itself would operate to exclude extrinsic evidence for the purpose of interpretation. One of the issues to be considered, however, is whether the parties as a matter of fact, determined the whole of the Contract would be in writing. In this case where there are two entire agreement clauses this may be sufficient to satisfy that issue without further consideration.
• [128] The existence of the entire agreement clauses evidences express statements that the written Contract represents the whole of the agreement.
• [129] There is a view that where an entire agreement clause is included, the result may be that the parties have "contracted out of contextualism". This may be an additional basis for excluding reference to extrinsic evidence for the purpose of contractual interpretation.[55]
• [130] The High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd clearly identified that the task involves an interpretation on the assumption that the parties intended to produce a commercial result. The plaintiff has made submissions that it is necessary to identify the subject matter with precision so that it can be known with certainty what the alternative proposal is and also that it would be a commercial absurdity if, in effect, the alternative proposal was incapable of complying with the "performance requirement of the tender drawings and specifications".
• [131] Conversely, the defendant submits that the parties could have inserted particular details as reflected in the emails and documents sought to be relied on as extrinsic evidence. However, they chose not to do that. There is some force in the submission that the parties chose to insert the particular "clarification" that identified the alternative proposal at a more general level with a specific qualification allocating the risk to the plaintiff.
• [132] The defendant submits that this is consistent with the entire agreement and understanding clause and is a result of two sophisticated commercial parties entering into a design and construct contract. This will be considered further below in relation to the interpretation of clause 1(u). However, this is also relevant to the consideration of the admissibility of the extrinsic material.
• [133] The maintenance of the parol evidence rule and the upholding of entire agreement clauses in contracts is consistent with recognising a commercial objective for certainty. This could be described as a "fundamental commercial objective for all parties ... to know where they stand without undergoing the risks and uncertainties of litigation".

"[T]he idea that an arbitrator or a judge would be called upon to determine the true intention of the parties by going beyond the written contract to encompass anything which disputing parties can relevantly imagine, would be regarded by most parties, at the time of formation of the contract, to constitute a commercial disaster."[57]

• [135] It is in these circumstances that an entire agreement clause being upheld and enforced provides a commercial result consistent with the express agreement by the parties that the written Contract forms the whole agreement between the parties and replaces all previous representations and drafts.
• [136] The allocation of risk between the parties is recognised as being a significant purpose of contract law but is particularly so in relation to construction contracts. This is a design and construct contract and the allocation of risk in relation to design is something that is considered further below.
• [137] In these circumstances I consider that the extrinsic material sought to be relied upon by the plaintiff is not admissible.

• [138] The task is then to consider more broadly what is meant by clause 1(u) of Annexure Part O.
• [139] In Byrnes v Kendle,[58] Heydon and Crennan JJ observed in relation to contractual construction as follows:

"The approach taken to statutory construction is matched by that which is taken to contractual construction. Contractual construction depends on finding the meaning of the language of the contract - the intention which the parties expressed, not the subjective intentions which they may have had, but did not express. A contract means what a reasonable person having all the background knowledge of the 'surrounding circumstances' available to the parties would have understood them to be using the language in the contract to mean. But evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of "surrounding circumstances".[59]

• [140] In the context of statutory construction, in the recent decision of Westpac Securities Administration Ltd v Australian Securities and Investments Commission,[60] Gordon J commented:

"[The clause] is to be read as a whole and given its ordinary meaning, in light of its context and purpose. It is not to be dissected into separate words or phrases, the meanings of which are then amalgamated into some composite meaning."[61] (Footnotes omitted)

• [141] There is a risk in this case of doing exactly what Gordon J warned about. The plaintiff has focused on two distinct aspects of clause 1(u) and then contended that they would be inherently inconsistent and therefore that could not be the meaning. However, if the clause is read as a whole and given its ordinary meaning, in light of its context and purpose, then the tension identified falls away.
• [142] As submitted by the defendant, clause 1(u) makes it clear that the alternative proposal was only being accepted on the basis that it met the performance requirement of the tender drawings and the Specification. It also clearly allocates the risk that the mechanical services system will meet the performance requirement set out in both the tender drawings and the Specification to the plaintiff.
• [143] The issue is then, on the proper construction of clause 1(u) of Annexure Part O whether independent heating and cooling (or referred to as mode control) was a performance requirement of the tender drawings and the Specification.
• [144] The preliminary design documents are contained in Annexure Part K and incorporate the drawings and Specification. It is not contentious that these are the documents that the original tender proceeded on.[62]
• [145] The reference to "tender drawings and specifications" in clause 1(u) Annexure Part O is therefore to be interpreted as a reference to the drawings and specifications included in the Contract.
• [146] These documents also form part of the "Principal's project requirements". The express purpose of the Principal's project requirements is the design and construction of the "project", namely, the Spring Hill Hotel.
• [147] The relevant clauses of the Contract are set out in full above. These include:

(a) Clause 2.2 of the Contract which requires the plaintiff to carry out and complete its design obligations in accordance with the "Principal's Project Requirements" and to complete the WUC in accordance with the drawings and specifications in Annexure Part K so that the works, when completed, would be fit for their stated purpose and comply with all requirements of the Contract.

(b) Clause 2.6 of the Contract which provides that where the "Principal's project requirements" include "performance specifications", the plaintiff was required to ensure that the performance specifications were satisfied when completing the design and construction of the works and in making any selection of materials, plant or equipment for inclusion in the works so that the works would be fit for purpose.

• [148] The term "performance requirement" is not used in clause 2.6.
• [149] The critical issue for determination in this matter is whether or not the Independent Heating/Cooling Function was a performance requirement of the tender drawings and the Specification.
• [150] It is not a task before this Court to interpret all or any other performance requirement or performance requirements of the tender drawings and the Specification.
• [151] Applying the ordinary meaning, the term refers to a requirement relating to performance. In this case, a requirement relating to performance of a mechanical services system, being the air conditioning system.
• [152] The defendant refers to the Macquarie Dictionary definition of these terms as follows:

"Performance: 'the way in which something reacts under certain conditions or fulfils the purpose for which it was intended'.

Requirement: 'that which is required; a thing demanded or obligatory'."

• [153] Reference is also made to the definition of "performance" in the Australian Oxford Dictionary to mean "the capabilities of a machine".
• [154] The shorter Oxford English Dictionary defines "performance" as including:

"The capabilities of a machine, esp. a motor vehicle or aircraft, measured under test."

• [155] This definition identifies a capability of a machine which is measurable. This appears to be an apt definition for the current consideration.
• [156] The question may then be considered as whether independent heating or cooling was:

• [157] The clause is also to be considered in the context of the Contract itself. There are several preliminary matters which are relevant to these considerations including:

(a) The performance requirement is to be ascertained, identified or otherwise derived from the tender drawings and specifications. This task does not require a consideration of the alternative proposal.

(b) The reference is to "tender drawings and specifications" and the reference to both would support a construction that draws on requirements from both sources. This is of particular significance given the plaintiff's submission that clause 3.1 of the Specification sets out all of the relevant performance criteria which could constitute performance requirements for the purposes of clause 1(u). This cannot be the meaning intended by the language used. Otherwise, there would be no need for "drawings" to be included.

(c) The term "performance requirement" is not used elsewhere in the Contract. It is to be contrasted with other terms such as "performance specification" (clause 2.6 of the Contract), "acceptance criteria" (clause 3.4 of the Specification) and "design criteria" (clause 3 of the Specification). Objectively, the use of a specific and different term supports a conclusion that it was intended to mean something different to those other terms and should not be limited to the meaning in those other terms.

• [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.
• [163] What the language in clause 1(u) does is to provide for a VRF air conditioning system to be designed which adapts and applies the performance requirements that were set out in the tender drawings and specifications in respect of the four-pipe chiller (heat recovery) air conditioning system.
• [164] The plaintiff's argument that this renders nugatory the alternative proposal is incorrect. It is accepted that it is possible to design a VRF air conditioning system which does provide for independent heating and cooling. That is what has happened. The question to be determined is whether clause 1(u) of Annexure Part O required that or not.
• [165] It is also important to keep in mind that this a design and construct contract. The preliminary drawings that were included at the tender stage and were incorporated into the final Contract required further detailed design to be undertaken and a process followed by which compliance with the Specification was considered and further liaising with the defendant prior to construction as part of the contractual obligations. A contract of this nature requires design work to be undertaken and then an evaluation against the requirements and if there was any deviation or variation from that then further consultation with the principal needed to occur.

• [173] As a consequence of these findings, the next issue to be considered is whether the notice provided on 11 August 2016 was a notice to rectify defective work as it purported to be, or whether it constituted a direction for a variation.
• [174] By the time of the 11 August 2016 notice, an issue had arisen between the parties as a result of the two-pipe system that had been designed and partially installed by the plaintiff not being capable of performing the Independent Heating/Cooling Function. The two-pipe system which was in the process of being installed operated in either heating or cooling mode and also grouped multiple rooms together into single zones.
• [175] The plaintiff at that time and at the hearing, maintained that the two-pipe system it had designed and partially installed complied with the requirements of the Contract.
• [176] Given my finding above, this position has not been made out.
• [177] The notice given on 11 August 2016 was issued pursuant to clause 29.3 of the Contract as a notice to rectify defective work. In summary, the Mechanical Direction:

(a) Notified the plaintiff that the mechanical services system being installed did not comply with clause 1(u) of Annexure Part O of the Contract because it did not meet the performance requirements of the Specification.

(b) Set out the ways in which the mechanical services system did not meet the performance requirement of the Specification, including its inability to perform the Independent Heating/Cooling Function.

(c) Directed the plaintiff to remove or redesign the mechanical services system and replace it with a mechanical services system that would meet the performance requirements of the Specification.

• [178] Subsequent notices on 16 August 2016 and 17 September 2016 were consistent with the original Mechanical Direction. The 16 August 2016 notice confirmed that the original Mechanical Direction had not been given in error, did not constitute a direction for a variation and further directed the plaintiff to comply with the original notice. The further notice given on 17 September 2016 again advised that the Mechanical Direction was valid and current.
• [179] The expert evidence at the trial established that the two-pipe VRF system that was being installed was incapable of performing the Independent Heating/Cooling Function.[63] This was not contentious.
• [180] As a result of the language used in clause 1(u) of Annexure Part O, the risk in respect of the VRF air conditioning system meeting the performance requirement of the tender drawings and specifications was allocated to the plaintiff. In circumstances where the mechanical services system installed fell short of that requirement then the liability of any remedial action that needed to be taken was the responsibility of the plaintiff.
• [181] In these circumstances, the Mechanical Direction was a valid notice to rectify defective work and was not a direction to undertake a variation. Further, the plaintiff was required to rectify the defective mechanical services system at its own cost and is not entitled to the costs of carrying out that work, an extension of time, delay damages or the return of any liquidated damages set-off by the defendant.
• [182] Accordingly, question 1(b) is to be answered in the affirmative.
• [183] Question 1(c) of the list of issues is to be answered on the basis that subparagraph (ii) is the proper construction of the Mechanical Direction.
• [184] Given these findings, it is not relevant to consider questions six, 13 and 18 of the list of issues. These relate to the plaintiff's claims in relation to the costs of undertaking the work, its claim for an extension of time and delay damages and the return of any liquidated damages.
• [185] However, it is appropriate that I consider these issues and make the necessary findings in case I am in error in respect of the admissibility of the extrinsic material and the construction of the Contract. I deal with these issues at .

• [186] Overall, the plaintiff submits that the evidence establishes that the delay to practical completion arose by reason of the Mechanical Direction.[64]
• [187] The defendant contends that the plaintiff or its contractors failed to undertake the timely installation and delivery of the joinery works. The defendant submits that there is no entitlement to an extension of time in respect of the alleged joinery delay as:

(a) the plaintiff did not comply with the notice provisions in clause 34.3(b) of the Contract; and

(b) the plaintiff was not delayed in reaching practical completion by reason of the alleged joinery delay.[65]

• [188] Given my findings in these reasons, if this issue needs to be considered further, it should be addressed as proposed in the further submissions.

• [189] Question two in the list of issues in dispute between the parties is relevant to this issue:

"2. In respect of the alleged Bathroom Design Variation, whether [SOC [10], [11], [13]; DEF [11], [12], [13]; R [11], [12], [13], [14]] whether:

(a) either on a proper construction of the contract or by operation of a waiver or estoppel, by correspondence dated 13 July 2015, 5 May 2016 and 12 May 2016 (together or individually), the plaintiff was directed to undertake a variation of the works in the bathrooms, within the meaning of clause 1 and clause 36 of the Contract; and

(b) the plaintiff is entitled to payment for the alleged variation; or instead

(c) the alleged Bathroom Design Variation resulted in a reduction to the plaintiff's scope of works."

• [190] The defendant identifies an additional issue which has not been agreed to by the plaintiff as follows:

"(d) the plaintiff has complied with the notice provisions contained in clause 36.1 and clause 20."

• [191] The relevant issue in respect of quantum is question 14:

"In respect of the alleged Bathroom Design Variation, the price of the work performed by the plaintiff in carrying out the alleged Bathroom Design Variation [SOC [13]; Def [13]]."

• [192] The parties have also agreed that the following is not in dispute:

"2. In respect of the alleged Bathroom Design Variation:

(a) that the correspondence which is alleged to comprise the alleged Bathroom Design Direction (consisting of correspondence dated 13 July 2015, 5 May 2016 and 12 May 2016) was given to the plaintiff attaching drawings which were marked 'for construction' [SOC [10]; Def [11]];

(b) that the plaintiff performed the bathroom works required to be undertaken [SOC [11], [12]; Def [12]]."

• [193] This claim relates to the supply and installation of certain bathroom fixtures and fittings which the plaintiff alleges were not within the scope of the Contract. The plaintiff primarily claims that by correspondence dated 13 July 2015, 5 May 2016 and 12 May 2016, there was an expressed or implied direction for the plaintiff to supply and install those bathroom fixtures and as a result, this amounted to a variation within the meaning of the Contract.
• [194] The plaintiff claims an amount of $339,441.81 plus GST in respect of this variation. Mr Watson has provided an expert report on behalf of the plaintiff and values the claim at $274,314.53 plus GST. Mr Hardiman for the defendant has also prepared an expert report and values this claim at $289,800.47.
• [195] The plaintiff's primary contention is that the Bathroom Design Variation was a variation under the Contract pursuant to clause 36.1, and that as a consequence, the plaintiff is entitled to an assessment of the costs of the variation pursuant to clause 36.4 of the Contract.
• [196] Alternatively, if there is no entitlement to the costs of the variation pursuant to clause 36.1, the plaintiff contends that the defendant is estopped from relying on, or has waived its right to insist upon satisfaction of clause 36.1 of the Contract with respect to this variation.
• [197] The defendant's position is that the plaintiff is not entitled to an increase in the contract sum in respect of the alleged bathroom variation as the procedures in clause 36.1 have not been followed. The defendant contends that clause 36.1(f) is not applicable in the circumstances and that the relevant contractual provision is clause 36.1(g). This clause requires notice to be given within five business days of receiving a direction to perform the variation. Further, reliance is placed on clause 36.1(h) which provides that there is no entitlement as a consequence of complying with a direction for a variation, unless there is entitlement to make a claim under clause 36.1.
• [198] The defendant also relies upon clause 20 as providing a further bar to entitlement. The defendant contends that clause 20 is also applicable and it similarly contains a requirement for notice to be given no later than five business days after a direction.
• [199] The defendant's ultimate position is that there is no entitlement as the preconditions in clause 36.1 and clause 20 have not been complied with.

(a) the guest room shower screen doors, hinges and towel/handrail;

(b) the stainless steel capping to the bathroom door jamb;

(c) an additional plasterboard wall underneath the vanity; and

(d) extension of the bathroom wall, including the waterproofing, tiling, painting and skirting.

• [203] The claim in respect of this Additional Bathroom Work is the inevitable consequence of the fact that the design for the bathrooms was not complete at the time of tender and the Contract being executed. It is apparent from the documents in the Contract that the final design for the bathrooms was to be undertaken. At the time of tender and the Contract being executed, indicative preliminary interior design documentation was included, which was actually for another project, Macquarie Park. There was also a guest room datasheet specific to the Spring Hill Hotel. As a consequence of this, the submissions for both parties focus on what was obliged to be built under the Contract and how the Contract deals with what was actually constructed in accordance with the "for construction" drawings.

• [204] The plaintiff points to four documents as the basis for its contention that it was directed to undertake additional work, including the Additional Bathroom Work. These four documents are as follows:

(a) An Aconex transmittal from Joseph Pang Design Consultants (JPDC) to the plaintiff dated 13 July 2015 attaching "for construction" drawings. This included drawings relating to the guest room bathrooms.[66]

(b) An Aconex transmittal from JPDC to the plaintiff dated 5 May 2016 attaching various "for construction" drawings. These drawings included drawings relating to the guest room bathrooms.[67]

(c) Two Aconex transmittals from the defendant dated 12 May 2016 regarding the status of the "for construction" drawings.[68]

• [205] In order to understand the significance of these documents, it is necessary to consider the relevant terms of the Contract and also to consider what it was that was required to be built under the Contract in respect of the guest room bathrooms.

What was required to be built under the Contract?

• [206] Annexure Part K of the Contract contains preliminary design documents which include a number of documents relevant to the guest bathrooms.
• [207] Reid Campbell, the architect engaged on the Project, prepared architectural drawings as part of the preliminary design documents for the Spring Hill Hotel. Annexure Part K lists the preliminary design documents including, a number of the architectural drawings under the heading "ARCHITECTURAL - Reid Campbell". Relevantly, document A4004 is a document headed "Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3". This drawing,[69] shows the architectural design for the queen and twin room guest room bathrooms, for the 216 guest rooms in this category.
• [208] The plaintiff refers to various parts of document A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) including notations on the drawing which identify specific categories of items either to be supplied by the builder, by the client and installed by the builder or alternatively, supplied and installed by the client (the client being the plaintiff).
• [209] Based on the plaintiff's analysis of the drawings it is submitted that it is "uncontroversial" that the defendant was to supply the following items:

(a) the sliding door at the entrance to the bathroom;

(d) other minor items, such as the toilet roll holder.

• [210] In addition to the architectural drawing, Annexure Part K of the Contract also lists documents under the heading "INTERIOR DESIGN - JOSEPH PANG DESIGN CONSULTANTS". Listed are a number of documents with a document reference starting with "ID" and four documents without that document reference but with the number "113109".
• [211] Document ID-01-BD is described as "Bathroom Twin Room Issue G".[70] The plaintiff has also analysed the drawing and submits that the bathroom design is "quite similar", although not entirely identical to the design set out in architectural drawing A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3).
• [212] The plaintiff identifies that the document ID-01-BD does not contain the narration outlining the position in relation to the various categories of items to be supplied and installed. There is, however, a notation which states as follows:

"THESE DRAWINGS ARE TO BE READ IN CONJUNCTION WITH ARCHITECTURAL BASE DRAWINGS & RELEVANT CONSULTANT DRAWINGS."[71]

• [213] On the basis of this notation, the plaintiff contends that the consequence of reading the JPDC document together with the architectural drawing in respect of the bathroom design would be that the items depicted by the broken lines on the JPDC document would be items that were to be supplied by the principal, that is, the defendant.
• [214] There is an added complication as the documents under the heading "INTERIOR DESIGN - JOSEPH PANG DESIGN CONSULTANTS" also includes the four documents which do not carry the reference commencing with "ID" but are all numbered "113109". These include a document described as "Guest Room Data Sheet Rev. A". The Guest Room Data Sheet lists various fixtures and fittings and then classifies the various fixtures and fittings by the use of a dot point into Category 1, Category 2 or Category 3.[72] These categories then are designated whether they are to be supplied and installed by the plaintiff or defendant, or supplied by one and installed by the other.
• [215] The Guest Room Data Sheet contains a notation that it is "BASED ON JPDC INTERIOR DESIGN DRAWINGS".
• [216] Immediately under the documents listed in Annexure K under the heading "INTERIOR DESIGN - JOSEPH PANG DESIGN CONSULTANTS" there is another category headed "SPECIALIST LIGHTING - ELECTROLITE", and under the documents listed, there is an annotation as follows:

"Note: Interior Design & Specialist lighting documentation included are for Holiday Inn Express Park but will be adopted for the Spring Hill Project."

• [217] The plaintiff points to the differences between the categories identified in architectural drawing A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) and the Guest Room Data Sheet. There is a direct conflict between these two documents as to who is to supply certain fixtures. For example, the shower door and bathroom sliding door are to be supplied by the defendant in accordance with A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) but under the Guest Room Data Sheet, these are to be supplied and installed by the plaintiff.
• [218] Annexure Part O of the Contract is also relevant. Annexure Part O deals with "clarifications" in respect of the WUC. Relevantly, paragraph (x) states as follows:

"It is noted that the 'Interior Design - Joseph Pang Design Consultants documentation' was provided for information and only forms part of the Contract where specifically and directly referred to within this Annexure Part O."

• [219] Clause 8.1 of the General Conditions sets out the approach for construction of the contractual documents and states as follows:

When construing the Contract Documents the following rules of construction apply:

(a) in the event of any inconsistency between the Contract Documents:

(i) the formal instrument of agreement and these general conditions have precedence; and

(ii) the clarifications have precedence over the preliminary design;

(i) where inconsistent levels of quality are required, the higher level of quality shall apply;

(ii) figured dimensions shall take precedence over scaled dimensions: and

(iii) drawings made to larger scales shall take precedence over drawings made to smaller scales;

(c) where the requirements of quality or any aspect of WUC is not expressly specified or depicted, the quality shall be consistent with the purpose; and

(d) drawings showing particular parts of WUC shall take precedence over drawings for more general purposes; and

(e) in all cases, the interpretation to be followed by the Contractor will be as reasonably determined by the Superintendent.

Where the Contractor considers that there is any ambiguity or discrepancy between the Contract Documents, it shall promptly advise the Superintendent in writing, who shall, subject to this subclause 8.1, give the Contractor a direction as to the interpretation to be followed.

Where the Principal or the Superintendent considers that there is any ambiguity or discrepancy between the Contract Documents, the Superintendent shall give the Contractor a direction as to the interpretation to be followed.

The Contractor shall have no entitlement as a consequence of a direction given by the Superintendent under this subclause 8.1 which is consistent with the rules of construction in this clause 8.1."

• [220] The reference to "clarifications" in this clause is a reference to the clarifications set out in Annexure Part O.
• [221] Given the inconsistency between A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) and document ID-01-BD, the plaintiff points to this provision as resolving the inconsistency. The plaintiff contends that as a result of paragraph (x) in Part O of the Contract, it has the effect that documents classified as "INTERIOR DESIGN - JOSEPH PANG DESIGN CONSULTANTS" documentation only form part of the Contract where it is specifically and directly referred to in Annexure Part O.
• [222] Annexure Part O does contain some examples of this in paragraphs (y) and (z). These deal with tiles to be used in the guest room bathrooms. As a consequence, paragraphs (y) and (z) of Annexure Part O govern the tiles to be used and override document "ID-PFSH-001" described as "Finishes Schedule - Issue H".[73]
• [223] The plaintiff submits that the interior design ID-01-BD document and the Guest Room Data Sheet are not referred to in Annexure Part O and therefore they contend that they do not form part of the Contract and do not form part of the WUC.
• [224] The defendant contends that the Guest Room Data Sheet was prepared by Tactical, not JPDC and while it is listed under the heading "INTERIOR DESIGN - JOSEPH PANG DESIGN CONSULTANTS" it is not caught by "Interior Design - Joseph Pang Design Consultants documentation" as used in clause 1(x) Annexure Part O.
• [225] The defendant also seeks to refer to documents in relation to the tender process including a tender addendum identified as RFI-03.[74] The defendant seeks to rely on the plaintiff's tender submission and the evidence of Mr Cook that the Guest Room Data Sheet was used for the purposes of the plaintiff preparing its price for the tender.[75]
• [226] There is no direct evidence as to the author of the Guest Room Data Sheet but it does have the defendant's logo and states "[p]repared by Tactical Group".
• [227] In response, the plaintiff contends that the Contract itself needs to be construed and what happened between the tender submission and the execution of the Contract cannot be used to define the WUC contrary to direct contractual provisions.

"GUEST ROOM DESIGN STILL PENDING CLIENT APPROVAL AND REFER TO INTERIOR DESIGN FOR SETOUT DETAILS."

• [229] This contention appears to be a submission that in effect A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) is to be interpreted by reference to the interior design documentation. Based on this argument, the documents listed under the heading "INTERIOR DESIGN - JOSEPH PANG DESIGN CONSULTANTS" would have a role not constrained by clause 1(x) of Annexure Part O.
• [230] Conversely, the plaintiff submits that the comment on A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) does not assist in resolving this issue. In this respect, the plaintiff points to several factors that tend to support the conclusion contrary to that contended for by the defendant, including:

(a) The JPDC interior design documents do not address which party was responsible for providing particular items;

(b) While it is contended that the Guest Room Data Sheet is not part of the JPDC documents, Ms Fu of JPDC gave evidence under cross-examination that in effect the Guest Room Data Sheet would not be used on anything other than a JPDC interior design drawing;[76]

(c) The notation on the architectural drawing refers to "setout details" as opposed to furniture, fixtures and equipment details, category details or specifically who was to supply the item.

