Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd
[2010] QSC 238
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- Notable Unreported Decision
- Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd[2010] QSC 238
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Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd[2010] QSC 238
Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd[2010] QSC 238
SUPREME COURT OF QUEENSLAND
CITATION: | Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd [2010] QSC 238 |
PARTIES: | NORTHBUILD CONSTRUCTION PTY LTD ACN 118 332 871 (applicant) v DISCOVERY BEACH PROJECT PTY LTD ACN 100 500 981 (respondent) |
FILE NO/S: | SC No 3620 of 2009 |
DIVISION: | Trial Division |
PROCEEDING: | Originating application |
ORIGINATING COURT: | Supreme Court at Brisbane |
DELIVERED ON: | 2 July 2010 |
DELIVERED AT: | Brisbane |
HEARING DATES: | 15, 16 February 2010; Further written submissions 19 February, 1, 12 March 2010 |
JUDGE: | Margaret Wilson J |
ORDER: | Application dismissed with costs |
CATCHWORDS: | CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – PERFORMANCE OF WORK – TIME – where applicant and respondent entered into a building contract in relation to a redevelopment – where numerous disputes arose in the course of the project – where parties' dispute about calculation of certain extensions of the date for practical completion has been determined by a programming expert – where a quantity surveyor is to quantify any claim for delay costs – where parties are in dispute as to whose role it is to determine whether the extensions of time give rise to an entitlement to delay costs – whether it was the programming expert’s role to determine if extensions of time give rise to delay costs – whether programming expert performed such role CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – DETERMINATION OF COST –whether on the proper construction of the agreement by which the entitlement to delay costs claims were referred to the programming expert it was intended by the parties that he determine questions of entitlement to delay costs PROCEDURE – SUPREME COURT PROCEDURE – PROCEDURE UNDER RULES OF COURT – AMENDMENT – where applicant given leave to amend its originating application to seek declarations – whether applicant should have leave to further amend originating application to seek a further declaration Antaios Compania Naviera SA v Salen Rederierna AB8 [1985] AC 191, cited Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2005] QSC 322, cited Elderslie Property Investments No 2 Pty Ltd v Dunn [2008] QCA 158, cited Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715, cited Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, cited McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579, cited Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, cited Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd [2005] QSC 364, cited Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, cited Wickman Machine Tool Sales Ltd v L Schuler AG [1974] AC 235, cited Zeke Services Pty Ltd v Traffic Technologies Ltd [2005] 2 Qd R 563, cited |
COUNSEL: | D A Savage SC and CA Wilkins for the applicant. B T Porter for the respondent. |
SOLICITORS: | Crouch & Lyndon for the applicant. Clayton Utz for the respondent. |
- MARGARET WILSON J: On 23 May 2003 the applicant as contractor ("Northbuild") and the respondent as principal ("DBP") entered into a building contract for the redevelopment of the Surfair resort at Marcoola in the Sunshine Coast. Numerous disputes arose in the course of the project, and the parties have expended very substantial time, money and other resources in trying to resolve them. Litigation between them has consumed considerable Court resources. This application is part of the chapter of the saga which deals with prolongation costs.
- The parties' dispute about the calculation of certain extensions of the date for practical completion has been determined by a programming expert, Mr Lee. A quantity surveyor, Mr Callaghan, is to quantify any claim for delay costs. But they are at loggerheads as to whose role it is to determine whether the extensions of time give rise to an entitlement to delay costs. Was it Mr Lee’s role? If it was, did he perform it?
The facts
- On 23 May 2003 the parties entered into a written building contract in the Master Builders' form "DECON 2 - 1998 Design & Construct Contract", with substantial amendments under the heading "Surfair Project Guaranteed Maximum Price Contract". Then on 11 December 2003 they entered into a "Confirming and Amending Agreement" which dealt principally with responsibility for consultants' costs.
- The contract provided for two separable portions – Stage 1 (primarily the South Tower and other works) and Stage 2 (the North Tower works).
- There were numerous disputes in relation to the work, including:
(a) various extension of time ("EOT") claims which were delivered from time to time; and
(b) a variation request delivered by Northbuild to DBP on about 3 August 2004 styled VR 71.
- In August and September 2004 the parties agreed that VR 71 (including any amended version of it and the follow on claim VR 75) be referred for determination by "the existing experts" (Messrs Callaghan and Orange),[1] while issues relating solely to the calculation of time be dealt with by Mr Lee.[2]
- The parties held a preliminary meeting with Mr Lee on 3 September 2004, when they agreed as follows:
“4.0The Dispute
4.1Both parties agreed that the questions to be answered by the Expert would be as listed below and that the Expert must, in his rulings, refer to the clause upon which he relies to determine that an Extension of Time is justified:
1)What is the new Date for Practical Completion of Stage 1 Works or of any part thereof?
