Cohen v Zanzoul trading as Uniq Building Group

Issues

1. The fundamental issue is whether, as Mr Zanzoul contends, Mr and Mrs Cohen repudiated their obligations under the Contract from November 2015 by refusing to make further payments to him.
2. As I have said, Mr Zanzoul purported to accept that alleged repudiation by his pleadings in these proceedings on 4 April 2018.
3. Mr Zanzoul contends that, by reason of Mr and Mrs Cohen's repudiation, he was discharged from any obligation to rectify any defects in the building work and that Mr and Mrs Cohen are obliged to pay him the shortfall in relation to his progress claims as well as delay costs and a margin.
4. On the other hand, Mr and Mrs Cohen contend that Mr Zanzoul is liable to compensate them for the costs they have incurred in rectifying defects to the property, many of which are now agreed by the experts retained by the parties in the proceedings.
5. Although I have now heard all the evidence in the proceedings, including concurrent evidence from the engineering and building experts, it is agreed that I should first publish a judgment dealing with the contractual issues arising in the case, together with a number of other identified issues. It is agreed I should defer, for the moment, consideration of the more technical issues concerning such matters as building defects. Following the conclave of experts, there is now a considerable degree of agreement about those technical issues. The remaining issues may prove capable of resolution consensually, perhaps following a mediation.

Decision

1. I find that Mr and Mrs Cohen did repudiate the Contract.
2. By reason of Mr Zanzoul's acceptance of that repudiation the Contract is at end.
3. Both Mr and Mrs Cohen and Mr Zanzoul have accrued rights under the Contract.
4. Mr and Mrs Cohen have an accrued right to recover damages from Mr Zanzoul for any defective or incomplete building work. Mr Zanzoul is not exonerated from that claim by reason of Mr and Mrs Cohen's repudiation of the Contract.
5. Mr Zanzoul has an accrued right to recover the monies due to him under the Contract. Mr Zanzoul has established such an entitlement in respect of his unpaid Progress Claims, but not otherwise.

Proceedings in the Virtual Court

1. The proceedings were heard in the "Virtual Court", during the Covid-19 pandemic court appearance restrictions, using Microsoft Teams.
2. Counsel, the parties and the witnesses appeared remotely by audio-visual link. Final submissions were taken by audio-link.
3. The parties, and their legal advisers are to be congratulated on their co-operation with the Court in ensuring that, by this means, a building dispute involving a 27 volume Court Book and an array of expert evidence was conducted as efficiently as would have been the case had the current restrictions not been in place.

