Canterbury-Bankstown Council v Payce Communities Pty Ltd

1. [1]

   MEAGHER JA: I agree with White JA.

2. [2]

   WHITE JA: The appellant, the Canterbury-Bankstown Council appeals from orders of the Equity Division in proceedings brought against the Council by the respondent, Payce Communities Pty Ltd (“Payce”), Whilst there were five judgments delivered in the proceedings below, the substantive orders from which this appeal is brought were made in relation to the first and fourth, on 6 April 2021 and 18 May 2021 respectively: Payce Communities Pty Ltd v Canterbury-Bankstown Council [2021] NSWSC 331 and Payce Communities Pty Ltd v Canterbury-Bankstown Council (No 4) [2021] NSWSC 558 (Stevenson J)).

3. [3]

   Payce is a property development and investment company. It entered into agreements with the Canterbury City Council pursuant to which, in exchange for the transfer of council land to it, it agreed to cause a building to be constructed on the land that included on the ground and first floor a library and community centre. These were to be dedicated for public use. To put it generally, under the agreements Payce, at its own cost, was to construct a library and senior citizens’ community centre or an educational establishment to a warm shell finish in accordance with a Voluntary Planning Agreement dated 1 March 2013. This was known as the Base Build.

4. [4]

   Following council amalgamations, the Canterbury City Council is now the Canterbury-Bankstown Council. There is no issue that the Council has the same rights against and obligations to Payce as the former Canterbury City Council. I will refer to both the Canterbury City Council and the Canterbury-Bankstown Council as “the Council”, there being no need to discriminate between them.

5. [5]

   Payce and the Council entered into further agreements, the effect of which was that a price was ultimately agreed for Payce to construct the full fit out of the library and community centre for a price of $2,171,000. This price was struck on the basis of documents and designs that have been called the 2015 Design.

6. [6]

   There were further variations to the design. A dispute arose as to the extent of those design changes. Practical completion was achieved by 24 August 2018. Payce claimed that the total price for the Fit Out Works, including variations, was $4,052,543.78. It claimed $1,776,788.18 for variation works. The principal issues are as to the extent to which the works as constructed pursuant to the Council’s final instructions departed from the 2015 Design and the Base Build.

7. [7]

   Payce made a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW). An adjudicator determined that $1,285,660.65 (ex. GST)was payable. This was an interim determination only. A summons filed by the Council seeking to set aside that determination was dismissed by Ball J on 18 December 2019: Canterbury-Bankstown Council v Payce Communities Pty Limited [2019] NSWSC 1803. His Honour ordered that the Council pay $1,471,552.11 (inclusive of GST) to Payce, and that amount was paid.

8. [8]

   Payce instituted proceedings in the Technology and Construction List claiming damages for alleged breaches by the Council of the Fit Out Agreement in the sum of $228,833.44. Although its claim was framed as a claim for damages, it was a claim for further moneys payable under the contract, that is, a claim in debt.

9. [9]

   The Council filed a cross-claim claiming that Payce had been overpaid.

10. [10]

    On 18 May 2021, the primary judge declared that Payce was entitled to $1,068,304.75 (ex GST) on account of the variations it claimed under the Fit Out Agreement made on 4 December 2015. His Honour further ordered that pursuant to s 32(3)(b) of the Building and Construction Industry Security of Payment Act, Payce pay the Council $255,728.99 (ex GST) inclusive of pre-judgment interest to 18 May 2021, representing the amount overpaid by the Council pursuant to the adjudicator’s determination (as upheld by Ball J on 18 December 2019). (As will become apparent, the Council takes issue with the primary judge’s exclusion of GST in calculating the amount of its overpayment.)

11. [11]

    The Council appeals from that part of the decision below in which the primary judge upheld, in part, Payce’s claim in respect of five claimed variations. It also appeals from the primary judge’s allowance of a builder’s margin of 10% in respect of seven variation claims, a ruling on GST, and consequential allowances and interest.

12. [12]

    Payce cross appeals in respect of the primary judge’s refusal of two variation claims it made for reimbursement of the cost of consultants and the architect. It seeks a declaration that it is entitled to $1,225,946.75 (ex GST) on account of the variations it claimed under the Fit Out Agreement. It has also filed a notice of contention containing two grounds by which it seeks to affirm the primary judge’s exclusion of GST from the sum ordered to be repaid on 18 May 2021.

13. [13]

    For the reasons which follow the Council’s appeal should be allowed in respect of what is called the “builder’s margin claim”, but should otherwise be dismissed. This conclusion makes it unnecessary to address Payce’s grounds of contention. The cross-appeal should also be dismissed.

Voluntary Planning Agreement

1. [14]

   The parties and NSW Land and Housing Corporation entered into an agreement called a Voluntary Planning Agreement dated 1 March 2013. Clause 4.3(a) of that agreement provided:

2. [15]

   The “Building 1C Modification” was defined as follows:

3. [16]

   The plan set out in Sch 1 showed the proposed location of the library on the ground and mezzanine levels. The specification set out in Sch 3 was called a “Warm Shell Specification” dated October 2012. Under the heading “A. General warm shell building materials, finishes and services” it included the following relevant to the issues on this appeal:

4. [17]

   Under the heading “B. General Design Requirements” the specifications provided, relevantly:

Umbrella Agreement

1. [18]

   On 12 September 2014 Payce and the Council made an agreement called the Umbrella Agreement that acknowledged the parties’ agreement and intention that, if Building 1C Modification proceeded, Payce was obligated to construct within proposed Lot 2 a library and senior citizens’ centre to a warm shell finish in accordance with the Voluntary Planning Agreement.

2. [19]

   A schedule to the Umbrella Agreement contained a further agreement called the Fit Out Agreement. It was to come into existence on the date the last of specified conditions precedent were satisfied. That date was 4 December 2015.

3. [20]

   By cl 9.3(b) the parties agreed that the specification in the Fit Out Agreement was preliminary only and was subject to variation in accordance with cl 9.

