Creative Building Services v Jolene Investments

Supreme Court of NSW|2013-04-17|Before: McDougall J

Judgment (EX TEMPORE - REVISED 17 APRIL 2013) 1HIS HONOUR: On 1 November 2006, the plaintiff (the builder) and the defendant (the proprietor) entered into a "cost plus" building contract. Under the contract, the builder was to construct a residence at Murrumbateman in the state of New South Wales, to be occupied by the principals of the proprietor.

The disputes 2Work under the contract was completed in about October 2008. By then, the parties had fallen into dispute. The proprietor had made periodic payments totalling in excess of $1,073,000. The builder asserted that the total cost of the works was of the order of $1,657,530. The builder sued to recover the balance, quantified at $583,870. The proprietor cross-claimed for the cost of defect rectification. The asserted cost of rectification of defects was $393,422. 3In addition, the proprietor asserted that the builder had no contractual entitlement to be paid. An understanding of that defence requires some attention to be paid to the conditions of the contract, to which I now turn.

Reasons for non-payment 10The proprietor said, in defence of the builder's claim to be entitled to pay any amount at all, that: (1) there was no insurance in place at the time the works were done, and thus s 92 of the Home Building Act and cl 13.1 of the contract disentitled the builder to be paid; (2) likewise, because no certificate of insurance had been provided to the proprietor at the time the building works were done, the proprietor was not entitled to be paid because of the operation of s 92 and cl 13.1; and (3) the progress claims, or as the proprietor had it, purported progress claims, that were from time to time given were not effective because they were not supported by documents of the kind referred to in cl 13.5. 11It does not appear that the deficiency in documentation prevented the proprietor from paying in excess of $1 million for work done, but that, I suppose, is not strictly speaking relevant to the question of contractual entitlement.

Reference out 12All issues in dispute in the proceedings, save for the question of costs, were referred to a referee, Mr David Plaister, pursuant to UCPR r 20.14. Mr Plaister provided a report to the Court dated 20 December 2012. In that report, he concluded that: (1) the builder was entitled, subject to the question of defective work, to be paid the amount of its claim - the figure of about $583,870 to which I have referred; (2) the builder was entitled to interest, assessed (up to the date of the report) at $137,297 (the assessment was made at the rate from time to time applicable pursuant to s 100 of the Civil Procedure Act 2005 (NSW), and not at the higher rate provided under the contract); (3) there was to be set off, against the total due to the builder, the cost of rectification of defective building work, assessed at $61,690. 13It is apparent that the referee structured his conclusions in this way because he assessed the cost of rectification at the date of the report and not at the date of breach. The parties do not challenge that approach to the problem.

