Payce Communities Pty Ltd v Canterbury-Bankstown Council - [2021] NSWSC 331 - NSWSC 2021 case summary — Zoe

NSWNSWSC

Payce Communities Pty Ltd v Canterbury-Bankstown Council

[2021] NSWSC 331

Supreme Court of NSW|2021-03-10|Before: Stevenson J, Mr J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2021-03-10

Before

Stevenson J, Mr J

Catchwords

[2011] HCA 21 Gould v Vaggelas (1985) 157 CLR 215

Source

Original judgment source is linked above.

Catchwords

[2011] HCA 21 Gould v Vaggelas (1985) 157 CLR 215

Judgment (60 paragraphs)

[1]

Solicitors: Vincent Young Lawyers (Plaintiff) Marsdens Law Group (Defendant) File Number(s): 2019/133490

[2]

The issues The contractual context The Project Delivery Agreement The Voluntary Planning Agreement The Umbrella Agreement The Fit Out Agreement The 2012 Design The determination of the FOA Contract Price at $2.171 million The events leading to 24 February 2017 The pleading point The 24 February 2017 Agreement Directions to vary the work Payce's damages case The Superintendent point The Independent Certifier point Council's misleading or deceptive conduct case The final payment claim point The wrong entity submission The "BCA" point Quantum Mr Daubney's references to Mr Rigby's affidavit The integers in Payce's damages calculation Actual costs as best evidence of reasonable costs The amount to be attributed to the FOA Contract Price The Base Build Costs The Builder's margin Escalation of the 2012 Design prices The claims where the parties have agreed to a "split the difference" Variation 1 - internal walls - $12,078 Variation 3 - modification to operable wall track in function room - $6,086.02 Variation 5 - CO2 monitoring - $15,290 Variation 7 - skylight - $7,194.15 Variation 8 - security door - $6,147 Variation 9 - walls and windows - $28,719.64 Variation 12 - boxing out of column to concierge - $10,459 Variation 14 - library - comms room wall - $7,500 Variation 15 - library - comms room air conditioning - $1,170 Variation 16 - library - young adults glazed balustrade - $37,094 Variation 17 - automatic fire detection and warning system Variation 18 - mechanical system - $192,010.51 Variation 19 - supply of lighting - $276,070.33 Variation 20 - power and data point Variation 21 - electrical - miscellaneous - $30,226 Variation 22 - wifi Variation 23 - ceiling finishes - $372,598.48 Variation 24 - hearing loop - $142,279.50 Variation 25 - security system - $40,233.38 Variation 26 - internal glazing - $30,071.60 Variation 27 - blinds - $11,860 Variation 29 - acoustic screen - $23,430 Variation 30 - acoustic insulation - $77,754.60 Variation 31 - picture rail and hangers - $10,128 Variations 33 and 33A - other consultant fees $88,250 - CKD's fees $38,700 Variation 41 - plasterboard and painting to staff room - $7,098.42 Variation 42 - section 96 application fees - $10,480 Variation 43 - section 96 planner fees - $6,500 Variation 52 - additional works - $86,020 Conclusion

[3]

Judgment

The plaintiff, Payce Communities Pty Ltd ("Payce"), is a property development and investment company.
In 2010, the defendant, Canterbury-Bankstown Council ("the Council"), then Canterbury City Council, owned land at Riverwood. That land was occupied by a senior citizens' centre.
In 2010, the New South Wales Land and Housing Corporation ("the Corporation") owned adjacent land.
Between 2010 and 2015, Payce, the Council and the Corporation entered into a number of agreements which I summarise below. Pursuant to those agreements, to oversimplify matters somewhat, in exchange for the Council's agreement to transfer its land to Payce, Payce agreed to cause a building to be constructed on that land in which: 1. in the basement there would be a car park; 2. on the ground and first floors there would be a library and senior citizens centre, to be dedicated for public use; and 3. on the floors above there would be social and public housing to be dedicated for public use and private apartments that Payce could develop at its own profit.
The dispute before me concerns the library and, in particular, the fit out of the library. There is no dispute about the car park or the public housing and private units built on the floors above.
In substance, and again to oversimplify matters somewhat, Payce agreed to construct the shell of the library at its own cost and pay the first $1.52 million of the library fit out cost.
The works were effected by Dasco Australia Pty Limited ("the Builder"), pursuant to a Design and Construct Contract ("the Building Contract") it entered with Payce Communities No 4 Pty Limited ("Payce No 4") on 1 September 2016. Payce No 4, I infer, is a company related to Payce. The Builder carried out the works in August 2017 and August 2018. I return to the significance of Payce No 4, rather than Payce itself, being the counterparty to the Building Contract below. [1]
Payce's claim is for some $1.4 million which it contends is due to it from the Council for variations to the works.
There is no dispute that the works, including those works the subject of the asserted variations, were completed in a good and workmanlike manner. This is not a "defects" case.
There is also no dispute that on 24 February 2017, some six months before work commenced, the parties agreed that the "FOA Contract Price" [2] for the proposed library was $2.171 million. I describe how that agreement was reached below. [3]
The central issue is whether the work that Payce contends to be a series of variations was in truth part of the work that Payce agreed to perform for the FOA Contract Price or as part of the "Base Build".
Payce has already recovered from the Council the bulk of the amount it claims for variations by reason of an adjudication in its favour under the Building and Construction Industry Security of Payment Act 1999 ("the SOP Act"). The Council sought, unsuccessfully, to challenge that adjudication. [4] In these proceedings the Council seeks to recover the whole of the amount that it has paid Payce and Payce seeks to retain the money received and to recover a further amount of some $228,000 from the Council.
In effect, these proceedings are those contemplated by s 32 of the SOP Act as resolving, finally, the issues provisionally determined by the adjudication under the SOP Act.
It is common ground that Payce must make out its entitlement to claim for the variations and that determination of that issue will determine what the parties must do in relation to the amount paid under the SOP Act.

