New South Wales

Court of Appeal

CITATION: Hometeam Constructions Pty Ltd v

McCauley [2005] NSWCA 303

HEARING DATE(S): 27 September 2004; 28 September 2004

JUDGMENT DATE: 7 September 2005

JUDGMENT OF: Ipp JA at 1; Tobias JA at 2; McColl JA at 3

DECISION: Statement of Claim; (1) Appeal allowed.; (2) Set

aside the verdict for the respondent on the claim
and all orders (including costs orders) made on
the claim by Murrell DCJ on 18 June 2003.; (3)
Verdict for the appellant on the claim.; (4) Remit
the matter to Murrell DCJ to quantify the loss or
damage suffered by the appellant and determine
all questions of costs of the claim.; ; Amended
Cross-Claim; (5) Set aside the verdict, judgment
and orders made against the appellant on the
cross-claim by Murrell DCJ on 18 June 2003.; (6)
Verdict for the appellant on the cross-claim.; (7)
Order the respondent to pay the appellant's costs
of and incidental to the cross-claim.; Costs of
Appeal; (8) Respondent to pay the appellant's
costs of and incidental to the appeal.
CATCHWORDS: BUILDING & ENGINEERING CONTRACTS - Notice of
Default - whether Notice technically valid -
construction - whether warranty to perform
building works with due diligence and within the
time stipulated in the contract imposed conjoint
obligation - due diligence - breach of contract -
onus of proof - works not completed by date set
for practical completion - evidence of failure to
perform building work with due diligence -
explanation of period works took. (D)

LEGISLATION CITED: Conveyancing Act 1881 (Imp)

Fair Trading Act 1987
Home Building Act 1989
Trade Practice Act 1974
CASES CITED: Australian Development Corporation Pty Ltd v
White Constructions (ACT) Pty Ltd (1996) 12 BCL
317
Brady v Group Lotus Car Cos plc [1987] 3 All ER
1050
Brenmar Building Co Pty Ltd v University of
Newcastle (1999) 15 BCL 467
Etlis v New Age Constructions (NSW) Pty Ltd
[2005] NSWCA 165
Fletcher v Nokes [1897] 1 Ch 271
Pauling v Mayor, Alderman & Burgesses of
Borough of Dover (1855) 10 Exch 753; (1855) 156
ER 644
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Greater London Council v Cleveland Bridge &
Engineering Co Ltd (1986) 34 BLR 50
Hart v MacDonald [1910] HCA 13; (1910) 10 CLR
417
Hick v Raymond & Reid [1893] AC 22
Hobbs v Petersham Transport Co Pty Ltd [1971]
HCA 26; (1971) 124 CLR 220
Hooker Constructions Pty Ltd v Chris's
Engineering Contracting Co [1970] ALR 821
Hounslow London Borough Council v Twickenham
Garden Developments Ltd [1971] Ch 233
Mannai Investment Co Ltd v Eagle Star Life
Assurance Co Ltd [1997] AC 749
Maynard v Goode [1926] HCA 4; (1926) 37 CLR
529
Minister for Public Works v Renard Constructions
(ME) Pty Ltd (Supreme Court of New South Wales,
unreported, 15 February 1989, BC8902548)
Re Stewardson Stubbs & Collett Pty Ltd &
Bankstown Municipal Council [1965] NSWR 1671
State of New South Wales v Austeel Pty Ltd [2003]
NSWCA 392
Watson v George [1953] HCA 41(1953) 89 CLR
409
Westminster Corporation v J Jarvis & Sons Ltd and
Another [1970] 1 WLR 637
Hudson's Building and Engineering Contracts
(11th Ed)
PARTIES: Hometeam Constructions Pty Ltd (Appellant)
Fiona McCauley as Administrator for the Estate of
the Late Luke McCauley (Respondent)

FILE NUMBER(S): CA 40587/03

COUNSEL: Mr M L D Einfeld QC/Mr A J L Ogborne (Appellant)

Ms E M Olsson SC (Respondent)

SOLICITORS: Bruce & Stewart Commercial Practice (Appellant)

Deacons (Respondent)

LOWER COURT District Court

JURISDICTION:

LOWER COURT FILE DC 10346/02

NUMBER(S):

LOWER COURT JUDICIAL Judge HG Murrell SC

OFFICER:

IN THE SUPREME COURT

OF NEW SOUTH WALES
COURT OF APPEAL
CA 40587/03
DC 10346/02

IPP JA
TOBIAS JA
McCOLL JA

Wednesday, 7 September
2005

HOMETEAM CONSTRUCTIONS PTY LTD v Fiona McCAULEY as

Administrator for the Estate of the Late Luke McCAULEY
 Headnote

In July 1999 Hometeam Constructions Pty Ltd, the appellant, contracted with
Mr McCauley to build a house on the site of a dwelling which had previously
been substantially damaged by fire. The date for practical completion was
late May 2000. The original contract works involved Hometeam using the
foundations and existing walls of the old house. After parts of the old house
were demolished, engineers advised that the existing foundations were not
structurally adequate to support the new building. They advised that the
foundation would have to be demolished and rebuilt (the “rectification
work”). From about 6 months after the commencement of the works Mr
McCauley complained about their slow progress. On 14 July 2000, Mr
McCauley served a Notice of Default on Hometeam asserting it had failed to
proceed with the building works “regularly and with due diligence and
without delay”. On 8 August 2000 Mr McCauley terminated the Contract on
the grounds that the appellant had “failed to remedy the default” specified
in the Notice of Default.

Before the District Court the appellant sought to recover damages on the
basis that Mr McCauley’s termination constituted repudiation of the
Contract. Mr McCauley cross-claimed seeking to recover damages measured
by the amount it had cost him to complete the house. A critical issue in the
case was whether, at the time the Notice of Default was served, Hometeam
had failed to undertake the building works with due diligence. Hometeam
also challenged the technical validity of the Notice of Default and further
asserted that, if it had been in breach of Contract as at 14 July 2000, it had
remedied that breach by 8 August 2000. After the evidence in the case
concluded Mrs McCauley was substituted as the defendant/cross claimant
and is the respondent to the appeal.
Her Honour Judge Murrell SC held that the Notice of Default was valid, that
Hometeam had not performed the works with due diligence and had failed
to remedy the breach referred to in the Notice of Default. She awarded the
respondent damages and interest. Hometeam appealed.

HELD per McColl JA (Ipp JA and Tobias JA agreeing) allowing the

appeal:

1 The Notice of Default should be construed non-technically, in accordance

with business common sense, fairly in its context; the question was how a
reasonable recipient would understand it.
Pauling v Mayor, Alderman & Burgesses of Borough of Dover
(1855) 10 Exch 753; (1855) 156 ER 644; Re Stewardson
Stubbs & Collett Pty Ltd & Bankstown Municipal Council
[1965] NSWR 1671; Hounslow London Borough Council v
Twickenham Garden Developments Ltd [1971] Ch 233;
 Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd
[1997] AC 749; Brenmar Building Co Limited v University of
Newcastle (1999) 15 BCL 467; State of New South Wales v
Austeel Pty Ltd [2003] NSWCA 392 Etlis and Anor v New Age
Constructions (NSW) Pty Ltd and Anor [2005] NSWCA 165
considered.

Fletcher v Nokes [1897] 1 Ch 271, distinguished.

2 It was sufficient for the Notice of Default to assert that the appellant had
failed to proceed with the building works with due diligence. A reasonable
recipient of the Notice of Default with knowledge of the history of the works
would have had no difficulty in understanding that it was informing the
appellant it had not been proceeding with the works with the diligence
required by the Contract.

3 The addition of the words “regularly” and “without delay” to the Notice,
while surplusage, did not detract from the clear purport of the Notice.

4 On its proper construction, cl 38.1 (d) of the Contract, pursuant to which

the appellant warranted that the building works would be done with due
diligence and within the time stipulated by the Contract did not impose a
conjoint obligation.
5 The onus of proving that the appellant was in substantial breach of the
requirement to carry out the building works with due diligence lay on the
respondent.
Watson v George [1953] HCA 41; (1953) 89 CLR 409; Hart v
MacDonald [1910] HCA 13; (1910) 10 CLR 417; Hobbs v
Petersham Transport Co Pty Ltd [1971] HCA 26; (1971) 124
CLR 220 applied.

6 Delay in progress during construction could amount to failure to perform

the building works with due diligence if there was a failure to carry out a
reasonable amount of work by a given time, measured by reference to all
the work performed under the Contract or, in absolute terms, by reference
to a lack of activity on the site over a significant period that could not be
satisfactorily explained.
Hick v Raymond & Reid [1893] AC 22; Maynard v Goode
[1926] HCA 4; (1926) 37 CLR 529; Westminster Corporation v
J Jarvis & Sons Ltd and Another [1970] 1 WLR 637; Re
Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal
Council [1965] NSWR 1671; Hooker Constructions v Chris
Engineering Co [1970] ALR 821; Hounslow London Borough
Council v Twickenham Garden Developments Ltd [1971] Ch
233; Greater London Council v Cleveland Bridge and
Engineering Company Ltd (1986) 34 BLR 50 referred to.
7 If facts established are capable of giving rise to an inference of lack of due
diligence, the appellant may discharge any evidentiary onus that may pass
to it, by explaining why the work progressed at that rate and adducing
evidence which should be “sufficient…to turn the scale”.
Brady v Group Lotus Car Cos plc [1987] 3 All ER 1050; Hobbs
v Petersham Transport Co Pty Ltd [1971] HCA 26; (1971) 124
CLR 220 referred to.

8 The primary judge erred in concluding that the appellant had failed to
perform the works, including the rectification work, with due diligence.

9 The primary judge erred in concluding that the appellant was not
performing the works with due diligence at the time the Notice of
Termination was served.
Orders:

Statement of Claim

(1) Appeal allowed.

(2) Set aside the verdict for the respondent on the claim and all
orders (including costs orders) made on the claim by Murrell DCJ on
18 June 2003.

(3) Verdict for the appellant on the claim.

(4) Remit the matter to Murrell DCJ to quantify the loss or damage
suffered by the appellant and determine all questions of costs of the
claim.

Amended Cross-Claim

(5) Set aside the verdict, judgment and orders made against the
appellant on the cross-claim by Murrell DCJ on 18 June 2003.

(6) Verdict for the appellant on the cross-claim.

(7) Order the respondent to pay the appellant’s costs of and

incidental to the cross-claim.

Costs of Appeal

(8) Respondent to pay the appellant’s costs of and incidental to the

appeal.

INDEX Para
No
Introduction 3

Grounds of Appeal 8

Statement of the case 12

The Contract 25

The judgment below 38

Work commences 46

Mid September to mid October 1999 – a dispute emerges 47

Progress from mid October 1999 51

Hometeam ceases work over Christmas 1999 60

Work recommences in late January/February 2000 62

April/May 2000 72

Extension of time 79

The date for practical completion 86

Delays in May/June 2000 88

The Stegbar windows 96

Mr McCauley asserts breach of contract 101

The Notice of Default 106

Establishing absence of due diligence 116

Hometeam’s response to the Notice 119

The Notice of Default: technical validity 128

Technical validity: consideration 135

Establishing absence of due diligence 163

The parties’ approach to the due diligence issue 182

Were the works “done with due diligence”? 192

Time taken for original contract works 200

Photographs of 26 February 2000 and 22 March 2000 210

Certificate of structural adequacy 221

Claim of 7 March 2000 228

Completion of rectification work: conclusion 235

The suspended slab 236

The Stegbar windows 242

Time taken for original contract works: summary 251

Desultory pace 252

June – mid July 258

No increased work rate 261

Other excuses 264

Due diligence: conclusion 267

 Entitlement to terminate the Contract 268

Entitlement to terminate: conclusion 277

Damages on the cross-claim 283

Orders 297

IN THE SUPREME COURT

OF NEW SOUTH WALES
COURT OF APPEAL
CA 40587/03
DC 10346/02

IPP JA
TOBIAS JA
McCOLL JA

Wednesday, 7 September
2005

HOMETEAM CONSTRUCTIONS PTY LTD v Fiona McCAULEY as

Administrator for the Estate of the Late Luke McCAULEY

Judgment

1 IPP JA: I agree with McColl JA.

2 TOBIAS JA: I agree with McColl JA.

3 McCOLL JA:

Introduction
4 Hometeam Constructions Pty Ltd, the appellant (“Hometeam”) entered
into a contract (the “Contract”) dated 30 July 1999 with Luke McCauley to
build him a house in Mosman (the “Works”). The Contract provided that the
home should be completed within 37 weeks after the “contract period”
commenced. Hometeam commenced the Works on 9 August 1999. Taking
into account a contractual extension to the 37 weeks of 5 weeks for the
industry shutdown over December/January (cl 9.1(j)), the Works should, all
things being equal, have reached practical completion in late May 2000.
5 On 14 July 2000 Mr McCauley served a Notice of Default on Hometeam
complaining Hometeam had breached the Contract “in failing to proceed
with the building works regularly and with due diligence and without delay”.
The Notice advised that if the breach was not remedied within 10 working
days Mr McCauley was entitled to end the Contract. On 8 August 2000 Mr
McCauley served a further notice purporting to terminate the Contract (the
“Notice of Termination”) on the basis that Hometeam had “failed to remedy
the default” specified in the Notice of Default.
6 Hometeam sought to recover damages in the District Court from Mr
McCauley on the basis that the termination amounted to a repudiation of
the Contract. Mr McCauley cross-claimed alleging the termination was valid
and seeking to recover damages, being the amount it had cost him to
complete the construction of his house.
7 After the evidence in the proceedings concluded, Mr McCauley died in an
accident. His wife was substituted as the defendant/cross-claimant and is
the respondent to this appeal. She was successful before her Honour Judge
Murrell SC.

Grounds of appeal
8 The grounds of appeal are numerous and, to a considerable extent,
descend to the level of submissions. Stripped of that level of minutiae they
amount to the following:

(a) The primary judge erred in holding the respondent was entitled
to issue the Notice of Default;

(b) The primary judge erred in holding the appellant had failed to
remedy the breach specified in the Notice of Default;

(c) The primary judge erred in assessing damages on the cross-

claim.
9 In the course of the hearing the appellant was given leave to add an
additional ground of appeal dealing with the validity of the Notice of Default.
Hometeam asserted the primary judge erred in failing to hold the Notice of
Default was invalid on the following bases:

(a) It did not provide any or any adequate details of the breach
alleged;

(b) It failed to identify any breach of cl 38.1(d) of the Contract in

terms of a failure to exercise due diligence within a stipulated or
reasonable time as required by that clause;
(c) Inclusion in the Notice of allegations of failure to proceed with the
building works regularly, and failure to proceed without delay, did
not afford details of a breach of cl 38.1(d), and were liable to create
confusion in the mind of the reasonable recipient of the Notice as to
 its meaning and requirements.

(d) It did not reveal, that, or in what manner, any breach of cl 38.1(d)
was substantial within the meaning of cl 33.1 of the Contract.

10 The appellant contends that judgment ought to have been entered in its
favour and the cross-claim should have been dismissed.

11 A ground of appeal that the “contract period” had not commenced within
the meaning of cl 8.2 of the Contract was, in my view properly, not pursued
by Mr Einfeld QC, who appeared for the appellant with Mr A Ogborne. The
consequence of that ground of appeal being abandoned is that the
“contract period” commenced on 9 August 1999, the day the Works
commenced, as found by her Honour (at [169]).

Statement of the case

12 Hometeam commenced proceedings in the District Court against Mr

McCauley alleging that the Notice of Termination constituted a repudiation
of the agreement which Hometeam had accepted by leaving the Works.
Hometeam claimed that Mr McCauley had breached the contract and sought
to recover damages. Mr McCauley’s defence, so far as is relevant, denied he
had repudiated the Contract.

13 Mr McCauley filed a cross-claim against both Hometeam and its principal,

Mr Goulding, asserting, relevantly, that Hometeam had breached the
Contract in failing to proceed with due diligence and without delay because
the Works were not brought to practical completion by May 2000 and that at
the time the Notice of Termination was served, the Works were
approximately 12% complete. Mr McCauley sought to recover liquidated
damages in respect of this breach. Mr McCauley also asserted that the
Notice of Termination had validly terminated the Contract. He pleaded he
had completed the Works using a different builder and sought to recover
from Hometeam the amount he had spent in excess of the contract price
completing the Works. Other claims were made in the cross-claim against
both Hometeam and Mr Goulding, in particular, pursuant to s 52 of the
Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987. The
primary judge dismissed those claims. The respondent does not challenge
that aspect of the judgment.
14 In its defence to the cross-claim, Hometeam denied that it had:

(a) failed to proceed with the Works with due diligence and without
delay;

(b) failed to bring the Works to a state of practical completion by the

date for practical completion.
It admitted receiving the Notice of Termination, but denied that
Notice had determined its employment. It denied Mr McCauley was
entitled to recover the amount he had spent on completing the
 Works.

