Dalexana Pty Limited v Mobaro Pty Limited

CATCHWORDS: Building contract - Construction of provisions relating to delay damages - Whether principal entitled to general damages - Period of delay - Mitigation - Period of damage

Baese Pty Limited v R A Bracken Building Pty Limited 1990 6 BCL 137 C S Phillips Pty Limited & Anor v Balderstone Hornibrook Pty Limited BC 9403175 Coulter v Rampling [2005] NSWSC 1147 CASES CITED: Décor Ceilings Pty Limited v Cox Constructions Pty Limited [2005] SASC 483 Gilbert-Ash (Northern) Limited v Modern Engineering (Bristol) Limited [1974] AC 689 Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 Silent Vector Pty Limited v Squarcini [2008] WASC 246 Temloc v Errol Properties Limited 39 BLR 30

PARTIES: Dalexana Pty Limited (Plaintiff) Mobaro Pty Limited Trading As Jones Homes (Defendant)

COUNSEL: G Giagios (For the Plaintiff) P Cummings (For the Defendant)

SOLICITORS: Gary Cassim & Associates (For the Plaintiff) Fatches Jones Lawyers (For the Defendant)

1 Dalexana and Mobaro were parties to a building contract dated 29 April 2003 under which Mobaro constructed two townhouses for Dalexana. The construction period provided for in the contract was 26 weeks. It was agreed that this meant that the building works should have been completed by 21 January 2004.

2 Notice of practical completion and the builder's final progress claim were issued on 28 April 2004.

3 Clause 26 of the contract gave Dalexana two options on receiving the notice of practical completion. It could pay the amount of the final progress claim or it could challenge the claim that the building works were practically completed and give Mobaro written notice detailing the work to be done.

4 The plaintiff adopted neither of these options so that in accordance with clause 26 the amount of the final progress claim was deemed to be a debt due and owing from Dalexana to Mobaro and there remained no contractual right to take issue with the claim that the building work was practically completed.

5 Clause 26 also provided for Mobaro to give the keys to the townhouses to Dalexana on payment of the final progress claim. The keys were handed over on 10 December 2007, although the final progress claim remained unpaid at that date.

6 Dalexana's claim was for damages arising from the loss of rent from the townhouses and it was pleaded on two alternative bases. The first was a claim from the date provided in the contract for practical completion, that is 22 January 2004 to 10 December 2007 in a sum amounting to $121,200. The second was a claim from the date of the notice of practical completion, 28 April 2004 until 10 December 2007, a sum amounting to $112,800. Dalexana also claimed interest and costs.

7 In proceedings commenced on 6 August 2008 Mobaro claimed from Dalexana the amount of $51,229.21, being the amount of the final progress claim.

8 Both matters were listed for hearing on 29 October 2009. At the commencement of the hearing the court was advised that Mobaro's claim was settled and consent orders were made under which judgment was entered for Mobaro for the full amount of the final progress claim and interest as claimed. This was a sensible arrangement since it was apparent that the contract left Dalexana without a defence.

9 The issue in the Dalexana proceedings was whether the contract left it with any right to claim damages in respect of the period up to 10 December 2007.

10 Dalexana claimed that Mobaro was in breach of contract in two respects. Firstly, in the delay in completing the building work and secondly, in failing to give possession of the townhouses. In both respects it was necessary that Dalexana overcome some specific provisions of the contract.

11 In respect of delay, the argument was that no application for extension of time was made by Mobaro and therefore it was contractually bound to complete the building works within the 26 week period provided. Having failed to do so it was in breach of contract.

12 It was not disputed that the works were not completed within the time specified in the contract but Mobaro argued that there was no contractual entitlement to damages in respect of the delay. It was contended that even if damages were available they were limited to the period from 21 January 2004 to 28 April 2004 and that thereafter any delay was the result of Dalexana's failure to pay the final progress claim.

