Built Qld Pty Limited v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd [2022] QCA 266

Michael Creedon  |  Allie Flack  |  Ali Harris

Key takeout

In order to claim damages for defective work, a contract and any related design specifications must stipulate performance requirements and not merely prescriptive specifications.

Receiving a direction to vary the works does not mean that the party receiving it automatically becomes aware that the direction will be a qualifying cause of delay.  It is reasonable to allow a party to assess the engineering and legal implications of the direction before forming a conclusion that it is a qualifying cause of delay.

Facts

This case concerns a dispute under a modified version of AS4902-2000 (contract) under which Built Qld Pty Limited (BQ) agreed to design and construct a large hotel in Brisbane.  During construction, BQ claimed that a series of directions issued by the developer, Pro-Invest Australian Opportunity (ST) Pty Ltd (Pro-Invest), were variations to the air conditioning system required to be installed under the contract. 

Pro-Invest disputed that the directions were a variation, arguing that BQ was required to install an air conditioning system in accordance with the contract.  

At trial, BQ made several claims against Pro-Invest.  This appeal decision only concerns BQ’s claim in relation to the ramifications of a defects notice issued to BQ by the superintendent (defects notice).

The defects notice directed BQ to remove parts of the air conditioning system it had already installed, and to install an air conditioning system which complied with the contract.  BQ argued that the defects notice was a direction to vary the contract so that it was entitled to the price of the varied work, an EOT and delay damages.  Relevant to some of the issues in dispute, to comply with tender conditions, it was necessary that BQ specify an air conditioning system which complied with specification and drawings prepared by Thwaite Consulting Group (specifications) as part of its tender.

Decision

The appeal was allowed and BQ was entitled to the price of the varied work, an extension of time (EOT) and delay damages in relation to the defects notice. There were a number of interesting issues covered in the decision.

Characterisation of the defects notice

Pro-Invest argued that the partly installed air conditioning system was defective because it did not give the occupant of each individual room ‘mode control’.  BQ argued that the contract did not oblige it to give every individual guest room ‘mode control’ because:

1. The contract did not give proper definition to BQ’s obligation to build the air conditioning system, meaning that extrinsic evidence was necessary and permissible to define its obligations.
   
   
2. In any event, the contract obliged it to install a ‘VRF’ system which complied with the performance requirements of the specifications, which did not contain a performance requirement that each individual room have ‘mode control’.

The court found:

1. A reference to ‘the contractor’s alternative proposal’ in the contract was a descriptive term, which was not so much ambiguous as uncertain, and lacked meaning unless without looking at extrinsic evidence.  The court considered extrinsic evidence in the form of emails between the parties to try to understand what the parties had agreed to. The court found they did not show the parties had a common understanding of what air conditioning system the contract was truly referring to and were only continued negotiations between the parties as to the detail of the air conditioning system to be provided.
   
   
2. As to what was meant by the phrase ‘performance requirement’, in the context it was used, it was one very closely related to the notion of performance specification and was designed to fill the same contractual purpose.  The court considered whether the specifications contained a performance requirement as to ‘mode control’ but found that they only included prescriptive specifications, not performance requirements.  Accordingly, the work was not defective and that BQ was entitled to the price of the varied work.

Entitlement to extension of time

BQ was entitled to an EOT as a result of the defects notice.  The relevant clause in the contract required that the claim for an EOT be given ‘within 14 days of when the contractor should reasonably have become aware of that qualifying cause of delay occurring‘.  The defects notice was received on 11 August 2016, well after the end of a working day, was seven pages long and on its face was given as a defect notice.  BQ submitted its claim for an EOT fifteen days later on 26 August 2016. 

The court found that BQ could only make a commercial decision as to how it would respond to the defects notice once a decision had been made as to BQ’s view on all the engineering and legal matters.  On this basis, it was not until an engineering, legal and commercial decision had been made by BQ that it could, or should reasonably, have become aware that the receipt of the notice was a qualifying cause of delay.  Accordingly, BQ’s 26 August 2016 claim was given to Pro-Invest within 14 days of when it should reasonably have become aware of it occurring.

At first instance Pro-Invest had argued that BQ was not entitled to an EOT because it had contributed to the qualifying cause of delay by failing to provide shop drawings of the air conditioning system when required to do so by the contract.  Pro-Invest argued that, had the drawings been provided, they would have revealed the lack of ‘mode control’ in individual rooms.  The court found that BQ did not contribute to the qualifying cause of delay.  Pro-Invest directed the contractor to perform a variation to the contract, which was not something to which BQ contributed. 

Qualification of delay caused by the defects notice

The court considered that the terms in the contract meant that it was open to the superintendent to assess the claim on a prospective basis, a retrospective basis or on an incremental basis.  The court rejected BQ’s argument that it was to ‘stand in the shoes of the superintendent’ and assess the delay caused by the notice as the superintendent should have.  The contract allowed BQ to prepare its delay claim based on a prospective analysis, but the court was not required to assess the delay on that basis.  Ultimately, the court found on the evidence that the EOT ought to have been 83 days.

Delay damages

On the point of costs necessarily incurred due to the defects notice, BQ argued that compliance with the defects notice caused it to take extra time to achieve practical completion therefore justifying an EOT, meaning that it incurred a corresponding number of days on-site overheads.  BQ argued that it had to keep its site open and operating for the period of the EOT, and it should be entitled to time-related on-site overhead costs of doing so, including labour costs for supervision.  The project was large and, at the time the notice was given, there was still three months of contract to run.  The court agreed and found that BQ had provided a basis for its costs as reasonably and necessarily incurred due to the defects notice.