Plaintiff v Defendants

Plaintiff v Defendants - [2005] VSC 492 - VSC 2005 case summary — Zoe

[5]

4 For the purposes of recapitulation, I will begin by outlining some of the findings in my reasons for judgment which are especially pertinent to determining the orders to be made in this matter.

5 Fundamentally, I was satisfied that the first defendant breached the agreement by failing to pay progress certificate 14 in breach of clause 42.1. I found that no new or different obligations arose under the agreement arising from a variation to that agreement, as alleged by the defendants. I further found that the defendants failed with respect to their allegations of waiver, acquiescence and estoppel said to arise from the conduct of the plaintiff in relation to progress claim 14. In addition, I found that the obligations of the parties - in particular, those of the first defendant - to pay the plaintiff under payment certificate 14, were not superseded by payment certificate 15. In addition, I found that the submissions of the defendants with respect to the application of the Domestic Buildings Contracts Act 1995 (Vic) were not made out.

6 With regard to the defendants' claim for liquidated damages arising from the delays and, in particular, the failure to complete by the contract date; I was satisfied that at the date that the builder left the site, the building works were complete to the extent of 90 per cent, leaving 10 per cent of the works to be completed. In the relevant context, I further found that a portion of the extension of time claims ("EOTs") claimed by the plaintiff should be allowed, to the extent of 56 days and four hours. With respect to the defendants' claim that the plaintiff was overpaid, I found that the EOTs claimed by the plaintiff were to be allowed in part only. As a consequence, I indicated that some adjustment of the amounts paid by the defendants to the plaintiff may be required.

7 It is appropriate to consider the arithmetical error identified by the defendants with regard to the EOT 4 claim and the consequent effect that may have on the total EOT amount. The defendants submit that the appropriate figure for the EOT 4 claim should be 49 days and that the discrepancy is the result of that particular claim being miscalculated. In my reasons,[5] 32 days was allowed for the EOT 4 claim. The defendants submit that the total assessed for the EOT 4 claim should more properly be 24 days and four hours: consisting of 8 days and four hours for the gallery face shop drawings,[6] 12 days for the stepdowns,[7] and 4 days for the level 3 columns and roof beams.[8] The plaintiff did not squarely address this arithmetical question as per the items identified in my reasons. Instead, the plaintiff submitted that it had originally claimed 45 days with respect to the EOT 4 claim, and that the Court, in its calculation, was "making a judgment about what the overall temporal effect was, on the balance of probabilities".[9] Consequently, the plaintiff submitted that the Court's finding need not be reviewed.[10] While the plaintiff's argument is creative, I nevertheless accept the defendants' submissions that an obvious arithmetical error was made and consequently determine that the calculation for the EOT 4 claim should be 24 days and four hours. As a result, the total EOT claim should be 49 days (rather than 56 days and 4 hours).[11] Furthermore, this revision will have a consequential effect on the adjusted date of practical completion which will now be 3 March 2000.[12]

8 Turning to the critical issue of the repudiation of the contract by the defendants, in my reasons, I found that the conduct of the defendants in serving the show cause notice and subsequently drawing down the builder's guarantee constituted repudiation of the contract and that the plaintiff was entitled to terminate the contract as it did. I also found that the defendants failed in their claim for costs to complete. Upon termination of the contract, the plaintiff, having indicated its election, became entitled to recover on the basis of a quantum meruit, including allowance for the EOTs and the other amounts claimed, which require adjustment with respect to the variations and extra costs. So far as the remaining 10 per cent costs to complete are relevant, the defendants lost such entitlement when they wrongfully repudiated the contract and gave rise to the right of termination by the plaintiff. The obligations of the plaintiff ceased at that point, save with respect to the deduction variations. The claims of the plaintiff and the defendants in relation to the variation and the deduction variations were, by agreement, dealt with separately under the Scott Schedule. These are matters that will be dealt with now in final orders.

[10]

16 The defendants submitted that they owe the plaintiff $130,958.86. This figure is the net effect of the defendants' submissions that there be judgment for the plaintiff on its claim in the sum of $549,785.11 and judgment for the defendants on its counterclaim in the sum of $454,861.00. The difference between the claim and counterclaim would thereby amount to the sum of $94,921.11. Added to that, the defendants submit that there should be interest of $36,034.75, calculated at the rate of eight per cent per annum.

