Cordon v Lesdor

HIS HONOUR : On 2 September 2002, the plaintiff (Cordon) and the defendant (Lesdor) entered into a deed (the deed) whereby they agreed to redevelop in joint venture land at Miranda (the land) then owned by Lesdor. In brief, Cordon, a builder, was to refurbish an existing commercial building on the land and construct a new building comprising carparking, commercial office space and residential units. Lesdor claims that Cordon failed, and indeed refused, to carry out the building works in accordance with the requirements of the deed as varied, and that for this and other reasons Cordon repudiated the deed and its obligations under it. Lesdor claims that it was entitled to, and did, rely on that alleged repudiation to terminate the deed. Cordon denies that it breached, or repudiated, its obligations under the deed. It claims that Lesdor, both because of its purported termination and for other reasons, has repudiated the deed. Those disputes lie at the heart of this litigation. The real issues in dispute

The parties produced what purported to be a statement of the real issues in dispute. The document that they produced was repetitive, argumentative and unhelpful. I find it very hard to believe that parties, and their legal advisers, cognisant of their obligations under s 56 of the Civil Procedure Act 2005 (NSW) could not have agreed on a more succinct and helpful statement of the issues. That the parties did not find the document that they produced helpful is shown by the fact that they did not address it in their final submissions. I do not propose to go where the parties did not. Accordingly, I shall summarise what I perceive to be the real issues in dispute, and deal with them.

The first issue is: did Cordon achieve completion of the works in accordance with relevant requirements of the deed as varied? This issue involves the following questions: (1) what is the proper meaning to be given to the word “completion” where it appears in the deed? In particular, does it refer to completion completely in accordance with the plans and specifications and free of apparent defects, or does it embrace what Cordon says is the commonly understood notion of “practical completion”: that is to say, complete save for the presence of minor defects that do not, and whose repair will not, have a detrimental impact on the enjoyment of the works, and that will be repaired in a defects liability period? (2) to what extent did Cordon: fail to complete the works in accordance with the plans and specifications? Perform aspects of the work in a defective way? Fail to rectify defects? (3) Is the doctrine of substantial performance relevant; and if it is, did Cordon substantially perform its obligations as to completion? (4) Did Lesdor waive its entitlement to “completion” in the sense for which it contended by taking occupation of the works before they had been brought to the state of “completion” in that sense, and in circumstances where Lesdor was not entitled to possession of the works until “completion” in that sense had been achieved? (5) Should completion be deemed to have occurred in about December 2005, because Lesdor then took possession of the works; alternatively, because Lesdor took possession of the works in about December 2005, should Cordon be deemed by then to have satisfied whatever were its obligations in relation to completion? (6) Alternatively, did Cordon achieve completion in accordance with the approved plans and specifications when, and because, Sutherland Shire Council (the Council) issued an occupation certificate and completion report on 1 December 2005?

The second issue is: was Lesdor obliged to sign the strata plan when required to do so by Cordon, or was it entitled to refuse to do so because the works were not at that time complete in accordance with relevant requirements of the deed? This issue involves the following elements: (1) the extent to which work was defective or incomplete when Cordon requested Lesdor to sign the strata plan; (2) the proper construction of relevant provisions of the deed; and (3) whether, in light of the answers to those questions, Lesdor was entitled to decline to sign the strata plan.

The third issue relates to an implied term of good faith. Cordon contends that, under the deed: (1) Lesdor was under an implied obligation to act in good faith and fair dealing in performing its obligations, and exercising its rights, under the deed; and (2) it breached that implied obligation in four ways: by refusing to identify what aspects of the work it said were defective before it served notice of termination; by insisting on completion free of defects before it executed and delivered the strata plan, contrary to the deed on its proper construction; by refusing to sign and return the strata plan “in circumstances where it had taken the benefit of the works to which it was entitled under” the deed; and by interfering and “intermeddling” with Cordon’s relationship with the project’s financier.

The fourth issue relates to the way in which the project was financed. The parties obtained a loan facility from the National Australia Bank (NAB) for the estimated cost of construction, $8,252,000.00. Cordon was entitled to draw down on that facility from time to time to recover the cost of construction (as defined in the deed). However, its remuneration or profit (if any) over and above the cost of construction was to come from the sale of some of the residential units. In brief, designated units (which were called, and I shall call, the “residual lots”) were to be sold, and the proceeds of sale applied to paying out the NAB facility. Once that was done, the proceeds of sale were to be paid to Cordon. The NAB facility was secured by a mortgage given by Lesdor to NAB over the land. Lesdor asserts that Cordon was obliged to keep in place an adequate loan facility until sufficient residual lots had been sold to pay out NAB (or any other financier that might step in), and that Cordon failed to do this. Cordon, on the other hand, says that Lesdor wrongly “intermeddled” in Cordon’s dealings with NAB.

Against that background, the fourth issue is: did Cordon breach its obligations in respect of the financial accommodation needed to fund the development, or did Lesdor wrongfully interfere with Cordon’s attempts to perform those obligations?

The fifth issue is related to the fourth. Lesdor claims that Cordon drew down from the NAB facility in a way that was not authorised by the deed, and applied some of the moneys drawn down to other projects. The fifth issue, arising from that, is: did Cordon owe, and breach, fiduciary obligations by reason of the way it drew down on the NAB facility and applied some of the proceeds thereof?

To understand the sixth issue, it is necessary to know that, after these proceedings were commenced, the parties entered into an “Interim Management Agreement” (IMA) which was intended to provide for the continuing sale of residual lots, and reduction of the debt (by this time, Lesdor and associated companies had refinanced the NAB facility with a facility offered by Macquarie Bank Limited (Macquarie). In effect, the IMA required residual lots to be sold at agreed prices, or prices fixed by an independent valuer in default of agreement, and for the proceeds to be applied in reduction of the Macquarie facility.) It is, I think, common ground that Lesdor did not perform its obligations under the IMA.

The sixth issue is: did Lesdor breach its obligations under the IMA? If it did, did Cordon suffer loss and if so what is the amount of that loss?

To understand the seventh issue, it is necessary to know that Lesdor has retained a number of residual lots (over and above those other lots that, by the terms of the deed, it was entitled to keep), and has no present intention of selling the residual lots so retained. Cordon claims that in those circumstances Lesdor has been unjustly enriched at its expense, and claims restitution. The seventh issue is: does Cordon have a restitutionary claim against Lesdor in the events that have happened, because Lesdor has been unjustly enriched at Cordon’s expense? If there is such a claim, what restitution should Lesdor make? Cordon claims in the alternative to be entitled to be paid on a “quantum meruit” basis for the work that it has done.

There are various damages issues arising out of the matters that I have described. In particular, the eighth issue is: in all of the circumstances, has Lesdor suffered any, and if so what, loss? If Lesdor has suffered loss, has it breached its obligation to mitigate that loss?

The corresponding ninth issue is: whether, in the circumstances, Cordon has suffered any, and if so what, loss?

To understand the tenth issue, it is necessary to know that questions as to the nature and extent of defective and incomplete work, and work not done in accordance with the plans and specifications, were referred out to Ms Janet Grey (the referee) for inquiry and report. The referee has furnished a report, in which she concludes that there were some items of defective works (although not nearly as many as asserted by Lesdor). More significantly, she concludes that some parts of the work were done otherwise than in accordance with the plans and specifications.

The tenth issue is: should the referee’s report be adopted, in whole or in part (and if in part, to what extent)? Allied to this is a question as to whether there is some requirement that it be “necessary” and “reasonable” to require conformity with the plans and specifications ( Bellgrove v Eldridge (1954) 90 CLR 613; Tabcourt Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272). The referee did not deal with that question, because she took the view that it was beyond the terms of the order for reference for her to do so. Although Cordon submitted initially that this issue should be referred back to the referee for further inquiry and report, its final submissions appeared to accept, as did Lesdor, that the Court should determine the question for itself. The witnesses in the case

Cordon is a company controlled by the Ghosn family. Mr Ghassan (known as “Gus”) Ghosn, one of its founders, gave evidence, as did his son Mr Habib Ghosn and his nephew Mr Joseph Ghosn. It was common usage, both at the times with which these proceedings are concerned and in the course of the litigation, to refer to those gentleman as “Gus”, “Habib” and “Joe” respectively. I hope that I will not be thought to be either disrespectful or patronising if, for the sake of convenience, I do likewise. (There is a latent confusion in this. The other founder of Cordon was Gus’s brother, who is also named Habib Ghosn. Since that brother does not feature in the evidence, the latent confusion can probably be avoided; where necessary, I shall refer to him as “Habib Snr”.)

Ms Barbara Ghosn, who is Joe’s sister, also gave evidence. She is a company secretary of Cordon, and is responsible for keeping the company’s financial records, managing and recording receipts, and paying and recording its expenses. She was generally referred to as “Barbara”. Again, for convenience but without intending to be either disrespectful or patronising, I shall adopt that usage.

Lesdor is a company associated with the Semken family. Members of that family are engaged in the businesses of building, property development and real estate agency. The patriarch of the family, and a director of Lesdor, is Mr Leslie Semken. Another director of Lesdor, who also was actively engaged in events relevant to these proceedings, is his son Mr Paul Semken. They were generally referred to at the time and in the litigation as “Les” and “Paul”. Again, for convenience but without intending to be either disrespectful or patronising, I shall adopt that usage.

It is not necessary to say a great deal about the question of credibility, because there are very few conflicts in the evidence. However, I should record that in my view Gus, Habib, Joe and Barbara sought, to the best of their ability, to give honest and truthful evidence. I have no doubt that each of them thinks that Cordon is in the right and that Lesdor is in the wrong. However, I do not think that any of them sought to tailor their evidence to advance Cordon’s case.

Although I do not think that Les or Paul sought knowingly to give untruthful evidence, I do have some reservations in relation to some aspects of the evidence of each of them. Les, in particular, seemed to be determined to use his lengthy stay in the witness box as an opportunity of advancing and vindicating Lesdor’s case. I had the strong impression that his objectivity was strained by his perception of what he thought had been the wrongs done to Lesdor. Those comments apply also, although not with as much force, to Paul.

In the result, to the extent that there is a difference in the evidence between Gus, Habib or Joe on the one hand and Les or Paul on the other, in general I prefer the evidence of the former group to that of the latter. A brief narrative of events

Before I turn to the issues, and to give them some content, I will set out a brief, and I hope non-contentious, account of major events in roughly chronological fashion.

The parties negotiated the terms of the joint venture agreement over a period from about June 2001 to September 2002. The evidence includes correspondence between their solicitors (at the time, Mr Michael Marney for Lesdor and McBride Harle & Martin for Cordon) relating to the terms that were being negotiated. It was contemplated, at least from February 2002, that the relationship would be formalised in a joint venture deed and a building contract. From at least April to July 2002, the terms of those agreements were refined between the solicitors.

On 22 August 2002, Lesdor and Cordon (as principals) granted to Semken Real Estate (as agent) exclusive selling rights in respect of “new residential units and commercial space at 621 – 635 Kingsway Miranda”.

On 30 August 2002, McBride Harle & Martin sent to Mr Marney a number of documents including “deed executed by our client”. No building contract was sent. Mr Marney replied on 2 September 2002 enclosing “Deed signed by [Lesdor] by way of exchange”. Mr Marney did not raise any issue as to the absence of a building contract. No building contract was ever executed. Relevant terms of the deed

The deed provided for a “project” comprising: the construction of a new building comprising two levels of carparking, two floors of commercial offices and 29 residential units; the refurbishment of the existing commercial building; and the sale of the “residual lots” included among those 29 residential units. The parties formed an unincorporated joint venture to execute that project.

The key obligation in the deed is cl 2. It reads as follows: 2. Erect building and sell residual lots 2. (a) The parties acknowledge that it is the intention of them to provide two floors of commercial offices and one level of car parking on the lower level and a Penthouse residential unit number 25 with double garage (on the upper floor of parking and subject to Council Approval, the unit to incorporate the roof area above the unit) and to provide for an additional 28 residential units of which Lesdor is to retain Unit 28 and a single garage and provide for the benefit of Cordon the remaining 27 residential units and one level of residential car parking on the upper level of car parking (excluding the single garage for Unit 28 and a double garage for the Penthouse residential unit) and to refurbish the existing commercial building for Lesdor as part of the building works. (b) (i) In consideration of Cordon undertaking the Building Works upon the Land in accordance with the Plans and Specifications, Lesdor shall subject to these terms and conditions, direct the purchasers of the Residual Lots to pay to Cordon or as it shall in writing direct the whole of the proceeds of sale in respect of the Residual Lots. (ii) Lesdor shall not (other than as provided in this deed) assign, Mortgage or charge their interest in the Land or this Deed without the prior written consent of Cordon. (iii) Cordon shall borrow such funds (hereinafter referred to as “the borrowed funds”) as are necessary to meet the costs of construction for and to complete the building works and shall be liable for repayment of such borrowed funds. (iv) That Lesdor will provide by way of guarantee and security for the borrowed funds to be obtained by Cordon a first registered mortgage over the land to the Lending Institution on such reasonable terms and conditions as it shall require.

The expressions “Approvals”, “Building Approval”, “Building Works”, “Development Approval” and “Plans and Specifications” are defined terms. Their definitions are as follows: “ Approvals” the Development Approval and the Building Approval. “Building Approval” means the approval to be obtained by Cordon from the Council for the construction of the Building and includes any Construction Certificate issued by Council. “Building Works” means the construction work comprised in the Plans and Specifications necessary to construct the Building on the Land and to refurbish the existing building. “Development Approval” means the approval of a mixed development building comprising residential units and commercial units and incorporating two levels of car parking and the refurbishment of the existing building and to be issued by the Council and to built on the Land. “Plans and Specifications” means the plans and specifications of the Building the subject of the Development Approval and Building Approval.

By cl 3(a), it was Cordon’s obligation to prepare the plans, drawings and designs necessary to obtain all relevant approvals.

Clause 4.1 operated, once those approvals had been obtained, to require Cordon to construct in accordance with the approved plans. Clause 4.2 limited Cordon’s ability to change items listed in the Schedule of Inclusions. I set out cl 4.1 (so far as it is relevant) and cl 4.2: 4.1 It is hereby agreed by and between the parties that when the Approvals are obtained for the Building that Cordon shall arrange to have erected on the Land the Building approved by the Council and in accordance with the Plans and Specifications approved by the Council and Sydney Water which plans shall be deemed to be incorporated in this Agreement once approved… 4.2 Cordon shall only be permitted to change any finish, brand, or item in the Schedule of Inclusions to another finish, brand, or item of comparable or better quality in the instance of such being unavailable.

Clause 5.1(a) emphasised, yet again, that Cordon was required to complete the works in accordance with the plans and specifications. It reads: 5.1 (a) The works will be completed in accordance with the plans and specifications.

Clause 11, likewise, dealt with Cordon’s obligation to construct in accordance with applicable approvals and in a good and workmanlike manner: 11. Cordon to complete building works on time 11. Cordon shall diligently proceed with and complete the Building Works in accordance with the Approvals in a good and workmanlike manner within twenty (20) months of the Commencement Date and supply all materials in accordance with good building practice and comply with all relevant Australian Building Standards.

By cl 12, Cordon was entitled to a fair and reasonable extension of time if its performance of the works was delayed because of a number of specified matters.

By cl 13, Lesdor gave Cordon a power of attorney for certain purposes. However, notwithstanding that power of attorney, cl 13.3 provided for Lesdor itself to execute certain documents including the strata plan and contracts for sale. I set out cl 13: 13. Lesdor – Power of Attorney 13.1 In consideration of the covenants on the part of Cordon to carry out or to arrange to have carried out the Building Works hereunder Lesdor hereby irrevocably appoints Cordon as their attorney for the following purposes: (i) Subject to Clause 3.1, to lodge with the Council, development and building applications in respect of the Building Works and any plan of subdivision, Strata Plan and accompanying instrument relative to the Land from the Council. (ii) To obtain the release of the Development Approval, Building Approval, any plan of subdivision, Strata Plan and any accompanying instrument relative to the land from the Council. (iii) To arrange the promotion of the sale of the residual lots on the Strata Plan and to appoint Semken Real Estate or its conjunction agent to assist in such promotion and marketing. (iv) To sign any Contract for the sale of the residual lots at such price and containing such terms and conditions as Cordon shall in its absolute discretion determine and to sign any transfer for the conveyance of the title of any of the residual lots to the purchasers thereof and to arrange discharge of any mortgage held by the Lending Institution over the Land and to do all such acts, matters and things as may be necessary for and incidental to the sale of the residual lots in the Strata Plan. (v) To appoint solicitors or such other professionals as Cordon shall deem fit to act for Lesdor in relation to the sale and conveyance of the Residual Lots. (vi) That the Power of Attorney is deemed revoked forthwith upon the completion of the sale of the last residual Lot. 13.2 The Power of Attorney hereby conferred on Cordon shall be irrevocable and may be relied upon by any third person dealing with Cordon. 13.3 Notwithstanding the preceding provisions of this clause, Lesdor shall execute any plan of subdivision, the Strata Plan any accompanying instruments and such Contract, Contracts, Transfer or Transfers for the conveyance of the title of the residual lots to such persons or corporation as Cordon shall nominate and shall deliver such plans, instruments and such Contract, Contracts, Transfer or Transfers to Cordon forthwith upon request. 13.4 If required by Cordon at any time before completion of this Agreement, Lesdor shall execute a Power of Attorney in favour of Cordon in a form consistent with the form referred to in the Conveyancing Act and containing the powers referred to in the preceding provisions of this clause 13.

By cl 14, Cordon was entitled to the proceeds of sale of the residual lots, after deduction of GST and repayment of all loan expenses and selling costs. I set out that clause: 14. Proceeds of sale of residual lots 14.1 (a) Cordon shall be entitled to receive for itself the whole of the proceeds of sale of the residual lots after deduction of all Goods and Services Tax (“GST”) incurred and payable by Lesdor as a consequence of electing to adopt the “margin scheme” in respect of the carrying out of the Building Works.. (b) That the proceeds of the sale of the residual lots shall be applied in priority as follows: (i) Payment or part repayment (as the case may be) of the loan and, after such loan is repaid in full then (ii) By way of Real Estate Agents’ Commission, advertising expenses, legal fees and disbursements and any fees or charges in respect of sales of the residual lots brought into being by virtue of registration of the Strata Plan and in respect of such Cordon will indemnify and keep indemnified Lesdor in respect of such. And further Lesdor and Cordon agree to direct the providor of the services referred to, to provide such accounts and render such fees as are applicable to the account of Cordon and to be forwarded direct to Cordon. (ii) To Cordon for itself and for its sole benefit.