15 Although the Statement of Claim recited the Notice of Default, it did not
dispute Mr McCauley’s entitlement to serve it. The cross-claim made no
reference to the Notice of Default. However, the proceedings were clearly
conducted on the basis that Mr McCauley’s entitlement to serve that Notice
was the central issue. As much appears from the judgment where the
primary judge, her Honour Judge Murrell SC recorded (at [5]):
“A critical issue in this case is whether Mr McCauley’s
purported termination of the building agreement by a notice
dated 8 August 2000 was a valid termination, or was a
repudiation of the agreement which [Hometeam] was entitled
to and did accept. In determining this issue, it is necessary to
consider whether, prior to 14 July 2000 when Mr McCauley
purported to issue a notice of default, [Hometeam] had failed
to undertake the building works with due diligence and within
the time stipulated in the Contract and whether, within the
10 working day period specified in the notice of remediation
of the breach [Hometeam] did remedy the breach.”

16 Hometeam also challenged the technical validity of the Notice of Default

before the primary judge. Again, that challenge was not pleaded.
17 The primary judge dismissed Hometeam’s claim and upheld the cross-
claim. She found, in substance, that as at 14 July 2000 Hometeam had failed
to undertake the Works with due diligence and, further that it had failed to
remedy that breach by 8 August 2000. She awarded the respondent
$286,491.58 in damages and interest as well as ordering the appellant to
pay the respondent an amount of $2,671.23 and interest, in relation to a
security deposit returned to the appellant by Mosman Council, apparently in
error.

18 It is essential to an appreciation of the facts to understand that the

original contract works essentially involved Hometeam building a new house
for Mr McCauley while keeping the foundations and some of the external
walls of the existing house so that the development could be classified as
"additions and alterations" under the applicable council building code. All of
the external walls of the existing house above the ground floor level had
been founded on sandstone walls built up to the ground floor level from
sandstone footings. With minor exceptions, the new house as first conceived
(and approved by Council) was to be built on the existing sandstone
footings and walls.

19 As events transpired it was determined after demolition that, in some

cases, what had appeared to be solid sandstone walls were found to be brick
walls with a sandstone veneer. This discovery was to lead to engineering
advice that the existing foundation walls were not structurally adequate to
support the proposed new building and that they would have to be
demolished and rebuilt (the “rectification work”). The primary judge found
(at [237], [242]) that the rectification work was an agreed variation.
20 The primary judge’s finding that Hometeam had not performed the
Works with due diligence was based on two ultimate findings:

(a) that the rectification work took eight weeks (judgment [166] –
[167]);

(b) that even allowing for the eight weeks for the rectification work,
up to the date the Notice of Default was served, approximately 30%
(less than one third) of the original contract works had been
performed which had taken twenty-seven weeks (more than two-
thirds of the time stipulated in the Contract) (judgment [206]).

21 These ultimate findings were based on a number of intermediate findings

almost all of which were challenged by the appellant.

22 The appellant contends that the time the rectification work took was the
substantial reason the Works took longer than the time envisaged for
practical completion and that the primary judge’s failure to appreciate the
extent of the rectification work, as well as the stages the Works had reached
at various times, led to her erroneously concluding it had failed to perform
the Contract with due diligence.

23 The respondent argues that neither the original contract works nor the
rectification work were performed with due diligence. She also challenged
the extent to which, at various points in time, the work being undertaken
was rectification work as opposed to original contract works.

24 In order to develop their respective positions the parties took the Court
in great detail to the original engineering plans for the Works, to revised
engineering plans and to photographs taken as the Works progressed. Both
the primary judge and this Court were in the invidious position that these
plans and photographs were not the subject of detailed evidence, whether
as to what was happening on the building site at relevant times –
Hometeam had had three site supervisors, none of whom was available to
give evidence – or from any expert who opined as to what the Works –
whether original or rectification – entailed, and at what rate it could
reasonably have been expected that such works should progress.

The Contract

25 The Contract identified Mr McCauley as the “Owner” and Hometeam as

the “Builder”. The contract price was $493,406. A deposit of $19,670, 5% of
the contract price, was paid when the agreement was signed (cl 15.1).
26 The following definitions in cl 1.1 of the Contract should be noted:
“ “building works” means the building works to be carried
out, completed and handed over to the owner in accordance
with this contract as shown in the contract documents and
including variations ; …
“contract period” means the number of calendar weeks or
working days stated in Item 12 of Schedule 1 as extended by
 clause 9 ;
“ variation ” means (a) an … addition or change , to the
building …” (emphasis added)

27 Clause 12 in Schedule 1 provided:

“ Contract period (Clauses 1 and 9)
The building works must reach the stage of practical
completion no more than 37 weeks after the contract period
commences, subject to Clause 9.”

28 Clause 14 in Schedule 1 dealt with contract documents and identified, in

addition to the general conditions, any special conditions, the plans and
specifications, Tender No 1476c dated 28 July 1999, Mosman Council D/A
Consent 8.1998.787.1 dated 11 May 1999 and Mosman Council Approved
Plans as documents forming part of the contract.
29 Clause 9 relevantly provided:
“Clause 9. Delays and Extensions of Time
9.1 The builder is entitled to a reasonable extension of the
contract period if the building works are delayed by the
builder suspending the building works under Clause 32 or
from a cause beyond the sole control of the builder including:

(a) a deemed variation …

…
(h) a delay in the supply of materials selected by the
owner …
(j) the industry shutdown being a 5 week period
commencing on or about 22 December in each year.
9.2 To claim an extension of time the builder must give the
owner a written claim detailing both:
(a) the cause of the delay; and
(b) the extension of time claimed within 10 working
days after becoming aware of both the cause and the
extent of the delay.
9.3 The contract period is extended by the period of time
claimed by the builder unless, within 2 working days of
receiving the builder’s claim, the owner gives the builder a
written notice:
(a) disputing the claim; and
(b) detailing the reasons why the claim is disputed …”

30 Clause 12 dealt with hidden site conditions. Relevantly cl 12.2.4

provided:
“If the actual site conditions differ from those either:
(a) disclosed or known to the builder prior to this c ontract
being signed; or
(b) shown in the c ontract documents ,
and if the effect of that difference requires more or less work
 than that which a reasonable builder would have anticipated
on the signing of this contract, then that work is deemed to
be a variation.” (emphasis added)
31 Clause 15 dealt with progress payments. Clause 15.2 required Mr
McCauley to pay the Contract price progressively as claimed by Hometeam.
Clause 15.3 required Hometeam to give Mr McCauley a written claim for a
progress payment for the substantial completion of each stage. A progress
claim was required to state, among other matters, the amount claimed and
not paid “for the stages substantially completed” (cl 15.4).

32 Schedule 2 to the Contract contained suggested stages for progress

payments but advised that such stages were not binding and provided a
table to be completed which was suitable for the particular works. That
table had been completed. It relevantly provided:

Schedule of Progress Payments

Stage of Work
Amount %

1. Demolition $24,670.00 ( 5%)

2. Concrete footings and slab $83,880.00 (17%)

poured

3. Internal brickwork complete $74,010.00 (15%)

4. Frames and Trusses $98,681.00 (20%)

substantially erected

5. Roof dry ridged $74,010.00 (15%)

6. Plasterboard lining $44,407.00 ( 9%)

substantially installed

7. Painting commenced $44,407.00 ( 9%)

8. Final as per account $24,671.00 ( 5%)

TOTAL $493,406.00 (100%)

33 Clause 17.1 provided that a variation occurred if the Contract deemed a

variation (sub-cl (a)) or the builder and owner agreed in writing to a
variation (sub-cl (b)). Clause 17.6 provided that the price of a variation was
due and payable at the next progress payment after it was carried out
unless a different time was agreed.

34 Clause 32.1 enabled the builder to suspend the carrying out of the Works
if the owner was in breach of the contract.
35 Clause 33 provided:
“Clause 33. Ending the Contract – Breach
33.1 If a party is in substantial breach of this contract the
other party may give the party in breach a written notice
stating:
(a) details of the breach ; and
(b) that, if the breach is not remedied within 10
working days , that party is entitled to end this
contract .
33.2 If 10 working days have passed since the notice of
default is given and the breach is not remedied then the
party giving the notice of default may end this c ontract by
giving a further written notice to that effect.
33.3 All notices to be given under this Clause must be given
by certified mail or personally.” (emphasis added)

36 Clause 38 relevantly provided:

“ Clause 38. Warranties
38.1 To the extent required by the Home Building Act, the
builder warrants that:
…
(d) the building works will be done with due diligence
and within the time stipulated in this contract , or if
no time is stipulated, within a reasonable time; …”

37 Clause 40.1(b) provided that, unless otherwise stated in the Contract, a

notice was deemed to be given, if it was posted by ordinary pre-paid mail to
the other party’s last known address, on the day following the day it was
posted.

The judgment below

38 Before the primary judge both parties accepted (see judgment at [203])
that the question whether the Works were proceeding with due diligence as
at 14 July 2000 required an examination of the entire history of the Works
“in order to put into context” what was occurring before the Notice of
Default was served. This history was relevant both to the question whether,
at the time the Notice was served, the appellant was in substantial breach of
the Contract and, as will appear later in these reasons, to the question of
the validity of the Notice.

39 Accordingly I set out the history of the Works, principally from the
judgment below. I have included the primary judge’s headings to sections of
the judgement as well as her findings of fact. I have also added references
to some uncontroversial facts in order to maintain the contextual sequence.
I have also identified briefly the appellant’s challenges to critical findings of
fact.

40 On about 25 May 1998 Mr McCauley’s house at 12 Upper Spit Road,

Mosman was substantially destroyed by fire. He received an insurance
payment of approximately $500,000 in order to rebuild it. On about 27 June
1998 Mr and Mrs McCauley inspected Hometeam’s display at a building
display village. On 3 July 1998 they met Mr Goulding, described as
Hometeam’s “architect”. Mr McCauley explained that he wanted to
demolish his old house and build a new house at least as big as the old one.
Prior to the plans for the new house being drawn up, there was a
conversation between the McCauleys and Mr Goulding concerning whether
the existing sandstone on the home could be used as a foundation and/or a
feature. The primary judge accepted (at [22]) that the tenor of the
discussion was that the existing sandstone would be used as a foundation
as well as a feature.
41 In early September 1998, following discussions with Mosman Council, Mr
Goulding informed Mr McCauley that if the existing foundations and some
external walls were used, the development could be classified as
“alterations and additions”. This would mean Mr McCauley could maintain
the setback and, possibly, the height of his former residence. This would
enable him to exceed the current building envelope restriction for a new
residence and maximise his water views.

42 On 23 October 1998 Mr McCauley instructed Hometeam to prepare, inter

alia, building plans and specifications for the construction of the new home
and to submit a Development Application and Building Application to
appropriate authorities for their approval. The development application was
lodged with Mosman Council in December 1998. It described the
development as involving partial demolition and as being alterations and
additions to an existing building. The plans which were submitted with the
development application noted in reference to the footings:
“Engineer to inspect and certify existing footings and walls.”

43 The plans showed new strip footings in some areas where additions to
the original footprint of the house were being made. The plans also allowed
for the construction of a new garage and rumpus room.

44 Mosman Council gave Development Approval on 11 May 1999. The

conditions of consent included a prohibition on removing or altering the
sandstone foundations without the Council’s prior consent. The approval
also required a Certificate of Adequacy, prepared by a practising Structural
Engineer to be submitted to the Council during the construction period
verifying the structural adequacy of the existing construction to carry the
proposed loads. Another condition required structural engineer’s details of,
in effect, the foundations to be submitted to the Council and approved
before work was commenced.

45 In May 1999 Hometeam’s engineers, Donovan Associates, advised

Hometeam that the structural adequacy of the existing footings and brick
walls would be confirmed after demolition and before construction
commenced. Mr Goulding said he informed Mr McCauley of this at the time.
The primary judge held that Mr McCauley did not appreciate the effect of
this advice. She concluded (at [45]) that it was not until late 1999 that Mr
McCauley appreciated “that there may be a real issue concerning the
suitability of the existing sandstone foundations”.

Work commences

46 On 15 July 1999 Mosman Council issued a construction certificate in

respect of the Works. Demolition work on the house commenced on 11
August 1999 which the primary judge found (at [86]) was complete to
ground floor level by mid-September 1999. The primary judge concluded (at
[82], ([89]) that there was no delay in relation to the commencement of the
Works and that the McCauleys had no cause for complaint prior to
completion of the demolition.

Mid September to mid October 1999 – a dispute emerges

47 On 20 September 1999, following an inspection of the foundations,

Donovan Associates reported to Hometeam that the existing stone footings
and walls were not structurally adequate to support the new loads “of the
proposed extension”. They recommended that the existing stone walls and
footings be demolished and the stone walls be rebuilt on new concrete
levelling strip footings with reinforcements bearing on rock (see [98]). A
copy of this report was provided to Mr McCauley.

48 The primary judge found (at [101]) that by 22 September 1999 Mr

McCauley was aware that the existing sandstone foundations would
probably not support the Works. Mr Goulding recommended that another
engineer’s opinion on the structural adequacy of the stonework be obtained.
That second opinion, given on 11 October 1999 by an engineer nominated
by Mr McCauley, Mr McKean, advised that the existing sandstone should be
not be used as load bearing masonry because of its uncertain quality and
strength and the uncertainty of the founding material.

49 The primary judge noted that there was no expert evidence confirming
that all the work on the site had to stop pending rectification of the
sandstone foundations. She acknowledged, however, that rectification
would “obviously have had to occur before any work could be undertaken on
top of the foundations” (at [106]).

50 It appears that Mr McCauley accepted that no work could be done on the

affected part of the site pending receipt of the second opinion about the
structural adequacy of the existing foundations. Thus he agreed that from
the time that demolition was completed until mid October 1999 nothing
could be done on that part of the site affected by the unstable foundations
(see judgment at [106]). The primary judge clearly accepted that evidence
as, in due course, she held (at [166]) that this was a period of “delay”
occasioned by the rectification work.

Progress from mid October 1999

51 An important component of the primary judge’s calculation that the
rectification work took 8 weeks was her conclusion that there was an
unexplained delay in the works from mid October until the end of November
1999.

52 After the second engineering opinion was obtained, Mr Goulding and Mr

McCauley agreed that the best solution to the problem of inadequate
foundations was to relay the existing sandstone on new concrete levelling
strip footings bearing on rock.

53 In late 1999 Mrs McCauley (who visited the site almost daily) asked Mr
Goulding why no work was occurring. He informed her that bricklayers and
stonemasons were hard to source at the time. She also said he explained
that there was a shortage of bricks (at [108]). After referring to this
evidence, the primary judge observed (at [109]), “otherwise, there is little
explanation for lack of activity on the site in the period mid October/late
November 1999”. In due course (at [166]) her Honour excluded this period
from that taken by the rectification work.

54 The appellant criticises the finding that there was no excuse for the
delay in October – November 1999, principally on the basis that it takes no
account of the fact that during this period the engineers were revising the
engineering drawings.

55 The primary judge also held ([122]) that at this stage the McCauleys
were principally concerned with the responsibility for paying for relaying the
stonework and other claimed variations.

56 In late 1999 a dispute emerged between Hometeam and Mr McCauley

substantially as to whether the rectification work constituted variations.
From at least that time the relationship between the parties was clearly
acrimonious.

57 On 22 November 1999 Mr McCauley wrote to Mr Goulding. After referring

to some building details, he commented that he was looking forward “to
seeing some construction activity on the site this week”.

58 In early December Mr Goulding advised Mr McCauley of additional costs

amounting to $62,240. He sought written confirmation of acceptance of the
costs of what he described as “variations” (see [115]). The variations
principally consisted of the new footings and rectification of the existing
stonework foundations. By letter dated 8 December 1999, Mr McCauley
contended these items were not variations. He maintained (see [120]) that
rectification of structural inadequacy was included in the original tender
price. The primary judge found (at [121]) that from 8 December 1999 there
was a “clear dispute as to who was liable for the cost of rectifying the stone
block work and in relation to other claim variations”.
59 By 30 November, according to the parties’ agreed chronology, revised
engineering plans for new concrete strip footings and slab had been
prepared. Those plans were amended again in February 2000. They showed
that all the foundations were to be set on new strip footings. This differed
from the original plans which had contemplated that the foundations of the
original home would support the new building.
 Hometeam ceases work over Christmas 1999

60 On 22 December 1999 Hometeam suspended works pursuant to cl 32 of

the Contract because Mr McCauley had rejected the price for the variations.
While the primary judge questioned whether Hometeam was entitled to
invoke cl 32, she noted (at [124]) that, in any event, the contract period was
suspended for the five weeks from 22 December 1999 to about 24 January
2000, being the industry shutdown over Christmas (cl 9.1(j)), so that there
was no relevant delay in construction at that time.