And
2)What is the new Date for Practical Completion of Stage 2 Works or of any part thereof?
By reference to the delays associated with:
- South Tower Penthouses (Stage 1)
- Common Property Area (Stage 1) (Which specifically includes the Colonnade, and external car parks and landscape)
- Carpet Approvals (Stages 1 & 2)
- South Beach Houses (Stage 1)
- Resort Swimming Pool (Stage 1)
- Porte Cochere (Stage 1)
- North Beach Houses (Stage 2)
As detailed in the Contractor’s claim submission to the Principal.
3)Further to (1) and (2) and only if it is raised, what are the new Dates of any other contractual date or milestone?
4)Determine approximately the overall period of delay (in calendar weeks) caused to the Contractor by the Principal, by reference to the above, for Stage 1 and Stage 2 Works.
5)Determine approximately when the overall delay (determined in question 4) occurred (i.e. was active), for Stage 1 Works and Stage 2 Works.
6)Whether or not the completion of Stage 2 is contingent on the completion of Stage 1?
4.2All parties confirmed their agreement that the Expert is to provide a determination in writing with reasons.
4.3With regard to Procedural Rules (Clause 5(a) of Schedule 26), it was agreed by all parties that both parties to the dispute should be represented during any discussion by the Expert with either of the parties to the dispute.
4.4It was noted that whilst Extensions of Time had been granted to 18 August 2004, the Current Date for Practical Completion is ‘some time in July’ as Extensions of Time previously granted had subsequently been revoked or reversed.” (Emphasis added.)
- Mr Lee issued an “Interim Determination” on 22 March 2005, in which he provided final determinations for the following six issues in dispute:
(i)South Tower Penthouses (Stage 1)
(ii)Common Property Area (Stage 1) (which specifically included the Colonnade, and external car parks and landscape)
(iii)South Beach Houses (Stage 1)
(iv)Porte Cochere (Stage 1)
(v)Heat Pumps; and
(vi)EOT 4
together with his analysis of each of those issues. The report was “interim” only in the sense that there were still issues to be dealt with: in due course those further issues were determined in Mr Lee’s “Final Determination” dated 24 August 2007.
- Later in 2005 Northbuild referred VR 71 (as amended) and VR 75, as well as a variation order VO 97, to arbitration,[3] and the arbitrator ruled that he had jurisdiction in respect of them. Of present relevance, DBP contended that VR 71 and VR 75 had been committed to experts (by an agreement separate from the building contract). On 4 November 2005 the Chief Justice upheld DBP’s contention. His Honour said -
“[9]By letter to Northbuild dated 19 August 2004, Discovery Beach recorded the terms of an agreement which had been reached on 13 August 2004, covering many aspects of the future progress of the project, including payment. Paragraph 6.1 referred to payments by Discovery Beach as ‘subject to adjustment when the proper amount for each category of works is resolved either by agreement, expert determination or litigation’. (In relation to a particular submission made, I would not consider ‘litigation’, as there used, to include arbitration.) Under para 6.3, the provisional sum for the South East Beach House fit out – subject matter of VO90, to which I will come – was to be agreed ‘or determined by expert determination’. See also paras 8 and 10.
[10] On 18 August 2004, after the agreement of 13 August, Northbuild’s solicitors wrote to the solicitors for Discovery Beach. As that letter shows, Messrs Orange and Callaghan had by then been appointed as experts to determine ‘the range of issues presently in dispute’. The proposal was they deal with the issues in the schedule to the letter, which included ‘Prolongation claim VR71’ and ‘VR65 South Tower Beach Houses Provisional Sum Adjustment’ (part of what became VO90). Then the letter proposed that ‘issues relating solely to the calculation of time be dealt with separately by Mr Lee’ (another expert).
[11] In their response of 25 August 2004, Discovery Beach’s solicitors generally accepted that proposal, subject to some matters of detail not of present significance. Specifically, they agreed to the appointment of Mr Lee in relation to extension of time claims.
[12]Northbuild’s solicitors, on 24 August 2004, wrote to Messrs Orange and Callaghan informing them the parties had agreed to the referral of ‘any disputes relating to time and prolongation’ to Mr Lee, saying: ‘you ought exclude these matters from your consideration’. Those solicitors wrote, again making that point, on 3 September 2004 (Exhibit 1).
[13] Then on 30 September 2004, Northbuild wrote to Discovery Beach recording further matters agreed the day before. Among other things, that agreement related to completion of the North East Beach House work (VO90) and payment for that. The amount payable, the letter said, ‘will be referred to the experts forthwith for determination’ (para 4(a)(ii)). Messrs Orange and Callaghan were those experts. See also para 4(c) and (d).
[14] The end position is that both prolongation issues, and adjustment of the provisional sum issue, were by agreement referred for expert determination; and in a ‘self-executing’ way, in that no further step had to be taken to ensure the determination was committed in that way.