Clause 15 is another key provision. It obliges Cordon to register the strata plan as quickly as possible, and Lesdor to do what it can to help. I set out cl 15: 15. Cordon to register Strata Plan 15. Cordon shall at its own expense use its best endeavours to have the Strata Plan approved by the Council and registered at LPINSW as expeditiously as possible following completion of the Building Works and Lesdor shall do all such things as shall be reasonably required of it to give effect to this.

Clause 21 provided for a defect liability period. I set it out: 21. Defects liability 21. Any defects or other fault which may appear and be notified in writing to Cordon within a period of: (a) Three (3) months from the date upon which Lesdor shall have taken possession of the refurbished existing building and the commercial offices and the one level of car parking or within three (3) months from the date on which Cordon shall have notified Lesdor that such are available for occupation (whichever is the earlier); (b) Three (3) months from the date of completion of any sale of residential unit in this project by Lesdor for the occupation as a residence of any residential unit in the project provided however that the obligations in this regard shall cease after twelve (12) months after the registration of the Strata Plan. Due to any materials or workmanship not being in accordance with this Deed or arising from faulty workmanship or defective materials shall be rectified and made good by Cordon at its own cost PROVIDED THAT this shall not apply to minor settlement cracks or shrinkage usually associated with building works of this type.

By cl 22, Lesdor was to pay Cordon $210,000.00 plus GST at 10% for delivery of the folio identifiers for units 25 and 28 (free of any mortgage). That was the extent of Lesdor’s obligations to make payment to Cordon.

By cl 26, Cordon was to provide Lesdor with a bank guarantee, in the sum of $1,000,000.00, as security for the due performance by Cordon of its obligations under the joint venture deed. That guarantee was to be returned once Cordon had completed work to the podium level of the new commercial building.

Clause 32 contained guarantees. Lesdor guaranteed to Cordon the proper performance of Lesdor’s obligations under the deed; and Habib Snr and Gus guaranteed to Lesdor the proper performance of Cordon’s obligations under the deed. The variations

The first deed of variation was made on 19 August 2003. It amended the definition of “Plans and Specifications” as follows: 1. (b) Definitions and Interpretation “Plans and Specifications” – add at the conclusion of that Definition the following words “as lodged with Sutherland Shire Council and a copy of which has been inspected by the parties and initialled by them for identification and lodged with the solicitors for Lesdor for the benefit of the parties and for reference to by the parties as required.

The first deed of variation also provided that cl 2(a) was to be deleted and replaced by the following words: (d) Clause 2(a) – the words contained therein shall be deemed to be deleted and replaced with the following words – “The parties acknowledge that it is the intention of them to provide two floors of commercial offices and one level of car parking on the lower level and a Penthouse residential Unit No. 25 with double garage to be side by side (on the upper floor of parking, the unit to incorporate the roof area above the unit and a staircase (for which the Council approval must be received no later than the time that the staircase is to be constructed) from the living room of the Unit to the roof terrace over along with a small room at the roof level to provide weather-proof entry/exit (Lesdor at its cost and expense is to seek such approval from Sutherland Shire Council and to provide additional twenty-seven (27) residential units of which Lesdor is to retain Unit 20 and double garage to be side by side and Unit 21 with one lock up garage space and to provide for the benefit of Cordon the remaining twenty-five (25) residential units and one level of residential carparking on the upper level of the carparking (excluding garages for the Penthouse residential unit and Units 20 and 21) and to refurbish the existing commercial building for Lesdor as part of the building works.

Finally, for present purposes, it provided a new cl 34 relating to sale of the residual lots through Semken Real Estate: 34. Cordon agrees as follows: a. Semken Real Estate is to be the exclusive selling agent for the residual lots; b. all of the residual lots are to be put on the market for sale before or at the date of the registration of the strata plan; c. if any of the residual lots are not put on the market by Cordon for sale in accordance with the provisions of part (b) hereof then the standard commission on the market value of any such unit is to be paid by Cordon to Semken Real Estate within four (4) months from the date of the registration of the strata plan. Registration of the strata plan is not to be unreasonably delayed.

The second deed of variation was made on 19 November 2003. I do not think that anything turns on it.

The third deed of variation was made on 18 December 2003. Again, I do not think that anything turns on it. Events following the making and varying of the deed

The Council gave building approvals as follows: (1) for stage one, being excavation, shoring and piling, on 17 December 2003; (2) for stage two, being for basement carparking and the podium level concrete slab, on 19 March 2004; and (3) for stage three, being the remaining construction works for the new commercial and residential space, on 15 July 2004.

Whilst that was happening, the NAB granted a loan facility to Cordon for $8,252,000.00. Lesdor guaranteed Cordon’s obligations under that facility, and gave a mortgage over the land to secure its obligations as guarantor.

The marketing of residual lots appears to have commenced in about June 2005.

From about August 2005, there was correspondence between Lesdor’s solicitors and Cordon’s solicitors in relation to both completion (i.e., as to when it was when Cordon expected to achieve completion) and alleged defects.

From about October 2005, contracts were exchanged for the sale of various of the residual lots.

On 1 December 2005, the Council issued an occupation certificate and completion report. When that happened, Cordon gave Lesdor possession of the two new floors of commercial offices, one level of the new carparking space and residential lots 20, 21 and 25 with their associated carparking spaces. The existing commercial premises remained in Lesdor’s possession (as had been the case at all material times since the joint venture deed was made).

It is Cordon’s case that the works reach the stage of completion, or alternatively practical completion, once the events referred to in the preceding paragraph had occurred. However, Lesdor denied that the works had been completed in accordance with the requirements of the joint venture deed.

On 13 January 2006, Joe and Les met on site to discuss allegedly incomplete, defective and non-conforming works. Joe sent Les a fax shortly after the meeting, in which (on his evidence) he set out what works, by way of rectification, had been agreed. Les denied that any such agreement had been reached.

On 3 February 2006, Lesdor’s solicitor (by now, Mr Michael Solari of Solari Legal) gave Cordon 28 days’ notice to rectify alleged defective works. He stated that, if this were not done, Lesdor would terminate the deed and sue for damages.

On 15 February 2006, the Council approved the strata plans for all lots. On 23 February 2006, Joe delivered the strata plans to Lesdor’s solicitor, for Lesdor to sign them.

Lesdor took the view that it would not sign the strata plan until the building works had been completed, in accordance with the plans and specifications and in what it said was a proper and workmanlike manner. Cordon offered to place some $30,000.00 in an interest bearing account, pending resolution of the issue of defective workmanship, if Lesdor signed the strata plans. That offer was not enough for Lesdor, which required retention of $1,500,000.00 both “to cover the costs of the defective work and also… [to] be an incentive for [Cordon] to complete the defective work within a reasonable time”.

On 12 April 2006, Cordon commenced these proceedings. It sought, on an interlocutory basis, an order in effect by way of specific performance: that Lesdor execute the strata plans and accompanying instruments. That application was dismissed by Barrett J on 5 May 2006: [2006] NSWSC 481. In brief, his Honour considered that, on the proper construction of the relevant provisions of the deed, the concept of completion was “due and entire accomplishment of each and every step appearing from the plans and specifications” (at [10]). It was common ground, his Honour said at [8], “that the work that has been done does not, in all respects, conform with the plans and specifications…”. It was not enough, his Honour said at [9], that the work might have satisfied the Council to the point that it issued an occupation certificate.

The NAB facility was due to expire on 31 May 2006. NAB offered to extend the facility for 60 days, so that it would expire on 31 July 2006. That was done to enable the parties “to agree a way forward”.

I pass over the continuing disputes between the parties as to how the impasse, or standoff, between them, might be resolved.

In June 2006, Lesdor and two associated companies, Marlborough Homes Pty Limited (Marlborough) and Semken Bros Pty Limited (Semken Bros) agreed to borrow $9,000,000.00 from Macquarie. That was to enable them to pay out NAB and to make “ongoing property acquisitions”.

On 1 August 2006 – the day after the extended NAB facility expired – NAB terminated the facility and made demand on the guarantors. Lesdor, Marlborough and Semken Bros drew down on the loan facility they had organised with Macquarie, and paid out NAB.

On 8 August 2006, Lesdor gave notice by which it terminated (or purported to terminate) the deed. The notice relied on repudiation on Cordon’s part.

On 3 November 2006, Cordon and Lesdor entered into “Interim Settlement Orders” and the IMA.

On 18 December 2006, Lesdor registered the strata plan for the residential lots and, on 9 March 2007, it did the same for the strata plan for the commercial floors.

Cordon took the view that Lesdor had not performed its obligations under the IMA. It approached the Court. On 3 August 2008, Einstein J appointed a receiver over the development: [2008] NSWSC 1006. His Honour’s order was stayed, and ultimately by consent set aside, by the Court of Appeal. First issue: did Cordon complete the works in accordance with the requirements of the deed? The construction of “completion” in the deed The parties’ submissions

The parties agreed that I was not bound by the construction, of Cordon’s obligations as to completion under the deed, by the reasoning of Barrett J. Mr Corsaro of Senior Counsel, who appeared with Mr Bradley of Counsel for Cordon, submitted that Barrett J had not been given the full context, including reference to what Mr Corsaro submitted were relevant aspects of the specifications. Mr Hale of Senior Counsel, who appeared with Mr White of Counsel for Lesdor, submitted that Barrett J was correct and the additional material to which Mr Corsaro referred was irrelevant.

The parties agreed that, in construing the relevant provisions of the deed, I should take into account the purpose that the parties sought to achieve by the deed and relevant surrounding circumstances, to the extent that they were known or should be taken to have been known to the parties, at the time the deed was made. They agreed also that, in construing the deed, I should seek to avoid commercial absurdity.

Mr Corsaro submitted that, when one had regard to relevant aspects of the specifications, it was clear that the parties had in mind the concept of “practical completion” as governing the first stage of Cordon’s obligations under the deed. He referred, in this context, to acknowledgments by Les that he had read the specifications and that, although he could not recall having done so, he would have noted the various references in them to “practical completion”.

Further, Mr Corsaro submitted, the construction for which Lesdor contended (and which found favour with Barrett J) led to commercial absurdity. That was so, Mr Corsaro submitted, because it meant that any defect, no matter how minor, would justify Lesdor in refusing to sign the strata plan, so that registration of the strata plan, settlement of pre-sales and reduction of the amount owed to NAB would all be delayed.

Mr Corsaro referred to the provisions of cl 21 (dealing with the defects liability period). He submitted that this clause recognised, in effect, that completion of the works might be achieved notwithstanding the existence of minor defects. In this context, he relied on cl 19 of a version of the draft construction contract that had been exchanged between the solicitors.

Mr Corsaro relied also on various references to “practical completion” in correspondence exchanged between the solicitors when the parties were in dispute.

Mr Corsaro relied, further, on cls 13.3 and 15 of the deed. By the first of those, Lesdor was required to execute and deliver to Cordon documents, including the strata plan, “forthwith upon request”. By the latter, Cordon was required to use its best endeavours to have the strata plan approved and registered as quickly as possible, and Lesdor was required to do what it reasonably could to assist. Those obligations, he submitted, were substantial and not merely mechanical or ancillary.

Finally, Mr Corsaro relied on the evidence that showed, he submitted, that at all material times up until the point of execution and exchange of the deed, the parties had intended that there would be a construction contract. He submitted that the Court could infer that such a contract would contain what he characterised as customary provisions for “practical completion”. That understanding, he submitted, should be reflected in the construction that the Court gave to relevant provisions of the deed.

Mr Hale submitted that the deed meant what it said. “Completion” was to be understood as “Completion in accordance with the Plans and Specifications” (cl 4.1; and see too cl 5.1 (a), where the words “plans and specifications” do not have initial capital letters).

Mr Hale submitted that no assistance could be gained from the specifications, which were not in existence at the date the deed was made. It appears that, by the time the deed was first varied, the plans and specifications were in existence. However, Mr Hale submitted, those documents, which were manifestly in some standard or generic form, adapted to some extent for the purposes of the particular development, did not shed light on the proper construction of the deed.

Mr Hale did not accept that the construction for which his client contended led to commercial absurdity. On the contrary, he submitted, it contained a substantial element of common sense. He noted that there was no retention fund (the bank guarantee for which cl 26 provided was to be returned to Cordon once the works got to the stage of the podium level). Accordingly, he submitted, if his client was required to accept less than complete performance, it had no security, or other mechanism, for compelling performance. Further, he submitted, the contract contained no mechanism for determining when “practical completion” might have occurred, or standard by which an independent assessment could be made of whether in fact “practical completion” had occurred.

Mr Hale submitted that the factual matrix did not include pre-contract negotiations. He submitted, further, that in any event the draft construction contract (and, in particular, cl 19) was of no assistance because it was in part inconsistent with what had been agreed in the joint venture agreement.

Mr Hale submitted that it did not really assist to look at what the parties, or their lawyers, had said in correspondence sent well after the contract was made. Decision

I do not think that it is legitimate to construe the deed that the parties did make by reference to, or so as to be in conformity with, a building contract that they did not make. I accept that it is likely that, at least during their negotiations, the parties intended their obligations to be governed both by the deed (which would set out their respective rights and responsibilities as joint venturers) and by a building contract (which would set out their specific rights and responsibilities in relation to the building work). I accept, too, that there is no explanation of the sudden disappearance, from the contemplated documentation, of the building contract; or of the failure to require a building contract to be executed. But I am concerned with what the parties did, not with what they might have done.

In the absence of evidence, it is open to infer either that the parties overlooked that they had intended to execute a building contract (I would have thought, an unlikely position, given that each was legally represented) or that, for some reason, they decided not to execute a building contract. Equally, it may be that, at the time the deed was exchanged, the parties still intended to execute a formal building contract; but that they either forgot, or decided not, to do so. Where the possibilities are so open, I do not think that either the precontractual intention to execute a building contract or the terms of the building contract that was being negotiated are legitimate aids to the construction of the deed.

Nor do I think that any assistance is gained from references, in the specifications, to “practical completion”. I accept that, at least as a matter of theory, there may be circumstances in which and purposes for which it would be legitimate to have regard to the terms of the specifications in construing the terms of the deed. But the specifications are ancillary to the deed. To be sure, they are recognised in the deed (at least, following the first variation, on 19 August 2003). But they were, presumably, documents brought into existence, or procured, by Cordon in pursuance of its design and documentation obligations (cl 3(a) of the deed). Even accepting that Les read and understood the specifications (and I have no doubt that, he being an experienced builder, if he had read them he would have understood them), it does not follow that he accepted them as expressing the full extent of Cordon’s completion obligations under the deed. The specifications were intended to give affect to, not to define the extent of, Cordon’s obligations under the deed.

The same applies, a fortiori, to other post-contractual references to practical completion, in the solicitors’ correspondence and in the terms of the NAB loan facility.

The appeal to commercial absurdity is, in truth, an appeal to the inconvenient consequences, from Cordon’s perspective, of the construction for which Lesdor contended. The works were wholly within the control of Cordon. It was open to Cordon to perform them to whatever standard of perfection it might have contracted to achieve. If Cordon did not achieve that standard, and thus failed to trigger relevant obligations of Lesdor under the deed, that may be inconvenient; but it does not seem to me to be absurd.

Further, the position as to commercial inconvenience is not all one way. On the contrary, I think, there are good reasons (one, at least, of which is significant) why Cordon’s completion obligations should be construed as Lesdor submitted.

Under the deed, Cordon was to be paid for the actual cost of the work done by it (without any profit component) by drawing down from time to time on the NAB facility. That facility was to be repaid out of the proceeds of sale of the residual lots. Lesdor was a guarantor of Cordon’s obligations to NAB, and had provided a mortgage (and a first registered charge over all its assets and undertaking) to support that guarantee. It is not hard to see that completion of pre-sales would be expedited, and disputes as to retentions in respect of defects would be minimised, if completion was to be achieved in accordance with the plans and specifications and free of at least apparent defects.

However, Lesdor had no retention fund from which it could recoup the cost of repairing defects. Nor did it have any other mechanism, apart from withholding its signature to the strata plan, for forcing Cordon to complete in accordance with the plans and specifications and free of apparent defects. Once the strata plan was signed and returned to Cordon, it would be registered and pre-sales would fall due for completion. If the proceeds of pre-sales were insufficient to discharge the indebtedness to NAB (and the evidence indicates that this would have been the position), then Lesdor was reliant on there being raised, from sales of the remaining residual lots, sufficient funds to pay out NAB. Clearly, it would be in Lesdor’s commercial interest that those lots be marketed to best advantage. The existence of patent, even if minor, defects could well hinder that marketing, and diminish the selling prices.

In short, once Lesdor signed the strata plan and returned it to Cordon, it was left without any effective mechanism for ensuring that Cordon would comply with its obligations. It could rely only on Cordon’s self-interest. If it became apparent to Cordon that the sale of the residual lots would do not more than discharge the amount owed to NAB, then its self-interest would count for little. Indeed, self-interest might dictate that it would not spend more money on rectification, and thus increase the amount of its loss on the project.

Further, once each strata plan was registered, the owners corporation for each would come into existence, and common property the subject of each strata plan would vest in the relevant owners corporation. Of course, upon registration, Lesdor would become registered as proprietor of lots in each strata plan. But it would be expropriated of so much of its former proprietary interest as was comprised in common property under each strata plan. That is not an insignificant consideration.

If one looks at the residential lots, it is at least arguable, and I think probably the case, that Lesdor would be the “developer” for the purposes of the Home Building Act 1989 (NSW). It would accordingly attract liability, pursuant to s 18B, for the statutory warranties implied by that Act. If the works were completed in a defective state, Lesdor would be contingently liable to make good the defects. If Cordon refused to do so, proprietors and the owners corporations could call upon Lesdor. Again, that is not an insignificant consideration.

Those matters suggest that, contrary to Mr Corsaro’s primary submission, there are indeed good commercial reasons why Cordon’s completion obligations under the deed should be construed in the manner for which Lesdor contends.

I do not think that the submission based on cl 21 of the deed (the defects liability period) assists Cordon. On the contrary, I think, it may work the other way. It will be noted that cl 21 is expressed in future terms: “defects or other fault which may appear and be notified in writing”. The period within which the clause operates is, in the case of all but the residential lots, three months from the date when Lesdor takes possession; and, in the case of residential lots, three months from completion of contracts for sale.

Of necessity, completion of contracts for sale would take place after registration of the strata plan and, hence, after Lesdor had signed it. Equally, it might have been thought that, at the time the deed was made, Lesdor would take possession of the other parts of the development after Cordon had complied with its completion obligations. That is because, until completion, Cordon was entitled to exclusive possession of the works. In fact, Lesdor did not have, at any relevant time, exclusive possession of the former commercial building that was to be refurbished. But that post-contractual circumstance, which was inconsistent with the relevant terms of the deed, is not something to be taken into account in construing the contract; nor is what actually happened, as outlined at [51] above.

