Allen & Taylor v Queensland Building and Construction Commission [2020] QCAT 63

QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL CITATION: Allen & Taylor v Queensland Building and Construction Commission [2020] QCAT 63 PARTIES: REECE ALLEN and CHANTELL TAYLOR (applicants) v QUEENSLAND BUILDING & CONSTRUCTION COMMISSION (respondent) APPLICATION NO/S: GAR136/18 MATTER TYPE: General administrative review matters DELIVERED ON: 27 February 2020 HEARING DATE: 28 August 2019 HEARD AT: Brisbane DECISION OF: Member Richard Oliver ORDERS: The decision of the Queensland Building and Construction Commission is confirmed. CATCHWORDS: ADMINISTRATIVE LAW – ADMINISTRATIVE TRIBUNALS – QUEENSLAND CIVIL AND ADMINISTRATIVE TRIBUNAL – CONTRACTS TERMINATION UNDER THE CONTRACT – TERMINATION UNDER THE GENERAL LAW – HOME WARRANTY INSURANCE SCHEME – where applicants entered in to a building construction contract with a registered builder – where works delayed and time for practical completion extended – where applicants dissatisfied with the building work – where applicants gave to the builder a Notice under the building construction contract – where builder responded to the Notice – where contract terminated by applicants – where the applicants made an insurance claim for incomplete building work on the statutory Home Warranty Insurance Scheme – where the respondents rejected the claim on the grounds that the applicants had not properly terminated the building construction contract with the builder in terms of insurance policy under the Home Warranty Insurance Scheme – whether the builder responded to the -- 1 of 29 -- 2 Notice by the stipulated time on the Notice – whether the builder’s response to the Notice was a reasonable response in the circumstances – whether the applicants properly terminated the building construction contract with the builder – whether the applicants lawfully terminated the building construction contract under the general law – whether the applicant’s termination of the building construction contract was a repudiation – whether the builder’s termination for repudiation was lawful. Queensland Building and Construction Commission Act 1991 (Qld), Part 5, s 67X, Schedule 1B s 34 Building Act Queensland Civil and Administrative Tribunal Act 2009 (Qld), s 20 Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3) [2012] VSC 99 Renard Constructions (ME) Pty Limited v Minister for Public Works (1992) 26 NSWLR 234 Shepherd v Felt & Textile Industries of Australia (1931) 45 CLR 359 Stojanovski v Australian Dream Homes [2015] VSC 404 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 Keswick Developments Pty Ltd ve Keswick Island Pty Ltd [2012] 2 Qld R 114. APPEARANCES & REPRESENTATION: Applicants: R. Allen, Solicitor for the applicants Respondent: S. Seefield of Counsel, instructed by the Queensland Building and Construction Commission REASONS FOR DECISION [1] On 17 February 2016 the applicants entered into a building construction contract (‘the contract’) with Contrast Constructions Pty Ltd (‘Contrast’) for the construction of a residential dwelling in Paddington, Brisbane. The contract price for the house was $1,896,000.00. Work commenced soon after but by late 2017 the parties were in dispute. On 17 November 2017 the applicants terminated the contract. They then made a claim for defective and incomplete work under the Queensland Building & Construction Commission (‘the Commission’) Home Warranty Insurance Scheme. [2] On 19 March 2018 the Commission made a decision rejecting the claim on the grounds that the applicant’s termination of the contract was not proper and lawful as required by clause 1.2 of the Insurance Policy under which the Scheme operates. -- 2 of 29 -- 3 [3] This application is a review of the Commission’s decision. The review application is conducted under s 20 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) which requires the Tribunal to produce the correct and preferable decision by way of a fresh hearing on the merits. In other words the Tribunal stands in the shoes of the original decision maker to consider the matter afresh. Both parties, in particular the applicants, have filed a substantial body of evidence and submissions, addressing the question of whether the contract was properly or lawfully terminated. Some Background [4] The applicants purchased the vacant block of land at View Street, Paddington in 2013. The land has an area of 409sqm and is described as a steep block with expansive views of Brisbane City. [5] After purchasing the land the applicants engaged a firm of architects, Base Architecture (‘Base’), to assist in the design of a house to be constructed on the land. Base was chosen because the applicants were impressed with a house Base had designed on land of similar topography at Swann Road, St Lucia. [6] Between July 2013 and April 2014 the applicants in conjunction with Base designed the house, plans were drawn up, and development approval obtained from the Brisbane City Council. The project was substantial, involving a house with multiple levels on a difficult, steep and small site. The project also included a swimming pool as part of the building structure. [7] The project was put out to tender with a number of builders. Bradley Durkin1 is a registered builder and director of Contrast. Mr Durkin and the applicants had various discussions about the project. After considering all tenders, the applicants decided to engage Contrast for the project. Mr Allen, who is a practicing solicitor, prepared the building construction contract and it was signed by both the applicants and Gerard Durkin, on behalf of Contrast, on 17 February 2016. [8] Base was the nominated Superintendent under the contract for the construction of the house. Giova Fellows, an architect with Base, was appointed Base’s representative for the project to represent the applicant’s interest and liaise with Contrast for the whole of the project. The construction works were supervised by Mr Bradley Durkin on behalf of Contrast. He was the contact point for Ms Fellows during the course of the construction. [9] Work commenced on the project in or about early March 2016 with earthworks being carried out on site. Work progressed but not without difficulty. There were delays and extensions of time sought by Contrast. There were also numerous occasions when Contrast needed clarification of some aspects of the design drawings, resulting in requests for information/clarification from Base to enable the project to proceed. [10] By 10 November 2017 the project had progressed to about 70% of the complete build but there was still considerable finishing work to be carried out. However, the relationship between the applicants and Contrast, through Mr Durkin, had deteriorated significantly and was strained. Mr Allen was concerned about the standard of work, progress of the works, the fact that practical completion would not be reached within the time specified by the contract taking into account agreed extensions of time, the -- 3 of 29 -- 4 need for further extensions of time and Contrast engaging subcontractors without prior written approval of the Superintendent. [11] As a consequence of these concerns, the applicants issued a formal Notice to Show Cause (‘Notice’) to Contrast under clause 39.2 of the contract. This clause permits the principal/the applicants to give to the contractor a Notice ‘if the contractor commits a substantial breach of the contract.’ The Notice must state the alleged substantial breach. The Notice required Contrast to respond in writing by 5pm on 21 November 2017. [12] Contrast engaged its solicitors to prepare and deliver a response to the Notice, which they did by the due date. However, there is a contention by the applicants that although Contrast did respond, it has not established on the balance of probabilities that it did so by the 5pm deadline on the due date. If it is found that Contrast did not respond by 5pm, the applicants contend that the Show Cause response was not in accordance with Contrast’s obligations under clause 39 and should proceed on the basis that the applicants were entitled to terminate on this basis. In any event, the applicants consider that Contrast did not satisfactorily respond to the particulars of the Notice and they, the applicants, were within their rights to elect to terminate the contract under clause 39.4(b). [13] On 1 December 2017 Contrast’s solicitors wrote to the applicants and maintained Contrast’s position that it was not in substantial breach, had provided a satisfactory response to the Notice to Show Cause, treated the applicants’ termination as a repudiation of the contract and elected to terminate. Contrast did not return to the site nor did it carry out any further building work. [14] Because the applicants contend that they lawfully and properly terminated the contract, they then made the claim under the Home Warranty Insurance Scheme with the Commission on 5 December 2017. The essence of the claim was for non- completion of the contract works. A supplementary claim was further lodged on 7 February 2018 as a result of vandalism on site. [15] The Commission responded to both claims on 19 March 2019 and rejected them. The basis of the rejection was that the Commission contended that as the applicants did not properly terminate the contract under clause 1.2 of the policy, the policy did not respond to the claim. The Commission is liable to only pay for any loss if clause 1.2 is satisfied. Essentially the Commission’s position is that Contrast did satisfy the Show Cause requirement under clause 39 of the contract. [16] In addition to termination under clause 39.4, the applicants also contend that after they took possession of the site they found further evidence of defective building work which they say constitutes substantial breaches, carried out during the course of the construction of the house up to the time of termination. They contend that on the basis of these further substantial breaches, any termination of the contract by them was lawful under the general law and rely on Shepherd v Felt & Textile Industries of Australia.2 It is worth noting that under clause 39.1 of the contract, common law rights are preserved. It provides: Preservation of other rights involved 2 (1931) 45 CLR 359. -- 4 of 29 -- 5 If a party breaches (including repudiates) the contract, nothing in this clause shall prejudice the right of the other party to recover damages or exercise any other right or remedy. [17] The issue for the Tribunal then is to consider whether Contrast’s response to the applicants’ Notice to Show Cause was a reasonable response or whether it gave the applicants an entitlement under clause 39 of the contract to terminate. If not, did the discovery of the further “substantial breaches” entitle the applicants to rely on those alleged breaches to justify their election to terminate? There is no dispute that the contract was in fact terminated by the applicants on 21 November 2017. The Home Warranty Insurance Scheme [18] The Home Warranty Insurance Scheme is established under Part 5 of the Queensland Building & Construction Commission Act 1991 (Qld) (‘QBCC Act’). The purpose of the statutory insurance scheme is to provide assistance to consumers of residential construction work for loss associated with work that is defective or incomplete.3 The claim made by the applicants is for work that is defective and not complete. The policy of insurance applicable to this claim is Edition 84 which sets out the policy conditions that apply to any claim for defective or incomplete work. [19] The circumstances here are that the work is clearly incomplete and/or damage has occurred as a result of vandalism; therefore, Part 1 of the policy is applicable. In respect of non-completion work, the policy provides that: Subject to the terms of this policy, the Commission agrees to pay for loss suffered by the insured in the event of the contractor failing to complete the contract for the residential construction work.5 [20] The Commission’s liability to pay under the policy for incomplete work only arises, here, where the construction contract has been properly terminated. Clause 1.2 provides: The QBCC is only liable to pay for loss under this Part when a contract is for a fixed price and the insured has properly terminated the contract with the contractor. [21] To assist, there is a definition of ‘properly terminated’ in the policy6: ‘properly terminated’ means lawfully under the contract or otherwise at law, upon the contractor’s default which extends to, but is not limited to: (a) the cancellation or suspension of the contractor’s licence; or (b) the death or legal incapacity of the contractor; or (c) the insolvency of the contractor; or (d) any breach of the contract by the contractor. [22] For clarification, there is no dispute that there is a residential contract between the applicants and Contrast, nor is it in dispute that Contrast falls within the definition of 3 QBCC Act, s 67X. 4 Statement of Reasons, page 1. 