The events following Progress Claim 23

1. On 11 November 2015, Mr Zanzoul delivered to Mr and Mrs Cohen Progress Claim 23 which showed an amount due of $24,049 inclusive of GST.
2. Clause 23.1 of the Contract required that each progress claim "include details of the value of the [Work Under Contract] done".
3. Mr Zanzoul attached to Progress Claim 23 a schedule which, in my opinion, satisfied that requirement.
4. At the time of delivery of Progress Claim 23, and leaving aside retentions authorised by the Contract, some $60,000 was owing by Mr and Mrs Cohen to Mr Zanzoul.
5. On 18 November 2015, Mr Zanzoul and Mr Cohen had this conversation: Mr Zanzoul: "Paul, I have a lot of money unpaid from previous claims. In particular, however, right now I am chasing this last invoice, as I have contractors that need to be paid. When is it going to get paid?" Mr Cohen: "I will pay the last invoice, but I won't pay [an invoice concerning removal of a tree]." Mr Zanzoul: "Just give me some money and I will discuss the tree with you later." Mr Cohen: "Check your emails to see what the terms of payment are."
6. On 25 November 2015 Mr Zanzoul sent an email to Mr Cohen: "My understanding after our conversation last Wednesday 18th November 2015, was that you have agreed to pay [Progress Claim 23] (minus NSW Tree invoices), pay [the subcontractor installing the kitchen] and pay part of the retention."
7. Mr Cohen replied later that day. He did not dispute the agreement to which Mr Zanzoul referred but said: "As previously discussed on many occasions and further evidence including my last meeting notes. We require receipts and clarification of your claims. Not just this claim. All the other that we have not had a QS look at. I think this is a very reasonable request."
8. On 7 December 2015 Mr Cohen sent this email to Mr Zanzoul: "In consideration of your last claim number 23 and contrary to my previous email. I will NOT be paying this claim. You still have NOT provide[d] a Statutory declaration from you for each payment and to date, we have not received a statement from you for any of your claims. We have asked numerous times for you to present us with evidence of payments to the sub-contractors and, again, to date, we have not seen anything from you. … Once all the documents are in order and provided and all significant defects are completed then we can process this claim. Just the same as if it was in the hands of an independent QS."
9. Thus, despite having previously agreed to pay Progress Claim 23 (other than in relation to the tree removal invoice), Mr Cohen now stated Progress Claim 23 would not be paid until "all documents are in order" and "all significant defects are completed".
10. Mr Cohen was not entitled under the Contract to adopt this position.
11. The effect of cll 23.1 and 23.2 of the Contract was that if Mr and Mrs Cohen failed to dispute the amount claimed in a Progress Claim by issuing a "Progress Certificate" setting out the monies they contended were due, Mr Zanzoul's Progress Claims were payable within 21 days of receipt.
12. At no time did Mr and Mrs Cohen issue a Progress Certificate under cl 23.2, including in relation to Progress Claim 23. It was therefore due for payment 21 days following receipt: ie by 2 December 2015.
13. Further, Mr Cohen had not sought to invoke the provisions in the Contract concerning "defective work".
14. Those provisions were in cl 18.2 of the Contract which provided that if: 1. Mr and Mrs Cohen were aware of work which did not comply with the Contract, they would as soon as practicable give Mr Zanzoul written details thereof; 2. Mr Zanzoul did not rectify the work (the Contract did not specify any time by which this should occur), Mr and Mrs Cohen could direct Mr Zanzoul to, amongst other things, correct the work within a reasonable time; and 3. Mr Zanzoul failed to comply with that direction, and if that failure was not made good within five days of Mr and Mrs Cohen giving him a further written notice that they intended to have the work rectified by others, then Mr and Mrs Cohen could have the work so rectified.
15. The Contract did not give Mr and Mrs Cohen the right simply to withhold a payment due under the Contract by reason of delivery of a Progress Claim by reason of unspecified "significant defects".
16. In the second paragraph of his email, Mr Cohen demanded that Mr Zanzoul provide him with a statutory declaration "for each payment", which I read to mean for each Progress Claim.
17. Mr Cohen was not entitled to make such a demand. There was no provision in the Contract obliging Mr Zanzoul to provide a statutory declaration verifying his payment claims.
18. Clause 11.1 of the Official Order provided that payment claim would "be taken to be correctly rendered" if it was accompanied by a "signed Statutory Declaration" certifying various matters.
19. That clause did not require that any such Statutory Declaration be provided.
20. In final submissions, Mr Bors, who appeared for Mr and Mrs Cohen accepted that: 1. Mr Cohen had no contractual entitlement to make this demand for a statutory declaration; and 2. "on any objective view, it may be that the Cohens were wrongfully withholding payment from Mr Zanzoul".
21. At around this time Mr Zanzoul "compiled all the hard copies of all invoices for the job in [his] possession into storage boxes and ultimately personally delivered all the original hard copies of all the invoices for the entire project to [Mr Cohen] by about mid to late December 2015".
22. This was significant because cl 13.3 of the Official Order provided that: "All trade packages are open-book and will be engaged under by a subcontractor contract with [Mr Zanzoul] as opposed to a trade contract that is ultimately the responsibility of [Mr and Mrs Cohen]", and "[Mr Zanzoul] would still…provide [Mr and Mrs Cohen] full visibility of all trade packages, confirm how the tenderers were chosen, and why the preferred tenderer was recommended including copies of their tendered price."
23. Despite having complained in his 7 December 2015 email that Mr Zanzoul had not provided "evidence of payments to the subcontractors" and despite having said that "we can process [Progress Claim 23]", "once all the documents are in order," Mr Cohen did not bother to inspect the documents that Mr Zanzoul had left with him. Thus he gave this evidence in cross-examination: "Q …you understand that Mr Zanzoul says he delivered to your premises in mid to late December all the papers for this project, correct? A. Yes. Q. Do you agree that he did that? A. Yes. Q. You had all the information you needed from mid to late December, correct? A. I assume so yes. I didn't look at the information Mr Young. Q. You didn't look at it because you never had any intention of processing did you? A. Is it my job to process his accounts Mr Young? Q. It was you Mr Cohen on 7 December who identified the two conditions on which you were prepared to process the claim, and the first one was provision of documents, correct? A. Yes. Q. Those were provided weren't they, correct? A. At a very late stage yes I believe. From my understanding is correct, yes. Q. You didn't look at them did you? A. No I didn't."
24. On 21 December 2015 Mrs Cohen wrote to Mr Zanzoul: "Can we please review your account in the new year re the claims? There's a lot of outstanding works that you have supposedly claimed but has not been done."
25. On the same day, Mr Richard Yates, the consulting engineer on the project, sent a Site Inspection Report to Mr Cohen stating that certain structural steel work was not complete.
26. On 20 January 2016 Mr Cohen wrote to Mr Zanzoul: "We have had no reply from this urgent matter from Richard Yates below. Can you please confirm."
27. Mr Zanzoul replied several minutes later: "To date we have not received this site inspection, until today. We will clarify the detail with Richard [Yates] and attend to it immediately, I will advise on the date of installation by tomorrow."
28. In cross-examination, Mr Zanzoul said: "I recall we actually went back to the site and re-attached that metal bracket to the top of the column."
29. Mr Zanzoul had been trying to make telephone contact with Mrs Cohen during this period. Thus, on 11 February 2016 he wrote to Mrs Cohen: "I have been trying on a number of occasions to contact you for the last 3 x weeks on your mobile, with no success. Could you please call me?"
30. Later on 11 February 2016 Mr Cohen sent Mr Zanzoul an email headed "Urgent rectification of works at … Cammeray".
31. The email commenced: "In future, please contact us by email or SMS only. When you come onsite to finish or rectify works, we require written notice in advance. I would like to point out there are a number of outstanding issues going back more than a year now that include defects and outstanding works that have not been addressed and in particular the more serious safety issues that is putting our family at risk…"
32. The email then set out five "Critical and Urgent Issues", nine "Outstanding or Incompleted Works" and eight "Defects".
33. Mr Cohen concluded his 11 February 2016 email as follows: "…I formally ask you to rectify the urgent and critical safety items within the 7 day period according to the contract. If they are not rectified within this period we will seek another contractor to rectify these urgent items. With regard to any claims you make we again ask for them to be lodged showing full detail as to your claim so that they can be properly assessed. In addition we ask again that you provided us with a statuary [sic] declaration document proving that all the subcontractors have been paid in full ..."