61 On 24 December 1999 Mr McCauley wrote to Hometeam. For present

purposes it is necessary only to record that he asked Hometeam “to
immediately recommence construction of the Works and bring the dwelling
to practical completion by the date for practical completion”. He suggested
a meeting to seek to reach “a sensible solution” in relation, it appears, to
Hometeam’s invocation of cl 32.

Work recommences in late January/February 2000

62 Following a meeting on or about 19 January between Mr McCauley and
Mr Goulding, work on the site recommenced, the primary judge found (at
[132]), at least by 7 February 2000, with the resumption of stonework
rectification. By 9 February 2000, as I have noted, the revised engineering
plans in relation to the footings had been revised again.

63 The primary judge found (at [143]) that work proceeded on the site from
late January to 9 February 2000 but that no work was undertaken from 9
February to 21 February because Mr McCauley would not unreservedly
accept the claim Hometeam had made in relation to variations. The primary
judge found that the “delay” was not justified as Hometeam had not
followed the Contract procedure in relation to obtaining consent to
variations and making a written claim detailing the extension claimed. I
assume the “delay” to which her Honour referred was the period of 12 days
between 9 – 21 February 2000. Her Honour also found (at [143]) that it was
not justifiable to halt all works during periods when (according to Mr
Goulding) variations had been agreed or were the subject of ongoing
negotiations.

64 This period 9 – 21 February 2000, was the second period the primary
judge (at [166]) excluded from that taken by the rectification work.

65 The primary judge then undertook an analysis of the evidence which led
her to conclude (at [213]) that the rectification work was complete by 7
March 2000.

66 Mr McCauley took photographs of the work as it progressed. The

photographs were attached to his statement as photographs of the house
taken on the date shown on the photograph, but with no other explanation
of what they were said to depict. The primary judge made findings about
photographs taken on 26 February 2000 and 22 March 2000. The appellant
challenges those findings. It contends that the primary judge’s
interpretations were erroneous and led her into error as to the rate of
progress of the Works. The first finding was:
“[144] Photographs taken on 26 February 2000 show that a
substantial amount of earth works have been undertaken
prior to that time and that some work has been done on
sandstone blocks with some new brickwork being
constructed on top of sandstone blockworks. The brickwork
was in the basement area of the new residence. Mr Barker,
[Hometeam’s] quantity surveyor, notes that a photograph
dated 26 February 2000 shows ‘demolition completed and
some foundation works taking place’, indicating ‘substantial
pre-construction delays’.”

67 She noted, (at [145]), Mr Goulding’s evidence that concreting and site
clearing work commenced in February 2000 and that a concreter was
working on basement footings in the first three days of March.
68 On 7 March 2000 Hometeam served progress claim 2 for $20,000 in
relation to concrete footings and for variations 2 to 7 totalling $64,214. Mr
McCauley refused to pay the $20,000 on the basis that that sum was only
due when both the concrete footings and slab had been poured. He
accepted that the concrete footings had been poured but, as at 18 March
2000, maintained that the sum was not payable until the concrete slab had
also been poured. He paid variations 2 to 5 which totalled $29,300.
69 The primary judge, in due course (at [213]) concluded that the
rectification work was completed by 7 March, apparently because of the
service of progress claim 2. The appellant says her Honour was not entitled
to draw that inference.
70 The primary judge’s interpretation of photographs dated 22 March 2000
was:
“[147] Photographs taken on 22 March 2000 show that, by
that stage, substantial brickwork had been constructed on
sandstone or concrete footings. Concrete footings are visible
in the photographs but no concrete slab is visible. Obviously,
work had been undertaken on the footings prior to the issue
of an engineer’s certificate.”

71 The reference in her Honour’s interpretation of the 22 March 2000

photographs to work having been done “prior to the issue of an engineer’s
certificate” appears to be a reference to a certificate of structural adequacy
which Hometeam had said in its letter of 17 September 1999 it required
before it could proceed with the works.

April/May 2000

72 On 29 April 2000 Hometeam wrote to Mr McCauley referring to its 17

September 1999 letter and advising that a certificate of structural adequacy
had been received for the rectification of the external stonework walls of the
basement and sub-floor. The letter then stated:
“We hereby give notice of commencement of contract as of
the 17th April 2000 pursuant to Clause 8 … Alternatively, we
claim a reasonable extension of time to the contract period
pursuant to Clause 9 of the contract because of the need to
obtain the Certificate of Structural Adequacy.”
73 Mr McCauley disputed Hometeam’s claim that the Contract commenced
on 17 April 2000 and asserted that it had commenced on 9 August 1999. At
this stage he also disputed the claim for an extension of time, even though
he had not disputed the necessity for that extension when it was flagged in
Hometeam’s 17 September 1999 letter.

74 Hometeam received a quote to pour the concrete strip footings and the
ground floor slab on about 21 December 1999. Mr McCauley accepted that
quote by letter dated 20 February 2000.

75 The primary judge found that part of the ground floor slab was poured
between 16 and 21 April 2000. Mr Goulding said that it was always going to
be necessary to pour the slab in two sections (see [151]). On about 1 May
2000 bricklayers began work on parts of the ground floor slab which had
been poured. It appears that the brickwork to the areas known as the
garage and rumpus room was completed between 24 May and 24 June 2000
(see [153]).
76 Mr McCauley responded on 2 May 2000. While he appears to have
accepted the claim was payable he complained about “the lack of progress
in building my house” pointing out that “in the nine months since the
contract was signed you still don’t have a ground floor complete”.
Hometeam responded to that letter on 18 May 2000 advising (inter alia)
that it was also “extremely disappointed with the lack of progress, due to
the demolition and rectification of the stonework” and pointing out “both of
these are outside the contract time”.

77 The primary judge rejected ([156] – [157], [161]) Hometeam’s contention

that the Contract did not commence until 17 April 2000 when the certificate
of structural adequacy was received. She also found that there was no
evidence that work was actually delayed because Hometeam was awaiting
the certificate of structural adequacy. She found that substantial brickwork
had been constructed on top of the footings the subject of the certificate
prior to its issue (at [150]). This appears to have been a finding based on
her interpretation of the 26 February and 22 March photographs.

78 As I have already observed the latter finding is the subject of substantial

challenge by the appellant.

Extension of time

79 At this stage of her judgment the primary judge dealt with Hometeam’s
contention that, assuming the Contract commenced in August 1999, an
extension of time operated from mid-September 1999 to 29 April 2000.
Hometeam relied upon several grounds for this claim. First, that there was
an owner-requested variation (cl 9.1) and a cl 9.2 extension claim
constituted by its letters of 17 September 1999 and 29 April 2000.
Secondly, it argued there was a deemed variation pursuant to cl 12.4
because of unknown site conditions. Thirdly, it relied on a cl 9.1 extension
resulting from “a cause beyond the sole control of the builder”, being the
inadequacy of the sandstone foundations.
80 The respondent resisted this claim on a number of bases the most
significant of which was (at [164]) that:
“… photographs demonstrated that brick work was being
placed on stone footings by February/March 2000 and that
the main slab was poured on the new sub-floor brick work by
21 April. Mr McCauley paid for the work associated with
rectification of stonework following the claim on 7 March,
indicating that the work was done prior to that time and any
delay between 7 March and 17 April was unrelated to the
need to rectify stonework.”

The appellant’s written submissions contend that this passage was a

finding concerning the significance of progress claim 2 being paid
upon which the primary judge based the inference (at [213]) that the
rectification work was complete by 7 March 2000.

81 The primary judge found that if one compared the apparent rate at
which work was progressing in the period late January to mid April 2000
with the apparent rate of progress in the period mid April to late June 2000,
“no substantial difference” could be detected. She held (at [165]) that with
the exception of the demolition period in August/September 1999, work
always proceeded at a desultory pace. She concluded:
“[166] It is reasonable to regard the periods mid September
to mid October (when a decision regarding rectification was
being considered), late November to Christmas 1999, late
January to 9 February (when stonework rectification was
apparently being undertaken) and (possibly) 21 February to 7
March (when further rectification may have been undertaken)
as periods during which [there] may have been delay
occasioned by rectification work, but otherwise foundation
rectification would seem to provide no excuse for the delays
which occurred between mid September 1999 and mid April
2000.
[167] … a maximum period of about 8 weeks could be due to
the need for foundation rectification.
[168] … the claim for an extension of time which HTC made
on 29 April was properly rejected …”

82 Her Honour’s finding that with the exception of the demolition period in
August/September 1999, work always proceeded at a desultory pace,
formed the second basis upon which she ultimately concluded (at [206]) Mr
McCauley was entitled to issue the Notice of Default.
83 Although her Honour did not expressly find that Hometeam was entitled
to a cl 9 extension of time of eight weeks due to the rectification work, it is
apparent when one comes to her determination of the date for practical
completion (see [169]) as well as her identification of the bases upon which
she concluded Mr McCauley was entitled to serve the Notice of Default (at
[206]) that this was, in fact, her conclusion.

84 It is relevant, therefore, to note the following. First, at this stage of her

judgment the primary judge had identified two periods of “delay” for which
there was “no excuse”. Secondly, the appellant criticises her Honour’s
calculation of the period taken by the rectification work as failing to take
account of two matters. The first was that the rectification work required the
revised engineering plans which were not completed, in the first instance,
until 30 November 1999. Accordingly, Hometeam contended her Honour
ought to have allowed the 6 or so weeks from mid-October to the end of
November 1999 as part of the rectification work. The second was that in the
period 9 – 21 February 2000 Mr McCauley was refusing to accept the
rectification work constituted a variation to the Contract. Hometeam
submitted it was entitled not to continue to work pending resolution of that
dispute.

85 While there may be some argument about the appellant’s challenge to

the second finding, its submissions concerning the first, and more
substantial, period, have force.

The date for practical completion

86 The primary judge next identified the date for practical completion. She
concluded (at [169]) that as the Contract had commenced on 9 August
1999, allowing for the 5 week industry shutdown over Christmas 1999, and
the 8 week period she had held could be due to the rectification work, “the
37 week Contract period was due to expire 2 weeks before the Contract was
terminated”.

87 I note that if one accepts the appellant’s submission that her Honour
ought also to have included the period for the revision of the engineering
plans and the two weeks of the variations dispute in February 2000, the
date for practical completion was some 6 weeks or so after its termination.

Delays in May/June 2000

88 The primary judge then went on to deal with what she captioned “Delays
in May/June 2000”.

89 It is apparent that it was from that period that the parties’ relationship
which, by this stage, might be said to have been fragile at best,
substantially deteriorated.

90 On 22 May 2000 Hometeam wrote to the McCauleys apologising for

building delays which were said to flow from a “building boom resulting in a
shortage of supplies and tradespeople”. The primary judge noted (at [170])
“no detail was given as to the efforts … [Hometeam] had made to address
shortages”.

91 On 24 May 2000 the suspended slab was poured. Mr Goulding said that
the engineer, Donovan & Associates, advised that it could not be loaded for
28 days. On 5 June 2000 Hometeam wrote to Mr McCauley advising that
there needed to be a contract extension to allow for the 28 days. Mr
McCauley rejected that claim. The primary judge found (at [172]) that there
was no evidence to indicate that work could not have been done elsewhere
on the site during the 28 day period.

92 I note that the appellant challenges this finding on the basis that there
was no evidence Hometeam could have been working elsewhere.

93 On 8 June 2000 Mr McCauley wrote to Hometeam disputing the assertion

in its 22 May letter concerning building delays. Mr McCauley said he
believed “the delays experienced on the construction of my property have
nothing to do with the general building industry, shortages of materials or
labour”. He advised he was “most distressed that there has been no activity
on the site for over two weeks”. He asserted:
“In accordance with the Home Building Act I wish to serve
you notice to recommence work, should you fail to
recommence within 5 days I will be forced to seek whatever
remedies apply under Act, the Contract, associated Acts and
common law.”

94 Mr Goulding said Hometeam had difficulty locating a formworker to do

work required before brickwork could commence. However, Mr McCauley
located a formworker, obtained a quote from him which was apparently
accepted and the formwork commenced on 19 June 2000. It took three or
four days. In such circumstances the primary judge found (at [176]) that it
was not easy to accept Hometeam’s contention that it had difficulty locating
a formworker. This finding is relevant to the third basis on which the
primary judge concluded (at [206]) that Mr McCauley was entitled to issue
the Notice of Default.

95 Hometeam argued that the Works were progressing slowly because of

pressure on the building industry associated with the imminent Olympic
Games in Sydney. The primary judge held (at [179]):
“There is no reliable evidence that, in fact, building industry
pressure associated with the Olympic Games was the reason
that work progressed slowly from May 2000 or … at any
other time”.

The Stegbar windows

96 The events surrounding the delivery of the windows for the house formed
part of the fifth basis upon which the primary judge concluded (at [206])
that Mr McCauley was entitled to issue the Notice of Default.
97 At the commencement of the contract Mr McCauley had selected Stegbar
windows. Hometeam ordered them on 10 April 2000. They were late in
arriving. Hometeam notified Mr McCauley of that delay on 30 June 2000 and
said good building practice meant bricklaying could not commence until the
windows arrived.
98 The primary judge accepted (at [185]) that Hometeam’s decision to
await delivery of the windows before bricking around them would have been
reasonable. The primary judge also considered that the slightly late delivery
of the windows would have had little if any effect on the progress of the
Works. She also appears to have concluded (at [186]) their late delivery
could not have prevented other work being done. Again, I note, the
appellant’s submission there was no evidence of what other work could
have been done.

99 The primary judge held (at [183]) that the necessity to wait for the
windows to be delivered before bricking around them “would not have
prevented other brickwork being undertaken, leaving appropriate space for
windows and their surrounds”.

100 On 15 June 2000 Mr McCauley wrote to Hometeam noting he was

disappointed “there is still no activity on my house; however I understand
that construction will commence … by the end of this week …”. The primary
judge found (at [187]) that Mr McCauley’s letter “did not prompt any
increase in the rate at which work was being undertaken”.

Mr McCauley asserts breach of contract

101 On 28 June 2000 Mr McCauley sent Hometeam a letter asserting it was

in breach of the Contract “by failing to undertake the building works with
due diligence and within the contract period”. The letter warned that if
Hometeam did not remedy the breach within 10 days Mr McCauley would
“be forced to exercise my rights”.

102 According to the primary judge (at [189]) Hometeam’s response was to
state that Mr McCauley had not signed several variation authorities. This is
not strictly correct. On 30 June 2000 Mr Goulding responded, drawing Mr
McCauley’s attention to his letter of 5 June 2000 advising that due to the
necessity for the concrete to cure for 28 days, Hometeam “would not be
commencing work until after 21 June”. He advised bricklayers were booked
to commence on 29 or 30 June. He said “good building practice”
necessitated that the bricklayers not commence brickwork unless the
windows were on site. He attached a letter from Stegbar advising the
window order could not be fulfilled until after 7 July and said the bricklayers
could commence after the downstairs windows were delivered. The letter
claimed an extension to the Contract under cl 9.1(h) from 26 June until the
windows arrived.

103 On 5 July 2000 Mr McCauley responded. It is unnecessary to set out the

detail of this letter. It is sufficient to note that he stressed that Hometeam
“should recommence work immediately”.
104 The primary judge (at [192]) interpreted photographs annexed to Mr
McCauley’s statement as demonstrating that it was “not apparent that any
work was done in the period 2 to 8 July”. In the period 8 – 13 July 2000 she
concluded there was some removal of formwork and delivery of some
windows but “stacks of bricks remained in the same location”. Mr Barker, a
quantity surveyor called by Hometeam, commented that “the photographs
showed that the ground slab was completed by 12 June and that from 12
June to 13 July the brickwork ‘barely changed’”. The primary judge
concluded (at [193]) “very little work was undertaken between 12 June and
13 July”.

105 On 14 July Hometeam wrote to Mr McCauley enclosing a letter from

Stegbar which advised that delivery of the windows had been “further
delayed until 12 July 2000”.

The Notice of Default

106 On the same day Mr McCauley sent the Notice of Default by certified
mail. While the Notice was received by Hometeam on 20 July, the primary
judge concluded (at [197]), having regard to cll 33.2 and 40.1(b) of the
contract, that it was given by 17 July 2000 and accordingly, the 10 working
days for Hometeam to remedy the breach alleged (assuming the Notice’s
validity) expired on 31 July 2000.