5 Policy Conditions, clause 1.1. 6 Policy, Part 11.1. -- 5 of 29 -- 6 the contractor under the policy. There is also no dispute that the policy will respond to the vandalism claim but only if liable for the non-completion work. [23] In the claim lodged with the Commission on 15 December 2017, the applicants provided the Commission with: 1. The Show Cause Notice and Notice of Termination; 2. Development Approval (DA) documents; 3. Payment Claim 14 and Payment Certificate 14 (the last progress claim paid); 4. The contract and variations; 5. Architectural drawings and the Fixtures and Finishings Schedule; 6. Engineering drawings (structural and hydraulics); and 7. Form 15 – the Energy Efficiency Report. Also supplied with those documents was a flash drive with photographs of the work at the stage the claim was made and during the course of the consruction. At the time the claim was made, the actual complaint form noted that of the total contract price of $1,896,000, payments of $1,115,899 had been made and there had been a credit for variations of $130,955, which left a balance owing under the contract, to Contrast, subject to completion, of $649,145. The Commission sought a response from Contrast and on 17 January 2018 that response included further information about the progress of the works, Contrast’s response to the Show Cause Notice and its reasons why it says the contract was not properly terminated. Having considered that material, and after receiving the further claim for vandalism, further information was provided to the Commission by the applicants. On 19 March 2018 the Commission then sent an email to the applicants advising that the non- completion claim had been disallowed as the contract had not been properly terminated at the default of Contrast. The decision letter provided the following further reasons: In this case QBCC is of the opinion that there is insufficient basis for the owners to have given notice of termination under clause 39.4 of the contract. Furthermore, QBCC is unable to identify any evidence on which to show any appropriate basis for the contract to have been terminated at law. The applicants, in their written submission, have placed considerable emphasis and reliance on the judgment of Dixon J in Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3).7 The general principles referred to in that case insofar as they relate to the termination of a construction contract are certainly relevant to any consideration of the applicants’ conduct in terminating the contract in this case. In Dura there was a similar ‘show cause’ provision in the construction contract and notices issued by the principal, Hue, to Dura for various substantial breaches of the construction contract. However, the factual background which led to the termination in Dura was vastly different, in my view, to this matter because of : firstly, the subject 7 [2012] VSC 99. The Commission also relies on Dura for statements of principle. -- 6 of 29 -- 7 matter of the construction contract in Dura; and secondly, the relationship between the parties and the circumstances leading up to the termination. The principals of both Dura (Khor) and Hue (Chu) were friends and decided to develop a site in Lord Street, Richmond. They embarked on this development venture by each taking a number of units in a unit trust. A construction contract was entered into between them for the construction of 29 apartments for a total construction cost of $8.4 million. The construction time was to be 70 weeks with a commencement date of 28 October 2004. The time for practical completion was extended to 18 October 2006 but by early 2006 the parties were in dispute not only about the delay in the project, but also the quality of work. In April 2006 a substantial defects list was given to Dura, which were also discussed at site meetings. There were issues about the provision of a satisfactory construction programme and also the processing of progress claims.8 At that point it appeared to Hue that practical completion would not be achieved in the required time and the project would be further delayed. Then, in July 2006 further consultants were engaged to assess the work and monitor progress9 of the works. The dispute between Dura and Hue continued to escalate and as Dixon J described it: The consequence was an increasing flow of paperwork in each direction: correspondence and requests for information (RFIs) were sent by Dura to Hue and its consultants served defects lists, Architects Instructions (AIs) and Superintendents Directions (Sis). Were progress claims, adjudications under the progress claims under the Building and Construction Industry Security Payment Act 2002 (Vic), EOT claims, variation requests, and extensive correspondence and reports. The dispute between Dura and Hue was expanding.10 It was after this background of events that on 8 September 2006 Hue served four notices on Dura alleging it was in substantial breach of the contract and requiring Dura to show cause in writing why Hue should not exercise its right under clause 44.4 of the contract. Although Dura did respond to the Show Cause, Hue determined that the response was not satisfactory. On 20 September 2006 Hue issued a Notice to Dura effectively terminating the contract and taking over the remainder of the works to complete the project. Although Dura was successful in obtaining an interim injunction, Hue took over the works on 23 October 2006. The factual background to this dispute between the applicants and Contrast bears no resemblance to what occurred in Dura. That is not to say that the principles espoused by Dixon J in that case, and relied on by the applicants, do not have relevance here; they certainly do, but must be considered having regard to what was occurring between Dura and Hue well before the question of termination arose. Dura was keenly aware of Hue’s ongoing complaints and concerns about the quality of work and delay before Hue issued the Notice. By contrast, in this case work was progressing, extensions of time had been granted, no significant defects had been identified or defects lists submitted to Contrast. All progress claims had been paid, although varied and amended in accordance with the quantity surveyor’s certification. The relationship between the principal and contractor had not deteriorated to the extent where the contractor could reasonably 8 Ibid, [5]. 9 Ibid, [8]. 10 Ibid, [9]. -- 7 of 29 -- 8 apprehend it was at risk of being excluded from the building site and the contract being terminated. Therefore, having regard to the factual circumstances giving rise to the issuing of a Notice may well be relevant11 to a consideration of whether the response to it was reasonable. Clause 39.2 of the contract provides that: If the Contractor commits a substantial breach of the contract, the principal may, by hand or certified post, give the contractor a written notice to show cause. Substantial breaches include, but are not limited to: a) Failing to: i. provide security; ii. provide evidence of insurance; iii. comply with a direction of the Superintendent pursuant to sample clause 29-3; or iv. use the materials or standards of work required by the Contract; b) Wrongful suspension of work; c) Substantial departure from a construction programme without reasonable cause or the Superintendent’s approval; d) Where there is no construction programme, failing to proceed with the due expedition and without delay; and e) In respect of clause 38, knowlingly providing documentary containing an untrue statement. Under clause 39.3, the Notice under clause 39.2 shall state: a) that it is a notice under clause 39 of these General Conditions of Contract; b) the alleged substantial breach; c) that the Contractor is required to show cause in writing why the Principal should not exercise a right referred to in subclause 39.4; d) the date and time by which the Contractor must show cause (which shall not be less than 7 clear days after the notice is received by the Contractor); and e) the place at which show cause must be given. Under clause 39.4: If the Contractor fails to show reasonable cause by the stated date and time, the Principal may by written notice to the Contractor: 11 Ibid, [525] – [537]. -- 8 of 29 -- 9 a) Take out of the Contractor’s hands the whole or part of the work remaining to be completed and suspend payment until it becomes due and payable pursuant to subclause 39.5; or b) Terminate the contract. Substantial Breach To establish that the contractor is in substantial breach of the construction contract the principal does not have to go so far as to show that the breach goes to the very root of the contract. An example of what might be a substantial breach is set out in clause 39 itself but that is not exhaustive. As Dixon J said in Dura:12 In context, the court was distinguishing between a substantial breach from a breach that would justify a common law determination. The requirement of a substantial breach is not that high and, when read with cl 44.1, shows that the parties have agreed that the contractual right to terminate has expanded the common law rights that otherwise may be available. In each case there is no question that the nature of the breach can be substantial, having regard to the express provisions of clause 44.2. As regards the place that the conduct in breach must reach on the continuum from trivial to repudiatory, the adjective ‘substantial’ provides guidance. It requires that the conduct in breach be of real or actual significance with respect to the important qualities of the bargain. Trivial or inconsequential conduct will not suffice, but it is unnecessary to show conduct that goes to the