34. The first paragraph of this passage was evidently an attempt by Mr Cohen to give the direction in accordance with cl 18.2 of the Contract. I have set out above the requirements of cl 18.2. [2] The clause did not entitle Mr Cohen simply to demand rectification within 7 days.
35. In the second paragraph Mr Cohen again asked Mr Zanzoul for "full detail" of his "claim" so that it could "be properly assessed". The plain implication of this passage was that no further payment would be made until this was done. Again, Mr Cohen had no entitlement under the Contract to adopt this position. In the absence of any progress certificate issued by Mr and Mr Cohen under cl 23.2 of the Contract, all of Mr Zanzoul's progress Claims were due and payable. In any event, Mr and Mrs Cohen now had in their possession all the information necessary to "assess" Mr Zanzoul's claims. [3]
36. Between 18 and 29 February 2016, Mr Cohen and Mr Zanzoul exchanged emails in which Mr Zanzoul commented on each of the items set forth in Mr Cohen's email of 11 February 2016 and in which Mr Cohen, in turn, responded to what Mr Zanzoul had said. I do not find it necessary to set out the detail of those exchanges. Mr Zanzoul agreed to attend to some matters, disputed his obligation to attend to others and in relation to some matters, asserted that as Mr Cohen had directly engaged certain subcontractors (for example, in relation to the swimming pool) or that the work was not within his "scope of work".
37. Mr Zanzoul concluded his comments by making the statements that I will now set out, together with Mr Cohen's response: Zanzoul: As you are aware, Final Occupation Certificate has been issued in November 2015. Cohen: Okay. Zanzoul: You have been living in the property since December 2014. Cohen: Okay, in a house that is half finished. Zanzoul: Under the Contract, I was to be paid retention monies upon [practical] completion. Cohen: Okay, when you have completed the works, the Contract will be fulfilled, all monies will be paid in accordance with the agreement. Zanzoul: The defect liability period pursuant to the Contract has expired and I have no obligation to return, yet I am more than happy to come back and fix items you say are urgent, subject to comments above. Cohen: The defects liability period has not commenced because practical completion has not been reached. In any event, you'll still be legally liable for defective works after the defects liability period has expired. Zanzoul: However, you need to address the long overdue payments to which I am entitled also. Cohen: Please specify the amounts owing and the detail for which the money is owed.
38. Mr Cohen had no entitlement under the Contract to say that "all monies will be paid in accordance with the agreement" only "when you have completed the works". The amounts in the Progress Claims, including Progress Claim 23, were due and payable and had been for some time.
39. Mr Zanzoul did not, in terms, demand that those monies be paid. What he said was that Mr Cohen needed to "address the long overdue payments". As I set out below [4] in relation to a meeting that Mr Zanzoul had with Mr Cohen in October 2016 in the presence of an inspector from the Office of Fair Trading, Mr Zanzoul's requirement as a condition for his returning to the site to attend to alleged defects was that Mr Cohen at least acknowledge that money was due.
40. Mr Cohen at no stage did this.
41. In the exchange that I have set out, [5] Mr Zanzoul was wrong to assert that the Defect Liability Period had expired. It is now agreed that the Defect Liability Period commenced on 17 November 2015 and expired on 17 May 2016. It was also wrong for Mr Cohen to assert that the Defects Liability Period had not commenced because Practical Completion had not been reached. Neither party contended that anything turned on these misconceptions.
42. On 30 June 2016, Mr and Mrs Cohen's solicitors wrote to Mr Zanzoul attaching the Partridge Structural Report and demanding that Mr Zanzoul provide a "program for rectification of works" and a "work method statement which adopts suggested rectification method recommended by Partridge".
43. On 14 October 2016, the Office of Fair Trading made a Rectification Order requiring Mr Zanzoul to rectify 73 items of allegedly defective work by 15 November 2016. The items of work were taken from the Partridge Report. The Office of Fair Trading made a further order, in the same terms, on 6 March 2017 requiring that the work be completed by 7 April 2017.
44. It is now common ground that much of the work that the Office of Fair Trading directed Mr Zanzoul to rectify was not in fact defective. Accordingly, it is not necessary further to consider these orders.
45. What is significant is the conversation that Mr Cohen had with Mr Zanzoul on 14 October 2016 the presence of an inspector from the Office of Fair Trading. In that conversation, Mr Cohen alleged, for the first time, that he had "overpaid" Mr Zanzoul.
46. The conversation was in the following terms: Inspector: Mr Zanzoul will you return to site to rectify any defects existing? Mr Zanzoul: Yes I will. I will have men on site this coming week, so long as the outstanding monies are paid to me. I need the money or at least acceptance and promise it will be paid. Inspector: Fair Trading cannot deal with monetary issues, as it then becomes a civil matter between the parties. Mr Cohen: He is not owed anything, we have overpaid him. Mr Zanzoul: There is no way in the world you have overpaid me. … Mr Zanzoul: No way you overpaid me. Prove to me you overpaid me. Mr Cohen: We have evidence. Mr Zanzoul: Okay good, please show me that evidence. Mr Cohen: Now is not the time. Mr Zanzoul: If you can prove that you overpaid me, I will be here next week to finish any items deemed defective…
47. In his affidavit of 13 February 2019, Mr Cohen asserted that this "overpayment" was the result of eight cash payments that he claims he made to Mr Zanzoul as follows: 1. 24 March 2015 $50,000 2. 15 July 2015 $150,000 3. 30 July 2015 $50,000 4. 22 October 2015 $110,157 5. 8 December 2015 $32,220 and $50,000 6. 17 December 2015 $30,000 and $50,000.
48. Although Mr Zanzoul accepted that, earlier, he had received some cash payments from Mr Cohen, he denied receiving these payments.
49. In cross-examination, Mr Cohen accepted that the payment of $110,157 was not in fact made in cash.
50. The cash payments that Mr Cohen alleges were made on 8 and 17 December 2015 were allegedly made immediately after Mr Cohen's email of 7 December 2015 in which he said that he would not be paying Progress Claim 23.
51. I asked Mr Cohen about that at the conclusion of his cross-examination: "HIS HONOUR: Q. I've got one thing I want to ask you Mr Cohen. Mr Young has asked you many questions about your 7 December 2015 email, that's the one where you said you wouldn't pay payment claim 23, do you remember that? A. Yes. Q. If you need to look at that again just tell me-- A. Yes. Q. --but having said on 7 December 2015 that you were not going to pay payment claim 23 which was about $24,000-odd-- A. Yes. Q. --your case is that the next day you paid cash to Mr Zanzoul of $82,220 and that on 17 December you paid him another $80,000. It might be put to me in submissions that it's a bit odd that you would on 7 December say you weren't going to pay the payment claim of $24,000-odd and then over the next ten days you pay $162,220 cash, now what do you want to say about that? A. Sure. Q. So if that's put to me what would you want me to take into account? A. Well I'd like you to take into account that there's a lot of pressure for him to keep paying. He kept asking for more and more money your Honour throughout this entire job and we continued to pay and those payments I have tried to prove that I paid in cash and he was getting paid your Honour. I don't know what he's done with the money but I'm sorry your Honour I was paying the guy."
52. This evidence strained credulity. It appeared to me to be improbable that immediately after refusing to pay Progress Claim 23, Mr Cohen would pay over $160,000 in cash to Mr Zanzoul.
53. In final submissions, Mr Bors did not press the claim that Mr Cohen had made these cash payments. Thus Mr Bors submitted: "Having reflected upon the evidence emerging in the course of Mr Cohen's cross-examination, the Cohens accept that this Court would not be comfortable in finding, on the balance of probabilities, that the disputed cash payments were made by Mr Cohen. In cross-examination, Mr Cohen acknowledged his uncertainty surrounding all the circumstances of the disputed cash payments and whether the amounts withdrawn by him from his own bank account were in fact cash withdrawals and paid to Mr Zanzoul. In these circumstances, the Cohens do not press for any finding in their favour on the issue of the disputed cash payments."
54. I was troubled by the evidence that Mr Cohen gave as set out above. [6] In closing submissions I had this exchange with Mr Bors: "HIS HONOUR:…Wouldn't I find that that was just something he was prepared to say without having any real belief that it was true? BORS: I would urge that your Honour wouldn't arrive at that conclusion having regard to the evidence in total, and the highest I would put it would be to say that the more - the conclusion that your Honour would more naturally reach is that Mr Cohen simply had no idea what he was talking about, both at the time and in the course of giving the evidence that he gave as to the cash payments."