• [231] The plaintiff contends that "setout details" given its ordinary meaning would be a reference to layout and not a reference to the provision of items or in fact, the contractual obligation to provide particular items.

• [232] The bathroom design was not completed at the time of the tender and this was carried over into the final Contract.
• [233] Construing the Contract as a whole, A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) is the primary document having contractual status that assists in identifying what was to be provided by the contractor in respect of the guest room bathrooms.
• [234] The JPDC interior design documents and the Guest Room Data Sheet can best be described as "indicative only" given the operation of clause 8.1 in respect of the hierarchy of documents for construction purposes and also the specific provision in clause 1(x) of Annexure Part O. They were subject to the interior design being finalised as applicable to the Spring Hill Hotel.
• [235] A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) itself makes it clear that even the "layout" of the bathrooms was subject to final approval. However, that document has the status of a contractual document.
• [236] While I accept that the Guest Room Data Sheet is on its face not a JPDC document, that of itself does not assist in determining the scope of work in respect of the bathrooms. Clause 1(x) of Annexure Part O in effect deems the "Interior Design Joseph Pang Design Consultants documentation" referred to in Annexure Part K as non-contractual documents if they are not specifically referred to in Annexure Part O.
• [237] The use of the word "documentation" is wider than a reference to the JPDC documents and would be wide enough to cover documents such as the Guest Room Data Sheet which categorises the information contained in the JPDC interior design documents.
• [238] While the Guest Room Data Sheet may have indicated obligations and liabilities, it can only have an operation and relevance in respect of its application specifically to the JPDC interior design documents which are listed in Annexure Part K. It becomes circular as it can only have significance and application if those documents are in effect part of the Contract. If they are for information only, while they may assist in understanding what the Guestroom Data Sheet is referring to, it does not have any contractual effect as those documents do not form part of the Contract. This tends to support the conclusion that the operation of the Guest Room Data Sheet is similarly constrained by clause 1(x) of Annexure Part O.

(a) A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) is the starting point for the WUC for the 216 guest room bathrooms.

(b) If there was a change to the design as set out in A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) such as to change the scope of work in accordance with paragraphs 36.1(a), (b), (c), (d) or (e), then that would be a variation to the WUC.

(c) To the extent that A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) identifies certain items to be supplied by one party, any change to the obligation to supply any particular item would be a variation to the WUC.[77]

(d) Document ID-01-BD "Bathroom Twin Room Issue G" and the Guest Room Data Sheet did not form part of the Contract and were provided for information only.

• [240] It is now necessary to consider whether the correspondence relied upon by the plaintiff as a direction is a direction within the provisions of the Contract and whether there is any corresponding entitlement to costs.

Was there a change in the work to be undertaken within the scope of clauses 36.1(a) to (e)? Was there a direction within clause 36.1(f) or does it amount to a direction to perform a variation pursuant to clause 36.1(g)?

• [241] Clause 36 sets out the procedure to be followed in respect of variations to the WUC. The procedure is set out in the third paragraph under clause 36.1 in respect of subparagraphs (f) and (g) and also relevantly, subparagraph (h). The provision relevantly states as follows:

"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:

(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."

• [242] Clause 20 of the Contract relevantly states as follows:

Except where the Contract otherwise provides, the Superintendent may give a direction orally but shall as soon as practicable confirm it in writing. If the Contractor in writing requests the Superintendent to confirm an oral direction, the Contractor shall not be bound to comply with the direction until the Superintendent does so.

If the Contractor considers that any direction given by the Superintendent is given in error or, although not stated to involve a variation, in fact involves a variation, the Contractor must, before complying with the direction (but in any event, not later than 5 business days after the direction) notify the Superintendent, in writing, of this.

If the Contractor does not give the notice to the Superintendent within the time specified, the Contractor shall have no entitlement in respect of the direction and any claims will be absolutely barred."

• [243] It is then necessary to look at the four documents relied upon by the plaintiff as constituting the direction. The first document relied upon is an email dated 5 May 2016 from Ms Fu of JPDC to Mr Cook of the plaintiff. The Aconex mail attached 45 amended "for construction" design documents.[78] The Aconex mail was copied to representatives of the defendant and also the Superintendent, Tactical.
• [244] A number of the attached drawings are relevant to the bathroom design. The plaintiff identifies six specific documents: ID-01-BD, ID-DT-02, ID-HSH-003, ID-JD-05.3, ID-PFSH-001 and ID-SSH-002.[79]
• [245] The actual design for the guest room bathrooms is set out in documents ID-01-BD (this is the "for construction" version) and ID-DT-02. The other documents are schedules which set out particular items to be installed in other rooms, including guest room bathrooms. These include more detail including hardware and finishes.
• [246] The plaintiff has undertaken a comparison between document ID-01-BD[80] and A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3). The main differences identified by the plaintiff between these two drawings (and is dealt with in the witness statement of Mr Cook) is that the guest room shower screen door is also the bathroom door, which includes a towel/handrail on the outside of the door. The additional work that was required by this change includes:

(a) an extension to the bathroom wall (including waterproofing, tiling, painting and skirting);

(b) stainless steel capping on both sides of the bathroom door jamb;[81] and

(c) a plasterboard wall underneath the vanity, with the vanity to be installed by others.[82]

• [247] Further, drawing ID-JD-05.3 - Doors[83] shows the guest room shower screen door as item GL-01 and the shower door hinges as item H-01. The document marked "ID-PFSH-001 - Finishes Schedule" then identifies item GL-01[84] and item H-01 is similarly identified in document "ID-HSH-003 - Hardware Schedule".[85] These documents show that item GL-01 is to be provided by the contractor. This is a change to what was shown in A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev 3) which provided that the shower door was a Category 3 item to be supplied by the defendant.
• [248] The position in relation to the hinges is less clear. The "for construction" design documents do not expressly state who is to supply the hinges. The plaintiff supplied the hinges. The plaintiff claims that this was a variation because A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) provided that the shower door was a Category 3 item to be supplied by the defendant. It is contended that this would include the hinges for the shower screen door. As a result, the plaintiff claims that the supply of the shower door and the hinges is a variation.
• [249] Additionally, the revised configuration of the shower screen door also required stainless steel capping to be installed to both sides of the bathroom door jamb. Document "ID-PFSH-001 - Finishes Schedule"[86] identifies this capping as item MT-01. The plaintiff supplied the capping. The plaintiff claims this is a variation as A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) did not require this capping.[87]
• [250] This work was undertaken in relation to 216 of the guest room bathrooms. Overall, the plaintiff claims in respect of the following work:

(b) engaging contractors to install the shower screens;

(c) procurement and installation of required material such as shower rails, hinges, stainless steel door jambs and channels;

(d) engaging contractors to install the nib walls; and

(e) additional painting, tiling and waterproofing.[88]

• [251] The differences between what was required by A4004 (Type 1 & 2 Room Bathroom (Twin & Queen) Rev. 3) and the "for construction" drawings would be a variation within clauses 36.1(a) to (e).
• [252] It is then necessary to consider whether the plaintiff is entitled to an assessment of its costs pursuant to clause 36.4 of the Contract. The plaintiff does not seek to rely on clause 36.1(g) of the Contract. The plaintiff does not contend that it complied with clause 36.1(g) of the Contract. Rather, the plaintiff's primary position is an entitlement to an assessment of costs on the basis of clause 36.1(f) of the Contract.
• [253] Subparagraphs (f) and (g) of clause 36.1 are alternatives. If either clause 36.1(f) or clause 36.1(g) is complied with then the principal's liability for the price of a variation is enlivened.
• [254] However, the circumstances relied upon by the plaintiff do not naturally sit within the language of clause 36.1(f). The plaintiff submits that the documents "taken together or individually, were a direction to undertake a variation within the meaning of clause 1 and clause 36 of the Contract".[89]
• [255] The plaintiff points to the broad definition of "direction" in clause 1 of the Contract, where direction is defined to mean:

"includes agreement, approval, assessment, authorisation, certificate, decision, demand, determination, explanation, instruction, notice, order, permission, rejection, request or requirement."

• [256] The plaintiff also refers to emails on 11 and 12 May 2016 in respect of the status of the "for construction" documents. These emails are between Mr Carlin of the plaintiff and Mr McBirnie of the defendant. The first email states:[90]

Are you in a position to fully endorse all JPDC documentation 'for construction'?"

• [257] The 12 May 2016 response from Mr McBirnie states as follows:[91]

"With the exception of the recent changes to the great room and public amenities, which are still being priced I believe all other drawings issued should be ok. I would however need to defer to Amie pending list of outstanding items to be certain ..."

• [258] Mr Carlin, in a further response to Mr McBirnie, states as follows:

"Can you please confirm if documents that have been issued are 'for construction' or are still on hold?"[92]

• [259] Mr McBirnie of the defendant responded to Mr Carlin of the plaintiff as follows:[93]

"Is there genuine confusion or are you trying to make a point that drawings to be priced shouldn't be considered for construction?

Guestroom, signage and corridor drawings have been issued for construction and are not on hold ..."

• [260] These emails were copied to Mr Collison of the Superintendent.
• [261] The plaintiff contends that read together this amounted to a direction for it to proceed with the works described in the "for construction" drawings and that this amounted to a direction within the meaning of clause 1.
• [262] Even if it is accepted that given the broad definition of "direction" and reading these documents together this was a direction to perform a variation to the extent that the drawings changed the scope of WUC, the "direction" could not be said to be "given by the Superintendent", did not expressly state that the "direction" constituted a direction for a variation and did not identify the work the subject of the direction as required by clause 36.1(f).
• [263] In these circumstances, the defendant contends that clause 36.1(f) has not been made out and there is no entitlement to the additional costs of the variation.
• [264] Clause 36.1(g) of the Contract provides a mechanism that could have been followed by the plaintiff in the current circumstances in order for it to protect its interests and enliven its ability to claim and be paid for the costs of the variation. The defendant submits that clause 36.1(g) which could have applied in these circumstances was not complied with and accordingly no liability for the costs of a variation arises.
• [265] The plaintiff makes a number of arguments as to how or why the provisions in clause 36.1(f) have been satisfied. It is submitted that the Superintendent was copied into all of the emails and while the emails did not expressly identify the work the subject of the direction, that work was apparent to any person with knowledge of the relevant drawings. It is in these circumstances that the plaintiff urges a construction of the Contract adopting "business commonsense".[94]
• [266] However, I do not consider that this position is persuasive. Firstly, the plaintiff and the defendant are sophisticated and experienced parties and agreed to be bound by the terms of the Contract. The Contract is a standard form contract and the terms of the Contract are not highly unusual or unique in respect of these clauses. The parties agreed to be bound by clause 36.1 and the consequences set out therein.
• [267] Mr Cook on behalf of the plaintiff understood the importance of complying with clause 36.1 and evidence was given consistent with that.

"Except as provided at law or in equity or elsewhere in the Contract, none of the terms of the Contract shall be varied, waived, discharged or released, except with the prior written consent of the parties.

A party's failure or delay to exercise a power or right does not operate as a waiver of that power or right."

• [284] The defendant points to and relies upon the terms of clause 43.
• [285] Even if it is accepted that on occasion the Superintendent assessed a variation despite non-compliance with clause 36.1(f), clause 43 expressly prevents relying upon that occasion as an election in respect of all variations or specifically the Bathroom Design Variation.
• [286] The plaintiff also seeks to rely on estoppel as an alternative basis for its entitlement to the costs associated with the alleged Bathroom Design Variation. The plaintiff expressly relies on the decision of Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd.[101]
• [287] Priestly JA, with whom Kirby P and Samuels JA agreed, concluded on the circumstances of that case as follows:

"... I think that what Rozelle's agent told Mr Dean can fairly be regarded as a promise to pay for the work irrespective of the formal requirements of the contract, which encouraged Update to go ahead with the work without concerning itself with formal contractual requirements, the appropriate remedy for which would be to prevent Rozelle from relying on the lack of formal compliance ... an estoppel arose in the present case when the conduct of Rozelle's agent led Update (i) to suppose that the requirement of writing under cl 6(b) would not be enforced, and (ii) to act to its detriment by both not giving the written notice when it could still have done so, and doing the work; the estoppel being that Rozelle could not after those events rely on the writing requirement in cl 6(b)."[102]

• [288] The plaintiff points to evidence of Mr Cook as establishing that the plaintiff was induced by the defendant to assume that it was directed to undertake the works set out in the "for construction" JPDC drawings.
• [289] However, the relevant paragraphs of the statement of Mr Cook do not identify the basis upon which it is alleged that the plaintiff would be entitled to additional payment for a variation for undertaking the bathroom works. While it is stated that the plaintiff relied upon the "representation or assumption" in undertaking the additional works, it is not clear the precise representation alleged.
• [290] While the correspondence confirmed that the "for construction" drawings were "not on hold" it is difficult to see how that could be regarded as a promise to pay for the work without the procedures in the Contract being followed. To the extent there was any ambiguity as to whether that gave rise to an entitlement to be compensated, the Contract pursuant to clause 36.1(g) and clause 20 provided a mechanism to obtain that clarity and to crystalise an entitlement to recover the costs. Without following that procedure there was a risk that there was no entitlement. Further, the plaintiff has not clearly identified facts establishing a representation promising payment, which would be necessary to make out an estoppel.
• [291] It is precisely this difficulty which the defendant identifies in its submissions as to why an estoppel is not made out. The defendant contends that the plaintiff does not plead with any particularity what the representation was. There is no plea that the defendant represented that the plaintiff would be paid despite the fact that the relevant Aconex transmittals did not comply with clause 36.1(f) or that the plaintiff did not need to issue a notice under clause 36.1(g).
• [292] Further, in relation to the plaintiff's reliance upon the case of Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd, the defendant submits that in that case there was a clear representation made that should the builder proceed with the additional work then it would be paid for that additional work. In the circumstances of the current case, there is no similar representation here. The references in the Aconex transmittals to "for construction" drawings and a subsequent statement that the drawings were not on hold, is not a representation in relation to a promise to pay for undertaking any additional work that was identified by way of those "for construction" drawings.

• [301] The issue in respect of the Schedule 3 and 4 variations is dealt with in question 3 of the list of issues in dispute:

"In respect of the alleged Schedule 3 (Item 1 only) and Schedule 4 (excluding item 7) Variations, whether:

(a) the plaintiff was directed to undertake variations to the works, as alleged, within the meaning of clause 1 and clause 36 of the Contract [SOC [14], [15]; Def [14], [15]];[104]

(b) the works described in Schedule 3 and Schedule 4 constituted a variation under the Contract [SOC [15]; Def [15(b)]]; and

(c) the plaintiff is entitled to payment for the alleged variations [SOC [17], [Sch 3], [Sch 4]; Def [17], [Annex 2]]."

• [302] In respect of quantum, question 15 of the list of issues in dispute is also relevant:

"In respect of the Schedule 3 and 4 Variations, the extent to which, if at all, the plaintiff is entitled to the sums identified in column D of Schedule 3 and column C of Schedule 4 to the amended statement of claim [SOC [17]; Def [17]]."

• [303] The parties have agreed the following as set out in the list of matters not in issue:

"3. In respect of the alleged Schedule 3 Variations:

(a) that the plaintiff is entitled to the amount claimed for Items 2, 3 and 4; and

(b) in respect of Item 1, that the plaintiff undertook the work described in Schedule 3 of the amended statement of claim [SOC [15]; Def [15]].

4. In respect of the alleged Schedule 4 Variations:

(a) that the plaintiff is entitled to the amount claimed for Item 7;

(b) in respect of Item 1, that the plaintiff was directed to undertake the work described in Schedule 4 of the amended statement of claim and is entitled [to] payment of at least $9,130 for Item 1; and otherwise

(c) that the plaintiff undertook the work described in Schedule 4 of the amended statement of claim [SOC [15]; Def [15]]."

• [304] Each of these claims are dealt with below.

Schedule 3 - VP38 - "Ceilings and partition alterations in the Great Room"

• [305] Liability for this variation is not in dispute and the quantum of $6,308.51 (plus GST) is agreed.
• [306] The amount is based on the assessment of quantum in the joint expert report of $60,626.37 (plus GST) less the existing Contract adjustment of $54,317.86 (plus GST).
• [307] The plaintiff is entitled to payment of $6,308.51 (plus GST).

Schedule 3 - VP53 - "Back of House Corridor - second path of egress"

• [308] Liability is not in dispute in respect of this variation.
• [309] The defendant identifies that the quantum is agreed in the amount of $1,188.00. However, the plaintiff disputes this position.
• [310] The defendant does not make any substantive submissions in respect of this claim.
• [311] The plaintiff addresses this claim in its submissions and seeks to explain the difference in positions.
• [312] The defendant's figure appears to assume that the amount claimed is the difference between Contract Adjustment (CA) 48[105] and Variation Proposal (VP) 53[106] and that the plaintiff has been paid the amount in respect of CA48. The plaintiff submits it has not been paid that amount.
• [313] The cost of VP53 is $5,550 (plus GST) which was claimed in Progress Claim No. 24.[107]
• [314] The plaintiff submits that the Superintendent did not certify any cost as payable in respect of VP53 by Progress Certificate No. 24,[108] despite having issued CA48 and despite VP53 being an approved variation.[109]
• [315] In these circumstances, the plaintiff is entitled to the full amount of $5,555.00 (plus GST).

Schedule 3 - VP59 - "Admin and luggage change layout and joinery"

• [316] Liability is not in dispute and quantum is agreed in the amount of $3,168.00 (plus GST).
• [317] The plaintiff is entitled to the amount of $3,168.00 (plus GST).

• [318] Liability is not in dispute and quantum is agreed in the amount of $1,188.00 (plus GST).
• [319] The plaintiff is entitled to the amount of $1,188.00 (plus GST).

Schedule 4 - VP58 - "BOH (back of house) ceiling"

• [320] Liability is not in dispute and the defendant does not dispute that the amount of $9,130.00 is payable to the plaintiff.
• [321] The difference in dispute is $518.56. This is the difference between the assessment of Mr Watson for the plaintiff in the amount of $10,885.15 and the assessment of Mr Hardiman for the defendant in the amount of $10,366.59.
• [322] The difference is attributable to the 7.5 per cent mark-up for preliminaries and the rates used.
• [323] The defendant submits that there is no proper basis for the inclusion of the 7.5 per cent for preliminaries. The plaintiff maintains its claim for preliminaries.
• [324] The issue of the entitlement to preliminaries is discussed in relation to the pricing of the Schedule 6 variations below. I adopt the same conclusion here and accordingly, the 7.5 per cent for preliminaries is not recoverable by the plaintiff.
• [325] In respect of rates:

(a) Mr Watson used rates from the plaintiff's claim and compared the rates to Rawlinson's rates to check for reasonableness of the rates. He also used rates from VP59 which had been agreed to by the Superintendent.

(b) Mr Hardiman used Rawlinson's rates, as representing market rates at the relevant time.

• [326] The plaintiff submits that the difference here is so small that it cannot be said that Mr Watson's rates are unreasonable. Further the plaintiff contends that Mr Watson's rates are more likely to reflect actual costs rather than a theoretical assessment.
• [327] The defendant submits that Mr Hardiman's approach is based on objective market evidence and provides a sound basis for the Court to assess a fair and reasonable price for the variation work.
• [328] In the circumstances, I find that the rates used by Mr Watson are reasonable. The rates reflect actual costs and the difference is minor, which also tends to support these rates being reasonable.
• [329] Accordingly, the plaintiff is entitled to the amount of $10,125.72 (plus GST), adopting Mr Watsons' approach but the 7.5 per cent for preliminaries is not allowed.

Schedule 4 - VP60 - "Bathroom light switch - off master switch"

• [330] Liability and quantum are in issue. The difference between the two quantum experts is $3,203.89.
• [331] The plaintiff claims there was a change in the scope of work due to a direction pursuant to either clauses 36.1(f) or 36.1(g) of the Contract, or alternatively that the plaintiff complied with clause 36.2 of the Contract. The plaintiff claims the cost of the variation pursuant to clause 36.4.
• [332] Clauses 36.1(f) and (g) of the Contract have been discussed in relation to the Bathroom Design Variation above. Clause 36.2 of the Contract states as follows:

The Superintendent may give the Contractor written notice requesting the Contractor to submit a variation proposal for a proposed variation.

The Contractor shall provide the following information with the variation proposal in response to a notice given by the Superintendent pursuant to this subclause 36.2:

(a) a detailed scope of the proposed variation, including any drawings or technical details;

(b) a detailed breakdown of the price for which the Contractor would carry out the proposed variation, including any delay or disruption costs which may be incurred by the Contractor as a consequence of the proposed variation;

(c) the effect, if any, of the proposed variation on the date for practical completion; and

(d) the expiry period for acceptance of the variation proposal which shall be not less than 10 business days from the date of receipt by the Superintendent of variation proposal.

Upon receipt of a variation proposal provided in response to a notice given by the Superintendent pursuant to this subclause 36.2, the Superintendent may in the sole discretion of the Superintendent do any one of the following:

(e) direct the Contractor to provide further information;

(f) accept the variation proposal and give the Contractor a direction to carry out the variation on the terms contained in that proposal, in which case a valuation under subclause 36.4 shall not be made and the addition or deduction to the contract sum shall be the amount contained in the variation proposal;

(g) negotiate different terms with the Contractor upon which the proposed variation shall be carried out;

(h) give the Contractor a direction to carry out the proposed variation on the terms contained in the Contract but with a valuation to be made under subclause 36.4; or

(i) reject the variation proposal, in which case the Principal may retain another person to carry out the proposed variation the subject of a notice given by the Superintendent pursuant to this subclause 36.2."

• [333] Annexure Part K of the Contract includes documents listed under the heading "SPECIALIST LIGHTING - ELECTROLITE". A number of documents are listed including documents which show the layout of a single circuit in each room, controlled by a master switch.[110] Consistent with the construction of the Contract earlier in these reasons, these documents are contractual documents and identify what was required to be built by the plaintiff pursuant to the Contract.
• [334] The plaintiff also points to evidence contained in emails in July 2016 which confirm the interpretation of the layout diagrams and also that a variation was requested. These emails are as follows:

(a) On 7 July 2016, Mr Collison of the Superintendent sent an email to Mr Meredyth of the plaintiff, copying in others, which stated:

I thought the instructions from yesterdays [sic] PCG discussion on this issue were unambiguous however for clarity purposes, [the] following is my understanding of the outcomes:

Built to issue an estimate of costs for the installation of a light switch to service the bathroom to Pro-Invest/Tactical to review and confirm instructions ..."

(b) On 11 July 2016, Mr Collison sent an email to Mr Meredyth (copying others) which stated:

Have you received any cost advice on the proposed bathroom light switch to enable Pro-Invest to review and confirm instructions?"

(c) On 19 July 2016, Mr Carlin of the plaintiff sent an email to Mr Malone (copying others) which stated:

Have had a day of reconciling all things Electrical and anticipate some variations as requested to flow tomorrow ... I know you are keen to have these ...

2. Bathroom light off master switch & other circuitry to mirrors etc etc

A further request for costs for the installation of a light switch to service the bathroom ie take the bathroom light off the master switch. Cost yet to be defined

Also combined with this additional circuitry to mirrors/mirror demisters etc ..."[111]

(d) On 20 July 2016, the plaintiff submitted VP60 to the Superintendent.[112]

• [335] The plaintiff identifies the following characteristics of VP60:[113]

(b) identified the request for the variation proposal as being "JPDC For Construction Documentation as at 19/07/16" and also "Tactical-GCOR-304";[114]

(c) included a description of the proposed variation - "[r]emove bathroom light off master switch ... given occupant complaints experienced in Macquarie park project";

(d) included the approximate cost of the variation, including a detailed breakdown of the cost; and

(e) noted that no extension of time would be claimed as a consequence of the variation.

• [336] VP60 further priced the variation to remove the bathroom light off the master switch at $9,167.06 (plus GST).[115]
• [337] The plaintiff also relies on correspondence that was provided after VP60 was submitted.
• [338] On 22 July 2016, by Aconex mail sent by Mr Malone and Mr Carlin, the plaintiff was provided with updated "for construction" drawings from Electro Light.[116] Further, by these mails the plaintiff submits it was instructed to proceed in accordance with the drawings.
• [339] In particular, the plaintiff relies on the following statements in the correspondence:

(a) On 22 July 2016, at 1.15pm from Mr Malone to Mr Carlin which states:

The attached updated AFC drawings from Electro Light capture our requested changes and directions regarding switching to respective rooms for the Entry Panel, Bedhead Master Panel, Bathroom Panel. Please proceed in accordance with these as final AFC documents."[117]

(b) On 22 July 2016, at 1.59pm from Mr Malone to Mr Carlin which states:

Related to previous transmittal of Electro Light drawings, please proceed with these works in accordance with the attached Electro Light AFCs ...

