CORRS’ CONSTRUCTION
LAW UPDATE
OCTOBER 2015
WWW.CORRS.COM.AU
CONTENTS
COMMONWEALTH................................... 4
Clarity on apportionable claims — Selig v
Wealthsure Pty Ltd (2015) 320 ALR 47......4
Keywords: proportionate liability
VICTORIA............................................... 26
Sugar Australia Pty Ltd v Lend Lease
Services Pty Ltd [2015] VSCA 98..............26
Keywords: calling on security
INTERNATIONAL DEVELOPMENTS...... 50
The end of the penalty doctrine in
England?....................................................50
Keywords: penalties
Cook Building and Development Pty
Limited v Citicorp International Limited
[2015] FCA 703............................................6
Keywords: orders for pre-trial discovery
against foreign parties
Commercial & Industrial Construction
Group Pty Ltd v King Construction Group
Pty Ltd [2015] VSC 426..............................30
Keywords: security of payment; reference
dates
Aspect Contracts (Asbestos) Limited v
Higgins Construction Plc [2015]
UKSC 38.....................................................52
Keywords: limitation periods and appeal
from adjudications
Recent and proposed amendments to the
International Arbitration Act 1974 (Cth)....8
Keywords: international arbitration
Infrastructure Victoria Act 2015 (Vic).......32
Keywords: Infrastructure Victoria
Clear language trumps common sense in
Arnold v Britton [2015] UKSC 36..............54
Keywords: contractual interpretation
NEW SOUTH WALES............................. 10
John Holland Pty Limited v Kellogg Brown
& Root Pty Ltd [2015] NSWSC 451, [2015]
NSWSC 564...............................................10
Keywords: stays of arbitration
InfraShore Pty Ltd v Health Administration
Corporation [2015] NSWSC 736...............12
Keywords: referral to arbitration
Caves Beachside Cuisine Pty Limited v
Boydah Pty Limited [2015]
NSWSC 1273.............................................16
Keywords: agreements to negotiate
New South Wales Netball Association Ltd
v Probuild Construction (Aust) Pty Ltd
[2015] NSWSC 1339..................................18
Keywords: challenges to security of
payment adjudication determinations
QUEENSLAND....................................... 20
Saipem Australia Pty Ltd v GLNG
Operations Pty Ltd (No 2) [2015]
QSC 173.....................................................20
Keywords: calling on security
Sunshine Coast Regional Council v
Earthpro Pty Ltd [2015] QSC 168.............22
Keywords: re-agitation of payment issues
BRB Modular Pty Ltd v AWX
Constructions Pty Ltd [2015] QSC 218.....24
Keywords: BCIPA; payment claims;
statutory declarations
WESTERN AUSTRALIA.......................... 34
Contract is king and time bars that bite:
CMA Assets Pty Ltd v John Holland Pty
Ltd [No 6] [2015] WASC 217.....................34
Keywords: time bars and prevention
principle
Too complex to get it right: Laing
O’Rourke Australia Construction Pty Ltd v
Samsung C&T Corporation [2015] WASC
237.............................................................40
Keywords: appeal from adjudications
Diploma Construction (WA) Pty Ltd v Best
Bar Pty Ltd [No 2] [2015] WASC 230........42
Keywords: contractual records
Signed in a Snap: Claremont 24-7 Pty Ltd
v Invox Pty Ltd [No 2] [2015] WASC 220,
Email and Electronic Signatures.............44
Keywords: electronic signatures
MT Højgaard A/S v E.ON Climate and
Renewables UK [2015] EWCA Civ 407.....58
Keywords: fitness for purpose
Bath and North East Somerset District
Council v Mowlem plc (2004) [2015] 1 WLR
785 AB v CD [2015] 1 WLR 771 Ashton
Manufacturing Pty Ltd v Express Sign
Labs Pty Ltd [2015] FCA 975....................62
Keywords: how contractual limitations
and exclusions of damages affect
interlocutory injunctions
JOURNAL ARTICLES OF INTEREST...... 66
CORRS THINKING................................. 67
AUSTRALIAN CAPITAL TERRITORY
& SOUTH AUSTRALIA............................46
Adapt Constructions Pty Ltd v Whittaker
[2015] ACTSC 188......................................46
Keywords: effect of nil liquidated damages
The sanctity of the architect’s certificate:
Cirocco Constructions Pty Ltd v Clarke
(No 2) [2015] SADC 107.............................48
Keywords: set off; ABIC SW 2008
The information contained in this publication is intended as an introduction only, and should not be
relied upon in place of detailed legal advice. Some information has been obtained from external sources,
and Corrs cannot guarantee the accuracy or currency of any such information.
The information contained in this publication was current as at October 2015.
WELCOME TO THE
LATEST EDITION OF
CORRS’ CONSTRUCTION
LAW UPDATE
OCTOBER 2015
This publication provides a concise review of, and
commercially focussed commentary on, the major judicial
and legislative developments affecting the construction
and infrastructure industry in recent months.
It is a useful resource to help in-house practitioners and
commercial managers keep up-to-date with recent legal
developments and current legal thinking.
We hope that you find it interesting and stimulating.
OUR THINKING
Corrs regularly publishes thinking pieces which consider issues
affecting various sectors of the domestic and global economies.
We have included at the end of this Construction Law Update
links to some of our recent thinking on issues affecting
development in arbitral practice as well as the construction
industry generally.
CORRS’
CONSTRUCTION
LAW UPDATE
COMMONWEALTH
CLARITY ON
APPORTIONABLE
CLAIMS — SELIG V
WEALTHSURE PTY LTD
(2015) 320 ALR 47
KEYWORDS: PROPORTIONATE LIABILITY
KEY TAKEAWAYS
This decision clarifies the scope of “apportionable claims” under the Corporations Act
(the Act). Where a plaintiff claims for the same loss or damage on different grounds, under s
1041h of the Act, the loss will be apportioned as though there is a single claim. This decision
only concerns Division 2a of part 7.10 and will not necessarily apply to claims based on other
sections of the Act.
PAGE 4
The facts
The decision
The appellants invested in Neovest
Limited (Neovest) on the advice of David
Bertram (the second respondent), an
authorised representative of Wealthsure
Pty Ltd (the first respondent). Norton
Capital also participated in the
promotion of the investment. The Court
described the venture as a “Ponzi
scheme”.1 Neovest became insolvent.
The appellants lost their investment and
suffered consequential losses.
Application of Division 2A
At first instance the appellants claimed
that the first and second respondents
contravened a number of statutory
provisions, including section 1041H of
the Corporations Act, which prohibits
misleading or deceptive conduct.2 Lander
J found the first, second, fifth and sixth
respondents each liable to the appellants
for the whole loss suffered. Further,
Lander J held that Division 2A of the Act
only applied where section 1041H had
been contravened and not where there
was a successful statutory or common
law claim for that loss.3
The first and second respondents
succeeded on these proportionate
liability questions on appeal to the Full
Court of the Federal Court.
Issues on appeal
The primary issue on appeal to the High
Court was whether Division 2A applied to
all of the appellants’ successful causes
of action, so that the loss suffered by the
appellants should have been apportioned
among the respondents.
1
2
3
4
5
At [1] (French CJ, Kiefel, Bell and Keane
JJ)
Wealthsure Pty Ltd v Selig (2013) 94
ACSR 308
Wealthsure Pty Ltd v Selig (2013) 94
ACSR 308 at [1146]–[1147] (Lander J)
At [24] (French CJ, Kiefel, Bell and
Keane JJ)
At [27]–[29] (French CJ, Kiefel, Bell and
Keane JJ)
6
7
8
The High Court held that the meaning
of “apportionable claim” in section
1041L(1) was critical to determining the
ambit of Division 2A. Their Honours held
that while the loss or damage that the
appellants alleged they had incurred
was the same, the issue was whether
Division 2A applied so that that loss
had to be apportioned. The first hurdle
to establishing an apportionable claim
under this provision is that it be for
damages claimed under section 1041I.
Notably, their Honours pointed out that
these damages must be claimed for a
contravention of s 1041H.4
The High Court was critical of the Full
Court’s decision to focus on section
1041L(2), to the detriment of section
1041L(1), in determining the construction
of the term “apportionable claim”.5 The
Full Court had identified two aspects
of section 1041L(2) as important to
an understanding of what constitutes
an “apportionable claim”: (i) the
requirement that the loss or damage the
subject of the causes of action be the
same; and (ii) the acknowledgement that
there may be more than one cause of
action and that they may be of different
kinds. As a consequence, the Full Court
was able to view each cause of action
pleaded by the appellants as being an
“apportionable claim”.
The High Court disagreed with this
approach. Instead, it held, applying
well-settled rules of construction, that
the same meaning should be given to
the word “claim” where it appears in
sections 1041L(1) and 1041L(2).6 Rather,
the purpose of section 1041L(2) is to
explain that, regardless of the number
of ways in which a plaintiff seeks to
substantiate a claim for damages based
on a contravention of section 1041H, so
long as the loss or damage claimed is
the same, apportionment is to be made
on the basis that there is a single claim.7
In summary an “apportionable claim”
for the purposes of Division 2A is a claim
based on a contravention of section
1041H only and does not extend to claims
based upon conduct of a different kind.8
http://www.austlii.edu.au/au/cases/cth/
HCA/2015/18.html
At [29] (French CJ, Kiefel, Bell and
Keane JJ)
At [31] (French CJ, Kiefel, Bell and
Keane JJ)
At [37] (French CJ, Kiefel, Bell and
Keane JJ)
PAGE 5
CORRS’
CONSTRUCTION
LAW UPDATE
COMMONWEALTH
COOK BUILDING AND
DEVELOPMENT PTY
LIMITED V CITICORP
INTERNATIONAL LIMITED
[2015] FCA 703
KEYWORDS: ORDERS FOR PRE-TRIAL DISCOVERY
AGAINST FOREIGN PARTIES
KEY TAKEAWAYS
The Federal Court of Australia may grant leave to a party seeking to serve an application for
pre-trial discovery on a prospective respondent in a foreign jurisdiction.
The Court must consider, amongst other things, the proposed method of service and whether
the party has a prima facie case for an order for pre-trial discovery.
PAGE 6
The facts
The decision
Cook Building and Development Pty
Limited (Cook), entered into a contract
with Jabiru Satellite Limited (Jabiru), a
company within the NewSat Group, for
the construction of an installation on a
property in South Australia.
White J granted Cook leave. Cook’s
application satisfied the requirements
of rules 10.42 and 10.43 of the Federal
Court Rules 2011 (Cth):
•
the proposed method of service
(personally or by post to Citicorp’s
registered office) was authorised
by both the Hague Convention on
the Service Abroad of Judicial and
Extrajudicial Documents in Civil or
Commercial Matters and the relevant
law of the People’s Republic of China
(rule 10.43(3));
•
the Court had jurisdiction to hear
Cook’s claims against Citicorp,
such as a breach of the Australian
Consumer Law (rule 10.43(4)(a));
•
an application for leave to serve an
application for pre-action discovery is
the kind of originating application that
may be served outside Australia (rules
10.42 and 10.43(4)(b)); and
•
Cook had a prima facie case for an
order for pre-action discovery (rule
10.43(4)(c)).
Cook asserted that it was owed $1.2
million under two progress payment
claims.
Cook contended that Citicorp, who
appointed receivers and managers to
Jabiru, allowed Jabiru to enter into the
contract with Cook without disclosing
to Cook that the NewSat Group was in
breach of covenants under its financing
facilities. Cook claimed that Citicorp had
breached a duty of care it owed Cook; or
that Citicorp had engaged in misleading
or deceptive conduct; or that Citicorp’s
conduct was unconscionable.
Before commencing proceedings against
Citicorp, Cook sought to ascertain the
extent to which Citicorp knew, at the
relevant time, that Cook was, or would
be, performing work under the contract
with Jabiru.
Citicorp does not have a registered office
in Australia.
Cook brought an ex parte application for
leave to serve an originating process on
Citicorp in Hong Kong under rules 10.42
and 10.43 of the Federal Court Rules
2011 (Cth).
No discretionary matters pointed against
the grant of leave.
http://www.austlii.edu.au/au/cases/cth/
FCA/2015/703.html
PAGE 7
CORRS’
CONSTRUCTION
LAW UPDATE
COMMONWEALTH
RECENT AND PROPOSED
AMENDMENTS TO
THE INTERNATIONAL
ARBITRATION
ACT 1974 (CTH)
KEYWORDS: INTERNATIONAL ARBITRATION
KEY TAKEAWAY
The Civil Law and Justice Amendment Act 2015 amends the International Arbitration Act 1974
(Cth) (IAA) to clarify the retrospective application of section 21 of the IAA.
The Civil Law and Justice (Omnibus Amendments) Bill 2015 proposes further amendments
including making confidentiality provisions apply on an opt-out basis and extending incapacity
under section 8(5)(a) to the incapacity of either the award debtor or award creditor.
PAGE 8
Civil Law and Justice
Legislation Amendment
Act 2015
Section 21, which was introduced in
2010, removed parties’ ability to opt-out
of the UNICTRAL Model Law. It provided
that if the Model Law applies to an
arbitration, State or Territory law does
not apply.
Previously, the confidentiality provisions
under the IAA applied on an opt-in
basis (section 22(3)). The confidentiality
provisions will be amended to apply on
an opt-out basis.
Section 21 has now been amended to
clarify that it applies to arbitrations
pursuant to arbitration agreements
made before, on or after 6 July 2010.
Civil Law and Justice
(Omnibus Amendments)
Act 2015
The Civil Law and Justice (Omnibus
Amendments) Act 2015 has been passed
by both houses of parliament and is
awaiting Royal assent at the time of
publication. The amendments to the IAA
it will effect include the following.
1. Section 8(4) will be repealed. It
currently provides that, for a foreign
award to be enforced, it must be
made in a New York Convention
country or the party seeking to
enforce the award must be domiciled
or ordinarily resident in Australia or
a Convention country. The repeal of
section 8(4) will mean that a foreign
award will be able to be enforced
wherever it is made.
2. As it is currently drafted, section
8(5)(a) provides that one ground
for refusing enforcement is that
the award debtor was under some
incapacity at the time when the
arbitration agreement was made.
Section 8(5)(a) will be amended to
provide that the incapacity of either
the award debtor or the award
creditor may justify the refusal to
enforce a foreign award.