Did Mr and Mrs Cohen repudiate their obligations under the Contract?

1. Repudiation of the contract occurs where one party evinces an intention no longer to be bound by the contract, or to fulfil the contract only in a manner substantially inconsistent with that party's obligations under the contract, and not in any other way. [7]
2. The question is one of fact. The test is whether the conduct of one party is such as to convey to a reasonable person in the situation of the other party renunciation either of the contract as a whole or of a fundamental obligation under it. [8]
3. The matter is to be determined objectively. What matters is the character of the conduct said to constitute the repudiation. The state of mind of the alleged repudiator is irrelevant. [9]
4. In my opinion Mr Cohen (and thus Mr and Mrs Cohen) did repudiate their obligations under the Contract. They did this continually from 7 December 2015.
5. First, on 7 December 2015 Mr Cohen refused to pay Mr Zanzoul the money due under the outstanding Progress Claims and, in particular, Progress Claim 23 on the basis set out in his email of 7 December 2015. [10] As I have explained, [11] there was no justification under the Contract for Mr Cohen to act that way. He thereby evinced an intention not to be bound by the Contract at all, or alternatively, an intention to fulfil the Contract (by paying Mr Zanzoul the amount due only after provision of the statutory declaration sought, once documents were "in order" and once "significant defects are completed") in a manner inconsistent with Mr and Mrs Cohen's obligations under the Contract.
6. The same can be said for Mr Cohen's 11 February 2016 demand that the "Critical and Urgent Issues" be rectified in the manner I have described [12] and his statement that monies due under the Contract to Mr Zanzoul would only be paid "when you have completed the works" [13] .
7. Mr Cohen compounded those acts of repudiation by asserting, during the meeting with the Office of Fair Trading inspector, that he and Mrs Cohen had "overpaid" Mr Zanzoul.
8. As I have said, Mr Cohen maintained that allegation in his affidavit evidence and in cross-examination. It was abandoned by Mr Bors. Had it not been abandoned, I would have found that the evidence was untrue.
9. By this conduct, Mr Cohen was not only asserting that Mr Zanzoul was not entitled to be paid for work he had done, but was asserting that he had been paid more than that entitlement. Mr Cohen thus clearly evinced an intention no longer to be bound by the Contract.
10. In final submissions, Mr Bors barely contested these propositions. As I set out, [14] Mr Bors accepted that "on any objective view" the conclusion was open that Mr and Mrs Cohen "were wrongfully withholding payment from Mr Zanzoul". Mr Bors also said that "it may be that on a proper construction the rights that the Cohens assume themselves to have did not emanate".
11. Mr Bors continued by submitting that "that in and of itself would not ordinarily reach the bar of repudiatory conduct".
12. In my opinion Mr Cohen's conduct, and thus Mr and Mrs Cohen's conduct, did "reach the bar of repudiatory conduct".

What is the consequence of that repudiation?