The parties' submissions 14Initially, the builder sought to vary the referee's report by extending the period for which interest was payable. That was abandoned at the outset of the hearing in relation to the adoption of the report, for which the builder pressed. 15The proprietor claimed that the report should not be adopted, in so far as it found that an amount was due to the builder, because the contractual conditions of entitlement had not been met. In addition, the proprietor challenged the referee's quantification of a particular aspect of defect rectification. That latter challenge was abandoned at the hearing. 16Thus, the issue for decision is whether, as the referee concluded, the builder is entitled to be paid, notwithstanding the provisions of cl 13.1 of the contract. 17It should be noted that, in its reply, the builder said, in the alternative, that it was entitled to be paid the amount of its claim on a quantum meruit basis. Mr Orlov of counsel, who appeared for the builder, acknowledged that this would only be relevant if, for whatever reason, its claim under the contract failed. 18Mr Hand of counsel, for the proprietor, submitted that at no stage during the execution of the works had the builder complied with the requirements of cl 13 of the contract. That submission was based on the three propositions that I have outlined earlier in these reasons. 19Further, Mr Hand submitted, the builder could have no claim to payment under the contract until, having obtained and provided the certificate of insurance, it provided progress claims documented in the way required by cll 13.4 and 13.5 of the contract. 20Mr Hand submitted, correctly I think, that the purpose of those provisions of the contract was to give the owner an opportunity of assessing the quantification of any progress claim, and of raising any question as to the amount claimed. 21Mr Orlov submitted that, by the time these proceedings had commenced, the builder had done all that was necessary to entitle it to payment under the contract. He referred to the following matters of fact: (1) on 5 March 2010, the builder's solicitors submitted to the proprietor's then solicitors a letter which enclosed, "for your information, copies of our client's progress payment invoices bundled with supporting project cost reports and invoices". The letter said that the builder would rely on that bundle at the hearing of proceedings in the Supreme Court of the Australian Capital Territory, scheduled for 16 and 17 March 2010. It is unnecessary to go to the detail of the issues in those proceedings. (2) A letter written by the builder's solicitors to the proprietor's solicitors on 10 March 2010, enclosing a copy of the certificate of insurance. (3) A further letter between the same parties dated 27 July 2010, noting that the builder would commence proceedings in this Court to recover the amount claimed (then assessed at a little over $592,000) together with interest, said to amount to $213,000 at the date of the claim. Although this letter was said to be, "without prejudice save as to costs", it was relied on, so far as I can tell without objection, both before the referee and before me in relation to the builder's claim. 22Mr Orlov submitted that, through those documents, the builder had provided all that was required, and, having done the work (as the referee had determined, and as is now not in dispute) was entitled to be paid the (now undisputed) balance.

Decision 23The starting point is the obligation of the proprietor to pay the price of the building works in accordance with cl 3.1. That obligation is to pay the price in the way, and at the times, stated in cl 13, read in conjunction with sch 4. 24The subject of cl 13 is, in terms, progress payments. What it establishes is a regime for payment of the amount due under the contract, for the building works, by instalments. It is, in substance, a regime for liquidation of the balance of the price from time to time, by instalments. 25Unless it can be said that cl 13 provides a condition precedent to any entitlement to be paid the entire price, the proprietor's defence is not sustainable. That analysis seems to me to focus attention on the role that cl 13 pays in the scheme of the contract as a whole. 26It is not cl 13 that imposes the obligation to pay, and gives the entitlement to be paid. That function is served by cl 3.1. What cl 13 does is provide an entitlement to, and a mechanism or instalment pattern for, progress payments. 27Progress payments seem to me to have benefits for both parties to a building contract. From the builder's perspective, they serve the vital function of providing cash flow (the importance of which is recognised, although not in a manner relevant to the issues in these proceedings, by the Building and Construction Industry Security of Payment Act 1999 (NSW). 28From the proprietor's perspective, provisions such as cl 13 provide an opportunity to pay the cost of the works by instalments, accompanied by an opportunity to assess the amount of each instalment as it is claimed. 29But to go further, and to say that a mechanism as to how payments are to be claimed and made has the further function of conditioning, precedentially, the entitlement to payment of the price as a whole seems to me to be putting far too high a burden on cl 13, either read on its own or in the context of the contract as a whole. 30It may be accepted that a failure to comply with the requirements of cl 13 would provide a proprietor with a defence to a claim for a particular progress payment. Thus, if the builder had taken the opportunity to sue for one or more of the unpaid progress claims that it rendered, the proprietor could have raised, by way of defence, failure to comply with (for example) cll 13.1 and 13.5. If, factually, those defences were made good, then the entitlement to the progress claim would be defeated. 31But it does not seem to me that this analysis applies when the claim is brought for the balance of the price, in circumstances where the works have been completed and where the unpaid cost of the works and the cost of rectification of defects have both been assessed. If it were otherwise, it would be necessary for the builder to resubmit (as already it has done) all the invoices, together with all their supporting documentation, and the insurance certificate. In circumstances where that would do no more than give an opportunity, which is now meaningless, to analyse the amount of the claim, it does not seem to me that the Court should construe clause 13, so as to impose that as an obligation to be satisfied before the now defined balance due is paid, unless the language is intractable. And for the reasons I have given, I do not think that it is. 32Thus, as a matter of construction of the contract, I do not think that the defence is made good. 33There are two other answers to this aspect of the defence. The first is that, functionally, the requirements of cl 13 have been satisfied. That has been achieved through the correspondence to which I have referred earlier in these reasons. Thus, if (contrary to my view) it were necessary for the documents to be supplied before there were any entitlement to be paid, those documents have been supplied. 34The alternative approach is that, the builder having done all the work and the cost thereof and the offset in cost of defects rectification having been agreed, the builder has a claim on a quantum meruit basis. But since, as I have said, I think that the contractual claim is made good, it is not necessary to go any further.