PAGE 9
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
NEW SOUTH WALES
DECISIONS
JOHN HOLLAND PTY
LIMITED V KELLOGG
BROWN & ROOT
PTY LTD (2)
[2015] NSWSC 451, [2015]
NSWSC 564
KEYWORDS: STAYS OF ARBITRATION
KEY TAKEAWAY
• Even in the context of a broader dispute that could involve many parties, where there
is a dispute between two parties inter se, the court will strive to uphold an arbitration
agreement between those parties.
• Where parties are referred to arbitration under the Commercial Arbitration Act, it will
usually be appropriate for the proceeding to be stayed, not dismissed.
PAGE 10
The facts
The decision
This case arose out of the Waratah
train project in New South Wales. John
Holland was engaged to design and
construct the Auburn Maintenance
Centre for the new trains. In turn, and
relevantly, John Holland entered into two
contracts:
In relation to the KBR dispute,
Hammerschlag J rejected an argument
by John Holland that the dispute ought
not be arbitrated because it could involve
multiple parties. Hammerschlag J
held that the parties ought to be held
to their bargain (at [69], [87]). Even if
other parties were involved in a broader
dispute, there were disputes between
John Holland and KBR that could be
arbitrated (at [71]–[72]). Hammerschlag
J noted that, while a court had a
discretion under the old arbitration
legislation to decline to refer the parties
to arbitration if there was sufficient
reason to take that course, that is not
available under the new legislation (at
[74], [86], [132]).
•
•
a consultancy agreement with KBR for
design and documentation services
relating to stormwater detention
facilities; and
an agreement with Atlantis to design,
manufacture, supply and certify the
stormwater detention facilities.
Aa modular tank system was installed
under the car park. But subsidence was
observed. John Holland commenced
Supreme Court proceedings against both
KBR and Atlantis for breach of contract,
negligence, misleading conduct, and
under contractual indemnities. But as
both contracts contained arbitration
agreements, each of KBR and Atlantis
sought orders staying the proceedings
against them.
In relation to the Atlantis dispute,
there were some stages in the dispute
resolution clause that had not been
completed (namely negotiation and
expert determination): so the arbitration
agreement was presently inoperative (at
[186]–[191]). Hammerschlag J stayed the
proceeding so far as it involved Atlantis.
http://www.austlii.edu.au/au/cases/
nsw/NSWSC/2015/564.html
http://www.austlii.edu.au/au/cases/
nsw/NSWSC/2015/451.html
Hammerschlag J made orders referring
the parties to arbitration, as required
by the Commercial Arbitration Act 2010
(NSW). But Hammerschlag J noted that
the Commercial Arbitration Act was
silent about what was to occur with the
proceedings. After a subsequent hearing,
he considered that staying (and not
dismissing) the proceeding so far as it
involved KBR was preferable as:
•
the arbitration agreement could
subsequently become incapable of
being performed (therefore requiring
court proceedings);
•
keeping the proceedings on foot
could prevent a limitation period from
expiring; and
•
a stay would be a result under the
International Arbitration Act 1974
(Cth) and given the uniformity of the
legislation, congruent outcomes
should be preferred where possible.
PAGE 11
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
NEW SOUTH WALES
DECISIONS
INFRASHORE PTY
LTD V HEALTH
ADMINISTRATION
CORPORATION
[2015] NSWSC 736
KEYWORDS: REFERRAL TO ARBITRATION
KEY TAKEAWAY
One objective of the national revamp of the domestic commercial arbitration legislation has
been to empower parties to agree on how their commercial disputes are to be resolved. The
corollary of that shift is to limit the extent to which the courts can intervene, except where
expressly provided by the legislation.
Where the decision concerns a choice between litigation and arbitration, discretionary
considerations are no longer relevant, let alone determinative. The prescriptive nature of the
enquiry under section 8(1) emphasises the objective construction of the parties’ agreement.
Indeed, in determining whether the parties must be referred to arbitration under the Act this
will be the courts’ focus.
As this decision illustrates, clarity of intention is essential in dispute procedures, particularly
where one party to a contract might wish to avail itself of a right to arbitration. If a party wants
to ensure that arbitration will prevail over other stated dispute resolution mechanisms, the
contract should make this clear. Comprehensive terms governing the arbitration procedure
may also assist in supporting the inference that arbitration was the parties’ preferred dispute
resolution procedure.
PAGE 12
The facts
Note: Corrs acted for the plaintiff,
InfraShore, in this proceeding.
InfraShore and the Health Administration
Corporation were parties to a PPP
Project Deed. The Deed included a
detailed dispute resolution process that
involved a multi-tiered process. That
process involved the Project Coordination
Group, a committee comprised of
representatives from InfraShore and
Health, agreeing to refer a dispute
to arbitration, expert determination
or “some other dispute resolution
procedure”. If the PCG could not agree,
or if the dispute was not referred within
a certain time, the PCG could request
a nominated arbitral body to select the
process.
The PCG agreed to refer the dispute to
expert determination. The procedure
in clause 40.2(e) of the Project Deed
provided:
“Any determination made by the
expert will be binding on all parties
unless referred to arbitration or legal
proceedings within 10 Business Days
after the relevant decision.”
On the day that the expert determination
was issued, InfraShore commenced
proceedings in the Supreme Court
of New South Wales. Ten days later,
Health sought to refer the dispute to
arbitration and moved the Court for an
order that the parties be referred to
arbitration pursuant to section 8(1) of the
Commercial Arbitration Act 2010 (NSW)
(Act), which provides:
Health contended that clause 40.2(e)
was an arbitration agreement under
which each party had the right to refer
the dispute to arbitration. Further,
Health argued that the right of one party
to refer the dispute to arbitration was
not lost when the other party elected to
commence legal proceedings.
InfraShore maintained that in the
circumstances, and on the proper
construction of the Project Deed, the
dispute was not one which either party
required to be arbitrated.
“A court before which an action is
brought in a matter which is the
subject of an arbitration agreement
must, if a party so requests not later
than when submitting the party’s
first statement on the substance
of the dispute, refer the parties
to arbitration unless it finds that
the agreement is null and void,
inoperative or incapable of being
performed.”
PAGE 13
The decision
Commercial arbitration legislation that
operates in most Australian States and
Territories has removed the courts’
discretion to allow a party to litigate in
the face of an arbitration agreement that
covers the dispute.
The parties conceded that the process
in the Project Deed which allowed the
PCG to refer disputes to arbitration or to
have the dispute referred by a nominated
arbitral body was an arbitration
agreement within the meaning of section
7(1) of the Act.
The Court’s inquiry focussed on the
second limb of section 8(1) and held
that it is met where, at the time a party
makes the relevant request, the rights
or liabilities in controversy fall “within
the ambit of controversies which the
parties have agreed will be referred to
arbitration.” Whether the Project Deed
required the dispute under consideration
to be referred to arbitration was a matter
of contractual construction.
The Court held that there was no
agreement for the referral of the present
dispute to arbitration to which section
8(1) of the Act could attach.
First, the Court found that the ordinary
meaning of the words in clause 40.2(e)
did not confer on either party any right to
require arbitration, nor did they give rise
to such a right by necessary implication.
Elsewhere in the dispute resolution
clause, the Project Deed provided for two
routes to arbitration (via the PCG or the
nominated arbitral body). In the present
case these routes were no longer
available. The PCG had referred the
dispute to expert determination and the
procedure under clause 40.2 had been
exhausted. Therefore, there was no other
route by which either party could force
arbitration.
PAGE 14
Secondly, the Court held that clause
40.2(e) was simply a mechanism which
gave the parties the option not to be
bound by the expert determination.
The expert determination would not
be binding if the parties agreed to
arbitrate or if a party commenced legal
proceedings within 10 Business Days.
Fifthly, the Court held that a matter
telling against Health’s construction
was that it would subject the parties
to two compulsory alternative dispute
resolution processes. The more
commercial construction was one which
contemplated only one ADR process,
unless the parties agreed otherwise.
Thirdly, the Court observed that the
comprehensive terms which were to
govern the arbitration procedure and
which were present in other sub-clauses
in the Project Deed were absent from
clause 40.2(e). The Court inferred that
if the parties had contemplated forced
arbitration, they would have legislated
for that procedure, including a method
for selecting the arbitrator. However,
in the case of clause 40.2(e), they
had clearly left this over for further
agreement.
The Court also applied the fourth limb
of section 8(1) finding, alternatively,
that as far as the present dispute was
concerned, the arbitration agreement
was not operative.
Fourthly, clause 40.2(e) also made
no provision as to who prevailed if, as
was the case, one party commenced
legal proceedings and the other party
subsequently sought to refer the dispute
to arbitration. Health had argued that
arbitration would prevail. However, the
Court found that Health’s construction
of clause 40.2(e) was unsatisfactory. It
would mean that the clause would either
have to operate on a first past the post
basis with the party calling for arbitration
beating the party opting for litigation,
or, arbitration would have to prevail
even if the other party had litigated first.
Both would be unpalatable outcomes
because the first encourages a race
and the second has the unsatisfactory
consequence that the party choosing
litigation would have taken a step it was
entitled to take at the time but then be
penalised if the other party later chose
to arbitrate. Such a construction would
encourage “games of cat and mouse” or
brinkmanship.’
http://www.austlii.edu.au/au/cases/
nsw/NSWSC/2015/736.html
PAGE 15
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
NEW SOUTH WALES
DECISIONS
CAVES BEACHSIDE
CUISINE PTY LIMITED
V BOYDAH PTY LIMITED
[2015] NSWSC 1273
KEYWORDS: AGREEMENTS TO NEGOTIATE
KEY TAKEAWAY
In commercial, arms’ length dealings, it is rare that an implied agreement to negotiate will
be found, particularly where essential terms of the contract to be entered into are not settled.
Similarly, it is unlikely that estoppel will apply during commercial negotiations.
PAGE 16
The facts
The decision
The defendants in these proceedings set
about developing a new hotel adjacent
to the beach, which became Caves
Beachside Hotel. In around 2005, the
defendants asked Mr Hopper, owner of
the plaintiff company (Cuisine), whether
he would be interested in running the
catering operations of the Hotel. Mr
Hopper was subsequently involved in
the design of the catering aspects of the
Hotel and diverted staff and resources
away from other undertakings in
anticipation of operating at the Hotel.
Cuisine began to provide the catering for
the Hotel when it opened in 2009 and did
so until July 2013, when the defendants
terminated the arrangement with
Cuisine. No formal agreement was ever
reached on the final terms governing the
parties’ relationship.
Kunc J concluded it was “difficult to
conceive” of circumstances giving rise
to an implied agreement to negotiate
in good faith “because, in the absence
of express words, all that is left is the
parties’ conduct of negotiating” (at
[95]). His Honour concluded that the
contract case failed because, to the
extent there was an agreement of a lease
term of 15 years, all other terms were
indeterminate and it would otherwise be
an unenforceable agreement to agree
(at [97]–[98]).
Cuisine commenced proceedings. Its
primary claim was for breach of contract,
being an implied agreement with the
defendant that the parties would use
good faith and their best endeavours to
enable a lease or licence to be finalised
granting Cuisine a lease term of up to
15 years. In breach of such agreement,
Cuisine argued, the defendant did not
negotiate in good faith or use its best
endeavours to enable a lease or licence
to be finalised and as a consequence
Cuisine had suffered loss and damage.
Cuisine also made arguments based on
estoppel and misleading conduct.
For the same reasons, the misleading
conduct case failed (at [164]–[169]).
There is also a judicial finding that
“Caves Beach is an attractive seaside
spot south of Newcastle” (at [1]).
http://www.austlii.edu.au/au/cases/
nsw/NSWSC/2015/1273.html
Kunc J followed the recent decision
in Baldwin v Icon Energy Ltd [2015]
QSC 12 in finding that an open-ended
obligation to negotiate in good faith is not
enforceable (as opposed to an obligation
to negotiate about specific issues).
In relation to Cuisine’s estoppel case,
Kunc J extracted the test from Walton
Stores (Interstate) Ltd v Maher (1988) 164
CLR 397 that the assumption generated
in the plaintiff must include that the
defendant would not be free to withdraw
from the expected legal relationship (at
[148]). Kunc J noted:
“at least in the context of commercial
parties dealing at arms’ length, that
the “not free to withdraw” aspect
of the test will rarely, if ever, be
satisfied’, because that is ‘part and
parcel of commercial negotiations’ ”
(at [156]).
PAGE 17
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
NEW SOUTH WALES
DECISIONS
NEW SOUTH WALES
NETBALL ASSOCIATION
LTD V PROBUILD
CONSTRUCTION (AUST)
PTY LTD
[2015] NSWSC 1339
KEYWORDS: CHALLENGES TO SECURITY
OF PAYMENT ADJUDICATION DETERMINATIONS
KEY TAKEAWAY
An adjudicator’s determination based an invalid payment claim is a nullity at law. While the
setting aside of the determination is discretionary, even an opportunistic change in position is
unlikely to cause relief to be withheld.
Costs in responding to an invalid payment claim are unlikely to be recoverable. The delivery
of an invalid payment claim is unlikely to amount to misleading conduct, or to support an
estoppel. By way of comparison, it was agreed that Netball NSW’s costs in responding to a
~$10,000,000 payment claim were $99,563.80.
PAGE 18
The facts
The decision
Costs of the adjudication process
Probuild agreed to construct a Netball
Centre of Excellence at Sydney Olympic
Park for the New South Wales Netball
Association. Probuild made a payment
claim (payment claim 24) for about
$10,000,000. Netball NSW contended
this payment claim was invalid (as it was
the second payment claim in relation
to a reference date), but an attempt to
restrain the adjudication process failed:
New South Wales Netball Association Ltd
v Probuild Constructions (Aust) Pty Ltd
[2015] NSWSC 408.
Stevenson J held that the previous
payment claim, payment claim 23, was
valid (at [16]). It was common ground
that payment claim 24 was otherwise
a valid payment claim and in relation
to the same reference date (at [8]).
The adjudicator’s determination was
therefore in excess of jurisdiction and a
nullity (at [48]).
By analogy with the position with
pleadings, Stevenson J said that a
statement in a payment claim (for
example that it is a payment claim
under the Act) is not a “representation”
at law (at [58]–[59]). Probuild’s conduct
was simply to claim an amount due,
which was not misleading (at [56]–[57],
[60]–[62]). Stevenson J held that service
of a payment claim did not amount to a
representation of the truth of the matters
in it (at [63]).