1. Mr and Mrs Cohen's repudiation of the Contract did not bring the Contract to an end. That is because "repudiation by the promisor does not terminate the obligations under the contract". [15] Determination of the contract "only happens when the promisee decides to terminate performance by accepting the repudiation". [16]
2. Mr Zanzoul did not accept Mr and Mrs Cohen's repudiation of the Contract and terminate the Contract until 3 April 2018, when he did so by cl C19 of his Technology and Construction List Cross Claim Statement in these proceedings [17] .
3. Although Mr Bors submitted that, in the meantime, Mr Zanzoul had affirmed the Contract, that submission was not developed; and I can see nothing in the evidence to support it.
4. It may be, as Mr Young submitted, that prior to Mr Zanzoul's termination of the Contract, and faced with Mr and Mrs Cohen's repudiation of it, he was excused from "actual performance" of the contract. [18] This has sometimes been described as a dispensation of the innocent party's obligation to perform. [19] Thus, it may be that Mr and Mrs Cohen could not have, prior to termination of the Contract, compelled Mr Zanzoul to return to the site to rectify the defects complained of in Mr Cohen's letter of 11 February 2016. [20]
5. But that begs the question of the nature of the parties' rights now that the Contract has been terminated.
6. In that regard, Mr Young submitted: "If a repudiating party cannot enforce the innocent party's primary obligation of performance, then there is no basis upon which it could enforce a secondary obligation to pay damages." (Emphasis added.)
7. That is not correct.
8. Mr Young's submission reflects what the High Court recently referred to in Mann v Paterson Constructions Pty Ltd as the "rescission fallacy". [21]
9. In Mann the High Court said: "The theory that the contract between the parties becomes 'entirely irrelevant' [22] upon discharge for repudiation or breach is indeed fallacious. As Mason CJ said in Baltic Shipping Co v Dillon [23] : 'It is now clear that ... the discharge operates only prospectively, that is, it is not equivalent to rescission ab initio.' The notion that the termination of a contract for repudiation or breach has the effect of rescinding the contract ab initio was unequivocally rejected by this Court in McDonald v Dennys Lascelles Ltd [24] . In that case, Dixon J, with whom Rich and McTiernan JJ agreed, said [25] : 'When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach.'" [26]
10. The correct position is that: "Where the promisee validly terminates performance of a contract for breach or repudiation, both parties are discharged from their obligation to perform (or to be ready, willing and able to perform their unperformed contractual obligations). The contract remains on foot for the possible purpose of regulating the parties' right so far as those rights had already been acquired, including rights to damages for their breach." [27]
11. Mr Bors was thus correct to submit that: "The accrued rights of both innocent and defaulting parties that have been unconditionally acquired before the election of an innocent party to accept repudiation and terminate a…contract are not divested or discharged upon such election to terminate."
12. In my opinion, both Mr and Mrs Cohen and Mr Zanzoul had "unconditionally acquired" rights which "accrued" from the breach of contract by the other.
13. First, Mr and Mrs Cohen unconditionally acquired the right to recover damages from Mr Zanzoul in relation to any defective building work.
14. Second, Mr Zanzoul unconditionally acquired the right to recover from Mr and Mrs Cohen as a debt the monies due to him under the Contract. [28]
15. It would be extraordinary if the result were otherwise.
16. According to Mr Young's submission, the effect of Mr and Mrs Cohen's repudiation of the Contract was that Mr Zanzoul was forever released from any obligation to pay damages to Mr and Mrs Cohen for defects in construction, no matter how egregious.
17. That is not the law.

Common ground that there were defects

1. The expert structural and hydraulic engineers have conferred and produced "Expert Conclave" reports. In those reports, the experts have reviewed the items alleged by Mr and Mrs Cohen to be defective residential building work and have classified the items as either: 1. "not a defect", hence not requiring any rectification work; 2. a "defect", requiring rectification work; or 3. "incomplete" or "unfinished" being items not necessarily defective, but requiring further work.
2. The Partridge Report identified some 120 alleged defects. The experts have reached agreement in relation to approximately 70% of those defects. Dispute remains in relation to around 35 of the defects identified in the Partridge Report.
3. So far as the experts have agreed that there is defective or incomplete work, my conclusion is that, for the reasons I have set out above, Mr and Mrs Cohen have an accrued right to be compensated by Mr Zanzoul in relation to those matters which right remains, notwithstanding their repudiation of the Contract and its subsequent termination by Mr Zanzoul.
4. As I have said, [29] it is agreed that I should defer dealing with the detail of these matters for the moment.

The cost of rectification

1. As I have also mentioned [30] , between August 2017 and September 2018, NRB carried out work to rectify the majority of the works referred to in the Partridge Report.
2. The Quantity Surveyor Experts also conferred and have reached substantial agreement about the cost of rectifying the defective work.
3. Two matters remain in dispute: the NRB labour rate and the NRB margin.

NRB labour rate

1. The labour rates adopted by NRB were $78 per hour for some work and $109 per hour for other work.
2. My attention has not been directed to what particular work was charged at these two rates.
3. Mr and Mrs Cohen's quantity surveyor expert, Mr Towill, said in his report: "Based upon my experience, on remedial projects the rates for labourers are at the higher end due to them needing to be highly experienced in rectifying defects rather than more comparatively simpler 'new' construction work. Based on my experience, I would expect to see labour rates in the order of $90/hr or more."
4. Mr Zanzoul's quantity surveyor expert, Mr Heymann, disagreed with this assessment. He said, during concurrent evidence: "I discussed it with a number of builders who do home alterations work and their view was that they pay their workmen the same. But because of the nature of their work their productivity rates could be lower, and I believe that is borne out by the huge number of hours that were booked to this project. But the rate of pay to the workmen was not higher and that is experience I have gained talking to a number of contractors. I also took the trouble of having a look at the New South Wales Master Builders' Association website where I saw that the average rate for the various trades we were considering on this project ranged in the low 60s. In other words $59 to $65 an hour excluding margin. So based on that adding a fair margin I thought that $78 was a fair rate, in fact I thought it was a comfortable rate and I thought that $90 was outside the envelope of reasonableness your Honour."
5. Mr Heymann also said that the average labour rates for "the various trades we were considering on this project" were in the "low 60s".
6. Overall, Mr Heymann's view was that a reasonable labour rate was $78 per hour.
7. It emerged during concurrent evidence that Mr Towill's experience with residential building work is as a "generally small percentage" of his overall work (he said "we try not to look into that area too much because the developers are less likely to pay the institutional figures").
8. I am in those circumstances inclined to give more weight to Mr Heymann's opinion.
9. I find that the reasonable rate for NRB was $78 per hour.