4. [21]

   Clause 9.6 provided:

5. [22]

   By cl 9.7(a) the parties agreed that the FOA Contract Price for the Fit Out Agreement referred to in cl 10.2 was provisional only and subject to change having regard to the final design documentation. The price provided for in cl 10.2 was that Payce would pay $2,040,000 to the Council for the purchase of Lot 477 and the Council would pay $2,040,000 to Payce which included a payment of $1,520,000 for the Fit Out Agreement. Clause 9.7(b) and (c) provided:

6. [23]

   Clause 9.8 provided for the Independent Certifier to determine whether the Fit Out Agreement contract price would exceed $1,520,000. The Council could then within 15 business days elect either to accept the FOA Contract Price or amend the design documentation so as to reduce the price, in which case the design process provided for in cl 9.6 would recommence. If the Council elected to amend the design documentation it could nominate a maximum amount it would accept as the FOA Contract Price being not less than $1,520,000.

7. [24]

   Clause 10.4(b) provided:

Fit Out Agreement

1. [25]

   The Fit Out Agreement defined “WUC” (from ‘Work under the Contract’) as meaning the work which the contractor was or may be required to carry out and complete under the contract and included variations. Under the Fit Out Agreement Payce was the Contractor.

2. [26]

   Clause 36 of the General Conditions of Contract set out in Schedule 1 of the Fit Out Agreement provided:

Agreement on FOA Contract Price

1. [27]

   The independent certifier was a Mr Richard Rigby of Rider Levett Bucknall (“RLB”). On 21 October 2015, that is, before the satisfaction of the conditions precedent to the Fit Out Agreement, a Mr Michael Malak of Payce sent to Mr Rigby a request for him to assess the cost of the library works as the proposed design drawings then stood. On 8 December 2015 Mr Rigby sent to the superintendent, Mr Miled Akle of M Projects, his estimate of the fit out costs for the project based upon the documentation provided. His estimate for the fit out of the library/café on level 1 “as per attached elemental” was $510,426 and for library and community centre on level 2 was $1,508,378, a total of $2,018,804. The estimates did not include any sum for the “Base Build”. The “Base Build” refers to Payce’s obligation to construct the library and community centre to a warm shell finish in accordance with the Voluntary Planning Agreement.

2. [28]

   The attached “elemental” included rates for different quantities of units under different headings including for the level 1 library/café for the following:

3. [29]

   For the level 2 library and community centre, his estimates included quantities and prices for the following:

4. [30]

   The procedures provided for by cl 9.8 of the Umbrella Agreement were not followed. The Council did not seek to amend its design documentation so as to reduce the FOA Contract Price determined by the Independent Certifier. Instead, it obtained an opinion from another quantity surveyor, Mr Gallagher, of Hollis Partners. Hollis Partners provided an alternative detailed cost estimate based upon specified drawings and schedule of internal finishes and the warm shell specification that was an annexure to the Voluntary Planning Agreement. Mr Gallagher noted that his estimate and the estimate of RLB were based on the same documents. Mr Gallagher noted:

5. [31]

   Mr Gallagher’s cost estimate for the then design was $1,998,021 compared to Mr Rigby’s estimate for the equivalent items of $2,344,446.

6. [32]

   On 24 November 2016 Payce proposed that the parties resolve the issue by agreeing to split the cost difference of approximately $350,000 on a 50/50 basis. On 24 February 2017 the Council accepted that proposal.

7. [33]

   The effect of splitting the difference was that the agreed FOA Contract Price was $2.171 million. The primary judge said:

8. [34]

   The annexure that the primary judge adopted is also annexed to these reasons Annexure A (892843, pdf).

The contracted scope of works

1. [35]

   It was common ground that there were further design changes, but their extent was in issue. Payce’s claims for variations fell to be judged against the scope of works in the Base Build, that is, the works to be constructed pursuant to the Voluntary Planning Agreement and the specification for a warm shell finish provided for in that agreement, and the scope of works the subject of the designs and schedules (the 2015 Design) upon which the estimates of the two quantity surveyors were based.

2. [36]

   The primary judge held that Payce was correct in its submissions that:

3. [37]

   This was not disputed.

4. [38]

   The primary judge accepted the Council’s submission that where a deduction should be made in respect of claimed variations on the basis that the work in respect of which a variation was claimed was an element in the 2012 design (the Base Build), the cost of such elements should be increased by 12% (J [212]).

Variation 18 – Mechanical Systems

1. [39]

   Payce claimed that it was entitled to $192,010.51 for changes made to the air conditioning system following directions from the Council. The primary judge allowed the claim.

2. [40]

   There was no issue that there had been a variation to the requirements of the air conditioning system following directions from the Council after February 2017. The primary judge described the variation as follows:

3. [41]

   Mr Goh was the Council’s representative. CK Design was the architect. Mr Nader was a project manager at Dasco Australia Pty Ltd (“Dasco”). Dasco was engaged by a related company to Payce as the builder.

4. [42]

   In the case of Variation 18 the Council did not submit that any part of the work for which the variation was claimed fell within the scope of work that was within the Base Build or the 2015 Design, that is, the designs the subject of the agreed FOA Contract Price.

5. [43]

   Instead, the Council submitted that the variation had not been priced in accordance with cl 36.4 of the Fit Out Agreement because the variation described by Mr Nader had not been priced.

6. [44]

   The primary judge adopted the cost of all of the works ($608,966.52) and deducted from that figure the estimates attributable to mechanical services air conditioning in the Base Build and the further estimate of Mr Rigby of the cost attributable to mechanical services air conditioning in the designs the subject of the 2017 agreement (the 2015 Design).

7. [45]

   The Council submitted that by taking the actual cost that the Contractor charged for the entire element of the work and then subtracting from it the 2015 costs that the parties had agreed, and the element estimated in the 2012 Base Build, there was an unproved assumption that the contractor would charge Payce the same amount for the components of the work that were the subject of the Base Build and the 2015 Design as the quantity surveyors had estimated.

8. [46]

   The Council acknowledged that no case had been advanced prior to trial challenging the basis for assessment of the variation that Payce advanced and the primary judge adopted. Nor was it a ground of appeal that the primary judge erred by not rejecting the variation claim on the ground that it did not comply with cl 36.4 of the Fit Out Agreement. Senior counsel for the Council said that this was because the point had not been taken at trial.