[15] As confirmed by the solicitors for Northbuild in their letter of 18 August 2004, it was agreed that the ‘existing experts’ deal with the matters listed in a schedule, which included ‘South Tower Beach Houses Provisional Sum Adjustment’ (part of what became VO90), and ‘Prolongation claim VR71’. The parties agreed, however, that issues relating solely to the calculation of time be dealt with by another expert, Mr Lee.”[4]
- Correspondence subsequent to the Chief Justice’s decision raised uncertainty about the extent of Mr Lee’s commitment. On 6 March 2006 His Honour declared that -
“Mr Philip Lee of Tracey Brunstom & Hammond remains the expert appointed by the parties to determine all disputes relating to extension of time; ie prolongation as covered by amended variation request 71 and variation request 75 on the basis that Mr Lee's determinations relate solely to the calculation of time and that Mr Lee remains so appointed to determine any residual issues in that regard, if any, surviving his interim determinations on those variation requests."
- On 24 August 2007 Mr Lee issued a “Final Determination” in which he provided:
(a)final determinations for the following three issues in dispute:
(vii)Carpet Approvals (Stages 1 & 2)
(viii)Resort Swimming Pools (Stage 1)
(ix)Northern Beach Houses (Stage 2);
(b)his analysis of each of those issues; and
(c)a final consolidated determination of the questions put to him.
Interim Expert Report Ref | Final Expert Report Ref | EOT Claim/Issue | Stage 1 (Working days) | Stage 2 (Working days) | Contract Clause(s) Relied on for Determining Entitlement |
6.1 | N/A | Undisputed Delays Claimed and Granted | 39.5 | 42.5 | Refer to the Principal’s Representative’s Determination |
6.2.1 | N/A | Late supply of Information for the South Tower Penthouses. | (47 + 17=) 64 |
0 | Clause 1.3A.3(3)(a) |
6.2.2 | N/A | Late Decisions related to the Common Property Areas |
0 |
0 |
|
6.2.3 | 3.1 | Late decisions/instructions related to the carpets |
(Concurrent) |
8 | Clauses 1.3A.3(3)(a), 1.3A.3(3)(b) and 1.3A.3(4)(c) |
6.2.4 | N/A | Late supply of information and proof of finance availability for the South Beach Houses |
(Concurrent) |
0 |
|
6.2.5 | 3.2 | Late decision related to the swimming pool | (Concurrent) |
0 |
|
6.2.6 | N/A | Late design and late decision related to the Porte Cochere | (Concurrent) |
0 |
|
6.2.7 | 3.3 | Failure to provide the PC item for North Beach Houses |
0 |
52 | Clauses 1.3A.3(3)(a), 1.3A.3(3)(b) and 1.3A.3(4)(c) |
6.2.8 | N/A | EOTs 53 and 61 Heat Pumps | 0 | 0 |
|
6.2.9 | N/A | EOT 4 – Construction Drawing Issue | 1 | 0 |
|
|
|
| 104.5 Working Days | 102.5 Working Days |
|
He answered the specific questions put to him as follows:
“1)What is the new Interim Date for Practical Completion of Stage 1 Works or of any part thereof?
The extended date for Practical Completion encompassing the issues included in sections 6.1 to 6.2.9 of my Report of 22nd March 2005 and sections 3.1 to 3.3 of this report is Day 241 + 104.5 or Day 346 –
22nd November 2004.
2)What is the new Interim Date for Practical Completion of Stage 2 Works or of any part thereof?
The extended date for Practical Completion encompassing the issues included in sections 6.1 to 6.2.9 of my Report of 22nd March 2005 and sections 3.1 to 3.3 of this report is Day 270 + 102.5 or Day 373 –
14th January 2005.
3)Further to (1) and (2) and only if it is raised, what are the new Dates of any other contractual date or milestone?
The issue was not raised.
4)Determine approximately the overall period of delay (in calendar weeks) caused to the Contractor by the Principal, by reference to the above, for Stage 1 and Stage 2 Works.
Stage 1: Approximately 22 Calendar Weeks
Stage 2: Approximately 24 Calendar Weeks
5)Determine approximately when the overall delay (determined in question 4) occurred (i.e. was active), for Stage 1 Works and Stage 2 Works.
The periods of delay for every delay assessed are approximately graphically presented in Appendix B to this Report.
6)Whether or not the completion of Stage 2 is contingent on the completion of Stage 1?
The Contract considers each Stage as a Separable Portion and although I believe it was the expectation of the parties that Stage 1 was to complete prior to Stage 2, I do not believe the Contract requires that Stage 2 is contingent on Stage 1.