NRB margin

1. Mr Towill adopted the margin rates charged by NRB, namely 20.5% on materials and 26.5% on subcontractors, plant and equipment hire. On the other hand, Mr Heymann opined that a reasonable contractor's margin in the circumstances would have been 15%.
2. During concurrent evidence, it emerged that the rates charged by NRB, and adopted by Mr Towill, included some preliminaries which suggest that Mr Heymann's rate is one to be preferred. I find that the reasonable contractor's margin for the NRB work was 15%.

Is Mr Zanzoul entitled to recover the unpaid Progress Claims?

1. Mr Zanzoul's entitlement to be paid the shortfall on his Progress Claims is a right that had accrued at the time of Mr Zanzoul's termination of the Contract. He is entitled to recover those unpaid Progress Claims.
2. Now that Mr Cohen's allegation of "overpayment" has been abandoned, I understand there to be no dispute that the amount owing to Mr Zanzoul in this respect is $142,668.16.

Is Mr Zanzoul entitled to a margin?

1. By cl 22.1 of the Contract, Mr and Mrs Cohen were entitled to direct Mr Zanzoul to vary the work under the Contract or execute additional work.
2. By cl 22.2 of the Contract, Mr Zanzoul was obliged, as soon as possible, to price each variation. In that event the price would be added to the Contract Sum.
3. I understand there to be no dispute that Mr and Mrs Cohen did direct variations; albeit without strictly complying with the requirements of cl 22.1
4. Some 22 variations are specified in a schedule annexed to Mr Young's and Ms Thrift's closing submissions. In those submissions detailed submissions are developed to the effect that Mr and Mrs Cohen "must be taken to have accepted these variations and their obligation to pay for them".
5. Mr Young and Ms Thrift pointed to the facts that: 1. Mr and Mrs Cohen knew that the Contract Sum had been calculated by reference to the amount of the CBA facility and that the Contract was otherwise on a "costs plus" basis (a matter which Mrs Cohen acknowledged in an email she sent to Mr Zanzoul on 26 June 2013); 2. From December 2014 Mr and Mrs Cohen were living in the property, with the opportunity to observe the works on a day to day basis and must have seen the nature of the work being carried out; 3. On 20 January 2015 Mr Zanzoul provided Mr and Mrs Cohen with a spreadsheet setting out "overruns" which identified a large number of variations; 4. The Progress Claims identified the work done, including the initial amounts being charged over and above the Contract Sum; 5. Those Progress Claims were paid without dispute until Progress Claim 18 and that thereafter the disputes raised by Mr and Mrs Cohen did not relate to the question of whether or not there had been variations; and 6. There is no evidence that Mr and Mrs Cohen ever complained about or queried the variations.
6. It is against that background that Mr Zanzoul claims a margin referable to the 14 month period from the Date for Practical Completion, 4 September 2014, and the Date of Practical Completion, 17 November 2015.
7. Mr Young made clear in final submissions that Mr Zanzoul's claim for a margin was based on the provisions of cl 13.3 of the Official Order.
8. Clause 13.3 provided that: 1. Mr Zanzoul would "undertake variations without margin, so long as the works can be completed within the original programme as stipulated within the … Contract [ie by the Date for Practical Completion; 4 September 2014]; and 2. "Any PC sums included in the [Contract] would be converted to a lump sum once the relevant documentation is provided and a trade price received and agreed. The contract adjustment would be at cost, exclusive of any management fee or margin. Again, this is acceptable as long as the works are completed within the construction program [ie by the Date for Practical Completion; 4 September 2014]."
9. These provisions do not, in terms, confer on Mr Zanzoul any entitlement to a "margin". Instead, they provide that Mr Zanzoul would undertake variations and supply PC items at cost "without" or "exclusive of" a margin if the Contract works were completed by the Date for Practical Completion; 4 September 2014.
10. However, it appears implicit in these provisions that if, as has happened, the Contract works were not completed by 14 September 2014, Mr Zanzoul would be entitled to a margin. Mr Young made that submission, in response to questions from me, in final address and Mr Bors did not dispute it in reply. I proceed on that basis.
11. The Contract is silent as to how that margin would be calculated. Mr Young submitted in final address, and again in response to questions from me, that there was an implied term in the Contract that such margin be one that was reasonable in all the circumstances. Again, Mr Bors did not dispute that contention in reply and I proceed on that basis.
12. In closing submissions, Mr Young put Mr Zanzoul's claim for a margin this way.
13. First, Mr Young pointed to the fact that in his pre-Contract quotations, Mr Zanzoul specified $100,000 as his "Recovery" for the 15-month period from the date of the Contract, 22 May 2013, to the Date for Practical Completion, 4 September 2014
14. Mr Young then submitted that: 1. the allowance in those pre-Contract quotations by Mr Zanzoul for "Recovery" represented a profit of $100,000/15 months = $6,666.67 per month to the Date for Practical Completion; 2. work under the Contract in fact took a further 14 months from September 2014 to November 2015; and 3. accordingly, the appropriate "margin" for Mr Zanzoul in relation to "profit" or "recovery" for the 14 months from September 2014 to November 2016 was $6,666.67 x 14 = $93,333.38.
15. This exercise appears to be an estimate of what would be a reasonable profit margin for Mr Zanzoul on all of the work done by Mr Zanzoul during the 14 month period between the Date for Practical Completion and the Date of Practical Completion.
16. However, it is untethered to the provisions of the Contract relied upon as giving rise to an entitlement to margin; namely those relating to a margin on the variations contended for or on any conversion of the PC items to a lump sum. The submission does not reflect any entitlement of Mr Zanzoul under the Contract.
17. In any event, near the conclusion of oral argument, Mr Young abandoned the submission in the face of Mr Bors' submission that to claim such lost profit as well as delay damages [31] was to engage in "double dipping": a proposition Mr Young ultimately accepted.
18. Mr Young also submitted that Mr Zanzoul's margin should also contain an amount on account of preliminaries. Mr Young pointed to the fact that in his pre-Contract quotations, Mr Zanzoul specified an amount of $375,000 for preliminaries for the 15 month period allowed for in the Contract up to the Date for Practical Completion.
19. Mr Young submitted that "the majority of preliminary items were ongoing throughout the additional period" of 14 months from the Date for Practical Completion and the Date of Practical Completion.
20. The passage in Mr Zanzoul's evidence to which Mr Young referred to make that submission was not in evidence. Mr Bors objected to it and I rejected it.
21. Mr Young then submitted, without elaboration, that "it would be reasonable to cost the ongoing preliminary items at 75% of the original figure" and that the result was a margin on account of preliminaries of $256,900 calculated as follows: $367,000/15 x 75% = $18,350/month x 14 [months] = $256,900.
22. Again, this calculation may represent a reasonable estimate of the margin that would be paid to Mr Zanzoul, but, again, it is untethered to any of the contractual provisions upon which Mr Zanzoul relies upon as a basis for the margin for which he contends.
23. As Mr Bors pointed out, for Mr Zanzoul to succeed on his claim for a "margin" in relation to variations and "PC" items, he was required to establish: 1. the specific details of the variations and the PC sum work he performed; 2. the extra cost of the variations and PC sum of work he performed; 3. that by reason of those variations and the PC sum of work he performed, he was delayed in completing the whole of the works under the Contract by 4 September 2014; and 4. the applicable margin on the variation an PC sum of work he performed.
24. Apart from identifying the variations contended for, none of these matters has been proved.
25. The manner in which Mr Young outlined the claim for margin did not address any of these matters.
26. My conclusion is that Mr Zanzoul has not made out a case for a margin.