9. [47]

   The air conditioning works carried out by Dasco’s contractor (JJ Metro West Pty Ltd (“JJ Metro”)) were invoiced by JJ Metro to Dasco in the sum of $608,966.52. The Council submitted that if the variations were not to be valued directly but assessed as the difference between the costs actually incurred and the estimates for the work in the Base Build and the FOA Contract Price, the judge ought not to have used the quantity surveyors’ estimates for the Base Build (escalated by 12%) and the quantity surveyors’ estimates in the FOA Contract Price, but instead should have used what the Council described as “…contemporaneous evidence reflecting the price at which an actual trade contractor has contracted to perform the work”. It referred to what it called the respondent’s builder’s price for the installation of the Mechanical System based on the 2015 Design of $595,185. This was a reference to an attachment to an email sent by Mr Nader of Dasco to Ms Shaza Rifi, who worked for the project manager, on 8 December 2017.

10. [48]

    The attachment referred to individual elements and against each element stated a figure for Old Brief October 2012, Design Brief 2015, Extra Over 2015, Design Brief Extra Over 2017 (being the pricing of the extra work over that provided for in the Design Brief 2015) and then a final column being the addition of the extra sums over the Old Brief 2012 as a result of both the Design Brief 2015 and the Design Brief 2017. Item 418 was described as “Supply and Install AC to library and SCC [Senior Citizens’ Centre] (including system upgrade, relocation of units, new penetrations and façade glazing louvres)”. Against this item under the column headed “Design Brief 2015” there was a figure of $595,185 and against “Old Brief October 2012” there was a figure $392,150. Under the column “Design Brief 2017 Extra Over” there was a figure of $157,000.

11. [49]

    The Council submitted that the judge should have valued the variation at $608,966.52 (being the cost actually charged by JJ Metro) minus $595,185 (being the pricing of the Design Brief 2015 in Dasco’s schedule): a difference of $13,781.52 exclusive of GST.

12. [50]

    On this reasoning, it should be inferred that Dasco or its contractor would have been prepared to carry out the work described by Mr Nader, as quoted by the primary judge at para [262] excerpted above, for $13,781.52.

13. [51]

    Mr Nader was cross-examined by counsel appearing at trial for the Council on this document. It was not put to Mr Nader that he would have been prepared to do the work he described for that sum. He was asked about that 2015 design brief. In his affidavit Mr Nader had deposed:

14. [52]

    The drawings referred to in para 127 are the same drawings referred to in Hollis Partners’ letter of 5 May 2016. Mr Nader was asked the following in cross-examination:

15. [53]

    It may be inferred that the Design Brief 2015 referred to in Mr Nader’s email to Ms Rifi was a design prepared by the Council’s architect, CK Designs. In an email from Ms Rifi to Mr Rigby of 10 October 2016 Ms Rifi advised that “Dasco have repriced the library fit out based on CK Designs’ plans and specification. This will be the same package that was repriced by RLB.” There was no corroborative evidence for this latter assertion.

16. [54]

    There was no evidence as to how Dasco or its subcontractor priced the 2015 design.

17. [55]

    The judge did not err in adopting the estimate of Mr Rigby, given that Mr Gallagher had provided a lower estimate than Mr Rigby. There must be serious doubt about Dasco’s pricing of the 2015 design given that it estimated an extra price of $157,000 for the 2017 design over its pricing of the 2015 design which would suggest a price for the works of $752,185, whereas the actual cost was $608,966.52. It is not surprising that the builder, in its discussions with the project manager, would price the 2015 design highly.

18. [56]

    It was legitimate for the primary judge to value the reasonable rates for the variation by taking the actual costs of the works, the reasonableness of which was not in issue, and deducting from that cost Messrs Rigby’s and Gallagher’s assessment of the value of that element upon which the FOA Contract Price was struck by the agreement of February 2017, and in the Base Build (escalated by 12%).

19. [57]

    Payce submitted that it was not open to the Council to raise the issue at trial, nor on appeal, having regard to the conduct of the trial. The issue was raised in closing submissions but had not been identified as an issue in the pleadings, nor in the Council’s opening submissions, and was only addressed in evidence in the cross-examination of Mr Nader referred to above.

20. [58]

    Payce contended that the first time that the submission was advanced by the Council was in a Scott Schedule that the primary judge directed and that was provided 13 days after the completion of the hearing and oral submissions (T 35). The Council did not take issue with this contention. If the Council’s submission as to variation 18 were otherwise attractive, which it is not, I would not accept it having regard to the lateness with which it was raised at trial. The inconclusive cross-examination of Mr Nader did not identify this as an issue to be addressed by Payce. (Dr Shanahan v Jatese Pty Ltd [2019] NSWCA 113 at [69]-[70], [133]-[135], [137]).

21. [59]

    For these reasons I reject the Council’s appeal in respect of variation 18.

Variation 19 – supply of lighting - $276,070.33

1. [60]

   This variation was allowed for the amount claimed.

2. [61]

   In relation to this item the primary judge said:

3. [62]

   The Council contends that Payce’s claim for variation 19 should have been for the amount claimed by the builder of $206,762.19 being the difference between the 2015 and 2017 designs, less a Base Build allowance from 2012 said to be $137,985. On this basis, by its notice of appeal, the Council contended that the amount allowed ought to have been $69,677.19 rather than $276,070.33.

4. [63]

   In its written submissions, the Council contended that the variation should have been valued at $96,764.19 (excluding GST).

5. [64]

   The warm shell specification provided for suspended grid ceilings with troffer lighting and the use of energy efficient light fittings. It provided for the Educational Establishment to operate with 24 hour lighting. (See [16] and [17] above).

6. [65]

   RLB’s indicative budget estimate for the Base Build as at April 2012 provided an estimate of $171,125 for “electrical and lighting” for the library Base Build and $137,085 for the senior citizen Base Build. Thus the sum of “electrical and lighting” for the Base Build was $308,210, but the break up of that sum between electrical and lighting was not disclosed.

7. [66]

   In his report, Mr Daubney opined that the appropriate method of valuation was to ascertain a reasonable extra over cost of the lighting in accordance with the 2017 design. He assumed that the lighting scope under the Base Build work required the supply and installation of energy efficient troffer lighting.

8. [67]

   Omitting a paragraph of Mr Daubney’s report that was not read, he stated:

9. [68]

   In the joint experts’ report Mr Daubney said:

10. [69]

    The table identified a quantity of lights supplied at different locations and the amounts allowed for them.

11. [70]

    The Council submits that Mr Daubney’s opinion expressed in his joint report ought to have been rejected because it did not disclose his reasoning. Payce submits that although this part of Mr Daubney’s evidence contained in the joint report was objected to, it was not objected to on this ground and, had it been objected to on this ground, leave would have been sought to adduce his reasoning.