The programmes generally did not link Stage 2 to Stage 1 and the programmes were not in sufficient detail, particularly when considering the services such as electrical, communications and fire protection systems, to identify the physical links between works in the two stages. For example the Fire indicator panel physically located in Stage 1 but required commissioned for Stage 2.
Therefore for the purposes of assessing extensions of time, Stage 2 is not contingent on Stage 1 automatically but when assessing extensions of time one must consider the implications of that delay to both stages and to account for the physical links which were not necessarily included in the programmes.”
Relevant provisions of the contract
- Clause 9.4 of the contract dealt with delays. Of present relevance, clause 9.4.1 provided:
“9.4.1 Subject always to section 1.3A, if the progress of the Works is delayed by any matter, cause or thing beyond the control of the Contractor then the Contractor will be entitled to a reasonable extension of time for Practical Completion.”
- In principle whether a contractor is entitled to an extension of time for practical completion may bear upon (a) whether the principal is entitled to liquidated damages for delay, and (b) whether the contractor is entitled to delay costs pursuant to the contract or any other form of relief.
- Clause 10.7 made provision for liquidated damages payable to DBP if the works did not reach practical completion by the due date (extended in accordance with the contract).
- By clause 1.3A the parties agreed to a "Guaranteed Maximum Price" for the works:
“1.3AGUARANTEED MAXIMUM PRICE
1.3A.1Payment
In consideration for the fulfilment by the Contractor of all of its obligations under this Agreement, the Principal shall pay to the Contractor the Guaranteed Maximum Price, as adjusted in accordance with this Agreement.
1.3A.2Overriding Effect
- This section 1.3A overrides all other provisions of this Agreement.
- The Guaranteed Maximum Price is subject to increase only in the strictly limited and expressly defined circumstances set out in this sub-section.
1.3A.3Assumption of Risk
- The Contractor acknowledges that the Guaranteed Maximum Price includes an allowance for the Contractor to accept all of the risk as set out in this section 1.3A.
- The Contractor will have no right to payment for the execution of the Works except payment of the Guaranteed Maximum Price. All common law, statutory or equitable entitlements to payment that the Contractor might otherwise have been entitled to claim, whether in the nature of restitution, quasi contract, compensation for unjust enrichment or otherwise, are, to the extent permitted by law, expressly excluded.
- The only event that may cause an increase in the Guaranteed Maximum Price or an extension of the Date for Practical Completion is:
(a)a Variation approved in accordance with section 6.6;
(b)any adjustment in respect to a prime cost item or a provisional sum under section 10.5.3;
(c)an adjustment required in respect of Authority fees in excess of a provisional sum, in accordance with the qualification in section 6.3.1.3;
- Without limiting paragraph 3, the following events may cause an extension of the Date for Practical Completion, but will not give to the Contractor a Claim to payment;
(a)an event described in section 6.7.2;
(b)general industrial action but not including Contractor specific industrial action;
(c)a breach or an act of prevention on the part of the Principal;
(d)adverse weather conditions;
(e)errors or omissions in the Design Documents as supplied by the Principal to the Contractor, identified by the Contractor within a period of six (6) weeks from the date of this Agreement; or
(f)errors or omissions in any experts or consultants reports supplied by the Principal to the Contractor, identified by the Contractor within a period of six (6) weeks from the date of this Agreement.
- Without limiting the general effect of the preceding sub-paragraphs 3 and 4, the Contractor will have no Claim to payment or an extension of the Date for Practical Completion in any of the following circumstances:
(a)increase in the cost of materials or labour;
(b)Contractor specific industrial action;
(c)any variation of the Works that is not approved as a Variation in accordance with this section 1.3A;
(d)errors or omissions in the Design Documents as supplied by the Principal to the Contractor, identified by the Contractor after a period of six (6) weeks from the date of this Agreement;
(e)errors or omissions in any experts or consultants reports supplied by the Principal to the Contractor, identified by the Contractor after a period of six (6) weeks from the date of this Agreement; or
(f)any other event, error, defect or omission that, but for this section 1.3A, might have entitled the Contractor to maintain a Claim against the Principal.” (Emphasis added.)
- Variations were the subject of clause 6.6. Northbuild might request DBP to consent to a variation or DBP might direct a variation. No variation was to be made or commenced without a Variation Order, and to assist it in determining whether to issue such an order, DBP might require Northbuild to submit a Variation Proposal. Clauses 6.6.6, 6.6.7 and 6.6.8 were in these terms:
“6.6.6If the Principal issues a Variation Order then to the extent agreed between the Principal and the Contractor or otherwise as determined in accordance with this Agreement:
(a)the Guaranteed Maximum Price will be adjusted by the value of the Variation;
(b)if required the Contractor Warranties will be amended; and
(c)the Date for Practical Completion of the Works will be adjusted by any extension of time or time saving.