Thus, I think, cl 21 speaks of a period of time arising after Cordon has complied with its completion obligations. It does not suggest that the parties intended that the existence of a defects liability period would ameliorate what might otherwise be thought to be the stringency of those completion obligations.

All those considerations support the conclusion that Cordon’s completion obligations should be construed as Barrett J construed them, and as Lesdor submitted.

There is, I think, another significant consideration that supports this conclusion. It is this. If the word “completion” is to be read as meaning “practical completion”, what is the content of the obligation thereby imposed? By what standard is “practical completion” measured? By whom, in the event of dispute, is it to be fixed? Most contracts that provide for practical completion include a definition of what it is that will satisfy the requirement to achieve practical completion. It may be correct to say that those definitions have a generally understood common element. But I do not think that any such common element can be said to be universal, or notorious, so that, if the parties were to be taken to have intended that “completion” should mean “practical completion”, that is the content of the obligation that they intended to call up.

There is no difficulty in principle in understanding whether a builder has achieved completion in a good and workmanlike manner in accordance with the plans and specifications. There may be considerable difficulty in ascertaining whether a builder has attained some lesser level of completion, and whether that lesser level of completion satisfies some general concept, unadorned by definition or amplification, of “practical completion”.

To my mind, considerations of certainty make it unlikely that the parties should be taken to have intended that rights and liabilities should depend on the amorphous and undefined concept of practical completion advanced by Cordon; and, on the contrary, likely that they should have intended those rights and obligations to be governed by the clear meaning of the words that they chose in their deed.

Do cll 13.3 and 15 defeat that conclusion? Clause 13.3 forms part of cl 13, which deals with Lesdor’s appointment of Cordon as its attorney, and the purposes of that appointment. The effect of cl 13.3 is that, notwithstanding that Cordon holds (and pursuant to cl 13.4 may obtain a more formal version of) Lesdor’s power of attorney, Lesdor itself will execute specified documents if Cordon asks it to do so.

The purpose of cl 13 is to be understood from the circumstances of the joint venture. Lesdor was the owner of the land. Cordon was the builder. Cordon was required to obtain all approvals; to market, and to enter into contracts for the sale of, the residual lots; to obtain registration of the strata plan; and to complete such contracts for sale as it had made. All of those activities were required to be done either in Lesdor’s name or (in the case of development and building applications and the like) with Lesdor’s written consent. Clearly enough, cl 13 was inserted into the contract to enable Cordon to attend to those obligations without having to trouble Lesdor each time it needed a document to be signed.

However, the obligations with which cl 13 is concerned are either preparatory to, or assume the undertaking and completion of, the building works. Thus, obligations in relation to approvals are preparatory; and obligations in respect of the marketing and sale of the residual lots, and the registration of the strata plan, assume completion of the building works and enable the consequences – payment out of the debt owed to NAB, and the payment of a commercial return to Cordon – to follow. In the ordinary way, one would not expect that a substantive obligation (such as that in relation to the obligation to complete in accordance with plans and specifications and in a good and workmanlike manner) was to be governed, or its content to some extent controlled, by a machinery provision such as cl 13.

Further, although cl 13.3 requires Lesdor to execute and deliver documents of the kinds to which it refers “forthwith upon request”, it is necessarily implicit that the request should be one that, contractually, Cordon is entitled to make. For example, if it were obvious, indeed indisputable, that Cordon had not complied with its obligations to complete (and for the moment I put aside that this is precisely Lesdor’s case), so that it could not be suggested that Cordon had achieved “completion of the Building Works” for the purposes of cl 15, a request made of Lesdor by Cordon under cl 13.3 could not engender any obligation in Lesdor to comply with that request, nor render Lesdor liable for damages for breach of contract if it failed to do so. If a request by Cordon is to engender any obligation, then it must be a request that Cordon is contractually entitled to make.

Thus, cl 13.3 adds nothing to the debate. Reliance on it simply begs the question of whether Cordon was entitled to make the request that is said to have engendered Lesdor’s obligation to sign and deliver.

The same may be said of the concluding words of cl 15. True it is that Lesdor was required to “do all such things as shall be reasonably required of it to give effect to” Cordon’s obligation to have the strata plan approved and registered as soon as possible. But that obligation was one that arose “following completion of the Building Works”. If the Building Works had not been completed, then there was nothing on which Lesdor’s obligation to assist could fasten.

For those reasons, I conclude that Cordon’s obligations under (among others) cll 2(b)(i), 4.1, 5.1(a) and 11 to complete the works, the subject of the deed, in accordance with all relevant approvals, the plans and specifications and in a good and workmanlike manner, mean exactly what they say. They do not contemplate completion otherwise than in accordance with the plans and specifications, or with manifest defects. Thus, Lesdor’s undoubted obligations under cll 13.3 and 15, to sign the strata plan when properly required to do so, have not been triggered by Cordon’s request. In short, I agree with the views expressed by Barrett J. To what extent did Cordon fail to comply with its obligations in respect of completion? The parties’ submissions

Mr Hale submitted that there was uncontroverted evidence that Cordon had not complied with its contractual obligations in respect of completion, either as at 23 February 2006 (when the strata plans were delivered to it for signature) or by 8 August 2006 (when Lesdor gave notice of termination). He pointed to the following matters: (1) at least as at the former date, there was agreement between Lesdor’s expert Mr Childs and Cordon’s expert Mr Austin that there were many defects in the work performed by Cordon, although Mr Austin did not agree with the full extent of the defects asserted by Mr Childs; (2) although there was a dispute as to whether the defects apparently agreed by Messrs Childs and Austin had been rectified by 8 August 2006, there was no doubt that, at that date, there were still some outstanding defects; and this was confirmed by the referee’s report; (3) in any event, and far more importantly, there were areas of the works that simply had not been completed in accordance with the plans and specifications, including: the street frontage (to The Kingsway) of the commercial building had not been constructed in accordance with the plans, and the walkway that was to be constructed in front of that frontage had not been built; the parapet on the roof of the existing commercial building had not been raised to the height of the parapet on the adjoining new commercial building, so as to present a continuous appearance from street level; the awning structure that had been constructed in front of the buildings was not constructed from hot dip galvanised steel, but from powder coated steel; the roof of the new structure (i.e., the roof level above the residential lots) had not been finished with gravel, as the specifications required; and the “pebblecrete issue”: tiling over the pebblecrete surface where the walkway was to go, and ramping down to the shop floors; rather than doing as the referee said at paras 291 to 296 of her report should have been done: removing the pebblecrete surface and retiling so that the tiles and the shop floors were on the same level.

Mr Corsaro disputed the extent of the defects asserted. As to the five matters mentioned in the previous paragraph (being instances of non-compliance with the plans and specifications that remain to this day), Mr Corsaro advanced a variety of arguments, to which I shall return.

Further, Mr Corsaro referred to evidence which, he submitted, led to the conclusion that Lesdor had agreed to accept the works as they were presented to it (this is said to refer to particular matters, and not to the fact of taking possession, which is the subject of the next sub-issue). Decision

I note that although I have stated the position as to defects alternatively as at 8 August 2006 – the date of termination of the deed - the parties and the referee addressed the position as at 31 July 2006. Nothing turns on this, because there is no suggestion of any relevant change over the intervening week. In point of analysis, in relation to the question of completion, I think that the relevant time for consideration is 8 August 2006.

As I have indicated already, there is no doubt that the works were not “complete”, in accordance with the deed properly construed, as at 23 February 2006. That is because, as Messrs Childs and Austin agreed, there were then numerous defects in the work that had been done. It may be that, at least putting aside the five significant instances of departures from the plans and specifications referred to above, the defects were “minor”. It may be that they could have been repaired relatively easily, relatively quickly and for relatively very little money. (That having been said, it is also clear, from the referee’s report, that not all of those defects had been repaired by 8 August 2006. I will return to this.)

It follows that Cordon’s request, made on 23 February 2006, for Lesdor to sign the strata plan did not oblige Lesdor to do so because the request was not made “following completion of the Building Works” in accordance with cl 15 of the deed, properly construed.

Between February and August 2006, Lesdor, through its solicitors, made numerous demands on Cordon to complete the building works free of defects in accordance with the terms of the deed. Cordon refused to do so, on two bases. The first was that, on the proper construction of the deed, the works were not required to be free of defects in order to be complete. The second was that it disputed the existence of many of the defects alleged by Mr Childs.

For reasons which are unclear, the parties did not avail themselves of the dispute resolution procedure – reference to arbitration – contained in cl 28 of the deed. Instead, they maintained their respective stances.

It follows, from my conclusion as to the proper construction of the deed (in relation to completion), that Lesdor was entitled to take the stance that it did in correspondence, and that Cordon was not entitled to take the stance that it did. It follows, also, that Cordon must be regarded as having stated that it was not prepared to perform its obligations in accordance with the deed, but only in accordance with its own (erroneous) interpretation, or understanding, of those obligations. It did not, for example, acknowledge the possibility of error, and state that if the deed were to be construed otherwise than it said, it would perform its obligations accordingly. In those circumstances, I think, it is clear that Cordon repudiated the deed, and its obligations under it, by no later than 8 August 2006; and that Lesdor was entitled to do as it did on that date, and given notice of termination.

In that context, it is of some significance that this Court had decided, although on the hearing of an interlocutory application, that the deed was not to be construed (in relation to completion) as Cordon contended; but that, on the contrary, it was to be construed as Lesdor contended. That happened on 5 May 2006. Thereafter, on 16 June 2006, Lesdor expressly called on Cordon to state whether it intended to complete the works “duly and entirely in accordance with the plans and specifications as required by the Deed”. Cordon neither undertook to do so nor in fact did so.

The notice of termination relied, also, on Cordon’s failure to refinance the NAB facility. I will come to that in due course, but what I have said so far would lead to the conclusion that Lesdor was entitled to do as it did on 8 August 2006: accept Cordon’s repudiation, and terminate the deed.

Mr Corsaro sought to deflect that conclusion by referring to a number of matters: (1) the meeting between Joe and Les on 13 January 2006, and the agreement allegedly reached at that meeting; (2) offers made by Cordon from time to time thereafter, to put aside a retention fund as security for the rectification of defects, to facilitate signature and registration of the strata plan; (3) the “failure” or “refusal” of Lesdor to provide a further report by Mr Childs, in answer to a report prepared by Mr Austin on 31 May 2006 and given to Lesdor on that day (among other things, this report referred to defects that Mr Austin acknowledged were present and proposed that $190,000.00 be set aside as a retention fund to cover the cost of rectification); and (4) the circumstance that the defects, as at 8 August 2006, that the referee found were proved were far less in scope and extent than the defects asserted by Mr Childs. The meeting of 13 January 2006

Although, in general, I prefer Joe’s account of the meeting of 13 January 2006 to that of Les, it does not follow that what transpired at that meeting absolved Cordon from its obligations under the deed. Joe and Les walked around the works and observed a number of instances of incomplete and defective work. They discussed what Cordon proposed to do to rectify them. Joe made notes. Later that day, he prepared a list of the works and what he said had been agreed in relation to them, and sent it to Les. Les annotated that list and sent it back to Joe.

Mr Corsaro submitted that some form of agreement had been reached at the meeting, that Joe’s notes had recorded that agreement, and that Les had sought to resile from that agreement. I do not think that this is correct. I think that the correct analysis of what happened is that Joe and Les identified the defects (including non-compliances) that were set out in Joe’s list, and that Joe indicated what Cordon proposed to do to rectify those defects. I do not think it is likely that Les, then and there, accepted that this was a sufficient extent of rectification. Lesdor’s position (which I have no doubt reflected Les’ intention) was that the works should be completed and handed over, in accordance with the plans and specifications and free of apparent defects. It is, I think, easy to infer that Lesdor had had the benefit of legal advice that this was its contractual entitlement under the deed. Les did not strike me as a man who would lightly, and without reflection, give away anything that he believed to be due to him, or to Lesdor. On the contrary, he struck me as someone who would do all he could to insist on the due and complete performance of any contract to which he or Lesdor was a party.

The truth, I think, is that Les wanted to find out what it was that Cordon proposed, and wanted some opportunity to consider that. Despite what I have said as to my perception of Les, his response indicated that he was prepared to consider some compromises. No doubt, he was prepared to give some ground to get, although late, substantially the benefit for which Lesdor had contracted. But it does not follow that he agreed, at the meeting, to everything put by Joe. It should also be noted that Cordon never accepted the changes suggested by Les when he returned the annotated document to it.

I conclude that there was no definite agreement, whether binding or not, reached at the meeting of 13 January 2006; and, a fortiori, no agreed variation to, or agreed mode of performance of, Cordon’s obligations under the deed. Offers of alternative interim regimes

As to the second matter on which Mr Corsaro relied: it is not to the point that, from time to time, Cordon offered alternatives that did not involve performance in full of its contractual obligations. It could be said (although I do not decide) that Cordon was acting reasonably, in proposing interim regimes that would enable the strata plan to be signed and registered as quickly as possible. But there was no obligation on Lesdor to accept what Cordon was proposing. Specifically, there was no obligation on Lesdor to accept less than its contractual entitlements. If Lesdor was not prepared to accept anything less than complete performance of the deed – and that this was its position is clear from the correspondence – then Cordon’s obligation was not to continue to negotiate to provide something less than full performance, but, rather, to do what it was contractually obliged to do. Alleged failure to provide report

The failure to provide a report in report of Mr Childs goes nowhere. First, as Lesdor’s solicitor Mr Michael Solari said in evidence, the delay was solely due to Mr Childs. Second, and more important, it was Cordon’s obligation to complete the works to the appropriate standard. Lesdor had no obligation to tell Cordon what remaining works required completion, or, more generally, how Cordon should perform its contractual obligations.

There is a more fundamental difficulty in relation to Mr Austin’s approach. I accept that, in relation to work that was purportedly done in accordance with the plans and specifications but done (or said to have been done) defectively, Mr Austin sought to address the correct test. But in relation to the five major issues mentioned above, Mr Austin’s view was based, expressly or by implication, on an assumption that the works did not need to be done, in accordance with the plans and specifications, so as to achieve the contractual standard of completion.

I turn to those five substantial issues.

The first issue relates to the alignment of the existing (to be refurbished) commercial building. That building was located at the southwestern corner of the site, which was bounded to the south, west and north by, respectively, The Kingsway, Wandella Road and an apparently unnamed laneway. In its unrefurbished state, the frontage of the existing commercial building to The Kingsway seems to have been offset, being at or close to the footpath at the southwestern corner of the building and somewhat removed from the footpath at its southeastern corner. The approved plans called for the frontage to be realigned so that, for about one-third of its length from the southwest corner, it was shifted back, or to the north, from the footpath.

The intent was to provide pedestrian access along a colonnade running parallel to The Kingsway and leading to Wandella Road. That colonnade was to be tiled, so that it would link up (by stairs) with a “plaza” in front of the new commercial building, which lay immediately to the east of the existing commercial building. Thus, pedestrians could pass along the frontage of the two buildings via the tiled plaza and colonnade, and could have access to Wandella Road.

The frontage of the existing commercial building was not realigned as shown on the approved plans and specifications. Further, a fire door was constructed at the western end of the colonnade, effectively blocking access to Wandella Road.

Cordon’s case was that the work shown on the approved plans could not be carried out, for two reasons. The first reason was that it was necessary to construct the fire door, so as to comply with appropriate standards. The second was that there was some problem with a column, which was said to lend support to the other storeys of the building.

The evidence as to the first point is scanty. There is no doubt that Joe told Les that there was a problem with the fire door, and that Cordon had retained an expert, Mr Anthony Uzelac, to advise. The fire door that was constructed accorded with Mr Uzelac’s advice, and was satisfactory to the Council. But it did not accord with the approved plans, and meant that the design intent, of pedestrian access along the colonnade to Wandella Road, could not be achieved.

At no stage, before carrying out the work to which I have referred on the frontage of the existing commercial building, did Cordon inform Lesdor that there was a problem with constructing what was shown on the approved plans, either in relation to the fire door or in relation to the column. At no stage did Cordon propose a variation to what was shown on the approved plans. It went ahead and did the work. It had no entitlement under the deed to do that. On the contrary, its obligation was to carry out and complete the works in accordance with the approved plans and specifications.

Further, it was Cordon’s obligation to prepare the plans, drawings and designs (cl 3(a) of the deed). It was also Cordon’s obligation to comply with all legislative requirements relating to the work. If the plans that Cordon caused to be prepared could not be constructed, that is not something for which Lesdor should be held to be responsible.

Thus, even if the existing commercial building could not have been refurbished in the way required by the approved plans, Cordon was not entitled to depart from those approved plans without the prior consent of Lesdor. Since it made no attempt to get that prior consent, there is no point in speculating on what Lesdor’s attitude might have been.

I should say that the evidence as to impossibility of performance is less than clear. It is certainly the case that Cordon asserted impossibility of performance, both in relation to the fire door and in relation to the column. The only evidence in relation to the fire door comes from a letter of 11 April 2006 from Mr Uzelac’s company Central Engineers Pty Ltd to Cordon. In relation to the fire door, it states: On site discussions with your self and Mr Graeme Harlor from Sutherland Shire Council, regarding the new entry/ exit door and stair off Wandella Road to the existing commercial building that remained resulted in the position of the entry / exit doors being relocated so as to ensure the new fire isolated stairs discharged directly to open space. The architectural drawing did not provide this hence it was agreed on site that this would be a satisfactory alternative to ensure compliance.

That document was admitted without limitation (Mr Hale had submitted that it should not be received as evidence of the truth of its contents). However, it does no more than show that what was constructed was an available solution to a problem apparently raised by Mr Harlor of the Council with Cordon. It does not show that there was no other solution. More importantly, it does not show that an acceptable fire door could not have been constructed if the frontage of the building had been realigned as required by the approved plans.

In any event, the fact that Cordon, Mr Uzelac and Mr Harlor agreed that the variation was required does not mean that it was an authorised variation for the purposes of the deed. It was necessary that Cordon should obtain Lesdor’s consent to the variation. It did not do so.

There was even less evidence in relation to the column, or the problems, in performing the required work, that it was said to cause. In reality, the evidence consists of no more than assertion and counter-assertion. There was no expert evidence as to what could or could not be done. Nor did the parties give the Court any assistance, by evidence or submission, as to how the competing assertions might be resolved.

As to the parapet on the existing commercial building: there was no suggestion that it was impossible for Cordon to raise it so that it would match the height of the parapet on the new commercial building (below the level of the residential floors). Cordon’s case was that the work did not need to be done. Further, Cordon said, Joe and Les had agreed, at the meeting on 13 January 2006, that only part of it would be done. For the reasons I have given, I do not think that the meeting of 13 January 2006 resulted in any binding consensus that had the effect of altering Cordon’s contractual obligations.