Is Mr Zanzoul entitled to delay costs?

1. By cl 20.2 of the Contract, if Mr Zanzoul was delayed in reaching Practical Completion by a "qualifying cause of delay", and gave Mr and Mrs Cohen a detailed written claim for an extension of time ("EOT") within 28 days of becoming aware of the cause of delay, he would be entitled to such EOT for carrying out the work as Mr and Mrs Cohen, acting reasonably, assessed.
2. A "qualifying cause of delay" was defined to mean, relevantly, an act of fault of omission by Mr and Mrs Cohen or their agents by the contractors not engaged by Mr Zanzoul.
3. It is common ground that Mr Zanzoul did not, formally, make a claim for an EOT under this clause.
4. By cl 20.6 of the Contract, for every day the subject of an EOT given under cl 20.2 for a "compensable cause" Mr Zanzoul was entitled to damages at the rate of $1,500 per week.
5. A "compensable cause" was to find any act of fault or omission of Mr and Mrs Cohen or their agents or contractors, not being employed by Mr Zanzoul.
6. Mr Zanzoul seeks an entitlement to delay damages.
7. In his Cross Claim Statement, Mr Zanzoul identified seven "qualifying causes of delay", said to justify an EOT of 35.5 weeks and sought delay costs calculated as 35.5 x $1,500 = $53,250.
8. In final submissions, Mr Young sought, without elaboration, delay costs of $91,250 calculated on the basis of a delay of 60.8 weeks, reflecting the 14 month delay from the Date for Practical Completion and the Date of Practical Completion.
9. However, in neither his oral nor closing submissions did Mr Young point to evidence showing that any particular item, including the seven referred to in the Cross Claim Statement, had been the result of a "qualifying cause of delay" or a "compensable cause".
10. Thus, Mr Bors made the point that: "…Mr Zanzoul cannot and has not established by direct admissible evidence proof of the period of, nor the cause of any actual delay. The evidence, such that Mr Zanzoul sought to give on delay, has been rejected by the Court. Without direct evidence of the matters upon which Mr Sims [Mr Zanzoul's delay expert] based his expert opinion, his opinions as to the period or reasonableness of any delay is of no assistance to the Court. Indeed the Court has rejected those parts of Mr Sims' report where he purported to express an opinion as to Mr Zanzoul's 'entitlement' to 'reasonable' EOT. Further, there was no evidence that any of the matters pleaded above are either qualifying causes of delay which are also compensable causes under the building contract."
11. In final address, Mr Young did not seek to address these submissions.
12. Indeed, he concluded his oral submissions on this topic as follows: "Because your Honour would have comfortable satisfaction when reading Mr Zanzoul's affidavit when he talks about which items he would include and not include on an ongoing basis that those items would be comfortable removed and a reverse engineering would create comfortable satisfaction on the facts about the amount that should be allowed. If your Honour things something should be allowed but it's not that amount, then another assessment doing the best your Honour can would be appropriate. That's the way we put it. And we accept that we can't do it any other way."
13. In the circumstances, my conclusion is that Mr Zanzoul has failed to prove any entitlement to delay damages.