6.6.7The Contractor will be deemed to have allowed in the Guaranteed Maximum Price for the cost of all work of preparing, measuring, pricing and negotiating a Variation Order, including additional payments required to be made by the Contractor for any preliminaries or for supervision in carrying out a Variation Order where the extent of the Variation requires the Contractor to employ additional resources or to work additional hours.
6.6.8Notwithstanding anything to the contrary:
(a)no change to the Work which results directly or indirectly from any error, defect, ambiguity, discrepancy or omission in or from the Design Work, the Construction Work, the Design Brief or from any default of the Contractor will give rise to any Claim by the Contractor;
(b)no approval or disapproval of Design and Construction Documents by the Principal and/or the preparation of any revisions to the Design and Construction Documents by the Contractor will be construed as a Variation or will give rise to any Claim by the Contractor;
(c)no order given to the Contractor for the purpose of ensuring that the Contractor complies with its obligations under this Agreement will be a Variation or give rise to any other Claim;
(d)no order given to the Contractor to comply with any new or changed requirement of any Authority or of any statutes applicable to the Works will give rise to any Claim by the Contractor unless such new or changed requirement arises after the date of this Agreement and could not have been reasonably anticipated by the Contractor after due and diligent inquiry, and such order is given in the form of a Variation Order;
(e)no Variation Order issued by the Principal will entitle the Contractor to any additional payment or any extension of time or to make any other Claim unless the Variation Order otherwise stipulates.
(f)the Contractor will not have or make any claim for any Variation unless the work was directed by the Principal in the form of a Variation Order and where the Principal has requested a Variation Proposal or the Contractor was required to provide a Variation Proposal, the Contractor has given a detailed breakdown of the Claim in the Variation Proposal, or in any other case such claim was notified in writing by the Contractor to the Principal prior to the commencement of the Variation. Any failure to provide details of or to notify a Claim will be deemed to be a waiver of such Claim.”
- Adjustments to expenditure on prime cost items and provisional sums was dealt with in clause 10.5.3:
“10.5.3If the total amount expended on prime cost items or provisional sums exceeds the total amount provided for them then the excess, together with the percentage stated in Schedule 22 of the excess, will be added to the contract sum.”
The percentage stated in Schedule 22 was 10%.
- I understood it to be common ground that the only matters which might give rise both to an extension of time and an increase in the Guaranteed Maximum Price were those in clause 1.3A.3.
Mr Lee sought legal advice
- Mr Lee sought legal advice from a barrister, Mr Daniel Ryan, but later redirected his instructions to another lawyer, Mr Adrian Batterby. Mr Batterby gave him advice by letter dated 2 August 2007. From that letter, it seems that Mr Batterby received submissions from both Northbuild and DBP before tendering his advice. Mr Batterby answered legal questions about entitlements to extensions of time. He did not address questions of whether particular extensions gave rise to entitlements to delay costs.
Mr Lee’s identification of clauses on which he relied
- By the terms of his engagement Mr Lee was obliged to refer to the clause on which he relied to determine that an extension of time was justified. He did this in his final consolidated determination, referring variously to:
cl. 1.3A.3(3)(a) – late supply of information for the SouthTower penthouses – 64 days
cl. 1.3A.3(3)(a), 1.3A.3(3)(b) and 1.3A.3(4)(c) late decision/instructions related to the carpets – 8 days;
cl. 1.3A.3(3)(a), 1.3A.3(3)(b) and 1.3A.3(4)(c) – failure to provide the PC item for North Beach Houses – 52 days.
With respect to undisputed delays claimed and granted (39.5 + 42.5 days), he said, “Refer to the Principal’s Representative’s Determination”.
In one case, EOT 4 – construction of drawing issue (1 day), he did not refer to any clause in the contract.
In three cases of late supply of information he found no entitlement to an extension of time, as the delays were concurrent with other delay for which there was an entitlement.
- Importantly, the event referred to in clause 1.3A.3(4)(c), a breach or an act of prevention on the part of DBP, was one which might cause an extension of time but would not give Northbuild a claim to payment.
VR 71
- VR 71 was a compendious claim for extensions of time and delay costs in respect of seven identified categories of delaying events, rather than individual variation claims. Several other categories were later added. Each category was comprised of one or more EOT.