[7]

The Umbrella Agreement

On 12 September 2014, Payce and the Council entered into an "Umbrella Agreement".
There was included in that agreement, as a schedule, the form of a proposed "Fit Out Agreement". This was ultimately executed by Payce and the Council on 4 December 2015. I refer to it below.
By cl 9.6(a) of the Umbrella Agreement, Payce agreed to procure the "development and completion of the design of the Fit Out" of the library including: 1. the items in the Warm Shell Specification that I have set out at [23] and [24] above; and 2. the specifications in the proposed Fit Out Agreement.
The library, including its fit out, was to be designed by the Council's architect, CK Design.
In that regard: 1. by cl 9.5(a), the Council agreed to bear the risk of the work undertaken by the architect; and 2. by cl 9.6(d), Payce agreed to cause the architect to amend the draft design documentation "in accordance with the review and comment of Council from time to time".
The Umbrella Agreement provided for a provisional FOA Contract Price of $1.52 million.
Clause 9.10 identified Mr Richard Rigby of Rider Levett Bucknall (Quantity Surveyors) as the Independent Certifier under the agreement. The clause provided that the Independent Certifier was to be appointed "on terms determined by Payce" which terms were to be substantially the same as those of the Independent Certifier under the Project Delivery Agreement. There is no suggestion that Mr Rigby was not appointed in accordance with this provision.
Clause 9.7 provided for the determination of the FOA Contract Price.
Thus: 1. by Clause 9.7(a), Payce and the Council agreed that the provisional FOA Contract Price was $1.52 million but that this was "subject to change having regard to the final design documentation"; 2. by clause 9.7(b), Payce agreed to submit to the Independent Certifier its final "design documentation"; and 3. by clause 9.7(c), the parties agreed to accept the Independent Certifier's determination of the final FOA Contract Price based on that final design documentation as being "final and binding on the parties".
Clause 9.7(c) went on to provide that the "FOA Contract Price will be the amount determined by the Independent Certifier … except that": 1. the cost of the architect would be paid by Payce as to the first $70,000 "and thereafter as part of the FOA Contract Price"; and 2. the cost of "other consultants" would be paid by Payce as to the first $25,000 "and thereafter as part of the FOA Contract Price". [5]
Clause 9.8 provided that if the Independent Certifier determined, pursuant to cl 9.7(c), that the FOA Contract Price exceeded $1.52 million, the Council, within 15 business days, must either elect to: 1. accept the FOA Contract Price so determined; or 2. amend the design documentation so as to reduce the FOA Contract Price.
Clause 10.4(b) of the agreement provided that if the FOA Contract Price exceeded the provisional sum of $1.52 million, then: 1. the first $1.52 million would be set off against the amount payable by Payce to the Council for the transfer to Payce of Council's land; and 2. amounts in excess of $1.52 million would be paid by the Council to Payce progressively in order with the progress claims' provisions set out in the Fit Out Agreement.
The practical effect of this provision was, as set out at [4] and [6] above, that Payce agreed to pay the first $1.52 million of the library fit out cost in consideration for the Council transferring its land to Payce.

[11]