• [340] The attached drawings required the plaintiff to install an additional electrical circuit for the bathroom light switch, which required work in addition to the work in the earlier layout drawings as the circuit could not be looped into the same power feed.[119]
• [341] Mr Cook was cross-examined in relation to the claimed additional work. The position in relation to requiring an additional circuit for the bathroom light switch was not challenged on that evidence.
• [342] It is apparent from the comparison of the two electrical layout drawings that there was a change in the scope of work and in the circumstances, I am satisfied that the plaintiff was required to carry out additional work. This would be a variation within the meaning in the Contract.
• [343] The next issue to consider is whether it constitutes a direction pursuant to clauses 36.1(f) or 36.1(g) of the Contract. The defendant submits that there was no direction to do the additional work and there has been non-compliance with clause 36.1(g) of the Contract.
• [344] The defendant does not consider or address in its submissions the application of clause 36.2 of the Contract.
• [345] Clause 36.2 clearly sets out a procedure in circumstances where the Superintendent requests that the contractor submit a variation proposal. Here the request was made and VP60 was submitted. Further, VP60 provided the necessary information required for compliance with clause 36.2.
• [346] Further, on the correspondence, the Superintendent indicated that the plaintiff was to proceed with the works and that the Superintendent "will assess value and revert". In these circumstances, clause 36.2(h) applies, that is that the Superintendent indicated that the contractor was given a variation to carry out the proposed variation on the terms contained in the Contract but with a valuation to be made under clause 36.4.
• [347] In these circumstances, the defendant is liable to the plaintiff for the cost of the variation calculated in accordance with clause 36.4 of the Contract.
• [348] The defendant raises an additional issue in relation to there being "reduced scope" because the plaintiff was no longer required to install a two-gang switch in the bathrooms and a D3 bathroom nightlight under the vanity in the bathroom.

(a) The disagreement about the rates used. Mr Watson has used the plaintiff's rates and Mr Hardiman has assessed the rates based on Rawlinson's rates.

(b) A variation fee of 10 per cent has been added to the variation claim. This amount is separate. Mr Watson has included this amount on the basis that it has been accepted by the Superintendent in other variations. Mr Hardiman has used market rates and does not see a basis for providing a further mark-up beyond the Rawlinson's rates in the absence of proof the plaintiff was liable for it. The defendant points to the plaintiff being unable to produce any evidence that this was the case.

(c) A 15 per cent mark-up for Builder's Work in Connection (BWIC) with electrical services.

• [354] In relation to the rates, the rates in this circumstance are very close and, in these circumstances, it cannot be said that the rates used by Mr Watson are unreasonable. Accordingly, the quantum of VP60 should be calculated on the basis of the rates used by Mr Watson.
• [355] While the assessment of a variation does not bind in respect of the acceptance of another variation, in these circumstances and given the small amounts concerned, I consider that Mr Watson's approach of including a variation fee of 10 per cent reasonable in these circumstances.
• [356] Further, in relation to the 15 per cent mark-up for BWIC with electrical services, I consider that in the circumstances, the allowance should be allowed, given the nature of the works comprising VP60 and the particular evidence provided by Mr Watson as to the approach of including the allowance.
• [357] Overall, I find that Mr Watson's assessment is not unreasonable and is priced in accordance with clause 36.4.
• [358] The issue of the 7.5 per cent for preliminaries is also relevant to this claim. Given the conclusion I have reached in respect of preliminaries, the amount for preliminaries is not recoverable by the plaintiff.
• [359] Accordingly, the plaintiff is entitled to the amount for VP60 as claimed less the amount in respect of the 7.5 per cent for preliminaries.

Schedule 4 - VP64 - "Clipsal colour switchplates as per JPDC finishes schedule"

• [360] Liability and quantum are in issue in respect of this variation. The difference between the two quantum experts is $314.82.
• [361] This claim relates to an alleged direction to change electrical cover plates in guest rooms from Clipsal custom colour switchplates to brushed aluminium switchplates. Again, this is alleged to be a change from preliminary design documents to the hardware schedule issued by JPDC.
• [362] The issue between the parties is that the defendant denies there was any direction and further says that the plaintiff was always required to install the brushed aluminium switchplates.
• [363] Firstly, it is necessary to consider whether the installation of the brushed aluminium switchplates was a variation within the meaning of clause 36.1 of the Contract and whether there was a direction issued pursuant to clauses 36.1(f) or 36.1(g) or whether clause 36.2 of the Contract applied. If liability is established then the costs are to be assessed pursuant to clause 36.4 of the Contract.
• [364] Mr Cook was cross-examined in relation to the Clipsal product guide. Mr Cook did not prepare VP64 and his evidence is of little assistance in considering this variation.
• [365] Similar to the approach taken for other variations, it is necessary to consider what was required to be built pursuant to the Contract documents and then to consider whether there has been a change to that position which would amount to a variation.
• [366] The Electrical Services Specification is listed as a preliminary design document in Annexure Part K of the Contract.[121] Relevantly, clause 10.1 of the Specification states:

"Accessories in guest rooms and public areas shall be to interior designer's approval, currently nominated as Clipsal Slimline SC2000 range with custom colour face plates ..."[122]

• [367] Subsequently, on 5 May 2016, Ms Fu of JPDC sent to the plaintiff an email attaching revised drawings and schedules for the guest rooms. This included a document described as Hardware Schedule, ID-HSH-003.[123]
• [368] The Hardware Schedule contains a relevant entry in relation to the switchplates, with a reference to the "SLIMLINE SERIES SC2000 BRUSHED ALUMINIUM COVER".
• [369] The plaintiff accepts that the "SLIMLINE SERIES SC2000" includes both metal face plate covers (including aluminium covers) and moulded plastic face plate covers. The plaintiff points to an extract from a Clipsal catalogue from around the time of the variation which was emailed from Mr Carlin to Mr Malone which states as follows:

In addition to the standard range of covers, covers are also available in a range of decorative metal finishes.

Metal finishes available are: - Brushed Aluminium Cover ..."[124]

• [370] The plaintiff contends that there are differences in the language used between the Electrical Services Specification and the Hardware Schedule. The reference in the Electrical Services Specification is to "custom colour face plates". The plaintiff submits that this should be distinguished from references to "metal face plates" or "decorative metal finishes". In these circumstances, the plaintiff submits that the reference in the Electrical Services Specification to "custom colour face plates" was a reference to the "standard range of colours" in the Clipsal Slimline Series SC2000.
• [371] Further, the plaintiff also points to the fact that the brushed aluminium face plates cannot be described as "custom colour" as it comes in only one option. This is in contrast to the "custom colour face plates" which are coloured plastic face plates which can come in a variety of colours and can be custom coloured. This argument was supported by Ms Fu of JPDC in her evidence.[125]
• [372] The plaintiff also refers to a difference in language used when it submits it was intended to refer to the entire Clipsal SC2000 range. I consider there is merit in the submission in respect of the inclusion of the words "with custom colour face plates" after the reference to Clipsal Slimline SC2000 range. If it was the entire Clipsal SC2000 range which was being referred to, which would include the brushed aluminium face plates, there would be no need to include those additional words.
• [373] However, by including the words "custom colour face plates", the construction of clause 10.1 of the Electrical Services Specification is that it is a reference to the standard range of covers being the coloured and plastic face plates, not the brushed aluminium face plates. Accordingly, the brushed aluminium face plates were not required as part of the original WUC.
• [374] It is then necessary to consider the correspondence in relation to the provision of the Hardware Schedule and whether it can be classified as a direction pursuant to clauses 36.1(f) or 36.1(g) of the Contract or alternatively, within clause 36.2 of the Contract.
• [375] The plaintiff relies on correspondence which shows that following a series of requests for proposals from the plaintiff regarding numerous variations., on 12 July 2016, Mr Carlin emailed the Superintendent stating:

"We are in continued negotiations with RDE on cost.

And in reality those negotiations are multiple fold across a number of items that I can list:-

2. Colour switch plates (JPDC vs alternatives to be proposed). Circa $21k x 1.1 = $22,100.00 if JPDC requirements are firm?"[126]

• [376] The plaintiff also refers to a response from the Superintendent later that day responding to point two as follows:

"Presume you are flagging this as a potential variation."[127]

• [377] Further to this correspondence, the plaintiff submitted VP64A to the Superintendent on 18 August 2016.[128]
• [378] VP64A provided details including the scope of the proposed variation including drawings or technical details, a breakdown of the price, stated that the variation would have no effect on the date for practical completion and provided an expiry period in accordance with clause 36.2 of the Contract.
• [379] Further, on 22 August 2016 the Superintendent instructed the plaintiff to proceed with the works under VP64A.[129]
• [380] On 15 November 2016, the Superintendent assessed the variation at $0 on the basis that the product was a Contract requirement.
• [381] The defendant contends that there was no direction issued under clauses 36.1(f) or 36.1(g) of the Contract and accordingly they are not applicable. The defendant does not address the operation of clause 36.2 of the Contract.
• [382] Clause 36.2 of the Contract has been complied with except for an express written notice from the Superintendent to the contractor requesting that the contractor submit a variation proposal. However, in the circumstances of the correspondence, it is apparent that a number of variations were being requested in respect of issues such as this which were arising and it was included as part of that wider process. In these circumstances it is not necessary for me to determine conclusively whether it is necessary for an express written notice to be provided before clause 36.2 is enlivened. In the circumstances, I am satisfied that the Superintendent's request for a proposal has been complied with in the circumstances of this variation.
• [383] This is particularly so given the email dated 22 August 2016 from the Superintendent to the plaintiff, which stated as follows:

We will review submitted costs against requirements of the Contract and revert."[130]

• [384] This can be classified as fitting within clause 36.2(h) being a direction by the Superintendent to carry out the proposed variation on the terms contained in the Contract but with a valuation to be made under clause 36.4. Accordingly, the price of the variation is to be assessed in accordance with clause 36.4 of the Contract.
• [385] The quantum experts in their joint report agree that the price of this variation is in the amount of $4,197.54 (plus GST), but excluding preliminaries.
• [386] The plaintiff claims a total amount including preliminaries of $4,512.35 (plus GST).
• [387] Given the finding I have made in relation to the preliminaries claimed not being reasonable, the plaintiff is entitled to the amount of $4,197.54 (plus GST).

• [388] Liability and quantum are in issue in respect of this variation. The difference between the two quantum experts is $2,205.53.
• [389] The plaintiff claims that there was a variation on the basis that, under the original Contract requirement, the defendant was to supply desk lamps that could be plugged into a wall outlet. Instead, desk lamps were provided that did not have a power cord and were required to be hardwired.
• [390] The defendant denies there was a direction pursuant to clause 36.1 of the Contract and further contends that no additional work was required to be carried out beyond that required by the Contract. In part, this is based on the JPDC Guest Room Data Sheet which was considered in relation to the Bathroom Design Variation above.
• [391] Given my previous finding in relation to the Guest Room Data Sheet, reference to hardwiring in that document is not determinative in respect of this claim.
• [392] The plaintiff refers to the Luminaire Schedule which is listed in Annexure Part K of the Contract under the heading "SPECIALIST LIGHTING - ELECTROLITE".[131]
• [393] The document shows a picture of a wall mounted desk lamp but does not expressly state whether the lamps to be supplied by the defendant would have a power cord to be connected to a general power outlet. The plaintiff contends that the image appears to be a "Tolomeo Table Mini" lamp. Further, reference is made to the evidence of Mr Cook and the setup instructions for the lamp which indicate that it is supplied with a power cord that can be plugged into a general purpose outlet.[132] The instructions show a power cord with a plug.
• [394] The plaintiff also contends that the photograph of the desk lamp in the Luminaire Schedule has a cord hanging down from where it is fixed to the wall. The plaintiff submits that this is likely to be a power cord for the wall plug. However, this is not conclusive in itself.
• [395] The plaintiff also relies on the fact that the defendant does not deny the plaintiff's pleading that the defendant was required to supply the plaintiff with "desk lamps for the guest rooms with a plug that could be connected to the desk GPO".[133] In these circumstances the plaintiff relies upon this as an admission of the allegation.

(a) On 21 July 2016, the plaintiff submitted VP66 to the Superintendent for assessment with the subject line of the email being "VP No. 66 Hardwire desk lamps as per Instructions ...".

(b) On 22 July 2016, the Superintendent responded and said "[w]e will assess the variation".

(c) No further correspondence was received until 17 November 2016 (almost four months after VP66 was submitted) when the Superintendent assessed VP66 at $0.[135]

• [398] In these circumstances, the plaintiff submits that the Superintendent stating "[w]e will assess the variation" and not otherwise corresponding until well after the relevant works were complete, was a basis for the plaintiff to infer that VP66 had at least been accepted, subject to a valuation to be made under clause 36.4. This is what ultimately occurred.
• [399] In this regard, the plaintiff submits that clause 36.2 does not require the Superintendent to act pursuant to clauses 36.2(e) to (i) in writing.
• [400] Accordingly, the plaintiff submits that there was a proposed variation pursuant to clause 36.2 of the Contract such that the defendant is liable to the plaintiff for the cost of the variation calculated in accordance with clause 36.4 of the Contract.
• [401] The defendant's position is focused on the Guest Room Data Sheet which was listed under the heading "INTERIOR DESIGN - JOSEPH PANG DESIGN CONSULTANTS" in Annexure Part K of the Contract. It is on this basis that the defendant contends that the Contract always provided for provision of desk lamps that were required to be hardwired and accordingly there was no variation. The submissions do not address clause 36.2 and whether the requirements were complied with.
• [402] Whilst the form of the request from the Superintendent for a variation proposal is not entirely clear, the provisions of clause 36.2 appear to have been in operation in respect of this claim. Further, while the application of clause 36.2(h) requires some inference to be made, taking a commercial approach to the consideration of the facts, it appears that clause 36.2 of the Contract has been met and accordingly the defendant is liable to the plaintiff for the cost of the variation calculated in accordance with clause 36.4 of the Contract.
• [403] In respect of the proper cost of this variation pursuant to clause 36.4 of the Contract, the quantum experts in their joint report have assessed the claim as follows:

(a) Mr Watson values the claim at $9,426.13 (plus GST); and

(b) Mr Hardiman values the claim at $7,220.60 (plus GST).

• [404] The differences between the two valuations are again that Mr Hardiman's approach has used Rawlinson's rates, it includes the imposition of a 10 per cent fee (this is in addition to the 10 per cent mark-up for profit and overheads), the BWIC 15 per cent mark-up and also the 7.5 per cent for preliminaries.
• [405] Given the work identified as being involved, the BWIC allowance would be reasonable in the circumstances. The other differences are not significant and it cannot be said that Mr Watson's valuation is unreasonable. The plaintiff submits that the second largest component of the difference between the experts relates to the subcontractors' (RDE) claim for preliminaries in the amount of $658.79. Mr Watson allowed that part of the claim as it was claimed by the subcontractor against the plaintiff. Reference is also made to the fact that the Superintendent has approved it in other variations. While its approval in respect of other variations is not conclusive, it may go to the reasonableness of that cost.
• [406] In respect of the differences in rates, these are again not substantial differences and in the circumstances it is not inappropriate to use the rates relied upon by Mr Watson in relation to this assessment.
• [407] Whilst the defendant also appears to object to the preliminaries on the basis of the general objection, it is not apparent whether this is in addition to the preliminaries claimed in respect of the subcontractor.
• [408] Overall, I adopt Mr Watson's approach to the assessment of costs. The plaintiff is entitled to the amount of $9,426.13 (plus GST) in respect of this claim.

Schedule 4 - VP67 - "Supply and installation of power sockets and wiring for LED lighting"

• [409] Liability and quantum are in issue in respect of this variation. The difference between the two quantum experts is $12,685.59.
• [410] This claim relates to additional work for running of additional cabling for each of the lights in a "figure 8 configuration" to connect the "< 200mm tail to the termination point in the ceiling".
• [411] The plaintiff submits that the "figure eight" wiring is where the cable is fed from one source to another and back again in a loop type fashion which is not typical installation for lighting. In these circumstances, the plaintiff claims a variation for additional work to be carried out beyond what was required by the Contract.
• [412] In response, the defendant denies there was any direction issued pursuant to clause 36.1 of the Contract and additionally, submits that no additional work was required to be carried out.
• [413] In respect of this claim, the defendant again seeks to rely on the Guest Room Data Sheet that is referred to in Annexure Part K of the Contract. Given my previous finding in relation to this not being a contractual document, the same reasoning applies in relation to this claim in respect of that document.
• [414] It is necessary to consider whether the additional work identified was additional to that required under the Contract and also whether there was a direction issued pursuant to clauses 36.1(f) or 36.1(g) of the Contract, or alternatively the operation of clause 36.2 of the Contract. If an entitlement is made out then the cost is to be assessed pursuant to clause 36.4 of the Contract.
• [415] The plaintiff submits that there was no document that outlined the work under the Contract in respect of the wiring of LED lights. It is uncontroversial that the defendant was to supply the LED lights required.
• [416] The plaintiff contends that the LED lights provided by the defendant had "an insufficient tail length" and this does not appear to be specifically responded to by the defendant.[136]
• [417] The plaintiff refers to the following matters as a basis for which it can be found that the requirement for "figure eight" wiring was a variation to the work under the Contract:

(a) "Figure eight" wiring of the LED lights was not part of the original work under the Contract at all. It is atypical work (consistent with the evidence of Mr Cook) and the plaintiff was not informed of it until 29 June 2016.

(b) On 29 June 2016, an email was sent from Mr Bradshaw of MBI to Mr Meredyth which attached "noggin & wiring requirements" for the joinery installation. It also attached two documents which specifically show that "figure eight" wiring would be required for the LED lighting installation in both the bathroom and the kitchen.[137]

• [418] The plaintiff relies upon clause 36.1(g) of the Contract in relation to this variation. The plaintiff contends that clause 36.1(g) does not require a direction from the Superintendent but rather it requires a direction to perform a variation and then a process is set out for confirmation of the direction to perform the variation. The plaintiff contends that the direction to perform the variation was Mr Bradshaw's email.
• [419] In addition to the email from Mr Bradshaw dated 29 June 2016, the plaintiff also refers to and relies on the following correspondence.

(a) Aconex mail dated 12 July 2016 to Mr Collison and Mr Malone in which Mr Carlin was referring to the LED lights in the context of the "joinery interface" and stated that this "now requires a hardwired plug. Cost yet to be defined. But I understand you have instructed these works to proceed."[138]

(b) Aconex mail dated 12 July 2016 where Mr Malone responded seeking Mr Carlin to "clarify if this is a variation, reasoning and where this direction sits".[139] See Aconex mail dated 22 July 2016 from Mr Meredyth to Mr Malone attaching VP67 dated 21 July 2016.[140]

(c) VP67 provides a detailed scope of the proposed variation and states "supply & installation of power sockets and wiring for LED lighting in kitchen and bathroom - refer to MBI advice dated 29th June 2016 ..." This document also included RDE's variation proposal which cross referenced to Mr Bradshaw's email and attachments. VP67 also provided a detailed breakdown of the price, that the variation would have no effect on the date for practical completion and an expiry period for acceptance in accordance with clause 36.1(g).

(d) Aconex mail dated 17 November 2016 where Mr Malone provided an assessment based on the JPDC Guest Room Data Sheet and assessed the variation at $0.[141]

(e) Also on 17 November 2016, Mr Cook responded to Mr Malone and stated:

"... As per previous discussions, meetings and correspondence there is now a requirement to run additional figure 8 cabling to the connection at the wall as the 'hardwired remote driver' does not reach the ceiling space and further to this is not capable of working as described."[142]

• [420] On the basis that there is no specific provision in the original Contract document in relation to the work relating to the installation of the LED lights and that the "figure eight" wiring is atypical, this amounts to a variation of the work under the Contract. The plaintiff contends that the requirements of clause 36.1(g) have been complied with and therefore it is entitled to the cost of this variation to be assessed in accordance with clause 36.4.
• [421] There is an additional difficulty to be considered in relation to this claim and the issue of whether clause 36.1(g) has been complied with. VP67 was not submitted within five business days of receipt of the direction, but was rather submitted 10 business days late.
• [422] The plaintiff submits that this had no prejudicial impact on the defendant or the Superintendent and this is evidenced by the fact that the Superintendent did not respond to VP67 until 17 November 2016 and by that date, the works had not commenced.[143]
• [423] Further, the plaintiff submits that the Superintendent did not reject VP67 because it was not submitted within five business days of the relevant direction but rather, it was rejected on an erroneous assumption that the JPDC Guest Room Data Sheet was a contractual document and the Contract required the plaintiff to perform the "figure eight" wiring. It is submitted that the variation was assessed "on its merits" rather than whether it had complied with the requirements of clause 36.1(g). In this regard, the plaintiff also points to the evidence of Mr Malone in cross-examination that in respect of variations "outside" mechanical issues he attempted to take an "equitable approach" to their assessment.[144]
• [424] However, the defendant refers to the evidence of Mr Malone in his witness statement that to the best of his knowledge, the plaintiff had never submitted a claim in respect of this item which met the notice requirements in clause 36 of the Contract.[145]
• [425] The defendant contends that there had been non-compliance with clause 36.1(g) however that is not expanded upon in the submissions, other than a statement that "Mr Malone was of the belief that the notice requirement of clause 36 had not been met by Built" and the reference to the witness statement. The reference to the transcript in the submissions appears to be more as to whether clause 36.1(f) had been complied with, that is a direction by the Superintendent. It does not appear to be directed at the circumstance of at least partial compliance with clause 36.1(g).

(a) Mr Watson values the claim at $45,775.49 (plus GST);

(b) Mr Hardiman values the claim at $33,089.89 (plus GST).

• [430] The difference between the experts is $12,685.59. The reasons for this difference include:

(a) A variation fee charged by RDE to the plaintiff for performing the works of 10 per cent. Mr Watson allows this amount but Mr Hardiman does not on the basis that "Rawlinsons rates are market prices".[147]

(b) The BWIC claim by RDE (comprising 15 per cent of the cost of the works). Mr Hardiman disallows this item on the basis of "no substantiation". The plaintiff contends that this item is recoverable as RDE charged the item against the plaintiff for performing the works.

• [431] Consistent with my finding in respect of preliminaries, the 7.5 per cent for preliminaries is not recoverable.
• [432] In respect of this variation there is no real evidence as to what the BWIC mark-up would relate to. Mr Cook could not speak to whether it was reasonable. In the circumstances of this particular variation, the BWIC mark-up is not recoverable.
• [433] Another issue in respect of the quantum in this matter is whether kitchen wiring has also been included in the assessment.
• [434] The defendant's position is that the kitchen wiring should be excluded and accordingly, the maximum amount should be $8,272.47. This amount excludes the 10 per cent mark-up on the subcontractor's fee, the 7.5 per cent impost for preliminaries and the 15 per cent BWIC mark-up.
• [435] The plaintiff's position is that VP67 and the attachments to Mr Bradshaw's email include "figure eight" wiring as being required for both the bathroom in respect of the vanity and the kitchen areas in respect of the mini bar. Further, the plaintiff submits that its Amended Statement of Claim does not limit its claim to the bathroom areas and the defendant's Defence refers to wiring for the kitchen mini bar.[148]
• [436] In these circumstances, it appears reasonable that the assessment include both the bathroom and kitchen areas as the logic of the claim in respect of both those areas would be the same.
• [437] In the circumstances of this variation, the rates used by Mr Watson are reasonable as they reflect the requirements of the work undertaken. This includes the subcontractor's fees.
• [438] The plaintiff is entitled to an amount based on Mr Watson's approach for both the bathroom and kitchen areas, less the 15 per cent BWIC mark-up and the 7.5 per cent for preliminaries. This figure does not appear to have been calculated in the submissions and the parties should calculate the amount for inclusion in the final orders.

Schedule 4 - VP73 - "Paint stair soffits/colour contrasting nosings"

• [439] Liability and quantum are in issue in respect of this variation. The difference between the two quantum experts is $435.25.
• [440] This claim relates to the plaintiff being required to change the finish of the fire stair soffits from the ground floor to level 12 to a painted finish.
• [441] The plaintiff contends that work under the Contract did not require a finish to be applied to the fire stairs and the requirement for a painted finish was a change amounting to a variation.
• [442] The defendant's position is that the painting finish was rectification of a workmanship issue in relation to work that was in scope. At the trial, witnesses were questioned in relation to the finish and a photograph was tendered. The photograph of the fire stairs was taken prior to the disputed painting taking place and shows precast stairs with paint over partial areas. It is submitted that this produced an "unsightly finish" which was not of the appropriate standard in respect of the Spring Hill Hotel.
• [443] This claim requires consideration of what was required work under the Contract and whether applying a painted finish to the stairs was a variation.
• [444] The plaintiff contends that the Reid Campbell drawing A9016 Revision 1 in Annexure Part K of the Contract is the relevant scope drawing. The Schedule did not specify any finish to the fire stairs above the basement 2 carpark.
• [445] The plaintiff relies upon this for its contention that to apply a finish to the stairs was a variation. The plaintiff also relies on the following correspondence:

(a) Email on 25 May 2016 from Mr McBirnie to Mr Meredyth, copying others, which states:

"There is an ongoing discussion about what was included in the original schedule, but regardless of how that falls out, the untreated finish won't be acceptable.