107 The Notice stated that it was given pursuant to cl 33.1 of the Contract,
recited the agreement to undertake the Works, set out cll 33.1 and 38.1(d),
then continued:
“ DETAILS OF BREACH : The Builder has breached clause
38.1(d) of the Contract in failing to proceed with the building
works regularly and with due diligence and without delay .
TAKE NOTE : that if the breach referred to in this Notice is
not remedied within 10 working days the Owner is entitled to
end the Contract.”
The italicised words did not appear in cl 38.1(d).
108 On receiving the Notice, Mr Goulding wrote to Mr McCauley on 24 July
disputing its validity on a number of bases. These included a complaint that
the Notice:
“… does not specify what is meant by the words ‘regularly’,
‘due diligence’ or ‘without delay’ and therefore does not
provide to me (or a Court for that matter) any guidance so as
to know what you allege what must be done to not be in
breach.”

The letter went on to assert that there had been no delays caused
by Hometeam for which it was responsible under the Contract or
that, to the extent there had been delays, they had not been
substantial. It also asserted that the Works would be completed “in
accordance with the time stipulated by the contract”. The letter then
set out work Hometeam asserted had been carried out between 12 –
 20 July. In essence it said windows had been delivered on 12 July,
been “stood up” by carpenters that day and that bricklayers had laid
bricks on 13 and 14 July, but had then had to leave to await window
deliveries, that the remainder of the ground floor windows had been
delivered on 20 July and that the carpenters and bricklayers would
return to the site on 25 July. The letter concluded:
“… to the extent I understand your notice, the alleged breach
has been remedied. If it has not been remedied, please let
me know.”
109 It does not appear from the parties’ agreed chronology whether Mr
McCauley responded to this letter other than by issuing the Notice of
Termination on 8 August 2000.

110 The primary judge recorded (at [198]) that Hometeam submitted the
Notice was invalid because cl 38.1(d), which it asserted had been breached,
required the Works to be “done with due diligence and within the time
stipulated in the contract …”, whereas the Notice only referred to failure to
proceed with “due diligence”. It also “imported the expressions ‘regularly’
and ‘without delay’ which were not to be found in clause 38.1(d)”. She also
mentioned the matters Mr Goulding raised in his letter of 24 July concerning
the insufficiency of particulars of breach.
111 The primary judge referred to Brownie J’s statement in Renard
Constructions (ME) Pty Limited v The Minister for Public Works (Supreme
Court of New South Wales, unreported, 15 February 1989, BC8902548 at
17) to the effect that such a notice needed to direct the builder’s mind “to
what was said to be amiss”. She held (at [200]) “the Notice did not need to
accurately spell out particulars of the default in question” and that “the
Court should not take an overly technical approach to such notices”.
112 The primary judge noted (at [201]) “it was not disputed that [the
Default Notice] was sufficient to put [Hometeam] on notice regarding the
default about which complaint was made”.

113 During the hearing of the appeal the Court was informed by Mr Einfeld
that his junior, Mr Ogborne, who appeared at the trial, said he had not made
such a concession. Ms Olsson SC, who appeared for the respondent both at
trial and on appeal, accepted there had been argument before the primary
judge concerning the sufficiency of the Notice’s identification of the alleged
breach.

114 The primary judge identified the default the subject of the Default
Notice as being “failure to proceed with due diligence” and continued:
“[202] It is my view that, while the notice of 14 July did not
specifically complain of a failure to complete within the time
stipulated, a failure to progress works at a rate which would
enable completion within the time stipulated would, at least,
be evidence supporting the contention that [Hometeam] had
failed to progress the works with due diligence.”
115 The primary judge did not expressly reject Hometeam’s challenge to
the technical validity of the Notice. That finding must, in my view, be
inferred from paragraphs ([200] and [202]).

Establishing absence of due diligence

116 The primary judge said (at [203]) that “regardless of when the Contract
commenced or when the Works were due to be completed” the question
whether Mr McCauley was entitled to issue the Notice of Default turned
upon whether the Works were proceeding with due diligence immediately
before it was issued.

117 The respondent’s case (see [204]) was that Hometeam’s “lack of due
diligence in the period immediately before 14 July was consistent with its
desultory performance for the entire period from mid October 1999”.

118 The primary judge held (at [206]) that Mr McCauley was entitled to
issue the Default Notice for the following reasons (numbers added):
“1. Allowing for delays associated with stonework
rectification, up to 14 July approximately 30% (less than one
third of) the original contract works had been done … but the
works had taken 27 weeks (more than two thirds of the time
stipulated in the Contract).
2. The works had always proceeded at a desultory pace.
3. Almost no work was done during the period June to mid
July, except for some formwork which Mr McCauley himself
had organised.
4. There had been no response to Mr McCauley’s letters of 15
or 28 June by way of an increase in the rate at which work
was being undertaken.
5. There was reliance by Hometeam on a variety of excuses
(late delivery of the Stegbar windows, the need for a security
account, the Olympic Games) but no evidence was produced
(either at the time or at the hearing) to support the
proposition that any such matter provided a real reason for a
substantial delay.”

Hometeam’s response to the Notice

119 Having concluded Mr McCauley was entitled to issue the Notice of

Default, the primary judge considered whether Hometeam had remedied
the breach to which it referred.

120 The Notice gave Hometeam 10 working days to remedy the breach. As I
have noted that period expired on 31 July.

121 The primary judge found (at [208]) that in order to remedy the default,
it was essential that Hometeam should have begun “to work in a diligent
manner”. She also said, however, that absent the “clearest display of
diligent conduct, it would have been highly advisable to provide a
programme for completion, thereby demonstrating a commitment to
proceed diligently which went beyond a 10 day burst of activity”.

122 The primary judge referred (at [210]) to Mrs McCauley’s evidence that
some work was done in the period 15 – 25 July and that she could not
identify a particular delay during that period. However, her Honour appears
to have preferred her interpretation of photographs taken on 15, 21, 22 and
29 July 2000 as supporting the conclusion “there was little, if any change in
the work which had been done on site during that period”. She concluded
(at [211] – [214]) that the work done during that period merely comprised
taking delivery of some windows, restacking some bricks on the site and
propping a number of windows into position on a temporary basis.

123 Her Honour then said:

“[213] In fact, if one takes into account the periods 9 August
to mid September (5 weeks), time lost in November for no
apparent reason (say, 2 weeks), approximately 2 weeks of
unexplained activity in February 2000 and the period from 7
March (by which time I infer that rectification work was
complete), then (excluding the Christmas break and time lost
in connection with rectification) the works had occupied
approximately 27 weeks up to 14 July and 29 weeks up to 31
July.”

124 The primary judge accepted (at [209]) that it was relevant to consider
building work undertaken beyond 31 July as providing some evidence of
Hometeam’s intention to work diligently and to put into context the work
done during the 10 days specified in the Notice. In this respect she
concluded (at [215]) that the photographs showed that between 29 July and
7 August 2000 “a reasonably significant amount of further brickwork was
undertaken on the site”. However, she also found that there “was no
evidence of any other work having being undertaken apart from the sudden
short burst of brickwork”.

125 I interpolate to note the appellant’s contention that at this stage the
contract required it to be carrying out bricking work, that a period of 8 or so
days (between service of the Notice of Default and its expiry) allowed for
little more than a “short burst of activity” and, further, that there was no
evidence it should have been carrying out other work.

126 The primary judge found (at [217]) that Hometeam’s response to the
Default Notice was inadequate in that it had not begun to work in a diligent
manner in the period 17 – 31 July or 17 July – 7 August nor had it
demonstrated an intention to work in that manner by providing a
programme for completion. She held (at [220]) that Hometeam had failed to
remedy the breach identified in the Notice of Default and that the Notice of
Termination effectively terminated the Contract.
127 Having held that Mr McCauley was entitled to terminate the Contract
the primary judge assessed the damages to which Mrs McCauley was
entitled on the cross-claim at $240,385 plus interest.
 The Notice of Default: technical validity
128 It will be recalled that pursuant to cl 38.1(d) the appellant relevantly
warranted that “the building works will be done with due diligence and
within the time stipulated in this contract, or if no time is stipulated, within a
reasonable time” and that cl 33.1(a) provided that if a party was in
substantial breach of the Contract the other party might give the party in
breach a written notice stating details of the breach. The operative part of
the Notice of Default complained:
“ DETAILS OF BREACH : The Builder has breached clause
38.1(d) of the Contract in failing to proceed with the building
works regularly and with due diligence and without delay.”

129 The appellant submitted that the Notice of Default was invalid because
it failed to provide “details of the breach”, as required by clause 33.1(a). It
argued that the Notice must identify with precision the nature of the
asserted breach in order that it could accept or deny the breach, and
determine whether, and if so by what means, it might be remedied. It relied
on Fletcher v Nokes [1897] 1 Ch 271 at 274.

130 Rather than comply with this obligation, the appellant complained, the
Notice of Default merely identified cl 38.1(d) of the Contract and asserted a
failure to proceed with the building works “with due diligence”. The
appellant contended the Notice of Default made it “quite impossible for any
reasonable builder in the position of Hometeam to consider and determine
what steps were required to be taken to remedy the asserted breach”.
131 Next, the appellant submitted that cl 38.1(d) imposed a conjoint
obligation, i.e. “with due diligence and within the time stipulated ...”. It
argued the use of the conjunction objectively denoted the intention of the
parties that there could be no breach of cl 38.1(d) unless the Works were
undertaken both with an absence of due diligence and beyond the
contractual time stipulation. This, it contended, reflected the proposition
that an absence of due diligence which would not extend the contractual
time stipulation would not be productive of damage to the owner so that,
viewed objectively, a breach of both requirements was necessary before the
procedure preparatory to terminating the Contract could be put in train.
Accordingly, it argued, because the Notice of Default identified no time
stipulation which had been exceeded, nor referred to any other aspect of
the work which had not been undertaken with due diligence, it was, for this
reason too, invalid.
132 Finally the appellant complained that the inclusion of the assertion of
the words “regularly” and “without delay” which did not appear in cl 38.1(d)
were not merely surplusage but were such as to make the Notice apt to
confuse the objective recipient in the appellant’s position.
133 The respondent submitted that the Notice of Default was valid. She
relied upon the following statement in Hudson's Building and Engineering
Contracts, (11th Ed, paragraph 12.033) concerning common contractual
determination clauses which require written notice in one form or another
at the time of determination of the contract (footnote included):
".... the clause must be carefully considered and closely
followed in all respects, both as to the contents and timing of
the notices, but the Courts will usually regard the notices as
commercial documents, and provided they make clear
reference to the substance of what is required by the
determination clause (and ideally, of course, by express
reference to the applicable clause of the contract and special
grounds in respect of which they are given) the form of words
used will usually not be important. Applying this principle
notices referring the reader to the applicable clause of the
contract and identifying the default are generally likely to be
sufficient.” [ Re Stewardson Stubbs & Collett Pty Ltd &
Bankstown Municipal Council [1965] NSWR 1671].
134 The respondent also argued that cl 38.1(d) did not impose a conjoint
obligation as to do so would render the obligation of "due diligence" otiose.
The respondent submitted that if the appellant's construction was taken to
its logical conclusion, a builder could fail to carry out any work on a site until
the expiration of the contract period with impunity.

Technical validity: consideration

135 I would add to the respondent’s reference to paragraph 12.033 in

Hudson’s the following passage:
“(b) Contents of notice
12.034 Particularly where a determination clause is
conditioned on a number of different eventualities or defaults
of the contractor, it is evident that any required preliminary
notice should sufficiently identify the particular ground relied
upon, if that is called for by the contract ( and particularly
where continuation of the default is made a condition of any
second notice), but further detail, particularly in regard to a
generalised ground like due diligence, will not usually be
called for. " (emphasis added)

136 Hudson’s paragraphs 12.033 and 12.034 reflect decisions stretching

back to Pauling v Mayor, Alderman & Burgesses of Borough of Dover (1855)
10 Exch 53; (1855) 156 ER 644, in which courts have held that a notice
claiming a breach of a term of a building contract requiring the builder to
“proceed with the Works with reasonable diligence ….”, or not substantially
different, was valid where it identified the default by repeating the words of
the condition allegedly breached. In Pauling the plaintiff, an engineer,
contracted to execute certain works, inter alia, “with due expedition”. The
plaintiff was given a notice requiring him to proceed with the works “with
due expedition”. Baron Parke said (at 646) that where:
“… the objection of the engineer is that the work in general is
done in a negligent and sluggish manner … [i]t is, sufficient
 for him to give a general notice of this description. He tells
the plaintiff he is proceeding in a negligent and slow manner,
and requires him to do the work better, and with more
expedition. Such a notice is good.”

137 In Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal
Council [1965] NSWR 1671 Moffitt J (as he then was) considered cl 19(a)(2)
in a building contract which said that default occurred if, inter alia:
“(2) [The builder] fails to proceed with the works with
reasonable diligence …”

The architect gave the builder a notice indicating (see 1675) that
“unless the project shows evidence of considerable progress within
14 days, the proprietor will be advised by the architect that the
architect considers the builder in default under the contract in
accordance with cl 19(a)(2) in regard to reasonable diligence”.

138 Clause 19 entitled the proprietor to terminate the contract if the builder
continued the default for 14 days after being given “a notice … specifying
the default”. Moffitt J said (at 1675) that the question whether the notice
was proper “should be determined from the practical viewpoint by asking
whether commercial persons such as a builder would understand clearly
that it was a notice under cl 19(a)”.

139 His Honour held (at 1675) the notice sufficiently complied with cl 19(a)
(2). He said, (at 1675 – 1676):
“The question still remains, however, whether the notice
‘specifies the default’ … A default can be specified in two
ways; one is by directing attention to the provision in the
contract in respect of which default is made. The other is by
giving particulars of the manner in which a breach has
occurred. In order to specify the default I think at least the
former must be pointed out. But each case will depend on its
own circumstances as to whether in order to specify the
default there must be added some particulars such as will
identify the particular breach alleged … with regard to sub-
clause … (2) … the mere reference to the clause said to be in
breach may be sufficient to specify the default. … what is
called for is not a repair of the consequences of past lack of
diligence but compliance in a substantial and commercial
sense with the general obligations under the contract. … a
notice in general terms referring to the breach of the general
obligation is a notice which does specify the default.”
(emphasis added)

140 The respondent submitted that the closest form of wording analogous
to that in cl 33.1 was found in the E5b Australian Building Contract
considered by this court in Brenmar Building Co Limited v University of
Newcastle reported in (1999) 15 BCL 467 although it was decided in 1977.
In that case cl 22(a) of a building contract provided:
 “If the builder shall make default in any or more of the
following respects, that is to say:
…

(ii) if he fails to proceed with the works with reasonable

diligence or in a competent manner …
then ... the Architect may send to him … a written notice
specifying the default and stating the intention of the
Proprietor to determine the employment of the Builder and if
the Builder fails to remedy such default in a bona fide
manner within 14 days after receipt of such notice, then the
Proprietor may ... determine the employment of the Builder
…”

141 The University issued a notice to Brenmar in the following terms:

“Pursuant to clause 22(a) of the conditions of the building
contract between the Proprietor and the Builder notice is
hereby given that:
within the terms of item (ii) of the above mentioned
clause the Proprietor intends to determine the
employment of the Builder within 14 days after
receipt of this notice if the Builder fails to proceed
with the works with reasonable diligence or in a
competent manner.”

142 At first instance Meares J declared the notice was invalid because it
failed, in substance, to specify the default in such a fashion as to give the
builder a practical opportunity to remedy the defect claimed. On appeal, the
University accepted (at 468) that cl 22(a)(ii) gave the proprietor two
grounds on which to give a notice, a failure to proceed with the works with
reasonable diligence and a failure to proceed with the works competently. In
allowing the University's appeal and holding that the notice was sufficient to
comply with cl 22(a)(ii), Hutley JA said (at 468 – 469):
“The contention of the builder was that much greater
specification was required. There being no particularisation of
the ways in which he failed to perform the work in a
competent manner, he did not know, it was said, what was
required of him. He did not know how he could rectify the
failure to perform in a competent manner. I would not have
thought that this would extricate him from his difficulties
because the fact that he is ignorant of what is required under
this limb would not, in my opinion, have protected him,
assuming that it can ultimately be established in an
arbitration that he did not proceed with the works with
reasonable diligence and had failed to rectify this default
after 14 days notice.
However both authority and commonsense, in my opinion,
fully support the view that to inform a builder that he has not
been proceeding with the general task that he has been
 given - not with a particular item - in a competent manner or
with reasonable diligence is sufficient specification .”
(emphasis added)

143 Glass and Samuels JJA concurred. Samuels JA added that, in his view, cl
22(a)(ii) was not primarily concerned with rectification but with future
performance. He referred to Moffitt J’s statement in Re Stewardson Stubbs &
Collett Pty Ltd & Bankstown Municipal Council (at 1673) that, in substance,
if a clause like cl 22(a)(ii) required the specification of “a lengthy list of
specific defects, it would certainly prove quite impossible to remedy a great
many of them within the 14 days permitted by the clause”. His Honour then
said that the defaults upon which the operation of cl 22(a)(ii) hinged were
broadly expressed and were (at 470):
“… really intended to describe the builder's general approach
to his work and to attract a requirement that his performance
should satisfy the descriptions both of reasonable diligence
and competence … The default, however, is not, to my mind,
the detailed manifestation of lack of diligence or of
competence in the inadequate condition of or delay in
particular work but the state of lack of diligence or of
incompetence . Hence it is sufficient to identify such a
default by reference only to those characteristics without
condescending to greater particularity.” (emphasis added)
144 Megarry J took the same approach to a similar clause in Hounslow
London Borough Council v Twickenham Garden Developments Ltd [1971] Ch
233. He said (at 265) that all the notice had to do was “to direct the
contractor’s mind to what is said to be amiss”. (It was this remark which
Brownie J extracted in Minister for Public Works v Renard Constructions (MF)
Pty Ltd and upon which the primary judge relied to find the Notice of Default
was valid.) Megarry J also rejected the submission that the notice must give
particulars of the past respects in which the contractor had failed to work
diligently – an approach which in his view gave rise to “captious and literal
difficulties”.