root of the contract. Consequences of the conduct must be material, or important, to the substance of the contract. (Emphasis added) Dixon J qualified the above statement somewhat in Stojanovski v Australian Dream Homes,13 acknowledging that the understanding of what is ‘substantial’ may differ from the parties’ perspective. It is certainly important to an owner that the builder carry out the works in a proper and workmanlike manner. His Honour went on to say: What is difficult to assess is where the parties, on the continuum from ‘real or of substance as distinct from ephemeral or nominal’ to ‘considerable, solid, big, or really important,’ intended the word ‘substantial’ to operate in order to evaluate the seriousness of the breach for the purpose enlivening the owner’s rights. Each of the grounds set out in clause 20.1 [here, clause 39.2] that enlivens the owners right to serve a default notice is a significant matter that a reasonable reader will understand to involve a real and significant risk that the owner will not get what he bargained for from the builder’s performance of the contract. It is not a ground that could be characterised as being of minor significance to the risk that the owner is not receiving what he bargained for. However, although I do not think that the contractual context limits the qualification of a breach which is substantial to only those breaches considered to be ‘considerable, solid, big, really important’, because it is preferable to apply the language chosen by the parties rather than a synonym with different nuances.14 It is against these criteria that the Tribunal will determine, on an objective assessment of the conduct of the builder, whether the breaches alleged by the applicants in the Notice, and at common law, are substantial and give rise to an entitlement to terminate under clause 39. 12 [2012] VSC 99, [447]. 13 [2015] VSC 404. 14 Ibid, [55]. -- 9 of 29 -- 10 Reasonable Cause In respect of the Notice, there is not only the requirement on the principal to establish that the alleged breach was a substantial breach, but also that the response to the alleged breach was not a reasonable response (clause 39.4). The Notice quite properly included particulars of the substantial breaches alleged, to which Contrast had to respond. In considering the response the principal has an obligation to do so having regard to all of the matters that an objective mind would consider, including, in my view, the complexity of the build, the working relationship between the contractor and the Superintendent and the progress of the works, in particular the working environment up to the issuing of the Notice. Dixon J considered the legal requirements of evaluating cause shown in Dura and said:15 What then is the extent of the obligation upon the principal to take into account, or give proper consideration to, the contractor’s response showing cause? Dura submits that the principal must act reasonably, as I have said earlier set out when considering the requirements of a valid notice. The power to act under clause 44.4 falls within the second identified category in Tote Tasmania. Hue was required to determine, honestly, whether the contractor had failed to show reasonable cause why the principal should not exercise the right referred to in clause 44.4. A court should be satisfied that the principal has made an honest decision in good faith about that matter enabling it to exercise the contractual rights in its favour provided by the clause. It is not a relevant consideration for court that the principal’s decision serves only its interest or that the court considers an alternative decision on the part of the principal to have been reasonably open. A similar view was expressed by Handley J in Renard Constructions (ME) Pty Limited v Minister for Public Works where he said that ‘the very notion of showing cause seems inconsistent with the view that the principal will be entitled to act …on his own idiosyncratic opinion.’16 I agree with the submission of the Commission that a failure by the principal to comply with this implied obligation in considering the Show Cause would render any subsequent termination of the contract as a breach of contract. There is one other further consideration. Where there are multiple alleged substantial breaches and there is a response to each, if it is established that the principal failed to act reasonably in respect of one of the alleged breaches, does that conduct infect the consideration of the principal’s reasonableness in respect of the other alleged breaches? Here the applicants did not make any specific determination about the individual alleged substantial breaches, but simply asserted that ‘the Contractor had failed to show reasonable cause’ and then elected to terminate the contract.17 On that basis then, if the contractor were to establish that the response to the Show Cause in respect of only one of the alleged substantial breaches was reasonable, does it follow that the principal’s termination is still a valid termination? How is one to 15 [2012] VSC 99, [566]. 16 (1992) 26 NSWLR 234, 257–263 and 279–280. 17 Statement of Reasons, page 802. -- 10 of 29 -- 11 determine the reasonableness of the conduct of the applicants when no reasons are provided by them as to why Contrast’s response fails the reasonableness test? The applicants have sought to justify their position in the statements of evidence they have filed in the proceeding coupled with their extensive submissions. However, in determining this matter on the sbubstantial merits of the case,18 had the applicants identified deficiencies in the response to the Notice, termination might have been averted. This is relevant because of both parties’ substantial investment in the project. Did Contrast meet the deadline for the response to the Notice? [45] There is one further issue in addition to the issues of the Show Cause Notice itself: that is whether Contrast complied with the time requirements for responding to the Show Cause Notice under clause 39.3. [46] The applicants contend that there is a positive onus on the Commission to establish, on balance, that Contrast did ensure its response to the Show Cause was delivered to the applicants by 5:00pm on 21 November 2017. It is not contested that the Notice was received on 21 November 2017. It is just a question of what time it was received by the applicants on that date. If it is established that it was not delivered by 5:00pm, meaning it was delivered after 5:00 pm, it would see that that would be the end of the matter because clause 39.3 requires the contractor to respond by the stated time and date. Failure to do so entitles the principal to terminate. The wording of clause 39.3 is clear and unambiguous. That means the timing of delivery is a question of fact to be determined by the Tribunal. [47] The first point to make about this contention is that neither Mr Allen nor Ms Taylor have given any evidence as to when the response to the Notice was delivered to them. In fact, when this topic was discussed at the commencement of the hearing Mr Allen was rather coy about the timing of the delivery of the response. He said: Now, there is some doubt on the material – the contractor has not established, I believe, on the material, that they showed cause within time, and they haven’t filed, for example – the show cause was served by the solicitor for the contractor, and they haven’t provided any material establishing that they served within time………but it arrived after – it potentially arrived after 5 pm on that due date…19 (My emphasis). [48] In his initial statement20 Mr Allen discussed receiving Contrast’s reply to the Notice. Having considered the response he and his wife came to the mutual decision to proceed to terminate the contract. There is no mention in that paragraph,21 where one would expect it to be raised, any issue or concern about the response being out of time. Although the letter of termination does not state specifically the grounds for termination22 however, the only inference that can be drawn from his evidence concerning termination is that it was based on Mr Allen’s opinion that ‘Contrast had 18 QCAT Act s 28(2) 19 Transcript, page 23 l 35 and page 24 l 5. 20 Exhibit 4, paragraph 212. 21 Or elsewhere in his evidence. 22 Exhibit 4, Annexure RJA34. -- 11 of 29 -- 12 failed to show cause.’23 It certainly was not on the basis that the response to the Show Cause was served out of time. [49] Another consideration is that Contrast was not a party to the proceeding, despite its interest in the outcome, and had it been it may have been more actibe and vigourous in addressing some of the issues raised by the applicants. It could have perhaps introduced evidence from its lawyers about the serving of the response to the Notice. [50] In any event I accept the Commission’s submission that Mr Allen’s evidence is notable for what it does not say.24 Either Mr Allen or Ms Taylor were obviously in the best position to say what time the response was served by Ms Sheridan, bearing in mind the fact of service by her is not directly challenged. Further, Mr Ho, Contrast’s solicitor who prepared the response to the Notice to Show Cause confirmed with Mr Durkin by email the fact that it had been served on the due date.25 I do not accept that there is a positive onus on the Commission to establish that the response was served in time. If the applicants want to contend otherwise in the circumstances here, where Mr Allen conceded it was served around 5:00pm, it is for him to prove that it was served after 5:00pm. [51] In the absence of evidence to the contrary I find that the response to the Notice was served in time. The Notice to Show Cause [52] The Notice issued by the applicants to Contrast on 10 November 2017 contained six alleged substantial breaches of the contract with each breach being supported by particulars.26 It is the Commission’s position that having regard to all of the circumstances pertaining at the time of the issuing of the Show Cause Notice, and the manner in which the works had progressed thus far, Contrast did show reasonable cause in respect of each of the alleged breaches in its response dated 21 November 2017. I will deal with each complaint in the Notice. Ground 1 – Failing to use materials or standards of work required by the contract [53] The specific work complained of is the plasterwork which it is alleged did not comply with Australian Standard (AS) 2589; the door, W3.09, in the Ensuite East is the incorrect size; and then the visual characteristics of the rooftop terrace concrete hobs do not meet the requirements under AS3910.1 – 2010. The applicants allege that Contrast did not provide an adequate response to the Notice and even if it did these defects were significant and constituted a substantial breach of the contract. [54] In particular, in respect of the plaster work, the applicants say that this is a very serious breach because at the time of giving the Show Cause Notice, the plaster board sheeting had been fixed in place, therefore denying them the opportunity to ensure that the framework behind, in particular back blocking, was compliant. However, the fixing of the plasterboard was carried out in the normal course of building work, and further the plasterwork had been the subject of independent inspection prior to the Notice issuing. 