Given we are not painting the wall white, what application would you suggest here?"[149]

(b) Response on 25 May 2016 from Mr Meredyth to Mr McBirnie as follows:

"As the rest of the stairs walls and floor are a plain concrete colour, I would suggest a paint finish in 'Grey'."[150]

(c) Email on 22 July 2016 from Mr Roach of Reid Campbell to Mr Cook which states:

"... regarding finishes to the fire stair, I would like to determine the scope of the paint and sealer to the fire stair flights.

Jim McBirnie has indicated to me that the risers should be painted to the fire stairs and that the external side of the stair stringer and the stair soffits should also be painted ...

I am in the process of updating my internal finishes schedule, could you please confirm your understanding of the above."[151]

(d) Aconex mail from Mark Roach of Reid Campbell to the plaintiff on 4 August 2016 attaching a "revised finishes schedule" which stated that the fire stairs were to be painted.[152]

• [446] The plaintiff contends that the email of Mr McBirnie of 25 May 2016 was a direction pursuant to clause 36.1(f) of the Contract and that clause 36.1(f) had been complied with except for the provision that it expressly state that the direction constitutes a direction for a variation. The plaintiff submits that the email stating that "the untreated finish won't be acceptable" could not be interpreted as anything other than a direction. It was from the Superintendent and identified the work the subject of the direction.
• [447] The defendant's position is that there was no direction for additional work under the Contract and also there was non-compliance with clause 36.1(g) of the Contract. The email from Mr McBirnie is not clearly a direction as it is ambiguous as to whether it was, in effect, a notice to rectify a defect. Further, on its face it is not a direction within clause 36.1(f) of the Contract.
• [448] The reference in the email to the untreated finish being unacceptable is consistent with the identification of defective work that did not meet the necessary standard imposed under the Contract. The defendant refers to and relies upon clause 2.2(a)(i) of the Contract in respect of the requirement for the contractor to exercise due care and skill in carrying out and completing the work under the Contract. Further, reliance is also placed on clause 29.1 which requires the contractor to use proper and tradesman like workmanship.
• [449] The defendant relies upon the photograph and the evidence from the witnesses to illustrate that the level of workmanship was not satisfactory in respect of the finish on the fire stairs. The paint finish that was ultimately applied to the fire stairs was a rectification of what was an unacceptable finish to bring it up to the requisite standard of good workmanship.
• [450] In the circumstances, I find that the additional work that was required to be undertaken was rectification work to ensure that the requisite standard of workmanship was achieved in relation to the finish on the fire stairs. There has also been non-compliance with the requirements of clause 36.1(g). In the circumstances, no entitlement arises for the cost associated with the additional work undertaken.
• [451] If I am wrong and an entitlement to the cost of the variation arises, then the assessment should be on the basis of Mr Watson's assessment less the 7.5 per cent for preliminaries, being the amount of $4,620.00 (plus GST).

Schedule 4 - VP76 - "Additional corridor lighting given flip of rooms"

• [452] Liability is not in dispute and quantum is agreed in the amount of $4,435.30 (plus GST).
• [453] There appears to be an amount in respect of preliminaries that is also claimed by the plaintiff.[154] It is not apparent whether this is covered by the general claim for 7.5 per cent preliminaries or is a different claim. It is not addressed in the defendant's submissions.
• [454] An amount in respect of preliminaries has not been included. If this needs to be considered separately to the general position, this should be addressed further and clarified prior to the final orders being made.

Schedule 4 - VP114 - "Joinery - Damage to walls by separate contractors"

• [455] Liability and quantum are in issue in respect of this variation. The difference between the two quantum experts is $7,432.39.
• [456] This claim relates to work undertaken to rectify and make good finished walls, doors, waterproofing and tiles that were damaged or broken by separate contractors, specifically the joinery contractor.
• [457] The defendant denies there was any direction pursuant to clause 36.1 of the Contract, however, the defendant does not dispute that the alleged works were a variation to the work under the Contract and that the plaintiff performed the works comprising the variation. However, the scope of the actual work required to be undertaken appears to be in dispute.
• [458] Again, the relevant issue is whether there was a direction pursuant to clauses 36.1(f) or 36.1(g) of the Contract and if an entitlement to the cost of the variation arises then the proper assessment pursuant to clause 36.4 of the Contract.
• [459] The plaintiff points to evidence of Mr Cook of damage caused by the defendant's subcontractors when they were installing the guest room joinery and curtains. The plaintiff also refers to various correspondence as to the alleged damage.
• [460] Further, the plaintiff refers to correspondence between 30 January 2017 and 10 May 2017 between the Superintendent and the plaintiff in relation to a number of defect registers, directing the plaintiff to rectify the defects that were identified in those registers.[155]
• [461] These registers of defects included defects that were caused by MBI.
• [462] On 14 March 2017, the plaintiff submitted VP114 for additional rectification work that it was directed to undertake, to repair the damage caused by MBI. This included a claim for the cost of patching and painting walls and tiling rectification work.[156]
• [463] Further, on 22 March 2017 the Superintendent assessed VP114 at $0 on the basis that the "variation was not directed by the Superintendent pursuant to clause 36 of the Contract".[157]
• [464] The defendant contends that this is an ambit global claim without proper evidence linking particular damage to the installation of joinery, and without linking particular damage to particular cost, the claim ought to fail for lack of proof.

(a) were a direction to perform a variation, as the covering emails direct the plaintiff to rectify the damage caused by MBI, which was included within the defect registers;

(b) were given in writing by the Superintendent; and

(c) identified the work the subject of the direction.

• [468] However, there was no express statement that the direction constitutes a direction for a variation within clause 36.1(f) of the Contract.
• [469] By the wording of the emails the Superintendent intended the plaintiff to undertake the work that was set out and identified in the schedules. In these particular circumstances, I consider that the non-inclusion of a statement that the direction constitutes a direction for a variation does not render a direction in the email invalid for the purposes of clause 36.1(f). The unambiguous nature of the emails and the context within which the direction was provided are sufficient for compliance under clause 36.1(f) such that liability for the cost of the variation arises.
• [470] In relation to quantum to be assessed pursuant to clause 36.4 of the Contract, Mr Watson does not assess the cost of this variation. Mr Hardiman assesses the cost of the variation at $7,423.39.
• [471] The plaintiff is entitled to the sum of $7,423.39 (plus GST).

• [472] Question four of the list of issues in dispute states as follows:

"4. In respect of Item 3 of the alleged Schedule 5 provisional sums, whether:

(a) (a) the plaintiff was directed to undertake the alleged Provisional Sum Works pursuant to clause 3 of the Contract [SOC [18]; Def [18], [19]]; and

(b) the alleged Provisional Sum Works were provisional sum works within the meaning of the Contract [SOC [18]; Def [18], [19]]."

• [473] In respect of quantum, question 16 of the list of issues in dispute states as follows:

"16. In respect of the Schedule 5 provisional sums, the extent to which, if at all, the plaintiff is entitled to the amounts identified in column D of Schedule 5 to the amended statement of claim [SOC [22]; Def [22]]."

• [474] Further, the parties have agreed that the following issue is not in dispute as set out in paragraph five of the list of matters not in issue:

"5. In respect of the alleged Schedule 5 provisional sums:

(a) (a) that the plaintiff is entitled to the amount claimed for Items 1 and 2; and

(b) in respect of Item 3, that the plaintiff undertook the work described in Schedule 5 of the amended statement of claim [SOC [19]; Def [19]]."

Provisional Sum No 2 - "Joinery to Greatroom"

• [475] Liability is not in dispute.
• [476] An amount of $129,772.51 (plus GST) has been paid by the defendant.
• [477] In this proceeding, the plaintiff claims an additional $3,840.00 (plus GST). This sum is admitted by the defendant.
• [478] Accordingly, the plaintiff is entitled to the amount of $3,840.00 (plus GST).

Provisional Sum No 6 - "Landscaping, irrigation and paving including design, supply & installation of streetscape trees, grates, kerbing and public artwork"

• [479] Liability is not in dispute and the defendant admits this claim.
• [480] The Superintendent's price was $5,020.39 (plus GST) made pursuant to CA59. This amount has not been paid by the defendant but is admitted by it.
• [481] In this proceeding, the plaintiff claims an additional $20,050.39 (plus GST) which is also admitted by the defendant.
• [482] Accordingly, the plaintiff is entitled to the amount of $25,070.78 (plus GST).

Provisional Sum No 8 - "Make good of the Council footpath to Wharf and Henry Streets"

• [483] In respect of this claim, both liability and quantum are in issue.
• [484] This claim relates to work performed by the plaintiff making good the Council footpath to Wharf and Henry Streets. The issues in dispute are whether an Aconex mail dated 31 October 2016 constitutes a direction pursuant to clause three of the Contract, whether the provisional sum provided for in the Contract only covered work that was not already included in scope work and lastly, what was the proper price for any provisional sum claimable.
• [485] Clause three of the Contract provides as follows:

A provisional sum included in the Contract shall not itself be payable by the Principal but where pursuant to a direction the work or item to which the provisional sum relates is carried out or supplied by the Contractor, the work or item shall be priced by the Superintendent, and the difference shall be added to or deducted from the contract sum without any allowance for profits or overheads.

Where any part of such work or item is carried out or supplied by a subcontractor, the Superintendent shall allow the amount payable by the Contractor to the subcontractor for the work or item, disregarding:

(a) (a) any damages payable by the Contractor to the subcontractor or vice versa; and

(b) (b) any deduction of cash discount for prompt payment.

If the amount the Principal is required to pay the Contractor pursuant to this clause 2.10 exceeds the total amount of all provisional sums included in the Contract, the Principal must also pay the Contractor an additional amount for profit and attendance calculated as the percentage stated in Item 13 or elsewhere in the Contract of the provisional sum excess amount.

The parties acknowledge the contract sum includes an amount for overheads, profit and attendance for all provisional sums included in the Contract."

• [486] The plaintiff refers to the definition of "direction" which states as follows:

"includes agreement, approval, assessment, authorisation, certificate, decision, demand, determination, explanation, instruction, notice, order, permission, rejection, request or requirement."

• [487] As previously observed, the definition of direction is quite broad. The defendant also refers to clause 2.1 of the Contract which states as follows:

"The Contractor shall carry out and complete WUC in accordance with the Contract and directions authorised by the Contract.

Subject to the express provisions of the Contract and the performance by the Contractor of its obligations pursuant to the Contract, the Principal shall pay the Contractor the contract sum adjusted by any additions or deductions made pursuant to the Contract."

• [488] In respect of whether there has been a direction made, the plaintiff relies on the following correspondence:

(a) On 18 October 2016, the plaintiff sent an email to the Superintendent stating:

"Pursuant to clause 3 and Part P of the general conditions of contract we hereby submit the following submission of cost adjustments justified and calculated against the Provisional Sum allowances of $10,000.00 to make good of the Council Footpath to Wharf & Henry St.

Scope of works is defined by the attached drawings and back to back head contract / DA & other authority obligations as presented in the attached BOQ.

Expiry period for acceptance is 28/10/2016."[158]

(b) The attachment to the Aconex mail was PC No 8 which set out a detailed description of the pricing for the provisional sum works.[159] PC No 8 rev A was issued when revised in January 2017.[160]

(c) On 31 October 2016, Mr Malone sent a mail to Mr Carlin and Mr Cook indicating that the works had been "assessed as WUC" but also directing the plaintiff to "proceed as such".

• [489] The plaintiff relies on this last correspondence as being a relevant direction. The plaintiff submits that whilst Mr Malone held the erroneous opinion that the works were within the scope of the work under the Contract, he directed the plaintiff to carry out the works. In this respect, the plaintiff contends that the email is a "request", "requirement", "approval" or "demand" within the definition of direction in the Contract. It is also contended that the plaintiff performed the works pursuant to that direction.
• [490] While it is open for that email to be classified as contended for by the plaintiff, the second issue in respect of the original scope of work under the Contract, and whether it needs to be outside of that, is the more substantive issue.
• [491] The defendant refers to a plan which is listed in Annexure Part K of the Contract. This is document C0201. The document is described as "C0201 Siteworks Plan Rev R2" which is under the heading "CIVIL ENGINEERING - OPUS" in Annexure Part K of the Contract.
• [492] The defendant contends that this siteworks plan identifies work, which was included in the original scope of work under the Contract. This work does not involve a direction and does not constitute performance of work identified in the provisional sum.
• [493] The defendant contends that where there is work within the scope of the Contract, it is covered within the Contract sum and it is not work covered by the provisional sum. In these circumstances, it is only work which is additional to the scope covered by the Contract, following on from a direction and which falls within the description of a provisional sum item which would give rise to an entitlement to compensation in respect of the provisional sum.
• [494] On this approach, work shown in the siteworks plan would be within the scope of the Contract and no additional compensation would arise. If, however, the defendant directed different works or additional works (that is, works not notified in a plan or somewhere in the Contract documents), then that might be work which the provisional sum would operate in respect of.
• [495] Some evidence was led in the statement of Mr Cook and he was also cross-examined in relation to this work. It is not readily apparent how this work was different to that envisaged by the Siteworks Plan C0201.

"Make good of the Council Footpath to Wharf & Henry Streets."

• [498] However, the Contract provisions need to be read as a whole. There were clearly aspects in relation to the footpath in Wharf and Henry Streets which were already specifically addressed in the Contract documents. Accordingly, the provisional sum needs to be interpreted in a way which recognises that the scope of work covered by the Contract documents forms part of the work under the Contract. In these circumstances, work additional to that which fell within the description of "making good the Council footpath to Wharf and Henry Streets" would be work which would be subject to a potential direction and claim under the provisional sum procedure.
• [499] The specific work identified in document C0201 Siteworks Plan Rev R2 constitutes work within the scope of the Contract. An amount in respect of that work has already been included in the Contract sum. To the extent that there is any work outside of that, which fits the description of "make good of the Council footpath to Wharf and Henry Streets" then that could be the subject of a claim if a direction was made.
• [500] There is no evidence that establishes that the work claimed is other than that which would be covered under the scope of work as identified in document C0201 Siteworks Plan Rev R2. In these circumstances, there is no basis for the provisional sum claimed. Accordingly, the plaintiff is not entitled to recover an amount in respect of this claim.
• [501] If I am wrong and the plaintiff is entitled to recover in respect of the provisional sum claimed, I accept the submission that the plaintiff has made a claim in respect of the "network alteration to Telstra pits" and that it should be included in the amount. This item is identified in Attachment 13 to Mr Watson's report which is referenced in Schedule 5 to the Amended Statement of Claim.
• [502] Accordingly, if the plaintiff is entitled to an amount in respect of Provisional Sum No 8, the amount of $89,411.34 (plus GST) as assessed by Mr Watson should be adopted.
• [503] The only difference between the value assessed by Mr Hardiman and Mr Watson's valuation is substantially the amount in respect of that one item.
• [504] The amount in the joint expert report of Mr Watson's assessment is $88,979.82 (plus GST).
• [505] This amount was reduced from the $89,411.34 in Mr Watson's original report.

PRICING OF VARIATIONS SCHEDULE 6 - PRELIMINARIES

• [507] Question five of the list of issues in dispute relates to claims made in respect of the Schedule 6 variations and states as follows:

"5. In respect of the Schedule 6 Variations, whether, if priced pursuant to clause 36.4 of the Contract, the plaintiff is entitled to payment for an additional 7.5% for preliminaries [SOC [25]; Def [25]]."

• [508] In relation to quantum, question 17 of the list of issues in dispute relevantly states as follows:

"17. In respect of the Schedule 6 Variations, the extent to which, if at all, the plaintiff is entitled to the amounts identified in column D of Schedule 6 to the amended statement of claim [SOC [26]; Def [25]]."

• [509] As set out in paragraph six of the list of matters not in issue, the parties have agreed as follows:

"6. In respect of the alleged Schedule 6 variations:

(a) that the plaintiff was directed to carry out the variation work described in Schedule 6 [SOC [23]; Def [23]]; and

(b) that the defendant has paid to the plaintiff the certified amounts set out in column B [SOC [24] Def [24]]."

• [510] Schedule 6 of the Amended Statement of Claim lists a number of variations which have been approved and certified by the Superintendent. It is accepted that the work has been carried out and the defendant has paid the plaintiff the amounts claimed, except for the amount identified as representing 7.5 per cent of the certified value of the variations.
• [511] The issue that is in dispute between the parties is whether, on a proper construction of clause 36.4(d) of the Contract, the plaintiff is entitled to an additional 7.5 per cent for "preliminaries" on top of the 10 per cent already added on account of profit and overheads pursuant to clause 36.4 of the Contract.
• [512] This issue is also relevant to the Schedule 3 and 4 variations. Those variations in dispute also include a claim in respect of the 7.5 per cent for preliminaries which is also disputed by the defendant.
• [513] This issue arises in relation to the practical application of clause 36.4(d) which provides that variations are to be priced on "reasonable rates or prices, which shall include an amount equivalent to the percentage set out in Item 32A for profit and overheads".
• [514] The variations listed in Schedule 6 were valued pursuant to clause 36.4(d) of the Contract using reasonable rates or prices, including a 10 per cent amount in accordance with Item 32A for profit and overheads.
• [515] The plaintiff submits, and Mr Watson, the quantum expert on behalf of the plaintiff agrees, that the assessment of the price of the variations should include the additional 7.5 per cent claimed.
• [516] Item 32A stipulates that the amount for profit and overheads is 10 per cent. Further, the quantum experts on behalf of both parties agree that this should be split and allocated as two per cent for profit and eight per cent for overheads.[161]
• [517] As a consequence of this, the defendant submits that there is no proper basis for adding the 7.5 per cent for "preliminaries". The defendant ultimately submits that to allow this additional 7.5 per cent on each variation would in effect increase the contractually agreed eight per cent for overheads to a figure of 15.5 per cent for overheads.
• [518] The plaintiff submits that the reasonable rates or prices referred to in clause 36.4(d) of the Contract does not require actual costs, but rather each variation is to be priced using "reasonable rates or prices". Further, it is submitted that it is common for these types of costs to be charged as a percentage of the overall cost of the variation and this is entirely orthodox and reasonable. It is also contended that time and resources will be incurred in relation to the management of variations and there is no reason why a contractor should not be compensated for the preliminary resources dedicated to a variation to the WUC.

(a) there is no evidence which identifies with any precision the tasks which it covers.

(b) there is no evidence to be satisfied that there is no duplication with the overhead component of the 10 per cent uplift.

(c) there is no evidence that the 7.5 per cent is in any way reflective of the actual or likely work undertaken in respect of the particular variations. For example, there is no estimate of the volume of work required for a particular variation that could be described under the category of preliminaries.

• [531] The defendant contends that in these circumstances the 7.5 per cent impost for preliminaries should not be allowed because:

(a) The amount is less than the eight per cent mark-up that is to be applied for overheads (as a component of the 10 per cent uplift for profit and overheads).

(b) There is no evidence that any additional resources were required to deal with any of the variations.

(c) There has been no analysis of whether there were any individual tasks undertaken in respect of each variation which ought, independently, be considered not to be overheads.

(d) There has been no consideration of any individual tasks for each specific variation.

• [532] Given that there is specific provision within the 10 per cent uplift which covers overheads and there is a lack of detail in relation to the items which would be covered by the 7.5 per cent uplift for preliminaries, there is a considerable risk that there would be duplication in respect of these costs. To include this mark-up in these circumstances would result in a valuation which was unreasonable.
• [533] For the reasons identified by the defendant, I find that the plaintiff has not made out that there is any proper basis to add 7.5 per cent for preliminaries to each variation. Accordingly, the plaintiff is not entitled to recover the 7.5 per cent by way of preliminaries in respect of the variations in Schedule 6.
• [534] This also applies in respect of the identified variations in Schedules 3 and 4.

• [535] The list of issues also identifies the following further issues relevant to the plaintiff's claim:

"19. The extent to which, if any, the defendant was entitled to deduct, from amounts owing to the plaintiff, amounts for:

(a) utility backcharges [SOC [52]-[53A]; Def [33]];

(b) the alleged Vintech Defect [SOC [56]-[57B]; Def [35]-[35B]].

20. Whether the defendant is liable to the plaintiff for the full amount claimed pursuant to Progress Claim No.24 submitted on 2 May 2017 [SOC [57C]-[57H]; Def [35C]-[35H]].

21. The extent to which, if any, the defendant was/is entitled to have recourse to the unconditional undertaking provided by the plaintiff to the defendant on 2 May 2016 [SOC [57I]-[57M]; Def [35I]-[35M]]."

• [536] The list of matters not in issue relevantly states:

"8. In respect of the Security Bond, that the plaintiff paid to the defendant the amount of $834,150.68 on 9 May 2019 in exchange for the Bond being cancelled [SOC [57I][57J]; Def [35I][35J]]."

• [537] The plaintiff addresses these claims in the plaintiff's written closing submissions under the heading "Wrongful Set-off / Deductions / Withholding of Payments".[162]
• [538] These claims relate to:

(c) amounts certified and claimed but unpaid - Progress Claim No 24.

• [539] These reasons deal with a number of claims which may affect the amounts the subject of:

(b) amounts certified and claimed but unpaid - Progress Claim No 24.

• [540] The parties should consider these claims in light of these reasons and identify any aspects which remain to be dealt with. Brief further submissions on these issues may be necessary so they can be expeditiously and efficiently dealt with.
• [541] In respect of the utility backcharges, the plaintiff's written closing submissions address this claim for $10,025.62. The defendant does not appear to have addressed this claim in its written closing submissions, reply submissions or oral submissions.
• [542] The plaintiff identifies that the amount in dispute comprises:

(a) $5,652.22 being utility charges incurred by the defendant either before the plaintiff had taken possession of the site or after practical completion was achieved. The plaintiff says in these circumstances, it is not obliged to reimburse those amounts.

(b) $3,996.49 being GST incorrectly included on top of some utility invoices. The plaintiff says GST was not payable as there was no taxable supply.

(c) $377.05 being in respect of invoices other than utility services.

• [543] The plaintiff submits that the Superintendent has offset in Progress Claim No 24 an amount for utility charges including these amounts which the plaintiff was not obliged to pay.
• [544] The plaintiff claims that it is entitled to have the amount of $10,025.62 repaid to it.
• [545] As the defendant has not addressed this claim, the parties should consider the claim in respect of the utility charges as part of the consideration of the amount under Progress Claim No 24 and any outstanding issues. If the defendant maintains the position identified in its Defence, then this should be briefly addressed in the further submissions to be provided. If the defendant does not press its defence to this claim, that should be notified to the plaintiff and incorporated in the calculations in respect of the amounts owing arising out of these reasons.

• [546] Questions nine to 12 of the list of issues in dispute are relevant to the items claimed by the defendant by way of counterclaim. These issues are as follows:

"9. Whether the works set out in Annexure 4 (items 1 and 4) and Annexure 6 to the counterclaim are defective works in the ways described therein [Def [38]; R [41]].

10. Whether the defendant is entitled to recover any costs incurred in engaging consultants to inspect and advise on non-compliant defective works and managing rectification of non-compliant defective works [Def [42](a) & (b); R [41(bc)]].

11. In respect of the additional liquidated damages claim, to what extent, on a proper construction of the Contract, the defendant was entitled to an additional claim for liquidated damages [Def [47], [48], [49], [50], [51]; R [41]].

12. Whether, on a proper construction of the Contract, the plaintiff breached clause 2.1, subclause 2.2(a), clause 2.6, subclause 8.1(b), subclause 8.5(a), subclause 8.5(b), clause 8.8, clause 11.1, clause 34.10 and clause 35.1 of the Contract [CC [41(a) to (j)]; R [41(bb)]]."

• [547] Further, paragraph nine of the list of matters not in issue also states:

"In respect of the counterclaim, the works set out in items 2 and 3 of annexure 4 to the third amended defence and counterclaim are defective in the ways set out therein."

• [548] In respect of the quantum of the counterclaim, paragraph 22 of the list of issues in dispute is relevant and states as follows:

"22. The cost to the defendant, if any, to rectify any defective works in Annexure 4 and Annexure 6 to the counterclaim, and to engage consultants to inspect and advise on non-compliant defective works and manage rectification of non-compliant defective works [Def [42], [43]; R [41(bc)]]."

• [549] In Annexure four of the defendant's counterclaim, the defendant sets out four non-mechanical related defects. The plaintiff has admitted liability (but not quantum) in relation to Items Two and Three. Liability is in issue for Items One and Four.
• [550] Each of these claims are discussed below.