The events leading to 24 February 2017

On 21 October 2015, Mr Michael Malak from Payce sent the Independent Certifier, Mr Richard Rigby, a letter in which he stated: "Canterbury Council have asked that we get you to assess the cost of the library works as it stands at the moment to understand what the cost differences are. The design has progressed to a point and has been halted by council until we establish costs, so can you please download the drawings below … and let me know when you can undertake this."
The letter referred to a dropbox that contained some 20 identified drawings prepared by CK Design.
In its List Statement, Payce referred to the design depicted in these drawings as "the 2015 design".
A short time later, on 4 December 2015, Payce and the Council executed the Fit Out Agreement.
On 8 December 2015, Mr Rigby sent the Superintendent what he described as: "an estimate of the fit out costs for the above project based on the documentation provided in October 2015 in the sum of $3,000,000 excluding GST."
Within that figure, Mr Rigby gave a detailed estimate for the fit out of the "Library/Café" on Level 1 of the proposed building, and the "Library & Community Centre" on Level 2.
In each case, Mr Rigby stated that his estimate was "as per attached elemental".
Those "elements" were set out in an eight page attachment in which Mr Rigby specified each of the "location elements" he costed. Those elements included such things as internal walls and doors, light and power, ceiling finishes and hydraulic and mechanical elements.
Mr Rigby specified the total of the fit out cost of those elements for Level 1 at $510,426 and for Level 2 at $1,508,378: a total of $2,018,804; to which was added design and consultant fees, DA fees and other like matters.
Mr Rigby stated: "We particularly draw your attention to the detail of the estimate to identify the scope of fit out works allowed. For example, we understand the public toilets to the library area a base build provision (although not indicated on the base building drawings). Further, we also understand the library lobby has one sliding door as the base building requirement and one for fit-out (although the base building drawings show a double set of doors). It is recommended that the scope of the fit-out estimate be carefully reviewed prior to finalising the costs." (My emphasis.)
I will call this document the "2015 RLB Estimate".
The Council retained its quantity surveyor, Mr David Gallagher from Hollis Partners, to provide his "estimate for the fit out works over & above base build with warm shell" of the proposed library and community centre.
Mr Gallagher provided that estimate in a letter sent to the Council on 5 May 2016.
Mr Gallagher said that his estimate was: "[P]repared in a similar format to the Rider Levett Bucknall (RLB) estimate of 8 December 2015 to allow for simple comparison between the estimates. Both estimates are based on the same documents noted above. Where RLB rates and allowances are reasonable, we have generally adopted these within our estimate. A comparison between our estimate and RLB estimate is attached with the more significant differences being between the estimates identified." (My emphasis)
The documents that Mr Gallagher said his and Mr Rigby's estimates were based on were set out earlier in his covering letter as follows: "The cost estimate is based on the following documentation: • Turner drawings [which were identified] • CK Design drawings [Mr Gallagher identified the drawings referred to at Mr Malek's 21 October 2015 email] • Mechanical drawings [Mr Gallagher identified two 'P3' preliminary drawings] • Schedule of Internal Finishes • Warm Shell Specification." [6]
Like Mr Rigby, Mr Gallagher set out in an attachment to his letter details of the building elements on which he based his estimate. Those elements corresponded to those which Mr Rigby referred to the 2015 RLB Estimate.
Mr Gallagher included in his letter a comparison of his and Mr Rigby's estimates that showed that, including DA fees, legal costs and amounts for contingency, the two estimates totalled: 1. Mr Rigby $2,344,446 2. Mr Gallagher $1,998,021
These figures represented the two quantity surveyors' estimates of the cost of the fit-out for the library and senior citizens' centre, over and above the base build cost.
The difference between the two was $346,425.
I will call Mr Gallagher's letter "the 2016 Hollis Estimate".
On 24 November 2016, Payce wrote to the Council suggesting, in effect, that Payce and the Council split the difference between the 2015 RLB Estimate and the 2016 Hollis Estimate.
Thus, Payce wrote to the Council: "We refer to the Umbrella Agreement dated 12 September 2014 between Payce Communities Pty Limited (the Contractor) and The City of Canterbury (the Principal) and in particular clause 9.8(b) in which Council must elect to do either of the following: 1. accept the FOA Contract Price as determined by the Independent Certifier; or 2. amend the design documentation so as to reduce the FOA Contract Price, in which case the design process in Clause 9.6 will recommence. As a result of lengthy ongoing discussions and the report prepared by Hollis Partners dated 5 May 2016 (attached) identifying a difference of approx. $350,000 between their cost estimate and the RLB 2015 cost estimate, we propose that the parties resolve the issue by agreeing to the split of the cost difference on a 50/50 basis. If this offer is not accepted by Council the Contractor reserves its rights to rely on the terms of the Umbrella Agreement. We believe that this proposal represents the fairest and most expeditious way to reach a resolution, and is also in the best interest of progressing the project in a timely manner. A timely agreement is required in order for our project team to finalise the detailed design immediately and not occur[sic] any more unnecessary delays to the project, keeping in mind that the project is now under construction."
On 24 February 2017, the Council replied, accepting Payce's offer.
The Council wrote: "Council confirms the following: 1. Under clause 9.8(a) and (b) of the Umbrella Agreement, where the Independent Certifier determines that the Contract Price under the Fit Out Agreement will exceed $1,520,000.00, then within fifteen (15) Business Days of that determination Council must elect to either: (a) accept the Contract Price; or (b) amend the design documentation so as to reduce the Contract Price, in which case the design process in clause 9.6 of the Umbrella Agreement will recommence. 2. The parties have held ongoing discussions in relation to that issue in order to attempt to reach an agreement on the cost of the fit out works. 3. Payce has now made an offer to Council as follows: (a) The Contract Price under the Fit Out Agreement will be $2,171,000 (Agreed Contract Price). (b) In accordance with clause 10.4(b)(ii) of the Umbrella Agreement, Council will pay Payce the amount of $651,000.00 (being the difference between the original estimate referred to in paragraph (1) above and the Agreed Contract Price) on a progressive basis in accordance with clause 37 of the Fit Out Agreement. Acceptance With effect from the date of this agreement, Council accepts the Offer."
Payce and the Council thereby agreed that the FOA Contract Price was to be $2.171 million and that the Council would pay Payce the difference between that figure and the provisional figure of $1.52 million specified in the Umbrella Agreement [7] ($651,000) progressively in accordance with cl 37 of the Fit Out Agreement.
At the heart of Payce's case is the contention that the parties thereby agreed not only to the FOA Contract Price, but also to the scope of work Payce was required to perform for that FOA Contract Price; such that work over and above that scope was to constitute a variation to be dealt with under cl 36 of the Fit Out Agreement.
For the reasons that follow, I accept that case.

[12]