- Counsel for DBP submitted that Mr Lee’s determinations “do not clearly identify particular variations or particular adjustments to provisional sums which give rise to the entitlement to extensions of time which he has found.”[5]
- Clearly DBP does not want to be precluded from contending, variation by variation, that there is no entitlement to delay costs.[6]
- Counsel for Northbuild submitted:
- that if Northbuild’s contention as to the proper construction of the contract were ultimately upheld, it would be entitled to reasonable compensation for costs it incurred by reason of the specific delays Mr Lee found were caused by events within cl 1.3A.3(3)(a) or (b) – 64 days for stage 1 and 60 days for stage 2. It would not be necessary to identify particular variations or particular adjustments to provisional sums;[7] and
- nevertheless that, contrary to DBP’s submissions, Mr Lee had clearly identified particular variations or particular adjustments to provisional sums as giving rise to the entitlements to extensions of time which he found. [8]
- What was expressly required of Mr Lee was that he identify the clause on which he relied to determine that an EOT was justified. In fact, he provided quite lengthy discussions of the various topics referred to him (apart from the undisputed delays). Particularly in relation to items 6.2.1, 6.2.3 and 6.2.7 in the table in his Final Determination,[9] he discussed various EOT claims and various variation orders.
Disagreement as to proper construction of the building contract
- The parties disagree about the proper construction of the contract provisions about Northbuild’s entitlement to be paid delay costs.
- Counsel for DBP submitted:
“10.There is no general entitlement to delay costs for extensions of time under the Contract as such. The standard provision has been deleted by the parties.[10] Delay costs can only be claimed as part of an increase to the GMP resulting from a variation under clause 6.6 or an adjustment in respect of the provisional sum under clause 10.5.3.[11]
- To establish any entitlement to an increase to the GMP by reference to any amount of costs of delay as part of the price of a variation under the Contract it is necessary to establish:
(a)not only the existence of a particular variation under clause 6.6 of the Contract (which point is the subject of the concession in paragraph 2(b) hereof);
(b)but also that the price of that particular variation properly includes an amount for delay costs as part of the cost of the variation.
- This may require establishing that the particular variation caused an identified period of delay. DBP does not hide from this. It is the consequence of the deletion of clause 10.6 and the narrow basis for any increase of the GMP under the Contract. If any issue relating to the calculation of time were to arise in that regard, Mr Callaghan would be able to consult with Mr Lee consistent with the parties’ agreement to that effect.
- Similarly, to establish any entitlement to an increase in the GMP by reference to any amount of costs of delay for an adjustment to a provisional sum it is necessary to establish:
(a)not only the existence of an adjustment to a provisional sum under clause 10.5.3; and
(b)but also that an entitlement to an amount of delay costs arises under clause 10.5.3.
- Accordingly in each case, it is necessary to identify a particular variation or adjustment to a prime cost item before any entitlement to an amount reflecting an amount of delay costs can arise.”[12]
- Counsel for Northbuild submitted that on the proper construction of cl 1.3A.3(3)(a) it is entitled to be paid delay costs in respect of, not as part of, a variation – in other words, that the Guaranteed Maximum Price is increased by:
- the amount of the variation; and
- “the delay or disruption costs … incurred in carrying out the … Variation.”[13]
In support of this submission, they argued:
- that cl 1.3A.3(3)(a) does not provide that Northbuild will be entitled to delay costs only if those delay costs form part of a Variation approved in accordance with section 6.6;
- that cl 1.3A.3(3)(a) leaves open the possibility that delay costs are payable because of a variation or variations;
- that the prefatory words in cl 1.3A.3.4 and cl 1.3A.3.5 mean that those clauses may not be used to restrict the meaning of cl 1.3A.3(3)(a);
- that cl 6.6 supports a conclusion that delay costs are payable because of a variation: that cl 6.6.3(c) and (g) support the characterisation of a contractor’s claim for delay costs in respect of a variation as a claim which exists, not as part of the variation, but as a claim which exists because of or by reason of the variation.[14]
They submitted that, by contrast, in the case of an adjustment in respect of a prime cost item or a provisional sum under section 10.5.3, delay costs do form part of the adjustment to the Guaranteed Maximum Price. This is because by section 10.5.3 Northbuild is entitled to the excess cost plus 10%.[15]
Should the Court determine the proper construction of the building contract on this application?
- Counsel for Northbuild submitted:
“The questions of whether, and, if so, by reason of what contractual provision(s), Northbuild is entitled to be paid delay costs have been referred to Messrs Lee and Callaghan for determination.[16] So far neither party has sought to argue that the court should determine these questions notwithstanding the referral: cf. Zeke Services Pty Ltd v Traffic Technologies Ltd.[17] It follows that the court need not, and, indeed, should not, at least at this stage, decide between Northbuild’s and DBP’s competing contentions as to those questions.”[18]
- I agree. The application presently before the Court is for declarations premised on Northbuild’s contention that it was for Mr Lee to determine entitlement to delay costs. The precise terms of the declarations sought were amended on 15 February 2010. It was only in the course of oral submissions that DBP’s intention to contend, variation by variation, that Northbuild has no entitlement to delay costs was properly exposed. Northbuild wishes to amend its application again.[19]
The scope of Mr Lee’s remit
- If it was within Mr Lee’s remit to determine whether Northbuild is entitled to delay costs, and if he has done so in the way required of him, his decision is binding on DBP. That would necessarily follow from the parties’ agreement to submit to his expert determination.