Defect Item One - "Crack in the basement level 2 slab"

• [551] In respect of Defect Item One, liability is largely in issue.
• [552] The defendant submits that structural drawings prepared on behalf of the plaintiff required the basement level two concrete slab to be constructed using a dowelled joint. The basement level two concrete slab was constructed by the plaintiff without using a dowelled joint. As a result, the concrete slab developed a significant crack which allowed water to penetrate through the slab.
• [553] The plaintiff admits the allegation that there is a crack in the basement level two slab and that this is a defect, but otherwise does not admit the allegation. The plaintiff submits that it is unclear on the pleadings whether the defendant alleges that the slab is defective because water is able to ingress through the crack.
• [554] Mr Prove, engaged by the defendant, produced a rectification detail at the time Defect Item One emerged. He gave evidence at the hearing as to the steps that needed to be taken to rectify the crack in the slab. Those steps are set out at paragraph 11.2 of his report and included installing new dowelled joints.[163] Mr Dummett of LJ Building Services Pty Ltd gave evidence that LJ Building Services Pty Ltd carried out and completed rectification of the basement level two slab in accordance with Mr Prove's rectification detail.[164] Mr Dummett gave evidence that he charged the defendant $18,974 to rectify Defect Item One. The defendant submits that the Court ought to award the defendant $18,974, plus $6,944 for the preliminaries and builder's margin charged (apportioned on a pro-rata basis).[165]
• [555] Mr Dummett's evidence also included that these costs were fair and reasonable.[166] This evidence was not challenged in cross-examination.
• [556] The plaintiff submits that, to the extent that any amount is allowed in respect of Defect Item One, it should be limited to the costs relating to the actual rectification of the crack, not the cost of works which related to water ingress. The plaintiff submits that:

(a) the defendant has not specifically pleaded that the water which allegedly was coming through the crack is a defect;

(b) there is no evidence as to the source of the water which was allegedly coming through the crack, or evidence that the plaintiff is somehow responsible for the ingress of the water; and

(c) there is no evidence that any part of the plaintiff's WUC was defective such as to cause the water ingress through the crack in the slab.

• [557] The defendant claims the rectification costs on the basis that pursuant to clause 2.2(a) of the Contract, the plaintiff was required to carry out and complete the works with due skill, care and diligence and in accordance with the design documents so that the works would be fit for purpose.
• [558] The basement level two concrete slab was constructed by the plaintiff without a dowelled joint as required by the plaintiff's own structural drawings. The defendant contends that as a result, a significant crack developed in the concrete slab which allowed water to penetrate through the slab.
• [559] The rectification work undertaken is identified in the invoice from LJ Building Services Pty Ltd as including work to rectify the water ingress through the crack in the slab. This includes:

(b) a new slotted pipe was laid over the full length of the trench and connected to the existing storm water pipe;

(c) a back flow penetration valve was installed at the junction of the stormwater pipe and the aggregate line to prevent stormwater coming back up through the aggregate line; and

(d) the trench was backfilled with drainage stones.[167]

• [560] Annexure four of the Third Amended Defence and Counterclaim is headed "Non-mechanical services systems defective works" and Item 1 reads as follows:

"Description of work required: The crack in the basement level 2 slab needs to be rectified so that water cannot enter through the crack.

Description of defects: Basement 2 has a large crack in the slab near the B2 Maintenance Room. Water is coming up through the crack into the car park."[168]

• [561] There is evidence that establishes a link between the incorrect joint being installed and the water ingress. This includes a memorandum from Mr Prove to Mr Dummett produced following an inspection of the water leak through the crack.[169] Relevantly, Mr Prove identifies that "[h]ad the joint been installed as the documented [dowelled joint], a crack is unlikely to have occurred in that location." In respect of the water ingress he goes on to conclude:

"Water tends to follow a path of least resistance, in this case, the path of least resistance is now the crack in the slab on ground."[170]

• [562] Similarly, as recorded by Mr Dummett in his report annexed to the report of Mr Prove:

"The sawn joint installed was insufficient to transfer vertical load, created by constant vehicle traffic, across the slab joint to minimise differential deflection, resulting in a significant crack forming in the basement 2 slab and providing a path of least resistance for water to penetrate and enter the building."[171]

• [563] This supports the reasonableness of the rectification work undertaken as identified as necessary by Mr Prove to rectify the defect and as undertaken by Mr Dummett.
• [564] The evidence establishes that the defendant is entitled to the full amount claimed in respect of this item on the basis that the plaintiff failed to carry out and complete the work with due skill, care and diligence and in accordance with the design documents so that it would be fit for purpose.

Defect Item Two - "The electrical penetration running through the mechanical services slab needs to be adequately sealed and protected"

• [565] In respect of Defect Item Two, liability is agreed.
• [566] Mr Dummett of LJ Building Services Pty Ltd gave evidence that he rectified Defect Item Two by engaging an electrician to inter alia:[172]

(a) isolate the electrical services running through the concrete slab;

(b) apply a new layer of polyurethane sealant to the slab penetration;

(c) install a new PVC riser around the new penetration seal; and

(d) install a new metal angle to divert water away from the slab penetration.

• [567] Mr Dummett gave evidence that he charged the defendant $3,900 to rectify Defect Item Two, excluding preliminaries and builder's margin.[173] The defendant submits that the Court ought to award the defendant the sum of $3,900, plus $1,452 for preliminaries and builder's margin (apportioned on a pro-rata basis).
• [568] The defendant's submissions indicate quantum is agreed. The plaintiff does not address this claim in its submissions.
• [569] Based on the evidence of Mr Dummett the quantum of the defendant's claim in respect of this item has been established.[174]

Defect Item Three - "The storm water pipes, and each penetration through which they run, need to be adequately sealed and waterproofed"

• [570] In respect of Defect Item Three, liability is agreed.
• [571] Mr Dummett of LJ Building Services Pty Ltd gave evidence that, under his direction, LG Building Services Pty Ltd rectified Defect Item Three by sealing the junction of the PVC storm pipe penetrating the slabs with polyurethane sealant, Sikaflex Pro.
• [572] Mr Dummett gave evidence that he charged the defendant $250 to rectify Defect Item Three, excluding preliminaries and builder's margin.[175] The defendant submits that the Court ought to award the defendant the sum of $250, plus $93 for preliminaries and builder's margin (apportioned on a pro-rata basis).
• [573] The defendant's submissions indicate quantum is agreed. The plaintiff does not address this claim in its submissions.
• [574] Based on the evidence of Mr Dummett the quantum of the defendant's claim in respect of this item has been established.[176]

Defect Item Four - "The concrete structure around the basement staircase and communications hub wall needs to be adequately waterproofed"

• [575] Liability and quantum are in issue.
• [576] The defendant submits that the basement staircase has water coming through the walls and pooling on the ground because it has not been adequately waterproofed and does not have a water control system installed to divert water from the stairs. The defendant submits that the plaintiff's failure to design the basement staircase in a way that avoids water pooling on the ground is a breach of its obligations under clause 2.2(a).
• [577] The plaintiff denies that the work is defective. The plaintiff submits that the concrete structure around the basement staircase and the communications hub are compliant with the Contract. The site generally experiences overland flow rather than underland flow due to the site location, the fact that the site does not sit below the water table, the dense rock site foundations and the slope of the site. The plaintiff installed a false wall and a waterproofed hob to prevent ingress into the communications hub. This requires water seeping through the walls to the hob to be pumped out. The plaintiff submits that the water ingress is not caused by defective work, but by third party external factors, such as defective neighbouring stormwater systems.
• [578] Mr Dummett of LJ Building Services Pty Ltd gave evidence that LG Building Services Pty Ltd engaged a waterproofing company as a subcontractor to inject the basement staircase wall with a hydrophilic polyurethane resin to seal the leaking joints and cracks in the wall to prevent water entering the staircase.
• [579] Mr Dummett gave evidence that he charged the defendant $33,903.64 to rectify Defect Item Four, excluding preliminaries and builder's margin.[177] The defendant submits that the Court ought to award the defendant $33,903.64 plus $12,623 for preliminaries and builder's margin (apportioned on a pro-rata basis).
• [580] Mr Dummett gave evidence that the costs were fair and reasonable. This was not challenged in cross-examination.
• [581] Whilst the plaintiff has raised whether the cause of the water ingress was a faulty stormwater system on a neighbouring property,[178] the defendant submits that no evidence was led by the plaintiff that this was the cause.
• [582] The plaintiff points to previous correspondence where this issue has been discussed and the plaintiff has identified an issue with the neighbouring storm water pit. Further, the plaintiff points to the water ingress only occurring during significant rain events.

(a) Water penetrated the staircase wall on a number of occasions.[181]

(b) The plaintiff had previously taken steps to rectify the water ingress, including applying an injected treatment.[182]

(c) Waterproofing was not evident upon Mr Dummett's inspection.[183]

(d) There are no spoon drains to divert water away.[184]

• [585] The defendant claims the rectification costs on the basis that pursuant to clause 2.2(a) of the Contract, the plaintiff was required to carry out and complete the works with due skill, care and diligence and in accordance with the design documents so that the works would be fit for purpose.
• [586] The defendant contends, that on the evidence, the water coming through the walls of the staircase and pooling on the ground is a breach of the plaintiff's obligations under clause 2.2(a) of the Contract.
• [587] Under the Contract the plaintiff was to design and construct fire stairs with due skill, care and diligence and that would be fit for purpose. In the circumstances, the defendant contends that this would require the design and construction of fire stairs that were sufficiently waterproofed so that water could not enter the fire stairs and also that had drains to divert water. I accept the defendant's evidence and submissions in this regard.
• [588] The evidence in respect of the quantum of rectification work is not directly challenged by the plaintiff, whose approach was to deny the work was defective. Further, the plaintiff submitted that "the rectification works that Built has already performed are ... the best that can be done to stop the water ingress".[1]
• [589] On the evidence, I am satisfied that the defendant has established that the design of the basement staircase did not meet the obligations under clause 2.2(a) of the Contract.
• [590] Further, I am satisfied on the evidence of Mr Dummett that the steps undertaken to rectify the issue were appropriate and the costs were fair and reasonable.
• [591] Accordingly, the defendant is entitled to the costs of the rectification work as claimed.

COUNTERCLAIM - ALLEGED MECHANICAL SERVICES SYSTEM DEFECTS

• [592] In Annexure Six of the defendant's counterclaim, the defendant sets out 19 defects which have been identified in relation to the mechanical services system. The defendant claims the cost to rectify each of these defects.
• [593] Each of the claims are dealt with in turn below.

• [594] Liability and quantum are in issue.
• [595] The defendant submits that it was a requirement of the tender drawings that the plaintiff install duct bends that had a radiused throat or a square throat with turning vanes, combined with offsets and transitions of less than 1:4.[186] The defendant submits that the plaintiff installed a number of duct bends which have a square throat and radiused outside without turning vanes and transitions greater than 1:4.[187] This contributes to poor air flow performance and the inability of the guest room toilet exhausts to achieve their required design criteria (see Defect 4.2).
• [596] The plaintiff denies that the installed duct work is defective. The plaintiff submits that the drawings relied on by the defendant were part of the Thwaite design, not the plaintiff's alternative proposal. As the detail on the tender drawings did not constitute a performance requirement of the Thwaite design, there is no basis for the defendant's assertion that departure by the plaintiff from the duct bend design and offset and transition detail on the tender drawings constitutes defective work. The plaintiff further submits that there is no cogent evidence that a change in the duct design would result in any particular air flow rate.
• [597] Mr Lord's rectification method is to fit turning vanes to the duct bends.[188] Mr Dowden gave evidence that this would rectify the defect but, in his experience, this is likely to be more costly than replacing the duct bends by cutting them out and installing new duct bends.[189]
• [598] The parties' quantum experts differ as to the proper cost for rectifying Defect 1.1.[190]
• [599] In relation to Mr Dowden's proposed rectification methodology:

(a) Mr Hardiman has calculated the proper cost to be $45,259.90; and

(b) Mr Watson has calculated the proper cost to be $40,758.07.

• [600] The difference between the proper cost calculated by the parties' quantum experts is $4,501.83. The difference relates to the need to use a crane to lift the new pieces of duct work to the roof. Mr Hardiman gave evidence that a crane was necessary because some of the duct work is quite large, being 2,800mm x 350mm and 1,600mm x 300mm. Mr Lord accepted that 2.8m x 0.35m and 1.6m x 0.3m duct would be impractical to bring upstairs. That alone would require a crane.
• [601] In relation to Mr Lord's proposed rectification methodology:

(a) Mr Hardiman calculated the proper cost to be $41,448.68; and

(b) Mr Watson calculated the proper cost to be $24,100.74.

• [602] The difference between the proper cost calculated by the parties' quantum experts is $17,347.94. The difference relates to the amount of time required to fit the turning vanes. Mr Hardiman gave evidence that a team consisting of one technician and three labourers would take four hours to fit each turning vane whilst Mr Watson allowed one technician and one labourer one hour to fit each turning vane.
• [603] My earlier findings in respect of the interpretation of clause 1(u) of Annexure Part O of the Contract are relevant to this claim. The plaintiff was to build its alternative proposal for the mechanical system on the basis that it meet the "performance requirement of the tender drawings and specification". Consistent with my reasoning in respect of the Mechanical Variation claim, the relevant performance requirements may be found in the Specification and/or the drawings.
• [604] The defendant's claim is put two ways:

(a) The Contract required the specified air flow rates to be met as part of the alternative proposal: that it was a performance requirement of the Contract that the duct bends and transitions be designed and constructed in a way that did not significantly reduce the air flow pressure in the system, so that the system could meet the specified air flow rates.

(b) The obligation of due skill, care and diligence in respect of the design and installation of the ducts pursuant to clause 2.2(a) of the Contract required the specified air flow rates to be met.

• [605] The impact of the different throated ducts was in issue between the parties' experts. During the trial it was agreed that the experts would provide a joint report having regard to the air flow calculations available from the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE). Consideration of the data available from ASHRAE could assist in resolving the dispute between Mr Lord and Mr Dowden as to the pressure loss as a result of the bends actually on site.
• [606] The joint report was provided to the Court on 16 October 2020.[191] The conclusion reached by both Mr Dowden and Mr Lord is that the output figures derived from the ASHRAE database closely accord with the figures provided by Mr Dowden.
• [607] The defendant submits that as a result Mr Dowden's evidence should be accepted: that is, the Court should accept Mr Dowden's evidence that the installed duct bends have a significant impact on air flow performance in the mechanical system.
• [608] In respect of the dispute between the mechanical services experts as to the effect that the bends had on the mechanical system's air flow performance, in light of the joint report filed on 16 October 2020, I accept the evidence of Mr Dowden. That is, the pressure loss of using a bend with a square throat and radiused back is analogous to a square throated bend.
• [609] The tender drawings require radiused bends or square throated bends with turning vanes, thereby indicating a level of air pressure in the mechanical system to maintain air flow performance. I am satisfied that this constitutes a performance requirement that was to be met as part of the alternative proposal. By the installation of the square throated ducts without turning vanes the performance requirement has not been met, constituting a defect as a result of the impact on the air flow performance.
• [610] There are two identified methods to rectify this defect.
• [611] The first method proposed by Mr Dowden is to replace the duct bends by cutting out the duct bends and installing new ones.[192] There is a dispute as to the quantum involved in this method:[193]

• [612] The main difference between the two calculations relates to whether a crane is needed to lift the duct pieces onto the roof and traffic management. Mr Lord contends that the pieces could be taken up the stairs: although he did concede that the largest pieces would require a crane as it would be impractical to bring them up the stairs.[194]
• [613] If the rectification methodology proposed by Mr Dowden is to be adopted, Mr Hardiman's calculation of the cost is to be preferred. Taking the duct pieces up the stairs in a working hotel is not feasible and on Mr Lord's evidence a crane would be required for the larger duct pieces in any event.
• [614] The second rectification methodology is that proposed by Mr Lord. It involves fitting turning vanes to each of the square throated ducts. There is also a dispute as to the quantum involved in this method:[195]

(b) Mr Watson for the plaintiff: $24,100.74.[196]

• [615] The difference between the two calculations is as a result of the amount of time allowed to fit the turning vanes. Mr Hardiman has allowed one technician and three labourers four hours to fit each turning vane. Mr Watson has allowed one technician and one labourer one hour to fit each turning vane.
• [616] The plaintiff contends that the time allowed in Mr Hardiman's calculation is excessive. The defendant points to the scope of work identified by Mr Hardiman in cross-examination as supporting his time estimate, namely:

(a) removing a portion of the duct (which may be up to 2.4 metres in size);

(c) bringing up the turning vanes (which may be 2.4 metres in size); and

(d) attaching the turning vane by bolting it down inside the duct work, with each vane needed to be bolted down to reduce vibrations.[197]

• [617] Mr Hardiman also gave evidence during cross-examination, as to the number of men required, including for health and safety reasons given the size of the ducts involved.[198]
• [618] The defendant also points to Mr Dowden's view that it takes quite a bit of work to retrospectively fit turning vanes to the duct work and that ordinarily, it is more economic to simply replace the defective duct bend.[199] This corroborates the closeness of Mr Hardiman's estimate on the second method to his estimate on the first method.
• [619] In respect of the second rectification method, the approach of Mr Hardiman is to be preferred on the calculation of the costs involved. While there is some uncertainty as to the labour and time required, I consider the approach of Mr Hardiman is reasonable and considers the various relevant factors which may impact on the time and labour required.
• [620] The difference between the two rectification methodologies using Mr Hardiman's calculations is $3,811.22. This difference is not significant.
• [621] While Mr Dowden does accept the second methodology would be an acceptable solution,[200] his proposed rectification approach was the first methodology. In the reply report he concluded the decision as to which method could be left to the contractor, but his view was "more site labour would be involved, at additional cost, therefore this may not be economical".
• [622] Balancing the objective of rectifying the defect in respect of the rate of air flow and the costs associated with the rectification work, I consider that the first methodology is preferable. There is a greater level of certainty as to the costs involved between the two quantum experts.
• [623] Accordingly, the defendant's claim for rectification of Defect 1.1 in Annexure Six in the Counterclaim is allowed in the amount of $45,259.90 (plus GST) being Mr Dowden's rectification methodology and Mr Hardiman's assessment of the costs.

Defect 2.1 - "Air conditioning - simultaneous heating and cooling"

• [624] Liability is in issue, but quantum is agreed if liability is established and depending on the appropriate rectification methodology.
• [625] The defendant submits that it was a performance requirement of the tender drawings and the Specification that the air conditioning system designed and installed by the plaintiff be capable of performing the Independent Heating/Cooling Function on the ground floor.
• [626] The plaintiff denies that the alleged defect constitutes defective work. The plaintiff submits that the ground floor system is not defective as there was no performance requirement of the Thwaite design which required the plaintiff to install a system which provided simultaneous heating and cooling to the FCUs in all spaces.
• [627] Mr Dowden and Mr Lord propose different rectification methods.[201] Mr Dowden proposes that the ground floor mechanical system ought to be rectified by changing the current two-pipe system to a three-pipe system to enable independent heating and cooling.[202] Mr Lord proposes to increase the number of condenser units being installed in each area with a consequent increase in the number of power supplies and outdoor units to be installed and maintained.[203]
• [628] The parties' quantum experts agree that the proper cost of rectifying Defect 2.1 is:

(a) $151,201.57 to $151,203.09 if Mr Dowden's proposed rectification methodology is adopted; or

(b) $53,087.01 if Mr Lord's proposed rectification methodology is adopted.

• [629] Both parties agree that the outcome of this claim will be largely determined by the decision in relation to the Mechanical Direction claim.
• [630] In respect of the Mechanical Direction claim, as set out earlier in these reasons, the proper construction of the Contract is that the plaintiff was required to design and install an air conditioning system allowing mode control in each guest room, with the ability for occupants of individual guest rooms to select temperatures utilising the heating or cooling system independently of other guest rooms.
• [631] In respect of this claim, it is necessary to construe the Contract in relation to the plaintiff's obligation in respect of the ground floor air conditioning system.
• [632] The relevant provisions of the Contract, tender drawings and the Specification are set out in the reasons relating to the Mechanical Variation. In addition, the provisions of the Specification relevant specifically to the ground floor air conditioning system are in clauses 2.2.5 to 2.2.8 and state as follows:

"2.2.5 FOH GF AIR CONDITIONING AHU-PN, AHU-PW + AHU-C

• The perimeter zones in the public areas shall each be air conditioned by a system comprising ceiling mounted AHU which supplies conditioned air to the perimeter zone via thermally insulated sheet metal duct work connected to ceiling mounted linear grilles via flexible duct work

2.2.6 BOH GF AIR CONDITIONING FCU-GC, FCUGW, FCU-GN

• The back of house areas shall be air conditioned by a system comprising multiple ceiling mounted FCUs each of which supplies conditioned air to the spaces via thermally insulated sheet metal duct work connected to ceiling mounted grilles via flexible duct work.

2.2.7 MEETING ROOMS GF AIR CONDITIONING FCU-M1 + FCU-M2

• The 2 meeting rooms shall each be individually air conditioned by systems comprising ceiling mounted FCU which supplies conditioned air to the spaces via thermally insulated sheet metal duct work connected to ceiling mounted grilles via flexible duct work

• The kitchen shall be spot cooled by a system comprising ceiling mounted FCU which supplies conditioned air to the kitchen area via thermally insulated sheet metal duct work connected to ceiling mounted grilles via flexible duct work.

• [633] For the reasons articulated in respect of the Mechanical Direction claim, the language of clause 1(u) of Annexure Part O required that the performance requirements in the tender drawings and specifications be met even though a VRF air conditioning system was being provided rather than a four-pipe chiller (heat recovery) type system.
• [634] The requirements in clauses 2.2.5 to 2.2.8 of the Specification are consistent with that interpretation. The system being capable of providing independent heating and cooling to specific areas on the ground floor is a performance requirement that the plaintiff had to meet under clause 1(u) of annexure Part O of the Contract.
• [635] The use of "conditioned" air in respect of each area is relevant to arriving at this construction. On the plaintiff's case "unconditioned air" is used to moderate temperature. This is clearly not what was intended.
• [636] For the reasons explained earlier in these reasons, a consistent interpretation of the Contract is the proper construction of the Contract in respect of the ground floor air conditioning system.
• [637] On the proper construction of the Contract, the plaintiff was required to design and install an air conditioning system allowing mode control in each of the specified areas on the ground floor, with the ability to select temperatures utilising the heating or cooling system independently of other areas on the ground floor.
• [638] While not relevant to the construction task, the expert evidence of both Mr Dowden and Mr Lord is consistent with the interpretation of the requirements of clauses 2.2.5 to 2.2.8 as indicating a requirement for the ground floor to have independent heating and cooling in different areas.[204] The defendant points to this evidence in support of its contention. The construction of the Contract is a question for the Court. However, the view expressed by the experts provides a degree of comfort that the construction arrived at is not inconsistent with a technical understanding of the Specification.
• [639] Having construed the Contract in respect of the requirements for the ground floor air conditioning system, it is necessary to consider whether the installed ground floor air conditioning system is defective.
• [640] The plaintiff installed a two-pipe Toshiba VRF system on the ground floor. The defendant contends that the air conditioning system is defective because it is unable to simultaneously heat and cool as required by the Contract.

(a) Mr Dowden proposes changing the ground floor air conditioning system from the two-pipe system to a three-pipe system, similar to the work that was already undertaken in respect of the guest room air conditioning system. These modifications would enable independent heating and cooling as required by the Contract.

(b) Mr Lord proposes that the number of condenser units installed in each area be increased (with a consequential increase in the number of power supplies and outdoor units).

• [643] The defendant submits that Mr Dowden's proposal should be preferred as:

(a) it is a tried and tested method of rectification of this defect;

(b) it maximises utilisation of existing equipment (including fan coil units, controls and power supplies);

(c) it maintains heating and cooling capacities of currently installed fan coil units; and

(d) it utilises refrigerant pipework lengths within the manufacturers' acceptable limits.

• [644] Mr Lord in cross-examination accepted that Mr Dowden's proposal was not unreasonable and would provide the required independent heating and cooling capability.[205]
• [645] The plaintiff submits that Mr Dowden's proposal is "unreasonable, unnecessary and disproportionate". The plaintiff relies on the evidence of Mr Lord in relation to the cost and disruption of the proposal and that "[t]here is an easier way to achieve the same result".
• [646] The plaintiff contends that Mr Lord's methodology ought to be preferred. In this regard the plaintiff points to the evidence of Mr Lord that given the layout of the ground floor, even if less flexibility in the air conditioning is offered, it is not likely to have any significant effect.[206]
• [647] The defendant opposes Mr Lord's proposed rectification method and points to the following:

(a) The proposal was incomplete and had not been fully costed.

(b) Mr Lord did not inspect the Spring Hill Hotel (as Mr Dowden had done) leading to issues in the proposed design.

(c) The proposal is a "patch-work" solution which "strays significantly from the Tender Drawings and Specification."