The adjudicator proceeded to make
a determination. She determined a
progress payment of about $125,000
(that is, less than 2% of the amount
claimed). As a result, the commercial
ground shifted: it was in Netball NSW’s
interest to contend for the validity of
the payment claim (and therefore the
adjudicator’s determination), and in
Probuild’s interest to contend for the
invalidity of the payment claim (to
preserve the potential to try again).
Netball NSW also claimed damages for
misleading conduct under the Australian
Consumer Law. It argued that, in serving
payment claim 24, Probuild represented
that it was entitled to issue the claim
and that Netball NSW was required to
respond to it to avoid Probuild enforcing
it as a judgment under the Act. Netball
NSW contended that this was misleading
(as Probuild now contended that was
wrong), and it suffered loss because of
Probuild’s conduct (in the form of the
costs of the adjudication process).
Two issues then arose: (1) whether, as
a matter of discretion, the Court should
withhold relief due to Probuild’s previous
reliance on payment claim 24’s validity,
and (2) whether Netball NSW could claim
its costs of responding to payment claim
24 and the subsequent adjudication
process as a result of Probuild’s
misleading conduct.
Withholding relief as a matter of
discretion
Stevenson J noted that while Probuild
“sought to have it both ways: to
approbate and reprobate” (at [40]), both
parties opportunistically engaged in a
volte face when it suited their interests
(at [3], [39], [46]). Stevenson J accepted
this was “a factor, indeed a powerful
factor” in deciding whether to decline to
grant the ordinary relief (at [45]).
Ultimately, Stevenson J decided not to
withhold the relief, because (1) at law,
it was no decision at all (at [47]–[50]);
(2) another reference date would still
arise and the status of the adjudication
on payment claim 24 should be
resolved before that reference date (at
[51]–[52]); and (3) Probuild’s conduct,
while opportunistic, did not involve
acquiescence, delay, or abandonment, or
bad faith (at [37]).
In any event, Stevenson J concluded
that Netball NSW did not respond to the
adjudication application “because of”
what was stated in it, but rather because
it did not agree with what was stated in it
and because of the exigencies imposed
on it by the Act (at [65]). Therefore even if
Probuild’s conduct was misleading, the
damages claimed by Netball NSW did
not follow.
An alternative argument based on
equitable estoppel on the same facts was
weakly raised, and failed for the same
reasons (at [66]).
Costs of the proceedings
Stevenson J’s preliminary view was
that, despite succeeding, Probuild
ought to pay Netball NSW’s costs of
the proceedings on the indemnity
basis (at [68]). After receiving further
submissions, he decided that there was
no relevant basis for indemnity costs,
but that “the fair result is that the chips
should lie as they have fallen, and there
should no order as to costs”: New South
Wales Netball Association Ltd v Probuild
Construction (Aust) Pty Ltd [2015]
NSWSC 1401, [12].
http://www.austlii.edu.au/au/cases/
nsw/NSWSC/2015/1339.html
PAGE 19
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
QUEENSLAND
DECISIONS
SAIPEM AUSTRALIA PTY
LTD V GLNG OPERATIONS
PTY LTD
(NO 2) [2015] QSC 173
KEYWORDS: CALLING ON SECURITY
KEY TAKEAWAY
Section 67J of the Queensland Building and Construction Commission Act qualifies the use of a
security provision rather than providing the source of a party’s entitlement to security.
Whether a performance guarantee acts to allocate risk has a decisive impact on the balance of
convenience when seeking an interlocutory injunction.
PAGE 20
Background
In 2011, Operations Pty Ltd (as agent
for Santos GLNG Pty Ltd and others)
(GLNG) engaged Saipem Australia Pty
Ltd (Saipem) to construct a gas pipeline.
Saipem was required to provide two bank
guarantees (Performance Security).
•
Under clause 5.5(a), GLNG could
call on the Performance Security
to recover any loss resulting from
Saipem’s default under the contract
or any debt due.
•
Under clause 5.5(c), Saipem could
not restrain GLNG from calling on the
Performance Security (even if GLNG’s
right to payment was in dispute).
On 18 December 2014, GLNG issued two
delay notices in relation to Mechanical
Completion and Practical Completion.
GLNG claimed liquidated damages and
demanded full payment by 9 January
2015. Reserving its right to call on the
Performance Security if necessary,
GLNG purported to give notice under
section 67J of the Queensland Building
and Construction Commission Act 1991
(Qld) (Act). That section provides:
“(1) The contracting party for a
building contract may use a security
or retention amount, in whole or in
part, to obtain an amount owed under
the contract, only if the contracting
party has given notice in writing to
the contracted party advising of the
proposed use and of the amount owed.
(2) The notice must be given within
28 days after the contracting party
becomes aware, or ought reasonably
to have become aware, of the
contracting party’s right to obtain the
amount owed.
9
10
11
12
13
14
15
16
At [18]
At [20]
At [21]
At [25]
At [31]
At [32]
At [33]
At [33]
17
18
19
20
21
22
23
At [60]
At [52]
At [56]
At [60]
At [59]
At [66]
At [65]
Saipem claimed an extension of the
dates for Mechanical Completion and
Practical Completion and referred
these claims to dispute resolution.
Saipem sought, among other things, a
declaration that GLNG was not entitled
to call on the Performance Security.
By this application, Saipem sought an
interlocutory injunction to restrain GLNG
from having recourse to the Performance
Security until the originating application
was determined.
The parties’ arguments
Saipem argued that GLNG was not
entitled to the Performance Security for
three reasons.
1. GLNG’s right to the Performance
Security under clause 5.5(a) only
arose once a debt was due. Saipem
considered the liquidated damages
demanded by GLNG were not
amounts due but merely amounts
claimed, that an arbitrator would
disallow.9
2. By virtue of section 67J of the Act,
GLNG’s recourse to the Performance
Security was limited to an “amount
owed”, which Saipem contended
meant a “debt due”, which Saipem
disputed.10
3. GLNG failed to give timely notice as
required by section 67J(2) of the Act.11
GLNG argued Saipem was not entitled
to an interlocutory injunction because
it had no legal or equitable claim that
could form the basis of final relief as
the disputes regarding extension of time
were to be resolved through arbitration,
rather than the Court.12
GLNG conceded there was a serious case
to be tried and that Saipem may suffer
reputational damage if GLNG called on
the Performance Security. However,
GLNG argued the reputational damage
could easily be avoided if Saipem paid
the sums demanded.
The decision
Philip McMurdo J considered whether
clause 5.5(a) or section 67J of the Act
required a debt be due.13 His Honour
reasoned that the source of entitlement
to call on the security is the contract
itself.14 Once a contractual right to call on
security arises, section 67J is engaged
to the extent that it qualifies the notice
required to exercise that right.15 As
such, section 67J is not the source of
the entitlement and may only exclude
a claim to the extent it does not comply
with the notice requirements.16
McMurdo J considered that Saipem
had a serious case in terms of
contractual entitlement under clause
5.5(a) but that the relative strength of
its argument could not be determined
in the proceedings.17 His Honour then
considered the comparative injury that
would arise from granting or withholding
the injunction; in particular, the impact
of the risk allocation in clause 5.5(c).
Saipem argued that its rights were
founded in the Act and any inconsistency
between the Act and the contract had
to be resolved in favour of the Act.18
McMurdo J rejected this claim.19
His Honour considered that clause 5.5(c)
allocated the risk of financial detriment
to Saipem in the event of a dispute, and
that pending determination, GLNG was
entitled to the security.20 McMurdo J
reasoned that inconsistency only arose
on non-compliance with section 67J.21
His Honour held that the balance of
convenience favoured granting an
injunction due to GLNG’s failure to comply
with notice requirements.22 An injunction
was granted until the originating
application could be determined.
McMurdo J agreed Saipem could avoid
the risk of reputational damage by paying
the amounts claimed. Accordingly, he
granted a 14-day injunction to allow
Saipem to make payment.23
http://www.austlii.edu.au/au/cases/qld/
QSC/2015/173.html
See further the note in this update on the
decision of Victorian Sugar Australia Pty
Ltd v Lend Lease Services Pty Ltd [2015]
VSCA 98.
PAGE 21
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
QUEENSLAND
DECISIONS
SUNSHINE COAST
REGIONAL COUNCIL
V EARTHPRO PTY LTD
[2015] QSC 168
KEYWORDS: RE-AGITATION OF PAYMENT ISSUES
KEY TAKEAWAY
A claimant under the Building and Construction Industry Payments Act 2004 (Qld) (BCIP Act)
cannot re-agitate issues that were essential to a previous adjudicator’s determination, even if
the issues were previously cast in the context of a variation claim and later re-agitated as an
extension of time claim.
If an adjudicator’s decision is affected by jurisdictional error, the new section 100(4) of the BCIP
Act permits the affected part of the adjudicator’s decision to be severed, allowing the rest of the
decision to stand. Section 100(4) operates retrospectively.
PAGE 22
The facts
Sunshine Coast Regional Council
(Council) engaged Earthpro Pty Ltd
(Earthpro) to carry out earthworks
at a landfill site. The contract was an
amended form of AS2124-1992.24
The contract required practical
completion by 3 June 2013 but this was
extended. The Council terminated the
contract on 26 March 2014. Earthpro had
not reached practical completion. After
termination, Earthpro served a payment
claim seeking more than
$3 million including prolongation costs.
In response, the Council’s payment
schedule recognised a liability of under
$6,500.
In late August 2014, Earthpro brought an
adjudication application. The adjudicator,
Mr Spain, determined that the Council
was required to pay Earthpro $1.4
million. Of this amount, approximately
$1.081 million related to prolongation
costs. On appeal, the Council argued that
the adjudicator’s decision was void for
jurisdictional error on three grounds:
•
the adjudicator had exceeded his
jurisdiction by deciding issues that
had been determined by a prior
adjudicator;
•
it was denied natural justice; and
•
the adjudicator failed to consider the
Council’s case properly.
Decision
Byrne J concluded that jurisdictional error
was established in relation to the Council’s
claim that the adjudicator had allowed
Earthpro to re-agitate issues which formed
the basis of “EOT 10”. The other two
grounds were not made out.
Under EOT 10, Earthpro claimed that
it was delayed due to handling sloppy
alluvium and that it was open to the
Superintendent to award an EOT to allow
the alluvium to dry out before removal.
24 Corrs acted for the Sunshine Coast
Regional Council in this dispute
25 At [42]
26 At [42]
27 [2014] QSC 223 at [55]
Earthpro maintained its claim for EOT
10 in reliance on several claimed facts
that Earthpro had advanced in a previous
adjudication as essential to its claim
for a variation. In that adjudication, the
adjudicator, Mr Uher, found against the
assertions made by Earthpro.
Earthpro asserted that Mr Spain was
not obliged to follow the previous
adjudicator’s findings as:
•
•
the latest claim was for an extension
of time for practical completion,
whereas the previous claim was for a
contractual variation; and
additional expert evidence and new
arguments had been advanced.
Byrne J found that the new expert
evidence did not overcome the fact that
the “factual foundations underpinning
the EOT claim were fundamental to the
variation claim”.25 These common factual
issues had already been determined by
the first adjudicator.
In his Honour’s opinion, the BCIP Act
inferentially precludes “re-agitation of
the same issue where that issue was
essential to a determination in an earlier
adjudication”.26 Accordingly, the second
adjudicator had exceeded his jurisdiction
in allowing EOT 10.
Byrne J’s finding is in keeping with the
decision of Philip McMurdo J in Caltex
Refineries (Qld) Pty Ltd v Allstate Access
(Australia) Pty Ltd27 (on which Byrne
J relied) that there is a finality to an
adjudicator’s decision in the sense that
a claimant is precluded from pursuing a
claim where the fundamental or cardinal
matters have already been determined.
The second issue was whether section
100(4) of the BCIP Act applied to the
proceedings. Section 100(4) took effect
on 15 December 2014. The section
commenced after the adjudication
decision and the commencement of the
application. Section 100(4) states:
“If, in any proceedings before a court
in relation to any matter arising
under a construction contract, the
court finds that only a part of an
adjudicator’s decision under part 3
is affected by jurisdictional error, the
court may—
(a) identify the part affected by the
error; and
(b) allow the part of the decision
not affected by the error to remain
binding on the parties to the
proceeding.”
Byrne J observed in passing that the
evident purpose of section 100(4) was to
address the inconvenient consequences
of the then current judicial rule that
“jurisdictional error which affects one
part of a decision will render the whole of
[the decision] void”.28 His Honour noted
that purpose did not assist here because
the proceedings were commenced before
the amending Act became operative.
Ultimately, Byrne J held that section
100(4) did apply and declared the
adjudicator’s decision invalid to the extent
it involved jurisdiction error in respect
of EOT 10. In reaching this conclusion,
his Honour found that the “transitional
version” of the BCIP Act under section
116 of the BCIP Act applied.
Justice Byrne was guided by a “distinct
textual indication”29 that section 100(4)
applies to a proceeding started before
the amending Act took force. His Honour
concluded that because “[s]ection 100(4)
can only be relevant to an application
to the Court to have an Adjudication
Decision declared void for jurisdictional
error’”,30 it must therefore be an
“outstanding matter” or section 116(5)(e)
would make no sense.
http://archive.sclqld.org.au/
qjudgment/2015/QSC15-168.pdf
28 BM Alliance Coal Operations Pty Ltd
v BGC Contracting Pty Ltd [2012] QSC
145 at [58]
PAGE 23
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
QUEENSLAND
DECISIONS
BRB MODULAR PTY LTD
V AWX CONSTRUCTIONS
PTY LTD
[2015] QSC 218
KEYWORDS: BCIPA; PAYMENT CLAIMS; STATUTORY DECLARATIONS
KEY TAKEAWAYS
Construction contracts often require contractors to sign a statutory declaration affirming
that all subcontractors have been paid. In a recent Queensland Supreme Court decision,
Applegarth J found that non-compliance with the statutory declaration condition did not restrict
a contractor’s statutory right to make a payment claim. The contractual requirement that the
contractor provide a statutory declaration before it could make a progress claim was void under
section 99 of the legislation.
