Dura (Aus) Constructions P/L v Hue Boutique Living P/L [2013] VSCA 179

Dura (Aus) Constructions P/L v Hue Boutique Living P/L [2013] VSCA 179 - VSCA 2013 case summary — Zoe

[17]

44.2 Default by the Contractor

If the Contractor commits a substantial breach of contract the Principal may give the Contractor a written notice to show cause.

Substantial breaches include but are not limited to-

(a) suspension of work, in breach of Clause 33.1;

(b) failing to proceed with due expedition and without delay, in breach of Clause 33.1;

(c) failing to lodge security in breach of Clause 5;

(d) failing to use the standard of materials or provide the standards of workmanship required by the Contract, in breach of Clause 30.1;

(e) failing to comply with a direction of the Superintendent under Clause 30.3, in breach of Clause 23;

(f) failing to provide evidence of insurance, in breach of Clause 21.1; and/or

(g) in respect of Clause 43, knowingly providing a statutory declaration or documentary evidence which contains a statement that is untrue.

44.3 Requirements of a Notice by the Principal to Show Cause

A notice under Clause 44.2 shall-

(a) state that it is a notice under Clause 44 of the General Conditions of Contract;

(b) specify the alleged substantial breach;

(c) require the Contractor to show cause in writing why the Principal should not exercise a right referred to in Clause 44.4;

(d) specify the time and date by which the Contractor must show cause (which time shall not be less than 7 clear days after the notice is given to the Contractor); and

(e) specify the place at which cause must be shown.

44.4 Rights of the Principal

If by the time specified in a notice under Clause 44.2 the Contractor fails to show reasonable cause why the Principal should not exercise a right referred to in Clause 44.4, the Principal may by notice in writing to the Contractor-

(a) take out of the hands of the Contractor the whole or part of the work remaining to be completed; or

(b) terminate the Contract.

Upon giving a notice under Clause 44.2, the Principal may suspend payments to the Contractor until the earlier of-

(i) the date upon which the Contractor shows reasonable cause;

(ii) the date upon which the Principal takes action under Clause 44.4(a) or (b); or

(iii) the date which is 7 days after the last day for showing cause in the notice under Clause 44.2.

If the Principal exercises the right under Clause 44.4(a), the Contractor shall not be entitled to any further payment in respect of the work taken out of the hands of the Contractor unless a payment becomes due to the Contractor under Clause 44.6.

44.5 Procedure when the Principal Takes Over Work

If the Principal takes work out of the hands of the Contractor under Clause 44.4(a) the Principal shall complete that work and the Principal may without payment of compensation take possession of such of the Constructional Plant and other things on or in the vicinity of the Site as are owned by the Contractor and are reasonably required by the Principal to facilitate completion of the work.

The Contractor must, if required by the Principal, assign to the Principal, without payment, the benefit of any agreement for the manufacture or supply or goods and equipment for the performance of any work for the purposes of the Contract. For the purposes of effecting such assignment, the Contractor irrevocably appoints the Principal to be the true and lawful attorney of the Contractor with full power and authority to execute such assignment on behalf of Contractor and to bind the Contractor accordingly. The assignment will be on terms under which the relevant manufacturer, supplier or subcontractor will be entitled to make any reasonable objection to any further assignment by the Principal.

The Principal may pay any manufacturer, supplier or subcontractor for any goods and equipment delivered or work performed (including design work) for the purposes of the Contract (whether before or after the date the Principal takes over the work) if the price has not already been paid by the Contractor. Payments made under this Clause 44.5 may be deducted from any sum due or to become due to the Contractor. The Principal's rights under this Clause 44.5 are in addition to its rights to pay suppliers, manufacturers or sub-contractors as provide elsewhere in the Contract.

The Contractor will, when required in writing by the Superintendent (and not before), remove from the Site any Constructional Plant, Temporary Works and goods. If, within a reasonable time after receipt of such request, the Contractor does not comply, then the Principal may remove or sell any such property of the Contractor.

The Contractor will execute all documents required by the Principal to enable the Principal to obtain the benefit of any approval, consent or permit issued by any relevant authority. For the purposes of obtaining such benefit, the Contractor irrevocably appoints the Principal to be the true and lawful attorney of the Contractor with full power and authority to execute such documents on behalf of the Contractor and to bind the Contractor accordingly.

If the Principal takes possession of Constructional Plant or other things, the Principal shall maintain the Constructional Plant and, subject to Clause 44.6, on completion of the work the Principal shall return to the Contractor the Constructional Plant and any things taken under this Clause which are surplus.