12. [71]

    When the joint report was tendered (wrongly recorded in the transcript as having been admitted without objection) the initial objection taken was that the opinion expressed by Mr Daubney was beyond the pleaded case. The report was tendered on 4 March 2021. Mr Daubney and the quantity surveyors whose evidence was relied upon by the Council (and whose reports were largely rejected) were examined in conclave on 5 March 2021.

13. [72]

    Objection was taken to Mr Daubney’s report dated 4 March 2021. The primary ground of the objection was that Mr Daubney’s opinion had been expressed on the basis of matters outlined in an affidavit of Mr Rigby that Payce decided not to read. The Council objected that Mr Daubney’s reports (including his opinion in the joint report) were inadmissible because the assumptions underlying his report could not be established from evidence and that he had acted on assumptions derived from evidence of Mr Rigby that had not been read. The primary judge overruled that objection and there is no appeal from that ruling.

14. [73]

    As part of its written submissions, the Council submitted that Mr Daubney’s failure to disclose his assumptions regarding the Base Build made it impossible for the Council to test his conclusion that the constructed works were a variation from the Base Build. In oral submissions before the primary judge the primary judge commented

15. [74]

    The admissibility of Mr Daubney’s opinions was not challenged on the basis of failure to give reasons. If it be correct, as the Council asserts, that there were no reasons given for his opinion, that would mean that his opinion should have little or no weight. For the reasons below, that assertion is not correct.

16. [75]

    The Council referred to the attachment to Mr Nader’s email to Ms Rifi of 8 December 2017 referred to above in which Dasco priced “light fittings including troffer lights” for the community centre and the library under the ‘Old Brief October 2012’ at $110,000.

17. [76]

    The lighting work “elements” of the FOA Contract Price were broken down in RLB’s 2015 assessment in the sum of $67,465 and were so identified in Mr Daubney’s report at para [220].

18. [77]

    The Council submitted that the Lighting Works were performed by Carrier Electrical Pty Ltd who charged $274,229.19 for the work.

19. [78]

    The Council’s submission that the variation should only have been valued at $96,764.19 excluding GST depended upon its submission that Dasco’s price of $110,000 for the installation of the lighting system based on the 2012 design should have been accepted and that $67,465 should have been allowed as an additional cost within the FOA Contract Price.

20. [79]

    I do not accept that the Council can rely upon Dasco’s allowance for troffer lights as part of the Base Build in contradiction to Mr Daubney’s opinion as to the rate he adopted for Base Build troffer lights ($70) rather than what might be presumed to be the higher rate allowed for in Dasco’s document. The differences were not put to Mr Daubney in cross-examination. Payce says that this calculation was raised for the first time on appeal. The Council did not take issue with that submission but rather submitted that it was not a matter that needed to be put to Mr Daubney.

21. [80]

    The grounds of appeal in relation to variation 19 did not claim, in the alternative, that the variation should only have been allowed to the extent provided for in Mr Daubney’s first report. Nor was that submission advanced in the Council’s written submission. But in the course of oral submissions, Mr Ashhurst SC who appeared with Mr Keene for the Council submitted that in his report Mr Daubney applied the correct methodology of valuing the variation. He submitted that some of his reasoning should be rejected because it was based upon what he had read in an affidavit made by Mr Rigby that had not been read by Payce. Subject to the criticism referred to below of Mr Daubney’s report, the Council submitted that it would otherwise be appropriate to adopt Mr Daubney’s original figure for the variation of $165,171.

22. [81]

    Mr Daubney commented upon Payce’s original claim for variation being the difference between the charge made by Carrier Electrical for the lighting as installed ($274,229.19) and the RLB price for the 2015 Design said to be $67,465. In Mr Rigby’s estimate of fit out costs based on the 2015 Design for the library/café on level one he allowed the following under the heading “Light and Power”:

23. [82]

    For the light and power allowance on level 2 (library and community centre), Mr Rigby allowed the following:

24. [83]

    The total of these figures is $57,465, not $67,465.

25. [84]

    Implicitly Payce was claiming that the Base Build included a $10,000 allowance for the lighting works required under the warm shell specification which provided that ceilings were to be suspended grid ceilings with troffer lighting and that energy efficient light fittings were to be used (Warm Shell Specification, paras 7 and 9).

26. [85]

    In his schedule supporting his reasons, Mr Daubney proceeded on the basis that the allowance for troffer lights that should be allowed for the Base Build was $70 per light. Mr Ashhurst submitted that:

27. [86]

    He submitted that Mr Daubney should have used a figure of $200 per unit because he had assumed that the figure in the Base Build was $70 per unit based upon Mr Rigby’s affidavit evidence that was not read.

28. [87]

    This is a different submission from that advanced in the Council’s written submissions. In its written submissions the Council said that the primary judge ought to have deducted both the $67,465 figure and a price of $110,000 identified by Dasco in Mr Nader’s attachment to his email of 8 December 2017 in which he allowed a price of $110,000 for the installation of the lighting system based on the 2012 design.

29. [88]

    We were not taken to any cross-examination of Mr Nader in relation to these items, nor to submissions made about them before the primary judge. Payce submitted that Mr Nader was not asked anything about how he had come up with $200 per troffer for the Base Build nor what the design was that he was pricing in the document and was not asked anything about what the price of $110,000 was for. Mr Nader’s attachment to his email of 8 December 2017 was not shown to the quantity surveyors retained by both parties and they were not asked questions about it.

30. [89]

    I accept Payce’s submission that in the absence of any evidence from Mr Nader to explain the basis of the figures in the attachment sent to the project manager estimating a price of $110,000 for light fittings under the Base Build, in the absence of any reference to those documents by the parties, or the quantity surveyors retained by the parties as experts, it would have been inappropriate for the primary judge to make his assessment of the value of variation 19 having regard to the line items in the schedule sent by Mr Nader to Ms Rifi on 8 December 2017.

31. [90]

    Mr Daubney produced in his report an advertisement by a supplier of troffer lights quoting “An Efficient LED Troffer – 120cm x 30cm” at $69.95 each. This was the basis of his troffer allowance in the Base Build. In the absence of any evidence as to what kind of troffer lights were envisaged in the Base Build, there was no error in Mr Daubney adopting that figure.

