Proving Loss, Delay and Hungerfords Interest

In Kazzi v KR Properties Global? t_as AK Properties Group [2024] NSWCA 143, KR Properties Global Pty Ltd and AS Coaching Pty Ltd ATF Calm Properties Unit Trust (collectively, the Owners), had contracted with Oxford (NSW) Pty Ltd (Oxford), a building company to build a 6 unit residential apartment building. The appellant Pierre Kazzi was the supervisor.? The contract stipulated a practical completion date of 4 July 2017, which Oxford failed to meet. Consequently, the Owners terminated the contract on 5 April 2019. Oxford initiated proceedings against the Owners to recover outstanding amounts from invoices served under the contract. In response, the Owners cross-claimed against Oxford and Mr. Kazzi, seeking damages for breach of contract and breach of duty under section 37 of the DBP Act respectively.

The cross-appeal issues involved the Owners seeking a judgment against Mr. Kazzi for $918,545.46. They alleged that the primary judge had erred in deciding that interest should accrue from 20 March 2019, rather than from the practical completion date under the contract (ground 1). Additionally, they contested the primary judge's conclusion that they had failed in their claim against Mr. Kazzi for damages due to his alleged breach of statutory duty under section 37 of the Design and Building Practitioners Act 2020 (NSW) (DBP Act) concerning specific defects (ground 2). They further argued that the primary judge was wrong in finding that they had not proved their loss (ground 3), and in rejecting the evidence provided by Mr. Mahedy, the project architect, regarding the rectification costs (ground 4).

The Owners succeeded on every ground in the cross-appeal. The Owners had only failed against Mr Kazzi because they had not been able to prove loss.

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Stevenson J, the primary judge had not accepted the evidence of Mr Mahedy.? The primary judge said that the evidence of Mr Mahedy had not been revealed the implicit assumptions upon which his opinions and allocations were made (at [146]).? However, Mitchelmore JA with whom Gleeson JA and Basten AJA agreed, said that Mr Mahedy was a witness of fact more than an expert witness (at [140] and [146]). In relation to the proving loss, Mitchelmore also said at [139] that:

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“139. The need for allocation as between completion and rectification works arose because of the need for both kinds of work on the site, and the capacity for certain suppliers simultaneously to be undertaking both (eg, the builder and PRM), or meeting the needs of both (such as the supply of skip bins). That was the position in which Oxford and Mr?Kazzi left the Owners, with a Building that was both incomplete and beset with significant defects. In so far as Mr?Mahedy’s allocations were of a general nature, the Owners relied, with some force in my view, upon statements, in cases such as Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (No 3)[2012] VSC 99 and Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 (“Houghton”), about approaching the question of damages in circumstances where the defendant has by its conduct made a precise assessment difficult. In Houghton, for example, Handley JA (with whom Mason P and Beazley JA agreed) stated at p 59:

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“In my judgment the Court should assess the compensation in a robust manner, relying on the presumption against wrongdoers, the onus of proof, and resolving doubtful questions against the party ‘whose actions have made an accurate determination so problematic’”.

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See also McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 at [155].”

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Mr. Mahedy, who was closely involved in the project, had made allocations based on his direct knowledge of all aspects of the project (at [140]). Mitchelmore JA said that the need for allocation between completion and rectification works arose because of the need for both kinds of work on the site, and the capacity for certain suppliers simultaneously to be undertaking both (eg, the builder and PRM), or meeting the needs of both (such as the supply of skip bins) (at [139]). The court accepted that Mr. Mahedy’s evidence provided a sufficiently reasoned methodology on which to rely (at [142]).

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The building constructed by Oxford had also encroached on the boundaries of Lot 1, Lot 3, and Council land. The encroachments included the northern wall of the building encroaching on Lot 1 by up to 50mm, the south-eastern corner of the ground floor slab encroaching on Lot 3 by 175mm, and the slabs and block walls of the western balconies of units C1 and C2 encroaching on Council land by up to 45mm. To rectify these encroachments, easements had to be obtained over Lots 1 and 3, the block walls on the western balconies of units C1 and C2 were demolished, and the concrete slabs of the western balconies of units C1, C2, C3, and C4 were shaved (at [61]-[63]). This caused significant delay.

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There were other instances of delay related to the construction project. The primary judge found that there were concurrent causes of delay between 20 March 2019 and 30 June 2020, including outstanding fire safety works and Mr. Kazzi's negligence. Mr. Kazzi's negligence was identified as a material cause of the delay, which extended back to the date of practical completion under the contract.

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The Court of Appeal awarded the Owners Hungerfords interest from July 2017 (the original contract date for practical completion). The primary judge found that there were concurrent causes of delay between 20 March 2019 and 30 June 2020, including outstanding fire safety works and Mr. Kazzi's negligence. Mr. Kazzi's negligence was identified as a material cause of the delay, which extended back to the date of practical completion under the contract. The Owners were unable to register the strata plan or obtain an occupation certificate for the development until mid-2020 due to an encroachment over Mr. Kazzi’s property. There was no delay on the part of the Owners that would disentitle them to damages (at [172], [173], [174]).

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