23 Exhibit 4, paragraph 212. 24 Respondent’s Submission, paragraph 43. 25 Statement of Reasons, page 292. 26 Statement of Reasons, page 791. -- 12 of 29 -- 13 [55] There is no dispute that the window is the incorrect size. Contrast admits there were problems with the finish of the concrete hobs on the rooftop terrace. These issues were being addressed by Mr Durkin. He was in discussion with Base about the window and was carrying out rectification work on the hobs when the Notice was issued. Plasterwork [56] The particulars in the Notice in respect of the plaster work is general in that it is alleged the work does not meet the standards of work required under the contract or the Australian Standard. Base issued a defect notice to Contrast on 23 October 2017 alleging that the plasterwork was out of tolerance and internal junctions were not square. In response to the defect notice, Base arranged for inspectors from the Association of Wall and Ceiling Industries of Queensland to carry out an inspection of the work and provide a report. [57] On 8 November 2017 two inspectors attended the works: Doug Smith of AWCI and Jim Browning of USG Boral, representative of Base. The report provided to the applicants on 16 November 2017 noted and confirmed that all plasterboard that had been fixed had been done so in accordance with the manufacturer’s specifications, save for some minor defects.27 [58] The response to the Notice informs the applicants what they already knew from the AWCI report and that is that the plaster work had been inspected by the Superintendent and an independent report prepared, and that it was satisfactory. Therefore, Contrast’s response to the Notice in reliance on the AWCI report was reasonable at that time. Also, Mr Allen was present when the inspection by AWCI was carried out and was in a position to provide any input or assistance to the inspectors on site. [59] Given the timeline required for the response, the fact that the AWCI report was in the possession of the applicants and confirmed that the work had been carried out in accordance with the manufacturer’s specification, it is difficult to see how, on any objective test as set down in Dura and Renard it could be said that the response to the Notice was not satisfactory or reasonable. I am aware of course that there are further defects that were discovered later when the applicants took possession of the site but this is not relevant to Contrast’s response to the particulars of the Notice. It follows that the complaint about the plasterwork in these circumstances does not fulfil the criteria of substantial breach of contract. Window W3.09 [60] Even though Contrast and Base were alive to the problem with the door to the ensuite, Base was instructed to issue a defect notice requiring that the defect with the door be remedied. This then was the basis for this item of work being included in the Notice. In Contrast’s response to the Notice, the applicants were advised that the Superintendent had issued, on 17 November 2017, a detailed drawing in respect of the door and its surrounds to remedy the problem. Therefore, there was work to be done to address the issue even though Contrast considered this extra work would necessarily be a variation, which was not resolved before termination. [61] During the course of the hearing, there was a dispute between Mr Allen and Mr Durkin as to whether or not this work was in fact defective building work. Mr Durkin did not 27 Statement of Reasons, page 788. -- 13 of 29 -- 14 accept that; however, his evidence was that he was content to work with Giova (Base architects) to come up with a solution to fix the problem. The problem arose, he said, because the architect had prescribed a commercial section surround rather than domestic for this particular door. He gave the following evidence when challenged as to whether it was defective: …That you don’t agree it’s defective? ---Well I agree that we made the opening to suit their drawings. Jova [sic] failed to understand that the section that they nominated which was a commercial section, has a mounting section, then it has a very large thick section. I mean, that section is only 25ml around the door. This section was 25 plus 50; gave you a 75ml, plus a frame that is about 110. So there was only this thin piece of glass. They drew it as if it was a normal domestic section. There – they shouldn’t have, and – but yet they nominated a commercial section, which is actually a far chunkier heavier duty section. So for a door that was drawn that wide, had a se - a 25, a 50, 110 with doorstops, which left a little piece of glass. So I agree; it doesn’t work very well. But we just follow what they asked us to do, which was a 700 wide, less these – all these other dimensions. So yep. [62] There is some challenge to this from Mr Dixon, an expert engaged by the applicants to provide an expert report on the state of the building work as to the utility of the door as designed, but he agreed that it was not defective for the purposes of the building code or the QBCC requirements. He said it was unworkable in its existing configuration. This of course is recognised by Mr Durkin and it needed to be fixed. [63] Mr Allen was aware of the problem and instructed Base to issue the defect notice.28 Base, as the Superintendent (although Mr Allen was taking a significant role in supervision at this stage because of the delay) was working with Mr Durkin to fix the problem. Therefore, the true state of affairs was well known to the applicants when they received Contrast’s response to the Notice. This is what Contrast told the applicants in paragraphs 3 to 4 of the response to the Show Cause. [64] There remained the issue of whether this was a variation, as claimed by Contrast, but in terms of the actual issue with W3.09 an acceptable solution had been achieved. One other aspect of this issue is that the dimensions on the drawings from Lifestyle Windows of the W3.09 differs from that on the architectural drawings, which may have been the cause of Mr Durkin’s confusion. [65] Mr Allen does not accept any of this. He makes the serious allegation in his final lengthy submissions in reply to the Commission’s submission that Mr Durkin was lying in the evidence he gave.29 The final submissions go further than just a submission on the evidence, they also include further evidence from Mr Allen in many respects about the installation of this window. Mr Allen refers to the drawing30 of the relevant window which clearly shows that the width of the actual door is 700mm. The specification provides, in very small print, that the ‘dimensions are to the outside of frame.’ Rather than being 700mm, as measured by Mr Dixon, the actual width is 560mm – some 140mm too short. The window supplier, Lifestyle Windows, quoted on the provision of a 700mm width door to swing in. Mr Dixon asserts that the cause of the problem is that the centre part of the overall window/door frame – that is the 28 Transcript, page 87 l 45. 29 Applicants’ Submission in Reply, paragraph 62. 30 Exhibit 4, page 62. -- 14 of 29 -- 15 door, three sliding windows, and fixed glass – was framed up to the incorrect size in that the centre three sliding windows is 1,895mm wide as measured rather than 1,800mm. This then means that there was insufficient room in the remaining frame to the left of the sliding windows for the door if it was to be 700mm. Mr Dixon in his first report commented on this as follows: As assembled, W3.09 is not assembled as dimensioned on the approved drawing. The three components that couple together to create W3.09 have not been customised to the architects [sic] nominated dimensions or the width of the install. It is apparent to me that the three pane sliding window is oversized, as is the frame and clad infill panel surrounded by this window and door frame. [66] Whether the fault lies with the specification being a ‘commercial section’ as suggested by Mr Durkin, or simply inaccurate building of the framed section for the window as contended for by Mr Allen, there has been an obvious mistake made. [67] I accept Mr Durkin’s evidence that he was attempting to achieve a “work-around” with Base to overcome the problem and was genuine in these attempts. Before the response to the Notice was due, Base sent an email to Contrast on 17 November 2017 saying that: As per our discussion on site last Tuesday on site, I discussed the alternative solutions for the repair of the defects on the Ensuite glass door with Reece: Please see attached sketch showing the acceptable solution. It seems that Mr Allen has resiled from this and his submission proceeds on the basis that every component of the construction, every piece of timber framing, linings, cladding, must be cut and installed to the exact measurements by the tradespeople. Obviously, this is the ideal situation but it is also common for mistakes to be made and corrected during the course of the building project as exemplified by the many building cases decided by this Tribunal. If the work-around suggested by Base Architecture was unsatisfactory, Contrast would have had to remove the whole section and install a new section to comply with the drawings to give the owner a satisfactory result in accordance with the drawing. [69] Although Contrast’s response to this complaint did not acknowledge the cause of the problem as described by Mr Allen, it did acknowledge there was a problem and was intent on remedying the problem in conjunction with Base. It must be borne in mind that Mr Allen has had considerable time to address this issue in consultation with Mr Dixon subsequent to the response to the Notice and to spend more time in working out the actual cause of the incorrect size for the doorframe as compared to the response time given to Contrast. [70] Although Mr Durkin’s explanation is not entirely satisfactory having regard to this later produced evidence, I accept that Contrast was making a genuine effort to respond to the complaint in the Notice and therefore the steps taken by Contrast to address the problem, and known to the applicants, was reasonable. Even it if was not, and having regard to the extent of the problem with W3.09 in the context of the overall construction project, this defect (if it does fall within that description) does not amount to a substantial breach of the contract. -- 15 of 29 -- 16 Rooftop Terrace Concrete Hobs [71] The rooftop concrete hobs were constructed to hold the glass balustrading on the rooftop terrace.31 The aesthetic appearance of the hobs given their exposure to overall appearance to the rooftop terrace is obviously important to the finished project. Once again, a defect notice had been issued to the builder in respect of the appearance of the concrete hobs on 23 October 2017. Contrast accepts that the concrete hobs as finished did not meet with the finishes expected for this project and remedial work was necessary. When asked about the hobs, Mr Durkin said as follows: It was pointed out that the work was carried out to build the non-structural hobs wasn’t off the – so it was off the form, so therefore, it has to be – you really got the one shot at trying to make it look neat, and so the guys, when they did it, haven’t got it perfectly flat, so there was some unevenness in the top surface, and we took that on board, and we were honing the concrete to suit the – to bring it to a straight format. So you can see that these photos that are in ours is after the hobs had been ground to the right surface, and we were going to put in a ply skim coat on that to – because you can see there that the finish is slightly different to an off – the – form concrete finish so we actually had started to remedy this as an issue. We acknowledge that it was an issue, that it wasn’t to what we would have liked it to be, as good as we wanted, and so we were prepared to hone those, and if that wasn’t acceptable, we’d just smash them off and make new ones because it was – once again, it was a very small issue to smash them off.32 [72] The applicant’s complaint is that the answer given by Mr Durkin with respect to the hobs was significantly different to that which he gave in response to the Notice. In the response, Contrast asserted that the finish to the hobs were ‘an aesthetic issue and cannot amount to a substantial breach of Contract.’ This is a truncated version of Mr Durkin’s evidence recognising that the hobs did require further remedial work, and that that work was being undertaken in the manner described in his evidence. The applicants were informed that the remedial work was underway in the response. [73] In Mr Allen’s final submissions, much of which are also evidentiary in content, he contends that Mr Durkin ought to have been more fulsome in his response setting out firstly an acknowledgement that it was defective building work, secondly detailed steps of how it was to be rectified, and thirdly, if the rectification failed to produce the result sought, what further steps would be taken. Mr Allen relies on the report of Mr Dixon who sets out the requirements of AS3610-1-2010 Class 1 (finish for exposed concrete surfaces). He did not agree with the suggestion that if that visual occurrence was not acceptable to the owner, they be demolished and then removed but ultimately it was up to the owner to determine what would be acceptable in terms of the visual appearance. [74] What also must be considered is that at this point in time Mr Allen had effectively taken over the role of Superintendent and was actively involved in the supervision of the building work. He was aware of the defect because he instructed Base to issue the defect notice. He was also aware of the steps taken by Contrast to remedy the problem. As he knew what was being attempted it is reasonable to assume he seemed satisfied with that approach and left Contrast to its own devices. As Mr Durkin conceded, it would have been a matter for the applicants when the work was completed as to 31 Exhibit 2, page 185. 32 Transcript, Day 2, page 40 l 25-40. -- 16 of 29 -- 17 whether or not they were satisfied with the finished product. It had not got to that stage when Contrast delivered its response to the Notice. Prudence would have dictated that the applicants should have at least given Contrast an opportunity to remedy the problem before terminating or waiting to practical completion. [75] As Mr Allen knew that remedial work was being carried out when the Notice was issued, the response to the Notice in my view, adequately addressed the concerns raised in it, was reasonable and satisfactory. Further, the defect, even if not being addressed by Contrast does not amount to a substantial breach of contract mainly because it does not go to the structural integrity of the hobs or their function but only to their appearance. Grounds 2, 3 and 6 – Failing to proceed with due expedition and with delay and failing to carry out the work with reasonable diligence and ensure that the works reach practical completion by the agreed practical completion date [76] The applicant’s complaint, as specified in the Notice, is that the works have been unduly delayed bearing in mind that the commencement date for the work was in February 2016 and the original date for practical completion was 2 May 2017. By the time the Notice was issued on 10 November 2017, a number of extensions of time (EOT) had been granted by the Superintendent, taking the nominated and agreed date for practical completion to 9 October 2017. One of the reasons for the EOT related to the complexity of the project which resulted in numerous Requests for Information from Contrast to Base during the build. The applicants make light of this and say that most of the requests related to minor matters but even so, it took time for Base to respond and at the time of termination many of these requests were outstanding. [77] There had been a request for a further EOT to take the works to practical completion by February 2018 but this request was denied by the applicants despite the recommendation of the Superintendent. It has been accepted, during the course of the hearing, that the works had reached about 70% completion by 10 November 2017 but there was still substantial work to be undertaken to finish the project. However, it was progressing. [78] Therefore, because the date for practical completion had been extended to 9 October 2017 by agreement between the principal and Contrast,it logically follows that the reasons put forward by Contrast for each of those requests for EOT33 must have been accepted by the applicants as being reasonable and necessary on grounds permitted by the contract. Therefore, there could not be any legitimate basis of complaint about delay during the course of the construction by reason of the agreed EOT because the contractor is entitled to them under the contract in certain circumstances, which obviously pertained here. [79] However, by July 2017 there were further delays for inclement weather and Contrast sought EOT 10 from the Superintendent for a further 16 days. Then, on 3 August 2017, EOT 11 for a further 80 days was submitted which claimed extra time because of the removal of cabinetry from the scope of works. The Superintendent did not respond to this request until October 2017, well after the time for response as stipulated in clause 34.5 of the contract. The effect of this, under the contract, is ‘there shall be a deemed assessment and direction for the EOT as claimed.’ Arguably, the request for an EOT because of the removal of cabinetry has been granted and the date 33 EOT 1 – EOT 10. -- 17 of 29 -- 18 for practical completion is deemed to be 80 days after 9 October 2017; that is, the end of December 2017. This of course makes sense because the cabinetry was not going to be installed until December 2017 in any event. [80] There is some history to this last claim for an extension of time in respect of the cabinetry aspect of the WUC. Under Schedule 2 the applicants had nominated Darra Joinery as one of the cabinetry preferred sub-contractors for the supply and installation of the cabinetry. Contrast obtained a quote from Darra Joinery and made an allowance for the cost of the supply of cabinetry supplied by Darra in the contract. [81] On 20 July 2017 Darra Joinery advised Contrast it was no longer doing this type of cabinetry work and therefore it was left to Contrast to source another cabinet maker acceptable to the applicants. Contrast nominated Finecraft Furniture, one of Contrast’s preferred suppliers for cabinetry to the applicants. However, this involved an additional cost of $76,000 for Finecraft to supply and fit the cabinets. Contrast sought a variation to the contract requiring the applicants to pay this extra cost. In an exchange of correspondence addressing this issue,34 the applicants refused to pay the extra costs sought by Contrast as they contended that the cabinetry cost was included in the agreed fixed price contract and therefore there was no liability for them to pay. They were at an impasse on this issue. [82] Because the parties were unable to agree, the applicants decided to make arrangements themselves for the supply and installation of the cabinetry and unilaterally removed the cabinet joinery, including the stone benchtops from the contract. This is not disputed. Despite this, the applicants rejected Contrast’s request for the EOT themselves,35 in a letter to Contrast on 23 October 2019. They also advised Contrast, inter alia, that there would be a variation to the contract sum by deducting a total of $195,981.38 for cabinetry and that Tomkins Kitchens would commence the installation in 27 November 2017 and 1 December 2017, and complete the works by 14 December 2017. There was simply no way Contrast could accelerate the works because of the applicants’ intervention. [83] It was obvious that by 23 October 2019 and 10 November 2017 the applicants knew the project could not reach practical completion at least until sometime after 14 December 2017 at the earliest. As the fact that Darra Joinery, the applicants’ nominated subcontractor, was not able to supply the cabinetry was not the fault of Contrast, the request for the EOT was reasonable and justified. This part of the work was out of the hands of Contrast and it was now dependent on the applicants arranging for the cabinets to be installed. [84] Then finally, a further EOT for 28 days was submitted because of the ‘knock on’ effect of the applicants intervening to supply the cabinetry on the above timeframe. Contrast considered there would be further delay in the supply and laying of floor tiles because the cabinets would not finally be in until late December 2017. The tiles selected by the applicants were very large, 1500mm x 750mm. Mr Durkin conceded that the plans showed the tiles were to be laid under the kitchen cabinets.36 However, he was concerned about having the tiles down whilst work inside was still progressing because the tiles were expensive Italian tiles and if broken or cracked whilst further 34 Statement of Reasons, pages 904–917. 35 Statement of Reasons, page 910. 36 Transcript, Day 3, page 18 l 45. -- 18 of 29 -- 19 work was being carried out, for example with some object being dropped on them, it would be a costly job to replace the tile/s.37 [85] Even so, Contrast could have proceeded to lay the tiles and taken the risk of breakages but from a practical perspective Mr Durkin did say it was not customary to lay the tiles under the cabinets, any cost associated with replacing tiles would have to be the responsibility of Contrast. Contrast wanted to ensure most of the fixing work in the kitchen, pool area and balconies was completed before the tiles were laid, and more time was needed for this. I am prepared to accept Mr Durkin’s evidence on this point as he is, effectively, the builder on the job with the responsibility for carrying out the work in the best and safest way and the further EOT to cater for the installation of the cabinetry was not unreasonable. [86] By the time the Notice was issued, this was the position Contrast found itself in, and why the extended date for practical completion of 9 October 2017 could not be achieved. [87] In its response to the Show Cause about delay, Contrast fairly raises the issue of delay caused by the change in the supplier of the cabinetry. They say that on the basis of the claims for EOTs 10, 11 and 12, to which it was entitled under the contract, the date for practical completion would be 26 February 2018. As would appear obvious from what is said above and also given the time frame for the response to the Show Cause, the further delay in the supply and fixing of the cabinetry as arranged by the applicants meant there was absolutely nothing Contrast could do to either progress the works to practical completion in the response time or complete other outstanding works. Ground 4 – Overclaiming/Claiming payment to which it was not entitled [88] During the course of the work, Contrast submitted regular claims for payment of work done and materials supplied. In the Notice the applicants identify a number of claims to which they contend that Contrast was not entitled to for payment of the various claims. The claims are as follows: (a) Claim No. 10, dated 15 June 2017 (preliminaries electrical (80% claimed, 40% achieved), aluminium windows (25% claimed/no windows installed)). (b) Claim No. 11, dated 15 July 2017 (preliminaries electrical, aluminium windows (25% claimed/no windows installed), swimming pool, air conditioning). (c) Claim No. 12, dated 15 August 2017 (preliminaries, swimming pool, air conditioning (V009 claimed, not installed), mechanical ventilation (V11 claimed, not installed)). (d) Claim No. 13, dated 15 September 2017 (preliminaries, air conditioning (V009 claimed, not installed), drainage channels (V0010 claimed, no drains installed), mechanical ventilation (V0011 claimed, not installed)). (e) Claim No. 14, dated 15 October 2017 (preliminaries, stairs (no internal stairs installed), render and paint, claiming of variation items not installed (V0009, V0010, V0011, V0019 (under floor heating controllers not installed)). 