13 As a third alternative, Mobaro argued that clause 27 of the contract specifically provided that the builder was not required to obtain the certificate of occupancy and that therefore Mobaro could not be held liable for the delay in securing the issue of the certificate until 22 December 2004. Thus it was argued that the claim could extend only to 22 December 2004 in any event.

14 Clause 30 of the contract dealt with liquidated damages and it provided as follows: If the building works do not reach practical completion by the end of the contract period the owner is entitled to liquidated damages in the sum specified in item 13 of schedule 1 for each working day after the end of the contract period to and including the earlier of: (a) the date of practical completion; (b) the date this contract is ended; or, (c) the date the owner takes possession of the site or any part of the site.

15 In this case the earliest of those dates was the date of practical completion, namely 28 April 2004. Thus if this clause was to apply to Dalexana's rights for damages it could govern only the period between 21 January 2004 and 28 April 2004.

16 There was no item 13 in schedule 1 to the contract. However, item 10 was headed, Liquidated damages (clause 30). The material inserted into item 10 in the schedule appeared to have been altered a number of times in the course of negotiations. The typed words, "not applicable" were crossed out. Handwritten words, "$500 per day" were crossed out. Handwritten words, "not applicable" were inserted.

17 The issue between the parties was what was meant by the words "not applicable".

18 For Mobaro it was contended that it meant that there would be no damages payable for delay, liquidated or otherwise. Dalexana submitted that no part of clause 30 applied and that it was therefore entitled to general damages for the breach of the contract.

19 This is not the first time that a situation such as this has been dealt with judicially. I was referred to a number of authorities.

20 The earliest was that of the English Court of Appeal in Temloc v Errol Properties Limited 39 BLR 30, in which it was decided that the effect of writing into a schedule the symbol for the British pound and the word nil was that it was agreed that no damages were to be paid for delayed completion. The court rejected the proposition that the liquidated damages clause should be disregarded or that it was ineffective. There was evidence that the schedule was completed in this way pursuant to an agreement reached that the builder would not receive a bonus for early completion but would not be liable for liquidated damages if completion was delayed. The court referred to this arrangement as a tit for tat arrangement. It was also noted that other clauses in the contract that were not part of the bargain were crossed out.

21 The Temloc decision was referred to in two judgments of Justice Giles. In Baese Pty Limited v R A Bracken Building Pty Limited 1990 6 BCL 137, the contract contained provisions that Justice Giles considered left the matter of liquidated damages dependent upon the issue of a notice by the architect. The contract did not mandate that the architect must issue the notice. If the notice was not issued and if the Temloc approach was applied the proprietor was left without any remedy at all in damages. Thus he concluded this was not, as in Temloc, a provision that contained the whole of the agreement between the parties in respect of damages for non completion.

22 In C S Phillips Pty Limited & Anor v Balderstone Hornibrook Pty Limited BC 9403175, Giles J dealt with the standard form contract JCCB 1985 where clause 10.15 made provision for the payment of liquidated damages at a rate specified in the schedule to the contract. Similarly to the situation in this case, provision for a dollar amount was typed in and then ruled through and replaced with n/a. It was common ground that this was a short form for the words not applicable. Giles J referred to the reasons of Norse LJ, at pages 39 to 40 in Temloc, to the effect that if a liquidated damages clause was incorporated into the contract and if the parties complete the schedule by inserting a monetary amount or, as in Temloc, the word nil: that constitutes an exhaustive agreement as to the damages which are or are not payable. Giles J dealt at page six with the meaning of the symbols n/a, rather than the word nil, as in the Temloc case and put forward two alternative explanations. The first was that instead of stating the rate, n/a meant no applicable rates and therefore nil. The alternative was that it meant that the item in the appendix had no application and therefore the item and the clause of the contract concerning liquidated damages were inoperative; that is, that the contractual clause was struck out.

23 On the facts of that case where a number of clauses had in fact been struck out, he held that if it had been intended that the damages clause was to be inoperative it would have been expressly deleted. He distinguished his earlier decision in Baese. He said that the clause in Temloc differed because in that case the clause under consideration dealt generally with damages for non completion and it was imperative in its terms. In those circumstances it was to be regarded as the agreement of the parties on the subject of damages for non completion.

