District Court New South Wales Medium Neutral Citation: David Kenneth Costin trading as DC Build Construct v Catherine Maree Parer in her capacity as administrator of the deceased estate of Christopher Charles Musgrave No.1 [2021] NSWDC 564 Hearing dates: 13 September 2021 to 15 September 2021 Date of orders: 17 September 2021 Decision date: 17 September 2021 Jurisdiction: Civil Before: Priestley SC, DCJ Decision: See [97-98] Catchwords: Breach of contract – Building contract Legislation Cited: Home Building Act 1989 (NSW) Civil Procedure Act 2005 (NSW) Uniform Civil Procedure Rules 2005 (UCPR) (NSW) Cases Cited: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 Sharp v Cossack Pearls Pty Ltd [2012] FCAFC 110 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Australian Broadcasting Commission v Australasian Performing Right Association Ltd, (1973) 129 CLR 99 Creative Building Services v Jolene Investments Pty Ltd [2013] NSWSC 391 Mann v Paterson Constructions Pty Ltd [2019] HCA 32 Texts Cited: Brooking on Building Contracts 5th edition Category: Principal judgment Parties: David Kenneth Costin trading as DC Build Construct Catherine Maree Parer in her capacity as adminstrator of the deceased estate of Christopher Charles Musgrave Representation: McCall Counsel for the Plaintiff Taylor Counsel for the Respondent James Solicitor for the Plaintiff Marschke Solicitor for the Respondent File Number(s): 2020/00355162 Publication restriction: Unrestricted Judgment Introduction 1. The plaintiff in this matter is a builder ("the builder"). By a contract in writing dated 24 September 2018 ("the contract") he agreed to build a new three bedroom two story dwelling on land at Angourie, New South Wales for the owner of that land Mr Chris Musgrave ("the owner"). The statement of claim seeks payment of the sum of $301,578.92 as a debt due under the contract and makes alternative claims for damages for breach of the contract or alternatively by way of a quantum meruit and quantum valebat. The defendant denies the claim and in her defence asserts that the final progress payment which is what is in dispute and which is progress claim 8 is determined by the contract to be the sum of $21,199.43. The defence alleges numerous breaches of the contract by the builder and asserts that by reason of the alleged breaches of contract the contract including any variations is unenforceable by reason of section 10(1) of the Home Building Act. Section 10 provides that a person who contracts to do residential building work in contravention of section 4 (unlicensed contracting) or under a contract which does not comply with section 7 (in short that it be in writing) or in contravention of any other provision of the Act or the regulations prescribed for the purposes of section 10 (and there are are no such provisions specified in the regulations or elsewhere in the Act so far as the Court was informed) is unenforceable. Putting aside the issue as to variations, none of the matters asserted in the defence as being breaches appear to fall within section 10. There is no claim, again putting aside the issue of variations for the present, for anything to be set off against the builder's claim. 2. The issues raised by the pleadings and also by the parties outlines of submissions provided before the case began will be referred to below. Although it is not immediately obvious from the defence the issue in this case fundamentally is whether a proper interpretation of the contract is that it is a fixed price contract or a cost plus contract. That in itself is an odd position given that the defendant pleads that it is a cost plus contract. Ultimately that point, whilst still pressed, was seen by the defendant to be overshadowed by a quantum meruit claim which the owner conceded would succeed, with the difference in the parties positions being the amount. The owner argues that claim should be assessed at some $190,000. 3. In August 2019 the owner died intestate. The defendant in these proceedings is the administrator of his estate. References hereafter to the owner should be taken to be a reference to either Mr Musgrave or the defendant. Facts and overview 1. The following facts are taken from the builder's affidavit sworn on 21 May 2021. The owner was cross-examined on this affidavit. I found the plaintiff to be an entirely sincere witness and consider that there is no basis to dispute any of the matters that follow which are in any event, with one notable exception, largely uncontroversial. Indeed the affidavit relied upon by the owner given that its deponent had no personal knowledge of any of the events in question simply annexed a range of documents a large number of which were already annexed to the builders affidavit. Just why this was done is not clear given that the owner's affidavit was sworn months after the builder's affidavit. The notable exception referred to is the issue of whether the amount of work done by the builder was required by the contract and or was reasonable. 2. The builder asserts that the amount he claims is as set out in his invoice dated 20 November 2019 which is in the sum of $301,578.92. That invoice is at page 6 of exhibit DKC 1 to his affidavit (and being part of the tender bundle marked exhibit A in the trial) and is supported by 212 pages of documents most of which were free of any challenge and to the extent to which there was a challenge it is addressed below. I note that the date of the invoice post dates the termination of the contract by the owner. 3. The builder first went to the building site on 24 April 2018 and there met the then architect Ms Neville. On 26 April the owner and the builder met for the first time. The builder told the owner of a quantity surveyor named Mr Simmons who could price the project and later emailed the architectural plans to Mr Simmons. 4. On 21 June 2018 there was a first draft of costings by Mr Simmons which came to a total of some $777,000. The owner made changes to the building specifications and a revised costing gave a figure of $512,170. These costings were of Ms Neville's plans. 5. A contract was signed by the owner and builder on 4 July 2018 which was a New South Wales residential building contract for work on a cost plus basis. The owner paid $52,000 being the deposit under that contract. On 13 August 2018 the owner engaged a new architect, Mr Curran, who provided new drawings. These extensively changed the original architect plans. Work commenced on the new plan on 15 August 2018. On 20 August plans were received which became the construction plans for the works. Fresh costings from Mr Simmons were provided on 4 September 2018. The costed figure was $695,518. The unchallenged evidence is that Mr Curran commented in writing that $500,000 is not a realistic figure and that saving $200,000 is not a reality from which I infer he was suggesting the estimated cost would be in the region of $700,000. 6. In September 2018 costs were added to because of the need to dewater the site which was an unexpected difficulty in the discovery of an old septic tank in the location of the footings requiring additional work to remove that septic tank and fill the hole. The owner asked as to the costs of getting the dwelling out of the ground exceeding the budget, "how did we get to this" and the builder referred him to Mr Simmons who explained it to him. I would note the nature of a cost plus contract would see these unexpected costs as being part of the cost plus total. 7. The builder expresses the view that the construction was of a detailed architectural house which together with the confined building site were some of a number of factors that affected the cost, I infer in an upward direction. There was also an angled design to two of the decks to be constructed which had cost implications. 