44.6 Adjustment on Completion of the Work Taken Out of Hands of Contractor

When work taken out of the hands of the Contractor under Clause 44.4(a) is completed the Superintendent shall ascertain the cost incurred by the Principal in completing the work and shall issue a certificate to the Principal and the Contractor certifying:

(a) the amount of that cost and setting out the calculations employed to arrive at that cost;

(b) the amount which would otherwise have been paid to the Contractor if the work had been completed by the Contractor;

(c) the difference between (a) and (b).

If the cost incurred by the Principal is greater than the amount which would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due from the Contractor to the Principal. If the cost incurred by the Principal is less than the amount that would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due to the Contractor from the Principal.

If the Contractor is indebted to the Principal, the Principal may retain Constructional Plant or other things taken under Clause 44.5 until the debt is satisfied. If after reasonable notice, the Contractor fails to pay the debt, the Principal may sell the Constructional Plant or other things and apply the proceeds to the satisfaction of the debt and the costs of sale. Any excess shall be paid to the Contractor.

[30]

The language of cl 44.6 identifies the correct approach to certification of the debt due. The clause does not direct a judicial assessment of damages. It does not require an audit. It does not preclude a global approach. The superintendent's primary obligation is to 'ascertain' identified categories of costs to certify the costs incurred by the principal in completing the works. The consequences for the contractor or the principal then follow the certificate.

To 'ascertain' is to determine, or more specifically, to find out by trial, examination, or experiment, what the costs are. Cost accounting in the construction industry is not an exact science. Mr Clack's qualifications and experience equip him to make a judgment about the appropriate methodology in the circumstances of this project. His education, training, and substantial experience are in quantity surveying, cost management, and project management. The practice of quantity surveying is the estimation and measurement of the quantities of materials and labour, and its cost, for the construction of a building. Quantity surveyors are recognised and accepted by courts[4] as having a skills set that relate to contracts and costs, particularly costs estimation and control, on construction projects. Professional quantity surveyors, also known as construction economists or costs managers, employ skills across a range of activities that may include cost planning, value engineering, value management, feasibility studies, cost benefit analysis, life-cycle costing, tendering, valuation, change control, dispute resolution, claims management, project management cost estimation and costs monitoring. Quantity surveyors are recognised as possessing skills in interpretation of contract documents, particularly measuring quantities from drawings, sketches and specifications prepared by architects and engineers, in order to prepare tenders or contract documents, works valuation, project costs management, viability assessment and project management. Mr Clack was a member of the Royal Institute of Chartered Surveyors for 19 years until 2004 and is a Fellow of the Australian Institute of Quantity Surveyors. These organisations are professional standards bodies that supervise or regulate standards of professional excellence.

There is nothing in the evidence or in the words of the clause that require [HBL] to adopt a process of costs management that suits Dura or that results in the assessment of rectification costs on an individual basis, such as may occur in disputes concerning domestic renovation and the like. Mr Clack's methodology is appropriate in the circumstances of this project and is consistent with the practices of quantity surveyors. The process of determination of the costs to complete the works involves judgments, allocations of expenses to categories. This is unexceptional as an accounting practice, particularly where the practice is based on industry experience or processes. It is pertinent to note that while [Dura's expert] commented that he had not the opportunity to examine the documents on which Mr Clack compiled his report, he did not take issue with the methodology that was plainly evident from the report.

For these reasons, I reject Dura's criticism that Mr Clack's assessments were an 'arbitrary split'. I am satisfied that Mr Clack exercised a judgment based on his examination of documents and on his inquiries of the owner and the architect when he allocated costs to different categories. Further, I accept that a process of allocation of costs, on a different basis to that chosen by the supplier, to suit the purposes of the payer is a judgment commonly made in cost management and one which Mr Clack was qualified by his specialised knowledge to make. [5]

[74]