The pleading point

In its List Statement Payce pleaded, [8] after reciting the terms of 9.6 and 9.7 of the Umbrella Agreement; "C12. On 21 October 2015 [Payce] submitted the design documentation [on which the FOA Contract Price would be based] (being the 2015 Design) to [Rider Level Bucknall] for determination. [9] C13. On 24 February 2017, the parties agreed that the FOA Contract Price (as based on the 2005 Design) was to be $2,171,000." [10]
Payce then pleaded the variation provisions in the Fit Out Agreement [11] and continued: "C17 Between (approximately) February and November 2017, the [Council] directed [Payce] to vary the 2015 design … C18 In accordance with [Payce's] obligations under clause 2.1 of the Fit Out Agreement [Payce] carried out and competed the [Work Under Contract) (including as varied) and achieved practical completion on 24 August 2018 … C19 On 9 July 2018 [Payce] submitted its claim for payment in respect of variations to the Superintendent …"
The variations referred to in C17 were particularised by reference to a three page annexure to the List Statement that set out, in relation to each claimed variation, the "original" work, the corresponding "variation" alleged and the "claimed amount". On behalf of Payce, Mr Miller SC and Mr Sheldon submitted, and I have no reason to doubt, that the "original work" in Annexure A corresponded to the "scope" of work Payce contends to be subject to the agreement as to the FOA Contract Price, and that the "variation" corresponds to the work Payce contends was performed beyond that "scope" of work.
Mr DeBuse submitted that the pleading at C13 was no more than a pleading that the FOA Contract Price had been amended from the provisional sum of $1.52 million and not a pleading about the scope of work to be undertaken for the FOA Contract Price.
But, seen in the context of the pleading at C17 to C18, it is more than this.
It is an allegation that there was an agreement as to the FOA Contract price and that the price was agreed to be based on the 2015 Design. [12]
It is true that neither the Council's letter of 24 February 2017 nor the List Statement refers to the communications between the parties leading up to 24 February 2017 (save for Payce's 21 October 2015 email). Nor does the pleading refer, in terms, to the scope of works to be done for the FOA Contract Price.
But it must have been clear to the Council that Payce was contending that the scope of the work, the subject of the agreed FOA Contract Price of $2.171 million, was to be found within the 24 February 2017 agreement and, in particular, in the reasoning of the quantity surveyors whose competing views led to the compromise recorded in that agreement.
Thus, Payce went on in C17 of the List Statement to plead that the Council had given directions to "vary the 2015 design", [13] in C18 to plead that it carried out that work, and in C19 that it had made a claim for payment for that work.
It is clear from these assertions that Payce was contending for an entitlement to be paid, over and above the FOA Contract Price, for variations to the 2015 Design.
That was also made clear by the annexure to the List Statement, to which I referred at [84] above.
The manner in which the Council responded to the allegations in the List Statement shows that the Council did understand that this was how Payce was putting its case.
In its List Response, the Council engaged with the question of the ambit of the work to be done by Payce for the agreed FOA Contract Price of $2.171 million.
Thus, in its List Response, the Council responded to the pleading set out at [82] above as follows: "As to paragraph 13 of [Payce's] Contentions, the [Council]: (1) Admits that on or around 24 February 2017, the parties agreed that the [Council] would pay a sum of money over and above the indicative Fit Out Costs of $1,520,000.00; but (2) Say that it is a fact that each of the parties obtained expert assessments as to the costs of the design based on incomplete documentation, but on the basis of express and implied assumptions as to the undocumented portions of the Fit Out Works: (a) The assessment as to costs obtained by [Payce] dated 6 December 2015, was from [Rider Levett Bucknall] and valued the cost of construction for the Fit Out Works at $4,752,287.00 (excluding GST). (b) The [Rider Levett Bucknall] Report was not from the independent certifier. Particulars (i) The design documentation was not submitted to [Rider Levett Bucknall] by the Plaintiff in accordance with the contract, or in the circumstances contemplated by it. (ii) [Rider Levett Bucknall] was unaware it was an independent certifier under the Umbrella Agreement. (iii) [Rider Levett Bucknall] was engaged by the Plaintiff or its related company as the cost consultant to it for the Project. (c) The [Council] obtained a report from Hollis Partners that valued the construction of the Library Fit Out Works at $1,998,025.00. (3) Does not admit that there was an agreement that the FOA Contract Price based on the 2015 Design was to be $2,171,000.00, but agrees that the FOA contract price was to be that amount but for delivery of the Fit Out Works as identified in paragraph C13(4) below. (4) Says that to the extent there was an agreement reached on or about 24 February 2017, such an agreement was on the basis of the design as at that time which consisted of the 2015 Design, as amended by the CK Design documentation, submitted to that date and the assumptions made in the Hollis & [Rider Levett Bucknall] reports, and the discussions and agreements reached as to the construction of the Fit Out Works contained in the site meetings and emails exchanged between the parties to that time; and Particulars (i) The [Council] has previously, in connection with the proceedings 2019/362319, served a statutory declaration of Mathew Tran where between paragraphs 75 and 81, the [Council] has identified the plans and reports of which it was aware and which constituted the known part of design at the time of the agreement as to the FOA Contract Price." (My emphasis.)
Thus the Council's contention was that although it accepted that it had agreed that the FOA Contract Price be $2.171 million, it did not agree that that price was based on only the 2015 Design which formed the basis of the 2015 RLB Estimate and the 2016 Hollis estimate. Rather, the Council contended that the agreed FOA Contract Price of $2.171 million was on the basis of the 2015 Design "as amended" by: 1. unidentified CK Design documentation admitted to the date of the agreement, 24 February 2017; 2. unidentified assumptions made in the 2015 RLB Estimate and 2016 Hollis Estimate; and 3. unidentified "discussions and agreements" as to the construction of the Fit Out Works.
I will deal below with the adequacy of the manner in which that allegation was particularised by the Council. The point for present purposes is that the Council accepted in its List Response that the FOA Contract Price was in part based on the 2015 Design, which design was the subject of the opinions expressed by both Mr Rigby and Mr Gallagher in the 2015 RLB Estimate and the 2016 Hollis Estimate. That makes clear that the Council understood that Payce's contention was that the scope of the work the subject of the FOA Contract Price was the 2015 Design; albeit that the Council disputed that the scope could be determined only by reference to the 2015 Design.
Further, the Council's building experts, Mr Berson and Mr Brewster, dealt in terms with each of the variations for which Payce contends. To a very large extent I rejected their evidence as inadmissible. But the attention the experts purported to give to each variation makes clear to me that the Council understood the nature of the case Payce was seeking to make out.
In those circumstances, I do not accept Mr DeBuse's submission that the case Payce seeks to make out before me was not pleaded, nor that the Council did not understand this to be the case it was facing.

[13]