145 Fletcher v Nokes upon which the appellant relies concerned the validity
of a notice to be served by a lessor on a lessee under s 14(1) of the
Conveyancing Act 1881 (Imp) “specifying the particular breach of covenant
complained of” to entitle the lessor to enforce a right of re-entry. North J
held (at 274) that:
“… the notice which is to be given under s. 14 ought to be
such a notice as will enable the tenant to understand with
reasonable certainty what it is which he is required to do. I
do not mean that the landlord need go through every room in
a house and point out every defect. But the notice ought to
be so distinct as to direct the attention of the tenant to the
particular things of which the landlord complains, so that the
tenant may have an opportunity of remedying them before
an action to enforce a forfeiture of the lease is brought
 against him. In my opinion, the notice which the plaintiff has
given to the defendant is not sufficiently specific. Sect. 14
says that it is to be a notice ‘specifying the particular breach
complained of.’ I do not think that is met by a notice which
simply says, ‘You have broken the covenants for repairing.’
The plaintiff has not condescended upon any details, and, in
my opinion, the notice is not sufficient under s. 14.”

146 There are several reasons why Fletcher v Nokes is distinguishable. First,
it concerned the forfeiture of a lease. In Hounslow (at 258) Megarry J
rejected a submission that an architect’s notice under a building contract
involved a forfeiture and should be construed in accordance with the
principle that “as the court leans against forfeitures, the court should be
slow to hold that the contract had been terminated”. He said he would “feel
considerable hesitation in applying the principles developed by the courts in
relation to the forfeiture of interests in property to the exercise of a
contractual power of determination in a contract”. Moffitt J spoke to like
effect in Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal
Council (at 1675) when he observed that “a notice given prefatory to
exercising a contract determination provision [should not] stand to be
construed as a forfeiture notice in a real estate transaction”. I agree with
both Megarry J and Moffitt J.

147 Secondly, Fletcher v Nokes struck down a notice which informed a

lessee of a number of houses of a general failure to discharge a covenant to
repair without specifying in any particular house the items which the lessee
had failed to repair. That conclusion was consistent with the obligation to
specify “the particular breach” to give the lessee the opportunity to remedy
that particular breach. In this case the breach complained of was a general
complaint of failure to proceed with due diligence with building works being
carried out on one site. The “details of the breach” required by cl 33.1 were
sufficiently stated by referring to the due diligence obligation. Thirdly,
although the clauses were slightly differently worded, Stubbs, Brenmar and
Hounslow support the conclusion that the Notice of Default was valid.
148 The practical approach to construction of the notices in Stubbs,
Brenmar and Hounslow is consistent with the view that such notices should
be interpreted in accordance with business common sense: Mannai
Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 771
per Lord Steyn. In Mannai Lord Steyn formulated a number of propositions
concerning the validity of a notice to determine a lease which wrongly
stated the date of termination, the second and fourth of which were (at 767
– 768):
“(2) The question is not how the landlord understood the
notices. The construction of the notices must be approached
objectively. The issue is how a reasonable recipient would
have understood the notices. And in considering this question
the notices must be construed taking into account the
relevant objective contextual scene… (4) There is no
 justification for placing notices under a break clause in leases
in a unique category. Making due allowance for contextual
differences, such notices belong to the general class of
unilateral notices served under contractual rights reserved,
e.g. notices to quit, notices to determine licences and notices
to complete: Delta Vale Properties Ltd. v. Mills [1990] 1
W.L.R. 445, 454E-G. To those examples may be added
notices under charter parties, contracts of affreightment, and
so forth. Even if such notices under contractual rights
reserved contain errors they may be valid if they are
‘sufficiently clear and unambiguous to leave a reasonable
recipient in no reasonable doubt as to how and when they
are intended to operate’: the Delta case, at p. 454E-G, per
Slade L.J. and adopted by Stocker L.J. and Bingham L.J: see
also Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442,
444. That test postulates that the reasonable recipient is left
in no doubt that the right reserved is being exercised. It
acknowledges the importance of such notices. The
application of that test is principled and cannot cause any
injustice to a recipient of the notice. I would gratefully adopt
it.” (emphasis added)

149 In Etlis v New Age Constructions (NSW) Pty Ltd and Anor [2005] NSWCA
165 Handley JA (with whom Hodgson JA and Brownie AJA agreed) considered
cl 6 of the standard “Plain English Building Agreement” (11th ed., issued by
the Housing Industry Association) which required the builder to notify the
owner in writing “within ten (10) days of the event” requiring an extension
of time. His Honour held (at [39]) that Mannai supported a “non-technical
approach” to its construction. He also said (at [38]) that:
“[w]here to the knowledge of both parties the proprietors
already have the information that cl 6 requires the builder to
communicate the notification need not set this out at length.
In those circumstances the primary purpose of any written
notification will be to provide objective evidence to facilitate
contract administration and avoid disputes.”

150 He concluded (at [39]) that “[t]he relevant question is whether the
letter of 16 September would convey to a reasonable recipient, with this
background knowledge, that the building work would be delayed because of
the cable”.

151 This approach is consistent with that taken by Mason P (with whom
Meagher JA and Giles JA agreed) in State of New South Wales v Austeel Pty
Ltd [2003] NSWCA 392 at [19] where, speaking of the validity of a notice of
dispute, the President said, “a notice must, like a pleading, attempt to
capture or describe the essence of the existing dispute or difference, at
least from the perspective of the initiating party, but like any business
document it is to be construed fairly in its context.”

152 It is useful, at this stage, to recapitulate the salient matters preceding

the issue of the Notice of Default. Relevantly, it should be noted that Mr
McCauley started complaining about lack of activity on the site in November
1999. On 24 December 1999 he wrote to Hometeam urging it to ”bring the
dwelling to practical completion by the date for practical completion”. In
May he again complained about lack of progress, pointing out that 9 months
after the contract had been signed, the ground floor had not been
completed. Hometeam responded to that letter on 18 May 2000 advising, in
substance, that it, too, was “extremely disappointed with the lack of
progress”. At this stage it attributed the lack of progress to the demolition
and rectification work. It wrote again 4 days later apologising for building
delays said to flow from a “building boom”. On 8 June 2000 Mr McCauley
disputed the assertion about the building boom, said he was distressed at
the lack of activity on the site over the previous 2 weeks and asserted that
he wished to serve a “notice to recommence work”.

153 On 15 June Mr McCauley wrote to Hometeam again noting that he was

disappointed “there is still no activity on my house”. On 28 June 2000 he
sent Hometeam a letter asserting it was in breach of cl 38.1(d) of the
Contract. On 14 July he served the Notice of Default.

154 The question whether the Notice of Default is valid is to be determined

objectively by reference to the understanding of the reasonable recipient
(Stubbs, Mannai). It is relevant, however, to note that while Mr Goulding’s
response to service of the Notice of Default was to raise what, to my mind,
were technical quibbles with its wording, it is clear from the balance of his
24 July letter that he understood the assertion in the Notice of Default. He
sought both to challenge the proposition there had been any relevant delay
as well as to assert what work had been done between 12 – 20 July and what
work was to be undertaken shortly, by way of an assertion that “the alleged
breach has been remedied”.

155 In my view, consistent with the authorities to which I have referred it

was sufficient for the Notice of Default to recite the terms of cl 38.1(d) and
complain that the appellant had failed to proceed with the building works
with due diligence. It is plain that the Notice was informing the appellant
that it had not been proceeding with the Works with the diligence required
by the Contract which tardy conduct should be rectified in the future. In my
view, having regard to the “contextual scene” a reasonable recipient would
have had no difficulty understanding the Notice.

156 Further, to the extent that the Notice included the words “regularly”
and “without delay”, those words could not have left a reasonable recipient
in any doubt as to how the Notice was intended to operate. While I accept
that it would generally be unwise to include words surplus to the contractual
provision being recited, the addition of those words, in this case, did not, in
my view, detract from the clear purport of the Notice.

157 I also reject the appellant’s submission that cl 38.1(d) imposed a

conjoint obligation. While it is true that the ordinary meaning of “and” is
conjunctive, the context in which the word is used in cl 38.1(d) indicates, to
my mind, that cl 38.1(d) imposes two, rather than one, obligations.

158 The due diligence obligation appears in a list of warranties drawn from
s 18B of the Home Building Act 1989. The first, found in cl 38.1(a) requires
the “building works” to be “performed in a proper and workmanlike manner
and in accordance with the plans and specifications …”. It is clear that that
clause amounts to two warranties, one concerning the manner in which the
works will be performed and the other that the works must comply with the
plans and specifications. It would be possible for building works to be
performed in a proper and workmanlike manner but, to take an extreme
example, to bear no resemblance to the plans. That would not be a breach
of the first limb of cl 38.1(a) but would be a clear breach of the second limb.

159 Clause 38.1(d) has the same structure. The first limb requires the
building works to be done with due diligence, the second within the time
stipulated in the contract or, where no time is stipulated, within a
reasonable time. Again, it can be seen, that this clause contains two limbs.
The first relates to the rate at which the works should progress. As I shall
explain, the precise concept of what constitutes a failure to proceed with
due diligence is somewhat elusive. Nevertheless, if for example, a builder
had failed to commence work 6 months into a 9 month contract, it is
conceivable that the Proprietor would be entitled to complain that the works
were not being done “with due diligence” albeit that the time stipulated in
the contract had not expired. It is also possible to conceive a situation
where a builder, although having proceeded with due diligence had not
completed the works within the time stipulated or within a reasonable time.
It would not accord with a commercial and practical construction of the
clause if the proprietor could not serve a cl 33.1 notice in such
circumstances.

160 This construction accords with the fact that an owner can suffer
damage both from delay in progress during construction and delay in
completion (see Hudson’s at 9.032 – 9.033). Clause 38.1(d) is intended to
give the owner an opportunity to prepare the ground for terminating the
contract if the builder has been guilty of either sort of delay as long as it
constitutes a substantial breach of the contract.

161 I reject the appellant’s challenge to the validity of the Notice on the
basis that it did not include the words “within the time stipulated in this
Contract”.

162 The primary judge did not err in concluding that the Notice of Default
was valid. I would reject the appellant’s additional grounds of appeal.

Establishing absence of due diligence

163 The more difficult question is whether the respondent was entitled to
issue the Notice of Default. In this respect it will be recalled that the
entitlement to issue such a notice depended upon the appellant being “in
substantial breach” of the Contract: cl 33.1.
164 It is plain that the substantial breach referred to in the introductory
words to cl 33.1 is a reference to the breach to be identified in the written
notice it requires should be issued. Accordingly, the primary judge was
required to determine whether as at 14 July 2000, the appellant had failed
to perform the Works “with due diligence” and, if so, whether the extent of
its failure to comply with cl 38.1(d) was such as to constitute a “substantial
breach” of the Contract.

165 While the primary judge recognised that the validity of the Notice of
Termination turned upon whether Mr McCauley was entitled to issue the
Notice of Default, she identified the critical issue in the latter respect (at [5])
as being whether, in substance, the appellant had “failed to undertake the
building works with due diligence”. That was only one of the relevant
questions. She was also required to determine whether even if that had
been established, the lack of due diligence was such as to constitute a
“substantial breach” of the contract.

166 It is also critical to observe, at this stage, that the onus of proof that the
appellant was in substantial breach of the Contract as at 14 July 2000 lay on
the respondent: Hobbs v Petersham Transport Co Pty Ltd [1971] HCA 26;
(1971) 124 CLR 220 at 229 - 230; Hart v MacDonald [1910] HCA 13; (1910)
10 CLR 417 at 428, 433; Watson v George [1953] HCA 41; (1953) 89 CLR
409 at 226 per Fullagar J.

167 In Hobbs v Petersham Transport Co Pty Ltd, Barwick CJ considered the

question of the onus of proof in an action for breach of a contract of carriage
of goods delivered in a damaged condition. His Honour said (at 229 – 230):
“The onus of establishing the breach of contract … was
undoubtedly upon the plaintiff. Non-delivery of the goods
furnished prima facie evidence of a breach of the promise.
But in such an action it does no more. Yet the plaintiff seems
to have claimed that such evidence placed an onus on the
defendant … in my opinion, the defendant faced with the
evidence of non-delivery of the goods was in much the same
position as a defendant in an action for negligence in the
driving of a motor vehicle in which the circumstances of an
accident provide a basis for an inference of such negligence.
There, as I think, if the defendant provides an explanation of
the accident which destroys the ground for that inference,
the position is that the plaintiff is without evidence of
negligence on the part of the defendant … So here it seems
to me that once the non-delivery is explained as it was
explained, there is no room for an inference from the fact of
non-delivery of the goods that the defendant had failed to
take good care of the goods. In my opinion, once such an
explanation is given and accepted, the defendant is not
required to go further and establish that he could not have
prevented the road accident which happened by any exercise
of due care in the maintenance of the vehicle. To require the
 defendant to do so would, in my opinion, be pressing the
evidentiary consequence of the non-delivery too far. To so
require proof by the defendant would shift the onus to the
defendant to disprove, (sic) an absence of breach. That, in
my opinion, is an unwarranted step. The onus of proving
breach of the promise is always with the plaintiff. ” (emphasis
added)

168 Hobbs was a relatively clear case where the non-delivery of goods
furnished prima facie evidence of breach of contract which, absent
explanation, would have established the plaintiff’s case. The present case is
not so clear-cut.

169 It might be accepted that the appellant’s failure to complete the Works
by the date for practical completion might be some evidence of delay (see
Westminster Corporation v J Jarvis & Sons Ltd and Another [1970] 1 WLR
637 at 643 per Lord Hodson, at 645 per Viscount Dilhorne). However,
whether delay is of itself sufficient to raise an inference of lack of due
diligence must depend on the circumstances.

170 Despite the prevalence of clauses in building contracts requiring the

work to be performed with “due diligence”, defining the nature of that
obligation has proven elusive.

171 In Re Stewardson Stubbs & Collett Pty Ltd & Bankstown Municipal
Council, Moffitt J observed (at 1675 – 1676) that:
“… [T]he question of what precisely constitutes a failure to
proceed with reasonable diligence is a matter of some
difficulty. However, it is an allegation of a general failure to
proceed with that degree of promptness and efficiency that
one would expect of a reasonable builder who has
undertaken a building project in accordance with the terms
of the contract in question.”

172 In Hounslow London Borough Council v Twickenham Garden

Developments Ltd Megarry J considered a requirement that a building
contractor “proceed regularly and diligently with the works” and said (at
269):
“[W]hat is the meaning of the words ‘regularly’ and
‘diligently’? These are elusive words, on which the
dictionaries help little. The words convey a sense of activity,
of orderly progress, and of industry and perseverance: but
such language provides little aid on the question of how
much activity, progress and so on is to be expected. They are
words used in a standard form of building contract in relation
to functions to be discharged by the architect, and in those
circumstances it may be that there is evidence that could be
given, whether of usage among architects, builders and
building owners or otherwise, that would be helpful in
construing the words . At present, all that I can say is that I
 remain somewhat uncertain as to the concept enshrined in
these words; and this necessarily increases the task of Mr.
Harman in establishing a strong case that the contractor has
failed to proceed regularly and diligently with the works, so
that the architect's notice is good .” (emphasis added)

173 In Hooker Constructions Pty Ltd v Chris’s Engineering Co [1970] ALR

821 at 822-823, Blackburn J considered whether a head contractor had
validly terminated a building sub-contract on the basis that the sub-
contractor had failed “to proceed with the works with reasonable diligence”
as required by the contract. After observing that the “onus is on the plaintiff
to show the [sub-contractor] was in default in a way … caught by this
provision”, his Honour said (at 822) that he had “not found it easy to
construe this phrase ‘reasonable diligence’ in the context of this case”. He
concluded that “a sensible construction of the phrase is that the actual
extent of work completed is of some significance” and that “ ‘diligence’ in
the contract means … not only the personal industriousness of the
defendant, but his efficiency and that of all who worked for him”.