32. [91]

    It appears to have been common ground that the rates for specific light fittings charged by Carrier was $200 per troffer.

33. [92]

    As is apparent from Table 29, in his report Mr Daubney applied the rate of $150.48 to the additional quantity of 172 lights. He described this as including the full cost for the supply and installation of that additional quantity.

34. [93]

    That does not suggest that the rate charged by Carrier was $220 per light fitting rather than $150.48 for the supply and installation of such light fittings. Carrier Electrical Services’ tax invoice is unilluminating.

35. [94]

    Mr Daubney’s opinion in the joint report is quoted at [68] above. It did not lack reasoning.

36. [95]

    Paragraph 4.9(a) of the report and the attached table shows that Mr Daubney adjusted the extra over costs for the increased quality of lighting not just for the 172 additional lights that he had allowed in his report, but for all of the lights that had been installed.

37. [96]

    We were not taken to any cross-examination of Mr Daubney in relation to variation 19. The primary judge did not err in accepting his opinion as expressed in his joint report.

Variation 23 – ceiling finishes - $372,598.48

1. [97]

   This claimed variation was allowed in the sum of $317,599.88.

2. [98]

   The Council admits that there was a variation of the work required but submits that it should have been valued only at $87,358.44. The Council submitted that of the variation sum claimed, $230,241.44 should have been wholly rejected. The latter sum was included in an invoice from Bright Construction Group Pty Ltd dated 15 March 2018 for work simply described as “Plasterboard Ceilings”.

3. [99]

   The invoice also referred to the supply of “Décor Panels System”. The Council did not take issue with the variation claimed for that item.

4. [100]

   As to the cost of $230,241.44 for plasterboard ceilings, the primary judge said:

5. [101]

   The drawings that were part of the 2015 Design priced by Mr Rigby and Mr Gallagher referred to perforated acoustic plasterboard ceilings in respect of a function room and to “set P/B ceilings in the library” and to “600w set P/B on the bulkheads in the library”. A note to the drawings stated that “all workmanship and material shall be in accordance with the relevant Australian standards, the building code of Australia and the requirements of the relevant statutory authorities” (Drawing D04-01 and D04-02 RevA). The requirement for double layered plasterboard related to the function room, not the library.

6. [102]

   The Council submitted that a double layer of plasterboard was required in order to comply with Australian standards. The Council relied first on Mr Daubney’s report. He said:

7. [103]

   The acoustic specifications referred to are in a document prepared by Acoustic Logic dated 1 October 2015 addressed to Mr Nader of Dasco . Acoustic Logic specified that the ceiling of the function room contain two layers of 16mm plasterboard (as well as specified glasswool insulation) (E 134). They stated that the noise criteria adopted for the function room were as follows:

8. [104]

   In response to the observation of Brereton JA that the document at E134 refers only to the ceiling in the function room, Mr Ashhurst referred to Blue D4/2025.Z, which were the minutes of a project meeting of 5 July 2017 attended by representatives of the Council, CK Design, Dasco, Payce and the project manager M Projects. Item 1.5 of the minutes records:

9. [105]

   The Council did not rely on the last sentence.

10. [106]

    It was common ground that the drawings priced by Mr Rigby and Mr Gallagher did not only refer to “set perforated acoustic plasterboard ceiling” (J [295]). But it is correct that on the area of the plan D961-I that constituted the function room, the only reference was to perforated acoustic P/B. In the relevant area, the primary judge was correct in saying that the drawings referred only to set perforated acoustic plasterboard ceiling and made no reference to double layer plasterboard.

11. [107]

    The first question is whether it is open to the Council to contend that double plasterboard ceilings were required in order to comply with the requirements of the warm shell specification that the building comply with BCA requirements and Australian standards, and condition 8 on drawing D04-02 that all workmanship and materials be in accordance with the relevant Australian standards, the Building Code of Australia and the requirements of the relevant statutory authorities. If it is open to the Council to rely upon that argument, the second question is whether the evidence establishes that double layers of plasterboard were required in order to comply with BCA requirements and Australian standards or the requirements of condition 8 to drawing D04-02 quoted at [101] above.

12. [108]

    Mr Ashhurst did not dispute Payce’s submission that the Council had not pleaded in answer to the claim for variation 23 that double layers of plasterboard were required to comply with Australian standards, the Building Code of Australia, or the requirements of statutory authorities. The primary judge found (at [175] and [176]) that the Council did not plead that there was any particular BCA requirement that should have been considered in the course of effecting the variations that were the subject of Payce’s claim, and that its pleading did not suggest that any BCA requirement had a role to play in the scope of work the subject of the FOA Contract Price.

13. [109]

    Mr Ashhurst submitted that whilst the primary judge had found that this ground had not been pleaded, his Honour did not find that for that reason the Council was precluded from arguing the point. Before the primary judge the Council had argued that the double layer was for fire and acoustic compliance, citing Mr Daubney’s report at para 257 quoted above. Mr Ashhurst noted that no notice of contention had been filed by Payce in this respect. He submitted that if a notice of contention had been filed the Council would argue that the form of Payce’s pleading did not give the Council the opportunity, and made it unnecessary for the Council, to have pleaded the BCA requirements. I accept this submission. It is open to the Council to raise the point on appeal.

14. [110]

    The primary judge was clearly right in holding that the requirement of the warm shell specification that the building comply with the BCA and Australian standards did not inform Payce’s scope of work. If work were within the Base Build or the 2015 Design, then it had to comply with those standards. But where additional work was required the fact that the additional work had to comply with those standards did not bring it within the requirements of the Base Build or the 2015 Design.

15. [111]

    Nor does condition 8 of drawing D04-02 take the matter further. That condition refers to the required standard of workmanship and materials, neither of which is in issue.

16. [112]

    The Council did not identify any requirement of the BCA or any Australian standard, or any Council requirement, that would require the installation of a double layer of plasterboard in the ceiling above the function room. The acoustic report specification of Acoustic Logic does not identify any such requirement. The Council did not place any reliance upon the second dot point under the heading “Noise Criteria” quoted at [103] above. No doubt that is because plasterboards in the ceiling above the function room might have no impact upon compliance with the criteria referred to of noise travelling to outdoor space, as distinct from the residence above the project site.