The 24 February 2017 Agreement

Payce's case is that the contract between Payce and the Council is to be found in: 1. Payce's letter of 24 November 2016 (the offer), and the Council's letter of 24 February 2017 (the acceptance of that offer); and 2. the documents incorporated by reference into the agreement formed by that offer and acceptance; namely, the 2015 RLB Estimate and the 2016 Hollis Estimate.
In the 2015 RLB Estimate and the 2016 Hollis Estimate, Mr Rigby and Mr Gallagher expressed their estimates by reference to the building elements to which each referred.
Mr Rigby said, in terms, that the scope of the fit out works the subject of his estimate were contained in the "detail of the estimate". [14] Mr Gallagher said that his estimate was "based" on the drawings identified and was prepared in a similar format to Mr Rigby's estimate. [15]
The agreed FOA Contract Price of $2.171 million was based on those two estimates and represented a "split of the cost difference" compromise between them.
There is no dispute that the parties' agreement is recorded in the Council's letter of 24 February 2017. [16]
As: 1. the Council's letter of 24 February 2017 accepted the offer in Payce's letter of 24 November 2016; 2. Payce's offer proposed that the parties take a "split of the cost difference" between the opinions expressed in the 2015 RLB Estimate and the 2016 Hollis Estimate as to the reasonable costs of the fit out works; and 3. both Mr Rigby and Mr Gallagher based their opinions on the same identified elements making up the 2015 Design; those elements were, in my opinion, incorporated by reference to the 24 February 2017 agreement and define the scope of work to be done for the FOA Contract Price.
In those circumstances, Mr Miller and Mr Sheldon were in my opinion correct to submit that: 1. it was the elemental trade items described in the competing estimates by Mr Rigby and Mr Gallagher that comprised the scope or subject of the FOA Contract Price; 2. those elemental trade items are drawn from, or "based on", the materials to which each quantity surveyor referred; 3. if an element was not shown in the elemental breakdown pages prepared by both quantity surveyors, that meant it was not priced and was not part of the later compromised FOA Contract Price; and 4. if what was ultimately supplied differed in number to what was listed in those elemental build-ups, or was of a different quality to that allowed in those elemental build-ups, or if what was supplied was a different arrangement all together, then those elements would not be covered by the FOA Contract Price and would constitute variations to be governed by cl 36 of the Fit Out Agreement.
That is, my conclusion is that the scope of what was priced and was the subject of the "split of the cost difference" agreement made between the Council and Payce in those documents, is to be found in elemental build-ups attached to the 2015 RLB Estimate and the 2016 Hollis Estimate; both of which are referred to in Payce's offer of 24 November 2016 and both of which are incorporated by reference to the agreement thereby resulting.
As I have set out above, [17] in its List Response, the Council contended that the FOA Contract Price was based on the 2015 Design as varied by unidentified architectural drawings, "assumptions" in the 2015 RLB Estimate and 2016 Hollis Estimate and "discussions and agreements".
The particulars given in the List Response concerning Mr Tran's statutory declaration [18] took the matter no further.
Prior to the hearing, Payce sought particulars of these matters and was met by Council's response to the effect that these were matters of evidence.
During the hearing, I directed the Council to specify what CK Design documentation, assumptions, discussions and agreements the Council relied on.
Mr DeBuse produced a document, which I marked MFI-6, which specified CK Design drawings, identified assumptions said to have arisen from the 2015 RLB Estimate and 2016 Hollis Estimate and discussions and arrangements recorded in identified documents.
However, Mr DeBuse did not develop any argument to explain how the Council's pleaded case so particularised could be accommodated within the agreement constituted by the Council's 24 February 2017 acceptance of Payce's 24 November 2016 offer.

[15]

Payce's damages case

Payce's primary case is that it has, at the Council's direction, by the Builder effected variations to works over and above the scope of the work the subject of the FOA Contract price, but has not been paid for those works and is entitled to damages.
Mr DeBuse submitted that Payce had not pleaded a case in damages.
I do not agree.
Payce's claim for damages is set out in paragraphs 28, 28A, 31 and 32 of its List Statement as follows: "28. Further, it was an express term of the Fit Out Agreement that the [Council] shall pay [Payce] for work for which the [Council] accepted [or] adjusted by any additions or deductions made pursuant to the Fit Out Agreement. 28A. In breach of its obligations, the [Council] failed to pay [Payce] its proper entitlement under the Contract. … 31. By the [Council] failing to pay the balance of the amount properly payable to [Payce] the [Council] is in breach of its obligation under the [Fit Out Agreement]. 32. By reason of the [Council]'s breach [Payce] has suffered loss or damage."
Paragraph 31 of the List Statement was particularised by reference to, amongst other documents, the Fit Out Agreement at cl 2.1, which provided that: "[Payce] shall carry out and complete [work under contract] in accordance with the Contract and directions authorised by the Contract. The [Council] shall pay [Payce]: a) for work for which the [Council] accepted a lump sum, the lump sum; and b) for work for which the [Council] accepted rates, the sum of the products ascertained by multiplying the measured quantity of each section or item of work actually carried out under the Contract by the rate accepted by the [Council] for the section or item, adjusted by any additions or deductions made pursuant to the Contract."
I accept Payce's submission that this clause required Payce to carry out and complete the Work Under Contract in accordance with the Fit Out Agreement and the "directions" authorised by the Fit Out Agreement. Payce's claim for variations is based on "directions" it contends it received from the Council.
Clause 2.1 also required the Council to pay Payce the lump sum, adjusted by any additions or deductions made pursuant to the Fit Out Agreement. Here, Payce relies upon the Council's refusal to pay for work that it directed Payce to perform that gives rise to the breach.
Under cl 36.4, the Superintendent had the functional role of pricing any variation. I do not see there to be any interaction between that provision and cl 2.1.
Payce's case is that the Council refused to pay it for work that Council had directed to be done. That is the damage of which Payce complains.
In my opinion, that pleading is apt to encompass the claim for damages that Payce makes in these proceedings.

[18]