I would add, in case it becomes necessary to consider the issue, that Dura has not demonstrated any error by Mr Clack in the process by which he ascertained the costs that make up the certificate. Dura's prime objection was that the certificate erroneously incorporated enhancement costs in the costs to complete its work, but its submission focussed on the global approach adopted to assessing rectification costs. Dura invited me to analyse this issue by reference to a particular item, bathtubs, contending that the cost of installing new bathtubs, plainly an enhancement, were included in the costs of rectification or completion. If I accepted that fact, Dura contended that the global basis of the claim precluded identification of the appropriate allowance to vary the certificate. The bathtubs are not a good example for Dura. I have noted above that the conclave of Messrs Holman and Barber accepted the bathtubs as defectively installed. I have also accepted the evidence of Messrs Chu and Pozzebon. I consider the cost of installing new bathtubs was rectification, not enhancement. The rectification costs were part of the costs incurred by [HBL] in completing the works. It is not to the point, on a contention that the certificate erroneously incorporated enhancement costs, that the rectification costs were calculated globally as the remaining costs after deducting the other components of the total costs incurred by [HBL] in completing the works. There was no error by Mr Clack in ascertaining the enhancement costs for two reasons. First, I have set out above why I accept Mr Clack's methodology in determining and costing enhancements as appropriate. Second, I have rejected as inadmissible, alternatively, unreliable [Dura's expert's] evidence about enhancement costs. Appropriately, the enhancement costs ascertained by Mr Clack were properly excluded from the amount certified as owing by Dura.

It follows that [HBL] is entitled to rely on the superintendent's cl 44.6 certificate to claim the sum certified, $4,457,306.70 as a debt due to it.[40]

[79]

Money paid into a designated trust account is held upon the trusts stated in s 26(2) of the Act, as it stood prior to amendment. The money is first to be applied in satisfaction of the claimant's entitlements to the progress claim and the claimant's entitlements in respect of earlier progress claims are to be satisfied before its entitlements in respect of a later progress claim. To the extent to which any of the money remains in the account after the claimant's entitlements have been fully satisfied, the money is to be paid to the respondent. The phrase 'claimant's entitlements' is defined in these terms:

Claimant's entitlements in relation to money held in a designated trust account, means the amount (if any) to which the claimant becomes entitled after any matters in dispute between the claimant and the respondent in connection with the progress payment to which the money relates have been finally determined.

All of the disputes between Dura and [HBL] in connection with the construction contract have now been finally determined. Although the parties did not bring forward any specific or particular dispute concerning the three adjudicated progress payments, completion of a final accounting renders otiose any residual dispute about a payment on account. Further, the final certification is of a debt due from Dura to [HBL]. There can be no entitlements now arising in favour of Dura to the moneys held in the designated trust account.

This conclusion is inescapable for three reasons. First, Dura did not establish any entitlement generally to a payment in its favour. Second, there was no issue raised in the proceeding concerning Dura's entitlement to the funds in the designated trust account. Third, Dura did not challenge the cl 44.6 certificate as reviewable for error on this ground and cannot now mount a collateral challenge against the certificate on that basis. It ought be borne in mind that the structure of progress claims is to deduct from the valuation of the work at the relevant date of the claim the amount that has been paid by the principal to that time. The cl 44.6 certificate derived, in part, from Dura's earlier claims carried through in this manner. Thus, the amount paid by the principal, and the manner in which it was accounted for in the cl 44.6 certificate, could have been, but was not, challenged in the proceeding.[42]

[86]

47.1 Notice of Dispute

If a dispute between the Contractor and the Principal arises out of or in connection with the Contract, including a dispute concerning a direction given by the Superintendent, then either party shall deliver by hand or send by certified mail to the other party and to the Superintendent a notice of dispute in writing adequately identifying and providing details of the dispute.

Notwithstanding the existence of a dispute, the Principal and the Contractor shall continue to perform the Contract, and subject to Clause 44, the Contractor shall continue with the work under the Contract and the Principal and the Contractor shall continue to comply with Clause 42.1.

A claim in tort, under statute or for restitution based on unjust enrichment or for rectification or frustration, may be included in any proceeding.

47.2 Further Steps Required before Proceedings

Alternative 1

Within 14 days after service of a notice of dispute, the parties shall confer at least once, and at the option of either party and provided the Superintendent so agrees, in the presence of the Superintendent, to attempt to resolve the dispute and failing resolution of the dispute to explore and if possible agree on methods of resolving the dispute by other means. At any such conference each party shall be represented by a person having authority to agree to a resolution of the dispute.

In the event that the dispute cannot be so resolved or if at any time either party considers that the other part is not making reasonable efforts to resolve the dispute, either party may by notice in writing delivered by hand or sent by certified mail to the other party refer such dispute to arbitration or litigation.[43]

...

47.4 Summary or Urgent Relief

Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under Clause 42 or to seek urgent injunctive or declaratory relief in respect of a dispute under Clause 47 or any matter arising under the Contract.

At a glance

Court

Decision date

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Source

Judgment (139 paragraphs)

Dura (Aus) Constructions P/L v Hue Boutique Living P/L [2013] VSCA 179 (26 July 2013)

Parties

Legislation Cited (1)

Cases Cited (9)