37 Ibid l12 – 25; Transcript, Day 3, page 20 l5 – 10. -- 19 of 29 -- 20 [89] Each of the claims were submitted to the Superintendent for approval and were then considered by the applicants’ quantity surveyors, GRC, who were engaged to assist the Superintendent to determine whether the whole or part of each progress claim made should be paid to Contrast. [90] Mr Durkin’s statement of evidence38 addresses each of the claims and how they were processed. [91] In respect of the complaints made by the applicants in Claim No. 10 for $97,003.29, a progress claim certificate was issued for $64,503.29. Contrast then issued an invoice for that amount and was paid. The amounts not approved included the claim for part of the electrical work and the aluminium windows. In Claim No. 11, the progress claim was for $221,236.62. The quantity surveyor’s report only allowed $139,644 and Contrast issued an invoice for that amount. Once again, there were adjustments for works not completed such as waterproofing, electrical and swimming pool. In Claim No. 12, the progress claim was for $66,307.89. Only $65,495 was approved and the builder issued an invoice for that amount. Once again, there were adjustments which took into account redesign of the lower floors. [92] By contrast to the claims that were made and certificates issued for a lesser amount, in Claim No. 13 the amount claimed was $143,244.40. In considering this claim, the quantity surveyors issued the report recommending payment of $179,150. A certificate was issued by the Superintendent for this amount and the builder issued an invoice. In a similar vein, Claim No. 14 was for $75,621. This claim was approved in full and an invoice issued. [93] The final claim, Claim No. 15, was for $119,398.64. This was on 15 November 2017. However, by that stage the Show Cause Notice had been issued and the applicants were waiting for Contrast’s response. Contrast issued an invoice for that amount of money but has not been paid. [94] It is evident that the builder has only been paid what has been certified by the Superintendent engaged by the applicants, and their quantity surveyors, GRC. It is correct to say that some of the claims included claims for work that had not been completed to the satisfaction of the quantity surveyors, but Contrast did not make any attempt to try and recover any more than that which was certified by the quantity surveyor. The applicants’ complaint is that simply making the claim to which they say Contrast was not entitled by virtue of the quantity surveyor’s report amounts to a substantial breach of the contract which was not remedied by the response to the Show Cause. It would seem that the applicants are contending that Contrast’s progress claim should match the amount certified by the quantity surveyor to ensure there is no overclaiming. [95] The applicants submit that this is not merely a substantial breach of the contract by making claims to which it was not entitled, but it also offends s 34 of Schedule 1B of the QBCC Act. The section provides in unequivocal terms that: (1) The building contractor under a regulated contract must not claim an amount under the contract, other than a deposit, unless the amount - (a) is directly related to the progress of carrying out the subject work at the building site; and 38 Exhibit 2, page 570. -- 20 of 29 -- 21 (b) is proportionate to the value of the subject work that relates to the claim, or less than that value. … [96] Furthermore, the applicants submit that s 34 of the QBCC Act also must be considered in the context of clause 1.6(a) and (b) of the Home Warranty Insurance Policy, which means that if a homeowner overpays a builder for work that has not been carried out, and then has to make a claim on the Home Warranty Insurance Scheme, for instance if the builder goes into liquidation, then the policy will not respond to any amounts overpaid. Therefore, if Contrast makes claims to which it was not entitled it breaches s 34 of the QBCC Act and if a homeowner, here the applicants, pays those amounts then they would be disadvantaged under the Home Warranty Insurance Scheme if they had to make a claim. [97] The submission certainly carries some weight. However, in this contractual arrangement between the applicants and Contrast, there is a clear safety net for the applicants to prevent such an outcome. This was a complicated building project which was under the direct supervision of the Superintendent and later the applicants themselves. The applicants engaged a quantity surveyor to supervise and make sure the builder justified each progress claim made. Contrast was only paid those amounts certified by the quantity surveyor. [98] The above procedures adopted for payment contemplated that there will be a difference of opinion as to the extent of the work carried out and materials supplied at the time the progress claim is lodged, even when the amount claimed is significantly less than the amount approved as was the case in Claim No. 13. The applicants were aware of these procedures, and the difference in claims made and payments authorised, when the Show Cause Notice was issued. If this was truly a problem for the applicants they would have raised this issue when the first progress claim came in. Mr Allen has been very particular in the way this project has been managed. [99] The response to the Notice reflects what was in fact the case in respect of those claims: Each of the architect and quantity surveyor engaged by the principal has substantially certified each of the claims up to, but not including, the contractor’s last claim. Further, the contractor invoiced the principal with reference to and in accordance with, the certifications – see Annexure A. [100] The response to the Notice did not make any reference to s 34 of Schedule 1B to the QBCC Act and the Home Warranty Insurance provisions, nor would one considering the matter objectively expect to see such a reference. Nor is there any reference to the reasons why particular claims were made and rejected. Mr Durkin did address some of these matters in cross-examination, in particular the specialised drainage channels which he claimed after advising the Superintendent that he would not purchase such a specialised item if he could not claim for them. He says he spent $80,000 on these drains, they were not installed and are stored in his warehouse.39 [101] In the context of where the contractor submits a progress claim, and not all of the claim is allowed by the quantity surveyor and the contractor only invoices for such of the claim that is allowed, this does not in my view amount to a substantial breach. Further, under clause 37.2 of the contract it is only the issuing of the ‘progress certificate’ by the Superintendent which creates the liability to pay. 39 Transcript, Day 3, page 21 l 5 – 15. -- 21 of 29 -- 22 [102] The Tribunal is satisfied that Contrast’s response to the Notice in these circumstances was reasonable. Ground 5 – Subcontracting work under the contract without prior written approval [103] Contrast accepts that it did engage subcontractors without the specific approval of the applicants or the Superintendent. It has the overall responsibility for the whole of the works involved in the project. The particulars provided in the Show Cause Notice relate to two subcontractors. The first is B&F Interiors Pty Ltd, plasterers, and Brian McCue, a painting subcontractor. [104] Under the construction contract, clause 9.2, the contractor must obtain the Superintendent’s prior written approval before it engages subcontractors for the work. The applicants contend, and Contrast accepts, that no prior approval was obtained for these two subcontractors. This, according to the applicants, amounts to a substantial breach of the contract giving rise to a right to terminate. I disagree for the following reasons. [105] Approval of subcontractors by the Superintendent or the applicants, was important to them and as Mr Allen has submitted, their approval was ‘essential to the bargain, which was negotiated by the parties over a very long period of time.’40 He was concerned that inferior subcontractors might be engaged; however, the list of subcontractors in clause 4 of the contract41 included five nominated plasterers none of which were B&F Interiors. Mr Durkin gave evidence that he was confident in their work and had in fact informed the Superintendent of their details in an email of 19 September 2019. No immediate objection was taken as to their engagement for the plastering work. After some concern was raised by the applicants about the plastering, a report was obtained from the Association of Wall and Ceiling Industries of Queensland after an inspection by two of its representatives, Doug Smith and Jim Browning on 8 November 2017. The report noted some deficiencies but their ‘overall observation was that the plastering was of good quality, especially the jointing of the recess and butt joints, which were above the requirements of the standard.’42 [106] By this stage, the plastering work was well underway, and in an email exchange between Contrast and Base on 10 November 2017, the Superintendent approved Contrast using B & F Interiors on the basis that Contrast would be responsible for any defective work, which it is anyway under clause 9 of the contract. [107] Although subsequent to the issuing of the Notice there is criticism of the quality of the plastering work, in particular the lack of back blocking, that was not apparent at the time of the issuing of the Notice. This particular issue will be addressed later in these reasons but for present purposes the question is whether or not Contrast’s response to the applicants’ complaint about the use of non-approved subcontractors was satisfactory. [108] There is also the question of the non-approved painter, Mr McCue. Mr Durkin’s evidence was that his role was to do minor paintwork and touch ups and was employed by the painting contractor. It is accepted that no approval was obtained for Mr McCue but as Mr Durkin pointed out, he was one of the many sub-trade individuals who worked on the site and was not what might be described as a principal subcontractor. 