Quantum meruit

1. In the alternative to his claim under the Contract, Mr Zanzoul makes a claim for restitution for unjust enrichment on a quantum meruit.
2. In closing submissions, this claim was confined to Mr Zanzoul's claim for "preliminaries and margin and delay damages" for the period between the Date for Practical Completion and the Date of Practical Completion; ie between 4 September 2014 and 17 November 2015.
3. In opening submissions Mr Young and Ms Thrift said: "In the alternative to the claim for the Progress Payments, [Mr Zanzoul] claims a quantum meruit. This claim arises only if it is found that the Contract was repudiated prior to [Mr Zanzoul] being entitled to make a progress claim, or if the progress claims represent part only of the entire agreement."
4. That is not this case. Mr and Mrs Cohen's repudiation took place after Mr Zanzoul made his final Progress Claim. I have found, notwithstanding his termination of the Contract, Mr Zanzoul had an accrued right to recover as a debt the money due under his Progress Claims.
5. In final written submissions, Mr Zanzoul's claim for a quantum meruit was put this way: "…to the extent that [Mr Zanzoul] was required to claim the additional preliminaries and margin and delay damages pursuant to the contract, [Mr and Mrs Cohen's] repudiation prevented [Mr Zanzoul] from doing so… Therefore [Mr Zanzoul] is entitled, in the alternative, to payment of all of the above amounts as a quantum meruit…"
6. But Mr and Mrs Cohen's repudiation of the Contract has not prevented Mr Zanzoul from proving his case for a margin or for delay damages. The Contract makes explicit provision for those matters in cl 13.3 of the Official Order.
7. The problem for Mr Zanzoul is that he has failed to adduce the evidence necessary to prove an entitlement to a claim in accordance with that provision of the Contract.
8. There is a larger problem.
9. Such rights as Mr Zanzoul had to make a claim for preliminaries, a margin or for delay damages during the period between the Date for Practical Completion and the Date of Practical Completion had accrued by the time of Mr and Mrs Cohen's repudiation of the Contract and thus at the time Mr Zanzoul accepted that repudiation and terminated the Contract.
10. A claim for a quantum meruit is not available in those circumstances. [32]

Conclusion

1. In substance, the result is that Mr and Mrs Cohen are entitled to damages from Mr Zanzoul for the defective and incomplete building work that the experts have identified.
2. On the other hand, Mr Zanzoul is entitled to recover the amount due in respect of his Progress Claims.
3. The parties should confer and endeavour to agree on what steps should now be taken in the proceedings.

Endnotes

1. See [75] below.
2. See above [52].
3. See [59]-[61] above.
4. At [84]
5. At [75]
6. At [89].
7. Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623; [1989] HCA 23 at 634 (Mason CJ).
8. Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44] (Gleeson CJ, Gummow, Heydon and Crennan JJ).
9. Sopov v Walker (2007) 20 VR 127; [2007] VSCA 257 at [9] (Maxwell P and Kellam JA) and [112] (Whelan AJA) referring to Laurinda Pty Ltd v Capalaba Park Shopping Centre, supra note 6 at 647-8 (Brennan J).
10. Set out at [46] above.
11. At [48]-[57].
12. At [71]
13. See [75] above
14. At [58] above.
15. For example see J D Heydon, Heydon on Contract (2019, Thomson Reuters) at [24.410].
16. Ibid.
17. See [25] above
18. To adopt the language of Mason CJ in Foran v Wight (1989) 168 CLR 385; [1989] HCA 51 at 395-6; see also Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; [1954] HCA 25 at 246 (Dixon CJ) and 250 (Kitto J).
19. See Heydon on Contract, op cit, at [21.180] and Sinason and Teicher Inter-American Grain Corporation v Oil Cakes and Oil Seeds Trading Co Ltd [1954] 1 WLR 935.
20. This conclusion does not take into account cl 27.1 of the Contract which provides, subject to two other provisions in the Contract, neither of which appears to me to be relevant, that notwithstanding any "dispute" the parties must "continue to perform the contract". In view of my conclusions as to the parties' rights and obligations now that the Contract has been terminated, I need not express any view about this.
21. [2019] HCA 32 at [8] (Kiefel CJ, Bell and Keane JJ).
22. Slowey v Lodder (1901) 20 NZLR 321 at 358.
23. (1993) 176 CLR 344 at 356; [1993] HCA 4. See also Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361; [1936] HCA 6 at 379; [1936] HCA 6; Baltic Shipping Co v Dillon, supra note 20 at 390; Federal Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 at 345-346 [2]; [2008] HCA 22; Construction Forestry Mining and Energy Union v Mammoet Australia Pty Ltd (2013) 248 CLR 619 at 639 [69]; [2013] HCA 36; (Kiefel CJ, Bell J, Keane J).
24. (1993) 48 CLR 457; [1933] HCA 25.
25. Ibid at 476-477.
26. Mann v Paterson Constructions Pty Ltd, supra note 18 at [8] (Kiefel CJ, Bell and Keane JJ).
27. Heydon on Contract, op cit, at [24.470], citing McDonald v Dennys Lascelles Ltd at 476-477 (Dixon J); and Mann v Paterson Constructions Pty Ltd at [10] (Kiefel CJ, Bell and Keane JJ)
28. Mann v Paterson Constructions Pty Ltd, supra note 18 at [10] (Kiefel CJ, Bell and Keane JJ) and [62] (Gageler J).
29. See [30] above.
30. See [22] above
31. Dealt with at [163] to [180] below
32. Mann v Paterson Constructions Pty Limited, supra note 18. The reason for this is that such a claim is never available to a party that "has enforceable contractual rights to money that has become due under the contract" and has "an enforceable contractual right for damages for loss of bargain" (per Kiefel CJ, Bell and Keane JJ at [19] to [22]); or because such a claim is not available to a party that has "accrued a contractual right to payment" (per Gageler J at [61] to [64] and Nettle, Gordon and Edelman JJ at [172] and [179]). The position is different, and a quantum meruit is available, where no contractual right to payment has accrued (per Gageler J at [66] ff especially at [105]) and Nettle, Gordon and Edelman JJ at [166]); although the amount recovered will be (per Gageler J at [91], [102] and [105]) or will prima facie be (Nettle, Gordon and Edelman JJ at [205] and [214-217]) capped by reference to the contractually agreed remuneration for the services. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 May 2020