17 The defendants submitted that the plaintiff was not entitled to any margin on its quantum meruit. The defendants further submitted that they were entitled to properly deduct delay costs of $583,271.96 from the plaintiff's quantum meruit claim.

18 Additionally, the defendants submitted that they were entitled to deduct variations of $278,574.91 pursuant to what had been agreed between the parties in the Scott Schedule. They also submitted that the plaintiff could not resile from was set out in the Scott Schedule, in respect of the deduction variations to be deducted, and that a total of $216,611.00 should therefore be deducted from the plaintiff's quantum meruit, as opposed to the amount of $81,284.00 that was submitted by the plaintiff.

19 In anticipation of a proposed revision of the EOT 4 claim, the defendants submitted that there should be a deduction of $238,250.00 for liquidated damages, that amount being slightly higher than that of $220,000.00 conceded by the plaintiff. The defendants also sought a deduction of $469,864.85 for amounts paid by the plaintiff on behalf of MTK Plastering, and a further $26,000.00 in other deductions for rectification works separate to the $70,065.00 already agreed between the parties as an appropriate amount to be deducted from the plaintiff's quantum meruit for defective works.

20 As to the question of interest, the defendants submitted that interest should be calculated at the rate of eight per cent per annum, on a simple basis, from the date when the claim was first made, that being when proceedings were issued by the plaintiff in the Victorian Civil and Administrative Tribunal on 16 November 2000.

[21]

28 However, as Mason, P. observed in Trimis, "restitution respects the sanctity of the transaction".[27] Indeed, in my reasons, I noted that the availability of a party to elect to sue on a quantum meruit when it already has available the option of suing for damages for breach of contract is itself controversial.[28] In any event, even if the contemporary authorities are properly interpreted as still countenancing the availability of such an election;[29] the influence of the contract cannot disappear entirely, even if the contract itself no longer exists.

29 Consequently, it is against the background of this understanding of the nexus between contractual and restitutionary concepts that I disallowed the plaintiff's claim for a profit margin. There is no reason for me now to disturb or recall the findings made in my judgment. Indeed, I would regard it quite inappropriate to do so.

30 Notwithstanding these observations, the plaintiff submits that the quantum meruit that it is entitled to recover includes what it calls a "margin" and that this margin consists not merely of "profit" but of "overhead costs" as well. In support of that contention, the plaintiff referred to the affidavit of its Finance Director, Sidney Robert Lucas, sworn on 3 August 2005. Mr Lucas stated that the term "margin" was "used to refer to 'overhead costs' which were also known as indirect costs and profit" and that "the Plaintiff [had] calculated margin to include 'overhead costs and profit' which [were] part of the Plaintiff's indirect costs in relation to the Boilerhouse Project".[30]

31 By way of interpolation, I would note that, in arguing its case as to what were the appropriate orders for the Court to make in these matters, the plaintiff stated that it also referred to the Lucas affidavit to support its arguments with respect to GST. Further, the plaintiff additionally referred to two further affidavits, namely, the affidavit of the plaintiff's Project Manager, Gary Charles Tivendale, sworn on 3 August 2005, and the affidavit of the plaintiff's Director, Antony Peter Grant Isaacson, also sworn on 3 August 2005. Mr Digby said that the Isaacson affidavit was principally concerned with the calculation of interest and that the Tivendale affidavit sought to assist the Court in the examination of the deduction variations. With respect to the Tivendale affidavit, Mr Digby submitted that the plaintiff was not seeking to re-ventilate the evidence but merely to state for the purposes of the quantum meruit claim what the set-off or accounting exercise would conclude. Counsel for the defendants, Mr Magee, formally objected to the receipt of the three affidavits. Mr Digby, while initially seeking to rely on the affidavits, later sought to withdraw any reliance in light of Mr Magee's objection so that it could not be said that the matter was being "reopened in some inappropriate way".[31] Mr Magee, in turn, objected to Mr Digby's proposal to withdraw the affidavits. In considering the appropriate orders, I have read the affidavits submitted by the plaintiffs and I have taken account of the arguments made by counsel with respect to them. I have also noted Mr Magee's objection to, firstly, their receipt, and secondly, to Mr Digby's withdrawal of them. However, as will become clear, I do not believe that my consideration of these affidavits has prejudiced the defendants' case.