174 He also said (at 823) that he was entitled to accept as evidence that
the defendant had not displayed reasonable diligence, “evidence that the
work was, at the material time, seriously incomplete together with evidence
that there were no circumstances preventing the defendant from
overcoming this situation”.
175 In Hooker the plaintiff led evidence that at the time it purported to
terminate the sub-contract, the defendant’s work was “seriously behind
what could reasonably be expected [and] that the situation was not due to
anything which was beyond the defendant’s control”. Although the
defendant adduced evidence to show that “through no fault of his own, he
was unable to get the necessary material to bring the work to the stage
where it should have been at the material time”, this did not convince
Blackburn J who held the plaintiff had proved the contract was validly
terminated.

176 In Australian Development Corporation Pty Ltd v White Constructions

(ACT) Pty Ltd (1996) 12 BCL 317 Giles J (as his Honour then was) accepted
that “where there was a specified future date for practical completion,
whether [the builder] was prosecuting the project diligently was a question
of fact, substantially determined by whether it was proceeding at a rate of
progress according to which practical completion would be achieved by the
specified date but with regard also to whether accelerative measures could
bring achievement of completion by the specified date.” His Honour
considered competing expert evidence as to the time required to complete
the building work but concluded it was unnecessary in the circumstances of
that case to resolve the difference between those views.

177 As each of these cases demonstrates, “you cannot have diligence in the
abstract. It must be related to the objective”: Greater London Council v
Cleveland Bridge and Engineering Company Ltd (1986) 34 BLR 50; see also
Hick v Raymond & Reid [1893] AC 22 at 29 per Lord Herschell LC (“there is
no such thing as reasonable time in the abstract”); Maynard v Goode [1926]
HCA 4; (1926) 37 CLR 529 at 538 per Isaacs J (“[t]he question of what is
‘reasonable time’ is always relative; that is, it means ‘a reasonable time
under the circumstances’ ”).
178 There were, in my view, in the context of the Contract, at least two
ways the respondent could have established that the appellant had failed to
perform the works with due diligence.

179 First she could have proved:

(a) the work the appellant was required to carry out under the
Contract; as events transpired this included the original contract
works and the rectification work;

(b) what, in addition to the contract period, was a reasonable time

within which the appellant ought to have executed the original
contract works and the rectification work;

(c) that the appellant had failed to execute the work within that
reasonable time;

(d) that, to the extent the appellant proffered explanations of why

the work had not been executed within that reasonable time, those
explanations were unacceptable.

180 As I shall explain, the appellant’s case was, essentially, that this was
the way the respondent was required to prove her case and that she had
failed to do so.
181 Secondly, in my view, the respondent was also entitled to seek to prove
lack of due diligence by establishing a case of delay in progress during
construction. This appears from both Stubbs and Hooker. On this basis she
could have established a failure to carry out a reasonable amount of work
by a given time; that that period of time be measured by reference to all
the work to be performed under the Contract or, in absolute terms, by
reference to a lack of activity on site over a significant period that could not
be satisfactorily explained. The onus of proving lack of due diligence was on
the respondent. If the facts established by the respondent are capable of
giving rise to an inference of lack of due diligence, the appellant may
discharge any evidentiary onus that may pass to it, by explaining why the
work progressed at that rate: see Hobbs. That evidence should be
“sufficient … to turn the scale”: Brady v Group Lotus Car Cos plc [1987] 3 All
ER 1050 at 1059 (CA) per Mustill LJ.

The parties’ approach to the due diligence issue

182 Mr Einfeld’s essential submission was that the respondent had failed to
establish that she had validly terminated the Contract because she failed to
establish that the appellant had breached the due diligence obligation – the
minimum pre-requisite to issuing the Notice of Default. This was because
she called no evidence to demonstrate that the appellant should have
executed the Works (whether the original contract works or the rectification
work) at a faster rate than that at which they progressed. Absent such
evidence, he submitted, the appellant was not required to explain or justify
the rate at which the Works progressed.

183 Without retreating from his primary submission, Mr Einfeld also

contended that to the extent the appellant carried any evidentiary burden in
relation to the time the Works had taken (i.e. a delay in progress of
construction case), it had met that burden by the evidence concerning, in
particular, the rectification work, the variation dispute period (9 – 21
February 2000), the necessity for the slabs to cure and the late delivery of
the Stegbar windows. He contended, further, that the assertion that a
breach of cl 38.1(d) was established by demonstrating that the Works were
not completed within 37 weeks ignored the fact that most of that 37 week
period was occupied with the rectification work.
184 The respondent said she had put her case in substance, in each of the
ways I have outlined. First, she submitted that she had established that the
appellant had breached its obligation of due diligence because the contract
period had expired without completion. Lack of due diligence was
established because the Works should have taken 37 weeks but, further, at
the time the Notice of Termination was served, they were approximately
only 12% complete. This approach required excluding any time allowance
for the rectification work because of the failure to make a contractual claim
for extension of time. In other words the appellant could not meet the case
of lack of due diligence constituted by the expiry of the contract period
without completion by pointing to the rectification work because it had
failed to seek and obtain a formal extension of time within which to
complete the additional work.

185 Secondly she contended that she had established a case of delay in
progress during construction. She submitted that if the appellant was
allowed an extension of the contract period to take account of variations
(including the rectification work), all the work, including the rectification
work and the variations was not undertaken with due diligence. She argued
that this was established by the fact that that there were “unexplained
delays” when the work either took too long (an example given was the
pouring of the slabs a month apart) or when no work was done when other
work could have been done.

186 The respondent developed her submissions concerning Mr McCauley’s

entitlement to serve the Notice of Default as follows.

187 By 14 July 2000 the original contract period had expired. In the absence
of a claim for an extension of time, the appellant was in breach of the
Contract and the respondent could have determined it for that reason at
that point. The respondent next submitted that whether or not a contractor
had failed to proceed at the contractually promised rate or at a reasonable
rate involved a consideration of the individual facts of the matter and that
the primary judge had been entitled to conclude that Mr McCauley was
entitled to issue the Notice of Default. The respondent contended that the
primary judge “somewhat generously” took into account the variations to
the Works and attempted to attribute a reasonable time for their
performance in order to ascertain the appellant’s rate of progress. The
respondent observed that “… this exercise was done without the assistance
of any evidence from the builder as to whether it was in fact delayed or by
what periods”. Nevertheless the respondent submitted that her Honour’s
conclusion that the rate at which the Works progressed demonstrated that
the appellant had not performed its obligation with due diligence, was open
on the evidence.
188 The respondent also argued that a number of matters, many of which
were not the subject of findings of fact by the primary judge, or a Notice of
Contention, supported the primary judge’s conclusion that the appellant had
not performed its obligation with due diligence.
189 It is a fair summary, in my view, of many of the matters upon which the
respondent relied to say that they amounted to an assertion that “delays”
had not been explained, or that there was no evidence that the appellant
could not have been performing work elsewhere on the site pending, for
example, concrete slabs curing.
190 Thus the respondent submitted the following matters were not
explained by the appellant:

(a) the “delay” in obtaining a quote for a suspended slab, first

sought by Mr McCauley on 22 September 1999 and finally obtained
on 21 December 1999; (in oral argument Ms Olsson accepted that
once the need for revised engineering drawings arose, this quote
could not be obtained until they were complete, but submitted that
the fact the appellant did not obtain the quote for another three
weeks displayed lack of proper planning)
(b) why it took until April 2000 for the in-fill slab to be poured;
(c) that even though the quote for the suspended slab was accepted
in February 2000, the suspended slab was not poured until about 24
May 2000 and there was “no explanation for the delay between the
date the quote was obtained and the date the work was carried out
except, generally, that rectification and variation work was being
carried out and the intervention of the Christmas shutdown;
(d) that the engineer’s details had showed the garage and rumpus
room slabs were to be poured with the suspended slab whereas, in
fact, they were poured separately and “no explanation was offered
to account for this”;

(e) the “delay” in starting brickwork on the in-fill slab once it was
poured having regard to Mr Goulding’s evidence that bricklaying
work could commence on that slab within 3 – 4 days of it being
 poured;

(f) why the suspended slab was poured on 24 May, separately from
the in-fill slab and for the “delay” in pouring it;
(g) that the internal stairs and rear deck slab were not poured until
after 21 June and “no explanation was offered as to the reason that
this work was only being organised in June”;

(h) that in about June 2000, [Hometeam] only had workers on site
for 3 or 4 days a month”; the inference being, as I understand the
submission, that there was no explanation for this;

(i) that the Stegbar windows had been selected at the time of
contract but the appellant had not ordered them until 10 April 2000
and no explanation had been given as to why they were not ordered
until that time.

191 The respondent also submitted there was no evidence from the
appellant concerning the following matters:

(a) that the period during which the revised engineering drawings
were being prepared prevented it from carrying out the Works; (the
respondent observed, for example, that the stonemasons
commenced their works during this period)

(b) that, as the primary judge found, there was no expert evidence
that all site work had to stop pending rectification (see [106]) and, in
fact, that the evidence was to the contrary in that site works had
been carried out and footings had been poured;
(c) that although the suspended slab was poured on 24 May,
brickwork did not appear to have commenced on it until
approximately 15 July at the earliest having regard to the
photographic evidence and that “even allowing for a period of 28
days for the slab to cure, brickwork should have commenced on 21
June”;
(d) that the photographs demonstrated that although the Stegbar
windows were progressively delivered between 12 – 20 July 2000, all
that appeared to happen was that they were propped upright but no
further brickwork was undertaken and that it was only on 7 August
that there was evidence of any further brickwork being undertaken.

Were the works “done with due diligence”?

192 Turning to the first way in which the respondent put her case on lack of
due diligence, Ms Olsson contended that in the absence of a formal claim for
an extension of time pursuant to cl 9.2 in respect of the rectification work,
the appellant was in breach of contract when the Works were not completed
at the end of 37 weeks. She submitted the primary judge had correctly
concluded (at [142]) that the appellant had not made any claim for
extension of time in respect of the rectification work.
193 The primary judge did not base her conclusion that Mr McCauley was
entitled to issue the Notice of Default on the appellant’s failure to make a
formal cl 9 application for an extension of time in relation to the rectification
work. It is plain she accepted the appellant was entitled to a reasonable
period to allow for the rectification work – which she assessed at 8 weeks (a
period the appellant challenges). There was no Notice of Contention seeking
to sustain the judgment on the basis that her Honour ought to have taken
that course. However this was a matter the respondent strongly urged on
the Court and one Ms Olsson informed the Court the respondent had also
relied on below.
194 In my view the appellant’s failure to seek a formal extension of time in
a case where the issue is whether it performed the Works with due diligence
cannot be determinative. The fact that the appellant, through
administrative neglect but not neglect in carrying out the work, fails to
make proper claims for variations does not affect the enquiry, whether, in
actually performing the work, due diligence was shown.

195 This brings me to the respondent’s case of lack of due diligence based
on delay in the progress of construction.
196 The authorities concerning the content of the due diligence obligation
make it plain that the straight line equation which was inherent in the first
of the primary judge’s reasons founding the entitlement to issue the Notice
of Default (that 30% of the original contract works had taken 27 weeks of a
contract period of 37 weeks) was only the starting point in the inquiry. It
was incumbent on the respondent also to demonstrate, in my view, that
there were no circumstances that reasonably could have prevented the
appellant from having performed better.
197 Once it was accepted, as Her Honour found (see judgment at [237],
[242]) that the rectification work constituted an agreed variation (and
therefore founded an entitlement to an extension of time), the question
whether the appellant performed the Works with due diligence had to take
into account the period reasonably taken by the rectification work.
198 The appellant argued that her Honour ought to have found the
rectification work took approximately 28 weeks from September 1999
(when the foundations were found to be inadequate) to 17 April 2000 (when
the engineer certified the structural adequacy of the sub-floor area to bear
the load of the reconstructed dwelling). If that is correct, the question
whether the appellant performed the Works with due diligence had to take
into account that extra 28 weeks. If that was factored into the contract
period, the contract period was 65 weeks and expired approximately 3
months after the Notice of Termination was served. I should note, at this
stage, that the respondent never sought to establish her case of lack of due
diligence by proving that the rate at which the Works were progressing at
the time the Notice of Default was served was such that they could not be
completed by the expiry of the contract period as reasonably extended to
take the rectification work into account: cf Australian Development
Corporation Pty Ltd v White Constructions (ACT) Pty Ltd.
199 Accordingly in order to establish that the Works, including the
rectification work, had not been performed with due diligence, it was
incumbent on the respondent, in my view, to call evidence of the nature of
that called in Hooker to establish that at the time the Notice of Default was
served, the Works were seriously incomplete and there were no
circumstances preventing the appellant from having performed the Works
at a more rapid rate.

Time for the original contract works (judgment [206] para 1)

200 The respondent sought to establish that the Works were seriously
incomplete at the time the Notice of Default was served by inviting the
primary judge to draw that inference from the rate at which the Works,
including the rectification work, progressed. That approach is reflected in
the first reason the primary judge gave for concluding the factual foundation
for the Notice of Default had been established.

201 However, in my view, the primary judge’s findings concerning the

period taken by the original contract works and that the Works proceeded at
a desultory pace were factually flawed.

202 The first error is found in the primary judge’s finding that the Works
were unacceptably delayed from mid-October until the end of November
1999. It is incontrovertible that the engineering drawings were being
revised during that period in order to enable the rectification work to be
undertaken. The respondent called no evidence to establish that there was
any other work the appellant could have carried out during this period. To
the extent she relied on the fact that stonemasons started work in
December, and sought to imply that that work could have been undertaken
during October-November, it is sufficient to note that the primary judge
appeared to accept (see [108] – [109]) Mr Goulding’s explanation to Mrs
McCauley at this time concerning the difficulty to source bricklayers and
stonemasons. However her Honour’s failure to appreciate the necessity to
revise the engineering drawings during this period demonstrates she
overlooked this critical explanation for what was happening at this time. Her
Honour should have added these 6 weeks to the 8 weeks she allowed for the
rectification work.

203 The appellant next challenged the primary judge’s finding (see
judgment at [213]) that the rectification work was complete by 7 March
2000. The appellant developed the factual basis for this aspect of its appeal
as follows.

204 It contended that the revised engineering plans provided for:

(a) the whole of the development (including the garage and rumpus
room) to be founded on new reinforced concrete strip footings;
(b) the external sandstone walls to be rebuilt as a wall with a veneer
 of sandstone in front of a (load bearing) inner skin of brickwork;

(c) the construction of new internal brick retaining walls in the

basement under the study, laundry, entry and dining room and new
foundations and steel beams under the kitchen and family room, and
the provision of compacted fill to support the new ground floor slabs;
and
(d) the construction of new in-fill slabs to support the garage,
rumpus room, study, laundry, entry and dining room and new
suspended slabs to support the kitchen, family and living rooms and
the terrace.
205 Accordingly, the appellant argued, a comparison with the original
footing and slab plan demonstrated that all of the slabs shown in the
revised slab plan were variations to the original contract works. Hence, it
contended, the rectification work consisted of demolishing all of the existing
sandstone walls and footings, constructing new concrete strip footings to
support the entire development, building external sandstone veneer walls
and internal brick retaining walls on the strip footings up to the ground floor
level of the new development, constructing new foundations and steel
beams to support the suspended slabs and providing compacted fill to
support the infill slabs.
206 Alternatively, the appellant argued that, as a practical matter, the next
stage of the works - pouring the ground floor slabs - could only proceed once
the external sandstone veneer walls, internal brick walls and other new
foundations had been constructed up to the level of the ground floor and
certified as structurally sound. Accordingly, it submitted that even if the
pouring of the new slabs was not strictly rectification (but replacement of
the original ground floor wooden frames and joists which were destroyed
during demolition), the important point was that the new slabs were all
variations and, therefore, not part of the original contract works.

207 As I understand Ms Olsson’s submissions, the respondent accepted that

the rectification work included both the new footings and the rectification of
the stonework as well as the installation of the suspended slab in lieu of a
timber floor in the main part of the house. The respondent contended that
these were “two distinct limbs” of the rectification work, but did not
elaborate on the significance, if any, of this distinction. I did not understand
the respondent to challenge the appellant’s submissions concerning the
finer details of the rectification work: the internal retaining walls and the
like. It is plain from a comparison of the original and revised engineering
drawings, that these were part of the rectification work.