PAGE 24
The facts
BRB Modular Pty Ltd (BRB) engaged
AWX Constructions Pty Ltd (AWX) to
construct a camp and accommodation
village at an LNG processing facility.
AWX was entitled to make a progress
claim on the 28th day of each month,
subject to conditions in the contract.
One condition required AWX to sign a
statutory declaration in the following
form: “to the best of my knowledge, all
sub-contractors and suppliers who have
at any time been employed by [AWX] for
work under the Subcontract have as at
the date of this declaration been paid
all moneys due and payable to them in
respect of their employment in relation
to that work.”
AWX submitted a payment claim under
the contract and signed a statutory
declaration, but the wording was
qualified by the following words “other
than those owed variations, payable to
the head contractor.”
BRB contended that the pre-condition
for making a payment claim had not
been complied with, and therefore the
payment claim was not valid under the
Building and Construction Industry
Payments Act 2004 (Qld) (Act).
The matter proceeded to adjudication.
The adjudicator determined the
contractual precondition for a statutory
declaration was void because of section
99 of the Act, which provides:
•
section 99(1): “the provisions of the
Act have effect despite any provision
to the contrary in any contract,
agreement or arrangement.”
•
section 99(2): “contractual provisions
are void to the extent they are contrary
to the Act or exclude, modify, restrict
or otherwise change the effect of a
provision of the Act.”
31
32
33
34
35
36
37
At [32]
At [31]
At [22]
At [44]
At [53]
At [55]
At [56]
BRB applied to the Supreme Court
seeking a declaration that the
adjudication determination was void for
jurisdictional error, and an injunction
restraining AWX from giving effect to it.
The decision
Applegarth J found that:
•
the contractual requirement to make
a statutory declaration impedes
rather than facilitates the object of
the Act,31 which is to ensure cash-flow
between the claimant and the other
party;32
•
although the condition may
encourage the payment of third
parties, third parties are not the
primary beneficiaries of the Act’s
provisions, and the Act does not
purport to regulate relations between
a contractor and third parties;33
•
there is a risk that an insolvent
company that receives a progress
payment may not be able to satisfy its
creditors, but the Act shifts the risk of
insolvency to the principal;34
•
the condition was not unduly
onerous,35 but the consequences
of non-compliance were
disproportionate and extreme;36
•
as the subject matter of the statutory
declaration did not relate directly
to the proposed payment claim,37
the condition had no real utility in
advancing the purpose of the Act;38
•
the condition impeded payment to
which AWX would otherwise have
been statutorily entitled, without
any corresponding benefit,39 thereby
excluding, modifying, restricting or
otherwise changing the effect of the
Act;40 and
•
this meant the condition was void
under section 99 to the extent it
affected rights and liabilities under
the Act.41
Conclusion
Applegarth J concluded that the
adjudicator had jurisdiction to determine
AWX’s payment claim.42 The contractual
precondition BRB relied on to deny AWX
a progress payment could not prevent
AWX from making its payment claim.43
38At[70]
39 At [61]
40 At [62]
41 At [62]
42 At [69]
43 At [69]
PAGE 25
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
VICTORIAN
DECISIONS
SUGAR AUSTRALIA
PTY LTD V LEND LEASE
SERVICES PTY LTD
[2015] VSCA 98
KEYWORDS: CALLING ON SECURITY
KEY TAKEAWAY
The case reaffirms the established Australian common law principles that were previously
summarised in the Clough decision, namely that a principal’s right of recourse to a contractor’s
bank guarantee securing a genuine claim under a construction contract will not be restrained
unless:
• the principal has fraudulently sought to have recourse against the bank guarantee;
• the principal has acted unconscionably under the Australian Consumer Law in seeking to
have recourse to the bank guarantee; or
• the parties have contractually agreed that the principal will only be entitled to access the
bank guarantee in particular circumstances, and the relevant circumstances fall outside
that agreement.44
Significantly, the Court of Appeal made it clear that it is incumbent on courts in determining
interim injunction applications such as this to interpret the provisions that deal with accessing
bank guarantees or other security, rather than deferring any such decision to the trial of
the underlying disputes. This is particularly required where the purpose of the security is to
allocate risk between the parties while the underlying dispute is finally determined. Failure
by courts to interpret the provisions will deny the parties of the principal benefit of those
provisions.
PAGE 26
The facts
In 2007, Lend Lease Services Pty
Ltd (Lend Lease) agreed to design,
construct, supply and install a new
refined sugar plant for Sugar Australia
Pty Ltd (Sugar).45 It was agreed that
Lend Lease would provide Sugar with
security in the form of two unconditional
bank guarantees for five percent of the
contract sum.
Disputes arose during the works
regarding the conduct of the principal’s
representative: Lend Lease asserted
that the principal’s representative had
improperly suspended the work; Sugar
asserted that Lend Lease had failed to
comply with his directions. This resulted
in both parties purporting to terminate
the contract. Almost three years later,
Sugar notified Lend Lease of its intention
to cash the bank guarantees on the
basis that it was entitled to recover
amounts for completing the contract
works and for rectifying defects. Lend
Lease applied to the Victorian Supreme
Court for an urgent interim injunction
restraining Sugar from cashing the bank
guarantees.
The Victorian Supreme Court (Vickery J)
granted the injunction, which restrained
Sugar from having recourse to the
bank guarantees before the trial of
the underlying disputes regarding the
project, including Lend Lease’s liability
for the cost of completing the works and
for defects in the work.46
44 Ibid at [138], referring to the principles
set out in Clough Engineering Ltd v
ONGC (2008) ALR 458
45 Sugar Australia Pty Ltd v Lend Lease
Services Pty Ltd [2015] VSCA 98
46 Sugar Australia Pty Ltd v Lend Lease
Services Pty Ltd [2014] VSC 476 (Vickery
J)
47 Sugar Australia Pty Ltd v Lend Lease
Services Pty Ltd [2015] VSCA 98 at
[21], referring to Fletcher Construction
Australia Ltd v Varnsdorf Pty Ltd [1998]
3 VR 812 at 826–7 (Fletcher)
Sugar appealed to the Court of Appeal,
which reversed the Supreme Court’s
earlier decision and discharged the
injunction. Therefore, Sugar was entitled
to cash the bank guarantees without
having to prove its underlying claims
against Lend Lease.
Findings
The underlying purpose of bank
guarantees
The Court of Appeal discussed the
underlying purpose of security, usually
in the form of bank guarantees, in the
construction industry. Specifically,
security operated in one of two ways.
First, it acted as security for a valid claim
where there were likely to be difficulties
in recovering from the defaulting party
(for instance, if the defaulting party had
gone into liquidation). Secondly, it acted
as a risk allocation device, determining
which party would be worse off pending
resolution of an underlying dispute.47
A court must determine which of these
purposes the parties intended (although
it could of course be both). If the purpose
of the bank guarantee is to allocate risk
pending resolution of an underlying
dispute, then limiting a party’s ability to
cash the bank guarantees would deprive
that party of the commercial bargain it
made in the contract, thereby defeating
the purpose of providing the bank
guarantee.48
The performance bond provision
Part of the Supreme Court’s original
reasoning in granting the injunction
was that there was a serious question
to be tried as to the construction of the
security provision itself.48 The provision
in question was based on standard
form contract drafting but had been
amended to import a requirement that
the principal act “reasonably” in seeking
to cash the bank guarantee. Given the
limited evidence available to the Court
and the short time available to make the
determination, Vickery J determined that
he was not able to come to a final view
on the operation of the provision. Such
a determination would have to wait until
the trial of the matter, when sufficient
evidence would be available.
The Court of Appeal rejected this
finding. Vickery J’s failure to construe
the recourse to security provision was
an error in the exercise of judicial
discretion. In the case of applications for
interlocutory injunctions that restrained
recourse to security, the Court should
determine controversial issues of law if
that determination is a necessary step in
deciding whether an applicant is entitled
to an injunction.50
If the security provision was intended
to operate as a risk allocation device
pending final determination of a dispute
between the parties, then that intention
must be fundamental to a consideration
of the justice of an application made to
restrain recourse to that bond pending
final determination of the dispute.51
Failure to construe the provision, thus
delaying the determination to the time
the underlying dispute was resolved,
would deprive the parties of the principal
benefit of the provision that they
bargained for.52
48 Ibid at [29]–[31]
49 Sugar Australia Pty Ltd v Lend Lease
Services Pty Ltd [2014] VSC 476 (Vickery
J)
50 Sugar Australia Pty Ltd v Lend Lease
Services Pty Ltd [2015] VSCA 98 at [53]–
[54]
51 Ibid at [21]
52 Ibid at [29]
PAGE 27
Importantly, the Court of Appeal
acknowledged that the ordinary
principles governing interlocutory
injunctions applied to the present case
notwithstanding the fact that these
principles were being applied to “an
unusual form of contract”.53 This was
particularly so if the commercial purpose
of the bank guarantee was to allocate
risk pending final determination of the
dispute. Granting an injunction under
these circumstances would be going
against the purpose of the provision,
which would be a substantial injustice.
The need to construe the clause to
access the evidence
One of the purposes of the security
provision was to allocate risk pending
resolution of an underlying dispute. The
qualification imposed by the provision
only required the principal to act
reasonably in asserting an entitlement,
not that the entitlement be judged
objectively valid. The provision thus
allocated to the contractor the risk
that the principal’s claims might not
ultimately be successful.54 Accordingly,
the Court was required to construe the
provision in order to give effect to the
contract.55
The Court of Appeal held that the
operation of the provision required
that the principal act reasonably, in an
objective sense, in making the claim
the subject of the recourse, based on
the facts and circumstances which it
knew or ought to have known at the time
concerning the validity of the claim.56
Further, claims were not limited to costs
which had already been incurred, but
included all damages or liabilities which
may arise in the future as a consequence
of the asserted breach.57
53
54
55
56
57
58
59
Ibid at [31]
Ibid at [37]–[38], [68]
Ibid at [65]
Ibid at [144]
Ibid at [147]
Ibid at [197]–[198], [230]
Ibid at [233]
PAGE 28
Having made that determination, the
Court of Appeal was then able to assess
whether there was a serious question
to be tried as to whether the principal
had complied with the provision in
making the call on the bank guarantees.
Based on the evidence submitted to the
Supreme Court, the Court of Appeal
found that there was a serious question
to be tried as to whether the principal
had acted reasonably in respect of some,
but not all, of the amounts claimed in
the recourse notice (which included
amounts for costs to complete and to
rectify defects). However, the amounts
for which there was no serious question
to be tried were greater than the amount
for which Sugar sought to have recourse
against the bank guarantees. Therefore
there was no serious question to be
tried as to whether the principal had
acted reasonably in issuing the recourse
notice.58
Balance of convenience
As to balance of convenience, Vickery
J had determined that the balance of
convenience favoured the granting
of an injunction based, in part, on a
finding that Lend Lease was likely to
suffer reputational damage if the bank
guarantees were cashed. Lend Lease
had relied on two affidavits, one from
the chief operating officer of Lend Lease
Construction and Infrastructure and one
from the group treasurer of Lend Lease,
both stating that they considered a call
on the bank guarantees would harm the
reputation of Lend Lease.
The Court of Appeal rejected the
argument that the issue of reputational
damage was sufficient to tip the balance
of convenience in Lend Lease’s favour.59
The matters deposed by the Lend Lease
witnesses were substantially assertions,
and there was doubt that the existence of
the dispute would have any reputational
impact on Lend Lease. Further, by
agreeing to the security provisions in
the contract, Lend Lease had assumed
the risk that a call may be made on the
bank guarantees (and presumably, any
reputational damage that my go with
such a call).
The Court of Appeal’s approach to
balance of convenience issues is also
likely it harder for contractors to resist
calls on bank guarantees. The standard
practice of submitting affidavits from the
contractor’s senior officers asserting
probable reputational damage is no
longer likely to be sufficient to obtain an
injunction. Detailed evidence of actual
reputational damage likely to be suffered
will be required. This evidence will need
to be of sufficient weight to dislodge
the assumption that by agreeing to the
security provisions in the contract, the
contractor took the risk of the bank
guarantees being called pending final
resolution of the underlying disputes,
and any reputational damage that goes
along with such a call.
http://www.austlii.edu.au/au/cases/vic/
VSCA/2015/98.html
See further the note in this update on
the decision of the Queensland Supreme
Court in Saipem Australia Pty Ltd v
GLNG Operations Pty Ltd (No 2) [2015]
QSC 173.
PAGE 29
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
VICTORIAN
DECISIONS
COMMERCIAL
& INDUSTRIAL
CONSTRUCTION
GROUP PTY LTD V KING
CONSTRUCTION GROUP
PTY LTD
[2015] VSC 426
KEYWORDS: SECURITY OF PAYMENT; REFERENCE DATES
KEY TAKEAWAY
A payment claim served in contravention of section 14(8) of the Building and Construction
Industry Security of Payment Act 2002 (Vic) (Act) does not provide a basis for a valid
adjudication under the Act.
The date work is performed under a contract is relevant to determining the correct reference
date for a payment claim. It is, however, not the only factor for determining the validity of the
payment claim.
PAGE 30
The facts
The plaintiff’s claim
Commercial & Industrial Construction
Group Pty Ltd (the Plaintiff) in this case
sought an order that an adjudication
determination made under the Act
be quashed or set aside because the
relevant payment claim was invalid.
The plaintiff claimed the determination
should be quashed because:
King Construction Group Pty Ltd (the
Defendant) made the payment claim
on 21 January 2015 (the 21 January
Payment Claim), in respect of amounts
it had previously claimed under the
following invoices (the Earlier Invoices):
•
1203 dated 21 November 2014;
•
1206 dated 26 November 2014;
•
1211 dated 28 November 2014; and
•
1223 dated 23 December 2014.
The 21 January Payment Claim
also included invoice 1226, for work
performed but not claimed in previous
payment claims (the Additional Invoice).
The Defendant did not perform any
further works for the Plaintiff after 17
December 2014. The Plaintiff had issued
payment schedules in response to each
of the earlier invoices for less money
than the Defendant claimed.
The adjudicator’s determination
The adjudicator found that the 21
January Payment Claim was valid
because the reference date, calculated
in accordance with section 9(2)(b) of the
Act, was 3 February 2015.