32 Returning to the issue of the margin, the percentage claimed by the plaintiff is 10 per cent. Further, the plaintiff submitted that if I found against it on the question of it being entitled to any profit, then it should still be entitled to "at least such part of its 10 per cent margin claim that represents overhead costs".[32] I do not accept the submission. The distinction between "overhead costs" and "profit" is unclear. Moreover, I do not believe that the authorities compel me to include or exclude such considerations in determining the quantum meruit claim.

33 In further support of its contention, the plaintiff stressed Einstein, J.'s view in ABB Engineering Construction Pty Ltd v Abigroup Contractors Pty Ltd wherein his Honour said that it was "an incorrect statement of principle [to say] that on a claim for quantum meruit a claimant can only receive costs bare of profit".[33] In Abigroup, Einstein J was referring to the argument made by the plaintiff in that case that Renard Constructions (ME) Pty Ltd v Minister for Public Works[34] was not authority for the proposition that profit should be excluded. The relevant passage in Renard is that of Meagher, J.A. (with whom Priestley and Handley, JJ.A. agreed) and could well be interpreted as excluding "profit". Specifically, Meagher, J.A. held that_:_

[23]

34 The plaintiff's interpretation of Einstein, J.'s view of what the proposition in Renard stands for may well be correct. It may be that the remarks of Meagher, J.A. in Renard are more properly considered, as the plaintiff suggests, in the context of an argument of whether or not profit under a contract in that case created a ceiling for recovery under a quantum meruit. However, I remain unconvinced that, even if I accepted the plaintiff's interpretation, that I should find in favour of the plaintiff on its point in this case; notwithstanding that I have already made clear findings in my reasons with regard to the exclusion of a profit margin. Conceptually, the argument may be made both ways. Nevertheless, even if I was to accept the plaintiff's submission that a margin should, prima facie, not be excluded; it does not follow that it must of necessity be included. Instead, as already stated, the correct approach in determination of a claim based on a quantum meruit is to assess an amount on the basis of work actually done and on the basis that it is fair and reasonable in the circumstances.[36] In the event, my judgment was that, in light of all the circumstances that I considered in this case, it was not fair and reasonable to award the plaintiff the 10 per cent margin that it claims. It is not appropriate to disturb that finding.

35 As stated previously, the quantum meruit claim made by the plaintiff totalled $4,746,911.83. The Jobpac reports were critical to this claim, since they provided information relating to the total costs and payments made by the plaintiff. These reports were produced as part of the evidence of Le Hy Ta. As I stated in my reasons, the defendants did not cross examine Le Hy Ta on his evidence with respect to whether the costs incurred by the plaintiff were fair and reasonable. They remained unchallenged.[37]

36 I stated in my reasons that I was satisfied that the works were performed and the amounts claimed proved by the plaintiff. However, in determining whether the costs claimed were fair and reasonable, the questions of the delays and rectification claimed by the defendants and, also, the matter of liquidated damages needs to be taken into account.

[24]

37 The defendants submitted that the plaintiff's quantum meruit claim should be reduced by the sum of $583,271.96, that figure being the difference between the amount of $769,583.08 being the delay claim made by the plaintiff in its pleading dated 31 August 2001 less "the amount awarded by the Court being $186,311.10".[38] In calculating the amount awarded by the Court, the defendants have adjusted the amount to correlate with the EOT 4 claim being revised to 24 days and four hours. As observed earlier, I accept this revision as consequent to an arithmetical slip.

38 The plaintiff submitted that no reduction for delays should be awarded, arguing that any finding by the Court in relation to delay costs would have been with regard to the plaintiff's contractual entitlements and that such entitlements were not "relevant" to its claim on a quantum meruit.[39] However, counsel for the plaintiff, Mr Digby, conceded that it was "hypothetically possible" to set-off delay against the quantum meruit, maintaining that the "jurisprudence was far from clear" on the point.[40] Specifically, Mr Digby highlighted two English cases, British Steel Corporation v Cleveland Bridge & Engineering Co Ltd[41] and Crown House Engineering Ltd v AMEC Projects Ltd.[42] However, it is not clear to me how these cases advance the plaintiff's argument, other than to reiterate that the jurisprudence on this matter appears unclear.