Council's misleading or deceptive conduct case

The Council claims that Payce engaged in misleading or deceptive conduct for the purposes of s 18 of the Australian Consumer Law [24] by remaining silent about the increasing cost of variations from July 2017 onwards.
Mr DeBuse and Mr Brown put the matter this way in their closing submissions: "From July 2017 onwards, knowing the [Council] had asked for pricing of variations that had then been identified (six in total), [Payce] delayed [Rider Levett Bucknall] undertaking that task, without direction from Council to delay, will [sic] full knowledge then that [the Builders'] pricing showed large price increase[s] on what had been budgeted and told to the [Council] … [Payce], by it[s] silence, represented in so far as it did not keep the [Council] informed of the changes and costs to work that it undertook which it now alleges were a variation to the final design that [there were] no further costs. In all the circumstances where [the Council] had requested an updated pricing and had been conscious of pricing variations, it was incumbent on [Payce] not to simply remain silent when it was on notice that there were, as at 7 July 2017, 'some significant cost changes'."
This claim is not borne out by the contemporary documentary evidence.
On 23 May 2017, Mr Philip Waters from CK Design wrote to Ms Rifi from Jacquel Australia Project Management, Payce's project manager, stating that he had met with Council officers to discuss changes in the design to the library fit out.
Ms Rifi replied, asking: "… can CKD please keep the design brief up to date with your tracked changes to allow the pluses and minuses to be easily identified at the end of the design development?"
Ms Rifi copied her email to Mr Kim Goh, the project manager employed by the Council, asking him to "confirm these are consistent with Councils requests".
On 6 July 2017, Ms Rifi wrote to Rider Levett Bucknall, with a copy to Council, stating: "CKD have now progressed with the library services coordination and documentation is being issued with For Construction status. Please see below dropbox link with the following final documentation: • Partition Plan • Interior elevation • Furniture Plan • RCPs • Ceiling details • Acoustic requirements • Final mechanical design package for the library … Can you please provide a fee proposal to conducted [sic] a detailed assessment of these costs and advise the extra over amounts from the current allowances? The final electrical design should be issued next week so please include the cost assessment for this in your fee proposal also."
On 18 September 2017, Ms Rifi wrote to the Council stating that as the "For Construction documentation" had, by that time, been issued for architectural designs and all services for the library and community centre, and because there had been "many design changes … during this process", it was necessary that the fit out costs be updated by Rider Levett Bucknall "to reflect the final design".
On 20 September 2017, Mr Naidoo, the Council's Manager of the Works and Projects Unit, replied stating that the "request to proceed" with Rider Levett Bucknall was approved. Mr Naidoo took issue with the fee that Rider Levett Bucknall were proposing to charge for this recosting exercise but did not cavil with the recosting process itself.
On 24 October 2017, Ms Rifi wrote to the Council: "Since we recommenced design meetings in 2017 there have been a number of scope changes - many additions and a few deductions. All of this has to be issued to [Ryder Levett Bucknall] who, as the Independent assessor, will produce a final library fitout cost to Council. The variation associated with the final design will need to be subsequently approved by Council. It was agreed with [Mr Goh] that the works were to proceed as per the design changes incorporated by CKD, for the costs to be resolved at a later date when the design is absolutely final. When council confirm that the design is locked in and final (no further changes) - we will instruct [Rider Levett Bucknall] to assess the final fitout cost. This will capture all the additional items and deductions and you will be presented with a net cost adjustment for final approval. If you choose to remove these items from [the builders] scope, this information will be passed onto [Rider Levett Bucknall] to incorporate in their final fitout cost. Hence we urge Council to resolve all outstanding queries and advise when the final design documentation can be issued to [Rider Levett Bucknall] for final assessment." (My emphasis)
Ms Rifi was here recording that the Council, through Mr Goh, had agreed that because the fit out design was undergoing change, the cost of the final design would be resolved later, after the design was "absolutely final".
In cross-examination, Mr Goh agreed that this was the case. Thus, he gave this evidence: "Q. That's what you knew was going to occur at the time that you then signed off on the project, it was your understanding and you were proceeding on the basis as the person tracking against budget that once all of the "for construction" drawings were done-- A. Yep. Q. --they would then be costed up to work out extra over cost, correct? A. Yep."
Mr Naidoo gave evidence to the same effect: "Q. You knew well and truly then, didn't you, from at least 24 October onwards, that the process that was being followed on the site was that the works were being constructed in accordance with the "for construction" drawings that had finally issued and that they were then going to be priced at a later time by RLB, correct? A. Yes."
Mr Tran, from the Council, replied to Ms Rifi's email: "I'm happy to continue with my predecessor's [ie Mr Goh's] agreement. Please remove the items below from [the builders] scope as noted in your previous email and ensure these items are captured on a change tracker."
On 13 November 2017, Ms Rifi wrote to the Council: "Since your previous approval for [Rider Levett Bucknall] to proceed, there have been many items of the design that needed clarification following [the builders] review so we told [Rider Levett Bucknall] to hold until all elements were locked in. Now that the majority of items have been clarified, I believe it is an appropriate time to get [Rider Levett Bucknall] started on the reprice so we can get this within two weeks. Please confirm the same."
Mr Tran, from the Council, replied the following day: "Agreed. Please instruct [Rider Levett Bucknall] to reprice for the works."
On 7 December 2017, Ms Rifi's colleague, Mr Malek from Jaquel Australia, wrote to the Council: "[Rider Levett Bucknall] have now completed their revised cost of the Riverwood Library and Community Hub fitout based on 2017 For Construction documentation, finishes and specifications … This is still not 100% complete as there are still changes even as recent as yesterday, that will amount to additional costs …"
Mr Malek's email stated that the "2017 Variance … to be approved by Council" was $1,910,287.
Mr Naidoo then replied on 20 December 2017: "I am appalled at the suggestion that Council is up for costs to this value. We will be vehemently rejecting this claim, on the basis that the variations post our General Manager's approval of costs in February 2017, is significantly less than that being proposed."
Thus, despite what had passed earlier between Payce and the Council, and despite the evidence he gave before me, Mr Naidoo at this stage was expressing dissatisfaction with the fit out costs.
However, what emerges from the communications to which I have referred is that Payce did not remain silent about the fit out costs and, through its project manager, and Ms Rifi in particular, kept the Council informed of those matters.
Ultimately, the Council agreed to the proposal made by Mr Rifi, as recorded in her 24 October 2017 email: that the costs of the variations would "be resolved at a later date when the design was absolutely final".
I find there to be no substance in the Council's misleading or deceptive conduct case.