The referee found that the work was incomplete, because the parapet on the existing commercial building had not been raised. Further, she found, it was necessary to raise it for safety reasons, because people (presumably, workmen and the like) would have access to the roof from time to time. Cordon submitted that I should not accept this finding of the referee, because the possibility had not been raised in the reference. I do not accept that submission. The referee’s point is one of common sense. In any event, whether or not the roof was likely to be used by workmen, the fact remains that Cordon’s work was incomplete, and not in accordance with the approved plans, because the parapet on the existing commercial building was not raised as required.

The issue as to the structural steel is that, according to Lesdor, the specification called for it to be hot dip galvanised, where as what was constructed was powder coated. Cordon raised two answers. The first was that the specification should not be construed as Lesdor submitted. The second was that what was supplied was, functionally, equivalent to what was called for by the specification.

The steel in question is the structure of an awning that covers the colonnade or walkway at the front (to The Kingsway) of the existing commercial building. It is covered by glass, but otherwise exposed to the elements.

The specification stated, in relation to steel surfaces the following (item 18.5.3 of the “CC” specification issued 19 February 2004, and forming part of the plans and specifications the subject of the Council’s construction certificate No. 13805): 18.5.3 SURFACE PREPARATION … Preparation And Shop Painting … All structural steel not encased in concrete, galvanised or otherwise treated shall be painted in accordance with the Architect’s Specification before delivery to the site. Internal or unexposed steelwork shall be thoroughly cleaned … and shall be dry. … After preparation the steel work shall be painted with one coat of zinc rich primer… . Services inaccessible after fabrication or erection… are to be prime painted before fabrication, or be immersion treated after fabricated. External or exposed steel work shall be sand blast cleaned… . Immediately following sandblasting, the steel work shall be galvanised as follows. … Galvanising The galvanised coating on all steel work on the drawings or listed below shall conform to the requirements of AS4680 and are specified herein. [The specification then described a “hot dip galvanising” process.]

For reasons that I have to say that I do not understand, Mr Corsaro submitted that the specification was ambiguous. I do not agree. The effect of the specification, so far as it is relevant, is that external or exposed steel work is to be cleaned as stated and then hot dip galvanised; and that other steel work shown on the drawings or listed in the specification as required to be galvanised is likewise to be cleaned and hot dip galvanised. In this case, the awning frame is caught by the requirement to galvanise because it is exposed steel (the referee so found, and I do not understand this finding to be in dispute).

Thus, whether or not the drawings show that the awning steel was required to be galvanised, the specification has that effect.

As I have said, the steel awning members were powder coated. There was some evidence of minor rust deterioration, which the experts said, and the referee accepted, could be fixed at a cost of $120.00.

Cordon relied on the evidence of Professor Mark Hoffman, a Professor in the School of Materials Science and Engineering in the University of New South Wales. There can be no doubt that Professor Hoffman was eminently qualified to give the opinions that he expressed as to the serviceability of what had been built, compared to what was specified. Professor Hoffman’s opinion included the following observations: (1) the primary difference between powder coating and hot dip galvanising is that the latter “provides a more robust coating”; (2) hot dipped galvanised coatings have a relatively higher durability than powder coatings; (3) the robust zinc galvanising layer makes hot dip galvanised materials more resistant to mechanical damage than powder coated materials; (4) proper (and major) maintenance of the structure that was built “should then extend the life of the awning by five, possibly ten years”, so that it may have “a comparable operational lifetime to a galvanised coating”; and (5) “[t]he expected time to first major maintenance, all things being equal, of a powder coating as used on the awning observed is 15 to 25 years. Should this coating have been of hot dipped galvanised nature that would expected to be in the order of 25+ years”.

Thus, Professor Hoffman predicted “that one major maintenance of the powder coating should provide it with a similar operational lifetime to a system which would have been manufactured using hot-dipped galvanising”.

If one thing is clear from Professor Hoffman’s opinion (as amplified in his cross-examination), it is that powder coating is not as effective in resisting damage, and thus in ensuring serviceability, as hot dip galvanising. That follows because, as Professor Hoffman said, at least one “major maintenance” would be required to give the powder coated steel members an operational life similar to the minimum operation life that they would have had, without maintenance, had they been hot dip galvanised.

At most, Professor Hoffman’s evidence shows that with care and maintenance, the powder coating might give a performance approaching that of hot dip galvanising. It does not show that, without further work, powder coating would perform as effectively, or provide the same degree of protection, as hot dip galvanising.

Thus, I do not accept the submission that what Cordon provided, in relation to the steel members of the awning, was functionally equivalent to what it was required to provide.

As to the gravel on the roof of the residential building: this appears to have been required as some sort of protection for a waterproof bitumenous membrane or seal. Be that as it may, it was not provided. Cordon’s case was that Lesdor varied its obligations in relation to the roof. Lesdor accepts that it did. But it submitted that the effect of the variation was to limit the area required to be covered with gravel, not to eliminate the requirement altogether.

It seems that, at one stage, Paul had the idea that residents of the building might wish to have access to the roof for recreational purposes. Thus, he requested Cordon to vary what was shown on the approved plans by constructing a skylight with a door that would give access to the roof. In the result, Paul’s idea went nowhere. Lesdor accepts that, to the extent that the design of the roof was changed, Cordon is not required to provide gravel; but it says that, as to the balance, it is.

The difficulty with Cordon’s submission is that it appears to regard the direction (which was accepted) to install a skylight in an area of the roof was “in lieu of the installation of a bitumen and gravel surface” (see its outline closing submissions at para 9(f)(i)). I do not understand how the direction could be so construed. It dealt only with a relatively small portion of the roof, and should not be seen as having affected the extent of Cordon’s obligations in relation to the rest of the roof. There is nothing in Paul’s cross-examination on this point to suggest any contrary view. He accepted that, as a result of the direction that he gave, Cordon was not required to place gravel on the affected area of the roof but said that this did not apply “to the rest of the area” (T454.31). I agree.

The pebblecrete issue relates to the walkway in front of the existing commercial building. There was apparently a pebblecrete surface there. This surface was to be scabbled back, and tiles were to be laid. Cordon tiled over the pebblecrete. The result is that the colonnade (immediately outside the front of the old commercial building) is higher than the floor level immediately inside. The front of the old commercial building has been divided into a number of spaces which may be used as shops or offices, each with access through a door onto the colonnade.

As constructed, the tiled colonnade poses two problems. One is a safety issue: that people may trip as they leave the shop through the door that gives onto the colonnade. The other is that, because the level of the colonnade is higher than the level of the floor of the shop, water may enter and pond in the shop.

Cordon has sought to address the first of those issues by providing a ramp from the colonnade down to the floor of the shop. That may or may not be effective from a safety perspective. But it will not prevent the ingress of water. Cordon submitted that this was not a major concern, because the walkway is covered. I do not agree. The walkway is covered, but is not water-tight.

Cordon’s ultimate answer was, as I understand it, that Les had demanded that bullnosed tiles be placed on the edge of the area in question, and that this was sufficient. The evidence that Les gave was that bullnosed tiles were required to match the bullnosed tiles on the stairs that led down from the colonnade. He did not say, as Cordon submits (para 171(b) of its outline closing submission) “that the installation of bull nosed tiles would be a reasonable method of rectification rather than the Experts’ assumption that the entire area would have to be demolished, including the underlying pebblecrete, and replaced”. Indeed, in the pages to which Mr Corsaro referred at that point in his written submissions, the proposition that I have quoted was not even put to Les. The cross-examination at that point was directed to showing some agreement between Joe and Les, arising out of the events of 13 January 2006, that bullnosed tiles would be sufficient. Les did not accept that this had been agreed, and I do not find that it was.

It follows that, in respect of those five significant items of defective, incomplete or non-conforming work, Cordon’s position at all material times has been either that it was not required to perform the works in accordance with the plans and specifications, or that it could not do so (without, however, having agreed to any variation with Lesdor), or that it was not prepared to do so. Thus, quite apart from the significance of those more minor defects that the referee found subsisted as at 8 August 2006, Cordon had not performed, and was not prepared or in a position to perform, its obligations in respect of those more major defects or omissions.

For those reasons also, Cordon’s request on 23 February 2006 that Lesdor sign the strata plans was not effective to engender any binding obligation on Lesdor, pursuant to cl 15 of the deed, to do so. Discrepancies between Mr Childs and the referee

I do not think that it matters that the referee did not accept that many of the minor defects which Mr Childs continued to assert were shown to have existed as at 31 July 2006. If it were the case that Lesdor was insisting on an “all or nothing” approach to rectification, then the substantial discrepancy between the extent of the defects asserted by Mr Childs and the extent found the referee might be significant. But in fact Cordon was taking a hard line on this issue. It asserted that, as at 31 July 2006, it had rectified all outstanding defects. This was incorrect, as to minor defects, even on the basis of the referee’s findings. And it was also incorrect, as to the five more substantial matters that I have discussed. Substantial performance The parties’ submissions

Mr Corsaro submitted that his client was entitled to the benefit of the concept of “substantial compliance”, or substantial performance, and that it had substantially complied with or performed; its obligations under the deed.

Mr Hale submitted that the doctrine of substantial performance had no application on the proper construction of the deed. In any event, he submitted, the extent of defective and incomplete works meant that the doctrine of substantial performance, even if capable of applying as a matter of principle, had no application in fact. He submitted that the works had not been brought to the stage where they were practically complete. In this context, Mr Hale called in aid the referee’s conclusions, at paras 421 and 424 of her report, that the defects that she found were not “minor” and would prevent, or would have prevented, the works from being reasonably fit for occupation or use by an owner. Decision

I start by saying that I have difficult in seeing how the concept of substantial performance (in so far as there can be said to be one, or a single, generally understood concept) is of any relevance. The question with which I am presently concerned is whether, on the proper construction of the relevant provisions of the deed, Cordon brought the works the subject of that deed to completion in accordance with the approved plans and specifications. If it did so as at 23 February 2006, it was entitled to require Lesdor to sign the strata plan. If it had done so by 8 August 2006, Lesdor was not entitled to terminate the contract for repudiation, at least in so far as the repudiation is said to have been constituted by failure to bring the works to completion. If, on the proper construction of the deed, completion requires full and exact performance of the works in accordance with the plans and specifications and free of apparent defects then, of necessity, “substantial performance”, which envisages some lesser standard, does not amount to completion.

Another way of putting what I have just said might be to say that the doctrine of substantial performance should have no application to an “entire contract”: that is to say, a contract under which full and complete performance by one party of its obligations is necessary before that party is entitled to receive whatever is the agreed consideration for those obligations. That view commended itself to White J in ACN 002 804 702 (formerly Brooks Building) v McDonald [2009] NSWSC 610 at [102], [103]. However, cases such as Tan Hung Nguyen v Luxury Design Homes Pty Limited [2004] NSWCA 178 appear to treat the doctrine of substantial performance as applicable to entire contracts.

Where the doctrine of substantial performance is available, a party who finishes performance of its obligations under the contract but does so in a defective way may be entitled to payment of the contractual consideration, unless the defects are so extensive as to mean that, in truth, it did not perform its obligations at all. The other party will be able to claim, and set off against its obligation to pay the contractual consideration, the cost of repairing or making good. So, for example, in Hoenig v Isaacs [1952] 2 All ER 176, an interior decorator, who was employed to decorate and furnish the defendant’s flat for a fixed price, was held entitled to receive the contractual consideration even though the work was defective. The defendant was entitled to set off the cost of making good the defects or omissions. Denning LJ explained this, at 180 – 181, by saying that the plaintiff’s obligation to perform was a term of the contract, but not a condition. Accordingly, breach of that term would only absolve the defendant from his obligation to pay the price if that breach went to the root of the contract. As his Lordship pointed out at 181, “[i]t is, of course, always open to the parties by express words to make entire performance a condition precedent”.

As I understand his Lordship’s reasoning, a contract may provide for one party to pay a lump sum as consideration for the performance of the other parties’ obligations. (Whether or not that lump sum is payable by instalments does not seem to matter, as his Lordship recognised, and as Lord Diplock said in Gilbert–Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717.) Denning LJ said, in effect, that a lump sum contract was not an entire contract (in the sense given above) unless the obligation to make entire performance was a condition precedent to the obligation to pay.

I do not think that there is much to be gained by reviewing the numerous authorities. It is very difficult to reconcile them all: which may reflect that most of them turn on their particular facts, or that the concept of “entire contract” had different meanings to different judges, or was used by different judges in different ways. The confusion in the case law is well analysed in Beck, “The Doctrine of Substantial Performance: Conditions and Conditions Precedent” (1975) 38 MLR 413.

An alternative, and perhaps related, explanation of the basis upon which the tender of less than complete performance of an entire contractual obligation may, nonetheless, earn the contractual reward is waiver. See, for example, Pollock CB in Graves v Legg (1854) 9 Exch 709, 156 ER 304. Indeed, this was the alternative ground on which Denning LJ based his conclusion in Hoenig . This is not the place to examine the slippery and multifaceted concept of waiver (as to which, see the decision of the High Court of Australia in Agricultural and Rural Finance Pty Limited v Gardiner (2008) 238 CLR 570. It is sufficient to say that, in some cases, a party to a contract who is entitled to receive the benefit of entire performance of the other party’s obligations before performing its own may be held to have waived that entitlement if it accepts, or takes the benefit of, substantial performance. I return to the concept of waiver at [171] below.

The difficulty, in this case, is that Cordon’s performance of its obligation to bring the works to completion is not in terms a condition of its entitlement to receive the contractual consideration. It is, on the construction of cl 15 of the deed that I have given, a condition precedent to the obligation of Lesdor to sign the strata plan. For better or for worse, the parties bargained for a contract under which Lesdor could not be compelled to sign the strata plan unless Cordon brought the works to completion, and, on the construction that I have given, they bargained for completion to mean completion in accordance with the plans and specifications and free of apparent defects. As I have tried to show, in dealing with the question of construction, there were good commercial reasons for Lesdor to take that position. How is the Court to decide that some form of lesser, but still “substantial”, performance should be sufficient to trigger Lesdor’s obligation? How is the Court to assess the sufficiency of performance? What shortfalls in performance will leave Lesdor compelled to perform its obligation; and what shortfalls will excuse it? In effect, Cordon’s submission invites the Court to rewrite the parties’ bargain, on the basis of a concept that is almost as slippery as the concept of waiver.

Further, were it necessary to do so, I would accept Mr Hale’s submission that Cordon did not substantially perform its obligations as to completion. The referee’s finding, that the extent of defective, incomplete and non-conforming work was such that the works were not, or would not be, reasonably fit for occupation or use by an owner, makes this clear. Whatever is the test for “substantial completion”, it must at least encompass that the works said to have been completed substantially are reasonably fit for their contemplated occupation and use.

I note that Cordon, by its notice of motion filed in court on 20 July 2010, sought the adoption of the report except for specified paragraphs. Paragraphs 421 and 424 were not listed among the excepted paragraphs. It follows that they will in due course be adopted. Waiver The parties’ submissions

Mr Corsaro submitted that: (1) up until the works were completed, Cordon was entitled to possession of the land; and (2) Lesdor was not entitled to the benefit of possession until the works had been brought to completion.

Mr Corsaro then submitted that, because Lesdor had taken possession of the works at a time when (on its case) they were not complete, it had obtained that which, on its contract, it could only have obtained by virtue of “completion”. Accordingly, he submitted, Lesdor had waived any entitlement to “completion” on some other basis.

Mr Corsaro referred to the principles stated by Hunter J in Walter Construction Group Ltd v Walker Corp Ltd [2001] NSWSC 283 at [173].

Mr Hale’s submissions did not really touch on waiver, as distinct from substantial performance. Decision

One of the difficulties in dealing with this aspect of the submissions is that it was not framed in terms of the most recent analysis of the concept of waiver, as found in the decision in Agricultural and Rural Finance . Mr Corsaro did not refer to that decision. Mr Hale referred to it, but in a different context (namely, the extent to which subsequent events could be used in the construction of the deed: see para 42(a) of the written outline of Lesdor’s closing submissions).

The joint reasons of Gummow, Hayne and Kiefel JJ in Agricultural and Rural Finance indicate, at 588 [55], three different principles that may be invoked by the word “waiver”: “election, forbearance and abandonment or renunciation”. It is entirely unclear whether Mr Corsaro was using the word waiver to indicate one of those concepts, or something else. That is a matter of some significance, because, as Gummow, Hayne and Kiefel JJ had pointed out at 587 [51], there are cases in which the word waiver: … is used as no more than a conclusionary word stating the consequences of the operation of [some] more specific principle, rather than as indicating the application of any distinct and independent principle.

Forbearance and abandonment (or renunciation) can be put to one side. At no time did Lesdor explicitly give up its claim that it was entitled to completion on its interpretation of the deed: complete, in accordance with the plans and specifications and free of apparent defects. If it is to be said that forbearance or abandonment should be implied simply from the fact that Lesdor took possession of parts of the works after issue of the occupation certification and completion report, it is necessary to bear in mind that it was Cordon’s case that it then gave Lesdor possession of the new commercial offices, the residential lots to which Lesdor was entitled and their associated car parking spaces (see the chronology set out in para 3 of Cordon’s brief outline of opening submissions against the date 1 December 2005). There was no evidence that this happened because Lesdor demanded possession (or, if there were some such evidence buried away in the thousands of pages of paper comprising the affidavits, court book and transcript, the Court was not referred to it). On the face of the opening outline of submissions, it appears to have been a voluntary act on Cordon’s part. Further, any inference of forbearance or abandonment is refuted by the repeated insistence to be found in correspondence thereafter emanating from Lesdor’s solicitors.

I turn to election. Mr Corsaro’s submissions did not identify the inconsistent rights, or the alternative rights or remedies between which the putative election occurred. There is nothing in the deed which suggests that it was an “either / or” situation for Lesdor. It is, of course, correct to observe that Lesdor was required to give Cordon vacant possession, for the duration of the works, and that Cordon was entitled to have uninterrupted possession until it completed its obligations (see cll 9(a) and 17). It does not follow that, if (as appears to be the case) Cordon voluntarily put part of the works back in Lesdor’s possession, Lesdor thereby elected not to have the works brought to some further or higher state of completion.

Cordon did not submit that it had been prevented from achieving completion, in the sense for which Lesdor contended, because it had given possession of part of the works back to Lesdor. I think it is a reasonable inference from the evidence that, if Cordon had indicated a firm desire to complete the works to the standard required by Lesdor, Lesdor would have given Cordon such access as it required.