(d) The proposal does not actually provide for independent heating and cooling in all of the required areas. In particular, it does not provide for independent heating and cooling in each of the offices or individual meeting rooms.[207]

(e) The design would need to be modified but the extent of the modifications was not clear and the extra cost involved was also not known.

• [648] The rectification method proposed by Mr Dowden is reasonable and the resulting modified system will meet the contractual requirement for independent heating and cooling. Mr Dowden's proposal should be adopted to rectify the defective work.
• [649] The quantum experts are essentially in agreement about the value of the work using Mr Dowden's method, with a difference of under $2. In these circumstances, the slightly higher value of $151,203.09 of Mr Hardiman should be used.
• [650] Accordingly, the defendant is entitled to the amount of $151,203.09 for the rectification of Defect 2.1.

Defect 2.2 - "Air conditioner - air commissioning"

• [651] Liability is in issue but the parties agree on quantum if liability is established.
• [652] The defendant submits that the test results issued by Testing and Maintenance Solutions (TMS) demonstrate that only one out of the four Air Handling Units (AHUs) tested on the ground floor achieved the air flow rate specified on the as-built drawings the plaintiff produced at the end of the Contract. The defendant submits that the low air flow rates leads to a reduction in air conditioning performance and poor temperature control.
• [653] The plaintiff denies that the defect as alleged exists. The plaintiff submits that clause 2.1.1.10 of the Specification does not require the AHUs to achieve any particular air flow rate. Rather, clause 2.1.1.10 requires only that there be "[t]esting and commissioning of all installed systems to NEBB standards", and that commissioning figures are provided for approval. The plaintiff further submits that testing and commissioning of the ground floor air conditioning system has been performed and that testing demonstrated that the systems have the capacity to provide sufficient heating and cooling to the spaces served.
• [654] Mr Dowden has proposed a method to rectify Defect 2.2 which was not addressed by Mr Lord. Mr Lord has not provided an alternate proposal for rectification.
• [655] If liability is established, the parties' quantum experts agree that the cost to rectify Defect 2.2 is $2,400.
• [656] The defendant's claim relies on:

(a) Clause 2.2 of the Contract, in that the plaintiff was required to carry out and complete the design in accordance with the "Principal's project requirements", including that the Spring Hill Hotel be fit for purpose.

(b) Clause 2.2(a)(i), in that the plaintiff was required to complete the work with due skill, care and diligence.

(c) The requirement to meet the performance requirements of the tender drawings as required by clause 1(u) of Annexure Part O of the Contract.

• [657] The defendant points to the plaintiff's as-built drawings which show the design air flows and also the test results conducted by TMS and submitted by the plaintiff. The defendant contends that the test results show that only one in four of the AHU's tested on the ground floor achieved the air flow rate specified on the as-built drawings.[208]
• [658] Further, clause 2.1.1.10 of the Specification provides that "[t]esting and commissioning of all installed systems to NEBB Standards and provision of commissioning figures for approval." The defendant contends that the requirement of the NEBB Standard is that all air flows must be within 10 per cent of the design quantities, which has not been met here.
• [659] The defendant relies on the TMS test results showing that only one AHU achieved an air flow rate within 10 per cent of the specified air flow rate: AHU-PN at 94 per cent of its design rate.[209] Further, AHU-PW achieved an air flow rate of only 53 per cent of its design rate.[210]
• [660] The TMS test results show that none of the AHUs achieved their designed outside air flow rate, measured as between 19 to 48 per cent of the required design rate.[211]
• [661] Mr Dowden's evidence included:

(a) Low supply air flow rates leads to a reduction in air conditioning performance, below specified requirements, leading to poor temperature control in various zones.

(b) Low outside air flow rates will lead to poor indoor air quality.

• [662] It is in these circumstances, that the defendant submits that a mechanical system that cannot meet its design air flow rates is not fit for purpose, was not completed with due skill, care and diligence as required by the Contract and failed to meet the performance requirements contained in the tender drawings.
• [663] The defendant has established that the air flow rates do not meet the designed rates shown in the plaintiff's own as-built drawings in accordance with the NEBB Standards. This is a sufficient basis for the claim to succeed on the basis of not being fit for purpose and not completed with due skill, care and diligence. Defect 2.2 has been established by the defendant.
• [664] It may be that the performance requirements contained in the tender drawings are a further basis, however, on the submissions and evidence identified in respect of this defect claim this is not clearly established. In the circumstances, it is not necessary to consider this further given the defect has been established.
• [665] Accordingly, the defendant is entitled to the cost of rectifying Defect 2.2 in the amount of $2,400.

• [666] Liability is in issue but the parties have agreed on quantum if liability is established.
• [667] The defendant submits that tender drawing M04 demonstrates that the outside air intake is required to be connected to an outside air louvre.[212] The defendant also submits that clause 3.1 of the Specification requires compliance with AS 1668.2. Clause 2.3 of AS 1668.2 requires air to be taken from outside the Spring Hill Hotel. The defendant submits that the outside air intake is located inside the loading dock behind the roller door.[213] As a result, the outside air intake is sucking in pollutants from trucks in the loading dock.
• [668] The plaintiff denies that the work is defective. The plaintiff submits that there is no evidence that the requirements of tender drawing M04 were a performance requirement. The plaintiff further submits that the requirement to achieve outside air was achieved. The duct work was extended to sit behind the roller door. There is no practical difference between the design and the duct work built. The duct draws air from outside through the grilled roller door, just as it would through louvres. Accordingly, the ability to draw outside air is not affected.
• [669] Mr Dowden has proposed a method by which to rectify Defect 2.3 which was not addressed by Mr Lord. Mr Lord has not provided an alternate proposal for rectification.
• [670] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 2.3 is $9,833.64.
• [671] The evidence in respect of this claim includes the following:

"The substation outside air intake is installed in the loading dock behind the roller door.

The substation outside air intake is not connected to an outside air grille, leading to intake of pollutants from trucks in the loading dock."[214]

"... none of this is good practice, in my opinion ... We shouldn't have been drawing air from the garbage room through the loading dock. We shouldn't be taking outside air from the loading dock to go into the substation. Neither of those outcomes is good practice, nor do I believe that they actually comply with the design criteria. Both the Thwaite design and the design - if this red thing is what's installed on site, that too is not compliant ... I don't think you can say that the loading dock is an acceptable source of air quality."[215]

• [672] On the evidence, the defendant has established Defect 2.3 on each of the bases identified. Accordingly, the defendant is entitled to the amount of $9,833.64 in respect of Defect 2.3.

Defect 2.4 - "Office - carpark ventilation noise"

• [673] Liability is in issue, but the parties agree on quantum, if liability is established.
• [674] The defendant submits that the carpark ventilation fan is creating excessive noise in the back of house office. In this way, the mechanical system is not fit for purpose.
• [675] The plaintiff denies that the defect as alleged exists.[216] The plaintiff submits that the carpark exhaust fans are fit for purpose. Attenuators were installed and all systems have tested as compliant. The plaintiff further submits that the carpark exhaust fans are only run at maximum speed in an emergency or when the emergency system is tested approximately twice per year. In either case, the offices will be evacuated. Accordingly, there is no material impact on the back of house office.
• [676] Mr Dowden has proposed a method by which to rectify Defect 2.4 which was not addressed by Mr Lord. Mr Lord has not provided an alternate proposal for rectification.
• [677] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 2.4 is $3,606.35.
• [678] The defendant relies on the evidence from Mr Dowden in respect of this claim which includes:

"The back of house office is located above the carpark exhaust fan location and the carpark exhaust duct passes over the office in the ceiling space. Excessive noise is experienced in the office when the carpark exhaust fans are run at maximum speed.

Attenuators have been installed in an attempt to rectify previously notified defects, however excessive noise is still experienced in the office area at times when the fans run at maximum speed".[217]

• [679] The plaintiff points to there being no evidence of actual noise levels or evaluation of the noise levels by any particular standard. In this respect, the plaintiff contends that the defect claim is unsubstantiated.
• [680] On the basis of the evidence identified and relied upon in respect of this claim, this defect has not been established. Accordingly, the defendant is not entitled to the rectification costs claim in respect of Defect 2.4.

Defect 4.2 - "Guest room & maids room exhausts"

• [681] Liability and quantum are in issue in respect of this claim.
• [682] The defendant submits that clause 3.2 of the Specification requires compliance with AS 1668.2. AS 1668.2 requires that bathroom and toilet exhausts located in hotels achieve an air flow rate of 25 litres per second per room. The defendant also submits that the same requirement is specified in tender drawing M09. Tender drawing M06 requires that each maid room exhaust achieve an air flow rate of 100 litres per second per room. Neither the Specification nor AS 1668.2 provides the air flow rates for the maid rooms.
• [683] The defendant submits that the test commissioned by Mr Dowden and conducted by Mr Visser demonstrated that the guest room toilet exhausts and maid room exhausts do not achieve the specified air flow rates.[218]
• [684] The plaintiff denies that the alleged defect constitutes defective work.[219] The plaintiff submits that earlier tests obtained from Remtech and TMS indicate that air flow results were satisfactory. The plaintiff submits that there is no cogent evidence that the earlier results were not accurate. The plaintiff further submits that the results obtained by Mr Visser are not accurate, as Mr Visser allowed insufficient time before taking a reading.
• [685] Mr Dowden's rectification method is to gain access to the toilet exhaust risers and have each one sealed (if necessary) by a qualified sheet metal worker.[220] Mr Lord's proposed rectification method is to spray an atomised sealant "Aeroseal14" into the mechanical system. The sealant can only be applied by one company known as Aeroseal.[221]
• [686] The parties' quantum experts differ as to the proper cost for rectifying Defect 4.2.
• [687] In relation to Mr Dowden's proposed rectification methodology:

(a) Mr Hardiman calculated the proper cost to be $664,306.69;

(b) Mr Watson calculated the proper cost to be $376,727.68.

• [688] The difference between the proper cost calculated by the parties' quantum experts is $287,579.01. The difference relates to the number of walls that need to be demolished to seal the risers and the number of man hours to conduct this work. Mr Hardiman gave evidence that 226 walls would need to be removed and eight man hours would be needed per room.[222] Mr Watson gave evidence that 143 walls would need to be removed and two man hours would be needed per guest room and a further eight hours per riser in the maid rooms.[223]
• [689] In relation to the rectification methodology proposed by Mr Lord, the parties' quantum experts agree that the proper cost to rectify Defect 4.2 is $56,980.
• [690] The defendant relies on clause 1(u) of Annexure Part O of the Contract that the alternative proposal for the mechanical services system be installed on the basis that it meets "the performance requirement of the tender drawings and specification". Consistent with the reasoning in respect of the Mechanical Direction claim, the specific requirements set out in the tender drawings and the Specification were to be met by the plaintiff.
• [691] This would include the air flow rates for the guest room and maid rooms specified in the tender drawings. Further, clause 3.2 of the Specification provides that the mechanical services system must comply with certain Australian Standards, including AS 1668.2 in respect of mechanical ventilation for acceptable indoor-air quality.[224]
• [692] In respect of the guest rooms, Appendix B of AS 1668.2 and tender drawing M09 (Mechanical Services Typical Guest Room Layout)[225] both require an air flow rate of 25 litres per second per room.[226]
• [693] In respect of the maid rooms, the required air flow is not specified in the Australian Standard, but is shown on the tender drawings. Tender drawing M06 (Mechanical Services Level 2-11 Layout)[227] requires that each maid room exhaust is to achieve an air flow rate of 100 litres per second per room.[228]
• [694] Consistent with the reasoning in respect of the Mechanical Direction claim, these are performance requirements of the tender drawings and the Specification and the plaintiff was required to design and install a system that met these requirements.

(a) 48 guest room toilet exhausts were tested,[230] being a sample of 21 per cent. Only five of the tests achieved a design air flow rate within 10 per cent of the required 25 litres per second per room. Consequently, on average 90 per cent of the guest room toilet exhausts did not achieve the required air flow rates.

(b) 12 maid room exhausts were tested, being 100 per cent. None of the maid room exhausts achieved a design air flow rate within 10 per cent of the required 100 litres per second per room or 70 litres per second per room.

• [699] The test results clearly establish that the air flow rates in the guest rooms and the maid rooms do not comply with the requirements of the tender drawings and the Specification (including AS 1668.2).
• [700] On the evidence, the defendant has established Defect 4.2. It is then necessary to consider quantum.
• [701] Two different rectification methods are identified. Further, there is a considerable dispute as to the proper costs of the method proposed by Mr Dowden.
• [702] The defendant contends that the Court should accept Mr Dowden's proposal for rectification as it is a "tried and tested method for the rectification of this kind of defect" and will avoid any risk to the fire dampers located in the duct work.
• [703] The plaintiff contends that Mr Dowden's proposal is "unreasonable, unnecessary and disproportionate given the available alternative methodology". Further, the plaintiff submits that the required work for Mr Dowden's proposal is "invasive and disruptive".
• [704] Mr Dowden's rectification proposal requires the demolition and reinstatement of the bathroom walls of each of the guest rooms. This is required to provide access to the toilet exhaust risers to enable each one to be resealed.
• [705] In contrast, Mr Lord's rectification proposal is for the atomised sealant "Aeroseal 14" to be applied to the exhaust and supply air risers. Mr Lord's evidence is that this is a "conventional method" and "tried and tested". Mr Lord also is of the opinion that it is a simpler and cheaper proposal and also deals with both air supply and air extraction.[231]
• [706] There is considerable disagreement in relation to the second proposal, including:

(b) whether it met the standard specified in the tender drawings and the Specification; and

(c) the risk of damage or interference with fire dampers in the duct work.

• [707] The plaintiff submits that Mr Lord has addressed all of these concerns in his evidence and the second rectification proposal should be preferred over Mr Dowden's proposal.
• [708] Conversely, the defendant submits that while Mr Dowden accepted the Aeroseal method may contribute to satisfactory air flow, the other concerns remain and as a result Mr Dowden's rectification proposal should be preferred.
• [709] The evidence before the Court does not assist in resolving all of these areas of disagreement.
• [710] I have accepted the evidence of Mr Dowden as to the defective performance of the guest rooms and maid room exhausts. The rectification proposal identified by Mr Dowden includes:

"The walls and ceilings should be removed to gain access to toilet exhaust riser ... Toilet exhaust riser ducts should be inspected internally to assist in identifying leakage paths and check cleanliness. Any debris present should be removed. Toilet exhaust riser ducts should be sealed to reduce leakage ... The air systems should be re-balanced, adjustments made to the heat exchange units and test figures submitted ... The walls and ceilings should be re-instated ..."[232]

• [711] Considering all of the evidence in respect of this claim, the rectification proposal of Mr Dowden addresses the defects in the work undertaken by the plaintiff and maintains as close as possible what would have been the original work if the contractual requirements were carried out in the first place. Accordingly, I accept Mr Dowden's proposed solution in respect of the rectification work.
• [712] In relation to quantum, the cross-examination of Mr Hardiman highlighted that there is considerable uncertainty as to how many walls need to be demolished and reinstated and the labour required to undertake the work. The calculations used by Mr Watson assess what work needs to be undertaken for the necessary access and also seek to minimise unnecessary work which would not assist in achieving the rectification of the defect. On balance, I prefer the assessment of costs of Mr Watson in respect of Mr Dowden's rectification proposal.
• [713] In these circumstances, I consider that the defendant is entitled to the costs of the rectification of Defect 4.2, which should be assessed in accordance with the costing undertaken by Mr Watson.

Defect 4.3 - "Level 1 to 12 outside air supply"

• [714] Liability is in issue but the parties agree on quantum if liability is established.
• [715] The defendant submits that tender drawing M10 requires that the outside air flow rate on each floor is 50 litres per second.[233] It is unclear what air flow rates are being achieved, as the level one to 12 outside air supply system has been configured in a way which does not allow for the air flow rates to be measured at each floor.[234] The defendant submits that the air flow rates are a performance requirement and the ability to measure air flow rates should be held to form part of that performance requirement.
• [716] The defendant further submits that section 12 of the Specification requires commissioning of the mechanical system. This requirement cannot be met, as the installed system cannot be commissioned. Once Defect 4.3 is rectified, test results will need to be submitted in accordance with clause 2.1.1.10 of the Specification which requires testing and commissioning to NEBB Standards.[235]
• [717] The plaintiff denies that the defect as alleged exists.[236] The plaintiff submits that the ability to measure air flow rates at each floor is not a requirement of the Contract and it is not necessary to test air flow rates at each floor to obtain adequate measurements using the NEBB guidelines. The plaintiff submits that it complied with the Contract by causing the outside air supply flow to be tested in accordance with the NEBB standards at each HRV unit and at the top of each supply riser.
• [718] Mr Dowden proposes that Defect 4.3 should be rectified by installing additional duct work to facilitate air flow measurements from the supply air dampers. This involves removing parts of the ceiling and conducting reinstatement work once the work is complete.[237] Mr Lord proposes that Defect 4.3 may be rectified by measuring the riser air flow at a point between each riser take-off and, by deduction, identifying how much outside air has been delivered.[238]
• [719] The parties' quantum experts agree that the proper cost to rectify Defect 4.3 is:

(b) $40,857.90 to install the additional duct work (including associated work) to facilitate air flow measurement from the supply air dampers.

• [720] Consistent with the reasoning in respect of the Mechanical Direction claim and the other defect claims in respect of air flow rates, the air flow rate specified in the tender drawing is a performance requirement. Further, the ability to measure air flow is an inherent requirement in the overall system design and also to meet the commissioning requirements in section 12 of the Specification.
• [721] As identified by Mr Dowden, the tender drawings and the Specification require the mechanical services system to be "balanced and commissioned to ensure satisfactory performance".[239] It is necessary therefore to be able to measure the air flow rates on each guest room floor. This would also be consistent with the obligation for "due skill, care and diligence" pursuant to clause 2.2(a)(i) and being fit for purpose.
• [722] In these circumstances, the inability to measure air flow rates for each floor is a defect. Once there is the ability to undertake measurements then compliance with the specified air flow rates needs to be considered.
• [723] Mr Lord proposes that the defect can be rectified by measuring the riser air flow at a point between each riser take-off and then deducing how much outside air has been delivered. Mr Dowden's evidence is that this proposal is not feasible and in any event would require significant wall demolition and reinstatement to achieve the necessary access.
• [724] Mr Dowden's proposal is for the defect to be rectified by installing additional duct work to facilitate air flow measurements. This requires removal of parts of the ceiling and reinstatement work once the work is completed. This work has been costed by the quantum experts.
• [725] I accept the defendant's submission that Mr Dowden's proposal should be preferred as Mr Dowden attended site and also considered the feasibility of both methodologies. Further, any demolition and reinstatement work that may be required under Mr Lord's proposal has not been fully considered nor costed.
• [726] In the circumstances, the defendant is entitled to an assessment of the rectification work in accordance with Mr Dowden's proposed rectification of the defect in the amount of the agreed quantum, being $760 to test and balance the system and $40,857.90 for the additional duct work.

Defect 4.4 - "Guest room toilet exhaust risers - fire rating"

• [727] Senior Counsel for the defendant indicated during closing oral submissions that this defect claim was not being pressed.[240]

Defect 4.5 - "Guest room fan coil unit - interface with occupancy controls"

• [728] Liability and quantum are in issue.
• [729] The defendant submits that clause 2.2.21 of the Specification requires that "[t]he guest rooms shall have standalone electronic controls to operate each FCU serving the room and shall be interfaced with the guest room energy management system (turns FCU ON-OFF)." The energy management system is referred to as the Vintech energy management system. The purpose of the system is to automatically turn the air conditioning off when a guest leaves the room and automatically turn the air conditioning on when they enter or remain in the room. The defendant submits that the mechanical system's FCU does not properly interface with the Vintech energy management system. As a result, the Vintech energy management system can turn the FCU system off but it cannot turn it back on after inactivity.
• [730] The plaintiff denies that the defect as alleged exists. The plaintiff submits that the defendant directed the plaintiff to install the Vintech energy management system.[241] There is no identified defect in the installation work carried out by the plaintiff, or in any of the other equipment installed by the plaintiff in respect of the Vintech energy management system. The plaintiff submits that there is no evidence that the Vintech energy management system operates in any way other than how the system is designed to operate.
• [731] Mr Dowden has proposed that the guest room FCU and Toshiba controls interface to the Vintech energy management system should be modified to enable the air conditioning system to automatically turn on and off. Before this work can be carried out, a 600mm x 900mm piece of the ceiling in each guest room will need to be removed, and then reinstated after the system has been modified.[242] Mr Lord did not propose an alternate methodology.
• [732] The parties' quantum experts disagree as to the proper cost to rectify Defect 4.5:

(a) Mr Hardiman assessed the proper cost to be $95,425.11; and

(b) Mr Watson assessed the proper cost to be $71,651.60.

• [733] The difference between the proper cost calculated by the parties' quantum experts is $23,773.51. The reason for the difference is that Mr Hardiman allowed 1.5 hours per room for a technician to modify the controls interface whilst Mr Watson allowed 0.5 hours per room.
• [734] The defendant describes the defect in Item Nine of Annexure Six to the Counterclaim as follows:

"The interface with the energy management (Vintech) system has the ability to turn the guestroom fan coil units off, but does not have the ability to turn them on, contrary to this specified requirements."

• [735] Clause 2.2.21 of the Specification states:

"The guest rooms shall have standalone electronic controls to operate each FCU serving the room and shall be interfaced with the guest room energy management system (turns FCU ON-OFF)".

• [736] The difficulty with this defect claim is that while it is clear that the air conditioning may turn off automatically but not restart when a guest moves within their room, the cause of the issue is not clearly established on the evidence.
• [737] The defendant contends that it is the interface between the mechanical system and the Vintech energy management system which is the defect. Further the defendant points to the evidence of Mr Dowden that "adjustments" by Toshiba and Vintech have previously been made and this resolved the issue.[243]
• [738] However, there is no evidence of what the plaintiff is alleged to have done or not done to cause this problem.
• [739] The plaintiff installed the Vintech energy management system as directed. There is no evidence that the Vintech energy management system operates other than as it was designed to do. There is no evidence that the installation by the plaintiff was faulty.
• [740] The difficulty is highlighted by a lack of evidence as to precisely what work a technician would do to rectify the issue.
• [741] The lack of precision about identifying the actual cause of the issue and the "adjustments" that need to be made to rectify the issue results in there being insufficient evidence to establish this as a defect.

Defect 4.6 - "Guest floor lift lobbies - moisture damage to ceilings and dripping air conditioning grills"

• [742] Liability and quantum are agreed.
• [743] The defendant submits that the mechanical system is leaking condensation from the air conditioning grills causing moisture damage to plasterboard ceilings. A mechanical system that leaks condensation and causes damage to plasterboard ceilings is not fit for purpose. The defendant further submits that this is a breach of clause 2.2(a)(i) of the Contract.
• [744] The plaintiff admits the existence of the defect alleged.
• [745] Mr Dowden has proposed that the roof top heat recovery units be commissioned and controlled to ensure that the supply air is dehumidified and sufficiently cooled to prevent condensation.[244] Mr Lord did not propose an alternate rectification methodology.
• [746] The parties' quantum experts agree that the proper cost to rectify Defect 4.6 is $5,130.
• [747] The defendant is entitled to the amount of $5,130 in respect of Defect 4.6.

Defect 5.1 - "HX-1, HX-2 filter installation"

• [748] Liability is in issue but the parties have agreed on quantum, if liability is established.
• [749] The defendant submits that clause 4.5.1 of the Specification requires that service access to change the filters be from the dirty side of the filters. Access to the filters is poor and the filters are removed by sliding out rather than by removal from the dirty side.[245]
• [750] The plaintiff denies that the defect as alleged exists.[246] The plaintiff submits that full access to the filters was enabled by duct work modifications to the filter plenums and construction of a platform ladder for service access to HX-1. The filters were replaced and upgraded and gauges were fitted for pressure drop readings.[247] The plaintiff submits all rectification work has been completed and access is adequate for the proper maintenance of the filters.
• [751] Mr Dowden has proposed that Defect 5.1 may be rectified by modifying the filters so that access can be gained from the dirty side of the filters. Mr Lord has not provided an alternate proposal for rectification.
• [752] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 5.1 is $3,232.95.
• [753] Senior Counsel for the defendant in closing oral submissions recognised the difficulty with this claim arising out of the rectification work that the plaintiff has already undertaken.[248] Whilst Mr Dowden observed the problem with the access to the filter, there is no clear evidence on whether the work done, including the platform ladder, fully addresses the concerns.[249]
• [754] Mr Dowden's report is based on inspections in October 2017 and March 2018.[250] In the report to the Superintendent dated 28 June 2018 the plaintiff lists the rectification work as completed.
• [755] Given the rectification work that has already been completed by the plaintiff to enable access to HX-1[251] and there being no evidence that this has not adequately addressed access for the maintenance of the filters, this defect has not been established. Accordingly, the defendant is not entitled to the costs claimed in respect of the defect rectification work for Defect 5.1.