[23]

Mr Daubney's references to Mr Rigby's affidavit

Mr Daubney's first report made a number of references to an affidavit of Mr Rigby made in these proceedings, but which Mr Miller and Mr Sheldon did not read. Mr Sheldon, who dealt with this part of the case for Payce, did not read the corresponding passages in Mr Daubney's report.
Mr Brown, who presented this part of the argument for the Council, submitted that because Mr Daubney had assumed the correctness of a number of matters to which Mr Rigby deposed, it followed from the fact that Mr Rigby's affidavit was not read, that Mr Daubney's report was not admissible. [27]
I did not agree and allowed Mr Daubney's report. I concluded that, although Mr Daubney had referred to evidence given by Mr Rigby in his affidavit, his reasoning did not depend upon those matters and that the integrity of his report was not affected by the fact that the passages in his report reciting Mr Rigby's evidence were not read.
For example, although Mr Daubney said that he was "instructed that the scope contemplated as the Fit Out Works is set out in the Rigby affidavit", [28] his "Brief" from Payce's solicitors asked him to assume: "the original scope of the Fit Out Works under the [Fit Out Agreement] is identified in the 2015 Estimate and further detailed in paragraphs 40 to 42 and 48 to 55 of the Rigby affidavit". (My emphasis)
The emphasised passage showed that the reference to Mr Rigby's affidavit was not essential to the matter Mr Daubney assumed: namely, the "2015 Estimate".
Careful analysis of the opinions Mr Daubney expressed in relation to the variations claimed by Payce showed that his reasoning did not depend on anything Mr Rigby had said in his affidavit.
For example, in relation to Variation 18 for "Mechanical Services", although Mr Daubney set out a "Mechanical Base Build Scope" taken from Mr Rigby's affidavit, his reasoning as to the amount that should be allowed for the variation was not based on what Mr Rigby had said. Rather, it was based on the actual invoiced cost of the variation work compared with the amount he reasoned was allowed in the FOA Contract Price, being the mean between what Mr Rigby and Mr Gallagher had allowed in the 2015 RLB Estimate and 2016 Hollis Estimate for mechanical services.
I will return to that process of reasoning below. The point for present purposes is that Mr Daubney's reasoning was not based on Mr Rigby's unread affidavit.
I reached the same conclusion in relation to the other parts of Mr Daubney's report on which reference to Mr Rigby's affidavit was made.

[27]

The Base Build Costs

The third integer in Mr Daubney's calculations was the amount that should be attributed to each trade description in the 2012 Design and thus in the Base Build.
Mr Daubney adopted the figures as set out in the 2012 Design.
Mr DeBuse and Mr Brown submitted that those figures should be adjusted to reflect the fact that the actual cost of building escalated between 2012 and 2017/2018 when the work, said to be the subject of the variations, was effected.
Mr DeBuse and Mr Brown asserted that "using simple arithmetic on the numbers applied by Mr Rigby … costs have escalated 12% in just over two years from 2012 to 2015" and that "[i]t is not unreasonable to consider that the Base Build costs have escalated at least that amount and more probably 20% over the five years to 2017".
During the concurrent evidence of Mr Daubney, Mr Berson and Mr Brewster, Mr Miller asked Mr Daubney why he had not escalated "the 2012 allowance to a 2015 figure".
Mr Daubney replied: "Because I was pulling out a figure from 2012, I thought it would be incorrect and inconsistent to escalate any amounts that I was deducting on the assumption that Payce was also not allowed to escalate the price that it received for the base build due to any delay". [34]
Although Mr DeBuse did not challenge Mr Daubney in relation to this opinion, I think Mr DeBuse was correct to submit that, in order that "like" be deducted from "like", and to assess fairly to what extent Payce's actual costs for the variations was over and above the cost Payce would have incurred to do the Base Build (assuming that a component of the cost of the variations should be attributed to a matter the subject of the Base Build), the Base Build figure should be escalated to some extent to reflect 2017 values.
Neither party adduced evidence as to how much costs had in fact increased between 2012 and 2017. In addition, Mr Miller and Mr Sheldon did not challenge Mr DeBuse's submission that "using similar arithmetic on the numbers applied by Mr Rigby" produced an increase of 12%. In these circumstances my conclusion is that, to the extent that Mr Daubney deducted from the quantification of Payce's claim for variations an amount referable to the 2012 Design, that deduction should be increased by 12%.
I will not perform this calculation for each variation. Insofar as my conclusions adopt Mr Daubney's deduction of elements in the 2012 Design, the relevant figure should be increased by 12%.

[42]

Variation 19 - supply of lighting - $276,070.33

Both the 2012 Design and the 2015 Design made allowances for lighting.
The 2015 Design specified that troffer lights, downlights and medium and large pendants were to be supplied and installed throughout the library. It did not specify the intended quality, size or number of those lighting fixtures.
At a Design Meeting on 21 June 2017, Mr Goh said, "We want all lights in the library to include beam lights".
The minutes of that Design Meeting recorded that Mr Goh approved aluminium extrusion lighting, which was reported to be almost three times as expensive as the "current lighting" and that CK Design were instructed to issue a "schedule of selected light fittings to incorporate in design plans".
Shelmerdines Consulting, mechanical and electrical consulting engineers, uploaded the requisite drawings to Webspace shortly thereafter.
These steps constituted a direction by the Council to effect these changes.
Mr Berson agreed that: "… there is an increase in the scope and quantity of the lighting in the as built design from the pre Feb 2017 design".
Mr Daubney has made an analysis of the light fittings installed to assess what lighting has been installed over and above that contemplated by the 2015 Design.
He described the process he undertook in his report as follows: "I have counted the number and types of light fittings shown in the 2015 Design and the 2017 Design, and compared and reconciled the changes. My count of light fittings by type based on the 2017 Design differs from that included in a light schedule supplied to me as part of the Carrier Electrical Invoices. I am instructed that the Carrier light schedule represents the as-built lighting schedule, and I have used that as the basis of my assessment. I have applied the rates for the specific light fittings charged by Carrier on the basis they represent the market price for those items. I have adjusted those rates to deduct an amount for the base build cost of a standard energy efficient troffer. I have calculated the base build cost as $70/unit. This method provides for the actual cost less the Base Build amount (which effectively is the extra over cost intended by the Fit Out Agreement)."
As an attachment to the Joint Statement with Mr Berson and Mr Brewster, Mr Daubney revised that opinion as follows. "Mr Daubney has revised his opinion of Variation No.19 to include for the extra over costs of the entire 2017 lighting design. Mr Daubney's initial analysis only included for costs associated with the increase in lighting between 2015 and 2017 (i.e., the extra over quantities only) and therefore did not value the full extent of the cost impact resulting from the changes in lighting design and specification during this period. Consequently, Mr Daubney has revised his opinion to include for the following: (a) The extra over costs for the supply of lighting for all 568 lighting fixtures in accordance with the SCC Lighting Schedule Rev A; (b) A deduction of $18,865.00 for the extra over allowance made by RLB within their 2015 estimate; and (c) A reasonable allowance for the supply and installation of additional base build lighting as a result of the increase in lighting between the 2015 and 2017 designs (172 No. total)."
Mr Daubney then set out a table detailing his analysis that the value of the lighting work over and above that in the 2015 Design was $276,070.33.
There was no other evidence on this topic. I accept Mr Daubney's analysis and allow this item.