17. [113]

    Para 257 of Mr Daubney’s report is quoted at [102] above. The first sentence does not state that the installation of double layers of plasterboard was required in order to comply with regulations. The second sentence does not state that double layers of plasterboard would be required to comply with regulations in accordance with the 2015 Design. We were referred to no cross-examination of Mr Daubney on the issue. The Council does not say that a double layer of plasterboard was required over the library, presumably because that would be a quieter area than the function centre. This suggests that the requirement for a double layer was not due to fire considerations but rather to acoustic considerations. The only identified basis for the requirement is in the first dot point of the Acoustic Logics report para D.1 which does not suggest that this was a requirement of any regulation.

18. [114]

    I should add that the acoustics report was not one of the documents referred to by Mr Hollis as forming the basis of the 2015 Design.

19. [115]

    For these reasons I would reject the Council’s appeal in respect of variation 23.

20. [116]

    It is convenient to deal next with variation 30 that deals with the same subject matter.

Variation 30 – Acoustic Insulation - $77,754.60

1. [117]

   The primary judge said in respect of this claim:

2. [118]

   The Acoustic Logic report identified that the ceiling of the function room, as well as having a double layer of plasterboard, should also have glasswool insulation to a specified minimum thickness.

3. [119]

   The Council submitted that the source of the obligation to carry out the ceiling insulation work that is the subject of variation 30 was cl 4.3(a)(iii) of the Voluntary Planning Agreement and para 4 of Part B of the warm shell specification that the library and senior citizens’ community centre was to be constructed to a warm shell finish in accordance with any Australian Standards applicable to works of the same nature as each aspect of the works (cl 4.3(a)(iii)) and comply with the BCA requirements and Australian standards (warm shell specification Pt B para 4).

4. [120]

   Condition 4 of Pt B of the warm shell specification does not define the scope of work required by the warm shell specification or the 2015 Design. The warm shell specification referred to the installation of suspended grid ceilings. The ceilings ultimately required were not suspended grid ceilings.

5. [121]

   The 2015 Design upon which the contract price was based made no reference to glasswool insulation. Glasswool insulation for the ceiling of the function room was provided for in Acoustic Logic’s report of 1 October 2015 provided to Dasco. But that was not a document used by the quantity surveyors in their pricing.

6. [122]

   The Council relied upon the primary judge’s acceptance of Mr Nader’s evidence that the acoustic insulation the subject of variation 30 was work required in order to comply with BCA requirements (J [330]). But his Honour went on to find that there was no provision for this work in the 2012 design or the 2015 Design. The Council does not take issue with the latter finding. For the reasons above I do not accept the challenge to the former finding.

7. [123]

   I would reject the appeal in relation to variation 30, which is in a similar category to variation 23.

8. [124]

   By its notice of appeal the Council also contended that variation 30 should have been rejected on the ground that there was no evidence of any direction having been given within the meaning of cl 36.1 of the Fit Out Agreement for the variation. I do not accept this contention. The primary judge found that under cl 36.1 a direction given by the Council to Payce did not have to be in writing and there was no appeal from that finding. Moreover the 2017 ceiling drawings contained a note that was not on the 2015 ceiling drawing: “Check acoustic report for locations of all … acoustic rated ceilings”. The 2017 acoustic specification contained the requirement for glasswool insulation. Although the same requirement was contained in the 2015 acoustic specification there was no similar note in the 2015 ceiling drawings that referred to that specification.

Variation 24 – hearing loop - $142,279.50

1. [125]

   In relation to this claim the primary judge found:

2. [126]

   Again, the Council contended that the obligation to carry out the hearing loop works arose under cl 4.3(a)(iii) of Pt B of the warm shell specification which required the building to comply with BCA requirements and Australian standards. The Council submitted that to comply with the relevant code and standards, Payce was required to include in its Base Build a hearing loop.

3. [127]

   The Council referred to minutes of a meeting held on 10 February 2015 attended by, amongst others, representatives of the Council, Dasco, M Projects and Payce, which included notes that CK (CK Design) was to review an “accessibility report” prepared by MGAC (Morris Goding Accessibility Consulting) to ensure all requirements were met. MGAC provided a report to Dasco on 4 February 2015 setting out recommendations said to be made in accordance with mandatory requirements of, amongst other things, the Building Code of Australia Pt D3, E3 and F2.

4. [128]

   Its report stated at para 14.1 and 14.2 that hearing augmentation was required in all “class 9b rooms/areas” if an inbuilt amplification system were installed and in particular was required in the library/educational establishment “stepped seating area zone”. In cl 14.2 MGAC stated that hearing loops are required to at least 80% of floor area with inbuilt amplification system and that these areas were required to be signed. MGAC also made additional recommendations. It said that the recommendations that followed did not have an impact on the building sign-off under the DDA access code for buildings or the BCA but were recommendations “in line with the intent and objectives of the DDA to ensure equitable and dignified access for people with disabilities”. Under the heading “Hearing Augmentation” MGAC stated:

5. [129]

   Before the primary judge and in its written submissions on appeal, the Council also relied on s 23 of the Disability Discrimination Act 1992 (Cth). That submission was not pressed.

6. [130]

   Clause 4 of Pt B of the warm shell specification which required that the building comply with the BCA requirements and Australian standards must be read with para 7 of that Part that provides that the warm shell excludes equipment. The Council does not dispute that hearing loops are equipment.

7. [131]

   The direction for the variation was given by Mr Goh on behalf of the Council on 12 July 2017 in which he directed that there be a hearing loop wherever there was an audiovisual system (J [301]). The Council does not dispute that this was a variation but contends that the variation should have been quantified in the amount of $87,429.50 rather than $142,279.50 because allowance ought to have been made, but was not made, for the “hearing loop” Base Build cost of $54,850.

8. [132]

   The elements on which Mr Rigby and Mr Gallagher priced the 2015 Design excluded allowance for AV installation. The primary judge did not err in allowing the claim. It did not fall within any of the elements of the Base Build. Nor was it included in the elements on the basis of which the price of the 2015 Design was agreed.

9. [133]

   The Council sought to rely on an allowance that Dasco was said to have made for this item in its pricing of the 2012 and 2015 Designs. Mr Ashurst submitted that in this respect the point that the Council sought to raise in respect of variation 24 was the same as the submission made in respect of variation 18 and 23, namely that if instead of valuing the variation, one took the actual costs charged (accepted as reasonable) and made a deduction from that cost, the appropriate deduction was the builder’s assessment of the cost of the Base Build and the 2015 Design rather than the quantity surveyors’ estimates of the reasonable costs.