208 The appellant submitted that the primary judge’s inference that the
rectification work had been completed by 7 March 2000 appeared to have
been based on the following matters:

(a) Her Honour thought that photographs taken on 26 February 2000

showed that brickwork had been constructed on top of sandstone
 blockwork;

(b) Her Honour thought that photographs taken on 22 March 2000

showed that substantial brickwork had been constructed on
sandstone footings;

(c) Her Honour considered that the fact that substantial brickwork
had been constructed on top of the footings the subject of the
certificate of structural adequacy prior to the issue of the certificate
indicated that the rectification work had been completed prior to the
issue of the certificate; and

(d) Her Honour considered that, as the respondent paid for work
associated with the rectification of stonework following progress
claim 2 made on 7 March, the whole of the rectification work had
been done prior to that time.
209 The appellant contended that each of these observations was incorrect
and that as none depended on credit findings or on the primary judge
preferring the evidence of any witness for the respondent over any of its
witnesses, this Court was in as good a position as the primary judge to
determine the proper inference to be drawn: Fox v Percy [2003] HCA 22;
(2003) 214 CLR 118.

Photographs of 26 February 2000 and 22 March 2000

210 The appellant submitted that the primary judge’s finding that the 26
February 2000 photographs showed brickwork had been constructed on
sandstone block work was wrong. It pointed out that no lay or expert
witness gave evidence to that effect. It also contended that her Honour’s
finding, apparently based on her own interpretation of the photographs,
failed to take into account Mr Goulding’s uncontested evidence to the
contrary.
211 The appellant submitted that the primary judge compounded the error
in her interpretation of the 26 February 2000 photographs, in her
interpretation of the 22 March 2000 photographs. It pointed out the
respondent had adduced no evidence of what those photographs showed
and, again, that her Honour appeared to have relied upon what she thought
they showed, without regard to Mr Goulding’s uncontradicted evidence that,
at that date, the rectification work had not been completed.

212 The appellant invited the Court to engage in the process of interpreting
the photographs. In my view that is a course the Court should undertake
with circumspection. In this instance it is unnecessary having regard to the
fact that Mr Goulding gave evidence about what these photographs
depicted. Although it might be accepted, as the respondent contends, that
Mr Goulding did not have day to day contact with the Works, he was
qualified, by reason of his involvement in the Contract and his firsthand
knowledge of the plans (as well as his general building experience), to give
evidence about the stage the Works had reached at the dates shown in the
photographs.

213 Mr Goulding gave evidence that the brickwork shown in the 26

February photographs was an integral part of the restoration of the
basement stonework. This made it clear, the appellant submitted, that the
brickwork shown was part of the rectification work, being the inner (load
bearing) skin of the (veneer) sandstone walls. The appellant also contended
that the primary judge’s interpretation that the 26 February 2000
photograph showed brickwork constructed on top of sandstone blockwork
was never put to Mr Goulding.
214 Accordingly, the appellant argued, the inference drawn by the primary
judge that the rectification work had been completed by 7 March 2000 was
contradicted, not supported, by the photographs taken on 26 February
2000.
215 The respondent submitted that the primary judge’s interpretation of the
photographs was correct and indicated that, as at 26 February, the subfloor
brickwork was underway. She relied upon the same passage of Mr
Goulding’s evidence as the appellant. However this argument appeared to
miss the point of the appellant’s complaint. To the extent that the primary
judge’s interpretation of the 26 February photographs indicated that she
thought that the rectification work was complete, her Honour was clearly
incorrect.
216 The appellant next challenged the primary judge’s conclusion that the
22 March 2000 photographs showed that substantial brickwork had been
constructed on sandstone footings. Three photographs were taken on 22
March 2000. Mr Goulding explained in cross-examination that the work
shown in one of the 22 March photographs was in the basement area and
included the retaining wall. Mr Goulding described the sandstone blockwork
shown towards the left hand side of that photograph in the middle as
amended blockwork, indicating, the appellant argued, that it was part of the
rectification work. Mr Goulding then said that immediately in front of the
amended blockwork, there was original sandstone which, as at the date of
the photograph, had not yet been changed. The appellant submitted that
this was uncontested expert evidence that, at the date the photograph was
taken, the rectification work had not been completed. It also contended that
it was not put to Mr Goulding that the photographs showed the rectification
work had been completed.

217 Mr Goulding identified the long brick wall in the middle of another 22
March photograph as the basement retaining wall which was part of the
revisions made to the footing plan and, thus, part of the rectification work.

218 Accordingly, the appellant argued, for much the same reasons given in
relation to the photographs of 26 February 2000, the photographs taken on
22 March 2000 did not show brickwork constructed on top of rectified
sandstone walls or otherwise supported the conclusion that the rectification
work had been completed. Rather, the brickwork shown in the photographs
was all in the basement, had been constructed on concrete strip footings
(not sandstone footings or blockwork) and was part of the rectification work
(not built on top of completed rectification work).
219 The respondent again argued that the primary judge’s interpretation of
the 22 March photographs was correct. She did not deal with Mr Goulding’s
evidence or the fact that the primary judge’s interpretation of those
photographs, to the extent they founded the inference that the rectification
work was complete, had not been put to him.
220 In my view Mr Goulding’s unchallenged evidence concerning the 26
February and 22 March photographs demonstrated that they showed work
being undertaken in the basement which was part of the rectification work.
It was not open to the primary judge to rely upon her own interpretation of
the photographs to reach a different conclusion.

Certificate of structural adequacy

221 The primary judge considered that the fact that substantial brickwork
had been constructed on top of the footings the subject of the certificate of
structural adequacy prior to its issue on 17 April 2000 indicated that the
rectification work had been completed prior to that date. The appellant
contended that that conclusion was based on an assumption that the
rectification work was complete when work was able to be undertaken on
the footings the subject of the certificate. The appellant contended that this
assumption involved two significant errors.
222 The first turned on what the certificate said. It certified:
“…that the external stone work walls of the basement and
the sub floor area ... as reconstructed are now structurally
adequate to support the proposed ground floor slab”.
223 The appellant submitted, correctly in my view, that it was wrong to
suggest that the footings (as opposed to the walls constructed on those
footings) were the subject of the certificate.
224 The second error for which the appellant contended was that the
primary judge’s conclusion that the rectification work was complete when
work could be undertaken on the footings demonstrated a fundamental
misconception of the scope of those works. In particular the appellant
submitted that her Honour had not appreciated that those works included
the construction of external veneer sandstone walls and internal brick walls
on the footings up to the ground floor level. The original sandstone walls
had been constructed up to the ground floor level and supported the ground
floor wooden frames proposed in the original contract works. It was those
walls which had been found, in September 1999, to be structurally
inadequate. It followed, according to the appellant, that the rectification
work was not complete until the rectified walls were built up to the ground
floor level and certified to be structurally adequate to support the ground
floor slabs. This, the appellant contended, was what was certified on 17 April
2000.
225 The respondent contended, as I understand her submission, that laying
bricks on the footings was original contract works rather than rectification
work.

226 This submission cannot, in my view, be accepted. Once it is understood

that the original contract works involved, substantially, using the existing
sandstone footings and walls whereas the rectification work involved
founding the building on new footings and the rebuilding of the existing
sandstone walls, it is apparent that laying bricks on the footings formed
part of the rectification works.
227 The certificate of structural adequacy is the best evidence that the
rectification work had been completed as at the date it bears.

Claim of 7 March 2000

228 I earlier noted that the primary judge appeared to conclude (at [164],
[213]) that, as Mr McCauley paid for work associated with the rectification of
stonework following progress claim 2 made on 7 March, the rectification
work had been completed by that date.
229 It is apparent from the revised engineering drawings that stonework
rectification was only part of the rectification works. It also appears from the
photographs that the rectification works continued after the rectification of
the external sandstone walls, with the continued construction of internal
brick walls and steel beam supports, and with filling and compacting work
until the pouring of the ground floor slab on 21 April 2000.
230 Progress claim 2 claimed payment for variations 7551/2-5 which were
for excavation costs associated with the cellar [variation 7551/2],
rectification of stonework [variation 7551/3], building an internal wall to the
store room [variation 7551/4] and building all ground floor walls in solid
brick in lieu of standard (variation 7551/5).

231 It is apparent (and the appellant accepts) that the respondent paid
$29,300 for variations 7551/2-5 on 18 March 2000 on the basis that those
activities had been completed whereas, in fact, no ground floor walls (as
opposed to basement or sub-ground floor walls) had then been built, so that
the work in variation 7551/5 had not been done at that time.

232 However, it is also apparent that variations 2 - 5 did not cover the
whole of the rectification work. Other variations (which were not paid or, as
to variations 8 – 10, claimed at this time) covered the remainder of the
rectification work: variation 7551/7 was for the pouring of the new ground
floor slabs; variation 7551/8 was for constructing the steel supporting
beams; variation 7551/9 was for the filling and compacting work and
variation 7551/10 was for constructing the internal brick supporting walls in
the basement.
233 It is relevant to note, in this respect, the findings the primary judge
made when identifying, for offset purposes (see [277]) the costs of works
completed prior to 8 August 2000, which the appellant had not included in a
progress claim at that date. Her Honour considered, inter alia, the claims for
the works comprised in variations 7 – 10. Significantly her Honour rejected
(at [242]) the respondent’s claim that variation 10, in relation to internal
brick support walls, was part of the original contract works. She found it was
“associated with other sub floor rectification work which Mr McCauley
accepted”. This finding supports the proposition that the rectification work
were not complete as at 7 March 2000.
234 Accordingly, as the appellant submitted, payment of variations 7551/2-
5 in progress claim 2 on 18 March 2000 did not indicate that the
rectification work had been completed.

Completion of rectification work: conclusion

235 In my view, the appellant’s submission that the primary judge erred in
concluding that the rectification works were completed by 7 March 2000
should be accepted. The conclusion that they included the 6 week period in
October-November 1999 and were completed when the certificate of
structural adequacy was issued on 17 April removes a substantial part of the
factual basis for the primary judge’s conclusion (judgment at [165]) that the
Works always proceeded at a desultory pace.

The suspended slab

236 The appellant next challenged the primary judge’s calculation that
Hometeam had taken 27 weeks to complete approximately 30% of the
original contract works on the basis it failed to take account of the fact that
the original contract works could not be advanced for 4 weeks from 25 May
to 21 June 2000 because the suspended slab for the kitchen/dining room
area was not able to be loaded for 28 days.

237 The primary judge rejected the appellant’s argument that the Works
had been delayed as a result of the requirement to wait 28 days for the slab
to cure because she considered that there was no evidence to indicate that
work could not have been done elsewhere on the site during the 28 day
period. The appellant submitted this finding was wrong both conceptually
and as a matter of fact.

238 First, the appellant argued, there was evidence work could not have
been done elsewhere on the site during this period. In cross-examination,
Mr Goulding gave evidence to the effect that building brick walls on the
suspended slab was the only thing that needed to happen on the site at that
stage. He rejected the suggestions that there was work for plumbers to do
on the site. While he accepted it was possible to work on the garage slab,
the appellant submitted a photograph taken on 4 May 2000 (three weeks
before the suspended slab was poured) which showed the brickwork on the
garage slab was already close to completion and the next photographs (on
10 June 2000) showed the work on the garage slab had been completed.
This suggested, according to the appellant, that no brickwork may have
been left to complete on the garage slab at the commencement of the 28
day period on 24 May 2000.
239 Secondly, the appellant contended, the primary judge effectively
reversed the onus of proof by deciding that its failure to prove that work
could not have been done elsewhere on the site during the 28 day period
meant it was not doing the works with due diligence at this time. The
appellant submitted the burden lay on the respondent to establish it was not
doing the works with due diligence and, therefore, it was for the respondent
to prove that the inability to work on the suspended slab had not delayed
the original contract works. The appellant argued the respondent had failed
to discharge this burden.

240 As I understand the respondent’s submissions, she accepted that work

could not be done on the suspended slab while it cured, but complained
that brickwork should have commenced as soon as the 28 days expired i.e.
on 21 June. She also submitted there was no or inadequate evidence that
there was no other work which could be carried out while the slab cured
and, indeed, pointed to the fact that other work was being carried out
during this period.
241 For the reasons I have given concerning the burden of proof borne by
the respondent, the appellant’s submissions should be accepted. The
respondent did not establish that the Works were not being performed with
due diligence while the suspended slab was curing. Accordingly the primary
judge erred in calculating that Hometeam had taken 27 weeks to complete
less than one third of the original contract works by failing to take account
of the delay caused by the requirement to let the suspended slab cure for
28 days. It was also erroneous to rely on this period as indicating that the
Works were being carried out in a desultory manner.

The Stegbar windows

242 Finally the appellant contended that the primary judge’s calculation
that Hometeam had taken 27 weeks to complete approximately 30% of the
original contract works erroneously failed to take account of the fact that
those works were delayed due to the late delivery of the Stegbar windows.
The primary judge had concluded this had little, if any, impact on the
progress of the works as they were delivered within a short period of the
originally anticipated date and, in any event, their late delivery should not
have prevented other work being done.
243 In fact, the appellant argued, the Stegbar windows were delivered three
weeks late. They had been ordered by Hometeam on 10 April 2000 but
Stegbar was unable to meet the intended delivery dates of 26 June and 7
July due to material supply problems. Some Stegbar windows were delivered
on about 12 and 13 July, with the remainder delivered on 20 July 2000.
244 The appellant said the manufacturer's specifications called for the
windows to be tied into the brickwork by a "Building-in-Lug" and that in
order to do this, it was necessary for the window to be installed at the same
time the brickwork was being constructed.
245 The appellant submitted there was no proper basis for the primary
judge’s finding that the late delivery of the Stegbar windows should not
have prevented other work being done. This finding was said to be based on
Mr Martin’s evidence that there were “plenty of jobs” that could have been
done while waiting for windows to arrive. The appellant pointed out that Mr
Martin did not give evidence that there were plenty of jobs other than
brickwork that could have been done but, rather, that the builder could have
ignored the manufacturer's specification and gone ahead with the brickwork
and put the windows in later without the "Building-in-Lug".

246 The appellant noted that the primary judge found that its decision to
await delivery of the Stegbar windows before bricking around them was
reasonable. Notwithstanding this finding, the appellant pointed out, her
Honour seemed to have considered that brickwork could have been
undertaken, leaving appropriate spaces for windows and their brick
surrounds in the brickwork - presumably meaning that the brickwork
immediately surrounding the windows and windows could have been
completed later when the windows were available. The appellant submitted
there was “simply no evidence to support this curious building method”. As
the “building method” suggested by her Honour was not the subject of any
evidence or submission at the trial and was raised for the first time in the
judgment, it also submitted it had not had an opportunity to point out that
the suggested method had an “obvious flaw”.
247 The appellant submitted that there was no evidence to contradict Mr
Goulding’s evidence that the approach the appellant had taken to await the
delivery of the windows before undertaking brickwork was, in the
circumstances, good building practice. It argued once that evidence was
accepted, the conclusion followed that the period awaiting the delivery of
the windows was not a relevant “delay”.
248 The respondent submitted the primary judge did not err in her findings
with respect to the Stegbar windows. She relied on two complaints
concerning the time the windows were ordered and delay in booking the
bricklayers but these did not feature in the primary judge’s reasons and can
be set aside. Next, she argued that that the primary judge correctly
concluded that the delay in the delivery of the windows was not significant
in the totality of the job and that it was not necessary for the windows to be
delivered before the brickwork could commence and it was not necessary
for the windows to be delivered before the brickwork around the window
openings could be constructed. She submitted the primary judge was
entitled to accept Mr Martin’s evidence on this point.
249 In my view the appellant’s submissions should be accepted. The
appellant’s evidence that it was good building practice to wait for the
windows before undertaking brickwork was not challenged. It was the
explanation given for the delay immediately prior to the issue of the Notice
of Default. In the absence of any cross-examination to suggest this
explanation was unreasonable, it was not open to her Honour to conclude
that another method should have been employed. Further, to the extent Mr
Martin said there were “plenty of jobs” that could have been done pending
arrival of the windows, this evidence did not descend to any level of
specificity and could not, in my view, found a conclusion of absence of due
diligence.
250 Although I accept that, in the scheme of things, the 2 – 3 weeks of
delay occasioned by the late delivery of the windows may not have been of
great significance in the primary judge’s ultimate conclusion concerning due
diligence, nevertheless to the extent that they formed any basis for that
conclusion, they were erroneous.

Time taken for original contract works: summary

251 The appellant submitted that when allowance was made for delays to
the original contract works associated with the rectification work from 17
September 1999 to 17 April 2000 (i.e. 31 weeks, including the Christmas
shutdown), the curing of the suspended slab (4 weeks) and the late delivery
of the Stegbar windows (3 weeks), the original contract works had taken at
most 11 weeks up to 14 July 2000 (i.e. 49 weeks from 9 August 1999 to 14
July 2000 less 31 weeks, less 4 weeks, less 3 weeks equals 11 weeks), not
the 27 weeks found by the primary judge. That meant that approximately
30% of the original contract works had been done in approximately 30% of
the time stipulated in the Contract (i.e. 11 weeks as a percentage of 37
weeks).