8. There was a budget of 13 September 2018, again from Mr Simmons. This is a document incorporated into the contract. It gives a costing of the works of $600,865.91. This did not include provision for Electrical trade supply nor any allowance for the study carpentry. It referred to a Laminex range for the study but what was used was spotted gum timber carpentry. 9. The builder sets out in some detail the construction of the dwelling. There was not any successful challenge to the evidence of the builder in this respect. This is significant because the expert quantity surveyors differ as to the complexity of the job. The expert for the owner suggested this was a straightforward job and should not have taken the time of labour and supervision that has been claimed. The expert for the builder does not share that view and arrives at a figure in line with the amount claimed, with some variation as referred to below. It was also notable in the cross examination that when the builder disagreed with the proposition being put to the effect that the building was a straightforward job there was little if any significant further challenge. The evidence of the builder refers to the need for 316 stainless steel fixings, and the angled finishings to the front and back decks which he stated was time-consuming and difficult. The bushfire attack level rating identified a serious risk of catching fire which required F 27 hardwood and other measures resulting in increased expense and hardwood is more difficult to work with. Some of the items to be installed were made on site. I infer that this adds time to the process rather than manufacturing them in a factory. 10. On 18 September 2018 payment was made of $139,103 in payment of the progress claim number one issued on 13 September 2018. 11. A second contract was entered into on 24 September 2018 referring in schedule 6 to the new architect and engineering drawings and also the budget of Mr Simmons dated 13 September 2018 (that budget was at pages 456 to 502). That budget including GST has a total of $600,865.91. There is in the circumstances of this case some significance in the characterisation of that document, that is it is called a budget and there is nothing that I can see in the contract that sets that budget figure as the price of the project. If it was to be the price of the project it would be a fixed price contract not a cost plus contract which it would appear to clearly be given the terms schedule 2 and clause 15, though I consider this point more closely below. The owner appears to contend that the contract does in some way operate so as to restrict what the final payment can be due to the provisions of schedule three. 12. By an email of 9 October 2018 the owner instructed the builder that Mr Simmons would fill the owner's role of the cost plus process and for the builder to provide Mr Simmons with anything necessary to complete the process. This is what the builder did. This included frequent discussion with Mr Simmons in connection with what has been referred to in this case as "variations" but which as the evidence fell turns out may, with one exception, not be variations at all but rather are costs which are costs of the works to achieve completion of the building works. The builder asserts this is the case, which is why the builder's primary claim is for a debt due under the contract. The items in question on the evidence of the builder were examples of where budget allocations may have been exceeded but were not variations of the design (again with one exception). This may distinguish this case from other cases concerning variations which ordinarily are when something is built in addition or in variation to what had been agreed to be built. 13. The contract provides for eight progress claims. Progress claims 1 through to 7 inclusive were paid. PC 7 was issued on 4 April 2019 and paid on 8 April 2019 in the sum of $112,853.32. Progress claim 8 is for the period 11 March 2019 to 30 June 2019. 14. As to what has been referred to as "variations" the amount in question varies between $71,444 and some $77,000. The parties are in agreement however that the value of the variations so-called arising in the period 11 March 2019 to 30 June 2019 is approximately $17,000. In other words the balance of the variations of either $54,544 or some $60,000 has been the subject of invoicing in the earlier progress claims and has in fact been paid. There is no need for the builder to make good any quantum meruit claim in relation to those amounts that have been paid because his claim is not for those amounts. Rather it then becomes the onus of the owner to show that whatever amount might be payable to the builder should be reduced on the basis that he has been overpaid before now. The owner does not appear to have taken this into account in the presentation of his claim; these varied amounts on the evidence have been paid by him after the builder has gone through the approval process with Mr Simmons at the direction of the owner, has presented his invoice following that process and has then been paid. On what basis is it now being said that these so-called variations can be challenged? 15. I note in the plaintiff's aide memoir number one there is a breakdown of the current claim and it makes no reference to variations. This is consistent with the evidence above of the variations being a variation from the budgeted cost not to the work to be done. This was well described by the builder in his evidence. Accepting this to be so would mean there is no merit in the allegations relating to variations being made by the owner. I note that the owner's claim for defective works has been abandoned. 16. This brief overview suggests that there may well be no consequence flowing from the various allegations of breach of contract, that there may be no, or only minimal variations requiring justification by way of a quantum meruit (or put another way no work done which was not the subject of a written contract) and there is no longer any claim for defects. The issue would appear to be whether the builder can claim his PC8 payment under contract, and if not, then what is the value of the work on a quantum meruit. One difficulty for the builder in this regard is that the first version of PC8 was for $165,000, a second version was for $185,000 and the third was for $301,000. Versions one and two were disputed by the owner before the contract was terminated. The third version which is that at page 6 was issued on about 20 November 2019 after termination. A question possibly arises as to the ability of the builder to make a claim for the disputed progress claim after termination that is in excess of the disputed claim made before termination. 17. The aide memoire highlights an interesting feature of this matter, particularly when it is considered that the thrust of the owner's complaint is the alleged unreasonableness of the cost of the project. That feature is that of the $305,000 now claimed (as at the beginning of the trial) and prior to making allowances for credits to various subcontractors and for other costs it shows that of a subtotal $343,000, $44,000 is the builders fee and the balance is entirely the costs of materials, service providers, subcontractors and labour. Simply limiting the consideration to third-party payments to subcontractors and for building materials gives a figure of some $170,000. These are costs that have been paid by the builder from his own funds to third parties for the benefit of the owner who for the last 2 ½ years has been living in the house built by the builder. 