Defect 5.2 - "Roof mounted duct work - water pooling"

• [756] Liability is in issue but the parties agree on quantum, if liability is established.
• [757] The defendant submits that clause 2.2.12 of the Specification requires duct work exposed to the weather to be constructed with a graded top surface to prevent pooling of water. The ducts exposed on the roof have not been constructed with graded top surfaces. As a result, water is pooling on the duct work and rust stains are forming.
• [758] The plaintiff submits that clause 2.2.12 of the Specification relates to the specific system designed by Thwaite and is not a performance requirement of the plaintiff's alternative proposal. Accordingly, there has been no failure to comply with the Contract.
• [759] Mr Dowden proposes that Defect 5.2 may be rectified by constructing a graded cover. Mr Lord has not provided an alternate proposal for rectification.
• [760] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 5.2 is $0.00 on the basis that it is included in the quantum for other defects.
• [761] Clause 2.2.12 of the Specification relevantly states:

"All duct work on the roof shall be internal acoustic type and cross broken so that no water is able to accumulate on the flat surfaces. All flanged joints and the flexible discharge joints shall be covered in sheet metal to stop water pooling and to provide UV protection."

• [762] Consistent with the reasoning in respect of the Mechanical Direction claim, clause 1(u) of Annexure Part O required the plaintiff to install the alternative proposal for the mechanical system on the basis that the performance requirement of the tender drawings and the Specification were met. The requirement in clause 2.2.12 was a requirement that the plaintiff needed to meet.
• [763] The evidence of Mr Dowden is that the ducts on the roof have not been constructed with graded top surfaces and as a result water is pooling and rust stains are forming. The evidence establishes that is defective work on the basis that the requirement of the Specification has not been met, it is not fit for purpose and/or it has not been undertaken with due skill, care and attention.
• [764] However, there is no additional loss caused by this defect and accordingly the defendant is not entitled to any additional cost specifically in respect of this defect.

• [765] Liability is in issue but the parties agree on quantum if liability is established.
• [766] The defendant submits that clause 2.2.12 of the Specification requires all duct work on the roof to be internal acoustic type,[252] and that tender drawing M08 requires the insulation to be 75mm thick.[253] Internal acoustic type duct work refers to sheet metal duct work with sound attenuating insulation contained on the inside. The defendant submits that 75mm of internal acoustic type duct work has not been provided for in relation to the supply air duct work from HX-1 and HX-2 to the risers.
• [767] The plaintiff denies that the work is defective.[254] The plaintiff submits that the Contract, including the alternative proposal, does not require all insulation to be installed inside the duct. To the extent that the Specification sets out a performance requirement, there is no evidence that the relevant performance relates to anything other than noise attenuation. The method by which noise attenuation is achieved is not a requirement of the Contract. The plaintiff submits that, in any event, the insulation to the duct work includes internal insulation. The insulation fulfils its purpose of noise attenuation and is not defective.
• [768] Mr Dowden has proposed that Defect 5.3 be rectified by replacing the non-compliant roof ducts with 75mm internal acoustic duct work. Mr Lord agreed with Mr Dowden's proposed methodology.
• [769] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 5.3 is $14,757.64.
• [770] The defendant points to clause 2.2.12 of the Specification for the requirement that "[a]ll duct work on the roof shall be internal acoustic type". Further the defendant refers to tender drawing M08 for the requirement that the insulation be 75mm thick.
• [771] The evidence of Mr Dowden is that the insulation installed on the duct work is 50mm external insulation.[255] Mr Lord accepted that the insulation installed was not internal acoustic insulation.[256]
• [772] The plaintiff denies that the work is defective and makes submissions that the insulation installed is adequate to achieve noise attenuation.

Defect 5.4 - "HX-1, HX-2 condensation traps omitted"

• [776] Liability is in issue but the parties agree on quantum if liability is established.
• [777] The defendant submits that clause 3.2 of the Specification requires compliance with AS 3666 - "Air handling and water systems of buildings - Microbial control". Clause 2.9.1 of AS 3666 requires drain lines to be trapped to seal against air flow. The defendant submits that heat recovery units HX-1 and HX-2 do not have condensate traps installed to allow condensate to drain. As a result, there is a retention of water in the internal drain trays and water overflow into the compressor, resulting in microbial growth inside the machine.[258]
• [778] The plaintiff does not admit this allegation. The plaintiff submits that none of the plaintiff's witnesses were cross-examined about this issue and the Court should not accept on the balance of probabilities that there is a defect.
• [779] Mr Dowden has proposed that Defect 5.4 be rectified by installing condensate traps with graded pipework for both heat recovery units.[259] Mr Lord has not provided an alternate proposal for rectification.
• [780] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 5.4 is $767.90.
• [781] Clause 3.2 of the Specification identifies the requirement for compliance with AS 3666. Equally design to meet this requirement would be required by clause 2.2(a)(i) of the Contract, requiring the work to be undertaken with due skill, care and diligence, as well as clause 2.2 to be fit for purpose.
• [782] Mr Dowden gave evidence that he observed that there were no condensate traps installed on HX-1 and HX-2 to allow condensation to drain. He also gave evidence that this is resulting in retention of water in the internal drain trays and water into the compressor, resulting in microbial growth inside the machine.[260]
• [783] The evidence establishes that the requirement relates to the quality of air circulated throughout the Spring Hill Hotel and non-compliance with the requirements results in the system not being fit for purpose.
• [784] In these circumstances, the defect has been established and the defendant is entitled to the cost to rectify the defective work being $767.90.

Defect 5.5 - "Water in HX-1 isolating switch"

• [785] Liability is in issue but the parties agree on quantum, if liability is established.
• [786] The defendant submits that clause 3.2 of the Specification requires compliance with AS 3000 "SAA Wiring Rules". Clause 1.5.4.4 of AS 3000 requires that electrical equipment be protected by enclosures to suit the environmental conditions.[261] The defendant submits that Mr Dowden observed water running out of the electrical power isolating switch on the exterior of the HX-1 heat recovery unit on the roof.
• [787] The plaintiff does not admit this allegation. The plaintiff submits that none of the plaintiff's witnesses were cross-examined about this issue and the Court should not accept on the balance of probabilities that there is a defect.
• [788] Mr Dowden proposes that Defect 5.5 be rectified by replacing the isolating switch, junction boxes, switch housing and conduits before sealing these items to prevent the ingress of water. Mr Lord has not provided an alternate proposal for rectification.
• [789] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 5.5 is $1,298.00.
• [790] Based on the evidence of Mr Dowden and the requirement to comply with AS 3000, there is sufficient evidence to be satisfied that the work undertaken by the plaintiff is not fit for purpose and is defective.
• [791] In the circumstances, the defendant is entitled to the cost to rectify this defect in the amount of $1,298.00.

Defect 5.6 - "HX-1, HX-2 filter gauges defective"

• [792] Liability is in issue but the parties agree on quantum, if liability is established.
• [793] The defendant submits that clause 4.5.1 of the Specification requires pressure gauges to be installed across air filters, adjusted, and marked 'Filter Dirty - Replace' at the appropriate pressure. The defendant submits that the gauges are not reading correctly and are not correctly zeroed.[262]
• [794] The plaintiff does not admit this allegation. The plaintiff submits that there is no cogent evidence adduced by the defendant in support of Defect 5.6. Specifically, Mr Dowden did not give any evidence of checks undertaken by him of the gauges and did not provide any explanation of the measurements recorded by TMS. Mr Visser did not provide any such evidence. The plaintiff submits that the Court should not accept on the balance of probabilities that there is a defect.
• [795] Mr Dowden proposes that Defect 5.6 be rectified by having a controls technician calibrate and zero the gauges and check for compliance with the manufacturer's recommendations. Mr Lord has not provided an alternate proposal for rectification.
• [796] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 5.6 is $760.00.
• [797] There is evidence from Mr Dowden that the pressure tests conducted by Mr Visser demonstrate that the gauges were not reading correctly and Mr Dowden also personally observed that the gauges were not correctly zeroed.[263]
• [798] Further, the test results also show a significant difference between the measured results and the readings from the gauges. Only one gauge read correctly.[264]
• [799] It is in these circumstances that the defendant submits that gauges which do not accurately record the status of the filters are not fit for purpose. Additionally, the defendant contends that accurate gauges are a performance requirement as they are required to indicate when filters need to be checked and changed.
• [800] There is also evidence from Mr Lord in cross-examination, including:

(a) "I think if you look at the gauges, the gauges are all over the place and - and, potentially, damaged or wrong, or full of dirt."

(b) "... there's something clearly wrong with the gauge".

(c) "But can I suggest to you those [sic] - the readings from the gauges there indicate to you that they are not operating properly? - The ... gauge readings make no sense, yes. I would agree with that assertion."

(d) "I would perhaps even go stronger, that they are operating defectively".

(e) ... I think the gauge readings there make no sense; I think the gauges there are defective".[265]

• [801] There is sufficient evidence to establish that there is a defect in respect of the gauges and the rectification work proposed by Mr Dowden is reasonable.
• [802] Accordingly, the defendant has established an entitlement to the cost of rectifying Defect 5.6 in the amount of $760.00.

Defect 5.7 - "HX-2 - water pooling in outside air duct"

• [803] Liability is in issue but the parties agree on quantum, if liability is established.
• [804] The defendant submits that clause 6.5.1 of the Specification requires "[d]ucts exposed to weather to be constructed with graded top surface to prevent pooling of water".[266] The defendant submits that implied in clause 6.5.1 is a requirement that water does not enter the duct. The defendant submits that Mr Dowden observed water pooling in the HX-2 heat recovery outside air intake duct. The presence of water in the duct will lead to increased humidity in the air intake, exacerbating problems with excess moisture in the corridors.[267]
• [805] The plaintiff does not admit this allegation. The plaintiff submits that it inspected the roof duct work in a heavy rain event in March 2018. Most of the duct had no pooling of water and the plaintiff installed graded sheet metal capping to the sections of affected duct work. The plaintiff submits that the Court should not accept on the balance of probabilities that there is a defect.
• [806] Mr Dowden proposes that Defect 5.7 be rectified by weatherproofing the outside air intake duct to prevent the ingress of water and installing trapped drainage provisions at the bottom of the duct to ensure that any water is drained from the duct.[268] Mr Lord has not provided an alternate proposal for rectification.
• [807] If liability is established, the parties' quantum experts agree that the proper cost to rectify Defect 5.7 is $1,298.00.
• [808] The defendant in oral submissions clarified that there may be a misunderstanding by the plaintiff in respect of this claim. The basis of the defendant's claim is that there is water inside the duct, not pooling on the outside of the duct.[269]
• [809] The evidence of Mr Dowden is as follows:

"Water was observed pooling in the HX-2 outside air intake duct, to a depth of about 20mm. This indicates that rainwater is making its way into the duct.

The presence of rainwater in the duct will lead to increased humidity in the air intake, exasperating problems with excess moisture in the corridors ..."[270]

• [810] The design and installation of the outside air duct allowing water to enter and pool in the duct is clearly in breach of the requirement that it be fit for purpose and designed with due skill, care and diligence.
• [811] The evidence establishes the defect and accordingly, the defendant is entitled to the cost of rectifying the defect in the amount of $1,298.00.

Defect 6.1 - "As installed drawings (O&M manuals)"

• [812] Liability and quantum are in issue.
• [813] The defendant submits that clause 12.7 of the Specification requires the plaintiff to supply to the defendant post contract drawings that accurately represent the actual installations.[271] The defendant submits that as-built drawings M07 Mechanical Services Levels 2-10 Typical Layout and M09 Mechanical Services Roof Layout contain a number of inaccuracies.[272]
• [814] The plaintiff denies that the work is defective.[273] The plaintiff submits that the as-installed drawings are true and accurate representations of the actual installations. Alternatively, to the extent that any information is omitted from the drawings, the plaintiff submits the inaccuracies are minor and the drawings comply or substantially comply with the Contract.
• [815] Mr Dowden proposed that Defect 6.1 be rectified by employing a draftsperson to accurately depict the duct work configuration and equipment installed on site in the as-built drawings. Mr Lord has not provided an alternate proposal for rectification.
• [816] The parties' quantum experts disagree as to the proper cost to rectify Defect 6.1:

(a) Mr Hardiman assessed the proper cost to be $12,000.00; and

(b) Mr Watson assessed the proper cost to be $1,200.00.

• [817] The difference between the proper cost calculated by the parties' quantum experts is $10,800.00. The reason for the difference is that Mr Hardiman based his calculation on the cost of a technical consultant for 10 days whilst Mr Watson based his calculation on the cost of a technical consultant for one day.
• [818] The difficulty with this claim is that Mr Dowden's evidence relates to inaccuracies in two drawings but the claim is wider than that. Mr Dowden's evidence is as follows:

"The Levels 1-12 typical floor drawing ... does not show the correct location and configuration of the toilet exhaust fire dampers, toilet exhaust grilles, outside air ducts to guestrooms.

Similarly, the Roof drawing ... shows the incorrect location of HX-1, does not show extended air intake ducts to HX-1 and HX-2, and does not show installed configuration of KEF-1, SPF1A and SPF 1B".[274]

• [819] Clearly the inaccurate drawings would not be fit for purpose and should be corrected.
• [820] To the extent that the claim is wider than the identified drawings, there is not sufficient evidence to establish the defect.
• [821] Mr Watson has costed the time it would take to rectify the omissions identified by Mr Dowden.
• [822] Accordingly, the defendant is entitled to the cost of rectifying as-built drawings M07 and M09 in the amount of $1,200.00.

• [823] Liability and quantum are in issue.
• [824] The defendant submits that clause 12.8 of the Specification lists the requirements for the Operating and Maintenance (O&M) manuals, including "satisfactory performance tests".[275] The defendant submits that the O&M manuals do not contain the requisite commissioning data for guest room FCUs, ground floor FCUs, guest room toilet exhaust system, guest room and levels one to 12 outside air supply system and refrigerant pipework including extra refrigerant quantities added.[276] The defendant submits that there is no evidence these items had been commissioned, tested and balanced.[277]
• [825] The plaintiff denies that the work is defective.[278] The plaintiff submits that the O&M manuals do not omit any required information. Alternatively, to the extent that any information is omitted, the plaintiff submits the inaccuracies are minor and the O&M manuals comply or substantially comply with the Contract.
• [826] Mr Dowden proposed that Defect 6.2 be rectified by:[279]

(a) carrying out testing and commissioning of the above items after the required rectification had been carried out and including the results in the O&M manual; and

(b) searching for the refrigerant pipework test results (if they exist) and including them in the O&M manuals.

• [827] Mr Lord has not provided an alternate proposal for rectification.
• [828] The parties' quantum experts disagree as to the proper cost to rectify Defect 6.2:

(a) Mr Hardiman assessed the proper cost to be $12,000.00; and

(b) Mr Watson assessed the proper cost to be $1,200.00

• [829] The difference between the proper cost calculated by the parties' quantum experts is $10,800.00. The difference arises because Mr Hardiman based his calculations on the cost of a technical consultant for 10 days whilst Mr Watson based his calculation on the cost of a technical consultant for one day.
• [830] To the extent that the O&M manuals do not include "satisfactory performance tests" the O&M manuals would not be fit for purpose. This commissioning data is an important aspect of monitoring the overall performance of the system and is clearly identified in clause 12.8 of the Specification.
• [831] The defendant has established Defect 6.2 and is entitled to the costs of the rectification work.
• [832] The difficulty with the assessment of costs by both quantum experts is that the assessment is based on imprecise information. As it is not clear whether the plaintiff ever undertook the required testing, further commissioning data may be required. Providing an estimate of the costs of obtaining that data and preparing the updated manuals is akin to estimating the length of the proverbial piece of string.
• [833] Mr Dowden's rectification work identified in the right hand column of EXP.001.001.0012 at page 170 at point two identifies the need to undertake "testing and commissioning". In the cross-examination and re-examination of Mr Hardiman there was some confusion as to what Mr Hardiman had included in his estimate. In re-examination Mr Hardiman was asked to clarify exactly what he had costed and he responded as follows:

"Ten days of work. It's ... an allowance. I mean, it is ... future work as opposed to [a valuation] of works being carried out. It was an allowance of 10 days which was an allowance I thought was reasonable of two weeks for carrying out any ... necessary testing to get the results that are required to include in the O and M manual. And then completion of the O and M manuals themselves."[280]

• [834] Leave was granted to the plaintiff to re-open cross-examination of Mr Hardiman. Mr Hardiman's evidence included:

(a) "I've allowed in my report what I thought was a reasonable, I suppose, guesstimate of how long it would take somebody to complete those reports based upon my experience in other projects, how long these things take."[281]

(b) "What about testing the operation of individual heating control mechanisms in the rooms? - As I said, I didn't break it down into that much detail. I allowed two weeks for the whole exercise."[282]

(c) "And you're just making it up, aren't you? You're just - this is just trying to justify your 10-day estimate which you - where you haven't referred in any of your reports - whether your first report, the joint report or your reply report - to this requirement to actually carry out testing or any allowance for carrying out of testing? - As I say, I spoke to Mr Dowden, I understood what was required to complete the O and M manuals. I then made a calculation in my head as to roughly how long I would expect that to take on a normal process of work and allowed 10 days. It's ... not a scientific number; I have to accept that ...

(d) But, in fact, you've got no clue - you can - how long it would ... take to go around to the rooms and check the Vintech system? - No, but ...

(e) Whether it's a few or 10 days? --- But .... I allowed what ... I believed to be a reasonable allowance for that type of work".[283]

• [835] Mr Watson's estimate of one day is unreasonably low and I do not accept that as a reasonable estimate of the cost of the rectification work.
• [836] Mr Hardiman's cost is based on his estimate of the likely costs based on his experience. While this evidence is less than perfect, I prefer the evidence of Mr Hardiman in respect of the reasonable cost of the rectification work given what is identified by Mr Dowden as to the scope and extent of the work involved.
• [837] On the evidence the defendant has established Defect 6.2 and the defendant is entitled to the costs of the rectification work based on the estimate provided by Mr Hardiman in the amount of $12,000.00.

DEFENDANT'S CLAIM FOR ADDITIONAL LIQUIDATED DAMAGES

• [838] In respect of the quantum of the counterclaim, paragraph 23 of the list of issues in dispute is relevant and states as follows:

"23. The extent to which, if any, the defendant is entitled to further amounts for liquidated damages [Def [51]; R [41(bi)]]."

• [839] The list of matters not in issue as agreed between the parties relevantly states:

"7. In respect of liquidated damages, that the Date of Practical Completion certified by the Superintendent was 3 March 2017 [SOC [42]; Def [29]]."

• [840] The defendant seeks payment of the amount of $196,623.31 (plus GST) by way of additional liquidated damages calculated as a result of the correction of an error in calculating the date for practical completion.
• [841] Clause 34.7 of the Contract provides that the defendant is entitled to liquidated damages for every day after the date for practical completion to and including the date of practical completion. The rate is specified in Item 29 of Annexure Part A of the Contract, namely $14,044.53 per day.
• [842] The date for practical completion is specified in Item 7 of Annexure Part A of the Contract, namely 1 September 2016. This date may be adjusted as a result of any extensions of time granted by the Superintendent under the Contract.[284]
• [843] The Superintendent, Tactical, certified on 9 March 2017 that:

(a) The date for practical completion was 10 November 2016.

(b) The date of practical completion was 3 March 2017.

(c) The period between the date for practical completion and the date of practical completion is 113 days.

(d) The total value of liquidated damages due and payable by the plaintiff to the defendant is $1,587,032 (plus GST).[285]

• [844] On 13 March 2017, the liquidated damages amount was deducted from amounts due to the plaintiff for Progress Claim No 24. Further, on 20 March 2017 the defendant set-off that sum from moneys certified as otherwise being due and payable to the plaintiff.[286]
• [845] The defendant's claim is made on the basis that subsequently to this, an error by the Superintendent in calculating the adjusted date for practical completion was identified. The defendant contends that in calculating the adjusted date for practical completion a five day work week was used when a six day work week should have been used.
• [846] The defendant points to the Contract as contemplating a six day work week, as evidenced by:

(a) the Contract Baseline Program in Annexure F, which shows activities were programmed on all days except Sundays.[287]

(b) the Brisbane City Council Approval Package Ref A003851963 listed in Annexure Part K, permitted work to be performed on Mondays to Saturdays.[288]

• [847] Further, the defendant relies on evidence that shows that work was carried out on a six day work week, including:

(a) Mr Cook, the project manager on site, stated in cross-examination that work was done six days a week "as much as possible".[289]

(b) Mr King's as-built prepared from primary documents (such as site diaries) shows work was carried out Mondays to Saturdays.[290]

(c) A number of extensions of time claims by the plaintiff were made on the basis of a six day work week.[291]

• [848] Mr King in his report gives evidence in relation to the Superintendent's extension of time register (Register). Mr King explains from his consideration of the Register, the counting of days in the Register was done on the basis of a five day work week.[292]
• [849] On the basis of the Register, the date for practical completion was to be adjusted by 44.5 working days. The Superintendent had arrived at an adjusted date of 10 November 2016 using a five day work week. Using a six day work week, the adjusted date of 27 October 2016 is arrived at.[293]
• [850] On 20 May 2019, the Superintendent provided the plaintiff with a further progress certificate pursuant to clause 37.2 of the Contract correcting the error. The Superintendent certified:

(a) The correct adjusted date for practical completion is 27 October 2016 calculated on the basis of a six day work week.

(b) The period between the correct adjusted date for practical completion and the date of practical completion (3 March 2017) is 127 days.

(c) The total value of liquidated damages due and payable is $1,783,655.31 (plus GST).[294]

• [851] Clause 37.2 of the Contract relevantly states:

"At any time and from time to time, the Superintendent may by a further progress certificate correct any error which has been discovered in any previous progress certificate."

• [852] The defendant contends that the natural and ordinary meaning of this clause permits the correction to be undertaken, resulting in the additional amount of liquidated damages claimed.[295]
• [853] The plaintiff's position in response is that the defendant is not entitled to the additional amount of liquidated damages for a number of reasons.
• [854] The first basis that the plaintiff relies on is that the plaintiff is entitled to an extension of time caused by the Mechanical Direction and as a result no liquidated damages would be payable. This basis is not made out given my findings in respect of the plaintiff's claim in respect of the Mechanical Direction claim.
• [855] Secondly, the plaintiff contends that the defendant is not able to adjust the date for practical completion to an earlier date as it purports to do. The plaintiff points to Item 7(a) and clause 34.5 of the Contract as allowing the date to be extended only, not shortened to an earlier date. The plaintiff submits that the ability to rectify errors pursuant to clause 37.2 is subject to what the Contract allows.
• [856] Consequently, the plaintiff's position is that the defendant cannot after the Spring Hill Hotel has reached practical completion assert that the date for practical completion was earlier.
• [857] This contention was addressed in more detail in the plaintiff's submissions in respect of its claim for an extension of time.[296] In support of its contention that the date for practical completion cannot be adjusted after it has been certified the plaintiff refers to:

(a) The definition of the "date for practical completion" in clause 1 of the Contract. The relevant date is the date in Item 7(a) or "if any EOT for practical completion is directed by the Superintendent or allowed in any dispute resolution procedure or litigation, it means the date resulting therefrom". Based on this meaning, the plaintiff submits that the "date for practical completion" is the date specified or extended, and it does not allow the date to be extended and then brought back again.

(b) Clause 34.5 of the Contract provides for the Superintendent to grant an extension of time, within 14 days of a claim or in the exercise of the unilateral discretion to grant an extension of time. In the clause there is no reference to revising an extension of time once granted. Once granted, the Superintendent is functus officio in relation to the exercise of the discretion.

(c) The Contract does not provide for an amended extension of time and consequently the Superintendent does not have power to do so.[297] The final paragraph of clause 37.2 is a specific provision enabling errors in progress certificates to be corrected. There is no similar provision in respect of extensions of time.[298]

(d) The parties must "work towards the date for practical completion, as extended from time to time". The contractor may, for example, accelerate work to avoid liquidated damages. The plaintiff submits "[i]t would be a perverse result if, a long time after practical completion, the date could be moved to an earlier date and the contractor told that, unfortunately, liquidated damages were payable because the contractor had not achieved this new date".

• [858] The third basis that the plaintiff relies on is that the defendant has not established on admissible evidence that in fact the Superintendent failed to take into account work done on Saturdays in determining the adjusted date for practical completion of 10 November 2016.
• [859] In response the defendant submits that the words "it means the date resulting therefrom" in the definition of date for practical completion makes it clear that the actual date for practical completion is a "mathematical function" of the number of days that have been directed by the Superintendent or allowed by the Court.
• [860] The defendant submits that it is the number of days extension of time that is certified, not the adjustment of the date for practical completion. That is, once an extension is allowed (by the Superintendent or the Court) the date for practical completion results from the calculation of the number of days allowed.
• [861] The defendant contends, that the correction issued on 20 May 2019 was a correction to the certification of the amount of liquidated damages on the basis that the proper date for practical completion was always 27 October 2016. It did not change the number of days extension that had been certified previously and was not a correction to the date for practical completion.
• [862] In respect of the issue of admissible evidence, the defendant relies on the liquidated damages certificate issued by the Superintendent on 20 May 2019 that was admitted into evidence for a hearsay purpose and was not objected to by the plaintiff. The certificate relevantly states:

"Our certification of liquidated damages issued on 9 March 2017 applied a 5 day working week to the calculation of liquidated damages. We are now aware that this was issued in error and that a 6 day working week applies.