The adjudicator found that the 21
January Payment Claim did not breach
section 14 (8), and that section 14(9)
permitted it to include the unpaid
amounts from the Earlier Invoices. This
was said to be because there does not
need to be a relationship between the
reference date and when the work is
carried out.60
60
61
62
63
64
65
66
At [37]
At [57]
[2002] NSWCA 238
[2010] QCA 355
At [58]
At [72]
At [70]
67
68
69
70
71
72
At [76]
At [86]
At [92]
At [98]
At [113]
At [100]
•
the correct reference date of the
21 January Payment Claim was 5
January 2015, the same reference
date as invoice 1223;
•
the Defendant therefore served the
21 January Payment Claim in breach
of section 14(8) of the Act, and that it
was thus invalid; and
•
the adjudicator’s acceptance of the 21
January Payment Claim was an error
which invalidated his jurisdiction.
The Defendant’s claim
The Defendant submitted that the
adjudicator was correct in finding
that the 21 January Payment Claim
was valid, and that its reference date
was 3 February 2015. In relation to
the Additional Invoice, the Defendant
submitted that the Act, properly
construed, permits claims for earlier
work undertaken prior to the last
reference date which have not been the
subject of any previous claim.61
The Defendant relied on Fyntray
Constructions Pty Ltd v Macind Drainage
& Haulage Services Pty Ltd62 and
Spankie v James Trowse Constructions
Pty Ltd63 as authority for the proposition
that there is no necessary relationship
between the reference date and when
the relevant work was carried out.64
Findings
Was there a valid payment claim?
Reference date: Vickery J held that the
21 January Payment Claim should be
applied to the immediately preceding
reference date, 5 January 2015.65 This
was because no further work was
performed under the contract between
17 December 2015 and 21 January
2015.66 As a result, the adjudicator erred
in determining that the correct reference
date was 3 February 2015.67
Breach of section 14(8): It is a breach of
section 14(8) of the Act to serve more
than one payment claim in respect of a
reference date. Vickery J held that the 21
January Payment Claim was in respect
of the same reference date as Invoice
1223 (served on 23 December 2014). His
Honour concluded that both payment
claims were in respect of the same
reference date because no work was
performed after 17 December 2014.68
Did the exception in 14(9) apply?
Section 14(9) of the Act provides that a
claimant may include an amount that
has been the subject of a previous claim
if the amount remains unpaid.
Vickery J held that section 14(9) applied
to the unpaid portions of the Earlier
Invoices claimed as part of the 21
January Payment Claim, but not the
Additional Invoice, as this related to work
which had not been the subject of any
previous payment claim.69
Result
His Honour quashed the adjudicator’s
determination because a payment claim
served in contravention of section 14(8) of
the Act could not provide the jurisdictional
basis for a valid adjudication.70
No new work: The plaintiff also
submitted an additional ground that the
21 January Payment Claim was invalid
because the Defendant carried out no
further work between the previous
reference date and the date of the 21
January Payment Claim. Although
Vickery J was not required to determine
this ground, he said that it could not
succeed,71 because:
“the fact that an item of work could
have been claimed as part of a
payment claim served in respect of an
earlier reference date, but was not, is
not a bar to it being claimed in a later
payment claim made in respect of a
later reference date, provided that s
14(8) was not breached.”72
http://www.austlii.edu.au/cgi-bin/
sinodisp/au/cases/vic/VSC/2015/426.
html
PAGE 31
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
VICTORIAN
DECISIONS
INFRASTRUCTURE
VICTORIA ACT
2015 (VIC)
KEYWORDS: INFRASTRUCTURE VICTORIA
KEY TAKEAWAYS
The Victorian government announced the new Infrastructure Victoria Bill 2015 (Vic) on 23 June
2015. The legislation received Royal Assent on 8 September 2015. It will establish Infrastructure
Victoria, a statutory authority that will provide the government independent expert advice about
Victoria’s infrastructure needs and priorities. It will also establish a new strategic infrastructure
planning process in Victoria. Infrastructure Victoria is expected to be operational in late 2015.
PAGE 32
Infrastructure Victoria
•
The Infrastructure Victoria Act 2015
(Vic) (Act) will establish Infrastructure
Victoria, a statutory authority that will
provide the government independent
expert advice about Victoria’s
infrastructure needs and priorities to
support improved social, economic and
environmental outcomes for the State.72
an annual assessment by
Infrastructure Victoria of the
government’s specified priorities
and progress on the five-year
infrastructure plan; and
•
formal recognition of the ongoing
strategic infrastructure planning
undertaken by departments
and agencies (termed “sectoral
infrastructure strategies”), including
a supporting role for Infrastructure
Victoria when requested.74
In the words of a media release by
Premier Daniel Andrews, Infrastructure
Victoria “will be tasked with ensuring
Victoria’s immediate and long-term
infrastructure needs are identified
and prioritised based on objective,
transparent analysis and evidence.” 73
Infrastructure planning
process
The infrastructure planning process
includes:
•
•
•
the release and periodic update
by Infrastructure Victoria (without
government approval) of a 30-year
infrastructure strategy following
public consultation on a draft;
a requirement for the Victorian
government to respond formally to the
strategy, setting out major projects,
policies or reforms that it intends to
pursue;
a requirement for the Victorian
government to prepare and release
a five-year infrastructure plan in
response to Infrastructure Victoria’s
plan;
72 Section 7
73 Media release dated 23 June 2015
available at http://www.premier.vic.gov.
au/building-better-infrastructure-forjobs-and-growth
Independent expert advice
and research
The Act also provides that the relevant
Minister may request written advice
on infrastructure matters such as
government or private sector proposals
and intergovernmental submissions.75
Infrastructure Victoria will thus have
a potential support role in assessing
business cases for major infrastructure
proposals.
Finally, Infrastructure Victoria will
independently conduct and publish its
own research on infrastructure issues
such as improving the measurement
of benefits, financing and funding
models, and policy and reform issues for
infrastructure projects.76
http://www.legislation.vic.gov.
au/Domino/Web_Notes/LDMS/
PubStatbook.nsf/51dea49770555ea6ca2
56da4001b90cd/BD607CD483D6B566CA
257EBA0018B659/$FILE/15-038aa%20
authorised.pdf
74 Section 8
75 Section 44
76 Section 8
PAGE 33
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
WESTERN AUSTRALIAN
DECISIONS
CONTRACT IS KING AND
TIME BARS THAT BITE:
CMA ASSETS PTY LTD V
JOHN HOLLAND PTY LTD
[NO 6] [2015] WASC 217
KEYWORDS: TIME BARS AND PREVENTION PRINCIPLE
KEY TAKEAWAYS
The Western Australian Supreme Court has upheld a strict time bar even where the contractor
would otherwise have been entitled to an extension of time. The case serves as a reminder that
clearly drafted time bars will bite if parties do not put their notices in on time.
The case also stands for the proposition that a clearly drafted extension of time regime may
exclude the operation of the prevention principle (meaning that the contractor will take the risk of
accelerating where no extension of time is granted).
PAGE 34
The facts
In 2005, BHP engaged the defendant
(John Holland) to upgrade and extend a
wharf at Finucane Island, Port Hedland.
In part, John Holland was required to
demolish and reconstruct Berth C. John
Holland subcontracted the demolition
of Berth C (and the associated berthing
and mooring “dolphin” structures
unconnected to the wharf) to the plaintiff,
(CMA). The project also required John
Holland to re-construct the wharf and
deepen the adjacent berthing pocket.
John Holland planned the works so that
CMA would move along the along the
wharf demolishing and John Holland’s
piling and construction crews would
follow behind. It was to be a relatively
straight forward linear construction
project.
There was one complicating factor,
namely the shiploader which BHP
planned to keep on the wharf. As a
result, John Holland planned to move
it to the far end of the wharf, demolish
the bulk of the wharf and build the new
sections, then move the shiploader
from the old section of the wharf to the
new section, demolish the remaining
old wharf and build the final section of
new wharf. Thus, the movement of the
shiploader was a significant interim
milestone in the project.
However, the biggest problem John
Holland and CMA encountered was
that the dolphins were more difficult to
demolish than CMA had anticipated.
Originally, CMA had planned to secure
a heavy lift barge, send divers to the
bottom of the ocean to cut the piles at
the sea bed and then lift each dolphin
(and its piles) out of the water and carry
out the demolition work on land. CMA
was unable to secure the heavy lift barge,
so an alternative method was adopted:
1. CMA would completely demolish
(by explosive means) the dolphin
headstocks so that 100% demolition
with “extremely good fragmentation”
was achieved;
2. in the blasting process, the
fragments would fall to the floor of
the ocean; and
3. John Holland would then be
responsible for removing the
fragments from the ocean floor using
the excavator barge it had secured
to undertake the berth pocket
deepening works.
Difficulties emerged. First, CMA’s
blasting subcontractor was not able to
achieve 100% demolition with extremely
good fragmentation so that what fell
to the floor of the ocean was not, as
planned, small fragments of dolphin
headstock, but rather large blocks of
concrete and reinforcing. Many blocks
weighed more than 20 tonnes. The result
of this was that the debris removal
operation was far more complicated and
expensive than either John Holland or
CMA had planned.
The second difficulty was that the
reinforcing in some of the berthing
dolphins was different from the
plans that had been provided to
CMA, making the drilling required
to prepare the dolphins for blasting
more time consuming and expensive
than planned. CMA fell into delay as
against the subcontract milestones but
did not submit notices of delay as that
subcontract required.
Disputes arose as to who should bear
the unexpected costs associated with the
debris removal works and the delays.
John Holland also fell into dispute with
BHP. That dispute (which was wider
ranging than the dispute with CMA)
settled in April 2008.
In March 2008, CMA commenced
proceedings against John Holland,
claiming the balance owing under the
subcontract and amounts for disputed
variations and delay claims. John
Holland denied the majority of the claims
and counterclaimed to recover amounts
it expended in recovering and conveying
demolition debris, and for disruption of
its own works.
Many of the disputes were settled in
the lead up to the trial, subject to John
Holland’s right to set off the amounts
counterclaimed. As a consequence
the decision is largely focussed on
the counterclaim that CMA disputed
(Mostly on factual grounds but also
on the basis that John Holland’s had
been compensated for any loss by the
settlement with BHP).
The decision
CMA’s claims
CMA’s contested claims were:
1. its claim for additional work to
demolish berthing dolphins BD1, BD2
and BD6 (Variation 79); and
2. a series of extension of time and
consequent delay costs claims.
CMA’s variation claim
The dispute about claim for additional
work was largely factual and the Court
found for CMA finding that the relevant
drawings
“did not accurately describe the
structures to be demolished, in a
manner that directly affected the
demolition methodology proposed
by CMA and not rejected by John
Holland.” 77
77 At [240]
PAGE 35
In making that finding, Allanson J
rejected John Holland’s defence,
which was premised on a clause in the
subcontract by which John Holland
expressly did not warrant the accuracy
of any information provided to CMA
on the basis that the drawings were
incorporated into the terms of the
subcontract and therefore something
more than information made available to
CMA.78
CMA’s delay claims
CMA claimed that:
1. it had been delayed by the variation
works associated with Variation 79
(between 25 October 2006 and 13
December 2006);
2. John Holland had delayed it by
delaying the move of the shiploader
(between 29 January 2007 and 10
May 2007);
3. it was denied access to part of the
site (the transfer station), causing it
to be delayed (between 13 February
2007 and 10 April 2007; and
4. it was denied access to part of the
site (MD4A), causing it to be delayed
(between 21 March 2007 and 2 June
2007).
The contractual framework
The terms of the subcontract regarding
extensions of time and delay damages
were reasonably typical for a subcontract
in a project such as this. In short, CMA
was required to notify John Holland (in
accordance with “harsh”78 time limits)
in order to be entitled to an extension of
time.
78 At [245]
79 At [375]
80 Relevant portions are extracted at
[255]–[269]
81 At [324]
82 At [323]
83 At [333]
PAGE 36
84
85
86
87
88
At [326]
At [616]
At [345]
At [346]
At [350]
The language of the relevant clause80
stated that CMA may claim for an
extension of time it if “is or will be
delayed”.81 The Court held that that
language (in the broader context of the
relevant clause) required a prospective
delay analysis to determine the extent
of any entitlement to an extension of
time.82 The subcontract further required
that that prospective analysis be
undertaken by reference to the approved
construction programme and whether
at the time the claimed delay event took
place CMA was on schedule (or was
being delayed by its own prior delays).83
A consequence of finding that an
entitlement to an extension of time
was governed by a prospective delay
analysis was that the Court could adopt
a relatively unsophisticated approach
to the overlapping nature of the delay
periods claimed by CMA. In short, the
Court held that, in the context of the
particular subcontract, the entitlement
to any extension of time was to be
determined at the moment that the delay
event begins to operate, so that
“Where a subsequent delay event
begins to operate concurrently, it is
only taken to affect the critical path
from when the event earlier in time
ceases to be effective.” 84
CMA’s was delayed by the late movement
of the shiploader
There was no dispute between the
parties that the movement of the ship
loader was delayed, nor that as between
John Holland and CMA, that delay was
John Holland’s responsibility. However,
John Holland claimed that the debris
removal operation (which was, as a
matter of contract, CMA’s responsibility85)
was an over-riding fact that defeated
CMA’s delay claim.86 The Court did not
accept that argument because of:
1. firstly, the Court’s finding that the
entitlement to an extension of time
was to be determined prospectively
at the moment the delay event
commenced operating; and
2. secondly, the fact that while the
debris removal was CMA’s obligation,
it was not a programmed activity
and as such could not be analysed
when determining whether CMA was
behind schedule by reference to the
approved construction programme,
as required by the relevant clause.87
Thus, the Court found that, as a matter of
fact, CMA was delayed in its works by the
late movement of the shiploader.