- Whether it was within the scope of his remit is a question of interpretation of the agreement by which VR71 and VR 75 were referred to expert determination. That was an agreement reached by two commercial parties in an endeavour to resolve one of several areas of dispute between them.
- The court’s role is to ascertain and give effect to the intentions of the parties.[20] In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[21] the High Court said –
“This Court, in Pacific Carriers Ltd v BNP Paribas,[22] has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”[23]
- In Elderslie Property Investments No 2 Pty Ltd v Dunn[24] Muir JA, with whom Holmes JA and White J agreed, summarised the principles generally applicable to the construction of commercial contracts –
[20]The object of contractual construction is to ‘ascertain and give effect to the intentions of the contracting parties.’[25] Those intentions, to be determined objectively, are 'what a reasonable person would have understood [the words of the contract] to mean.'[26] And to ascertain that ‘normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.’[27] Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract.[28] The Deeds, as commercial contracts, ‘should be given a businesslike interpretation’. The interpretation of each Deed requires ‘attention to…the commercial circumstances which the document addresses, and the objects which it is intended to secure.’[29] Commercial contracts are to be construed with a view to making commercial sense of them.
[21] In Wickman Machine Tool Sales Ltd v L Schuler AG[30] Lord Reid said:
‘The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear.’
[22] In Antaios Compania Naviera SA v Salen Rederierna AB8[31] , Lord Diplock expressed stronger views concerning the imperative to make business sense of commercial contracts, stating:
‘If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”
- The building contract itself is an important part of the matrix of circumstances which may be taken into account in construing the agreement by which the EOT claims were referred to Mr Lee. It was a complex agreement under which the parties sought to allocate risks by providing for a Guaranteed Maximum Price, but at the same time to provide for extensions of time, variations and adjustments to prime cost items and provisional sums.
- As the Chief Justice recorded in para [9] of his judgment,[32] DBP’s letter to Northbuild of 19 August 2004 recording agreements reached at a meeting on 13 August 2004 covered many aspects of the future progress of the project, including payment. Mr Orange and Mr Callaghan had been appointed to determine the range of issues then in dispute. VR 71[33] was added to the list. Part 10 of the record was in these terms –
“10. Extensions of Time/Liquidated Damages/Delay Costs
10.1 DBP and Northbuild fully reserve their rights with respect to extensions of time, delay costs and liquidated damages entitlements.
10.2 Northbuild’s current outstanding claims for extensions of time will be submitted to expert determination by Phil Lee from Tracey Brunstrom & Hammond, (provided he is prepared to accept appointment) or such other expert as the parties agree within seven days. DBP will be given a reasonable period of time within which to respond to Northbuild’s submission.”
- On 18 August 2004 Northbuild’s solicitors wrote to DBP’s solicitors about a number of matters, including a proposal that “issues relating solely to the calculation of time be dealt with separately by Mr Lee.” The schedule to that letter contained a number of columns. Against each Issue, there was a column for Quantum, and then three columns – Legal, QS (Quantity Surveyor) and Programme. In the case of VR 71, the columns headed Legal and Programme were both engaged by bullet points.
- DBP’s solicitors responded on 25 August 2004 agreeing with the appointment of Mr Lee “in relation to Program Contingency and EOT claims”.
- Mr Orange was a solicitor. Precisely what role, if any, he was originally to have played in relation to VR 71 was not explained. The circumstances in which he ceased to be an expert for the purposes of the dispute and the apparent absence of alternative arrangements were not explained.
- On 3 September 2004 the parties had a preliminary meeting with Mr Lee at which they agreed on the questions he was to determine. They all required the calculation of time. Under the contract, there might be extensions of time for which there was a concomitant right to delay costs, and extensions of time for which there was not.[34] Mr Lee was instructed to identify the contractual provisions he relied on to determine that extensions of time were justified. He was not expressly asked to determine whether there was a right to delay costs concomitant with any particular extension of time, and he did not purport to do so.
- Mr Lee’s expertise and experience was in programming. The parties’ quite complex and sophisticated arguments on the proper construction of clause 1.3A.3 of the building contract illustrate how unlikely it is that they intended to submit questions of entitlement to delay costs to him.
- Mr Callaghan’s expertise and experience was in quantification of claims. He was one of the “existing experts”, already retained in relation to other disputes. While he, too, lacked the legal expertise and experience to determine questions of contractual entitlement to delay costs, it is objectively more likely that the parties intended that those questions fall within his remit, on the basis that he could seek legal advice as required.
- I have concluded that, on the proper construction of the agreement by which the EOT claims were referred to Mr Lee it was not intended that he determine questions of entitlement to delay costs.