A total of 44.5 business days were approved as at 6 October 2016. Applying a 5 day working week, the date for practical completion was calculated as 10 November 2016. Correctly applying a 6 day working week, an additional approved EOT falls on each consecutive Saturday such that the adjusted date for practical completion was 27 October 2016."[299]

• [863] There is some logic in the defendant's approach in respect of the extension of time being in respect of time. An extension is granted in respect of days delay to the work under the Contract in accordance with clause 34.3. Applying the definition of "date for practical completion" the adjusted date is the date "resulting ... therefrom" the extension of time.
• [864] Extensions of time have been granted and the number of days previously granted is not in dispute. It is the identification of the "date" resulting from the extensions which is relevant. The two different dates arise from a counting error - determined by whether Saturdays are included in a work week.
• [865] The difficulty with the defendant's claim arises from how the defendant is seeking to correct the error.
• [866] On 9 March 2017, the Superintendent certified the amount of liquidated damages pursuant to clause 34.7. This used the date for practical completion of 10 November 2016 and calculated the period of 113 days for the purposes of calculating the amount of liquidated damages. This notice did not purport to certify the date for practical completion and clause 34.7 did not give the Superintendent power to do so.[300]
• [867] Based on this certification by the Superintendent, the certified amount of liquidated damages was deducted from amounts due to the plaintiff for Progress Claim No 24 and the defendant set-off that sum.
• [868] On 20 May 2019, the Superintendent sought to correct the error by issuing a further progress certificate pursuant to clause 37.2. Pursuant to clause 37.2 a progress certificate is to set out the "calculations employed to arrive at the amount which is due from the Principal or the Contractor", including amounts the Principal may be entitled to deduct pursuant to the Contract.
• [869] The final paragraph of clause 37.2 contains a power for the Superintendent to issue a further progress certificate correcting any error in a previous progress certificate.
• [870] This provision in clause 37.2 may assist if there was an error on the face of the progress certificate itself: for example, if there had been a transcription error between the amount certified as payable as liquidated damages in the Superintendent's certificate dated 9 March 2017 and the figure set-off or deducted in the progress certificate on 13 or 20 March 2017. Clause 37.2 may assist in correcting the incorrect figure to the correct figure.

"If WUC does not reach practical completion by the date for practical completion, the Superintendent shall certify, as due and payable to the Principal, liquidated damages in Item 29 for every day after the date for practical completion to and including the earliest of the date of practical completion ... "

• [872] Clause 34.7 of the Contract provides a mechanism to adjust the amount of liquidated damages if an extension of time is granted after the liquidated damages have been paid or set-off: the amount is to be repaid. This mechanism does not assist in the current circumstances.
• [873] Clause 34.7 does not include any provision for an adjustment in the amount of liquidated damages calculated as a result of an error by the Superintendent.
• [874] The purported correction of the progress certificate on 20 May 2019 did not operate to correct the underlying certification of the amount of liquidated damages due and payable by the plaintiff to the defendant. The amount stated in the 9 March 2017 certification is the amount that remains due and payable. It has not been altered.
• [875] In these circumstances, the defendant's claim for additional liquidated damages based on the error in the calculation of the date for practical completion must fail.

• [876] The plaintiff claims an entitlement to interest at the rate prescribed by s 67P of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act). Schedule Eight to the Amended Statement of Claim sets out the interest on the amounts claimed by the plaintiff.
• [877] Section 67P of the QBCC Act provides:

(a) the contracting party for a building contract is required to pay an amount (the progress amount) to the contracted party for the building contract; and

(b) the progress amount is payable as the whole or a part of a progress payment; and

(c) the time (the payment time) by which the progress amount is required to be paid has passed, and the progress amount, or a part of the progress amount, has not been paid.

(2) For the period for which the progress amount, or the part of the progress amount, is still unpaid after the payment time, the contracting party is also required to pay the contracted party interest at the penalty rate, as applying from time to time, for each day the amount is unpaid.

(ii) the rate comprising the annual rate, as published from time to time by the Reserve Bank of Australia, for 90 day bills; or

(b) if the building contract provides for a higher rate of interest than the rate worked out under paragraph (a) - the higher rate."

• [878] Alternatively, the plaintiff claims an entitlement to interest on the rate prescribed by the Contract. Item 35 of Annexure Part A of the Contract provides an interest rate of 10 per cent per annum as the interest rate on overdue payments, pursuant to clause 37.5.
• [879] Clause 37.5 states:

"Interest in Item 35 shall be due and payable after the date of default in payment."

• [880] The plaintiff proposes that further submissions be made as to specific amounts payable by way of interest following the decision of the Court in respect of liability and quantum.
• [881] The defendant also proposes that further submissions should be made with respect to the amounts payable by each party for interest after the Court has determined liability and quantum on the claim and counterclaim.
• [882] In respect of the counterclaim, the defendant claims interest under s 58 of the Civil Proceedings Act 2011 (Qld).
• [883] Directions will be made to provide for further submissions from both parties, including submissions on the appropriate rate of interest arising out of the findings on liability and quantum in these reasons.

• [884] Once the parties have had an opportunity to consider these reasons, the parties are to confer to agree on a timetable for directions on the following:

(a) the parties confer and agree on the headings and structure (agreed form) of further submissions to be provided as to the appropriate orders to be made in light of these reasons.

(b) each party is to provide further written submissions in the agreed form, not more than 25 pages (including attachments).

• [885] The draft directions should be provided to my Associate. If draft directions cannot be agreed, then each party is to provide draft directions and a brief explanation for the disagreement.
• [886] If the parties consider that any additional findings of fact are required at this stage, these should be identified in the written submissions. The written submissions should also address interest and costs.

ANNEXURE A - MECHANICAL VARIATION, COSTS, DELAY, EXTENSION OF TIME AND LIQUIDATED DAMAGES

Plaintiff's claim for costs of carrying out the Mechanical Variation

• [887] If I am wrong about the construction of the Contract and the notice dated 11 August 2016 constitutes a direction for a variation in respect of the mechanical works within the meaning of clauses 1 and 36 of the General Conditions, then it is necessary to consider whether the plaintiff would be entitled to the costs of the variation and also, whether it would be entitled to an Extension of Time (EOT).
• [888] The plaintiff claims the costs of the variation, an EOT and delay damages.
• [889] The defendant accepts that if the Mechanical Direction was a direction to undertake a variation then the plaintiff would be entitled to the cost component of the variation. However, the defendant does not accept that the plaintiff would be entitled to an EOT and delay damages.
• [890] There are three questions in the list of issues which are relevant to these considerations, questions six, 13 and 18. Question six is as follows:

(a) the extent to which, if at all, the Mechanical Direction caused a delay to practical completion [SOC [27]; Def [26]; R [28]]; and, if so

(b) to what extent, on a proper construction of the Contract, the plaintiff was entitled to an extension to the Date for Practical Completion [SOC [30]; Def [26], [27]; R [28], [29]]; and

• [891] The defendant has identified an additional question relevant to this issue which is not agreed to by the plaintiff:

"(c) whether the plaintiff's extension of time claim dated 28 October 2016 or otherwise complied with the requirements in clause 34.3 of the Contract [SOC [29]; Def [26(c)]; R [28(c)]]".

• [892] Questions 13 and 18 are agreed as follows:

"13. In respect of the alleged Mechanical Variation [SOC [9]; Def [10]]:

(a) the price of the work performed by the plaintiff in carrying out the alleged Mechanical Variation; and

(b) whether, (and if so to what extent) the plaintiff is entitled to costs of delay as part of the price of the Variation [SOC [32]; Def [27]].

18. In respect of the alleged delay to Practical Completion:

(a) the extent to which, if any, the costs claimed were:

(i) costs incurred by the plaintiff by reason of the delay; and

(ii) costs which the plaintiff is entitled to recover on a proper construction of the Contract, [SOC [32]; Def [27]];

(b) the extent to which, if any, the defendant is entitled to have deducted, from amounts owing to the plaintiff, amounts for liquidated damages [SOC [42], [48]; Def [29], [31]; R [31], [33]]."

• [893] On the basis that the Mechanical Direction was a direction to the plaintiff to undertake a variation in respect of the mechanical works, within the meaning of clause one and clause 36 of the Contract (Mechanical Variation), it is necessary to consider the terms of clause 36. Clause 36 states as follows:

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);

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

(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:

(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.

The Superintendent shall, as soon as possible, price each variation using the following order of precedence:

(c) rates or prices in a schedule of rates or schedule of prices, even though not Contract documents, to the extent that it is reasonable to use them; and

(d) reasonable rates or prices, which shall include an amount equivalent to the percentage set out in Item 32A for profit and overheads,

and any deductions shall include an amount equivalent to the percentage set out in Item 32B for profit but not overheads,

That price shall be added to or deducted from the contract sum."

• [894] Clause 36.4 sets out the price of a variation for which the principal is liable.
• [895] Expert reports have been prepared on behalf of both parties and provided to the Court in relation to calculating the value of the Mechanical Variation in accordance with clause 36.4 of the Contract. Mr Watson has prepared a report on behalf of the plaintiff and Mr Hardiman has provided a report on behalf of the defendant.
• [896] Mr Bell has also provided an expert opinion in relation to the calculation of delay, costs and delay damages. This issue is dealt with by Mr Hardiman on behalf of the defendant.
• [897] The quantum of the plaintiff's claim in respect of the Mechanical Variation is the total of $2,076,392.25 (plus GST) being:

(a) $1,074,577.25 (plus GST) in respect of the costs of the Mechanical Variation; and

(b) $1,001,815 (plus GST) being delay damages as a consequence of the critical delay caused by the Mechanical Variation, on the assumption of 117 days of critical delay.[301]

• [898] The defendant submits that the plaintiff is entitled to:

(a) a maximum of $831,833.36 (plus GST) for the cost of the variation;

(b) the return of liquidated damages at a daily rate equal to the extension of time granted; and

• [899] It is convenient to firstly deal with the costs of the variation first, followed by the claim for an EOT and lastly, delay damages.

• [900] Helpfully, the experts have prepared a joint report and this highlights the areas of difference between the two positions.[302]
• [901] The plaintiff relies on the 11 August 2016 direction to undertake the work outlined in it pursuant to clause 36.1. Further, the plaintiff relies on a notice issued by it pursuant to clause 36.1(g) of the Contract.[303] This notice was given before performing the work and was given within five business days of receiving the direction. This notice identified the approximate cost of the Mechanical Variation as required by clause 36.1(g).
• [902] It is not contentious that if the Mechanical Direction was a variation pursuant to clause 36.1 of the Contract the requirements of clause 36.1 have been complied with, therefore, an entitlement to an assessment of the costs of the Mechanical Variation pursuant to clause 36.4 of the Contract would arise.
• [903] Both parties agree that the relevant subparagraph of clause 36.4 is subparagraph (d) that the valuation is to be priced using "reasonable rates or prices".
• [904] The plaintiff in its submissions has helpfully identified that the difference between the experts' assessment is the sum of $242,743.89.[304] The differences between Mr Watson and Mr Hardiman are in relation to the following items:

"(a) Credit $8,984.27 - Credit contract works not required or incorporated ($211,000 vs $202,015.73);

(b) $103,147.68 - Additional works - 3 pipe mechanical system, upgrading current, pipework, FCUs, condensers, heat exchange units, electrical and ductwork, and BWIC ($1,010,368.78 vs $907,221.10);

(c) $34,576.50 - demolition ($39,456 vs $4,879.50);

(d) $42,498.23 - ceilings and partitions ($47,305.18 vs $4,808.96);

(h) $1,695.24 - hydraulics ($2,800 vs $1,104.76);

(i) $31,487.57 - BWIC (Builder's work in connection) ($48,902.26 vs $17,414.69) (relating to x-ray scanning, crane hire and road closure);

(j) $179.69 - builder's profit and overheads on deductions (2%) ($4,220 vs $4,040.31);

(k) $22,900.71 - builder's profit & overheads on additions (10%) ($117,254.30 vs $94,353.58)."[305]

• [905] It is necessary to consider each of these in turn.

Credit - contract works not required or incorporated due to Mechanical Variation

• [906] This concerns a credit allowance for works not required because of the Mechanical Variation. Mr Watson arrives at a credit of $211,000. Mr Hardiman arrives at a credit of $202,015.73.
• [907] In its written closing submissions, the plaintiff has indicated that it is prepared to accept the credit proposed by Mr Hardiman for the purposes of the quantification of the Mechanical Variation.[306] That is the amount of $202,015.73.
• [908] Mr Hardiman's assessment is based on an approach of going to market prices and applying them to measured quantities to arrive at an objectively reasonable sum.
• [909] In the circumstances of the concession by the plaintiff and the fact that there is no evidence to suggest that Mr Hardiman's assessment is other than a reasonable approach, I find the negative valuation in the amount of $202,015.73.

• [910] The next item is described as "[a]dditional Works - 3 Pipe Mechanical System - upgrading current pipework, FCUs, Condensers, Heat Exchange Units, Electrical and Ductwork, and BWIC".
• [911] Mr Watson's assessment for this item is $1,010,368.78 and Mr Hardiman's is $907,221.10. The difference between the experts is $103,147.68.
• [912] This work relates to the actual work required to convert the two-pipe VRF system to a three-pipe VRF system.
• [913] The original VP57 claim was in the amount of $963,800. Mr Watson has undertaken an assessment based on the original VP57.
• [914] In respect of this item Mr Hardiman has taken the approach which is described as the "Rawlinson's approach", namely, going to market prices and applying them to measured quantities to arrive at an objectively reasonable sum. The defendant submits that this is a more robust approach.
• [915] By comparison, Mr Watson has used the amounts in the plaintiff's VP57, which in turn was based on quotations obtained from Batec (at the time the variation proposal was prepared).
• [916] In particular, reliance is placed on a quotation from Batec dated 17 October 2016.[307] That quotation contained a number of "lump sum" figures for particular items which have been used by Mr Watson in respect of specific work items. Mr Watson in his analysis identifies that there were some adjustments made between that final quotation and VP57. It is on this basis that Mr Watson has assumed that the costs set out in VP57 were the amounts ultimately agreed between the plaintiff and Batec for the supply of those particular items.
• [917] Mr Watson's report explains his basis for this approach, including that the assessment of a reasonable rate or price must have regard to the circumstances under which the works are undertaken. In the circumstances that this particular variation arose, one relevant circumstance is that obtaining competitive quotations was not really a viable option given that the work had to proceed as expeditiously as possible. It is in these circumstances that it is argued that using the rates quoted by the subcontractor who was onsite was appropriate.
• [918] The plaintiff submits that Mr Hardiman's approach and arriving at rates and quantities to arrive at a valuation is not appropriate. In particular it submitted that this approach does not take into account the fact that the conversion of the two-pipe VRF system to a three-pipe VRF system was not typical, had to occur quickly and in the middle of construction happening around it, as it was a congested construction site that was nearing completion. A further relevant practical consideration pointed to by the plaintiff was that it could only really be completed by the mechanical contractor who was already on site, that is Batec.

(a) On 4 August 2016, Batec gave a price breakdown for a three-pipe air conditioning system which included $75,000 for the labour component.[308]

(b) On 15 September 2016, a second estimate had come from Batec which increased the labour to $88,000 for the installation of a three-pipe system.[309]

(c) Mr Cook went back to Batec and asked it to revisit the pricing because he did not think the labour allowance would be sufficient for the work required.[310]

(d) On 15 September 2016, a third estimate was received which increased the labour to an amount of $171,000.[311]

(e) Mr Cook, in his witness statement, maintained his view that the figure in VP57 was reasonable and fair for labour.[312]

• [925] Mr Watson's current valuation of the labour component is approximately $90,000 greater than the third estimate received from Batec in September 2016.
• [926] Mr Watson's figure is arrived at based on the general statements contained in Mr Cook's witness statement. It does not involve any detailed analysis of contemporaneous documents such as timesheets or site diaries.
• [927] The difficulty is also compounded by the fact that Mr Cook stands by his estimate of $178,000 for labour but it is his statement which is relied upon by Mr Watson to justify the calculation of the higher value.
• [928] The criticisms made about the labour figure identified by Mr Watson are justified.
• [929] At paragraph [234] of the defendant's written closing submissions an alternative position is proposed if I am satisfied that it is appropriate to use Mr Watson's figure as a starting point. It is proposed that the overall figure should be reduced to $911,360.78. This adopts the labour figure of $178,000 calculated by Mr Cook. It is submitted that while this is a broad approach, it reflects the unsatisfactory nature of Mr Watson's evidence and the unreasonableness of his calculation of the labour costs.
• [930] Given the concerns raised in relation to the estimate of the labour costs in Mr Watson's calculation, this compromise approach appears to arrive at a reasonable value for this item. It considers the difficulties of evaluating and comparing the labour costs of Mr Hardiman where there is only a portion which is direct labour costs and the other portion is covered in the supply and installation rate in relation to the new refrigerant pipe.
• [931] In these circumstances I find the amount in relation to this item is $911,360.78. This takes into account Mr Watson's concerns about the realities of the work being undertaken on site and the need to undertake the work in a short timeframe but also adjusts the overall figure to take into account the issues identified in relation to the labour costs component.

• [932] As identified in the joint expert report, the amount in dispute in relation to this item relates to the cost of demolition for levels seven to 12.
• [933] Mr Hardiman arrives at a value of $4,879.50. Mr Watson arrives at a value of $39,456. The differential is $34,576.50.
• [934] It is common ground between the parties that the difference is largely explained by the date used by each expert as the relevant date for the valuation. Mr Watson valued the demolition as at 14 October 2016 and Mr Hardiman valued the demolition as at 26 August 2016.
• [935] The 26 August 2016 date used by Mr Hardiman is based on the 11 August 2016 notice having been given and that by the 23 August 2016 the decision of a three-pipe system had been finalised. The date of 26 August 2016 is the first date after the Mechanical Variation that photographic evidence of the progress of the works was available for this analysis to be undertaken.[313]
• [936] The plaintiff contends that the difference should be resolved in favour of the plaintiff if the Court finds it was reasonable for the plaintiff to order the condensers on 14 October 2016. Conversely, the difference could be resolved in favour of the defendant if the Court finds that the plaintiff should have done so immediately after 11 August 2016.
• [937] Alternatively, the defendant contends that because of the 11 August 2016 Mechanical Variation, the defendant should not have to pay for the construction works which obviously would have to be demolished when the alternative system was ultimately installed. In those circumstances, Mr Hardiman's figure should be adopted.[314]
• [938] I do not consider that the submission made by the plaintiff in respect of the timing of the ordering of condensers is the critical issue. It is more persuasive that the direction was given on 11 August 2016, the decision was finalised by 23 August 2016 and by 26 August 2016, there is evidence of the progress actually on site.
• [939] Even if it was reasonable for the plaintiff not to order the condensers until 14 October 2016, it may not logically be consistent that it was reasonable for work to continue where it was obvious that it would need to be demolished for the installation of the alternative system, particularly where the design was already finalised by 23 August 2016. Further, even if the issue of the brand of the condenser was outstanding, it still did not justify work being undertaken which would need to be later demolished to undertake the installation of the alternative system.

• [941] This work relates to the reinstatement after demolition of the work. The difference between the experts is $42,498.23. Mr Watson's valuation is $47,305.18 and Mr Hardiman's valuation is $4,808.96.
• [942] A similar issue arises here in relation to the date of assessment. Mr Watson assesses the value as at 14 October 2016 and Mr Hardiman assesses the value as at 26 August 2016.
• [943] For the reasons outlined above in relation to the demolition work, I consider that it is not reasonable for the defendant to have to pay for reinstatement of work undertaken after 26 August 2016, after which time the design of the three-pipe system had been finalised and the relevant work inevitably had to be demolished.
• [944] I find the cost of this item as that assessed by Mr Hardiman, $4,806.96.

• [945] This item relates to the reinstatement of demolished tiling. Mr Watson's value is $6,685.73 and Mr Hardiman's value is nil.
• [946] The similar issue in relation to the date of assessment arises in relation to this reinstatement. Where the reinstatement relates to work undertaken after 26 August 2016, at which time the design of the three-pipe system had been finalised, it is not reasonable that the defendant be required to pay the costs associated with that work.
• [947] The value for this item is nil.

• [948] The electrical reinstatement is a different issue. Mr Watson values the work required at $11,125 and Mr Hardiman values it at $2,725. This relates to reinstating fire proofing for electrical penetrations.
• [949] There appears to be some discrepancy between the submissions made by the plaintiff and the defendant in relation to this item.
• [950] The defendant identifies that Mr Watson agreed that the methodology applied by Mr Hardiman was acceptable and refers to Transcript Day 11 page 59 lines 1-2. The defendant points to the exchange between Mr Watson and the defendant's counsel at Transcript Day 11 page 63 commencing at line 42 as supporting Mr Watson ultimately agreeing with the approach of Mr Hardiman. That is, Mr Watson and Mr Hardiman are effectively in agreement of the valuation of $2,075 as shown on page seven of Attachment A to the joint report.[315]
• [951] Conversely, the plaintiff's submissions maintain that Mr Hardiman's methodology for valuing this item should not be accepted and that Mr Watson's assessment should be allowed.
• [952] Mr Watson had previously allocated a value of $8,400 in respect of the costs of reinstating fire proofing for electrical penetrations. Mr Hardiman allowed nil for that component. Given the exchange at trial, it appears that the reasonable cost in relation to this item should be the amount of $2,075, which takes into account the reduction of $8,400 from Mr Watson's figure.
• [953] The value of this item is $2,075.

• [954] Mr Watson's valuation of this item is $1,400 and Mr Hardiman's valuation is $883.81. The difference between them is an amount of $516.19.
• [955] The plaintiff's submission in relation to this item is that Mr Watson has adopted the plaintiff's claim rate whereas Mr Hardiman has used Rawlinson's approach.
• [956] The plaintiff further relies on its submissions in relation to Mr Watson's assessment being reasonable rates. The plaintiff also relies on its arguments about the applicable rates being those which are a reasonable rate in the particular circumstances that the works are being undertaken. In this regard, the plaintiff repeats its arguments in relation to the additional works undertaken in respect of the installation of the three-pipe system.
• [957] Conversely, the defendant contends that this item should be assessed in the same manner as the electrical reinstatement works. That is, the amount relates to the 100mm sleeve issue and once that amount is taken into account then effectively Mr Hardiman and Mr Watson are in agreement as to the figure of $883.81.
• [958] In these circumstances, and given the evidence that was given at trial by Mr Watson, I consider that the assessment of the reasonable amount for this item is $883.81 consistent with the figures shown at page seven of Attachment A to the joint report.
• [959] The value of this item is $883.81.

• [960] In relation to this item, Mr Watson arrived at a value of $2,800 and Mr Hardiman arrived at a value of $1,104.76. The difference between them is $1,695.24.
• [961] The plaintiff contends that the difference is explained by Mr Watson adopting the plaintiff's claim rate whereas Mr Hardiman used the Rawlinson's approach. In this regard, the plaintiff relies on its previous submissions in relation to the appropriateness of using a rate in the particular circumstances of the work being undertaken.
• [962] Conversely, the defendant contends that this item turns on whether 26 August 2016 or 14 October 2016 is the appropriate date from which to quantify this work. If the appropriate date is 26 August 2016 then the figure should be $1,104.76. If it is 14 October 2016, the amount should be Mr Watson's figure of $2,800.
• [963] Consistent with the approach taken in relation to the previous reinstatement work, by 26 August 2016 the design for the three-pipe system had been finalised and it is not reasonable that work undertaken after that date, which then had to be demolished and reinstated, should be paid for by the defendant. In the circumstances, the appropriate figure is that of Mr Hardiman being $1,104.76.

• [964] In relation to this item, Mr Watson has allowed the sum of $48,902.26. Mr Hardiman has allowed the sum of $17,414.69. The difference between the experts is a sum of $31,487.57.
• [965] This item includes road closure for craneage, craneage to lift plant to roof, mobilisation and de-mobilisation, traffic control during crane days and x-ray scanning core holes. Each of these items will need to be considered further.

Item 128 - "Core holes - 200mm through to 210mm post tension slab"

• [966] There are two items within this item which are agreed between the experts. In relation to Item 128 "Core holes - 200mm - through to 210mm post tension slab", the experts agree an amount of $5,544.

Item 127 - "Core holes - 200mm through to 700mm post tension slab"

• [967] In relation to Item 127 "Core holes - 200mm - through to 700mm post tension slab", the experts agree an amount of $3,354.