In any event, the doctrine of waiver (in whatever form it was relied upon) can have no application in respect of the existing commercial building or the residual lots. As to the former: Lesdor remained in occupation of the existing commercial building throughout its refurbishment. It did not retake possession at the stage of what Cordon asserted was completion, or practical completion, or substantial completion. As to the latter: Lesdor did not take possession until after it had terminated the deed, by its notice of 8 August 2006. On any view, that termination brought the deed to an end (either because it was effective in terms or because, if it were ineffective, it was a repudiation on Lesdor’s part which Cordon accepted as bringing the deed to an end). After 8 August 2006, there were no rights (other than those accrued to the date of termination) that could be the subject of forbearance or abandonment. “Deemed” completion or practical completion

Cordon’s argument is that it should be deemed to have achieved completion, or practical completion, because Lesdor has taken the benefit of the works. Essentially for the reasons that I have just given, in dealing with the proposition that Lesdor might have waived its entitlement to strict and complete performance of the relevant obligations, I do not think that completion, or practical completion, should be deemed to have occurred because Lesdor took possession of the works. Effect of the occupation certificate and completion report

The occupation certificate stated, so far as it is relevant, that: Occupation Certificate Sutherland Shire Certification Services on behalf of Sutherland Shire Council certifies that: it has been appointed as the principal certifying authority under s 109E. a development consent is in force with respect to the building. in the case where a development consent is in force, a construction certificate has been issued with respect to the plans and specifications for the building. the building is suitable for occupation or use in accordance with its classification under the Building Code of Australia. where required, a final fire safety certificate has been issued for the building. where required, a report from the Commissioner of Fire Brigades has been considered.

The completion report referred to various documents, including the construction certificate and other certificates that had been furnished to council, and to inspections carried out from time to time. It stated: … that the above described building work is completed in accordance with the development consent. The parties’ submissions

Mr Corsaro relied on cl 11 of the deed, by which Cordon was required diligently to proceed with and complete the works “in accordance with the Approvals in a good and workmanlike manner”. He submitted that the work had been completed “in accordance with the Approvals” because the Council had issued an occupation certificate and completion report. That, he submitted, confirmed that what was required was completion to a stage sufficient to enable the building to be used and occupied, or in effect “practical completion”; not completion free of all defects.

Mr Hale submitted that cl 11, if anything, assisted Lesdor, because it insisted on completion “in a good and workmanlike manner”. In any event, he submitted, the fact that Council had issued an occupation certificate was irrelevant. He relied on cl 155(1)(e) of the Environmental Planning and Assessment Regulation 2000 which showed, he submitted, only that, in the Council’s opinion, those conditions of the approvals concerned with health and safety issues and the like had been complied with. Decision

The obligation under cl 11 is not merely to proceed with and complete the works in accordance with the Approvals. It also includes an obligation to perform the works in a good and workmanlike manner. Even if the occupation certificate and completion report are to be taken as evidencing that the works have been completed in accordance with the Approvals (and although I express no view, the proposition does not seem to be unreasonable), they say nothing as to the standard of workmanship.

There is nothing in the occupation certificate or completion report to suggest that, in the view of Mr Harlor or the Council, the relevant requirements of the deed, as to the standard of workmanship required, had been achieved. Nor is there any reason why that matter should have been attested. It is no part of the Council’s function to interpose itself between owner and builder, in effect as some sort of superintendent, to monitor and to report upon performance in accordance with the terms of the contract between the owner and the builder.

Clause 155 of the Environmental Planning and Assessment Regulation gives some indication of what it is that an occupation certification should deal with: 155 Form of occupation certificate (cf clause 79P of EP&A Regulation 1994) (1) An occupation certificate must contain the following: (a) the identity of the certifying authority that issued it, including, in a case where the certifying authority is an accredited body corporate, the identity of the individual who issued the certificate on behalf of the body corporate, (b) if the certifying authority is an accredited certifier, the accreditation number of the certifying authority, including, in a case where the certifying authority is an accredited body corporate, the accreditation number of the individual who issued the certificate on behalf of the body corporate, (b1) if the certifying authority is an accredited certifier who is an individual, the signature of the accredited certifier, (b2) if an individual issued the certificate on behalf of the certifying authority, the signature of the individual who issued the certificate, (c) the date of the certificate, (d) indicate the type of certificate being issued (that is, interim or final), (e) a statement to the effect that: (i) the health and safety of the occupants of the building have been taken into consideration where an interim occupation certificate is being issued, and (ii) a current development consent or complying development certificate is in force for the building, and (iii) if any building work has been carried out, a current construction certificate (or complying development certificate) has been issued with respect to the plans and specifications for the building, and (iv) the building is suitable for occupation or use in accordance with its classification under the Building Code of Australia , and (v) a fire safety certificate has been issued for the building, and (vi) a report from the Fire Commissioner has been considered (if required). (2) Except as provided by subclause (3) or (4), the certificate must be accompanied by a fire safety certificate and fire safety schedule for the building. (3) If the need for the occupation certificate arises solely from fire link conversion, the certificate need only be accompanied by a fire safety certificate of the kind referred to in section 153 (1A) and the relevant fire link conversion schedule or fire safety schedule issued under clause 168A. (4) If the building is a temporary structure, subclauses (1) (e) (v) and (2) do not apply. Note. The only circumstance in which the occupation or use of a temporary structure requires an occupation certificate is when the temporary structure is to be used as an entertainment venue.

Nothing in cl 155 suggests that the Council was required to report on or certify as to the standard of workmanship beyond the matters listed in subcl (1)(e): in particular, that “the building is suitable for occupation or use in accordance with its classification…”.

In short, there is nothing in either the fact of issue of the occupation certificate and completion report or the contents of those documents to support the conclusion that Cordon satisfied its obligations under the deed in relation to completion. Conclusion on the first group of issues

In the events that happened, cl 15 of the deed did not oblige Lesdor to sign the strata plan when it was delivered to Lesdor on 23 February 2006.

Cordon repudiated the deed and its obligations under it by refusing to bring the works to completion, in accordance with the approved plans and specifications, and by indicating that it would not “complete” except on its own, erroneous, interpretation of those obligations. Lesdor was entitled to, and did, accept that repudiation as discharging it from further performance of its obligations under the deed.

Cordon should not be taken to have achieved completion, or practical completion of the works, because, in the events that happened, Lesdor took possession of the works. Nor should Lesdor be held thereby to have waived its entitlement to have the works completed in accordance with the deed on its proper construction. Second issue: was Lesdor obliged to sign the strata plan when it was delivered to it?

For the reasons that I have just given in dealing with the various aspects of the first issue, the answer to this issue is, “no” Third issue: good faith The “pleaded” case

It is convenient to identify the case that Cordon sought to make out, as to breach of duty of good faith, by setting out para 11AA of the Second Further Amended Statement of Claim (2FAS): 11AA In purporting to terminate the Deed in the circumstances, Lesdor acted in breach of an implied duty to act in good faith and fair dealing in its performance of the Deed. Particulars a. Lesdor refused to identify the work or works it maintained were defective or incomplete prior to serving its notice of termination. b. Lesdor insisted on defect free completion before executing and delivering the Strata Plans which was beyond the terms of the Joint Venture Agreement (as varied). c. Lesdor unreasonably refused to execute and deliver the Strata Plan in circumstances where it had taken the benefit of the works to which it was entitled under the Joint Venture Agreement (as varied). d. Lesdor intermeddled and interfered with Cordon’s contractual relations with the NAB. The parties’ submissions

There was a dispute as to whether Lesdor was bound by any duty of the kind alleged. Otherwise, the submissions followed the allegations made in para 11AA. Decision

For the reasons that I have given, Lesdor was entitled to completion of the works in accordance with the plans and specifications and free of apparent defects, and its obligation under cl 15 to sign and return the strata plan did not arise unless and until it received the benefit of completion in that sense. Accordingly, the second aspect of breach of the alleged implied duty of good faith cannot be sustained, because it is predicated on the assumption that, enacting it did, Lesdor was acting “beyond the terms of” the deed.

Further, in this context, it should be noted that Barrett J had confirmed, although in an interlocutory decision, Lesdor’s view of what its entitlements were, and had found against Cordon’s view. It would be very difficult to argue that it was relevantly unreasonable for Lesdor to insist on completion in accordance with the construction given to the relevant obligations by a Judge of this Court.

The reasons that I have given in relation to waiver and deemed practical completion mean that the third way in which the breach of alleged duty of good faith is put cannot succeed. Further, as this particular breach is formulated, it is predicated on the assumption that Lesdor got the full measure of its entitlement under the deed (“in circumstances where it had taken the benefit of the works to which it was entitled under the deed”). For the reasons that I have given, it did not receive the full measure of that entitlement.

The fourth way in which breach of good faith relates to the discharge and refinancing of the NAB loan facility. That is the subject of the fourth issue, and turns on the resolution of that issue.

That leaves the first aspect of the alleged breach: refusal to identify the allegedly defective or incomplete works before serving notice of termination.

I do not propose to take up time in discussing whether Lesdor was bound by an implied duty of good faith and fair dealing. Mr Corsaro submitted that it was. He relied on the decision of the Court of Appeal in Renard Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. Mr Hale submitted that, because Lesdor was bound by an express obligation “to do all such things as shall reasonably required of it to give effect to” approval and registration of the strata plan (cl 15), there was neither need nor room for the implication of the implied term for which Cordon contended.

It is not necessary to resolve that debate, because even if Lesdor were bound by an implied term of the kind alleged, it did not breach it by “refusing” to identify what it said were defective or incomplete works. Mr Solari’s evidence (which I accept) was that Lesdor had pressed its consultant Mr Childs for a report in reply to Mr Austin’s report of 31 May 2006, but that Mr Childs had not produced such a report. Lesdor was unable to identify the extent of its dispute with the assertions made by Mr Austin in his report of 31 May 2006. It did not refuse to do so.

I do not think that an implied obligation of good faith and fair dealing would go so far as to require Lesdor to retain a new consultant to inspect the works, consider Mr Austin’s report (and the report or reports that preceded it) and give a report, to be passed onto Cordon, setting out what, in that expert’s opinion, were the outstanding items of defective or incomplete work. It was, after all, Cordon’s contractual responsibility to complete the works in accordance with the plans and specifications and the relevant requirements of the deed. Lesdor had called upon Cordon to state, without equivocation, that it would do so. Cordon had not given that assurance. In particular, rectification of the five major items of defective or incomplete work that I have discussed at [125] to [156] was not undertaken, and Cordon had made it plain that it did not propose to undertake it.

If Lesdor had purported to terminate for repudiation based only on failure to carry out numerous small “rats and mice” items of defect rectification, there may be some basis for suggesting that an implied duty of good faith and fair dealing (if such a duty bound Lesdor) would have required it to cooperate to identify the outstanding defects, in circumstances where Cordon maintained, with the benefit of an expert’s report, that there was no more defect rectification to be undertaken. To the extent that hindsight is a legitimate aid to analysis, it suggests that many of the defects in this category asserted by Lesdor were not in fact defects at the relevant time (this is confirmed by the referee’s report, the adoption of which Lesdor seeks). But the parties remained at issue as to, at least, the five major items of incomplete or defective work to which I have just referred. Cordon’s stance was taken on the basis that it was not obliged to do anything more in respect of those items. It did not need Lesdor to identify those items so that it could consider its position.

It follows that even if Lesdor were bound by an implied duty of good faith and fair dealing, it did not breach that implied duty in the manner alleged in para 11AA of the 2FAS.

I should note that, on one reading of Cordon’s closing submissions on this issue (paras 87 to 93 of its outline closing submissions), the case that Cordon sought to put was substantially wider than the case alleged by para 11AA of the 2FAS. Those submissions referred, among other things, to “a strategy aimed at keeping the residual lots for itself and thwarting Cordon’s right to the benefit of the residual lots by insisting on an impossible level of completion”. The “engineered… default of the NAB facility” forms part of that alleged strategy, as does Lesdor’s rejection of an offer made by Cordon to purchase those of the residual lots that had not been sold. The strategy is transmuted into a breach “by taking the benefits of the JVA” on practical completion and then engaging in a deliberate strategy so as preclude Cordon from receiving the benefits to which it was entitled under the JVA (outline closing submissions, para 93). That is a case different in substance and detail from that alleged in para 11AA of the 2FAS. I do not propose to deal with it. Fourth issue: discharge and refinancing of the NAB facility Relevant provisions of the deed

For convenience, I repeat the relevant provisions of the deed.

By cl 2(b)(iii) and (iv) of the deed, Cordon was obliged to borrow what was necessary to complete the works and Lesdor was to provide a guarantee and security for the borrowing: (iii) Cordon shall borrow such funds (hereinafter referred to as “the borrowed funds”) as are necessary to meet the costs of construction for and to complete the building works and shall be liable for repayment of such borrowed funds. (iv) That Lesdor will provide by way of guarantee and security for the borrowed funds to be obtained by Cordon a first registered mortgage over the land to the Lending Institution on such reasonable terms and conditions as it shall require.

Clause 14, dealing with application of the proceeds of sale of the residual lots, included provision for repayment of the amount borrowed (it did not use the defined term “the borrowed funds”, and did not, when it referred to “the loan” in terms call up, by the use of an initial capital letter, the definition of “Loan” in cl 1). Clause 14.1(b)(i) provided: 14. Proceeds of sale of residual lots … (b) (i) Payment or part repayment (as the case may be) of the loan and, after such loan is repaid in full then …

The definition of “Loan” in cl 1 may cast some light on the provisions that I have just set out. It reads: ”Loan” shall mean the financial accommodation provided by the Lending institution to Cordon for the construction of the Project and for payment of all fees incidental thereto and to be secured by first registered mortgage on the Land. The loan to be for a sum to be approved of by the lending institution for the purpose of the project and to be drawn down at such times and for such amounts as approved by a Quantity Surveyor acceptable to the lending institution. Such loan not to incorporate a profit margin for Cordon (whether by way of a Builders profit margin or otherwise). Lesdor will sign such documents and do such things as are required of it by the lending institution.

None of the varying deeds had any impact on those provisions. The NAB facility

As I have said, NAB approved a facility of $8.252 million for the works. That was done by offer of 23 February 2004. The facility was to expire 18 months from the date of first drawdown.

Mr Corsaro placed reliance on some of the terms forming part of the facility documents. They included “project specific terms and conditions” in Annexure G to the facility documents. Those terms and conditions were described as “conditions precedent to any drawing of the facility”. Clause 1 related to pre-sales and cl 2 related to the assessment and payment of claims. I set out so much of cll 1 and 2 as Mr Corsaro submitted were relevant: 1. Pre-Commitments Pre-Sales / Contracts for Sale in the proposed project having an aggregate face value of not less than $3,400,000 (6 units) including GST must have been exchanged prior to drawdown of the construction facility. … (e) The contract’s sunset clause is to be at least 9 months after the practical completion date, with an option to extend for a further 6 months. … 2. Quantity Surveyor The Bank will appoint an Independent Quantity Surveyor to prepare an Initial Report and then subsequent Monthly Reports, the cost of which is to be borne by the Borrower. … 2.1.6 Builder / Building Contract / Construction Management Contract (if applicable) … (e) The Building Contract is a fixed price and fixed time contract. Security under the contract is required to the level of at least 5% of the Contract Sum in the form of an unconditional bank guarantee, retention or other as agreed by the Bank. … (g) Practical Completion is defined under the Building / Construction Management Contract (as applicable) by the issue of an Occupation Certificate by the relevant Certifying Authority.

I note at this point that, to the extent that Mr Corsaro had relied upon the terms of the NAB facility documents as casting any light on the proper construction of the deed, that reliance was misplaced. The terms of a finance facility offered some five months after the deed was made (and two months after it was last varied) do not form part of the relevant factual matrix available for the purposes of construction. Further, it does not appear that Lesdor obtained the whole of the NAB facility document. The version discovered by it did not include a number of pages, and the missing pages included those from which I have just quoted. Events leading up to the refinancing of the NAB facility

It appears to be common ground that the NAB facility would have fallen due for payment, according to its terms, on 31 May 2006. This was a matter of some concern to Lesdor, which had guaranteed Cordon’s obligations to NAB, and given security for that guarantee. It was also a matter of concern to Cordon, because if NAB moved to enforce its security, it was likely that it would appoint a receiver to the land and, among other things, sell (or take over the sales of) the residual lots. If that were to happen, it would probably have meant the end of any hopes that Cordon might make a profit from the joint venture.

At some stage, Mr Peter Hatter and other officers of NAB met Joe, Barbara and Habib. The bank’s file note of that meeting was in evidence. It bore the date it was printed out and not the date of the meeting. However, the last sentence of the quotation set out in the following paragraph suggests that the meeting occurred shortly before 17 May, when Cordon wrote to NAB as set out at [220] below.

It appears from that file note that one of the matters discussed was: Cordon wants the Bank to step in and force Lesdor to sign SP [strata plans]. PH [Mr Hatter] told Cordon that if the bank is to step in, as they put it, we may firstly need an event of default and possibly the appointment of a Receiver & Manager. In this case, the Receiver would be appointed over Cordon and under a its [sic] fixed charge of Lesdor. The appointment of a Receiver cannot be discounted, however it could affect Cordon’s other business activities detrimentally. BG [Barbara] responded by saying their meaning for the bank stepping in is to force Lesdor to sign the SP, nothing more.

The last item said to have been discussed at the meeting is: PH suggested that it is appropriate for the bank to endeavour to meet with Lesdor, to discuss the lease consent, but also to discuss the apparent unwillingness of Lesdor to sign the SP and establish the issues that concern them most. Thereafter, if both parties agreed to meet, with their legal advisers if required, in order to thrash out a binding agreement, similar to mediation. If this doesn’t work the bank would then need to consider all its options. BG agreed to provide the Bank with a consent to discuss the Miranda debt with Lesdor.

On 17 May 2006, Cordon wrote to NAB, giving its consent to NAB’s “discussing with Lesdor… the debt loan facility as per Bank’s loan offer dated 23 February 2004”.

Mr Solari gave evidence that he had a telephone discussion with Mr Hatter on 17 May 2006. His evidence was supported by a file note. I accept it. Mr Hatter said, among other things: Effectively Cordon had invited them to appoint a receiver in relation to their loan and to take over the matter as they felt the NAB would be in a better position to deal with our client (this point was said to me off the record).

That evidence is consistent with Mr Hatter’s file note of the meeting referred to at [218] above.

Mr Solari said, not surprisingly: Our client would be extremely concerned about any action being taken by the bank in relation to appointing a new [sic] receiver as this could have a significant impact on our client.

Messrs Solari and Hatter agreed to meet, at Mr Solari’s offices, and appointed a time. Mr Hatter confirmed that Cordon was not in default, but that the facility expired “at the end of this month”.

On 23 May 2010, Mr Hatter and others from NAB met Mr Solari, Paul, and Ms Deborah Psarras of Lesdor. Mr Solari gave evidence of that meeting, based among other things on a file note that he had prepared. His evidence, and the file note, are consistent with a file note prepared by Mr Hatter. I accept the evidence.