24 I was referred to two further decisions, one from the West Australian and the other from the South Australian Supreme Court. Jenkins J in Silent Vector Pty Limited v Squarcini [2008] WASC 246 dealt with the Australian Standard Contract AS 2124 1992. Clause 35.6 provided that the contractor shall be indebted to the principal at the rate specified in the annexure, if it failed to complete works at a specified time. Clause 35.7 provided that the contractor's liability was limited to the amount stated in the annexure. The annexure contained the words not applicable. Jenkins J took the view that whether the provisions of the contract were mandatory or discretionary was not determinative. He referred to two basic principles. Firstly, that the construction of a contract was to be determined by what a reasonable person would have understood its language to mean; this principle coming from the decision of the High Court in Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 at 462. The second was the dicta of Diplock L in Gilbert-Ash (Northern) Limited v Modern Engineering (Bristol) Limited [1974] AC 689, that clear and unequivocal words are needed in the contract if it is to exclude a proprietor's rights to common law or unliquidated damages. He said that Temloc was one such case in which it was clear because the terms of the contract were mandatory and the sum stipulated was nil. However, Jenkins J said that ultimately the decision depended upon the words used in the contract under consideration.

25 The same authorities were considered by Besanko J in Décor Ceilings Pty Limited v Cox Constructions Pty Limited [2005] SASC 483. In that decision his Honour was dealing with Australian Standard Contract AS2445 1993. He held that clause 36, that compelled the main contractor to pay the subcontractor such extra costs as are necessarily incurred by the subcontractor by reason of a delay did not limit the subcontractor's right to recover other damages. This was because clause 36 itself provided that nothing in the clause limited the main contractor's liability for damages for breach of contract.

26 It will be appreciated that each of the decisions to which I was referred depended upon a close consideration of the provisions of the contract that the parties signed.

27 In some cases reference was made to evidence from the parties to deal with the ambiguity resulting from the use of the term not applicable. None was offered by the parties in this case. I was therefore obliged to consider what a reasonable person would understand the language of the contract to mean and I was obliged to undertake that consideration taking into account the principle that a party should not be deprived of the right to common law or unliquidated damages in the absence of clear or unequivocal words.

28 In this case the operative clause was quite different from any of those considered in the authorities to which I was referred. It does not impose an obligation on Mobaro to pay a specified sum by way of liquidated damages. Rather, the clause conferred on Dalexana an entitlement to liquidated damages in the sum specified in the schedule. The question was, whether the words not applicable were to be read as if they rendered clause 30 inapplicable or inoperative so that Dalexana became entitled to general damages. I did not think that in the circumstances of this contract that interpretation was available. My reasons were as follows:

The clear purpose of clause 30 was to fix Dalexana's entitlement to damages in the event of delay in reaching practical completion.

It was clear from the alterations to the schedule that Dalexana's entitlement was a matter of negotiation between the parties. It was a simple matter if it was intended that clause 30 was to have no operation, that it be crossed through and deleted from the contract.

That it was not deleted was an indication that the parties contracted to limit Dalexana's entitlement to damages through a liquidated damages clause that provided that none were to be paid.

Of significance to this construction of the contract was the deletion of clause 9.4 that otherwise would have entitled Mobaro to delay damages for extensions of time granted in respect of delays for which it was not responsible.

I could not reasonably conclude in the absence of evidence that the parties entered into a contract that deprived the builder of the right to damages resulting from delays for which it was not responsible but at the same time withdrew the limits placed on the owner's right to recover damages resulting for delays for which the builder was responsible. To achieve this result in my view it would have been necessary to delete clause 30 entirely. In this respect there were obvious similarities with the situation facing the court in Temloc that were referred to as a tit for tat arrangement.

29 I concluded that a reasonable person would construe the ambiguity in this contract to mean that the parties agreed that neither was to be liable to the other for damages suffered through delays in bringing the works to practical completion.