10. [134]

    I have rejected that submission in relation to the earlier variations. In any event, the question does not arise in respect of variation 24 because, contrary to whatever assumption Dasco might have made, hearing loops were not included either within the warm shell specification or the 2015 Design.

11. [135]

    I would dismiss the appeal in respect of variation 24.

Builder’s margin

1. [136]

   The primary judge said:

2. [137]

   The Council did not challenge Payce’s entitlement to charge a margin of 10% on top of the cost of variations reflecting its ongoing role, together with the role of its project manager, in liaising with the Council and the Council’s architect as the design developed. It did challenge the judge’s finding at [214] that Dasco charged a 10% margin on the costs it incurred to deal with such matters as the builder’s attendant supervision and coordination of the variation works, preliminaries and overheads. The Council submitted that there was no evidence that Dasco charged a 10% margin on the costs it incurred with respect to the claimed variations and that there was no evidence that any such cost was ever charged to Payce.

3. [138]

   In the joint expert report Mr Daubney (called by Payce) and Mr Burson (called by the Council) stated:

4. [139]

   The issue on appeal turned on two questions. Was Payce liable to pay Dasco a 10% margin in respect of the variations over the prices the subcontractors charged Dasco and did Dasco charge Payce such a margin? Mr Daubney’s evidence was that it is industry practice that each entity in the supply chain is entitled to recover a margin.

5. [140]

   The Council submitted that there was no evidence to support the instruction to which Mr Daubney referred in the joint report that Dasco was entitled to charge and had charged an allowance of 10% for its cost of managing the varied work.

6. [141]

   Payce submitted that the valuation exercise for the primary judge in relation to the allowance of the margin was a discretionary one. This appears to be a reference to cl 36.4 of the Fit Out Agreement that Payce was entitled to reasonable rates or prices including a reasonable amount for profit and overheads for each variation. But the issue does not concern the reasonable amount for profit and overheads, that is, Payce’s profit and overheads, but whether a reasonable price includes a margin that Dasco could charge Payce and did charge Payce.

7. [142]

   Dasco was engaged to carry out the work by Payce Communities No 4 Pty Ltd, which may be taken to be a related company to Payce. The contract between Dasco and Payce Communities No 4 provided that if the Contractor (Dasco) considered that a Direction of the Principal (Payce Communities No 4) involved a Variation then the Contractor was required to provide an estimate of the cost of the Variation with appropriate detail following the receipt of which, the Principal might accept the Contractor’s estimate, negotiate different terms, give the Contractor a Variation Direction or reject its estimate. (Design and Construct contract between Payce Communities No 4 Pty Ltd as Principal and Dasco Australia Pty Ltd as Contractor cl 9.1). Clause 9.3 provided that, if there were no agreement between the Principal and the Contractor, then the Principal was required to pay an amount reasonably determined by the Quantity Surveyor, whose price for the Variation was to include 10% of direct costs as the agreed allowance for contractor attendance, supervision, coordination, preliminaries, overheads and profit (cl 9.3(c)). In substance Dasco was entitled to charge 10% for its margin on the reasonable cost of variations carried out by its subcontractors. It would be surprising if it did not charge that amount to Payce Communities No 4. If it did so, that margin would appropriately be treated as a reasonable price to which Payce should be entitled for the variation on its claim against the Council.

8. [143]

   The only evidence of Dasco’s making a margin claim is a payment schedule provided by Payce Communities No 4 in relation to a payment claim made by Dasco for the period up to 30 April 2018. Dasco made a claim for “builder margin and overheads” (at 312.V). The claim as it appears in the payment schedule is not broken up, and does not evidently relate to the variations in question.

9. [144]

   The question as posed by the Council is not whether Dasco was entitled to charge a 10% margin on direct costs, but whether it did so. The Council points to the fact that the judge rejected Payce’s claim for Dasco’s margin in respect of variations 18 and 23 (Payce Communities Pty Ltd v Canterbury-Bankstown Council (No 2)) but allowed it with respect to variations 5, 19, 24, 25, 30 and 41. The primary judge did not give reasons for this differential treatment. There is no cross appeal by Payce against the primary judge’s rejection of this part of its claim in respect of variations 18 and 23.

10. [145]

    The question comes down to whether Payce has established that Dasco charged Payce Communities No 4 the 10% margin it was entitled to charge (or some lesser margin) in respect of these variations. If it did not, then it would not be reasonable to price the variations under cl 36.4 of the Fit Out Agreement for an amount that Dasco had not charged. Although Dasco was entitled to charge that margin, the evidence did not establish that it did so with respect to the variations in issue.

11. [146]

    Payce submitted that the Council had not pleaded that Dasco had not charged a 10% margin on the costs that it incurred. The onus was on Payce to establish what was a reasonable price for the variations and if the reasonable price included a margin charged by Dasco, to prove that Dasco charged that margin. Even if it could be said that this was an issue which the Council should have pleaded so as to avoid taking Payce by surprise, the issue was plainly raised in the joint experts’ report.

12. [147]

    For these reasons I would uphold this ground of appeal. The effect of upholding this ground is to reduce the amount that the primary judge found Payce was entitled to receive on account of the variations it claimed under the Fit Out Agreement by $47,703.29.

GST

1. [148]

   In the adjudication determination the Council was ordered to pay Payce $1,471,522.11, inclusive of GST. The payment was inclusive of GST because it was for what had then been determined to be the additional payment that the Council was required to make for the supply by Payce of the construction work to the Council.

2. [149]

   It is common ground that the Council is registered for GST and was entitled to an input tax credit for the GST component of the payment.

3. [150]

   The adjudicator’s determination was provisional. The primary judge found that the Council was liable to pay not $1,471,522.11 inclusive of GST, but $1,068,304.75 exclusive of GST, which equates to $1,175,135.20 inclusive of GST.

4. [151]

   The Council contends that, as the payment made by it to Payce pursuant to the adjudicator’s determination was inclusive of GST, and the excess as found by the primary judge was repayable to it by way of restitution, the repayment should also have been inclusive of GST.