Desultory pace (judgment [206] para 2)

252 The appellant next challenged the primary judge’s finding that Mr
McCauley was entitled to issue the Notice of Default because “the works had
always proceeded at a desultory pace”. The appellant contended that that
conclusion was erroneous both generally, and particularly if its submission
that by 14 July 2000 approximately 30% of the contract works had been
undertaken in about 30% of the time stipulated in the Contract was
accepted.

253 The primary judge had founded her conclusion that the Works
proceeded at a desultory pace (at [165]) on the proposition that “if one
compared the apparent rate at which work was progressing in the period
late January to mid April 2000 with the apparent rate of progress in the
period mid April to late June 2000, no substantial difference could be
detected”. The appellant submitted that her Honour’s reasoning provided
no more than a comparison of rates of progress in various periods of time.
254 In my view this finding ultimately stood or fell by reference to the
findings which were made, or ought to have been made, concerning the
performance of particular stages of the work. It cannot, in the circumstances
of this case, amount to an independent finding of lack of due diligence.
255 The closest the evidence came to an assertion that the overall period
the work had taken was such as might attract a “desultory pace” finding
was Mr Martin’s statement that the work he saw when he inspected the site
in about early August 2000 having regard to his experience and “excluding
rain or unusual delays … should have taken about 10 weeks to reach that
stage”. The respondent relies on this evidence as part of her case that the
appellant had failed to perform the Works with due diligence.

256 It does not appear that the primary judge relied upon this evidence as
she observed (at [212]) that the 10 week period “did not take into account
work on the sandstone foundations (which Mr Martin could not observe) or
delays caused by unforeseen circumstances”. It is apparent that her Honour
concluded, properly in my view, that Mr Martin’s evidence in this respect
could be given little, if any, weight. It was expressed in the most general of
terms and paid no regard to the particular circumstances of the site, not
least the necessity to undertake the rectification work.
257 In my view the errors which the appellant has established attending the
primary judge’s findings concerning the progress of the Works lead to the
conclusion that she erred in finding that the respondent had established
that “the works had always proceeded at a desultory pace” – at least insofar
as such a finding might independently support an entitlement to issue the
Notice of Default.

June - mid July (judgment [206] para 3)

258 The third reason given by the primary judge as justifying the Notice of
Default was that almost no work was done in the period June to mid July,
except for some formwork. While the appellant accepted it was “largely
true” that little brickwork was done in that period, it submitted this was
because brickwork could not be laid on the suspended slab from about 24
May 2000 to about 22 June 2000 while it was curing and that the Stegbar
windows were not delivered until 20 July 2000. It pointed out that the only
other brickwork (i.e. on the garage slab) which had been completed by 10
June and other work that could have been done (formwork and pouring of
the terrace slab) was done during this period.

259 The appellant contended the primary judge’s conclusion that

Hometeam was not doing the work diligently failed to take into account
work which was done and the delays associated with the suspended slab
and the Stegbar windows. Finally it argued there was no evidence that other
work could have been done during this period.
260 The appellant’s submission must be accepted in the absence of
evidence from the respondent about what work she contended the appellant
should have been doing during this period and that there was no reason
why that work was not being done.

No increased work rate (judgment [206] para 4)

261 The appellant challenged the primary judge’s conclusion that there was
no response to Mr McCauley's letters of 15 or 28 June by way of an increase
in the rate at which work was being undertaken. It submitted, in essence,
that this proposition missed the point. It pointed out “there clearly was a
response to those letters, by way of an explanation that the delivery of the
Stegbar windows had been delayed and that it was not good building
practice to commence the brickwork before the Stegbar windows had been
delivered”. This is correct. As I earlier explained, Mr Goulding wrote to Mr
McCauley on 30 June 2000 drawing his attention to his letter of 5 June 2000,
detailing among other matters the problem with the delayed arrival of the
Stegbar windows and claiming an extension to the Contract under cl 9.1(h)
from 26 June until the windows arrived.

262 As I have already held (see [249]) that the appellant was entitled to
wait for the windows to arrive before commencing brickwork, it follows that
there could have been no increase in the work rate until they arrived.
263 The appellant’s submission must be accepted.

Other excuses (judgment [206] para 5)

264 Finally the appellant criticised the primary judge’s finding that it had
relied on “a variety of excuses” but had produced no evidence to support
the proposition that any such matter provided a real reason for substantial
delay.
265 It contended it had adduced evidence relating to two of the three
“variety of excuses” to which her Honour referred: that there were
shortages of materials which led to work having to be stopped on site and
the late delivery of the Stegbar windows. In particular it submitted the late
delivery of the Stegbar windows was a genuine reason for not continuing
with the brickwork and not merely an excuse because the brickwork re-
commenced on the windows being delivered.

266 It is sufficient to note that the appellant has established a reason for
the delay in undertaking brickwork caused by the late delivery of the
Stegbar windows. It is not necessary, in my view, to explore the factual
basis for the other “excuses” to which the primary judge referred.

Due diligence: conclusion

267 The appellant’s submission that the primary judge’s reasons for finding
that as at 14 July 2000 Hometeam was in breach of the cl 38.1(d) obligation
to carry out the Works with due diligence were erroneous must be accepted.

Entitlement to terminate the Contract

268 This conclusion makes the question concerning the correctness of the
primary judge’s finding that Mr McCauley was entitled to terminate the
Contract academic. However, I will deal with it briefly.
269 The appellant submitted that even if Mr McCauley was entitled to give
Hometeam the Notice of Default, the primary judge erred in holding that the
Notice of Termination effectively terminated the Contract.
270 It contended there were a series of errors in the approach taken by the
primary judge to the termination issue. Again, I do not consider it necessary
to consider all the matters upon which the appellant relied. The appellant
complained her Honour erred in considering that the question whether Mr
McCauley was entitled to give the Notice of Termination under cl 33.2 of the
Contract was to be determined by finding whether the breach was remedied
by 31 July 2000 (when 10 working days had passed since the notice of
default had been given) rather than by determining whether the breach was
remedied by 8 August 2000 (when the Notice of Termination was given).
Although it accepted that the primary judge took into account building work
done beyond the 10 working day period, it contended she erroneously
confined its relevance to determining whether Hometeam had remedied the
breach by the end of the 10 working day period.

271 The appellant contended that if the primary judge had considered
whether Hometeam had remedied the breach as at 8 August 2000, not as at
31 July 2000, having regard to her finding that a reasonably significant
amount of brickwork was undertaken on the site between 29 July and 7
August 2000, she would have found that it was doing the building works
with due diligence as at 8 August 2000.

272 The appellant submitted the primary judge seemed largely to have
ignored the evidence which demonstrated that Hometeam was proceeding
with due diligence on the expiry of ten days after the giving of the Notice of
Default and from then until the Notice of Termination was given, including
the following:

(a) that it commenced work immediately on the delivery of the

Stegbar windows and, significantly, before it received the default
notice on 20 July 2000 in that it had carpenters and bricklayers on
site doing brickwork and propping up the windows that had been
delivered on 12 or 13 July 2000.

(b) that the Stegbar windows delivered on 12 or 13 July had been

positioned and partially bricked in by 15 July, so that the works then
awaited the delivery of further windows. The remainder of the
Stegbar windows were not delivered until about 20 July 2000, and
photographs showed them as being propped and bricked into
position between 22 and 29 July.

(c) that, contrary to the primary judge’s characterisation of this work

as consisting merely of restacking some bricks on the site and
propping a number of windows into position on a temporary basis,
the work involved brickwork, not merely restacking bricks. The
appellant also relied on Mrs McCauley’s evidence that the work was
progressing with windows going up and being propped up and
bricked in from 15 July to 25 July, that she was not complaining of
any lack of activity at that time, that to her observation the work
was progressing properly during this period and was progressing
without delay.
273 The appellant also criticised the primary judge’s finding that while a
reasonably significant amount of further brickwork was done between 29
July and 7 August, there was no evidence of any other work having been
done apart from this "sudden short burst of brickwork". It submitted that
that finding was erroneous in that:

(i) there was not only no evidence that Hometeam should have been
doing any other work apart from brickwork, but Mr Martin, the
respondent’s builder, gave evidence that the brickwork done by the
appellant between 29 July and 7 August was appropriate work to
move the building forward;

(ii) the "sudden short burst of brickwork" was only cut short because
the respondent purported to terminate the Contract and that Mr
Goulding gave unchallenged evidence that, if the Contract had not
been ended as at 8 August 2000, within approximately 7 days of
that date Hometeam would have completed the balance of all
brickwork on the ground floor by laying about 4000 more bricks.

274 Finally the appellant challenged the primary judge’s conclusion that it
should have provided Mr McCauley with a program for completion in order
“to communicate an intention to work diligently”. It is sufficient, in this
respect to note that the Contract did not require a program for completion.
In addition, the primary judge had accepted (at [81]) Mr Martin’s evidence
that a construction program was "a waste of time".
275 The respondent contended that it was unnecessary to decide any
question as to the construction of cl 33.2 to determine whether the
appellant’s conduct as at August as opposed to 31 July was relevant to
whether it had remedied the breach because the primary judge had, in fact,
considered the appellant’s conduct up until 8 August 2000. In this respect
the respondent contended there had been no appreciable change to the
situation of the Stegbar windows between photographs taken on 29 July and
some taken on 7 August 2000 “although some additional brickwork is
evident” and that the primary judge had been entitled to take the view “that
apart from the sudden short burst of brickwork”, there was no evidence of
any other work being done.
276 Finally the respondent contended there was nothing in the appellant’s
conduct which warranted a finding that it had remedied the breach referred
to in the Notice of Default. The respondent submitted that it was a matter
for the primary judge to consider whether, in the circumstances, the default
has been rectified. In so doing, she contended, the primary judge was
entitled to consider the surrounding circumstances, including the defaulting
party's earlier conduct as well as matters indicative of its future intention.
She relied upon Brenmar Building Co Limited v University of Newcastle
where Glass JA said (at 470):
“[the clause] is not primarily concerned with rectification but
 rather with future performance ... [They] are really intended
to describe the builder's general approach to his work …"

Entitlement to terminate: conclusion

277 It is difficult, in my view, to sustain the primary judge’s conclusion that,
the respondent had demonstrated that the appellant had not remedied any
lack of due diligence.
278 First, it should be noted that Mrs McCauley gave evidence that during
the period 15 – 25 July she was not complaining of lack of activity and, to her
observation, the work was progressing properly.

279 The primary judge does not explain why she preferred her
interpretation of photographs for the period 15 – 29 July as the basis for
concluding that the appellant had not begun to work in a diligent manner in
that period to Mrs McCauley’s evidence that, for at least 10 days of this
period, work was proceeding properly.
280 Further, as the appellant submits, it is difficult to understand why the
primary judge concluded that the “10 day burst of activity” which she
accepted took place between 29 July and 7 August 2000 when “a reasonably
significant amount of further brickwork was undertaken” did not
demonstrate that the appellant was working in a diligent manner. As the
appellant submitted, undertaking brickwork was, at this stage, the next step
in the Works and, further, in the 8 or so days from 29 July little more could
be undertaken than what would appear to be a “sudden short burst of
brickwork”.

281 The question whether the appellant produced a programme for

completion of the Works was factually irrelevant. It was not a contractual
obligation, and was "a waste of time" according to Mr Martin. Assuming
evidence of the appellant’s intention to perform in the future was relevant
to the question whether it had remedied any breach that intention was
sufficiently manifest, in my view, in the work it undertook after the Notice of
Default was served.
282 In my view the primary judge erred in concluding that Mr McCauley was
entitled to serve the Notice of Termination.

Damages on the cross-claim

283 The final ground of appeal concerns the damages the primary judge
awarded the respondent.
284 In order to determine the damages to which the respondent was
entitled on the cross-claim it was necessary for the primary judge first to
determine the percentage of the Works which were complete at the date of
the termination of the Contract. Although, having regard to my conclusion
that the appeal against the primary judge’s finding in the respondent’s
favour on the cross-claim should be set aside renders issues of damages
academic, it is appropriate to consider the appellant’s complaints under this
heading in case the matter goes further.
285 The appellant contended that there were four errors in the primary
judge’s assessment of damages. Two of those (a claim for rent and a claim
for liquidated damages) turned on the appellant’s abandoned argument
that the contract period had not commenced to run and can be set aside.
286 The other two complaints are that the primary judge erred:

(a) in failing to deduct the amount of 5% from the calculation of the

value of works completed at the time the appellant left the site;

(b) in preferring the analysis of Mr Deeks regarding the reasonable

costs of completion of the Works.
287 The primary judge’s approach to the calculation of damages on the
cross-claim (which the appellant did not challenge) was that the respondent
was entitled to recover the total amount paid in relation to completion of the
Works (payments to the appellant plus reasonable costs to complete plus
GST on the reasonable costs) less the adjusted contract sum (the original
contract sum plus the value of variations). Determining the “reasonable
costs to complete” depended, in the first instance, on determining what
work had been completed as at 8 August 2000.
288 Before the primary judge the appellant submitted (see [233]) that the
Schedule of Progress Payments provided a guide as to the percentage of the
Works completed at the date it left the site. It argued that 27% of the
progress payments had been paid, being the 5% deposit and 22% on the
first two progress claims. It also submitted that if Mr Goulding’s evidence
was accepted it was only 7 days away from issuing progress claim 3 which
would have rendered the respondent liable to a further 15% of the total sum
payable under the Contract. It must have discounted the total percentage of
42% because her Honour recorded (at [233]) that the appellant argued the
Schedule of Progress Payments suggested at least 35% of the Works had
been completed by 8 August.
289 While the primary judge accepted the appellant’s approach to
estimating the percentage of works completed, she held (at [234]) it
incorrectly took into account the 5% deposit paid in respect of tasks
undertaken prior to the practical commencement of building work.
Accordingly, she concluded that about 30% had been completed by 8
August 2000.
290 If the appellant succeeds in the first challenge to her Honour’s
assessment of damages on the cross-claim, the consequence is to increase
the notional value of the Works completed as at 8 August 2000 and
correspondingly reduce by the amount of the 5% deposit of $19,670, the
damages awarded to the respondent.

291 The respondent accepted that the quantity surveyors assessed the
value of works completed when the appellant left the site as one means of
assessing the time taken to perform the Works. However, the respondent
contended that the actual value of works performed at the time the
appellant left was not considered in the assessment of damages. That is
incorrect. Her Honour’s calculation of the damages on the cross-claim (at
[277]) includes an assessment of what it would reasonably cost to complete
the Works. That calculation depended upon determining what works were
completed, at the time the appellant left the site in order to determine what
was outstanding.
292 The respondent did not challenge the proposition that the deposit
represented an allowance for preliminary works.
293 The appellant’s written submissions asserted that both parties’ quantity
surveyors considered that it was “proper and usual costing practice” to
make an allowance for the cost of preliminary work (such as site
establishment) before demolition and that such an allowance should have
been made in the present case. No reference was given to the experts’
evidence in this respect. The appellant also submitted that as the deposit
was not refunded on the completion of the Works, it was properly to be
considered as payment for work done, not merely as an earnest for
performance.

294 The primary judge did not explain why it was incorrect to take into
account the 5% deposit.

295 In the light of the appellant’s submission concerning the experts’

common position in relation to an allowance for preliminary work, I would
hold that the primary judge ought to have taken into account the 5%
deposit in determining the percentage of work completed as at 8 August
2000.

296 The final complaint concerning the primary judge’s preference for Mr
Deeks’ evidence can be dealt with briefly. Both experts gave evidence by
way of report and were called and cross-examined. Her Honour analysed
their competing evidence and accepted the submissions made by the
respondent for preferring Mr Deeks’ evidence to that of Mr Barker. Her
Honour’s decision as to which of the experts she accepted was clearly open
to her. In my view the appellant has not established that she erred in this
respect.

Orders

297 The respondent did not contest the proposition that if the appeal was
successful so that Mr McCauley had not been entitled to issue the Notices of
Default and Termination, his conduct constituted repudiation of the Contract
which would have entitled the appellant to a verdict on its claim.

298 The following orders should be made:

Statement of Claim
 (1) Appeal allowed.

(2) Set aside the verdict for the respondent on the claim and all
orders (including costs orders) made on the claim by Murrell DCJ on
18 June 2003.

(3) Verdict for the appellant on the claim.

(4) Remit the matter to Murrell DCJ to quantify the loss or damage
suffered by the appellant and determine all questions of costs of the
claim.

Amended Cross-Claim

(5) Set aside the verdict, judgment and orders made against the
appellant on the cross-claim by Murrell DCJ on 18 June 2003.
(6) Verdict for the appellant on the cross-claim.

(7) Order the respondent to pay the appellant’s costs of and

incidental to the cross-claim.

Costs of Appeal

(8) Respondent to pay the appellant’s costs of and incidental to the

appeal.

**********

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