18. The builder then sets out the conduct of the works which he says did not go well. He says the labour content in the budget was below what was reasonably expected for the job and that the hardwood pricing was well below market rates. In his later affidavit is an email dated 19 December 2018 where the owner tells the builder that he wants him off the job. In his first affidavit he says by an email of 2 January 2019 the builder emailed Mr Simmons of his view of what he called budget errors. On 22 January 2019 the owner sent an email stating he will terminate the cost plus contract and asking the builder to forward a fixed price contract. The builder did not do so. Nothing seems to have emerged from this. Then on 2 February 2019 (and bear in mind the build was complete sufficient to allow occupation by April 2019) the owner sent an email asserting that there must be quotes with pricing locked in in accordance with the budget and raising other issues, including I note demanding a fixed price for painting. And at item 9 "any variation to budget labour that I haven't signed off on prior I won't be paying for". Curiously part of the reply by the builder was to note "agreed" to the assertion "we must have quotes on all items with pricing locked in in accordance to the price plan document" yet at the same time in relation to the variation to budget labour point the builder replies that he had advised the owner and Mr Simmons of inaccurate pricing. Significantly I note that none of this is said to have led to any variation to the contract. Having had the benefit of the evidence of the builder what is clear is that the budget was something they were conscious of and trying to adhere to as far as possible. As he states in his first affidavit the builder did not consider that approval was needed to proceed with an item if it was in excess of the budget. That does not impact on the interpretation question but it does give a flavour of the difficulties being faced by the builder where (if it is the case) the owner is party to a cost plus contract but is seeking to adhere to a budget. The builder describes this as him having become the bearer of bad news when he advised that the cost was greater than the estimate for particular items. The position was made more difficult it would seem for the reason set out at paragraph 72 of the first affidavit where the items and finishings chosen by the owner were higher cost than the estimates in the budget. The builder is also hampered by indecision of the owner for example as to the size of the windows which would delay the ability to order the windows. There were also revisions of the architectural drawings. The evidence unchallenged at the hearing was that changes to the architectural drawings did not lead to any change in the budget. Other difficulties appear to border on the petty, for example the owner had a preferred painter who is difficult to contact so that the builder contacted a reliable contractor which led to a threat by the owner not to pay him for that work if he used that contractor. This led to the whole process taking longer. Another example of minor changes causing problems was a window at the end of the upper deck which required council approval because the opening was inconsistent with the condition of the development approval. The builder was able to persuade the council to let it go so long as there was compliance regarding the balustrade. There was a change in the lower floor finish from the carpet to timber, a change which added expense and far from expressing concern about the budget on this occasion the owner said to the builder "just do it". 19. This led to the job becoming very stressful and there is some more detail in this regard in the second affidavit. There was no challenge to the builder in regard to this. It is a matter in which one would be guarded in forming firm conclusions given that Mr Musgrave is not able to defend himself. The email communication and text communication in the second affidavit certainly showed that there was a breakdown in the communication and without wanting to be unduly unfair of Mr Musgrave, is clearly able to be seen as demonstrating a certain degree of unreasonableness on his part. 20. On 27 February 2019 the owner's solicitor Mr Shields contacted the builder concerning the downstairs entry doors. The owner places some significance on these doors as being indicative of the inflationary charging of the builder. The budget allowance was $5000. This could not be achieved. The owner demanded a variation report. Yet this is not a variation; it is a budget overrun. The cost was in fact $7240, and was paid as part of PC6. 21. In March 2019 the owner accused the builder of overcharging him supervision fees and they said he would charge a penalty of $5000 to cover his rent because of the delay and would also want his builders margin reduced to only 10% on the last $100,000. The builder's evidence is this was intimidatory and caused him stress, something supported by a letter from his doctor. In contrast to this close observance of the budget when it came to tiling the owner retained a friend at a cost in excess of the budget. 22. In an email dated 24 March 2019 the builder sought to explain the position to the owner and made reference to the fact that the budget has proven to be inaccurate on many points. The email also points out regarding delay that some six weeks were lost due to the Christmas break, public holidays and the weather. It also refers to further delays for information, the engineering, the construction certificate and the need to deal with variations by which he means trying to obtain pricing within the budget. The evidence suggests the owner was not appeased by email or any other efforts of the builder. 23. The first notice of dispute was dated 31 May 2019 and is at page 539. It required a final progress claim. The owner sent documents to Mr. Simmons for this purpose but there were difficulties in calculating the figure. On 21 June 2019 PC 8 version 1 was available in the sum of $165,511.06 and was forwarded to the owners Solicitor. In reply a request was made for the resubmission of all progress claims under the contract with the form of the progress payments created by Mr. Simmons being rejected despite the fact that that was the method requested by the owner, and I would add had been paid. Mr. Simmons revised PC 8 to $177,885.92, and soon after he was instructed not to work on the job anymore by the owner. 24. On 13 June 2019 a defects notice was issued. Some defects were acknowledged and rectified and others were not conceded. As noted above a defects claim was made by the owner and it was then abandoned. 25. On 25 June what has been referred to as version 2 of the PC8 was prepared in the sum of $185,546.32. A request for part payment was not acceded to. 26. A second notice of dispute was served on the builder on 1 July 2019 disputing PC 8 version 2. 27. A default notice was served on 5 July 2019 alleging the builder to be in substantial breach for not responding to the notice of dispute dated 1 July within the time allowed and not rectifying the issues of that notice of dispute and of not rectifying defects and not providing the final progress claim within five working days. It also said that he sought the final progress claim prior to practical completion and had claimed for some cost said to have been previously claimed, and because completion of the work was overdue. Just why these matters amount to a substantial breach in the facts of this case was never made clear in correspondence, or in the pleadings, or in the conduct of the trial. 28. On 5 July the builder sent an email to Mr. Shields withdrawing PC 8 version 2 and serving PC 8 version 3 for a slightly larger amount of some $400 being $185,889.86. 29. The email also sent a notice of practical completion. 