Consideration
93The principal issue in the present case, in my opinion, is whether the contract is to be construed as an entire contract; that is, one where complete performance is a condition precedent to payment or counter-performance: GEC Marconi Systems Pty Limited v BHP Information Technology Pty Limited [2003] FCA 50; 128 FCR 1 at [703]; ACN 002 804 702 (formerly Brooks Building) v McDonald supra at [100]. If the contract is an entire contract in that sense, then strict performance of the contractual obligation, in this case completion of the Building Works, is a necessary pre-condition to receiving the contractual consideration: TriContinental Corporation Ltd v HDFI Ltd (1987) supra at 705, 718; Highmist Pty Limited v Tricare Limited supra at [40]-[41].
94In the case of contracts which at least on their face appear to be entire contracts, particularly lump sum building contracts, courts have been reluctant to construe complete performance of the works as an essential pre-condition for payment. Rather, in circumstances where there has been substantial performance, they have treated a failure to complete as a breach of a non-essential term of the contract not disentitling the builder to contractual payment for the work done but, rather, giving the proprietor a right of setoff or claim for damages for the cost of completing the work or rectifying any defects. The position was summarised by Denning LJ in Hoenig v Isaacs supra at 180-181:
"the first question is whether, on the true construction of the contract, entire performance was a condition precedent to payment. It was a lump sum contract, but that does not mean that entire performance was a condition precedent to payment. When a contract provides for a specific sum to be paid on completion of specified work, the courts lean against a construction of the contract which would deprive the contractor of any payment at all simply because there are some defects or omissions. The promise to complete the work is, therefore, construed as a term of the contract, but not as a condition. It is not every breach of that term which absolves the employer from his promise to pay the price, but only a breach which goes to the root of the contract, such as an abandonment of the work when it is only half done. Unless the breach does go to the root of the matter, the employer cannot resist payment of the price. He must pay it and bring a cross-claim for the defects and omissions, or, alternatively, set them up in diminution of the price. The measure is the amount which the work is worth less by reason of the defects and omissions, and is usually calculated by the cost of making them good. [Citation of authorities omitted.] It is, of course, always open to the parties by express words to make entire performance a condition precedent."
See also Dakin v Lee supra at 574, 578-579, 581-582; Connor v Stainton (1924) 27 WALR 72 at 73; Williamson v Murdoch (1912) 14 WALR 54 at 56-58; Bolton v Mahadeva supra at 1012-1013; ACN 002 804 702 (formerly Brooks Building) v McDonald supra at [100]-[106].
95However, as was pointed out by Denning LJ in the passage in Hoenig v Isaacs to which I have referred above, the question is always one of construction of the relevant agreement. In the present case as I have indicated, the obligation to hand over the Strata Plan only arose on completion of the work. In those circumstances, in my opinion, there is no room for the operation of any doctrine of substantial performance.
96It follows that it is strictly unnecessary to deal with the findings of the primary judge that Cordon did not substantially perform its obligations (at [169]). The primary judge reached that conclusion based on pars [421] and [424] of the referee's report, which he adopted, noting those paragraphs were not disputed by Cordon and based on his conclusion in relation to the five substantial defects. In my opinion, for the reasons set out hereunder, his Honour was correct in this approach.
97In pars [421] and [424] of the referee's report, the referee concluded that the defects ultimately notified (that is notified post termination) were not minor and would have prevented the premises being reasonably fit for occupation both on 23 February 2006 and 31 July 2006.
98Cordon indicated in its submission that in fact it contended that these paragraphs of the referee's report should not be accepted, but the only basis on which the submission was made was that the only defects which should be considered were those in fact notified prior to the date of termination. This does not seem to me to be correct. The issue is whether the works were completed. If they were not, the condition on which the Strata Plan was to be handed over had not been fulfilled.