Conclusions and orders 35The result of all this is that the report of the referee should be adopted and that (the figures not being in dispute) the builder should have judgment in the amount claimed by its amended notice of motion. 36Accordingly, I make orders in terms of Prayers 1 and 2 of the amended notice of motion filed in court for the plaintiff today. [Counsel addressed.]

Costs 37The builder seeks its costs of the proceedings. It relies on the letter of 27 July 2010 to which I have referred. I should point out at this stage that I erred in suggesting that the letter was admitted without objection before the referee. Mr Hand has informed me that he did object to the tender of the letter, but that the referee admitted it. Since it was not submitted that I should decline to adopt the report on the basis that the referee erred (if he did, and I express no view) in admitting the letter, that correction can be left to sit where it is. 38Mr Hand accepts that the builder should have some order for its costs. However, he submitted that the proprietor had enjoyed some success on its cross-claim for the cost of remedying defective workmanship. 39As I have noted, the proprietor assessed the cost of rectification of alleged defective work at $393,422. After an exhaustive process which included conclaves between two sets of experts (relating to building, and relating to costing) and inspection by the referee, the referee assessed the amount to be allowed for defective work at $61,690, or less than one-sixth of the amount claimed. 40It is apparent that the ambit of the claimed defects was very much wider than the amount that the referee was prepared to allow. That is so both in terms of the actual work said to have been performed defectively and in terms of the amount claimed. 41To make any allowance other than trivial in respect of the cross-claim would have the effect of giving the proprietor a costs benefit in circumstances where, on the referee's report, the builder was required to meet a claim, in respect of defective work, that was far wider than was justified. That does not seem to me to be appropriate. 42Further, it is to be noted that the claim for defective work was raised not only by way of cross-claim but also by way of defence to the builder's claim. That was done of course because the proprietor asserted that, for reasons that I have dealt with already and rejected, there was no amount due to the builder. 43In the result, the cross-claim has had effect as a defence. The effect of the defence has been to reduce, to the amount found by the referee, the amount of the judgment to which the builder is entitled. 44In those circumstances, it seems to me that the appropriate guide to costs is that contained in r 42.1. The builder has substantially succeeded on its claim. The proprietor has failed on its cross-claim because it is not obtaining a judgment for any amount. The defence based on defective workmanship has been taken into account in arriving at the amount for which the builder is entitled to succeed. 45Thus, the relevant event is that the builder has succeeded. To the extent that it did not succeed (because its claim was reduced in the manner I have described), its relative failure does not seem to me to warrant any departure from the position suggested by r 42.1. To do that would be to engage in what I perceive as an inappropriate approach to assessing costs, in a case of this nature: namely to engage in dissection and analysis of particular issues, and to assess the relative success and failure on those issues. 46In a case for recovery of the cost of building work, accompanied (as is usual) by a defence claiming an offset for the cost of repairing defective work, it seems to me that the overall outcome is that which should guide the court, unless that overall outcome is so disproportionate to the claim that some other course is justified. That cannot be said to be the position in this case. 47Accordingly, I order the defendant to pay the plaintiff's costs of the proceedings.

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: 24 April 2013

At a glance

Court

Decision date

Before

Source

Judgment (10 paragraphs)

Parties

Legislation Cited (3)

Cited By (5)