40 Applicants’ Submissions, page 46, paragraph (c). 41 Statement of Reasons, page 679. 42 Statement of Reasons, page 329. -- 22 of 29 -- 23 I accept Mr Durkin’s evidence that for minor sub-trades to obtain the Superintendent’s approval for every individual who goes on site had the potential of causing further delay to the works and frustrate the performance of the contract if he had to wait for such approval. As he described it: Because there’s minor subcontractors that would never have been put on that list, like excavator operators that come and dig dirt on site……..So they’re not – they’re not like a main painting subcontractor or a plumbing contractor, or any of these contractors, there are a lot of your list just minor – like the steel draftee who did the technical steel drawings.43 [109] This is explained in the response to the Notice which fully informed the applicants as to the situation with those minor subcontractors. In any event, under clause 9.5 of the contract there is provision that: Except where the contract otherwise provides, the contractor shall be liable to the principal for the acts, defaults and omissions of subcontractors (including selected subcontractors) and employees and agents of the subcontractors as if they were those of the contractor. Approval to subcontract shall not relieve the contractor from any liability or obligation under the contract. [110] Providing that there is no apparent or objective departure from the quality of work expected of a subcontractor, and given that Contrast remains liable for their work, it is difficult to see how the failure to obtain approval for such individuals would amount to a substantial breach of contract. [111] In the circumstances pertaining at the time of the issue of the show cause notice, I am satisfied that Contrast’s response to it was reasonable and satisfactory. Conclusion on the Notice to Show Cause [112] When looked at objectively,44 the complaints of the applicants at the time of issuing the Notice, particularly when the works were 70% complete with further work to do to bring the whole project together, each of the responses to the notice addressed the applicants’ concerns. The responses were not so inadequate that they gave rise to a right to terminate the contract. In so far as it might be said that they are breaches, the breaches were not, having regard to the test referred to above, substantial breaches within the meaning of clause 39 of the contract. Termination otherwise at law [113] The applicants submit that if the Tribunal is satisfied that Contrast has provided a satisfactory response to the Notice, then there still remains a right, because of other substantial breaches, to terminate the contract. [114] It is in this context that the applicants rely on Sheppard’s case to justify the termination as a result of breaches of contract only ascertained after the applicants took possession of the building site. The further grounds are adopted from the applicants’ written submissions. 43 Transcript, Day 1, page 92 l 5 – 20. 44 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. -- 23 of 29 -- 24 Repudiation [115] The applicants make a general submission that Contrast’s attitude throughout its performance under the contract so disregards its contractual obligations that it amounts to repudiation. In particular they submit that Mr Durkin’s evidence was such that he did not believe Contrast was bound by the terms of the contract with respect to time, quality, engagement of approved subcontractors and the statutory requirements of the National Construction Code, the Building Act and the QBCC Act.45 [116] Authority is cited for the proposition46 that the approach is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it. The submission flies in the face of what actually occurred up to the issuing of the Notice. Firstly, the works were about 70% complete; secondly, until there was a change in the cabinet supplier the WUC were proceeding as efficiently as possible taking into account the agreed extensions of time and the delay in responses to requests for information from the Superintendent. Furthermore, Contrast’s response to the Show Cause Notice and the fact that I found the response reasonable in the circumstances, evinced a clear intention on the part of Contrast that it wanted to continue to take the works to practical completion and finish the project. These objective facts support the conclusion that the intention of Contrast when viewed by ‘a reasonable person’ did not demonstrate a ‘disavowal either of the contract as a whole or of a fundamental obligation under it’.47 [117] I am satisfied that Contrast has not acted in any way which would constitute repudiatory conduct and therefore at the time the applicants issued the Notice and at the time of Contrast’s response, it was ready, willing and able to continue to perform its obligations under the contract. Had it not been for the applicants’ termination, it is more probable than not that this would have been achieved with both parties acting reasonably. Defects [118] The applicants have identified a number of defects in the building work subsequent to taking possession, which defects they say are so bad that they gave them right to terminate the contract. In other words they are substantial breaches. The applicants do of course also rely on those matters that were identified in the Notice. They say that these defects justify their termination of the contract. [119] The applicants knew when they took possession that the building works were still under construction. Once the contractor takes possession of the building site to commence the works, subject to the obligation to carry out the works in a timely fashion, the progress of the works is a matter for the contractor. Obvioulsy, the works flow in a normal way; site preparation, foundations, flooring, framing, roof on, elecrticial and plumbing rough in and sheeting of the framing and so on. Many of the particular parts of the works will be started and not completed but as the works 45 Applicants’ Submissions, paragraph 201. 46 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61, [44]. 47 Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 658 also see Keswick Developments Pty Ltd ve Keswick Island Pty Ltd [2012] 2 Qld R 114 at [57]. -- 24 of 29 -- 25 progress to practical completion, step by step the works will be completed. Another example of this is the contractors reliance on sub-trades to attend the site and complete their particular work. Invariably, there is sometimes difficulty in getting sub-trades to return to site when required in accordance with the works programme.48 [120] An example of this is the installation of the natural gas reticulation lines. This work was not complete when the applicants took possession. However, it would have been completed in due course as the finishing work was carried out and tested. I cannot accept that the works would have been handed over without the gas lines being tested and certified. [121] There are other complaints that may have not been detected, such as the lack of back blocking in discrete areas of the plastering. However, once again defects such as this would be addressed in the defects liability period. This provision in the contract is for the very expectation that once possession is handed over and defects emerge, the contractor is obliged to address these defects. [122] The point here is that when possession is taken of a building site when the bulding works are incomplete, it is very difficult to discern what is in fact defective work giving rise to a right to terminate for substantial breach, and work that might appear to be defective but will be rectified and completed as the works proceed to practical completion. [123] The evidence with respect to defects is contained in the statements of Mr Allen, the expert engaged by him, Mr Dixon, and also Mr Durkin from Contrast Constructions. The applicants challenge Mr Durkin’s evidence in that he is not an independent expert, and therefore any opinion expressed by him should be disregarded and the expert evidence of Mr Dixon, a truly independent expert, ought to be preferred. There is some substance to this submission. Mr Durkin is not truly independent as he does have an interest in the outcome of this proceeding. He is also expressing some opinion about the quality and the nature of the work complained of carried out by Contrast. However, it must be remembered that he also comes to the hearing with considerable expertise and knowledge about building matters. Because the rules of evidence do not apply in the Tribunal, I can have due regard to his evidence as to the facts relevant to the complaints made by the applicants; for example, the issue about the gas fitting and other factual matters concerning the building work. Non-permeable sarking behind shiplap cladding The sarking installed by Contrast was Ametalin silver wrap – medium duty sarking. That product, Mr Dixon contends, is not the correct product to be put behind timber cladding. He said: The NCC/BCA does not recommend a breathable sarking under timber cladding. Part 3.5.3.2 clearly states that a vapour permeable sarking must be installed behind the board. He then in his report49 sets out the extract referred to. He also includes in his report a photograph of the silver wrap sarking as well as the data sheet. 48 The is a commom complaint raised in the many building cases heard by this Tribunal also see QCAT Act s 28(3)(c). 