According to Mr Solari, Mr Hatter said that: the bank had become aware of the dispute between Cordon and Lesdor; the loan facility would expire at the end of the month; Cordon had asked the bank to step in, and the bank’s position was “sort it out or we will”; it would be easy for the bank to step in, serve demands and appoint a receiver; the bank would consider an extension of the facility for up to 60 days; once the facility expired, the bank would cancel it, serve demand on Cordon and then on the guarantors, in each case allowing 24 hours to pay, and thereafter, in default of payment, would appoint receivers to whatever property and entities it could.

Mr Solari explained Lesdor’s side of the dispute. It is not necessary to set out what he said. He did however to inform NAB “that we might be looking at the question of financing the bank’s facility and then taking it over ourselves”.

Mr Solari said that, after that meeting, he advised Paul to move quickly as possible to secure alternative finance so that, if Cordon did not (because it could not) pay out the NAB facility, Lesdor could do so. Paul confirmed that he had received such advice. I accept that evidence.

On 25 May 2006, Barbara sent a fax to NAB, for Mr Hatter’s attention. The fax made complaint about a number of things, and concluded: Would you please advise that the letter we discussed outlining the banks [sic] concern, position and actions will be sent to both parties. Thank you.

On 26 May 2006, NAB wrote to Mr Solari. In essence, the letter confirmed what had been discussed on 23 May 2006. It said, among other things: … the construction loan relative to the Miranda property expires on 31 May 2006 and if not renewed an event of default would result, incurring penalty interest of approximately $126,000.00 per month. We confirm it would be the Bank’s intention to appoint a Receiver and Manager to the Miranda property should an event of default arise. As a consequence of our meeting we confirm the Bank has agreed to redocument and extend the Miranda construction loan for 60 days (to 31 July 2006) to afford Lesdor and Cordon an opportunity to meet and hopefully resolve their dispute. …

On the same day, Mr Hatter replied to Barbara’s fax and confirmed that if the loan went into default, penalty interest would be charged “and the Bank’s only option would be to appoint a Receiver and Manager in respect of the Miranda property”.

Also on 26 May 2006, Barbara sent another fax to NAB, for the attention of Mr Hatter. It forwarded correspondence received from Solari and stated: *Our legal team is currently advising us not to renew the facility as there is no pressure or incentive on Lesdor at the moment to act otherwise. It seems the barrister will offer advice on Tuesday.

On 29 May 2006, Mr Hatter sent documentation to Mr Solari to procure the extension of the loan facility. The documents were executed and returned.

Also on 29 May 2006, Mr Hatter replied to Barbara’s fax of 26 May 2006. He noted that NAB had offered an opportunity to extend the facility for 60 days, and pointed out the consequences that would follow if the facility were not paid out.

On 31 May 2006, Cordon’s solicitors McBride Harle & Martin wrote to Mr Solari. That letter dealt with both defects and the NAB facility. In relation to the former, it enclosed Mr Austin’s report of 30 May 2006 and proposed the deposit of $190,000.00 in effect as security or retention to cover the costs of further defects rectification. That was put so that the strata plans could be signed and returned. In relation to the NAB facility, the letter stated: We understand that the National Australia Bank has conferred with your client and has raised its concerns relating to the matter and has informed your client that Cordon will not be able to meet its loan commitments if this matter is not resolved in the short term and accordingly this could result in the NAB appointing a receiver to the property, the subject of the dispute. In the interests of both parties and to avoid a receiver being appointed by the NAB and the NAB calling upon the guarantees, please provide us with your response within 7 days. Our clients are required to keep the NAB informed of current progress in relation to a resolution of this matter and accordingly, your early reply is[sic] appreciated.

Barbara sent a copy of McBride Harle & Martin’s letter to NAB, together with a copy of Mr Austin’s report. Mr Hatter replied, noting that NAB had not agreed to any proposition that sale proceeds be paid into an interest bearing account. (It was proceeds of sales that were to furnish the sum of $190,000.00 proposed to be set aside.)

On 16 June 2006, Mr Solari wrote to McBride Harle & Martin. That letter dealt both with the state of the building works and with the NAB facility. In relation to the latter, it confirmed that Cordon “is responsible for borrowing the necessary funds to meet the cost of the Building Works and shall be responsible for the repayment of such funds”. It noted that Cordon “is not in a position to meet its obligations with the National Australia Bank” and demanded: Our client requires your client to inform our client by no later than 5:00pm on Thursday, 22 June 2006 whether it is ready, willing and able to meet its obligations with the National Australia Bank as required by clause 2(b)(iii) of the Deed (as varied). If your client fails and/or refuses to do so, our client will regard such conduct as being the repudiation by your client to perform [sic] its contractual obligation, and terminate the Deed (as varied).

The reply to that letter, dated 22 June 2006, stated, among other things: Our client has had its loan facility with the NAB renewed until late July, 2006. We understand your client has guaranteed the extension of the said facility. It is highly likely that the NAB will take possession of the entire building premises pursuant to its mortgage if some agreement is not reached between these parties before the expiration of the renewed loan facility. Surely, you and your client must appreciate that if the Bank proceeds and takes possession of the subject premises, this could have the potential to cause drastic consequences for both your client and our client. So as to avoid the NAB taking possession of the premises, we urge you to provide to us as soon as possible your expert’s report from Childs in reply to that of Austin with the aim of the parties trying to achieve a resolution of the case.”

Two things may be said about that letter. The first is that the statement that Cordon “has had its loan facility with the NAB renewed…” was a considerable misrepresentation of the position. Cordon had refused to renew the facility. The renewal was arranged at the request, and with the further support, of Lesdor. The second is that it conspicuously avoided giving any indication that Cordon would (or, for that matter, could) meet its obligations in respect of the NAB facility. It is a reasonably clear inference from the terms of that letter, particularly when read in conjunction with other correspondence emanating from McBride Harle & Martin, that Cordon was engaging in a game of brinksmanship, in an attempt to compel Lesdor to sign and return the strata plans.

While all of this was going on, Paul and Les had been busy. On 29 June 2006, Macquarie offered the facility to Marlborough, Semken Bros and Lesdor to which I have referred at [60] above. The facility was for an amount more than sufficient to pay out the amount owed to NAB.

Mr Solari had a discussion with Mr Hatter on 27 July 2006. It appears that they had agreed that the conversation was to be considered as confidential between NAB and Lesdor, and not to be passed onto Cordon. Mr Solari enquired whether Cordon had made any arrangements to extend the facility and was told that it had not. He said that Lesdor could pay out the facility but would wait until it had expired. Mr Hatter confirmed that NAB would issue demands to Cordon on the expiry of the facility, allowing 24 hours to pay. In the event of non-payment, NAB would make demand on Lesdor. That conversation was confirmed in a letter that Mr Solari wrote to Mr Hatter on 31 July 2006. The letter asked Mr Hatter to prepare the appropriate documents, in anticipation of settlement the next day, 1 August 2006. Mr Hatter either replied or sent a letter that crossed with Mr Solari, confirming settlement for 3:00pm the next day with the exact figure to be advised in the morning.

On 1 August 2006, NAB served a notice of termination of the facility and demands. The amount payable under the demand was $8,275,765.12. That amount was paid to NAB on 1 August 2006.

Also on 1 August 2006, McBride Harle & Martin wrote to Mr Solari, stating, among other things, “that our client will not be in a position to renew the NAB debt loan facility which has expired”. The parties’ submissions

I have recounted the facts at such length because of the approach that the parties took to them in submissions.

Mr Corsaro saw, in the events that I have described, an element of some grand plan on the part of Lesdor to expropriate Cordon, and to take for itself the benefit of the residual lots.

Mr Hale, on the other hand, portrayed the relevant events as an attempt by Cordon to force Lesdor to sign the strata plan even though the works had not been brought to completion in accordance with the deed on its proper construction.

It is unnecessary to set out the detail with which those submissions were fleshed out. I should however note that Mr Hale submitted that it was reasonable for Lesdor to protect its legitimate interests by acting as it did. Decision

It seems to have been common ground that the effect of cl 2(b)(iii) of the deed, read in context, was that Cordon was required to borrow the funds necessary to meet the costs of construction and to complete the building works, and to repay the borrowings. Certainly, the deed contemplated that the borrowings would be repaid from the sale of the residual lots (see, in particular, cl 14.(b)(i)). But that direction as to the application of proceeds of sale did not override or supplant the primary obligation, cast on Cordon by cl 2(b)(iii), to repay the loan.

The difficulty, from Cordon’s perspective, is that it could not repay the loan except through sale of the residual lots. It could not complete pre-sales of residual lots until the strata plan was signed and registered. On the view of the deed held by Lesdor (and supported by the decision of Barrett J on 5 May 2006), Lesdor was under no obligation to sign the strata plan until the works had been completed in full, in accordance with the plans and specifications and free of apparent defects.

Lesdor had a real financial interest in ensuring that NAB was paid out. It had given a guarantee of Cordon’s obligations to NAB. That guarantee was supported by a registered mortgage over the land and a registered charge over Lesdor’s other assets. NAB had made it clear that, if the loan were not repaid on its due date, it would take action to enforce its securities.

In those circumstances, it is hardly surprising that Lesdor, through Mr Solari, began discussions with NAB. It should be noted that those discussions commenced with the express consent of Cordon given on 17 May 2006 (shortly after representatives of Cordon met NAB and asked it “to step in and force Lesdor to sign SP”, and 12 days after Barrett J dismissed Cordon’s application for interlocutory relief).

Further, given Cordon’s inability or unwillingness to do anything about the NAB facility, it was hardly unreasonable for Lesdor to negotiate an extension of the facility, for 60 days, to see if (among other things) the impasse between the parties over “completion” could be resolved.

On 26 May 2006, Cordon (through Barbara) informed NAB that its legal advice was “not to renew the facility as there is no pressure or incentive on Lesdor at the moment to act otherwise”. Even if that statement of position was not passed onto Lesdor, it is clear that, by 31 May 2006 at the latest, Lesdor understood that Cordon accepted that it could not repay the NAB loan facility unless the residual lots were sold (see McBride Harle & Martin’s letter of that date, referred to at [235] above).

Against that background, it seems to me that Mr Solari’s advice to Lesdor, to put in place arrangements to pay out the NAB facility should Cordon not do so, was eminently practical. Cordon was apparently prepared to bear the consequences of default. Lesdor was not. Lesdor was at risk of being called upon to pay in excess of $8 million, in the certain knowledge that if it did not do so, receivers would be appointed under the mortgage over the land and under the charge that it had given.

Against that background, it was not at all unreasonable for Mr Solari to ask, on 16 June 2006, that Cordon confirm within a short space of time “whether it is ready, willing and able to meet its obligations with the National Australia Bank as required…”. As I have noted, the reply to that letter conspicuously avoided addressing that request.

Repeatedly in correspondence, Cordon’s solicitors stressed the likelihood that a receiver would be appointed. It is, I think open to infer that they, and Cordon, thought that this would place pressure on Lesdor to compromise on the issue of defective and incomplete works, and return the signed strata plan.

Against that background (but taking into account the more detailed recital of facts set out earlier in these reasons), it is difficult to understand how it could be submitted that Lesdor acted in any way unreasonably in making arrangements to pay out the NAB facility if called upon to do so. That it would be called upon was a near certainty. Why should it not arrange to deal with that near certainty? And why (to deal with another criticism made by Mr Corsaro) was it obliged to inform Cordon that it was preparing to do so?

No doubt, Lesdor may have thought that the threat of receivership, and the likely consequence that Cordon would get no tangible benefit from the project, would assist in bringing about a resolution of the differences between it and Cordon. No doubt, Lesdor thought that it was in the right, in the view that it took of the deed. It was entitled to think so. Its position had been vindicated by a judgment of this Court which, although given on an interlocutory application, nonetheless analysed with care the relevant contractual provisions, and expressed a clear view as to their effect.

I do not think that it is correct to say that Lesdor interfered with, or intermeddled in, Cordon’s relationship with NAB. Cordon had effectively vacated the field by no later than 26 May 2006, when it informed NAB that its legal advice was not to renew the facility. It had made that position relatively plain to Lesdor some five days later. When required, about two weeks before the extended facility expired, to state its position unequivocally, Cordon did not do so.

Lesdor was thus faced with a situation where, to avoid receivership, it would have to pay out the NAB facility. I do not think that Mr Solari can be criticised for ensuring that the necessary procedural steps – termination of the facility, demand and the like – were taken. If his client was to assume Cordon’s contractual obligation, it was important that the basis on which it do so be as clear in law as it was necessary in practice.

I think it is fanciful to suggest that Lesdor’s actions were machinations in the implementations of some over–arching scheme to get hold of the residual lots for its own benefit. That may have been the result of the events that have happened. But I do not think that any such scheme provided the motivation for the dealings between Lesdor and NAB from May to August 2006.

Accordingly, I reject the proposition that those dealings represented some improper conduct on the part of Lesdor, or that they were designed to secure for it some advantage to which it was not contractually entitled.

The converse of that conclusion is that Cordon must be taken to have repudiated the deed, and in particular its obligations under cl 2(b)(iii), by failing, on reasonable notice, to state unequivocally whether it would or would not pay out the NAB facility, and by failing to pay out that facility when it expired.

That repudiatory conduct of Cordon was relied upon, in the alternative, in the notice of termination that Lesdor gave on 8 August 2006. In my view, the notice of termination was valid for that reason also. Fifth issue: unauthorised drawdowns; breach of fiduciary duty The parties’ submissions

Mr Hale submitted that Cordon had a fiduciary duty, in relation to the use of the borrowed funds, that required it to protect the interests of Lesdor. That duty arose, Mr Hale submitted, because Cordon was required to borrow the funds necessary to meet the costs of construction and completion of the works, and was entitled to draw down on those funds from time to time, and as approved by a quantity surveyor. However, by reference to the definition of “Loan”, there was to be no profit margin. Lesdor was (or might be) affected, because it had guaranteed the borrowings, and had given security in support of its guarantee.

In those circumstances, Mr Hale submitted, Cordon had agreed to act for or on behalf of Lesdor, or in its interests, in the exercise of a power or discretion which would have a legal or practical effect on the interests of Lesdor. Further, Mr Hale submitted, Lesdor was vulnerable to Cordon’s abuse of its powers or discretions because they could be used to Lesdor’s disadvantage. He relied on the well known formulation of the circumstances that give rise to fiduciary obligations (outside the accepted fiduciary categories) given by Mason J in Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 at 96 – 97.

Mr Hale submitted that, when one examined the evidence, more than $2 million of the total of more than $8.3 million that had been said had been spent on the project should not have been drawn from the NAB facility. In some cases, that was because amounts that were drawn were Cordon’s responsibility under the deed; in other cases, it was because they were not amounts drawn for a purpose authorised by the deed; and in other cases, they were for matters quite unconnected with the project (in truth, I think, a subset of the second category).

Mr Corsaro submitted that the relationship between Cordon and Lesdor should be taken to be governed purely by the terms of the their contract, and should not have fiduciary obligations superimposed on it. He relied on John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 84 ALJR 446 at 464 – 465 [91].

In any event, Mr Corsaro submitted, all the amounts drawn by Cordon from the NAB facility were authorised by the terms of the deed. Decision

In John Alexander’s , the Court appeared to accept (at 463 – 464 [86]) “that the relevant principles regarding the existence of a fiduciary relationship which does not fall within an established category, and the incidents of such a relationship, are those stated by Mason J in [ Hospital Products ]”. However, as their Honours noted, Mason J had pointed out that where the fiduciary relationship was asserted to arise in the context of a contractual relationship, it was the contractual relationship that formed the starting – point of the analysis. As Mason J had said at 97: … it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.

At 463[83], the Court pointed out that there was no vulnerability apart from “that which any contracting party has to breach by another”. Nor was there any reliance other than that “which any contracting party has on performance by another”. Those words are equally applicable in the present case.

To adapt their Honours’ words from the same paragraph: if Lesdor could establish breach (by the making of unauthorised drawings from the NAB loan facility), “it had an ample array of contractual remedies to protect itself”. That is because it was Cordon’s obligation to repay the NAB facility and, if Cordon chose to make unauthorised drawings from that facility, it was obliged to repay them. In circumstances where repayment was to come, primarily, from the sale of the residual lots, and where Cordon got no benefit until (if at all) the loan facility had been repaid, it was Cordon which would be at risk. Further, even if Cordon did not sell the residual lots, Lesdor (as proprietor) could do so.

Further, in this case, the parties agreed on a mechanism to verify the amounts of the drawings. As is clear of the definition of “Loan”, they were to be “for such amounts as approved by a Quantity Surveyor acceptable to the lending institution”. In this case, that is exactly what happened. All progress claims were submitted to a quantity surveyor appointed by NAB, and paid, to the extent approved, by drawdown from the NAB facility.

In those circumstances, I see no basis for the imposition of fiduciary obligations on Cordon. A fiduciary obligation could impose on it no duty, in respect of drawdowns from the NAB loan facility, any higher or more onerous than that imposed on it by the deed. No doubt, Lesdor relied on performance of those terms, and was vulnerable to their breach. But that follows from the terms of the deed. The imposition of a fiduciary obligation in the same terms adds nothing to Lesdor’s protection, and does nothing to detract from whatever vulnerability it had to breach.

Further, in this case, Cordon’s power to draw down on the NAB loan facility was not a power that it undertook to perform solely and exclusively for the benefit of Lesdor. On the contrary, it was a power, the exercise of which was very much for the benefit and in the interest of Cordon. The exercise of that power could only affect the interest of Lesdor if the result of the exercise would be to leave Lesdor exposed on its guarantee: i.e., if the value of the residual lots was less than the limit of the NAB loan facility, so that Lesdor’s guarantee might be put into play.

It is reasonable to think that Lesdor saw the requirement of independent certification of drawdowns from the NAB loan facility as a sufficient protection for its legitimate interests. If it were wrong in that, it is not for the Court, by the strained application of equitable principle, to give some further measure of protection to Lesdor, over and above the terms of the bargain that the parties negotiated.

I conclude that Cordon was not a fiduciary of Lesdor, in relation to drawdowns from the NAB loan facility.

In light of that conclusion, I do not propose to deal in detail with Mr Hale’s criticisms of the payments. His starting point was that, under cl 2(b)(iii) the NAB loan facility could only be used to meet the “costs of construction for and to complete the building works”. Further, he noted, under cl 15 of the deed, Cordon was required “at its own expense” to do what it could to have the strata plan registered.

Mr Hale moved from there to an examination of the amounts that, on Habib’s evidence, had been spent. Those amounts, exclusive of GST, totalled $8,326,791.42. As I have said already, the amount ultimately repaid by Lesdor to NAB (which included $390.00 of fees and disbursements) was somewhat less: $8,275,765.12.

