These proceedings relate to defects in a development of townhouses in Tweed Heads, New South Wales (the Development). On 7 June 2024, I delivered a judgment in these proceedings, addressing all issues other than quantum: The Owners - Strata Plan 99960 v SPS Building Contractors Pty Ltd [2024] NSWSC 687 (the Principal Judgment). This judgment assumes familiarity with the Principal Judgment.
In the Principal Judgment, I determined in respect of each alleged defect in the Development:
1. whether the defect was established;
2. whether the Defendant (SPS) was responsible for the defect;
3. the scope of the required rectification work; and
4. whether any defect or any of the rectification work related to lot property rather than the common property and, if so, whether the Plaintiff (the Owners Corporation) was entitled to claim for the costs of such work.
The parties had previously filed expert reports in relation to the quantification of the cost of the required rectification works. However, no joint report was prepared due to the fact that there was significant delay in the issuing of a joint report by the building experts (which only occurred in the middle of the hearing).
Against that background, and for reasons explained in the Principal Judgment, I made an order for issues of quantum to be determined separately from, and after publication of reasons in relation to, the other issues in the proceedings: Principal Judgment at [8].
Following the delivery of the Principal Judgment, I made orders for the costs experts to confer and prepare a joint report providing their estimates of the costs of the rectification works identified in the Principal Judgment.
After those orders were made, SPS's solicitor went off the record. Mr Simon Stone, a director of SPS, was given leave to represent SPS in these proceedings. Mr Stone indicated that SPS did not intend to call its costs expert or to lead any other expert evidence regarding the quantification of the rectification works. Accordingly, the orders for a joint report were vacated, and orders were made for the Owners Corporation to file and serve its expert evidence on the issue of quantification.
The Owners Corporation has relied at the hearing on quantum on the following expert evidence:
1. a report of Mr David Madden, who is a quantity surveyor, dated 27 August 2024, addressing the cost of the rectification works identified in the Principal Judgment;
2. an affidavit of Ms Belinda Dinsey, a real estate agent, dated 28 August 2024, concerning the costs of alternative accommodation while the rectification works are being performed; and
3. a supplementary report of Mr Madden dated 30 August 2024, correcting one matter in his earlier report and updating his calculations.
In addition, the Owners Corporation tendered a section of an earlier report of Mr Madden (to which he referred in his 27 August 2024 report when explaining his reasoning), and referred to parts of a report prepared by SPS's building expert, Mr Zakos, which was tendered by SPS at the hearing in respect of the defect issues.
Neither Mr Madden nor Ms Dinsey was required for cross-examination. No objection was taken to any part of their evidence.
SPS did not lead any evidence on the remaining issues in the proceedings.
The Owners Corporation provided written submissions regarding the remaining issues in the proceeding. Further, in oral address, Counsel for the Owners Corporation went through those submissions in some detail and took the Court to relevant parts of Mr Madden's two reports, and the annexures to those reports, as well as Ms Dinsey's evidence.
SPS did not provide any written submissions on the remaining issues in the proceeding. At the hearing on quantum, Mr Stone, who appeared for SPS, confirmed that he did not advance any submissions in response to the submissions and evidence of the Owners Corporation on quantum.
[2]
Scope of Work
The Principal Judgment identified two issues to be resolved by the costs experts, so far as the scope of the rectification works was concerned.
First, the costs experts were, in respect of certain parts of the rectification works, to provide their opinion as to the cost of two alternative options for those works, based on either the reuse or the replacement of the existing windows and doors. Mr Madden has costed only the option involving the reuse of the existing windows and doors, this being the option which SPS's building expert, Mr Zakos, had identified as being the less expensive of the two options. The Owners Corporation accepted quantification on the basis of this less expensive option, and SPS did not dispute this approach.
Secondly, the costs experts were to determine the period for which the occupants would need to be relocated in order to perform the rectification works. Mr Madden has determined that the relevant period is 13 weeks. Mr Madden explained in his report the basis on which he had arrived at this period. SPS did not identify any reason why that estimate should not be accepted.
I am satisfied that, in respect of both issues, the basis on which Mr Madden has proceeded is reasonable.
[3]
Cost of Rectification Works
Mr Madden has, in his report, provided an estimate of the trade costs of the rectification works for each defect, having regard to the findings in the Principal Judgment regarding the required scope of those works in respect of each defect.
In each instance, Mr Madden has set out the basis of his estimate, including a breakdown of the elements of the estimate, and the trade cost of each such element.
SPS did not advance any reason why Mr Madden's estimates should not be accepted.
I have reviewed Mr Madden's report and am satisfied that there is a cogent basis for his estimate of the trade costs of the rectification works for each defect. I have accepted his evidence of the cost of each such item.
For those reasons, I find that the total trade costs of the rectification works, excluding "on costs" which are addressed below, is as set out in Mr Madden's supplementary report, namely, $5,374,057.19 (excluding GST).
[4]
Consequential Costs
Mr Madden has prepared an estimate of the costs of relocating the occupants and their belongings while the rectification works are being performed (which he describes as "Consequential Costs").
So far as the costs of relocating the occupants is concerned, the cost of this item is supported by unchallenged evidence from a real estate agent, Ms Dinsey, regarding the costs of renting two-bedroom and three-bedroom furnished townhouses in the vicinity of the Development for a period of 13 weeks. I have reviewed the evidence of Ms Dinsey, who explained the basis on which she has determined the cost of alternative accommodation. Mr Madden chose a figure at the top of the range identified by Ms Dinsey, on the basis that the period of the rental is unusually short. SPS did not dispute this approach. I am satisfied that it is reasonable.
