WEHBE V ROLANDO [1999] NSWSC 384

New South Wales Supreme Court CITATION : WEHBE V ROLANDO [1999] NSWSC 384 CURRENT JURISDICTION : Construction FILE NUMBER(S) : 55041/1995 HEARING DATE(S) : 12th, 13th, 14th, 15th April 1999 JUDGMENT DATE : 29 April 1999

Raymond Wehbe as representative of the Estate of the late Joseph Assad Wehbe - First Plaintiff Mars Constructions Limited - Second Plaintiff PARTIES : Rolando Pty Limited - First Defendant Corbel Pty Limited - Second Defendant George Papallo - Third Defendant Pioneer Plasterboard Pty Limited - Fourth Defendant JUDGMENT OF : Rolfe J

COUNSEL : Dr C.J. Birch - Plaintiffs Mr G.T.W. Miller QC/Ms V.A. Hartstein - Defendants SOLICITORS : Wehbe & Co - Plaintiffs Snelgrove & Partners - Defendants CATCHWORDS : Case involving consideration of a dispute in respect of a one-off contract situation; Aggravated and exemplary damages. Whether payable in respect of damages for breach of contract.; McGregor on Damages (16th Edition) (1997) para 442; Halsbury's Laws of Australia (Volume 6) para 110-11060; Butler v Fairclough & Anor (1917) 23 CLR 78; Addis v Gramophone Company Limited [1909] AC 488; Flamingo Park Pty Limited v Dolly Dolly Cration Pty Limited & Ors (1986) 65 ALR 500; Gray v Motor Accident Commission (1998) 73 ALJR 45 applied. DECISION : Held no entitlement to aggravated or exemplary damages.

111

JUDGMENT

HIS HONOUR:

Introduction

1 On 1 December 1993, the plaintiffs, Mars Constructions Pty Limited, ("Mars Constructions"), and its founder and principal director, Mr Joseph Wehbe, for which and whom Dr C.J. Birch of Counsel appeared, entered into two written building contracts pursuant to each of which they undertook to build a block of home units. I shall also refer to the plaintiffs as "the builder". One contract was entered into with Rolando Pty Limited, ("Rolando"), as trustee for a unit trust, and provided for the redevelopment of a property at 6-10 May Street, Hornsby by the demolition of existing improvements and the construction of twenty seven new two-bedroom and one new three-bedroom Strata Title home units for a fixed price of $2,785,225 "subject only to rock excavation being undertaken in accordance with the contract". The project manager was nominated as PBI Holdings Pty Limited, ("PBI"), a company effectively controlled by Mr George Papallo. The nominated architect was H & B Pty Limited, although it was accepted that Mr Papallo had the control of supervision on the site. The other contract was entered into with Corbel Pty Limited, ("Corbel"), as trustee for another unit trust, and provided for the redevelopment of a property at 8-12 Water Street, Hornsby, which was nearby 6-10 May Street, by the demolition of existing improvements and the construction of twenty seven new two-bedroom Strata Title home units for a fixed price of $2,773,200 "subject only to rock excavation being undertaken in accordance with the contract". The project manager was nominated as Alanto Investments Pty Limited, ("Alanto"), which was also effectively controlled by Mr Papallo and, notwithstanding that H & B Pty Limited was the nominated architect, Mr Papallo had the control of supervision. Mr Richard Hudson and Mr Herman were directors of Rolando and Corbel. The two contracts were to be performed almost simultaneously. Mr G.T.W. Miller of Queen's Counsel and Ms V.A. Hartstein of Counsel appeared for Rolando, Corbel and Mr Papallo, which and who respectively were the first, second and third defendants. I shall also refer to Rolando and Corbel as "the proprietor". 2 It was not in issue that Mr Wehbe was a very experienced and competent builder and, before these contracts were entered into, he and Mr Papallo had been engaged in other building projects in the same capacities including one next door to the May Street site, being 2-4 May Street, and that they enjoyed a good relationship and friendship. Mr Wehbe's wife and his son, Mr Raymond Wehbe, were also directors of Mars Constructions. Towards the end of May or in early June 1995 Mr Joseph Wehbe returned to the Lebanon, where he remained until his death on 26 July 1995. Mr Raymond Wehbe appears to have assumed basic control of the builder, and he was appointed to represent his father in these proceedings. 3 The contracts were the subject of detailed negotiations between the parties and their solicitors. Mars Constructions and Mr Wehbe retained Mr Wehbe's nephew, Mr Louis Wehbe, as their solicitor, and the defendants retained Mr J.A. Snelgrove as their solicitor. It did not seem to be in issue that on the late afternoon or early evening of 1 December 1993 Mr Joseph Wehbe, Mr Raymond Wehbe and Mr Louis Wehbe attended at Mr Snelgrove's offices for the purpose of considering and, if satisfied, signing the contracts. Mr Snelgrove was present from time to time, but there was no other representative of the defendants present. However, during the meeting there was a telephone conversation with Mr Papallo, which was conducted on a conference line. There was an issue as to whether, during that telephone conversation, Mr Joseph Wehbe told Mr Papallo that he was not satisfied with the time provided for building the May Street units. It was alleged by Mr Raymond Wehbe and Mr Louis Wehbe that a conversation to that effect took place and that Mr Papallo, in essence, said that if any additional time was needed there would be no problem about it. Any conversation to this effect was denied by Mr Snelgrove and Mr Papallo but, in the end, it did not seem to matter particularly which version is accepted. Therefore, I find it unnecessary to resolve the conflict. 4 Each contract comprised the standard form JCCB 1985 Building Works Contract together with detailed special conditions and a specification. There is no issue but that the work was essentially carried out, although disputes arose towards its conclusion in relation to alleged defects and, subsequently, concerning the failure to provide insulation and an acceptable fire rated ceiling on the top floors. These matters were not ascertained until about August 1995. 5 Clause 10.20 required the builder to give security, which was agreed at five per cent of the contract sum, by way of bank guarantee "in an amount being the equivalent of five per cent (5%) of the Contract Sum in two (2) Bankers' Undertakings or Guarantees each the equivalent of two and one half per cent (2%) of the Contract Sum". This was done by way of four Bank Guarantees furnished by the National Australia Bank Limited, ("NAB"). 6 Clause 10.22.02 provided that the Bank Guarantee should be maintained effective until the issue by the architect of the Notice of Practical Completion pursuant to Clause 9.09.02, or until the date the works are deemed to have reached Practical Completion pursuant to Clauses 9.09.04 or 9.10.04 and, upon the first of those events to happen, the proprietor was to authorise the reduction to half the original amount or, upon the builder providing a further Bank Guarantee on like terms and conditions but equal to one half of the amount the proprietor was to release the original Bank Guarantee. 7 Clause 9.09.04 provided for what should happen in the event of the architect not issuing a Certificate of Practical Completion; and Clause 9.10.04 provided:- "If the Proprietor occupies and/or uses the Works or part thereof prior to Practical Completion in the absence of any such agreement and Notice or of other written agreement between the Proprietor and the Builder then the whole of the works shall be deemed to have reached Practical Completion on the date of commencement of such occupancy and/or use." 8 Clause 9.11 provided that the Defects Liability Period shall commence on the date on which the works reached or were deemed to have reached Practical Completion, and Clause 9.12 provided that subject to several clauses the builder should complete the making good of all defects within a reasonable time "of the end of the Defects Liability Period". The Defects Liability Period was twenty six weeks. 9 Clause 10.14 provided that if the builder failed to bring the works to Practical Completion by the date for Practical Completion then the architect may give notice in writing to the builder and to the proprietor, not later than twenty days after the date on which the works actually reached or are deemed to have reached Practical Completion, that in his opinion the works ought reasonably to have been brought to Practical Completion at some earlier time to be stated in the Notice, not being earlier than the date for Practical Completion. Clause 10.14.02 provided that if such notice was given the builder shall pay or allow to the proprietor a sum calculated and certified by the architect at the rate stated in Item M of the Appendix as liquidated and ascertained damages for the period commencing from the date so stated during which the works shall remain or have remained not brought to Practical Completion, and Clause 10.14.03 provided:- "In the event of no further moneys being payable to the Builder or in the event of the sum calculated in accordance with paragraph 10.14.02 exceeding the amount remaining payable by the Proprietor to the Builder the Proprietor shall be entitled to recover the same, or any excess, as a debt due to the Proprietor by the Builder." In the schedule the amount provided was $6,000 "per week or part thereof". 10 The terms of the building contracts were largely overtaken by various events. Firstly, the architect was not required to issue notices Mr Wehbe and Mr Papallo apparently sorting out matters in a more informal way as the building work progressed. Thus the giving of formal notices conformably with the contract was not required. Secondly, a further agreement was entered into on 18 May 1995, which, in my opinion, overtook the building contracts, save to the extent that their terms were incorporated in it.