49 Exhibit 6, page 9. -- 25 of 29 -- 26 By contrast Mr Durkin’s evidence is that the sarking installed does meet the requirements, and in support of that sought clarification from the manufacturer as to the suitability of silver wrap breather sarking for use in the Brisbane area. In a letter from Ametalin dated 24 April 2019, Mr Archer, the scientific coordinator of Ametalin laboratories wrote: This letter is to confirm that Ametalin silver wrap product described in written and verbal correspondence with Contrast Constructions, in the context of existing constructions, was suitable to use behind timber cladding and fibrous cement in Brisbane. To be clear, this is a reference to silver wrap breather medium duty.50 This then creates some uncertainty as to the expressed opinion of Mr Dixon. His opinion emanates from the technical data sheet. He does not express any opinion based on a particular expertise in the use of particular types of sarking in various climatic conditions. Mr Archer on the other hand is the scientific coordinator who, one would think, would have the greater expertise in determining what product should be used in what situation. In the face of that evidence, which I accept in preference to Mr Dixon, I accept that silver wrap breather medium duty is an appropriate product to use on this building site and therefore could not be satisfied that failure to use another product would amount to a substantial breach giving rise to a right to terminate. Copper gas pipe The question here is whether or not the failure to securely clamp or crimp the gas pipe where it is fixed to the PEX fitting as part of the gas reticulation system was a substantial breach. Mr Durkin in his evidence, acknowledges that the connection had not been clamped and explains that the works were not complete at the time he left the site. This issue, he says, would have been addressed in due course even though the point of the connection had been sheeted over and the reticulation system had not been tested. In respect of the testing, his evidence is and I accept, that the system would be tested with high pressure air to determine if any leaks were in the system, and if for some reason the connection point had not been crimped, which he says would not have been the case in any event, it would have been detected. This is a clear example of interference in the normal course of building work prior to practical completion. Normally a hole would be left at the connection point for the connection to be crimped at a later stage, however he was advised that it was easier to sheet over it then cut a hole for the connection. This building practice is a matter for the builder provided that at the end of the job the gas reticulation system worked and the connection point appropriately flanged. The applicants are critical of Mr Durkin’s evidence because they assert that he has changed his story in that originally, he said it was crimped and then in a subsequent statement, resiled from this. The fact that he may have changed his story goes to credit but it does not go to what in fact occurred. The fact of the matter is that in a statement from Mr Lazarus of Tolgate Plumbers & Gasfitters:51 It is true that Mr Durkin is not licensed to do Gas work, but I was engaged to undertake the work which I did. With regards to any fittings that were not crimped, it is really of no consequence that the job was still underway and in 50 Exhibit 3, Attachment 13a. 51 Ibid, page 212. -- 26 of 29 -- 27 rough stage. There was a fitting left uncrimped, as we were waiting for a section to be exposed from that point to the metre. There would not have been a situation of Gas filling the house, or wall cavities and no chance of injury to any job as the job was still not complete or tested. Mr Lazarus then went on to describe how the testing process was undertaken with compressed high pressure air to find any leaks or uncrimped joints. As I have indicated this is an example of where work was still underway at the time of termination and therefore clearly premature to make any decision about whether or not the work was defective which clearly this was not. Mr Lazarus’ evidence settles the matter as a question of fact despite Mr Dixon’s concerns about the project proceeding without the pipe being crimped. The internal stairs There was an ongoing issue with the design of the internal stairs. Mr Durkin deals with the stair issue in his supplementary statement at page 40. The change in the riser dimension came about because of the increased height to the garage area which then ‘forced base to stretch out the rise to 191.4mm.’52 In Attachment 17 to his statement, Mr Durkin produced the email from the Superintendent (Giova Fellows) of 11 September 2017 instructing Contrast to ‘proceed with adjustments to last flight of stairs between landing and kids bedroom level as per the attached sketch as we comply with the tolerances.’ There are associated emails with that, setting out the problem and on pages 218-219 of the attachments there is a sketch drawing of how the builder was to comply with that instruction. To suggest that this is a defect, in view of this instruction giving rise to a right to terminate as a substantial defect is somewhat puzzling. In view of that evidence in support of Mr Durkin’s statement, I do not see how it can be concluded that this is defective building work and I accept Mr Durkin’s evidence on this point. Wet area waterproofing This relates to waterproofing that had not been completed and is a typical example of minor defects that would have been attended to as the works progressed to practical completion. Termite barrier The allegation here is that Contrast failed in its responsibility to ensure that the termite barrier installed by Flick Anticimex had been breached. There is no dispute that this was the case, however Contrast did obtain certificates from the installer that the termite barrier had been installed as required. Accepting that there were breaches of the barrier, which could be rectified in due course, this is not a substantial breach. It certainly does not justify a termination of the contract. Water ingress There is a problem with water penetration in some window frames in the library and home office. Mr Durkin accepts this is the case and it is Contrast’s responsibility to ensure that this defect, if that, is rectified. Once again, it is Contrast’s responsibility to attend to these matters which it would do in the normal course of events either prior 52 Exhibit 4, page 12. -- 27 of 29 -- 28 to or at practical completion but it does not give rise to a right to terminate the contract. This is not a substantial breach in the context of this job warranting termination. Other complaints In his affidavit of 23 May 2019,53 Mr Allen reiterates many of the complaints, and adds further complaints, and also includes commentary on the statements of Mr Durkin and referring to his conversations with various persons involved with the project and expressing opinions which he really is not qualified to express. There is water penetration in the windows in the library. This is conceded by Contrast but again, it is an issue that would have been addressed during the completion of the build and prior to handover in the normal course of events. Mr Allen accused Mr Durkin of lying by stating that the flashing and sealer was temporary and gives an explanation for this. He expresses opinions about the extent of the responsibility of Contrast for the flashing and sealers as compared to the responsibility of Lifestyle for this work. The point here is irrespective whose responsibility it was as between Contrast and Lifestyle. Ultimately Contrast is responsible to ensure the building is waterproofed and habitable at handover, or if minor defects exist, to remedy those defects in the defects liability period. Contrast accepted the defect and was intent on remedying it. Mr Allen discusses Mr Durkin’s opinion about the ‘pivot doors’, W1.06 and W1.11, as being uncertifiable. He then seeks to provide expert evidence by reference to a letter from Mr Vidaic from Lifestyle windows and the National Construction Code. He gives factual evidence about the location of the doors on the architectural drawings and opines that Contrast has failed to install the pivot doors and Mr Durkin is mistaken in his interpretation of Contrast’s obligations under the NCC. It is a little uncertain how this submission is relevant to the proper termination of the contract. Mr Durkin raised a concern about the waterproofing around the doors if installed but has not abrogated Contrast’s obligations to install the doors. There simply remains a question about their suitability, which is not for me to decide. As to the use of 6mm Fibre Cement Sheeting for the outside cladding instead of the 9mm specified, Mr Durkin swears that Contrast was instructed to use 6mm by Shawn Godwin, of Base. Although Mr Allen says it was confirmed to him by Mr Godwin that 9mm was intended, it does not contradict the statement that Contrast was instructed to use 6mm. If the Superintendent instructed Contrast to use the 6mm, as seems to be the case, then this is a matter that Mr Allen needs to take up with Base. I might say at this juncture that it is noteworthy that no one from Base has provided any evidence as to some of the contentious issues raised by Mr Allen, such as the complaints that were the subject matter of the Notice and the defects such as these when they had the day to day contact with Contrast. Mr Allen discusses the issue of the head heights in the multi-use room and the office. This part of his affidavit is perplexing as it does not provide any evidence of the matters discussed but is a commentary of what occurred during the build once it was realised that there was a problem with head height. Contrast was alive to the issue, but I repeat the project was not complete and with many issues, such as this, one could reasonably expect it would have been addressed if certification failed. 53 Exhibit 8. -- 28 of 29 -- 29 Mr Allen’s belief as to the quality or structural soundness of the work undertaken by Contrast, such as the garage slab, is of little assistance. An example of the evidence proffered in this affidavit is at paragraph 60 in respect of the stairs. On 22 May 2018 I met with Shawn Godwin of Base Architecture who told me that, after enquiry by him with Giova Fellows, that Mr Durkin’s assertions that Base would issue a variation to install aluminium strips is untrue… In his submission in reply to this issue, Mr Allen submits at paragraph 163 that in response to Mr Durkin’s evidence when it was found the top flight of stairs was over the allowed riser height and the Superintendent allowed a deviation, the Superintendent was mistaken. This is confusing to say the least and despite the rules of evidence not applying, hearsay upon hearsay is not helpful. Conclusion The applicants have filed a significant volume of evidence in this proceeding, much of which was repetitive. They also filed lengthy submissions after the three day hearing and again, they contain evidence as well. The final submissions in reply in particular go far beyond a response to the Commission’s submissions. It has been an onerous task to sift through the material to try and discern the substantive issues going to whether the contract was properly terminated. In any building project where the work has prematurely stopped, there will inevitably be complaints about work not having been completed and regarded as being defective where the relationship between the contractor and the principal has broken down. It is for that reason, or one of them anyway, why the contractor is given exclusive possession of the building site under the contract. Having considered all of the grounds of termination put forward by the applicants, I am not satisfied that individually or collectively, they constitute a substantial breach that would give rise to a right of termination. What is critical to a consideration of each of those items is that the works were only 70% complete and further work was to be done to bring the works to practical completion. To go on site in a partially constructed building and pick selective items which would normally be attended to during completion of the works and contend that they are substantial defects is particularly unfair to the contractor, where in every case, there is an explanation as to why the works are in the state that they are in, in particular the selected items identified by the applicants, and also in circumstances where the contractor was ready, willing and able to complete the building project. I am also satisfied that Contrast provided a satisfactory response to the Notice to Show Cause and I am not satisfied that any of the defects referred to by the applicants are of such a substantial nature to have permitted them to terminate the contract. In view of the above findings, the decision of the Commission is affirmed. -- 29 of 29 --