So far as the costs of relocating belongings is concerned, Mr Madden initially prepared an estimate for the costs of moving all of the occupants' belongings off site. That was contrary to my finding at paragraph [212] of the Principal Judgment that this would not be necessary. He subsequently prepared a supplementary report which estimated the costs of moving belongings within each townhouse while the rectification works are being performed and subsequently replacing them. SPS has not identified any reason why Mr Madden's evidence of those costs should not be accepted.
The Owners Corporation drew the Court's attention to the fact that Mr Madden's supplementary report continued to include, in addition to the costs of moving the occupants' belongings within each townhouse, an estimate of the costs of moving their belongings to and from their temporary accommodation. The Owners Corporation correctly conceded that the latter costs should be excluded from the calculation of consequential costs.
Having regard to the estimates set out in Mr Madden's supplementary report, but excluding the costs of moving goods to and from the temporary accommodation, I find that the amount which should be allowed for consequential costs of relocation is $517,320.00 (excluding GST).
[5]
On Costs
Mr Madden has also prepared an estimate of all other costs which will be incurred in performing the rectification works, which he describes as "on costs".
These "on costs" comprise the following elements.
[6]
Preliminaries
Mr Madden expressed the opinion that the works will need to be coordinated and managed by a suitable and qualified Contractor, and identified the matters for which such a Contractor would be responsible. He was of the view, based on his experience, that a contractor would charge between 8-20% for this type of work, depending on various factors.
In the present case, having regard to matters such as location, access constraints, instability of material and labour prices and a lack of contractors, Mr Madden allowed for Preliminaries at a rate of 15%.
SPS did not advance any submissions to the effect that there should not be an allowance for Preliminaries or dispute the proposed rate. I am satisfied that it is reasonable to allow this item at the proposed rate.
[7]
Overheads and Profit
Mr Madden included this item, which he called contractor's margin, to cover the costs of offsite overheads, profit and risk. He explained that rectification work on an apartment project typically is at a margin of 10-25%. He expressed the view, based on the limited destructive testing that has occurred and the risk of latent issues, that a rate of 15% is reasonable for this project.
The Owners' Corporation noted that SPS's building expert, Mr Zakos, had agreed (in a report that was tendered in these proceedings when dealing with the defect issues) both with an allowance for Overhead and Profits, and with this percentage rate.
[8]
Contingency
Mr Madden expressed the view that it was necessary to add a contingency for contract risks and, in particular, to allow for matters such as unforeseen items that will be discovered on undertaking the work, latent conditions, and unidentified defects. Mr Madden stated that the industry accepted rate for Contingency is between 3% and 7% for work of this nature, and he considered that a rate of 5% for Contingency was reasonable in the circumstances of this case.
In his report, Mr Zakos agreed with an allowance for Contingency and agreed with this rate.
[9]
Design and Professional Fees
Mr Madden explained that he has made allowances for the construction consultants to document the scope of works and to prepare contract documents for tendering purposes, as well as costs associated with various consultant works that would be ongoing throughout the duration of the rectification works. He expressed the view that it is appropriate to estimate these costs as a percentage of the contract value and determined that a rate of 2.2% is appropriate.
SPS did not dispute the allowance for these fees or this rate. I am satisfied that it is reasonable to allow this item at the proposed rate.
[10]
Escalation
Mr Madden has applied construction costs as at 31 December 2023 (being the most recent data available). Mr Madden referred to evidence that there was an escalation in costs by 3.02% in the period from 31 December 2023 to 30 June 2024. Mr Madden doubled the escalation rate for that six-month period (to 6.04%) in order to determine the construction cost as at 1 January 2025.
SPS did not dispute that it was appropriate to add escalation at this rate in order to determine construction costs as at that date. I am satisfied that this approach is reasonable.
[11]
Costs of the Owners Corporation
Mr Madden explained that, in his experience, it is necessary for the Owners Corporation to have regular meetings with consultants, contractors and residents while rectification works are being undertaken, and that it would also be necessary to arrange access should occupants not be available. Mr Madden allowed for 14 meetings of 2 hours each, at a cost of $150 per hour, for a total of $4,200.00.
SPS did not advance any submissions to the effect that these costs were unnecessary or overstated. I am satisfied that there should be an allowance for them.
[12]
Home Building Compensation Fund (HBCF)
Mr Madden noted that HBCF cover is required for a licensed builder or tradesperson in New South Wales to undertake a home building project valued at $20,000 or more, including GST. Mr Madden calculated the cost of this cover based on the online calculator provided by iCare, to be $67,614.00. SPS did not dispute this calculation.
[13]
On Costs - Conclusion
Finally, Mr Madden also allowed for GST. However, the Owners Corporation acknowledged that it is registered for GST and is therefore entitled to an input tax credit for the costs of the rectification works when they are incurred. As a result, GST is not to be taken into account: Gagner Pty Ltd trading as Indochine Café v Canturi Corporation Pty Ltd [2009] NSWCA 413 at [151] per Campbell JA (Macfarlan JA and Sackville AJA agreeing).
For those reasons, I find that the total amount of the On Costs in respect of the rectification works is, as set out in Mr Madden's report, $2,790,079.92 (excluding GST).
[14]
Conclusion: Quantum
As outlined above, after removing GST, the total cost of rectifying the defects identified in the Principal Judgment - comprising the trade costs of the rectification works, as well as consequential costs and on costs - is $8,681,457.11.
Judgment will be entered for this amount.
[15]
Costs of the Proceedings
The Owners Corporation was successful in the proceedings. Although it did not succeed in respect of a number of defect issues, no such issue was dominant or severable. Costs should follow the event.
[16]
Orders
For the reasons given above, I make the following orders.
1. Judgment against the Defendant in the amount of $8,681,457.11.
2. The Defendant is to pay the Plaintiff's costs of the proceedings, as agreed or assessed.
[17]
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: 04 September 2024