39 Additionally, Mr Digby contended that the defendants had not specifically pleaded the delay point or adduced evidence of what was a reasonable time for the builder to finish the work in the context of what was fair and reasonable (as he maintained was required on the quantum meruit claim), as an alternative to the contractual timeframe.[43] Counsel for the defendants, Mr Magee, disputed Mr Digby's assertion, stating that the defendants had put all of the matters of the quantum meruit in issue and that at all times the onus was on the plaintiff to establish its claim.[44]

40 I would also note the plaintiff's submission that it is not in the nature of an accrued right under the contract for the wrongful party to assert a set-off against the innocent party's quantum meruit claim.[45] I do not agree. While it may not be construed as a "right", as I outlined in my reasons,[46] in determining whether the costs claimed are fair and reasonable, the amount to which a plaintiff is entitled on the making out of a quantum meruit claim may properly take account of matters such as delays, rectification and liquidated damages, if any.

41 As already stated, I consider that contractual entitlements are relevant in determining the plaintiff's claim on a quantum meruit. In this instance, and in considering what is fair and reasonable in the circumstances, I determine that the reduction of $583,271.96 for delays, as sought by the defendants,[47] should be allowed.

[30]

53 With respect to the deduction variations, this was also to be determined by way of a Scott Schedule approach. In my reasons, I stated that I accepted the submissions on behalf of the defendants with respect to the deduction variations.[50] The defendants submit that, on the basis of the Court's determination, there should be allowed $216,611.00 in deduction variations.[51]

54 The plaintiffs have suggested a much lower amount. They submitted that the amount should be $81,284.00, comprised of the $40,000.00 that was previously agreed between the parties[52] and $41,284.00 which the plaintiff submits should be appropriately deducted from its quantum meruit claim.[53] The plaintiff submits that the difference of $135,327.00 refers to either work not performed by the plaintiff; or represents a charge for what was required by the contract rather than being just for the item of work "as installed".[54]

55 Mr Digby argued that the Scott Schedule of deduction variations was grounded in the context of the contract and that it would be unfair to include in the deduction from a quantum meruit claim items that were never included in the costs of the work. Of course, this raises the vexed issue of whether, having agreed to a Scott Schedule approach, a party can later return to the Court and seek to reopen certain matters. Neither the plaintiff nor the defendants were able to assist the Court with any authorities indicating how such matters have been dealt with before.

56 The utility of Scott Schedule approaches in building cases is well recognised as a means of resolving many contentious issues.[55] In my reasons,[56] I observed that the parties resolved to adopt the Scott Schedule approach following extensive discussions between them and their representatives during the course of the trial, and indeed, various adjournments were allowed to facilitate those discussions. Therefore, I do not see how either party can now properly resile from such an agreement unless there are exceptional and valid grounds.

57 Be that as it may, the plaintiff nevertheless further contended that its Scott Schedule submissions expressly stated that "in the event the plaintiff recovers on a quantum meruit, the plaintiff contends that the defendants are not entitled to have deduction variations set-off against the plaintiff's entitlements".[57]

58 Given this reservation, I would accept that items referring to work not performed cannot properly be considered within the context of a quantum meruit claim in this case. To do so would appear incongruous. However, the second category of items can be considered, despite the plaintiff's view that they are in some way contaminated by contractual considerations; since as previously stated, the influence of the contract cannot disappear entirely, even if the contract itself no longer exists.

59 Therefore, I will not deduct those items that represent work not performed, they being items 2.1, 3.2, 5.7, 7.11, 8.1, 8.2, 9.1, 9.7, 10.3, 10.4, 17.3, 17.11, 17.18, 19.15, 20.11, 20.13, 21.12, 22.14 and 23.2. The total of these items is $51,632.00. Consequently, the total deduction allowed will be $164,979.00.[58]

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