Mr Corsaro noted that, under the definition of “Loan”, the facility was to be available not only “for the construction of the Project” but “for payment of all fees incidental thereto”.

To the extent that there is some ambiguity, or lack of precision, in the wording of cl 2(b)(iii), it is I think legitimate to look at the definition of “Loan” to understand what were “the costs of construction and to complete the building works” to which the parties referred in cl 2(b)(iii). That suggests that the drawdowns are not limited to the somewhat narrow purposes for which Mr Hale contended.

Further, and again as the definition of “Loan” makes clear, what can be drawn down is the cost of “the construction of the Project” and “of all fees incidental thereto”, to the extent that they are “approved by a Quantity Surveyor acceptable to the lending institution”. On the face of things, if (as happened) all the drawdowns that Cordon made were regularly approved in accordance with that scheme, it is difficult to see how they could be, nonetheless, unauthorised.

Habib gave detailed evidence on this, and was supported by Barbara, who identified relevant records. I do not propose to canvas that evidence in detail. It is sufficient to say that I accept it, and I reject the criticisms made by Mr Hale (which to some extent appear to proceed on an overly narrow view of the purposes for which moneys drawn from the NAB loan facility could be applied). If the point were “live”, it should be dealt with: an exercise that would take many pages of analysis. It is not “live”, both because I have concluded that Cordon was not a fiduciary and because I have concluded (in discussing the eighth issue) that, having regard to the structure of the deed and the value of the residual lots at all material times, Lesdor has suffered no loss. In those circumstances it seems to me to be fruitless to pursue the question.

In the result, as I have said, Lesdor is entitled to apply the proceeds of sale of residual lots to recoup itself for the full amount that it paid out to NAB. That would be so even if (which I do not accept) the evidence showed that some of the amounts drawn down by Cordon were not authorised by the terms of the deed. Sixth issue: breach of the IMA The making and terms of the IMA

The IMA was made on 3 November 2006. At that time, these proceedings were still on foot, but had not been given a hearing date. The evident purpose of the IMA was to enable the sale of residual lots to proceed, on the basis of independent advice as to sale prices and marketing and selling strategies.

The IMA is documented as an annexure to “Term of Interim Settlement and Orders” dated 3 November 2006. The interim settlement orders provided for various documents to be delivered by one party to the other, for various other actions that do not need to be detailed, and for directions for the further conduct of the proceedings. They noted also that: (1) the parties agreed to carry into effect the IMA, which was annexed to the orders; and (2) Cordon denied the existence of any defects or omissions which it was reasonable for Lesdor to rectify or repair, and stated its intention to assert, as part of its defence to a cross-claim brought by Lesdor, that any costs incurred by Lesdor in rectification or repair were unreasonable and should not be regarded as project costs.

Against that background, the IMA provided as follows (omitting formal parts): 1. Lesdor shall cause to have registered the Council approved Stratum Plan and Strata Plans with all due diligence. 2. Lesdor’s solicitors on behalf of Lesdor and Cordon will request the President of the Institute of Valuers (or equivalent) to nominate a valuer to prepare a valuation of the Residual Lots (except units 13, 14 and 15) for selling purposes, and a marketing and selling strategy for the sale of the Residual Lots, within 7 days. Lesdor and Cordon agree to bear the cost of the valuer’s fees equally. 3. Lesdor shall arrange and conduct the sales of the residual Lots in the Strata Plan, with the exception of Lots 20, 21, and 25, and will do so in accordance with the marketing and selling strategy referred to in paragraph 2 above. 4. Lesdor agrees not to sell any Residual Lot below the value ascribed to same by the valuer referred to in paragraph 2 above, without Cordon’s consent. If Cordon does not consent, the matter will be referred to the said valuer for his determination as an expert, and such determination shall be final and binding on the parties. 5. Lesdor shall direct the proceeds of the all sales and income received in connection with the Residual Lots (with the exception of Lots 20, 21, and 25) in the Strata plan towards the payment of the refinancing of the loan facility referred to in paragraph 21(d) of the Affidavit of Leslie Herbert Semken sworn 11 October 2006, after deducting all reasonable costs and expenses, taxes and statutory charges associated with such sales. 5A. AND THEREAFTER UPON THE FACILITY BEING REPAID IN FULL, ANY FURTHER PROCEEDS OF SUCH SALE AND INCOME (LESS OUTGOINGS) TO BE HELD IN A CONTROLLED MONIES ACCOUNT IN THE JOINT NAMES OF THE PARTIES BY LESDOR’S SOLICITORS PENDING FURTHER ORDER OF THE COURT OR AGREEMENT BETWEEN THE PARTIES. 6. Lesdor agrees to provide all information concerning GST to be paid by Lesdor in respect of the sale of the Residual Lots. Relevant events following the making of the IMA

On 13 November 2006, Mr Solari asked the President of the Australian Property Institute (API) to nominate a valuer to undertake the tasks described in cl 2 of the IMA. After some to-ing and fro-ing (apparently resulting in the President’s suggestion that one person should be appointed to undertake a valuation, and another should be appointed to advise on a marketing and selling strategy), the API was notified that the parties agreed that two, appropriately qualified, persons could be appointed.

On 3 January 2007, the API advised that its fees of $550.00 were payable, and that the appointments would be made on payment. Mr Solari asked McBride Harle & Martin to pay their client’s one-half ($275.00) of that amount (letter of 5 January 2007). On 24 January 2007, Mr Solari wrote to McBride Harle & Martin advising that he held Lesdor’s cheque, but had not received Cordon’s.

At about this time, Cordon changed solicitors, from McBride Harle & Martin to Anthony C Simpson & Associates. On 24 April 2007, Mr Simpson wrote to Mr Solari noting that Cordon had paid its one-half share of the API’s fees on 25 January 2007, and expressing disquiet that Lesdor had not done likewise. It appears that Mr Simpson may not have been apprised of Mr Solari’s letters of 5 and 24 January 2007.

On 3 May 2007, Mr Solari sent Lesdor’s cheque for $275.00 to the API.

On 9 May 2007, the API appointed Mr Robert Randall to determine the value of the property. Mr Solari sent a copy of that letter to Mr Simpson on 16 May 2007, and sought confirmation that Mr Randall could be instructed to value the residual lots. There was apparently a dispute as to whether the date of valuation should be as at November 2006 (when the IMA was made) or “the current market value”, because it was required “for the purpose of marketing the properties for sale”.

On 13 August 2007, Mr Randall wrote to Mr Simpson noting that nothing appeared to have happened for some time, and asking “whether this matter is to proceed”. Mr Simpson replied on 28 August 2007, stating that Mr Randall was to proceed.

Again, nothing appears to have happened for some time. On 28 November 2007, Mr Randall wrote stating that if the matter were to proceed, he would require each party to provide a cheque for $3,000.00 on account of his fees. Mr Simpson paid that amount (for Cordon) on 29 November 2007. Lesdor made no payment. On 14 February 2008, Mr Randall wrote to Mr Solari to remind him of the outstanding request. Mr Solari does not appear to have replied to that letter.

On 15 February 2008, a solicitor employed by Mr Simpson sent an email to Mr Solari inquiring, in effect, what was happening with the valuation. That email provoked a response (not, on any view, one given with any sense of urgency) dated 10 March 2008. So far as it is relevant, that response reads: We refer to your email of 15 February 2008 and your request for confirmation of the number of units sold and are instructed to reply as follows: 1. Our client has made a decision that it does not wish to proceed with the sale of any more of the units within the complex. Therefore, no further units have been sold. We understand that this is inconsistent with the interim management agreement that had been entered into between the parties previously and our client now seeks to vary that. 2. Our client acknowledges that in those circumstances, the value of the properties will need to be assessed in order for those values to be taken into account in considering the amount owing by one party to the other in the context of the claims in these proceedings. 3. However, our client had previously obtained a valuation of the properties and our client does not believe that a further joint valuation should be obtained.

It is difficult to avoid drawing a comparison between the zeal with which Lesdor hounded Cordon, to procure what it saw as its rights under the deed, with its leisurely approach to performance of what on any view were its own obligations under the IMA.

It is fair to say that Les and Paul accepted, in substance, what is in any event apparent from Mr Solari’s letter of 10 March 2008: that by March 2008 at the latest, Lesdor had decided unilaterally that it would not perform, or continue to perform, its obligations under the IMA. The parties’ submissions

Although breach of the IMA is raised as an issue in Cordon’s brief written outline (of opening submissions), it is not addressed in that outline. Nor is it addressed in Cordon’s closing written outline, or closing oral submissions. It is therefore difficult to know how Cordon puts the case of breach that it raised in its opening outline.

For Lesdor, Mr Hale submitted that the IMA was not implemented, first because of the initial misunderstanding as to payment of fees, “and then by mutual abandonment”.

In any event, Mr Hale submitted, the claim was effectively secondary or defensive, because to the extent that sales under the IMA produced a surplus (over and above the amount required to recoup Lesdor for the amount that it had paid to discharge the NAB facility), that surplus was to be held in a controlled account to abide either the agreement of the parties or the order of the court. Decision

Unaided by submissions from the parties alleging the breach, it is very difficult to do more than record the apparent effect of the evidence. It is clear that the IMA was not effectively implemented up until April or May 2007, because of the apparent misunderstanding as to payment of the fee required by the API. Thereafter, so far as the documents disclose (and they appear to be incomplete: for example, because Mr Randall’s letter of 31 May 2007, referred to in his letter of 13 August 2007, is not in evidence), the matter appears to have fallen into a hole because neither party was particularly attentive in giving instructions to Mr Randall. Matters drifted along until late November 2007, when Mr Randall raised the question of his duties and asked for payment on account of his fees. Cordon made that payment promptly. Lesdor did not. It is, I think, open to infer that by about that date, Lesdor had decided that it did not want to perform the IMA, and would not do so.

On the face of things, that is a breach of contract. There is no evidence to support the proposition that there was “mutual abandonment of the IMA”. Lesdor may have decided not to perform its obligations pursuant to the IMA. To the extent that Les or Paul sought to suggest that Lesdor’s lack of interest paralleled, or was responsive to, an equivalent lack of interest on Cordon’s part, I do not agree. Cordon, so far as the evidence goes, wanted the IMA to be performed.

Lesdor appears to accept – at least by inference – that, absent abandonment, it did breach its obligations under the IMA. But assuming that it did, the breach goes nowhere. By the time the IMA was made, the deed on any view had been brought to an end. The residual lots were on any view Lesdor’s property (and, even had the deed not been terminated, they would have been its property, but subject to the agreement for sale set out in the deed). If the IMA had been performed after May or August 2007, a list of selling prices would have been developed, together with a marketing and sales strategy. If the parties were able to implement that strategy, at the prices recommended by Mr Randall (and the history of the matter suggests that one or other of them is likely to have been dissatisfied with the outcome of Mr Randall’s deliberations), some of the residual lots would have been sold. The proceeds would have been applied in reduction of the amount owed to Lesdor for payment out of the NAB facility. If there were a surplus, it would have been held in a controlled account.

Nothing in the IMA gives Cordon any entitlement to the proceeds of sale once Lesdor has been recouped for the amount that it paid out to NAB. Thus, I think, there is much to be said for Mr Hale’s submission that the question of breach of the IMA is really relevant only as a matter of defence to Lesdor’s cross-claim, including as to the issue of mitigation.

In short, even if the IMA had been performed and had yielded a surplus, that surplus would not have been payable to Cordon pursuant to, or by reason of the terms of, the IMA.

In the absence of any attempt by Cordon to articulate this aspect of its claim, and the issue that it framed based on that claim, I do not think that I can take the matter further.

The consequence is that the sixth issue should be answered by saying that Lesdor did breach the IMA, but that the consequences are to be dealt with in considering, in particular, the question of damages. Seventh issue: restitution, quantum meruit

Mr Corsaro’s submissions on this point rested on the proposition that “Lesdor has obtained a substantial and unfair benefit by virtue of its breach of the [deed], and further or alternatively, its breach of the [IMA]” (outline closing submissions, para 143).

Since I have found that Lesdor did not breach the deed, and that Lesdor’s breach of the IMA has no consequences in terms of loss to Cordon (because the IMA did not provide for any surplus proceeds of sale to be paid to Cordon), it follows that this basis of claim has no prospects of success. In those circumstances, I see no point in outlining and reaching a moot decision on the parties’ submissions. Those submissions are either in writing (and will remain with the file) or recorded in the transcript.

I will however say that, if it were held that some restitutionary claim should succeed, or that Lesdor should make payment on a quantum meruit basis, the quantification of any amount to be paid must take account of the fact that Cordon has been paid, by drawdowns from the NAB loan facility, substantially the whole of the actual cost to it of doing the work. (I say “substantially” because, as noted at [279] above, Habib’s evidence showed that the actual cost of the works exceeded the amount of the facility: by an amount of about $87,026.00.)

Whilst I accept Habib’s evidence that the amounts claimed and drawn do not include any profit margin, nor any amount not attributable to the project, it remains the case that Cordon has claimed (and substantially been paid) for every cent of construction cost to which it was entitled under the deed, leaving aside any balance from the net proceeds of sale of the residual lots. By way of example only, claims were made and paid for time spent by various members of the Ghosn family in and about the project. I point to that to make good the proposition that Cordon has claimed (as it was entitled to do) the actual cost to it of doing the works, not to suggest that the claims for the time spent on the project by members of the Ghosn family was in any way unjustified.

In those circumstances, any consideration of payment on a “quantum meruit” basis would be limited to a “profit and risk” allowance. Although, as I have said, I do not propose to decide a point which is moot, I do have difficulty in seeing why the Court should award a profit and risk allowance, on a quantum meruit basis, when the parties’ contract expressly provided for the way in which (if at all) Cordon was to be remunerated over and above the actual costs of the works.

The seventh issue should be answered by saying that Cordon has no entitlement to be paid on a restitutionary or quantum meruit basis. Eighth issue: Lesdor’s damages Nature of the dispute

The damages claimed by Lesdor comprised: (1) damages for defective work, incomplete work and work not in accordance with the plans and specifications; (2) the amount that it paid to discharge the NAB facility; and (3) expenses, including bank charges and interest, incurred, on the Macquarie facility, since the NAB facility was paid out.

The claim for defective, incomplete and non-conforming work was quantified, with two exceptions, at $364,956.90, in accordance with the referee’s report (see the summary at para 400 of the report). The exceptions were the amount required to bring the roof of the new building into accord with the plans and specifications, which the referee quantified at $21,726.00 (see paras 152 to 166 of the report) and an amount of $44,460.00 claimed to bring the walkway and entrance at the western end of the old commercial building into accord with the plans and specifications (which the referee discussed at paras 312 to 318 of the report, concluding at para 318 that there was insufficient material before her to enable her to quantify the claim). The amount claimed (but as I have said not found by the referee) for this item was $44,640.00.

In respect of the amount paid out to discharge the NAB facility, the basic amount of the claim was the amount actually paid out: $8,275,765.12. Lesdor accepted that it should give credit for the net proceeds of sale of residual lots, and for the net value (after GST calculated on the basis of the margins scheme and selling expenses) of the residual lots still unsold. It accepted also that it should give credit for rents received from time to time. It claimed interest and other expenses charged to the balance, from time to time, owing under the Macquarie facility.

Cordon disputed some of the referee’s findings as to quantum. In addition, as to some of the more major items for which a claim was made, Cordon submitted that it was not reasonable for them to be rectified, and that Lesdor was thus not entitled to the cost of rectification. In addition, Cordon asserted that Lesdor had failed to mitigate its loss by selling the residual lots, either pursuant to the IMA or within a reasonable time after it was made. Accordingly, Cordon submitted, Lesdor was not entitled to the full amount of interest and charges claimed by it.

Cordon submitted, in addition, that Lesdor was not entitled to damages for: (1) defects in the common property that manifested themselves only after registration of the strata plans (i.e., only after that common property became vested in the relevant owners corporation); and (2) non-conforming work in common property that became vested in the relevant owners corporation after registered of the strata plans.

It relied on the decision of Giles CJ Comm D in Central Coast Leagues Club Ltd v Gosford City Council (9 June 1998, unreported; BC 9802257). As is clear from the relevant passage of his Honour’s reasons, that question is closely related to the “ Bellgrove v Eldridge ” issue, and I shall discuss the submission in that context.

Underlying this outline of the issues in relation to Lesdor’s claim for damages are two disputes, one of principle and one of valuation.

The dispute as to principle relates to the decisions of the High Court in Bellgrove v Eldridge (1954) 90 CLR 613 and Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272.

The issue as to valuation is, as one might expect, what was the value of the units at whatever time is thought to be relevant. Each party relied on the evidence of a valuer. Cordon called Mr Ken Adams. Lesdor called Mr John Lloyd.

In addition, the parties relied on a joint report of two accountants, Messrs Vincent Aboud and Constantine Andreoloas. Those gentlemen earned the Court’s substantial gratitude by producing an agreed report which set out the net cash flows that would have been derived from sales of the residual lots at various specified prices after taking into account commission, selling costs and GST calculated on the basis that the margins scheme applied. First question: the cost of rectifying defective, incomplete and non-conforming work

For reasons that I give below in discussing the tenth issue, the referee’s report is to be adopted. It follows, in principle, that I accept Lesdor’s submission that the costs of rectification are as found by her (excepting the two matters that she did not decide) in the sum of $364,956.90.

As to the cost of bringing the roof into accordance with the plans and specifications, the underlying issue was whether Paul’s direction to Joe to change the works by inserting a skylight had the effect of absolving Cordon from the obligation to cover the bitumenous membrane with gravel. I do not see how that could be so. It was common ground that the works to be done were subject to council approval. The Council refused consent. Accordingly, the skylight was constructed over the space where the proposed staircase was to exit. To the extent that the skylight was constructed, there was of course no need either for a bitumenous membrane or for gravel over it. But to the extent that the skylight was not constructed, the original scope of works remained in place.

The referee found that if the work were required to be done (i.e., if Cordon had not been absolved from doing it because of the variation that I have summarised), the cost of doing it, as agreed by the experts, was $21,726.00. In principle, that is the amount that should be allowed for this aspect of the claim.

Lesdor does not submit that the claim for the walkway and entrance at the western end of the old commercial building can be resolved, and submits that if it is found entitled in principle, and the parties cannot agree, that question should be returned to the referee.

In principle, then, the amount of the claim for defective and incomplete works is $386,682.90, together with whatever might be found to be the cost of making good (or bringing into accord with the plans and specifications) the western end of the old commercial building. Second question: mitigation

Lesdor has not really sought to justify its decision to hold, rather than sell, the residual lots, except by vague assertions, on the part of Les in particular, that it did not wish to crystallise a loss. However, on the view that I take of the valuation evidence, the value of the residual lots was at all times sufficient to cover the balance owing to Macquarie in respect of the discharge of the NAB facility. If Lesdor had acted reasonably promptly during 2007 to sell the residual lots, it would have received, net of selling costs and GST, more than enough to pay out the balance that had been borrowed from Macquarie to pay out the NAB facility.