30. On 10 July 2019 the owner disputed PC 8 version 3. That notice which is at page 589 asserted that there were certain variations of $77,444 and raised numerous other issues. Of the seven points raised the only ones that are presently still in issue would appear to be the alleged carpentry labor overruns, and the alleged variations. It also seems the figure is a typographical error of longstanding and should be $71,444. 31. On 25 July 2019 the owner issued a notice of termination of the contract. On 26 July 2019 the builder sought legal advice. This led to a recalculation of the claim in the form that it was for PC 8 version 3 served on 28 November 2019 in the sum of $301,578. The marked difference between PC 8 versions 2 and 3 of some $115,000 is explained in paragraph 143 of the builders affidavit which was not the subject of any cross-examination directly. The builder says : 34.1. The earlier claim did not include any amount for supervision as he accepted what Mr. Shields had said. 34.2. The total of labor and materials was $175,449 which with a builders margin of 15% adds $26,317 giving a sub total of $201,766. With GST this becomes $221,943. Some minor adjustments reduce that to $218,701. 34.3. Further adjustment was needed to account for subcontractors organized by the builder but paid directly by the owner so that the builder's margin could be applied. 34.4. an adjustment was made to charge for the use of two mobile scaffold towers provided by the builder. There is a dispute about how much this charge should be with the builder charging 16 weeks at $400 per week and with both of the quantity surveyors saying it should be something less. 34.5. A charge was added for the use of a trailer which is also contentious, with the quantity surveyors at odds as to whether it is a legitimate claim. 34.6. The differences are conveniently set out at paragraph 143(f). A further minor adjustment to allow for the correct application of GST was made. 34.7. The builder also gives evidence again unchallenged of his involvement in engaging and supervising and coordinating subcontractors paid directly by the owner. 1. At paragraph 162 the Builder gives a good example of the issue of variations. This relates to the window that he needed to deal with Council about. The work done was in accordance with the amended plan from the new architect dated 15 November 2018. This architect is Mr. Curran and his earlier plan was part of the contractual documents when the contract was entered into on 28 September 2018. Thus this is a variation to the work to be done, and not a variation to the budget. Yet it is quite plainly in writing because it is an amended plan from the architect, and now forms part of the contract. The case of the builder is that all the variations are either in accordance with the architect's plans be they the initial or amended ones or otherwise are not variations at all in the work required but only in the cost being different to the budget. From paragraph 162 of the affidavit each variation is dealt with in turn. Variation 13 as just discussed was as per the amended plan. Variation 15 is a cost in variation so not a variation to the work required. The same can be said of variations 16, 19, 26, 27, 29, and 28 which is in fact a credit. These are the items at page 708. None of this was challenged in cross examination. The pleadings 1. The plaintiffs claim at paragraph 15 pleads that on 5 July 2019 the plaintiff submitted a claim for stage 8 in the sum of $185,889.86. Paragraph 16 pleads that this was rejected by the owner on about 10 July 2019 and by paragraph 17 pleads that on 25 July 2019 the owner purported to terminate the contract. 2. At paragraph 21 it is pleaded that an amended claim for stage 8 was served on 20 November 2019 for $301,578.92. 3. The owner's claim is simply for a debt due under the contract. In the alternative the sum is sought as damages for breach, ie the non payment of the amount the contract requires to be paid. Further in the alternative the amount is sought on a quantum meruit. 4. The defence relies on schedule three of the contract to say the amount payable for claim 8 is only some $21,000. It also goes on to list various breaches in line with the narrative set out above. The defence also claims that an amount of $77,444 (or $71,444) represents variations which are not in writing. Further there is only approximately $17,000 that are variations that remain unpaid. Given that the defendant at paragraph 35 of its final written submission accepts that upon termination of the contract existing rights and causes of action remain enforceable such as were in existence at the time of termination, there is no purpose in examining the alleged breaches of the contract alleged in the defence because the builder remains entitled to enforce the rights he had at that time and now still has. 5. The issues then relate to the variations in which regard the owner refers to special condition 6. The owners final submissions also assert a breach of an essential term by completion not occurring within 22 weeks and taking 35 weeks allegedly. The word allegedly is used because the owner relies on the start date of the first contract of 4 July 2018 yet work only began on the designs of Mr Curran which governed the contract dated 24 September 2018 in August. It would also be apparent from the above narrative that there is a good argument that any delay was caused by the owner and not the builder. Given however the abandonment at the hearing of any reliance on the argument that the amount payable is to be reduced by some nominal figure per week for the alleged 13 weeks overrun, this too, if established as a breach, is a breach without any consequence. 6. The final submissions of the owner seem to no longer maintain that by reason of schedule three in the contract only the sum of $21,199.43 is payable. In the interests of certainty I will address that issue. I note that in oral submissions the position was seemingly maintained but at the same time as it was acknowledged that if the owner was correct there would be a valid quantum meruit claim for the balance. There is thus an issue to determine as to what the value of the works is which requires considering the two experts. I note that the builder appears to argue that if the claim is under the contract it would only be a matter of proving the service of the bill without there being a question of reasonableness. This was not entirely clear but if that was the intended submission I would reject that submission on the basis that it cannot be the case on a cost plus contract there is no restraint on the builder. Under the dispute mechanisms of the contract such a claim would likely be rejected and there would be a resolution of it precisely as is occurring here. Arguably this approach assists the plaintiff in the argument concerning the amended November PC 8 claim. What is to be determined is what is the amount to be paid under the contract or at quantum meruit. 7. In short then the issues are whether the plaintiff's claim succeeds in contract, if not then to what extent does the plaintiff succeed in quantum meruit including if necessary consideration of the variations, and what is the effect of schedule three. 8. Before dealing with those three issues the defendant relies on an email from the builder where he apologies for doing a bad job. In my view that does not have any relevance to the current considerations. There is no defects claim which suggests that his job was perfectly adequate in this regard. It is not necessary to delve into the more personal and subjective issues that were existing between the parties that might give a better explanation of that email. The contract 1. There are three main issues arising from the contract. The first is to determine the meaning of schedule 3. The second is to determine whether, when an owner disputes a payment claim, it is open to the builder to subsequently, and after termination, to claim an amount greater than the amount claimed in the disputed payment claim. The third is to determine whether what has been referred to as "variations" are in fact variations within the meaning of that term under the contract. There perhaps was a fourth issue as to whether any of the breaches pleaded by the owner render the contract unenforceable by reason of section 10. The acknowledgement however by the owner that rights accrued under the contract before termination remain enforceable after termination makes that unnecessary. As at the time of termination all the work the subject of the claim had been done. 2. The following brief summary of authorities as to interpreting contracts is taken from Brooking on Building Contracts 5th edition at [2.4]-[2.16]. 