Disposition of this application
- On 15 February 2010 counsel for Northbuild were given leave to amend its originating application to seek declarations in these terms -
“1.A declaration that the determinations made by Mr Phil Lee as expert dated 22 March 2005 and 24 August 2007 determined that the extensions of 64 days, 8 days and 52 days referred to Applicant is entitled to delay costs in respect of its claims referred to in the table and determined in the Applicant’s favour as set out on page 5 of his determination dated 24 August 2007 arose because of variations approved in accordance with section 6.6 of the contract made between the parties; with the consequence that any delay costs payable to the applicant by reason of those extensions are now to be quantified by Mr Callaghan.
1A. A declaration that the determinations made by Mr Phil Lee as expert dated 22 March 2005 and 24 August 2007 determined that the extensions of 8 days and 52 days referred to on page 5 of his determination dated 24 August 2007 arose because of adjustments in respect to prime cost items and provisional sums under section 10.5.3 of the contract made between the parties; with the consequence that any delay costs payable to the applicant by reason of those extensions are now to be quantified by Mr Callaghan.
- In the alternative a declaration that it is within Mr Lee’s reference as expert to make such a determination.”
- On 19 February 2010 they sought to amend the application further by the addition of a further declaration –
“1B.A declaration that it is not open to either party to contend before Mr Lee or the other expert appointed by the parties, Mr Callaghan, that:
(a)the variations to which Mr Lee in his determinations (as described above) has referred as grounds for the extensions of time described in paragraph 1 above were not variations approved in accordance with section 6.6 of the contract made between the parties; and
(b)the adjustments to which Mr Lee in his determinations (as described above) has referred as grounds for the extensions of time described in paragraph 1A above were not adjustments in respect to prime cost items and provisional sums under section 10.5.3 of the contract made between the parties,
(the ‘contract made between the parties’ being the contract, a copy of which is exhibit ‘GGI’ to Mr Gallo’s affidavit filed on 14 April 2009).”
- Counsel for DBP opposed the further amendment.
- None of the declarations sought in the amended application nor that now sought to be added identifies the particular variations and adjustments relied on by Mr Lee as grounds for his calculations of extensions of time. While there are difficult and unresolved questions about the proper interpretation of the building contract, it is tolerably clear that it provided for extensions of time for which there was a concomitant right to delay costs, and for extensions of time for which there was not. In these circumstances, I am not persuaded that Northbuild is entitled to any of the declarations it seeks.
- In the circumstances, I refuse leave further to amend the originating application by the addition of paragraph 1B.
- The application is dismissed with costs.
Footnotes
[1] Subsequently Mr Orange ceased to be an expert.
[2] See the judgment of the Chief Justice 4 November 2005 [2005] QSC 322.
[3] Pursuant to cl 13 of the contract.
[4] Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2005] QSC 322.
[5] Supplementary submissions of the respondent filed 1 March 2010 para 15.
[6] Transcript of proceedings on 16 February 2010, at pp 29 – 30.
[7] Applicant’s response to respondent’s supplementary submissions filed 12 March 2010 para 15.
[8] Applicant’s response to respondent’s supplementary submissions filed 12 March 2010 para 16 – 19.
[10] Tab 1 pp 25 and 63.
[11] Tab 1 p 49.
[12] Supplementary submissions of the respondent filed 1 March 2010.
[13] Applicant’s response to respondent’s supplementary submissions filed 12 March 2010 para 9 – 10.
[14] Applicant’s response to respondent’s supplementary submissions filed 12 March 2010 paras 5 – 8, 11.
[15] Applicant’s response to respondent’s supplementary submissions filed 12 March 2010 para 12.
[16] See the judgment of the Chief Justice delivered on 4 November 2005 – Bundle, tab 16, especially at [31].
[17] [2005] 2 Qd R 563.
[18] Applicant’s response to respondent’s supplementary submissions filed 12 March 2010 para 13.
[19] Applicant’s further submissions filed 19 February 2010 para 6.
[20] See Homburg Houtimport BV v Agrosin Private Ltd [2004] 1 AC 715 at 737; cited by Muir J in Thiess Services Pty Ltd v Mirvac Queensland Pty Ltd [2005] QSC 364 at para 39.
[21] (2004) 219 CLR 165 at 179.
[22] (2004) 218 CLR 451.
[23] Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462.
[24] [2008] QCA 158.
[25] Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 AC 715 at 737.
[26] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.
[27] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179.
[28] Per Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912.
[29] McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589.
[30] [1974] AC 235 at 251.
[31] [1985] AC 191 at 201.
[32] Discovery Beach Project Pty Ltd v Northbuild Construction Pty Ltd [2005] QSC 322.
[33] and the follow on VR 75.
[34] See cl 1.3A.3.3 and 1.3A.3.4.