5. [152]

   Correcting for arithmetical errors, the Council submitted:

6. [153]

   Payce framed its claim against the Council as a claim for damages for breach of contract rather than as a claim for moneys owing to it under the contract. Nonetheless its claim was for debt. The amount payable by it to the Council was moneys payable by way of restitution for the Council’s having been required to make an overpayment pursuant to the adjudicator’s determination.

7. [154]

   But this is by the way.

8. [155]

   The Council’s submission has no fiscal significance to the parties or to the Commonwealth.

9. [156]

   On the payment by the Council to Payce pursuant to the adjudication determination of $1,471,522.11, the Council was entitled to an input tax credit of $133,774.74. If the judge had determined that Payce was entitled to $1,175,135.20 inclusive of GST, and directed repayment of $296,386.91 inclusive of GST, the Council would have been required to amend its previous claim for an input tax credit to $106,830.47 and Payce would have amended its GST return accordingly.

10. [157]

    There was no explanation as to how the repayment of $255,728.99 was calculated. On the face of it, if the Council’s submission were accepted, the consequence would be that on determination that it was entitled to a repayment of $296,386.90 inclusive of GST, it would be required to amend its return claiming an input tax credit of $133,774.74 to $106,830.47 (one eleventh of $1,175,135.20): a difference of $26,944.27. This still leaves a difference of about $15,000 between the sum that the Council says it was repaid and that to which it would be entitled, but there was no explanation as to how the sum repaid to the appellant was calculated. In principle it should make no difference as to whether the reassessment is made inclusive or exclusive of GST. If it is made inclusive of GST, Payce and the Council would need to amend their returns. If the calculation is made exclusive of GST there is no need for those amendments with consequential savings in administration costs for both parties and the Commonwealth.

11. [158]

    I would reject this ground of appeal.

12. [159]

    This conclusion makes it unnecessary to address either of Payce’s grounds of contention, by which it sought to affirm the primary judge’s exclusion of GST from the amount ordered to be repaid to the Council on 18 May 2021. Those grounds were said to be pressed only if this Court were to hold that the primary judge erred in failing to give reasons for excluding GST, and thus do not arise.

Cross-appeal

1. [160]

   Payce cross appeals from the primary judge’s rejection of claims for reimbursement of consultancy fees paid by it ($88,250) and fees it has paid to CK Design ($38,700).

2. [161]

   The primary judge’s reasons for rejecting the claims were as follows:

3. [162]

   Payce submitted that the construction adopted by the primary judge did not accord with the contract as a whole, nor the commercial realities of the project. It submitted that the effect of cl 9.7(c) was that it was to pay the first $70,000 of the architect’s fees and the first $25,000 of the fees of other consultants but that the Council would pay the architect and consultants’ fees over that amount.

4. [163]

   Clause 9.4(a) of the Umbrella Agreement provided that Payce would appoint an architect nominated by the Council and consented to by Payce. Payce was required to consent to the appointment of CK Design. Clause 9.5(a) provided that the risk of the work undertaken by the Architect was to be borne by the Council. Such risk was defined to include negligence by the architect, the cost of rectifying any error in the construction documentation and any fault in design which became apparent during or after construction. Pursuant to cl 9.4(b) all other consultants were to be appointed by Payce. Under cl 10.4(b)(ii) where the price payable under the Fit Out Agreement exceeded $1,520,000 then the excess was to be paid by the Council to Payce progressively. Under cl 9.7 the Independent Certifier was to assess Payce’s determination of the FOA Contract Price. It appears from cl 9.7(c) that the Independent Certifier would not have the function of determining the cost of architects or other consultants. Nonetheless, there was nothing to preclude Payce from including a sum in its determination of the FOA Contract Price which accounted for the costs of retaining an architect or other consultants. In fact the assessment by Mr Rigby included a 5% allowance for design contingencies.

5. [164]

   As explained earlier in these reasons, the parties agreed on a compromise figure for the contract price.

6. [165]

   Payce’s construction requires reading cl 9.7(c) of the Umbrella Agreement as if it provided that the costs of the architect and the other consultants would be paid for by Payce as to the first $70,000 or $25,000 and would thereafter be added to (not be part of) the FOA Contract Price. That involves rewriting cl 9.7(c). It is not an available construction. The additional costs of the architect and other consultants were to be treated as part of the FOA Contract Price that was payable by the Council, and such additional costs were to be paid to the architect or the other consultants by Payce. Such additional costs were not to be added to the FOA Contract Price.

7. [166]

   For these reasons I would dismiss the cross-appeal.

Conclusion and Orders

1. [167]

   Accordingly, I propose that the appeal be allowed in respect of the allowance by the primary judge of the additional 10% builders’ margin in respect of variations 5, 19, 24, 25, 30 and 41 in the total sum of $47,703.29. I would otherwise dismiss the appeal and would dismiss the cross-appeal.

2. [168]

   Payce has been the substantially successful party on the appeal but the Council’s success on the building margin issue warrants a discount on the costs payable by the Council to Payce on the appeal. If the appeal were the only matter in issue I would propose that the Council be ordered to pay 95% of Payce’s costs. There is no occasion to reverse the costs order made below.

3. [169]

   The Council is entitled to its costs of the cross-appeal.

4. [170]

   If separate orders were made for the costs of the appeal and the cross-appeal the costs assessed or agreed would be set off the one against the other.

5. [171]

   Rather than putting the parties to the expense of separate costs assessments, it is appropriate to reduce the proportion of the costs payable by the Council to Payce of its appeal to reflect Payce’s liability to pay the Council’s costs of the cross-appeal. The cross-appeal was in short compass. I propose that, rather than making separate orders for the costs of the appeal and the cross-appeal, the Council be ordered to pay 80% of Payce’s costs of the proceedings in this court.

6. [172]

   For these reasons I propose the following orders:

   1. (1)

      Appeal allowed in part.

   2. (2)

      Vary declaration (1) made on 18 May 2021 by substituting for the figure $1,068,304.75 the figure $1,020,601.46, and substituting for the figure of $255,728.99 in order (2) the figure of $303,432.28.

   3. (3)

      Otherwise dismiss the appeal.

   4. (4)

      Dismiss the cross-appeal.

   5. (5)

      Order that the appellant pay 80% of the respondent’s costs of the appeal and cross-appeal.

7. [173]

   BRERETON JA: I have had the benefit of reading in draft the judgment to be delivered by White JA, which comprehensively addresses the issues. I agree with the orders his Honour proposes, for the reasons his Honour gives.