3. Interpretation of a contract has been said to be "the ascertainment of the meaning which [a] document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract"; see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114. In Sharp v Cossack Pearls Pty Ltd [2012] FCAFC 110 at [82], citing Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, it was accepted that the courts or to have regard to the objectively determined commercial purpose of a contract with knowledge of the genesis of the transaction, the background, the context and the market in which the parties were operating. 4. In Australian Broadcasting Commission v Australasian Performing Right Association Ltd, (1973) 129 CLR 99 at 109 Gibbs J said "if the language is open to 2 constructions that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust even though the construction adopted is not the most obvious or the most grammatically accurate". His Honour there went on to say it is permissible "to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument". 5. As to evidence of surrounding circumstances to aid in the interpretation of a contract it was laid down in Codelfa at 352: The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking fax existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction unless they were known to both parties, although… If the facts are notorious knowledge of them will be presumed. Schedule 3 1. Schedule 3 to the contract is headed "progress stages". Schedule 3 is at page 402. It sets out eight stages. The first two lines of schedule three read as follows "the stages for when progress claims are to be made must be clearly defined in this schedule. The stages may be by reference to work completed or by period of time as otherwise agreed." The schedule then sets out eight stages and sets out the time of payment by reference to work completed. The first two payments had been made before the contract was entered into. The first stage was the deposit of $52,000. The second stage was the "base" stage which included the ground main floor concrete slab, ground floor timber subfloor. The payment received was $139,103. These paid amounts and the balance of the figures appearing at the end of the following stages add up to approximately $600,000 which is in line with the budget. There is no evidence as to how the figures came to be arrived at though one would assume that it was taken from the budgeted items matching the description of the works to be completed by the relevant stages. In respect of stage 6 the amount set out in the schedule is $60,086 yet the payment for progress claim 6 was $150,000. The amount stated at stage 7 is $60,086, so precisely the same as the earlier stage, yet the amount paid for PC 7 was $112,853 (the paid amounts were stated by counsel during the hearing without demur). 2. The contract on its front page is headed "NSW residential building contract for works on a cost plus basis". The contract is dated 24 September 2018. Scheduled 2 is headed "price of the building works". It refers to clause 15 and provides that the "cost of the building works" includes but is not limited to matters set out at sub paragraphs (a) through to (j). Subparagraph (a) states "the cost of all subcontracts wholly in connection with the building works"; paragraph (b) states "the costs of labour and services supplied wholly in connection with the building works by the builder and its employees (this includes the builders own time on and off the site)" and the other paragraphs capture all fees and costs including by paragraph (f) the cost of temporary structures which would include scaffolding and by paragraph (g) the cost of plant equipment and services which would include a trailer. 3. Schedule 2 then sets out the rates at which labour and services are to be charged. 4. Self-evidently none of this is a fixed price but rather has the effect that the price of the works at the time of the contract is not known for it is to be arrived at in accordance with that schedule. Another indicator that the price is not known is that the builders fee is a percentage and not a set sum. 5. Clause 15 is headed "progress payments". Clause 15.2 places an obligation on the owner to pay the price of the building works progressively as claimed by the builder. It further provides that the price of the building works is an amount equal to: 53.1. The cost of the building works plus; 53.2. The builders fee plus 53.3. GST. 1. Clause 15.3 provides the builder must give the owner a written claim for a progress payment at each stage described in schedule three. Significantly that clause talks of a written claim in respect of the stage described in schedule three; it does not state that it is to be for any amount stated in schedule three. 2. The evidence in the trial made it very clear that when progress claim 8 was served by the builder it was accompanied by literally hundreds of pages of invoices and other supporting documents. There has been no identification by the defence in this case as to just why the serving of the claim was in any way defective beyond the assertion contained in the notices of dispute. 3. By schedule 6 the budget prepared by Price a Plan dated 13 September 2018 forms part of the contract. The total of that budget approximates or is actually the figure arrived at by adding up the numbers besides each progress claim in schedule three. 4. The owner also relies upon the terms of the special conditions. It may be the owner relies on this more for the variations argument than the argument concerning schedule three. Relevantly to the current issue I note that the first words of the special conditions are "this is not a fixed price contract". Immediately following those words is the following "price a plan document is to be used as a reference as a guideline to the budget only". On the evidence it is the price a plan budget which is the source of the figures found at schedule three. 5. I find, as alleged by the plaintiff and as pleaded by the defendant at paragraph 5 of the defence, that the contract is a "cost plus" contract. It is clause 15.2 which provides for the price of the building works and it is said to be, as pleaded by the defendant, an amount equal to the cost of the building works plus the builders fee and any GST. 6. I reject the argument as pleaded at paragraph 5 of the defence that schedule three of the contract provides that the final progress payment shall be in the sum of $21,199.43. There is an obvious incompatibility between a cost plus contract and one which has a final payment of a specific amount. The interpretation argued for by the owner has the consequence that the builder would not be paid the price of the works if the final claim was more than that sum. 7. The conclusion that I come to is that these figures allocated to the different stages in schedule three are references to the budget. When that is accepted there is really no argument to be had in the face of the second line of the special conditions set out above. Consistent with that special condition the numbers seen at schedule three are a guideline. They are not some figure absolute determining the amount of the invoice that can be rendered at each stage. 