30 I will deal with the other issues raised at the hearing in case this matter proceeds further.

31 I accepted that damages for delay in reaching practical completion could be recovered only for the period between the date specified in the contract for completion of the building works and the date for practical completion. That is between 22 January 2004 and 28 April 2004. Thereafter, the claim for damages must be based upon some other breach by Mobaro of the building contract.

32 The only other breach alleged in the amended statement of claim was that Mobaro wrongly, without reasonable cause or legal justification, unlawfully refused or failed to allow Dalexana to enter into possession of the completed building works until 10 December 2007. The problem with this allegation was that the contract specifically entitled Mobaro to retain the keys to the building works until such time as Dalexana paid the final progress claim. In the absence of payment by Dalexana, Mobaro acted within the terms of the contract agreed upon by both parties and could not be said to have acted wrongly or without reasonable cause or legal justification in not handing over the keys. This aspect of the claim must therefore also fail.

33 Materials in evidence suggested that Dalexana held Mobaro responsible for the delay in securing the issue by Cessnock City Council of the certificate of occupancy until December 2004. Clause 27 of the contract however provided that Mobaro was not required to obtain the certificate of occupancy.

34 If there was a further breach of the contract it would have to arise under clause 29 dealing with the defects liability period. No breach of this provision was pleaded. Nor was there sufficient evidence before the court to determine whether the provisions of clause 29 were met and in particular whether a list of defects was provided within the thirteen week defects liability period, whether those defects appeared after the date of practical completion and whether there was any undue delay on the part of Mobaro in rectifying defects of which it was properly notified.

35 An issue was raised concerning mitigation by Dalexana or reliance upon its own wrongdoing. The essence of this argument was that in withholding payment of the final progress claim Dalexana itself was responsible for the delay in securing possession and in securing income through the rent of the townhouses.

36 There was clearly no contractual basis upon which Dalexana was entitled to withhold payment of the final progress claim. It decided to do so in an attempt to set off against that payment its claim for damages for delay. In so doing it was in breach of the contract, it extended the period during which it was out of possession and it caused the losses in rental that it now seeks to claim from Mobaro. In the absence of a claim that Mobaro breached clause 29 or evidence that it in fact did so, the failure to pay the final progress claim must necessarily disqualify Dalexana from claiming losses incurred from the date of practical completion.

37 The final point argued by Mobaro was that damages had not been proved. Dalexana claimed $600 per week on the basis that it was the agreed market rental for the townhouses during the relevant period. Dalexana relied on a decision of Hoeben J in Coulter v Rampling [2005] NSWSC 1147 to support this claim. In Coulter, the plaintiff's claim for loss was made by reference to the rental value of the property concerned. The claim was brought in the Consumer Trader and Tenancy Tribunal on two bases. The first was in contract. It was disallowed by the Tribunal and no question of law arose in the proceedings before Hoeben J. Therefore the question of the measure of damages was not considered.

38 The second was under the Fair Trading Act where Hoeben J noted that s 68 allowed recovery only of the actual loss. The rental value was adopted as the measure as set out in affidavit evidence. The reasons contained no information concerning what was set out in the affidavit and whether the figure relied upon was the net or gross figure for rental. Justice Hoeben did not deal with any argument that suggested that, having remarked that only actual loss was permitted, the figure adopted was other than the actual loss suffered by the plaintiff in that case. I therefore did not think that it assisted Dalexana.

39 The figure claimed by Dalexana did represent the gross return from the townhouses and to establish its actual loss or damage it was necessary that Dalexana prove and deduct from the gross figure expenses of rental such as management fees and provide evidence to deal with probable vacancy factors. Thus, had Dalexana succeeded in its claim against Mobaro I would not have assessed damages at $600 per week.

40 For the reasons stated the claim must be dismissed.

41 I will stand the matter over to 15 December 2009 to deal with issues of costs and the release of exhibits and to make final orders.

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.