[46]

Variation 23 - ceiling finishes - $372,598.48

The 2005 Design, on which Mr Rigby and Mr Gallagher based their opinion, called for a suspended grid ceiling with plasterboard and acoustic plasterboard.
On 12 April 2017, Mr Goh from the Council directed the ceiling finishes instead be "suspended ceiling blade", as recorded in the minutes of a Design Meeting held on 12 April 2017.
At a further Design Meeting on 21 June 2017, CKD's representative, Ms Cecilia Kluger, proposed a "Décor panel" for the ceiling design.
On 7 November 2017, CK Design uploaded to Webspace, drawings showing the Décor ceiling panel design.
These steps constituted a direction from the Council to effect the changes.
Mr Berson agreed that: "… there is a change in scope of the ceiling finish requirements".
Mr Daubney calculated the reasonable costs of this variation by taking, first, the actual cost for the supply and installation of the Décor ceiling panel design. The total invoiced amount from the relevant supplier, Bright Construction Group Pty Limited, was $539,941.99.
A component of that figure was $230,241.44 for "plasterboard ceilings".
This was the amount that Bright Constructions charged for what Mr Daubney described as "double layers of plasterboard" that were required "to comply with Fire and Acoustic specifications".
Mr DeBuse submitted that this evidence showed that the double plasterboard of the ceiling was the responsibility of Payce under the Base Build and that: "Under the warm shell specification, the ceilings had to be acoustically sound for BCA compliance, at Payce's cost."
Mr DeBuse did not refer to any particular provision in the Warm Shell Specification to justify this submission. The only reference to "ceilings" that I can find in that specification is: "Ceilings to be suspended grid ceilings with troffer lighting …" [39]
The Warm Shell Specification did also state that the building must "comply with the BCA requirements and Australian standards" but I can find no provision of the kind to which Mr DeBuse referred.
The allowance in the 2012 Design for ceilings in the Base Build contained two amounts for "mineral fiber tile ceiling" (totalling $68,695).
The drawings priced by Mr Rigby and Mr Gallagher made no reference to double layer plasterboard and referred only to "set perforated acoustic plasterboard ceiling".
I am, in these circumstances, persuaded that the component of the Bright Construction Group invoice for "plasterboard ceilings" represents a cost not included in the earlier estimates.
From that actual cost, Mr Daubney deducted the RLB Apportioned Figure of $93,261.10 as reflecting that part of the ceiling costs that should be attributed to the FOA Contract Price.
For the reasons I have set out above, [40] I propose to adopt the slightly higher Hollis Apportioned Figure of $101,342.51.
Mr Gallagher then deducted a further sum of $107,955, being the cost attributable to ceilings in the 2012 Design.
For the reasons I have explained, I consider this figure should be increased by 12%.

[60]

Endnotes

See [167] to [173] below.
The parties used the initialism "FOA" to refer to the Fit Out Agreement: to which I return at [38]-[44].
See [38] - [44].
Canterbury-Bankstown Council v Payce Communities Pty Ltd [2019] NSWSC 1419 (Henry J) and Canterbury-Bankstown Council v Payce Communities Pty Ltd [2019] NSWSC 1803 (Ball J).
There is a dispute about the proper construction of this clause that I deal with at [338] to [345] below.
See [23] and [24] above.
See [30] above.
Technically, allegations in a List Statement are not pleadings, as proceedings in the Technology and Construction List are commenced by Summons, not Statement of Claim. However, the contentions in a List Statement are taken to define a party's case, just as pleadings do. I shall refer to "pleadings".
Particularised by reference to Payce's 21 October 2015 email referred to at [55] above.
Particularised by reference to Council's letter to Payce referred to at [78] above.
At C14 to C16 of the List Statement.
As defined in C12 as the design forwarded by Payce on 21 October 2015.
On which it pleaded the FOA Contract Price was based: C12.
See [68] above.
See [66] above.
See [77] and [78] above.
At [95].
Referred to in the particulars at the foot of the passage set out at [95] above.
At [41] to [43].
At [42].
At C17 of its List Statement referred to at [82] above.
See [31] to [34].
Reference was made to Gould v Vaggelas (1985) 157 CLR 215; [1985] HCA 75 at 238 (Wilson J); BP Exploration Operating Co Ltd v Chevron Shipping Co (Scotland) [2001] UKHL 50; [2003] 1AC 197 at [105] (Lord Millett).
Competition and Consumer Act 2010 (Cth) Sch 2.
See [7] above.
That is, the day when the issue was first raised.
See Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21 at [66] and [90] (Heydon J).
Mr Daubney's Expert Report at [31].
See [46] - [48] above.
[2001] NSWCA 313 at [99].
At [19].
4.3% of $2.171 million in fact equals $95,353; the difference is immaterial and can no doubt be accounted for as a result of Mr Daubney rounding figures for ease of calculation.
In some cases, Payce did not seek to resort to that reasoning.
At T349.44.
See [41] to [42] and [114] - [118] above.
At [82] to [99].
See [167] to [173].
See [203] above.
See [23] above.
At [203]. 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: 06 April 2021

Payce Communities Pty Ltd v Canterbury-Bankstown Council

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