John Holland had also raised an
argument that even if CMA had been
delayed by the late movement of the
shiploader, that made no real difference
because CMA never had sufficient
resources on site to undertake all of
its works (relevantly, the demolition of
the wharf and transfer station at the
same time) had the shiploader been
moved on time. The Court rejected
that argument because, as a matter of
prospective analysis, the entitlement to
an extension of time arose due to the
shiploader delay before CMA had the
opportunity to conduct the two work
areas concurrently.88
CMA’s failure to notify
Despite finding that John Holland had
delayed CMA, the Court upheld John
Holland’s argument that CMA’s extension
of time claim should nonetheless be
denied on the basis of the “harsh” time
bars in the subcontract. The relevant
clause was clearly drafted so that
compliance with the time bar (in this
case 7 days) was a pre-condition to any
entitlement to an extension of time. As
a matter of fact, CMA did not submit a
notice within the required time. Thus,
John Holland denied the claim on that
basis. CMA sought to argue that the
time bar should not apply for a variety
of reasons, including that at the time it
did not know how long the delay would
persist; that the time bar should only
“bite” for the time before it actually
notified John Holland; and that there was
an estoppel by conduct such that strict
adherence to the notification regime was
not required.
The Court rejected all of these
arguments. As to the construction of the
clause, the Court stated:
“There is also no doubt that a strict
application of cl 10.12 is harsh. But
I am not satisfied that it is without
purpose and absurd, so that an
alternative construction must be
given, notwithstanding the apparently
clear words”. 89
Thus, the Court found that John Holland
was entitled to reject the extension of
time claims and consequent delay costs
claims.
CMA’s remaining delay claims
A similar analysis applied to the delay
claims arising out of the delayed access
to MD4A and the additional works
associated with Variation 79. In each case
the Court found that as a matter of fact
CMA had been delayed by a cause which
would entitle it to an extension of time,90
but that a failure to notify in accordance
with the clear words of the subcontract
meant that John Holland was entitled to
reject the claims.91
John Holland’s discretion to extend time
CMA made the (common) argument
that notwithstanding CMA’s failure to
submit notices on time John Holland
ought to have exercised unilateral power
to extend time and thereby “cure” the
failure to notify in accordance with
the clear terms of the subcontract.
The Court rejected that argument. In
doing so it relied on the language in
the relevant clause that stated that
John Holland could “in its absolute
discretion and without affecting any
rights or attracting obligations” extend
the Date for Completion.92 The Court
held that the effect of that language was
that the discretion to extend time was
truly unfettered and that in the face of
such clear drafting there was no need
to consider implied obligations to act
reasonably or in good faith.
John Holland’s counterclaims
John Holland’s counterclaim was
primarily for the costs associated with
removing the blasting debris from
the sea floor and transferring it to
the shore. John Holland also made a
claim for disruption to its piling works
occasioned by the presence of debris on
the sea floor, and a claim for liquidated
damages.
John Holland put its counterclaim on a
number of alternative bases, namely:93
1. that there was an agreed variation to
the terms of the subcontract about
the mechanism by which the parties
would share the costs of debris
removal and transport;
2. if there was no variation, in quantum
meruit;
3. as damages for a breach of the
subcontract; and
4. as a debt arising under the provision
of the subcontract allowing John
Holland to perform obligations under
the subcontract that CMA had not
performed.
89
90
91
92
93
94
At [375]
At [389], [411]
At [394], [416]
At [430]
At [452]
At [590]
95
96
97
98
99
John Holland also pressed a claim for
misleading or deceptive conduct in
relation to part of its loss.
CMA breached the Subcontract
The Court rejected John Holland’s
variation and quantum meruit claims.
As to the variation claims, the Court’s
rejection was based on an analysis of the
correspondence which revealed that as
a matter of fact no agreement on cost
sharing had ever been made between the
parties.94
As to the restitutionary claims, the
Court held that given the contractual
framework left no room for such a claim.
The Court was particularly persuaded
to this conclusion by the presence in the
Subcontract of clause 17.5 in which the
parties expressly agreed:
“the circumstances in which John
Holland may perform an obligation
the CMA was obliged to perform
under the Subcontract, and its
entitlement in debt for the costs,
expenses and damages it has
occurred in doing so.” 95
However, the Court did find, by a
construction of the scope of work, an
obligation on CMA to remove debris from
the sea bed, which obligation CMA had
breached, causing John Holland to suffer
loss and damage.96 The Court also found
that John Holland was entitled to claim a
debt under clause 17.5.97
Misleading or deceptive conduct
John Holland claimed that part of its
loss related to damage sustained to the
dredging barge, the Hippopotes, was also
caused by CMA’s misleading or deceptive
conduct. The relevant conduct was CMA’s
description (at a meeting in March 2007)
of the size of the debris on the sea floor
in early 2007 and the capacity of the
Hippopotes to remove it.98 The Court
upheld this claim on the facts..99
At [596]
At [616]
At [624]
At [625]–[628]
At [666]
PAGE 37
An agreement in relation to specific
vessels
Liquidated damages and the
prevention principle
John Holland claimed that part of its
loss related to the hire of specific debris
removal vessels (the Westsea barges)
was also claimable under the terms of a
separate agreement captured in a letter
sent on 5 June 2007.100 The evidence was
that the letter recorded the agreement
following prior correspondence on
the topic.101 The Court examined how
the letter came into existence and the
parties’ conduct following the letter
being exchanged and concluded that
the parties’ subsequent conduct was
consistent with an agreement being
made.102
Because the Court upheld John
Holland’s rejection of CMA’s extension
of time claims, it followed that John
Holland was entitled to liquidated
damages associated with the CMA’s
delay to completing the debris removal
works. CMA defended this claim on the
basis of the prevention principle, arguing
that the delays were not caused by CMA’s
breaches so it would be wrong for John
Holland, in effect, to profit from its own
wrongs.
The damages that flowed from each of
the specific findings (that is, in relation
to misleading or deceptive conduct,
and the letter agreement in relation to
the Westsea barges) were broadly coextensive with the wider finding that CMA
breached the terms of the subcontract
and that John Holland was entitled to
claim a debt under clause 17.5.103
John Holland’s disruption claim
John Holland claimed it was disrupted
in the progress of its piling operation by
the presence of debris on the sea floor.
The Court accepted that there had been
some disruption to the operation but,
given it had only been provided with very
general evidence of the disruption, could
make no finding as to the quantification
of that disruption.104
100 At [683]
101 At [693]
102 At [709]
103 At [668], [711]
104 At [850], [855]
105 At [865]
106 Spiers Earthworks Pty Ltd v Landtec
Projects Corporation Pty Ltd [No 2]
(2012) 287 ALR 360 at [47], cited at [865]
PAGE 38
However, the Court, again, relied on the
clear words in the Subcontract which
stated that if CMA failed to comply with
the notice provisions it would have:
“no entitlement to an extension of
time and any principle of law or equity
which might render the Date for
Practical Completion unenforceable
shall not apply.” 105
The Court held that provision was
effective at excluding the operation
of the prevention principle, relying on
McLure P’s earlier characterisation of
the prevention principle as a “particular
manifestation of the obligation to
cooperate implied as a matter of law
in all contracts.”106 Although it is not
stated in the judgment, this finding
may have significant impacts within the
construction industry as it confirms that
a clearly worded contract may exclude
the operation of the prevention principle
with the consequence that contractors
signing up to such terms effectively run
the risk of acceleration in circumstances
where no extension of time is available
regardless of the actual cause of the
delay.107
107 See, eg, SMK Cabinets v Hili Modern
Electrics Pty Ltd [1984] VR 391, 394–5
(Brooking J)
108Cf Clark v Macourt (2013) 253 CLR 1
109 At [899]
The Head Contract claims
As a reasonably general argument
against John Holland’s counterclaims,
CMA argued that any loss which John
Holland had sustained ought to be
reduced to account for the settlement
John Holland had secured with BHP in
so far as that settlement related to the
claims in issue between John Holland
and CMA. The Court did not reject this
as a possible means of defending the
action.108 However, on the facts, it found
that CMA had not been able to prove
that any amount of the settlement
between BHP and John Holland was
referrable to the claims between John
Holland and CMA. Thus, this avenue of
defence to the counterclaim failed.109
It follows from this finding that head
contractors are well advised to structure
settlements with principals so that there
is no clear itemisation of the claims
in the settlement deed, especially in
circumstances where there are claims
from “down the line” as well.
Conclusion
While the decision is lengthy (it stretches
to 903 paragraphs), the most interesting
aspects for construction industry
participants are:
1. the willingness of the Court to uphold
a clearly drafted time bar;
2. the commentary about the possibility
of excluding the prevention principle;
and
3. the impact that the structure of the
settlement with BHP had on CMA’s
claims against John Holland.
The clear message that emerges is
that courts will give effect to a clearly
worded contract even where that effect is
“harsh”. Put more shortly, the Contract
is King!
http://www.austlii.edu.au/au/cases/wa/
WASC/2015/217.html
PAGE 39
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
WESTERN AUSTRALIAN
DECISIONS
TOO COMPLEX TO
GET IT RIGHT: LAING
O’ROURKE AUSTRALIA
CONSTRUCTION PTY
LTD V SAMSUNG C&T
CORPORATION
[2015] WASC 237
KEYWORDS: APPEAL FROM ADJUDICATIONS
KEY TAKEAWAY
This case is of interest to lawyers and adjudicators alike, yet it is difficult to identify how
contractors or principals should modify their behaviour as a result of it. Nonetheless, the case
should give industry participants comfort that adjudication determinations made otherwise
than in accordance with proper legal principles will be quashed on application for judicial
review.
The case also creates the conceptual space for principals to argue that particular
circumstances are too complex for the adjudicator to make a determination in the time
available. How adjudicators will receive that argument remains to be seen.
PAGE 40
The facts
Discussion
Enforcement
The defendant (Samsung) subcontracted
the plaintiff (LORAC) to undertake the
Port Landside SMP and E&I Works at the
Roy Hill project. In January 2015 LORAC
issued a progress claim under the
subcontract. Samsung then exercised its
contractual entitlement to terminate the
subcontract for convenience. A dispute
arose.
Certiorari
Consequently, LORAC’s applications
for leave to enforce the determinations
were dismissed. However, the Court
(in obiter) indicated that it would have
refused leave under section 43 of the
Act to register the determinations as the
payments which were the subject of the
determinations had already been made
under the Interim Deed.112
The parties signed an “Interim Deed”
which required Samsung to pay LORAC
termination payments including an
“on account” amount of $45 million.
Samsung paid that amount. Importantly,
the other termination costs payable
under the Interim Deed were subject to
two qualifications, namely, Samsung’s
right to set-off and, secondly, that
the total amount of those payments
could not exceed the subcontract sum
as adjusted in accordance with the
subcontract.
In coming to that conclusion, Mitchell J
found that that if the adjudicator is asked
to embark upon a long and complicated
contractual construction exercise or to
enquire as to what the actual terms of
the parties’ contract are or some other
legal problem he or she is not able to
resolve in the time available, then the
adjudicator should summarily dismiss
the adjudication application without
determining its merits under s 31(2)
(a)(iv) of the Act on the ground that the
matter is too complex.111
In February 2015 LORAC issued a
second claim in respect of works it
had performed prior to Samsung’s
termination of the subcontract.
Samsung did not pay and LORAC applied
for adjudication of both the January
progress claim and the February claim
under the Construction Contracts
Act 2004 (WA) (Act). The adjudicator
determined both applications in favour
of LORAC, requiring Samsung to pay
LORAC a combined (additional) amount
of about $44.1 million.
More interesting are Mitchell J’s
comments surrounding this conclusion.
Mitchell J suggests that whether an
adjudicator should dismiss an application
under s 31(2)(a)(iv) of the Act depends
on that particular adjudicator’s ability
to resolve the issues put before him or
her within the time for which the Act
provides. This implies that adjudicators
who do not have legal training should
dismiss applications that turn on difficult
questions of contractual construction
more readily than adjudicators who
have a background as experienced legal
practitioners.
LORAC sought the Supreme Court’s
leave to register the determinations
as judgments. In response, Samsung
applied for judicial review of each
determination, seeking to quash the
determinations with writs of certiorari.
Mitchell J heard LORAC’s and Samsung’s
applications together.
Mitchell J quashed both determinations
because the adjudicator committed a
jurisdictional error in failing to resolve
the payment disputes by reference to the
terms of the parties’ contract, thereby
misapprehending the nature of his
adjudicative function.110
This result, which is undoubtedly correct,
is at odds with the decision by Keen
DCJ in Kuredale Pty Ltd v John Holland
Pty Ltd [2015] WADC 61 where Keen
DCJ held that an overpayment under a
construction contract does not constitute
a “sufficient reason” for a court to
decline to grant leave under section 43
of the Act.
Conclusion
This decision is the latest in a string of
decisions where the Supreme Court113
has emphasised the importance of
adjudicators making determinations
according to correct ordinary legal
principles, notwithstanding the speed
of the process. It might be argued that
Mitchell J’s decision in this case stands
for the proposition that in cases where
the quantum in dispute is large or the
primary issue is one of complicated
contractual construction and the
adjudicator is not legally trained, the
adjudicator must dismiss for reasons of
complexity under s 31(2)(a)(iv) of the Act.
Whether that is so remains to be seen.
http://www.austlii.edu.au/au/cases/wa/
WASC/2015/237.html
110 At [248]
111 At [225]
112 At [274]–[279]
113See Red Ink Homes Pty Ltd v Court
[2013] WASC 52; Delmere Holdings Pty
Ltd v Green [2015] WASC 148
PAGE 41
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
WESTERN AUSTRALIAN
DECISIONS
DIPLOMA
CONSTRUCTION (WA)
PTY LTD V BEST BAR
PTY LTD
[NO 2] [2015] WASC 230
KEYWORDS: CONTRACTUAL RECORDS
KEY TAKEAWAY
The recent Supreme Court decision in Diploma Construction (WA) Pty Ltd v Best Bar Pty Ltd
[No 2] [2015] WASC 230 serves as a useful reminder of the importance of good record keeping,
especially as to the terms of your contract!
PAGE 42
The facts
The dispute was a traditional “war
of forms” concerning the supply of
reinforcing bars by the defendant (Best
Bar) for a number of projects being
undertaken by the plaintiff (Diploma) in
2007 and 2008.
Diploma sued Best Bar seeking
compensation for overpayments it
alleged it had made on three projects
undertaken in 2007. By counterclaim,
Best Bar claimed damages associated
with alleged underpayments for the
supply of reinforcing bars on three
projects undertaken in 2008. The core
of the dispute was a fundamental
disagreement as to the terms on which
they had agreed to do business.