99Further, the primary judge identified what he described as five major defects which he said demonstrated that the work had not been done in accordance with the Plans and Specifications. The first of these was the street frontage was not constructed in accordance with the Plans and Specifications in that the walkway in front of the building had not been built. I have set out the parties' submissions on this issue above (see [83]-[87] and 92). It is important to bear in mind in that context that whilst the referee found that it was not possible to build the walkway in accordance with the plan, it may have been possible for an alternative design to achieve Lesdor's design requirements. Her finding was as follows:
"[318]The fifth question referred out invited an estimate of the reasonable cost of rebuilding or modifying the work referred to in the second question so that the work complied with the JV plans and specifications. Because of the inaccuracies shown on the JV plans, on this particular item and on the evidence available, it was not and never would be possible to answer this question strictly. This is because the plans do not, for example, illustrate an existing structural column. This column is situated in the middle of and blocks the proposed open walkway. Because of this, the planned open walkway must remain fictional. With further evidence, however, it might be possible for an alternative design to be priced that achieves Lesdor's apparent principal design requirement, i.e. an open walkway continuing to the western end of the site. Any re-design, would, among other things, need to meet fire egress regulations and provide structural support to the two floors of the building hovering above the open walkway, once the offending column is removed. In order to test this possibility, considerable design input of an architectural, structural and fire egress nature would first be necessary. This additional input might, of course, lead to the conclusion that a continuous walkway is not feasible and that the design that has been constructed is the most feasible solution. Without at least architectural and structural input, the advice of a fire consultant would, in my view, be incomplete in any consideration of the issue. Although the fire egress evidence might provide the rationale for the current configuration, it would not necessarily establish that this configuration is the only reasonable or feasible design. For this further reason, I considered that the admission of evidence from a fire consultant, in isolation, would not have been of great assistance to the reference."
100Further, in the proceedings before the referee the experts for both sides estimated that the cost of demolition of the column referred to in the referee's report and structural support of the floors above excluding engineering drawings was $44,600.
101In these circumstances it does not seem to me that Cordon was entitled to unilaterally vary the plans in the manner in which it did. Whether or not the walkway could be built, it could only vary the plans with the consent of Lesdor. If there was no consent or if the parties could not agree on the proposed variation, the dispute could be referred to arbitration pursuant to cl 28 of the Agreement. Cordon did not avail itself of this course, rather it unilaterally varied the design. In doing so, in my opinion, it was in breach of the Agreement.
102It follows, in my opinion, that the primary judge was correct in finding that Cordon failed to comply with its obligations in respect of the walkway to the street frontage of the commercial building.
103The second issue raised by the primary judge was that the parapet on the roof of the existing commercial building had not been raised to the height of the parapet on the adjoining new commercial building. The trial judge initially correctly identified the issue as an aesthetic issue "to present a continuance appearance from the street level" (at [105]) but mistakenly concluded that the referee had considered it was a safety issue. I have set out the details of the referee's finding in par 82 above. In light of that the fact remains that notwithstanding the misapprehension of the primary judge, the referee found that the parapet was not built to the correct height and was, therefore, defective.
104So far as the question of whether the awning structure that had been constructed in front of the building had to be constructed from hot dipped galvanized steel was concerned, the primary judge was entitled to accept the finding of the referee on this issue. The referee relied on the concluding words in par 18.5.3 of the February 2004 specification in concluding that hot dipped galvanizing was required (at [280]). I have set these words out above in par 82.
105No contention appeared to have been made before the referee that there was another specification which dealt with the awning and in that respect she made no error of law in reaching her conclusions. The trial judge in these circumstances was entitled to accept her finding: see Chocolate Factory Apartments v Westpoint Finance & Ors [2005] NSWSC 784 at [7].
106The third matter related to the question of why the new roof had not been finished with gravel. The issue was whether there was a variation such that this finish was no longer required. The referee expressly left that question open (at [166]). Having regard to the findings of the primary judge that no variations were agreed upon (at [118]), the primary judge was not in error in considering that the failure to finish the roof with gravel meant that the works were not completed in accordance with the plans and specifications.
107The final issue was what was described as the pebblecrete issue, namely, whether the pebblecrete surface on which the floor tiles to the external walkway along Kingsway were laid should have been removed and retiled so that the tiles and shop floor were on the same level. The criticism of the finding seems to be that the referee should have found that this did not prevent occupation of the works.
108The referee found that in this regard the works were not completed in accordance with the plans and specifications. Her finding was as follows:
"296While the awning provides considerable protection from weather, it does not necessarily protect against driving rain or against water used in cleaning the paving. To assist in keeping water out of buildings, typically external paving levels are lower than internal floor levels. The reverse, in my opinion, is inherently defective because it militates against maintaining a dry interior. If water enters, for example, it will not drain out. For this reasons, in my view, the level of the tiles is a defect and I so find. I adopt the agreement of the experts and find that the cost to rectify this defect by removing the tiles and pebblecrete and re-laying the tiles at a lower level is $12,820.00."
109It was open to the judge to accept that finding.
110In these circumstances the trial judge was justified in finding that in respect of the five substantial matters identified by him, the work was not completed in accordance with the Plans and Specifications. That coupled with the finding of the referee as to the defects which were ultimately found to have existed, also meant that he was justified in finding that to the extent relevant, practical completion had not occurred.