NSW Court of Appeal rejects “Facade”

Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) [2019] NSWCA 11 (12 February 2019)

Seymour subcontracted Ostwald to perform road works on the Pacific Highway. Ostwald served a progress payment claim for $6,351,066.08 pursuant to the Building and Construction Security of Payment Act 1999 (NSW) (Act). Seymour responded by payment schedule proposing to pay $2,505,237.58. Ostwald made an adjudication application, and the adjudicator determined the amount due to Ostwald was $5,074,218.27.

Seymour commenced proceedings claiming that the Adjudication Determination was invalid because Ostwald made the Application outside the time limit specified by the Act. Ostwald cross-claimed seeking rectification of the Works Contract to alter the dates on which Seymour was required to make progress payments; alternatively, Ostwald claimed the unpaid Scheduled Amount of $2,505,237.58 as a statutory debt pursuant to the Act. After the proceedings commenced, Ostwald was placed into liquidation.

Stephenson J ordered rectification of the contract, and therefore, the Adjudication Determination was valid. Alternatively, if it was invalid, his Honour held that Ostwald could recover the Scheduled Amount as a debt due under the Act because the Act continued to apply notwithstanding the winding up of Ostwald had commenced. His Honour declined to follow the Victorian Court of Appeal’s decision in Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd [2016] VSCA 247 on the basis that it was “plainly wrong”. Based on the High Court’s interpretation of the NSW Act in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd, his Honour considered that the reference in s.8(1) to a person “who has undertaken” to carry out work is to a contractual undertaking, rather than the physical undertaking of work.  Seymour appealed.

The Court of Appeal (Sackville AJA, Leeming, Payne, White JJA and Emmett AJA agreeing) allowed the appeal and held that the primary Judge erred in finding that the parties intended that Seymour should have 30 days from the end of the relevant month in which to pay Ostwald, rather than an earlier date specified in the Works Contract. Accordingly, the Adjudication Application was served out of time and therefore invalid. However, the Court agreed that Ostwald was therefore entitled to seek recovery of the Scheduled Amount pursuant to the Act, as the making of an invalid Adjudication Application did not preclude Ostwald from pursuing the summary statutory alternative.  Further, an entitlement to a progress payment under the Act does not depend on the claimant actually continuing to perform work under a contract. Accordingly, notwithstanding the winding up of Ostwald, the  Act continued to apply to its claim and it was entitled to pursue its claim for the Scheduled Amount to judgment.

“Lacrosse” decision delivered

Owners Corporation No.1 of PS613436T v LU Simon Builders Pty Ltd (Building and Property) [2019] VCAT 286

The long awaited decision in the first ACP cladding case to go to judgment to date was delivered on 28 February 2019.  Judge Woodward allowed the claim by the owners of apartments at Melbourne’s Lacrosse tower in Docklands for more than $5.7 million in damages after a fire in November 2014 fuelled by flammable cladding caused significant damage to the building. Each of the remaining respondents were held liable. 

The builder (LU Simon) was held to have breached the warranties of suitability of materials, compliance with the law and fitness for purpose in its D&C contract. The building surveyor (Gardner Group and Stasi Galanos) breached its Consultant Agreement by failing to exercise due care and skill in issuing the relevant building permit and thereby approving the specification calling up ACPs “indicative to Alucobond” and failing to notice and query the incomplete description of the cladding systems in the Fire Engineering Report. The architects (Elenberg Fraser) breached its Consultant Agreement by failing to remedy defects in its design (the Alucobond Specification) that caused the design to be non-compliant with the BCA and not fit for purpose, and failing to ensure that the ACP sample (of “Alucobest”) provided by LU Simon was compliant with their design intent. The fire engineer (Thomas Nicolas) breached its Consultant Agreement by failing to conduct a full engineering assessment of the Lacrosse tower in accordance with the requisite assessment level dictated within the IFEG,  failing to include the results of that assessment in the fire report, failing to recognise that the ACPs proposed did not comply with the BCA, and failing to warn at least LU Simon (and probably also Gardner Group, Elenberg Fraser and PDS) of that fact. No adverse finding was made against the occupier of apartment 805 (Kim) in relation to whether the storage of items on the balcony contributed to the ignition of the Alucobest ACPs or subsequent fire spread.  One of the persons staying in the apartment (Gubitta) was held to have breached a duty of care to the Owners by failing to ensure that his cigarette was fully extinguished before leaving it in a plastic container, which started the fire.  The claim against the superintendent under the building contract (Property Development Solutions) was settled shortly before the hearing.
His Honour held that ACPs did not satisfy the “Deemed-to-Satisfy” (“DTS”) provisions of the BCA by operation of clause C1.12(f) (or on any other basis). 

The damages payable by LU Simon to the Owners were apportioned between Gardner Group: 33%, Elenberg Fraser: 25%,Thomas Nicolas: 39% and Mr Gubitta: 3%.

A more in-depth analysis of this important decision will follow in the next edition.

Michael Whitten QC
 

MTECC seminar Wednesday 20 March 2019 RACV Club Melbourne

MTECC is presenting a 3-speaker seminar from 5.30pm on Wednesday 20 March 2019 at the RACV Club in Melbourne. The seminar will be followed by drinks and canapés.

The topics are:

• “Rectification in construction contracts” by Nick Gallina
• “What has happened to Contract and the Australian Consumer Law?” by Laina Chan
• “ACP cladding issues update” by Michael Whitten QC

If you would like to attend please RSVP to miriam@chancery.com.au.
 

MTECC member publication

MTECC member Laina Chan is about to publish a book with John Carter titled ‘Contract and the Australian Consumer Law’. Details of the book are here.