8. The builder therefore under the terms of the contract is entitled to render a bill for progress claim eight in an amount different to $21,199.43. Can the builder claim an amount greater than the disputed amount? 1. As noted above the cost of the works is an unknown amount but made up of the amounts set out in clause 15.2 and schedule 2. The obligation on the owner is to pay the price of the building works under the contract in the manner and at the times stated in the contract; see clause 3.1. The manner of the payment is governed by clause 15. That clause requires the builder to give the owner a written claim for a progress payment at each stage described in schedule three. That occurred in respect of progress claim eight. 2. Where the parties are in dispute as to a payment claim they can either choose to keep the contract on foot and engage in whatever form of dispute resolution including litigation as they may determine. The contract has a dispute resolution clause but no party makes any reference to this in these proceedings. That clause, clause 31 makes no provision for what is to occur if the parties do not resolve their dispute. My view is that the parties are then at liberty to bring such proceedings as they consider appropriate. The matter in dispute in those proceedings is the quantum of the disputed claim. 3. There does not appear to me to be any principled reason why the ultimate figure found to be payable under the progress claim can be no more than what was stated in the progress claim provided that the higher amount is made known to the owner and the owner is given every opportunity to challenge that amount. There is no express term of the contract excluding this approach. The argument of the builder to the effect that clause 15 provides a trigger mechanism for the liability to pay for the next stage seems logical. Ordinarily in a non contentious contract that claim would inform the owner of what the obligation is as at that stage under the cost plus contract. Work would then continue on and a further claim made in due course. Or if it was the final claim then an amended claim could be made certainly prior to payment. If payment was made other issues may arise such as accord and satisfaction but that is not the case here. 4. This approach allows the entitlements of both parties to be arrived at without artificial restraint and I prefer it to the defendant's approach. This conclusion is consistent with the view of McDougal J in Creative Building Services v Jolene Investments Pty Ltd [2013] NSWSC 391 at [31]. Notably what was considered there, as here, was a final claim. 5. The argument is however somewhat moot, for even if the above conclusion is incorrect there is no dispute that all of the same work is open to be claimed by way of quantum meruit. I might add in that regard the fact that the builder makes the concession that more than $21,000 can be claimed by way of a quantum meruit, and noting also the reference by both parties to Mann v Paterson Constructions Pty Ltd [2019] HCA 32, shows that it is in the contemplation of the parties that the contract is for a cost amount such that more than $21,000 can be claimed by progress claimant 8. This is because the point of Mann, which was a case of a fixed price contract, was to limit the restitutionary claim to be within the bounds of the expectations of the contract. The concession that the quantum meruit can be more than $21,000 is a concession that the contemplation of the contract or the effect of its terms was that more than the approximate $600,000 in total could be the cost of the building works. Variations 1. Perhaps the first point to make here is that apart from item 13 in the sum of $790.90 the builder does not accept that there are any variations. The amount claimed as being variations by the owner appears to be the sum that is set out in exhibit B of $71,444. At paragraph 7 (c) of the defence it is alleged that in breach of clause 16.1 a sum of approximately $77,444 (sic) was not agreed in writing and signed by each party in accordance with the contract. If that is correct then the owner accepts that those same works can be the subject of a quantum meruit claim. The defence goes on to say at clause 7 (m) that by reason of the breach of clause 16.3 pleaded at paragraph 7 (c) the plaintiff is not entitled to damages or any other remedy in respect of the breach of contract (I would add as distinct from quantum meruit) and appears to rely upon section 10 of the Home Building Act. Then at paragraph 29 the defendant's claims are set off by the amount of the variations. 2. The result of those pleadings is that if the items claimed as variations are not variations then there is no defence in the sum of $71,000 nor any set off. 3. It is also relevant to note that of this $71,000 figure $54,000 approximately has already been paid that is it is not part of progress claim 8. It is only the items at page 708 that remain unpaid variations. 4. As to the variations so called forming part of progress claims 1-7 it is difficult to discern precisely what the owner asserts. The pleading refers to a notice of dispute of 26 March 2019 which is at page 41 of the owner's affidavit yet the only variation referred to there is for variation 14 relating to tiling changes and which in any event is not an item that makes up part of the amount claimed under exhibit B as it has a red cross. The next document the owner refers to is a general reference at page 42 of the owner's affidavit in an email broadly stating that in the documents provided on 3 June, which I infer relates to progress claim 8, there were various claims for variations. That brings us back to the $17,000 amount. The next document particularised is an email of 25 June which also does not particularise these variations. There is then particularised 2 notices of dispute one of 1 July and the other of 10 July. The 1 July notice provides no adequate particularisation. That notice relates to progress claim 8 again supporting the view that we are dealing with a $17,000 amount. The exception to this theme is that the notice of dispute of 10 July 2019 does refer to a sum of $77,441.41 but that is an assertion that relates to the progress claim being disputed namely progress claim eight. The variations relevant to PC8 are those at page 708 totalling some $17,000. 5. To the extent that the items have already been paid for the plaintiff says the matter is the subject of accord and satisfaction and there remains no claim by the owner in respect of those matters. There does not seem to be any argument against this by the owner. Like other aspects of this case the resolution of this point does not affect the ultimate dollar outcome because even if the owner is correct the owner properly concedes that the matter then gets determined by way of a quantum meruit which reverts us back to the debate between the experts. 6. Clause 16 deals with variations. So too does the special condition. Clause 16 provides that the variation must be in writing. Clause 16.5 requires the owner to pay the builder an amount equal to the cost for additional work for a variation. The special condition is in handwriting and reads as follows "any variation to current design spec as per price a plan document to be approved in writing by owner before commencement of works". 7. In my view in terms of considering progress claim 8 what needs to be considered is the variations that are alleged to be subject to that progress claim. If appropriate the balance of the owners claim as to variations outside of that claim can be considered. 