The Court traced the parties’ relationship
to 15 March 2007, when Best Bar
provided Diploma an estimate associated
with a specific order of reinforcing bar
as well as an application for credit
form. The evidence was that Diploma
never signed the application for credit
form and expressly rejected some of
the terms. However, that did not stop
Diploma from ordering, or Best Bar from
supplying, reinforcing bars. As a matter
of fact, the court found that there was a
general pattern for ordering reinforcing
bar adopted by the parties where Best
Bar would provide an estimate on a
form which included a term that “this
quotation is subject to Best Bar terms
and conditions” 114
Best Bar alleged that the terms and
conditions were those set out in the
Application for Credit which, relevantly,
included a term stating
“No subsequent correspondence or
document, including any order by the
Purchaser will modify or vary these
Terms and Conditions unless such
114 At [21]
115 At [30]
116 At [19]
117 At [14]
118 At [153]
119 At [154]–[155]
120 At [146]. See also Currie v Currie [2013]
WASC 428 at [19] (Allanson J); Lighting
By Design (Aust) Pty Ltd v Cannington
Nominees Pty Ltd (2008) 35 WAR 520
variation is expressly accepted or
acknowledged in writing by Supplier
or otherwise permitted pursuant to
the Terms and Conditions” 115
Following receipt of an estimate,
Diploma would place an order using its
“standard” purchase order. There were
two similar (but different) standard
forms in evidence but the Court was
not presented with evidence about why
one was used instead of the other.116 In
each case the purchase order contained
a term which sought to oust any other
terms put forward by Best Bar, namely:
“No terms stated by the Vendors in
making a quotation or accepting or
acknowledging this Order which differ
from the terms of tis Order shall
be binding upon the Purchaser or
shall be deemed to form any part of
the agreement between Vendor and
Purchaser.” 117
There was no document containing
terms and conditions that was signed
(or even acknowledged as being binding)
by both parties. The argument about
the terms of the contract(s) focused on
whether the contract was subject to
price escalation. The relevant clause
(pressed by Best Bar) was contained in
the Application for Credit form.
Discussion
Diploma’s argument was, in essence, that
by supplying reinforcing bars in accordance
with the order (without expressly rejecting
the terms of the purchase order), Best
Bar should be taken to have accepted the
terms.118 The Court rejected that argument
on the basis of the facts known to the
parties, relevantly:
at [21]–[23] (Pullin JA), [89]–[90] (Buss
JA) and [203]–[205] (Le Miere J); RJ
Baker Nominees Pty Ltd v Parsons
Management Group Pty Ltd [2010]
WASCA 128 at [92] and [97] (Newnes
JA); Fazio v Fazio [2012] WASCA 72 at
[188] and [195] (Murphy JA)
121 See, eg, Baulderstone Hornibrook Ltd
v Qantas Airways Ltd [2003] FCA 174 at
[1] (Finkelstein J)
1. There was no course of dealing
between the parties prior to 2007.
2. Best Bar had set out its terms and
conditions in the Application for
Credit, stated its intention to contract
only on those terms and repeated
that position in each estimate form.
3. The terms themselves sought to oust
subsequent correspondence.
4. The dealings between the parties
included supply of steel but also of a
substantial credit facility.
The Court thus held that at the time each
order was placed, Diploma was aware of
Best Bar’s intention to trade only on its
terms and Best Bar had done nothing to
indicate a departure from that position.118
Consequently, the Court inferred an offer
and acceptance of terms.120 It followed
from that conclusion that Best Bar was
entitled to claim escalation in accordance
with the clause in the application for
credit agreement.
Conclusion
Like many construction cases this was
a “simple case with difficult facts.”121
But it needn’t have been so. Much of the
judgment is directed towards contests on
the evidence about correspondence and
meetings. Reading between the lines, it
is apparent that neither party kept very
comprehensive records nor, indeed,
sought to administer the contract that
it sought to enforce on the other side.
For example, the Application for Credit
form was returned to Best Bar unsigned
and with handwritten annotations but
no further action was taken (by either
side) to close out the issue. There is no
indication in the judgment why that was
so but it is plain that this is a case where,
if the parties had invested time in getting
their terms of trade agreed at the outset,
then a lengthy dispute (running for seven
years from 2008 to 2015) could, perhaps,
have been avoided.
http://www.austlii.edu.au/au/cases/wa/
WASC/2015/230.html
PAGE 43
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
WESTERN AUSTRALIAN
DECISIONS
SIGNED IN A SNAP:
CLAREMONT 24-7 PTY
LTD V INVOX PTY LTD
[NO 2] [2015] WASC 220,
EMAIL AND ELECTRONIC
SIGNATURES
KEYWORDS: ELECTRONIC SIGNATURES
KEY TAKEAWAY
The recent Supreme Court decision in Claremont 24-7 Pty Ltd v Invox Pty Ltd confirms that the
Electronic Transactions Act 2011 (WA) operates so that an email signature will be sufficient to
meet the formal requirements associated with creating interests in land.
The case is of interest to construction professionals as it is a further indication of the Court’s
preparedness to see through the distinction between formal and informal correspondence and
look to the substance of the transaction.
PAGE 44
The facts
The dispute concerned the lease over
premises in Claremont, Perth, owned by
the defendant, Invox Pty Ltd (Invox).
First agreement to lease
In May 2013, Invox and the plaintiff,
Claremont 24-7 Pty Ltd (Claremont
24-7), reached agreement for the lease
of the premises which Claremont 24-7
planned to operate as a gym trading
as a franchisee in the “Snap Fitness”
franchise. The agreement for lease was
conditional on Claremont 24-7 obtaining
council approval for its planned
operations. This approval was not
granted and accordingly the agreement
for lease came to an end.
Second agreement to lease
In September 2014, Claremont 24-7
made a new offer to Invox to lease the
premises. Protracted negotiations
ensued. Claremont 24-7 sought to
secure agreement as to the terms of
the proposed lease and Claremont
24-7’s exclusivity under the agreement
for lease before a council meeting
(scheduled for 9 December 2014) at
which Claremont 24-7’s development
application was to be considered for
approval.
On 5 December 2014, discussions took
place between officers of Claremont
24-7 and Invox over the phone and via
email. The parties exchanged versions of
the proposed lease. Those discussions
culminated in Mr Patel, on behalf of
Claremont 24-7, sending an email
attaching the terms of a lease in an offer
to lease (which had been prepared in
a Snap Fitness form) to Mr Cheah, on
behalf of Invox and Invox’s managing
agent, a Mr Santa Maria. The offer to
lease had been signed on behalf of
Claremont 24-7.
Mr Cheah then sent an email to Invox’s
agent, copying Mr Patel. That email
attached the same terms and stated:
122 At [22]
123 At [83]
124 (1954) 91 CLR 353
125 At [54]
126 See Law Reform Act (Statute of Frauds)
1962 (WA) s 2
“[the] enclosed terms in the Offer by
Snap Fitness is acceptable to both
parties. Could you kindly capture
the terms inside Alpha Properties
standard format offer that was used
previously and expeditiously provide
Offer and new Disclosure Statement
to Amar Patel for his perusal and
execution.” 122
The email concluded “sincerely James
Cheah”.123
Following this there were a series of
communications between the parties,
over a reasonably protracted period,
about the transfer of the terms from one
form to the other.
Events culminated on 31 December 2014
when Invox, through its agent, stated to
Claremont 24-7 that it had agreed to lease
the premises to another party and would
“not pursue your proposal further.”
Claremont 24-7 sought an injunction
preventing Invox from entering into any
lease with a third party.
The arguments
Invox defended the injunction on a
number of bases. However, the crux
of the dispute was a typical Masters v
Cameron124 analysis of whether the facts
supported the existence of a binding
agreement as at 5 December 2014. The
judge found that at that date there was a
binding agreement (in the Snap Fitness
Form) that would be replaced when it
was put into Invox’s preferred form.125
Invox argued that even if an agreement
for lease was in place, it was
unenforceable because Invox had not
actually signed it and, on the basis of
either section 34 of the Property Law
Act 1969 (WA) or section 4 of the Statute
of Frauds 1677 (UK)126 (the Acts). Each
of the Acts requires an instrument in
writing and a signature in order to create
an interest in land.
In response, Claremont 24-7 argued that
section 10 of the Electronic Transactions
Act 2011 (WA) (ET Act) operated to
overcome the lack of a wet signature by
Invox on the Snap Fitness Form.
The Court’s decision
The Court agreed with Claremont 24-7’s
analysis and found that:
•
the requirement under the Acts for an
instrument in writing was satisfied by
the Snap Fitness Form;
•
each of the Acts required a signature
to which section 10(1) of the ET Act
applied; and
•
the facts (relevantly the use of an
email signature, the words “yours
sincerely” by Invox’s representative
and the evident urgency of the
situation given the impending
council meeting) were such that the
requirements of section 10(1) of the
ET Act were met.
Conclusion
This case is the first example in Western
Australia of section 10 of the ET Act
being applied to overcome the lack
of a wet signature on a document.
Cases from other jurisdictions indicate
that an email will not always meet
the requirements of the relevant
legislation.127
However, the case is indicative of a
pragmatic approach by Parliament
(and consequently the courts) to the
realities of commercial transactions. For
construction professionals, it is a further
warning that the distinction between
formal and informal correspondence
is of diminishing importance: so
remember, be careful when clicking
“send”.
http://www.austlii.edu.au/au/cases/wa/
WASC/2015/220.html
127 See, eg, Russells v McCardel [2014]
VSC 287; J Pereira Femandes SA v
Mehta [2006] 2 All ER 891; cf Stuart v
Hishon [2013] NSWSC 766; Stellard Pty
Ltd v North Queensland Fuel Pty Ltd
[2015] QSC 119
PAGE 45
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
AUSTRALIAN CAPITAL TERRITORY & SOUTH AUSTRALIAN
DECISIONS
ADAPT CONSTRUCTIONS
PTY LTD V WHITTAKER
[2015] ACTSC 188
KEYWORDS: EFFECT OF NIL LIQUIDATED DAMAGES
KEY TAKEAWAY
Even if a contract states that no (“zero” or “nil’” liquidated damages are payable to a party for a
delay, that party may still be entitled to claim common law damages, subject to the intention of
the parties. This case provides an example of where a “zero” liquidated damages clause did not
prevent the principal from recovering general damages for delay.
PAGE 46
The facts
The decision
The dispute concerned a standard form
building contract that provided that if the
builder did not complete the house by
the date contracted, liquidated damages
would be payable at the rate specified.
A space was left blank in the contract
for the rate of the liquidated damages
to be inserted, with a note stating “(if
nothing stated, Zero)” (at [67]–[68]). The
house was not completed by the date for
practical completion as specified and
the proprietors sought about $50,000 in
general damages from the builder for
the delay (at [7]).
Burns J examined the series of cases
which had considered similar situations,
including Temloc Ltd v Errill Properties
Ltd (1987) 39 BLR 30, Baese Pty Ltd v RA
Bracken Building Pty Ltd (1990) 6 BCL
137 and J-Corp Pty Ltd v Mladenis [2009]
WASCA 157. He distilled four principles
from the cases (at [79]):
The dispute was referred to arbitration.
Relevantly, the arbitrator concluded that
the parties’ failure to enter a figure in
the schedule resulted in the liquidated
damages clause being “inoperable”,
but permitted him to assess general
damages based on ordinary principles
(at [70]). The arbitrator awarded about
$40,000 damages payable by the builder
to the owner for late completion (at [11]).
The builder sought leave to appeal under
the Commercial Arbitration Act 1986
(ACT): the Australian Capital Territory
has not (yet) enacted the new uniform
domestic arbitration legislation. The
builder alleged that the award general
damages for late completion was an
error of law manifest on the face of the
award (at [71]).
The builder argued that the arbitrator
erred in law by awarding damages for
late completion to the principal in the
absence of a liquidated damages clause
in the building contract. The principal
submitted that the effect of a “zero”
value in the liquidated damages clause
is that the parties have agreed to limit
themselves to a fixed sum under the
contract, and in effect it was an exclusion
of the owner’s rights to seek any
damages for delay (at [25], [41]).
Burns J concluded that the arbitrator’s
decision, which was consistent with Buss
JA’s approach in J-Corp, did not display
a manifest error of law on the face of
the award, nor, indeed, was there strong
evidence of any error (at [80]).
http://www.austlii.edu.au/au/cases/act/
ACTSC/2015/188.html
“The principles which I distil from these
cases are:
a. the requirement in each case is
to ascertain the intention of the
parties to the agreement concerning
damages for delay;
b. in ascertaining that intention,
consideration may be given not only
to the language of the agreement,
but also to the surrounding
circumstances known to the parties
and the apparent purpose and object
of the transaction. Temloc was a
case where evidence was received of
surrounding circumstances, being
evidence of a course of dealings
between the parties to the agreement
which confirmed that the intention of
the parties was that damages for late
completion would not be available;
c. the vesting of a discretion in the
proprietor to exercise a contractual
right to claim liquidated damages
may indicate that the parties did
not intend the contractual right
to liquidated damages to be
the exclusive remedy for delay;
conversely, a mandatory clause, in
the sense of compelling the builder
to pay regardless of any demand
for payment by the principal, may
indicate that the clause is intended to
provide an exclusive remedy; and
d. in construing a contract which, on
its face, provides for no liquidated
damages for breach, an intention
to exclude a right to common law
damages must be expressed in clear
and unambiguous terms.”
PAGE 47
CORRS’
CONSTRUCTION
LAW UPDATE
RECENT
AUSTRALIAN CAPITAL TERRITORY & SOUTH AUSTRALIAN
DECISIONS
THE SANCTITY OF
THE ARCHITECT’S
CERTIFICATE: CIROCCO
CONSTRUCTIONS PTY
LTD V CLARKE
(NO 2) [2015] SADC 107
KEYWORDS: SET OFF; ABIC SW 2008
KEY TAKEAWAY
The standard form ABIC SW-2008 “Simple Works Contract” does not give the owner an express
right of set off. This case confirms that there is no common law or equitable right for the owner
to set off against progress claims unless there are express words or a clear implication to the
contrary. Under the Simple Works Contract, if the owner believes there is unremedied defective
work, the owner must not withhold payments certified by the architect and instead must
promptly raise a dispute.
This case also highlights the importance of strict compliance with contractual processes. Here,
a claim for the release of security was invalid as it was not issued separately with its own tax
invoice, as the contract required.