It follows that Lesdor is not entitled to interest to date, and continuing, in respect of the Macquarie facility.

I accept that it would have taken some time to sell the residual lots. In the absence of any indication from the parties, either by way of evidence or by way of submissions, as to how long should be allowed for this process to occur, I think that the appropriate, although arbitrary, course is to allow a year for that process. On that basis, the net proceeds of sale of the residual lots that were actually sold before or in the year following 8 August 2006 should be brought to account as they were received, and the notional net proceeds of sale of the remaining residual lots should be brought to account as at 8 August 2007. In a sense, this is artificial, and in favour of Lesdor, because it ignores the likely reality that if Lesdor had applied itself with reasonable diligence to the task of selling the residual lots (and it must be remembered that Paul was a licensed real estate agent), the net proceeds would have been received over time. That may however be regarded as affording some protection to Lesdor against the possibility that sales might have taken longer than 12 months (from the date of termination) to be effected and settled.

It appears that the actual net principal balance of the Macquarie account, leaving aside interest, is $5,233,868.09. That balance allows for costs and commissions, GST on the sales effected and capital gains tax on those sales. It is unclear why capital gains tax should be allowed in circumstances where, one would think, the units should have been regarded as trading stock in the hands of Lesdor. On the ruling assumption – that Lesdor was acting to mitigate its loss by selling the residual lots – they would be regarded as stock held by Lesdor for the purpose of sale. On the face of things, Lesdor should be regarded as carrying on a business activity which involves dealing in land. If all that is correct then, as Mr Corsaro submitted, the matter would appear to fall within the relevant ruling issued by the Australian Taxation Office: TD92/124A.

However, I express no concluded view on this. The applicability of capital gains tax was one of the matters on which Messrs Aboud and Andreolas did not agree. For the reasons that follow, I am prepared to assume that it is correct to allow for it, notwithstanding what I have just said.

As I have noted, there was a dispute between Mr Adams (called by Cordon) and Mr Lloyd (called by Lesdor) as to the value of the residual lots. Were it necessary to do so, I would prefer, and accept, Mr Adams’s evidence. However, the question of mitigation can be dealt with by accepting, as Mr Hale submitted I should, Mr Lloyd’s valuation.

Mr Lloyd’s valuation of the residual lots, as at 27 March 2007, totalled $6,785,000.00. As Mr Hale submitted, if one were looking at the position that the units would be sold at those figures, it would be necessary to deduct GST and sales commission; and as well, he submitted, capital gains tax. Those amounts (including, for the sake of argument, capital gains tax) total $602,453.00 (see para 150 of the closing written submissions for Lesdor, based on the joint report of Messrs Aboud and Andreoloas). That leaves a net value, or as Mr Hale put it “potential sale income”, of $6,182,457.00.

On that basis, it is apparent that the net realisable value of the residual lots, based on a valuation as at 27 March 2007 – i.e., during the notional selling year with which I am concerned - was more than enough to pay out the principal sum owed to Macquarie in respect of the amount borrowed to discharge the NAB facility.

The bank statements for the Macquarie account are in evidence. They show that, for the period from 31 August 2006 (the month of drawdown) until 31 August 2007, some $613,449.77 of interest was charged. If that is added to the net balance of loan as indicated above ($5,232,868.09), the total is $5,847,317.86. (I accept of course, that if the units had been sold over the year that I have somewhat arbitrarily allowed, and the net proceeds credited over that year, the actual amount of interest would have been less. However, this can be put to one side.)

Those figures, which I repeat are based on the evidence called for Lesdor, demonstrate that if Lesdor had sold the residual lots promptly after it terminated the deed, the proceeds of sale would have been more than sufficient to recoup it for the amount borrowed in order to discharge the NAB facility, and for interest on the amount borrowed until the principal was repaid in full.

Indeed, those figures show that, in all likelihood, there would have been a substantial surplus, of the order of at least $330,000.00 (subject to the question regarding capital gains tax, and to the point as to interest made parenthetically at [337] above), after Lesdor had been recouped. That surplus would have been available to apply to whatever damages Lesdor suffered by reason of Cordon’s defective, incomplete and inconsistent work. A non-issue

The funds to discharge the NAB facility should be regarded as having been provided by Lesdor, Marlborough and Semken Bros, because those funds came from the Macquarie facility advanced to those three companies. In those circumstances, it might be thought that any claim for repayment should have been brought by those three companies. Mr Hale submitted that, since they were jointly and severally liable under the terms of the Macquarie facility, any one of them – in this case, Lesdor – had standing to sue for and recover the whole amount paid in discharge of the NAB loan facility. Mr Corsaro’s submissions did not touch on this point. Since it was not raised as an issue (Mr Hale’s submissions were advanced in answer to a question that I had asked, not in respect of any identified or discrete issue), I do not propose to deal with it. The “Bellgrove v Eldridge” issue

The decision in Bellgrove is authority for the following propositions: (1) the measure of damages recoverable by a building owner for breach of a building contract is the difference between the contract price of the work contracted for and the cost of making the work conform to the contract, together with consequential loss, and subject to the qualification next stated; (2) that principle is subject to the qualification that the work undertaken to produce conformity must be necessary to do that, and, in the circumstances, a reasonable course to adopt; and (3) it is a question of fact as to what, if any, remedial work is both necessary and reasonable in any particular case.

The decision in Bellgrove was considered by the High Court in Tabcorp . Of present relevance, the Court explained the concept of necessity (“necessary to produce conformity”) at 289-290[19]. Their Honours said that the word “necessary” meant “apt to bring about conformity”: between whatever had been done and the plans and specifications that had not been conformed with. In other words, the test of necessity is directed at bringing the work into compliance with the plans and specifications. The test of reasonableness, on the other hand, is directed to the decision to undertake works to achieve compliance; and as the Court had pointed out at 288[17], “the test of “unreasonableness” is only to be satisfied by fairly exceptional circumstances”.

Damages may be recovered on the Bellgrove basis even where the building has been sold without the rectification having been performed: De Cesare v Deluxe Motors Pty Ltd (1996) 67 SASR 28. The rationale of that decision is, I think, that the sale price of the building was depressed because of the unrectified defective work. However, Lesdor did not claim damages on the basis of diminution in value.

In Central Coast Leagues Club , Giles CJ Comm D had occasion to consider the application of Bellgrove in circumstances where it was clear that rectification work would not be carried out. His Honour said (at BC 216) that if rectification work will never be undertaken, there is no loss. Building on that, his Honour said (at BC 216-217) that if work will never be undertaken, it is open “to conclude that it is not a reasonable course to adopt” to do that work. His Honour referred to Alucraft Pty Ltd (In Liquidation) v Grocon Ltd (No.2) (1996) 2 VR 385, where it was held that the contractor did not intend to rectify the works and would not be called upon to do so; in those circumstances, the contractor was held not entitled to the cost of rectification of defective work done by the subcontractor.

The question arose again in Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253. In that case, Giles JA (with whom McColl and Campbell JJA agreed) considered the relevant principles from [41]. His Honour stated at [61] that if supervening events meant that rectification work could not be carried out, it could not be found that rectification was reasonable in order to achieve the contractual objective, because achievement of that objective was no longer relevant. At [62], his Honour qualified what he had said in Central Coast Leagues Club by saying: … it is necessary to ask why the rectification work would never be carried out. In these cases the rectification work could not be carried out because of supervening events, and established that the plaintiff had not been deprived of the benefit of performance of the contract and thus had not suffered a compensable loss. In other cases, depending on their facts, whether rectification work would be carried out could come under consideration, but not because an intention not to carry out the work itself precluded the award of damages.

In other words, as I understand it, if the work cannot be carried out then the Bellgrove principle is inapplicable. If there is no intention to carry out that work, what is relevant is not just the intention, but the reason why it has been formed: for example, because the building has been sold, and the vendor thereafter has no intention to carry out the works because it cannot carry out the works.

In this case, some of the defective work, and much of the incomplete or non-conforming work, is in common property. That common property is no longer owned by Lesdor. It is owned by the relevant owners corporation. No owners corporation is a party to these proceedings. In those circumstances, it is open to conclude, and I do conclude, that the work of rectification will never be undertaken: at least, by Lesdor. Certainly, Lesdor called no evidence of any resolution by the members, or executive committee, of any owners corporation to show that rectification work was in contemplation (let alone that Lesdor proposed to fund that work). Nor did Lesdor prove any demand made on it to perform, or fund the performance of, rectification work.

Further, it was always the case that Lesdor was going to be divested of the common property on registration of the strata plans. Thus, if the matter is looked at in terms of Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145, the cost of rectification of defects in common property which were unrectified at the time the strata plans were registered would not be either the natural result of the breach (arising “according to the usual order of things” from the breach) or something that “may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it”. That is because the parties must have understood, had they turned their minds to the point, that on registration of the strata plans Lesdor would be divested of the common property, and of both the right and the ability to repair and defects. Nor, where that occurred not as the result of sale but as the result of a statutory divestment that the parties always contemplated would occur, is there any basis for claiming damages on a “diminution in value” basis.

Mr Hale submitted that it was irrelevant that Lesdor had been divested of common property on registration of the strata plans. First, he said, Lesdor was entitled to insist on performance of the deed, and the divestment did not of itself prevent it from doing so. Second, he submitted, the existence of the owners corporations was relevant only to the extent that they themselves commence proceedings against Cordon. Third, he submitted, Lesdor had “an exposure” to the owners corporations and to lot owners, by reason of ss 3A and 18D of the Home Building Act 1989 (NSW).

The first and second points are answered by the reasons of Giles JA in Westpoint . The question is not whether Lesdor can pursue a claim for damages, but what is the proper measure of damages for whatever breaches it proves? Where the damages claimed are the cost of rectification of defects, then the question of reasonableness requires consideration. As Giles JA pointed out in Westpoint , if supervening events mean that the innocent party to the contract cannot carry out rectification work, then it cannot be found that the rectification work is reasonable to achieve the contractual objective. That objective ceases to be relevant once supervening events have the effect of preventing rectification.

As to the third point, it may be accepted that Lesdor has “an exposure” to the owners corporations and to lot owners in respect of the residential strata development. There is no evidence of any complaint, or of any threat. In any event, Lesdor has not sought damages on the basis that it is entitled to be indemnified against any such claim. If that is the approach on which damages are to be assessed, then it would be necessary to investigate the likelihood that a claim would be made, and of the amount that would be awarded. There is no basis in the evidence for assessing those matters. If damages are sought on the basis of an indemnity against claims, it is necessary to show in some way the amount for which indemnity is sought.

Accordingly, I conclude, both by application of the “ Bellgrove v Eldridge ” principle and on more general grounds, that Lesdor is not entitled to recover damages for so many of the defects as are within common property. As I understand the evidence, that includes a number of minor defects of about $31,000.00 in value, as found by the referee; the five major defects that I discussed at some length earlier in these reasons; and another major defect (so characterised by the referee, because of its amount) relating to some planter boxes. Conclusion

Lesdor is entitled to damages for defective, incomplete or inconsistent workmanship, in the applicable amounts found by the referee, but excluding any amount that is referable to common property (or, more accurately, unrectified defects in common property).

To put it another way, Lesdor is only entitled to recover damages for defective, incomplete or inconsistent work to the extent that such work is relevant to lots that it owns.

It may be possible, with great labour, to struggle through the report and identify the extent of Lesdor’s entitlement in accordance with these reasons. However, the safer course is to leave it to the parties to resolve this matter, and to give liberty to apply in the event that they cannot do so. If they cannot do so, I would envisage returning the matter to the referee. Ninth issue: Cordon’s damages

On my findings, Lesdor did not breach its contract with Cordon and, accordingly, Cordon has no entitlement to damages. Tenth issue: adoption of the report The relevant principles

I set out the principles relevant to adoption of referee’s reports, as I understood them, in Chocolate Factory Apartments v Westpoint Finance [2005] NSWSC 784 at [7]. That decision was taken on appeal. It appears from the judgment of Giles JA (with whom McColl and Campbell JJA agreed) ([2007] NSWCA 253 at [9]) that I did not misdirect myself in so stating the principles. Accordingly, I repeat what I said: 7 The relevant principles, distilled from those decisions, can be stated as follows: (1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing. (2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised. (3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest. (4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh. (5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report. (6) If the referee’s report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than “unsafe and unsatisfactory”. (7) Generally, the referee’s findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence. (8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based. (9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire. (10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report. (11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise. (12) The right to be heard does not involve the right to be heard twice. (13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised “by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it”. The real question is far more limited: ”to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence”. (14) Where, although the referee’s reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee’s findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence. (15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified. The parties’ submissions

Mr Corsaro submitted that the referee misdirected herself in some respects, and that in those respects her report should not be adopted. Otherwise, he submitted, the report should be adopted.

Mr Hale submitted that the report should be adopted without qualification. Decision

I start with the observation that the referee is a qualified architect, and thus eminently suitable to enquire into the existence, and where necessary fix the cost of rectification, of the alleged defects. I add that the report gives a detailed analysis of the relevant facts, and sets out clearly reasoned conclusions on the issues with which the referee was confronted. It is logical and coherent, and demonstrates that the referee had a detailed understanding of the issues, the arguments and the evidence.

In those circumstances, there is a strong predisposition in favour of adoption of the report.

One of the reasons put against adoption of the report is that, in relation to a finding that the roof area over the residential lots would be trafficable, Cordon was denied natural justice. The question of whether the roof was trafficable was in issue before the referee and Cordon had the opportunity to put evidence or submissions directed to that issue. If it did not do so, it can hardly blame the referee.

Cordon attacked the way that the referee construed one of the questions put to her, namely question 7. That question reads as follows: 7. Whether the Building Works were completed except for minor omissions and/or defects which did not prevent the works from being reasonably fit for occupation and/or use by an owner, and the site cleared of all rubbish and building materials, as at 23 February 2006 and 31 July 2006.

Mr Corsaro submitted that the referee had not considered whether the question of whether the defects were minor in nature was informed by the extent to which they rendered the works unfit for occupation or use. He submitted that she erred in considering those two aspects of the question disjunctively rather than conjunctively.

I have great difficulty in understanding this complaint. If, as the referee concluded, the defects did prevent the works from being reasonably fit for occupation or use, then it did not matter whether, otherwise, they were “minor”. She concluded, after a detailed analysis of the evidence (at paras 407 to 420 of the report) that, as at 23 February 2006, the defects, whether considered individually or in combination, that she had found existed were not minor and would prevent the works from being reasonably fit for occupation or use. On either basis, Cordon did not achieve what it contended was the appropriate standard for “practical completion”. Since it was sufficient, for this to follow, that a finding be made that the effect of the defects was to prevent the works from being reasonably fit for occupation or use, it is unnecessary to go further into this aspect of the referee’s reasoning.

I do not think that the referee’s reasoning on this question betrays any error of principle. But even if it did, there is a sufficient basis for the conclusion that she did reach – being that which I have just emphasised – to make any further investigation pointless.

Mr Corsaro submitted that the referee had misdirected herself in the construction of the specifications in so far as they dealt with the requirement for structural steel to be hot dip galvanised. For the reasons that I have given at [141] to [143] in dealing with this defect, I do not think that the referee erred.

Mr Corsaro submitted that the referee had erred in her approach to defects in the common property. I am not sure that this is of any significance. The referee did not conclude that any particular amount was owing by Cordon to Lesdor for defective, incomplete or inconsistent work. She merely reported on the extent of defective, incomplete or inconsistent work at relevant times and on the cost of rectification or making good. It is up to the Court to make what it will of, and take what it wishes from, those findings. Adoption of the report will not of itself dictate that everything in it is added to the damages bill.

Mr Corsaro may be correct in submitting that the findings are irrelevant, but that does not matter because, as I have indicated, adoption of the report does not compel the Court to award irrelevant matters as damages.

As I have indicated, the report ought be adopted. What follows from that is a matter yet to be determined. Conclusions

In summary, I have concluded that: (1) Cordon breached the deed, and repudiated its obligations thereunder, both in relation to completion and in relation to the refinancing of the NAB facility; (2) Lesdor was entitled to, and did, accept that repudiation as terminating the deed and discharging it from further performance; (3) Lesdor did not, thereby, itself repudiate the deed; nor did it breach the deed in the way that it dealt with NAB; (4) Lesdor’s exercise of its right to terminate was not vitiated by failure to comply with any applicable duty of good faith or reasonableness; (5) Lesdor breached the IMA, but this results in no loss to Cordon; (6) Cordon has no entitlement to be paid on a restitutionary or quantum meruit basis; (7) Lesdor is entitled to damages, but it should have mitigated its loss by selling the residual lots within 12 months after the date of termination of the deed; (8) had Lesdor acted properly to mitigate its loss, there would have been sufficient net proceeds of sale to discharge entirely the amount borrowed from Macquarie to pay out the NAB facility, and a probable surplus of at least $330,000.00; (9) Cordon has no entitlement as to damages; and (10) the referee’s report should be adopted without qualification.

I have indicated, along the way, items of damage that are and are not recoverable. At present, I do not know whether those that are recoverable (on the basis of my conclusions) will exceed $330,000.00 (more accurately, whatever the notional surplus should be, taking into account and resolving the issue as to capital gains tax flagged but not resolved at [332] and [333] above). Accordingly, it will be necessary for the parties to seek to quantify, in monetary terms, the effect of my reasons and conclusions. I think that the best way to do that is for the parties to submit a draft of the orders that should be made, and written submissions in support.

That leaves the question of costs. If the outcome of the process that I have just described is that Lesdor’s damages are less than the notional credit arising from the notional sale of the residual lots, then it would seem that the appropriate order is that the claim and cross-claim should be dismissed with costs to follow the event in each case, and that costs should be set off. However, that is merely a provisional view; there may be other factors that impinge on the costs decision, and it may not be until the monetary effect of these reasons is quantified that proper consideration can be given to the question of costs.

In those circumstances, I make the following orders: (1) Direct the parties to exchange, and deliver to my Associate, by 12 November 2010 a minute of the orders that each submits should be made to give effect to these reasons, together with written submissions, no more than 10 pages in length, in support of those orders; (2) Direct the parties to exchange, and deliver to my Associate, by 19 November 2010 written submissions in reply of no more than five pages in length; (3) Stand the proceedings over to 10:00am on 26 November 2010 for the making of orders; (4) Order that the report of the referee, Ms Janet Grey, dated 29 June 2010 be adopted. (5) Reserve costs.