8. The variations in respect of PC 8 are at page 708. The submission for the builder is that but for $790 these are not variations in terms of the scope of the works but are variations in the budgetary price. As such they are not variations caught by section 7 or section 10 of the act. 9. The term "variation" is defined in clause 1 of the contract and means relevantly an addition or change to the building works or a change in the manner of carrying out the building works. "Building Works" means the building works to be carried out and includes variations. For those two definitions to make sense a variation must be a variation to the building works to be carried out absent that variation. The full definition of building works extends to be as follows "means the building works to be carried out completed and handed over to the owner in accordance with this contract as shown in the contract documents and includes variations". Earlier in these reasons I determined that the budget document was a guide. It is not fixed. In my view the variation provisions of clause 16 mean a change to the actual building specifications not a change to the anticipated cost of them. It follows that I accept the builder's submission. The evidence of the builder made out that these variations were budgetary and was not detracted from in cross examination. 10. This leaves a concern as to the special condition. It is in the following terms "any variation to current designed spec as per price a plan document to be approved in writing by owner before commencement of works". The competing arguments here are that the reference to design specification shows that needs to be a variation to what is being built; the owner argues that the reference to the budget document shows that it may be a change to the price. 11. I note again that this is a moot argument because the owner concedes that if it is a variation not complying with the special condition the quantum meruit cause of action is available. For that reason the matter does not require close consideration. That said my view is that the special condition seeks to impose upon the cost plus contract budgetary control beyond what might be expected of a cost plus contract. What it requires it would seem is approval in writing each time the budget on an item is to be exceeded. That would appear to be borderline unworkable. On a strict reading of the clause what is required is a variation to the current design spec not a variation to the cost of building the design spec. The clause is poorly drafted because it meshes together concepts of design and costing. In my view an interpretation should be given that makes the contract efficacious and that sees an interpretation favouring the builder's argument. In any event if that be wrong then as with the other contractual disputes the matter proceeds to be considered by way of a quantum meruit. 12. The conclusion I reach is that the builder's claim does not include a claim for variations beyond the $790.90. Apart from the defence of the variations there is no defence to the contract claim other than allowing for a reasonableness argument. The amount of the claim sought in final submissions before any interest is now some $282,000. The contract claimed therefore succeeds to that extent, again subject to reasonableness. The remaining $790.90 will be claimable as a quantum meruit. The experts and quantum meruit 1. Each party relied on evidence from an expert in respect of the reasonable cost of the works. This was relevant to the variation issue perhaps, and to the quantum meruit issue and also as to the question of reasonableness of any damages claim. Arguably it is also relevant to the debt claim if there remains a dispute as to those costs as not being reasonable, with an argument, which has not been made, that the "cost of the works" as defined in the contract have a constraint of reasonableness, whether by interpretation or implication. 2. The owner deals with this issue in that part of his written submissions dealing with quantum meruit. In oral submissions on 15 September 2021 The owner conceded that if the owner succeeded on all of its contract points there would still be a judgment in quantum meruit for the builder of $190,000. In oral submissions the owner no longer presses for a reduction of some $40,000 as was asserted by Mr Grehan in respect of the 13 week "overrun". 3. With respect this seems to me to make plain that so far as variations are concerned it is only the variations that are part of PC 8 and identified on page 708 that are in issue. 4. The position is that the reasonable value of PC 8 is assessed by the owner relying on the report of Mr Grehan as $190,000. The competing position of the builder is to say that some is $282,187. 5. This position will largely be determined by which of the experts are preferred. Before canvassing that matter I note that the Owner asserts there is only a difference of some $70,000 between the two experts and reference is made to page 94 of the third volume of the Court book. That table extends to page 95 and shows the amount of Mr Evans (retained by the builder) report concludes the value to be $272,964.95 and the assessment of Mr Grehan to be $190,386.94. This is a difference of some $82,000. I cannot account for the difference in the $12,000. 6. It should be noted that the plaintiff seeks some further $10,000 in respect of matters it argues Mr Evans should have allowed for. I will deal with that shortly. Returning to the defendant's submissions it is submitted at paragraph 42 that the essential difference is the reduction of hours based on assessed time and a reduction for staff members not described and description of works not provided 7. There was evidence in the trial of identifying the unknown worker as being a man named Diego. The submissions do not detail the particular invoices which are said to not be adequately described. There was evidence lead in respect of those items and in my view the evidence that those costs were incurred was made out. This conclusion is supported by the concession made by Mr Grehan recorded below. 8. The report of Mr Grehan had the following problems: 86.1. He assessed the reasonable labour costs as being some $40,000 less than the builder claimed. His estimate of the hours is at page 17. But he gives no basis for that assertion. There is no means by which a third party seeking to consider the merits of those figures can do so. 86.2. Mr Grehan was not provided with the builder's affidavit. His report amounts to being a generalised statement of some hypothetical build based on asserted average costs. It does not apply to this construction, and does not take into account the wide range of matters faced by the builder. The irrelevance of that approach to this case was made plain when having gratuitously disparaged the builder to the extent of suggesting that he had been "milking" the cost plus job he then accepted that if the builder was accepted as an honest and hard-working builder then the costs claim would be reasonable. 86.3. Not only was there no reference in the report by way of annexure or otherwise of the basis for his calculations at page 17, in his oral evidence Mr Grehan made express reference to commonly referred to building guides Rawlinson's and Cordells and said that he did not use those guides because their rates were too high. 86.4. I formed the view that Mr Grehan was an advocate for the owner. That view was based on his willingness to disparage the owner as just mentioned and also his willingness to venture beyond his field of expertise. In this regard I was influenced by his willingness to make a deduction from the total that might otherwise be due to the builder as a result of the building period running over the time allowed by the contract. Not only did he delve into contract interpretation but he delved into calculations that were unsustainable. The calculation being referred to is that because the job on one view took 13 weeks longer than it was expected weeks than he did a calculation to arrive at a weekly labour cost figure for the period of PC 8 and then applied that average figure to multiply it by 13 and to then deduct that cost from the cost that he had calculated as the cost of PC 8. That is, having calculated that a reasonable cost of the build for PC 8 was $190,000 he then asserts it is truly $150,000 by making the deduction just described. That is simply a contradictory conclusion and baseless. At best it is making a liquidated damages deduction favourable to the owner. The contract in this case provides for one dollar per week as liquidated damages. 1. Mr Grehan as noted above took an unusually subjective view of the builder for a person who is providing an expert report. He did not appear to have a real grasp of the methodology of expert report writing, namely to make a series of assumptions and then on the basis of those assumptions which will either be made out on the evidence or not, then express the relevant expert opinion which his expertise permits him to do. Mr Grehan was asked to assume that the builder was an honest and hard-working builder and asked to further assume that the time involved in carrying out the works was as stated by the builder and then based on those assumptions would he agree that the cost would be as set out in the report of Mr Evans. The answer given by Mr Grehan was in the affirmative. That is Mr Grehan agrees with Mr Evan's report if the evidence given by the builder as to what was involved in carrying out the works, including the amount of labour, is accepted. 2. As noted at the beginning of these reasons I formed a favourable view of the builder. I considered that he remained remarkably calm and balanced in the witness box when assertions were put to him tantamount to fraud as to his business activities. In each of the occasions when some challenge was made to him as to why a particular part of the job required a particular amount of labour he gave a considered an appropriate and in my view totally understandable and acceptable explanation. 3. I do not consider the report of Mr Grehan should be relied upon. 4. In contrast Mr Evans' report was more focused on the actuality of the building works. Mr Evans was cross examined. He gave his evidence in a manner that struck me as objective, and indeed, albeit modestly so, his calculation is less than the amount claimed. Also, although not available for the first of his reports, he did have the affidavit of the builder at the time he prepared his second report, which was in reply to the report of Mr Grehan. 5. The major reason I consider Mr Evans' report of more assistance than that of Mr Grehan is its reference to what actually occurred on the build. It is to be remembered that what is being assessed is not a costing exercise of a not yet built project, but of the reasonableness of what has actually happened. In this regard I was persuaded by the following evidence given at T135 on day 2 of the trial: Q. If I might just take you back to page 88 of your second document. Where you have commentary with respect to the fit out itself. You say largely at each of those items, certainly on that page, that you are instructed that the works took a period of time, and you're of the opinion that that was a reasonable time period. Is that correct? A. That's correct. Just to elaborate on that, where I say I'm instructed; I - I - I'm instructed by way of the affirmed affidavits prepared by David Costin. Q. Yes. A. And the hours are contained in that affidavit, but I've further investigated independently my opinion as to whether those hours were fair and reasonable, and that was subsequent to my site inspection, and questioning of David onsite as to how exactly he and his - his carpenters undertook certain items of work, and I've addressed each of those items, and - and briefly referenced how the works were undertaken, and why I consider them to be reasonable. And in some instances, I considered them to be more than reasonable, particularly in relation to the timber stairs, and also the - the joinery to the window desk. When one considers the workmanship and the time consuming methodology and machining that actually took place onsite to construct those works, I consider them to reflect very good value 1. This approach, coupled with the concession made by Mr Grehan, leads me to accept the report and assessment of Mr Evans save for the differences between the builders claim and the total arrived at by Mr Evans. 2. The question is to what extent should the builders claim beyond that report be accepted. 3. The items of difference between the builder and Mr Evans are set out in aide memoir 2. Aide memoir 2 shows that the point of difference between what the builder claims and what is set out at page 94-95 of volume 3 of the Court book is item g) where the builder now claims a sum of $5907.36 as opposed to the sum of $3407.36 in respect of plant and equipment and services used for building works. This is the scaffolding and trailer issue. My view is the use of a trailer at $100 per week to assist in removing debris and for other purposes is reasonable and I would allow that. As for the use of the scaffolding I consider that should only be allowed for the time it is actually used. Mr Evans has allowed 4 weeks for the use of the scaffolding and I allow that amount which is $1600. The result is that I allow in respect of item g) $900 in addition to what Mr Evans allows. There is then needed to be added to that the GST and the builders fee. 4. That is the only real point of difference in terms of actual items. What also needs to be considered however is there is $37,000 approximately of costs of subcontractors which were not included by Mr Evans because the owner paid those costs directly. Mr Evans therefore did not include those items for the purposes of the builders fee. The argument of the builder is that those works form part of the contract works for which the builder was liable and in respect of which he did all the same liaising and supervision as he would have done had he paid them directly. I accept the builder's argument in this regard. I note that Mr Grehan adopted the same approach as the owner in this regard. I note also that in relation to item f) the builder accepts the amount of Mr Evans which is some $500 higher but still some $1300 less then Mr Grehan. 5. Set out in a schedule to these reasons is the builder's claim reworked to allow for these adjustments including the adjustment to the builder's margin and adding a charge for GST but not in respect of the electrician and balustrading costs. On that calculation the amount of the judgement is $276,435.88. Conclusion and orders 1. The conclusions I reach are: 97.1. The builder succeeds in his claim in an amount of $276,435.88. 97.2. That claim succeeds in contract to that amount less $790,90. 97.3. To the extent it is of any significance, I consider the contract claim succeeds as a claim in debt, and if that be wrong, then as a claim in damages. Further as an observation, if the conclusion as to the service of PC8 after termination be wrong, then the contract claim would succeed to the extent of the PC8 served before termination, $185,889, and the builder would be entitled to the balance on a quantum meruit. 97.4. Should my conclusions as to the contract be altogether wrong, then I find the quantum meruit claim would succeed in the amount of $276,435.88. 1. By whichever route, the result is there shall be a verdict and judgment for the plaintiff in the sum of $276,435.88 together with interest to date and ongoing as provided for by the Civil Procedure Act and UCPR, together with costs, subject to any submissions of the parties. 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: 11 November 2021