PAGE 48
The facts
The decision
In 2012, Clarke engaged a builder,
Cirocco Constructions Pty Ltd (Cirocco),
to build a new residence and renovate
an old church hall for $2.117 million.
Clarke and Cirocco executed a contract
(Contract) based on the ABIC SW-2008
developed jointly by the Australian
Institute of Architects and Master
Builders Australia.
Judge Tilmouth first determined
whether section 37 of the Building Work
Contractors Act 1995 (SA) (BWC Act),
which contains wide remedial powers
for the correction and enforcement of
deficient building work, displaced the
common law remedies available under
the Contract. His Honour found that
section 37 did not displace the common
law remedies as the BWC Act did not
include the strong words needed to
displace established common law rights.
Under the Simple Works Contract, an
“architect” administers the contract,
inspects the works, issues progress
payment certificates and issues a
certificate of practical completion. The
architect must act independently when
exercising its function as an assessor
or certifier. Under the Contract, the
architect issued:
•
on 3 September 2014, progress
certificate 11 for $58,875 ($52,925
was for the return of security);
•
on 3 November 2014, progress
certificate 12 for $99,484.79; and
•
on 1 December 2014, the certificate of
practical completion, which occurred
on 31 July 2014.
Clarke had previously paid all progress
certificates in full, but rejected these two
certificates because the work was not
undertaken in a proper and workmanlike
manner and defects remained unremedied. Clarke did not dispute the
certificate within 20 working days, as the
Contract required.
Cirocco then sought summary judgment.
Clarke resisted on the basis that the
work was not of an acceptable standard
and that she did not want to pay for
unsubstantiated prime costs, provisional
sums, unapproved variations, or longunremedied defective work.
His Honour confirmed the longestablished principle that one must
examine the terms of the contract
to determine whether the building
contractor is entitled to the progress
payments without deduction if a dispute
about defective work arises.
His Honour began by citing Lord Reid
in Gilbert-Ash (Northern) Ltd v Modern
Engineering (Bristol) Ltd,128 who allowed
a right of set-off as “no provision
ousted the right of set-off in respect of
unliquidated cross-claims”. Lord Reid
held that there was no presumption that
an architect’s certificate must be paid at
once without waiting for set-off claims to
be determined.
His Honour considered Algons
Engineering Pty Ltd v Abigroup
Contractors Pty Ltd,129 in which Rolfe
J stated that where a right to set off is
established, it will constitute a defence,
but dismissed the defendant’s claim of
an equitable right of set off because:
•
there would be no injustice by
requiring the parties to abide by
the terms of their contract, which
excluded the right to set off until a
later time; and
•
the defendant could later rely on that
equitable right of set off in adjusting
the parties’ financial rights and
obligations.
Judge Tilmouth found that the current
situation was no different from that in
Algons Engineering. Therefore, Clarke’s
equitable right of set off would fall for
later determination. Cirocco was entitled
to the certified payments, which would
not be subject to any set off, regardless
of whether Clarke had issued a notice of
dispute.
This decision confirms the statement
by Ian Bailey and Matthew Bell in their
textbook Construction Law in Australia
that “under the ABIC contracts, the
principal is probably not entitled to set
off against the certificate”,130 citing John
Holland Construction and Engineering
Pty Ltd v Majorca Projects Pty Ltd. 131
It is critical, of course, to pay proper
attention to the contractual terms.
Under the related but differently drafted
ABIC MW-2008 (Major Works Contract),
clauses M12–M13 allow the owner to set
off for liquidated damages only.
Judge Tilmouth also had to consider
whether the architect’s progress
certificates complied with the contract.
The important question is whether the
valuation complies with the terms of the
contract, not whether there was an error
in discretionary judgment. In relation to
progress certificate 11, his Honour found
that there was a reasonable basis for
defending the application for summary
judgment as the certificate was invalid
because the Contract required a
separate certificate or tax invoice to be
issued for the release of security.
Clarke argued that progress certificate
12 was invalid because the architect
made an error in calculation. Judge
Tilmouth found this does not make the
certificate invalid, and is instead to be
dealt with under the contract’s dispute
mechanism.
http://www.austlii.edu.au/au/cases/sa/
SADC/2015/107.html
128 [1974] AC 689
129 (1997) 14 BCL 215
130 (Lawbook Co,3rd ed, 2011) at 241
131 (1996) 13 BCL 235. This case concerned
a JCC contract with similar payment
terms
PAGE 49
CORRS’
CONSTRUCTION
LAW UPDATE
INTERNATIONAL DEVELOPMENTS
THE END OF THE
PENALTY DOCTRINE IN
ENGLAND?
KEYWORDS: PENALTIES
PAGE 50
The High Court’s decision in Andrews
v Australia and New Zealand Banking
Group Ltd (2012) 247 CLR 205 changed
the approach to the law of penalties in
Australia. In exciting news, there may be
big changes for the law of penalties in
England and Wales too.
On 21, 22, and 23 July 2015, the United
Kingdom Supreme Court heard
argument in two cases, Cavendish
Square Holding BV v Makdessi and
Beavis v ParkingEye Ltd, which squarely
raise the future of the law of penalties in
England.
Joanna Smith QC, the leading counsel for
the appellants in the Cavendish appeal
put her marker in the ground early on.
Less than five minutes into her oral
argument, she said:
“We are submitting that the logical
conclusion to draw from our
arguments is that the doctrine of
penalties should be overruled; that
the doctrine … should go.”
Video recording of the six sessions of
oral argument, as well as the decisions
below, is available on the United
Kingdom Supreme Court’s website:
https://www.supremecourt.uk/cases/
uksc-2013-0280.html
https://www.supremecourt.uk/cases/
uksc-2015-0116.html
PAGE 51
CORRS’
CONSTRUCTION
LAW UPDATE
INTERNATIONAL DEVELOPMENTS
ASPECT CONTRACTS
(ASBESTOS)
LIMITED V HIGGINS
CONSTRUCTION PLC
[2015] UKSC 38
KEYWORDS: LIMITATION PERIODS AND APPEAL
FROM ADJUDICATIONS
KEY TAKEAWAY
This is the first decision of the Supreme Court of the United Kingdom on a construction
adjudication.
An unsuccessful party in an adjudication under the Housing Grants, Construction and
Regeneration Act 1996 (UK) (the Act) can bring a claim to have the adjudication decision
challenged within six years of the unsuccessful party making payment. This limitation period
begins to run from the date the unsuccessful party makes a payment to the successful party
pursuant to the adjudication.
PAGE 52
The facts
In March 2004, Higgins Construction Plc
(Higgins) contracted with Aspect Contracts
(Asbestos) Limited (Aspect) for Aspect to
conduct an asbestos survey on blocks of
maisonettes that Higgins was considering
for development (the Contract). It was
undisputed that the Contract was a
“construction contract” under the Act.
Aspect conducted the survey and provided
a report on 27 April 2004.
The development went forward and in
early 2005 Higgins alleged that it had
found asbestos material not previously
identified in the Aspect report. As a
result, a dispute arose between Higgins
and Aspect regarding the unidentified
asbestos material.
Ultimately, Higgins referred the dispute
to adjudication, claiming over £800,000
in damages, plus interest. Higgins could
refer the dispute to adjudication because
of sections 108 and 114 of the Act,
which implied a term into the Contract
providing for a process of adjudication.
Higgins succeeded during the
adjudication and was awarded £490,627
plus interest.
Importantly, the implied adjudication
clause provided that:
“the decision of the adjudicator is
binding until the dispute is finally
determined by legal proceedings, by
arbitration ... or by agreement”.
The parties did not agree to consider
the adjudication final and Higgins did
not commence any action to recover
the £331,855 balance of its claim or
otherwise finally determine the dispute.
The limitation period for any claim
Higgins had regarding the dispute had
expired in early 2011. However, on 3 April
2012, Aspect commenced proceedings
132 At [7]
133 Aspect Contracts (Asbestos) Ltd v
Higgins Construction Plc [2013] EWHC
1322 at [45] (Akenhead J)
134 Aspect Contracts (Asbestos) Ltd v
Higgins Construction Plc [2013] EWHC
1322 at [48] (Akenhead J)
135 At [9]
136 At [10]
for recovery of the amount paid to
Higgins on the basis that no payment
was due on the merits of the original
dispute. Higgins counterclaimed for the
£331,855 balance of its original claim.
Aspect’s claim
Aspect rested its claim either on the
presence of an implied term or on the
doctrine of restitution. The relevant term
that Aspect submitted was implied was
one entitling it to repayment:
“in the event that a dispute
between the parties was referred
to adjudication pursuant to the
Scheme and one party paid money
to the other in compliance with the
adjudicator’s decision made pursuant
to the scheme, that party remained
entitled to have the decision finally
determined by legal proceedings and,
if or to the extent that the dispute as
finally determined in its favour, to
have the money repaid to it.” 132
At first instance, Akenhead J rejected
Aspect’s claim that there was an implied
term for repayment on the basis that
it was not reasonable, equitable or
necessary to give business efficacy to the
contract, nor was there a policy reason
to override this decision.133 His Honour
also rejected Aspect’s claim that it had a
separate cause of action in restitution.134
The Court of Appeal reversed Akenhead
J’s decision, holding that the contract did
contain the implied term as submitted
by Aspect. Aspect did not pursue its
restitutionary claims on appeal.135
Higgins was granted permission to
appeal to the Supreme Court of the
United Kingdom and submissions were
invited on the basis of both restitution
and the implied term.136
137 At [16]
138 At [16]
139 At [17]
140 At [23]
141 At [21]–[22] and [25]
142 At [31]–[32]
143 At [33]
Findings
The Supreme Court considered that
the main issue was whether Aspect
was able to “disturb” an adjudicator’s
decision by bringing proceedings after
the limitation period for Higgins under
the original contract, in tort and contract,
had lapsed.137 Lord Mance held that
this hinged on whether Aspect could
bring a claim to recover the sum it had
provisionally paid under that adjudication
determination.138 That is, Aspect must be
able to establish that the sum originally
paid was not due in the original dispute.
His Lordship expressed Aspect’s
position as being that there were rights
and liabilities not identified in the
adjudication decision that entitled it to
payment, and that these arose by way of
an implied term or restitution.139
However, the Court expressed the
implied term slightly differently, as:
“a directly enforceable right to
recover any overpayment to which the
adjudicator’s decision can be shown
to have led, once there has been a
final determination of the dispute.” 140
What limitation period applied to
Aspect’s claim?
As Aspect’s claims arose independently
as a result of the adjudication payment
and was only for repayment of it, the
Court held that the relevant limitation
period for such a claim started to
run from the date of the payment to
Higgins.141 The Court also held that this
allowed Aspect to pursue determination
of the parties’ original rights and
liabilities for the purpose of determining
whether any over-payment had
occurred.142
The Court refused, however, Higgins’s
counterclaim on the basis that it was
time barred. Higgins’s claim did not
relate to the adjudication payment and
as such its limitation period ran from the
original claim, not the date of payment.143
http://www.bailii.org/uk/cases/
UKSC/2015/38.html
PAGE 53
CORRS’
CONSTRUCTION
LAW UPDATE
INTERNATIONAL DEVELOPMENTS
CLEAR LANGUAGE
TRUMPS COMMON
SENSE IN ARNOLD
V BRITTON
[2015] UKSC 36
KEYWORDS: CONTRACTUAL INTERPRETATION
KEY TAKEAWAY
This decision serves as a reminder that parties to a commercial agreement will be held to the
clear language of their written bargain, rather than an interpretation that makes commercial
common sense. Courts will not impute an alternative meaning if this would undermine the
clear language of a contract. In Arnold v Britton, the parties were therefore confined to the
terms of the agreement, even though the ramifications were unjust.
PAGE 54
The facts
The Appellants in Arnold v Britton were
tenants of 25 holiday chalets in the
Respondent landlord’s leisure park.
A dispute arose concerning a service
charge provision of the contract. Clause
3(2) required the Appellants:
“to pay ... a proportionate part of the
expenses ... incurred ... and the yearly
sum of Ninety Pounds and value
added tax (if any) for the first three
years of the term hereby granted
increasing thereafter by Ten Pounds
per Hundred for every subsequent
three year period or part thereof.”
The Respondent contended that clause
3(2) had the effect of providing for a fixed
annual charge of £90 for the first year of
the term, with a yearly increase of 10%
on a compound basis. The Appellants
argued that this interpretation resulted
in an absurdly high service charge.
A literal reading of the clause shows a
tension, between requiring the payment
of a “proportionate part” of expenses for
maintenance renewal and the payment
of a fixed sum, increased by fixed
proportions. The Appellants contended
that the service charge clause required
the lessee to pay a “fair proportion” of
the costs, “subject to” the maximum
of £90 in the first year of the term,
and increases every year by 10% on a
compound basis. The Appellants argued
that the clause was ambiguous and only
a “proportionate part” should be paid,
thus, in effect, adding the words “up
to” before the words “the yearly sum of
Ninety Pounds.”
In the alternative, the Appellants
argued that the clause’s effect was
limited by clause 4(8), which required
the obligations in all leases to be “as
similar as the circumstances permit.”
The charge should, on this argument, not
be higher than that of previous 70 leases
entered into for similar holiday chalets,
which had a slightly different and less
controversial service charge provision.
•
Commercial common sense should
not be invoked retrospectively. When
interpreting a contractual provision,
one can only take into account facts
or circumstances which existed at
the time the contract was made, and
which were known or reasonably
available to both parties.
•
In some cases, an event will
subsequently occur which was plainly
not intended by the parties, judging
from the language of the contract. In
such cases, if the alternative intention
is clear, the court will give effect to it.
•
While reference was made to service
charge clauses being construed
“restrictively”, there is no indication
they are subject to special rules.
The decision
The Supreme Court dismissed the appeal
by a majority of four to one, finding that
the natural meaning of the two parts of
the service clause provision was clear.
In delivering the lead speech, Lord
Neuberger stated that the Court
must identify the intentions between
the parties by reference to what “a
reasonable person having all the
background knowledge ... would have
understood them to be using the
language in the contract” [at 15]. In doing
so, his Lordship emphasised several
factors relevant to the appeal.
•
Reliance on commercial common
sense should not be invoked to
undermine the importance of the
natural language of the provision. The
court cannot embark on an exercise
of searching for ambiguities in order
to depart from the natural meaning.
While commercial common sense is
important, the court should be slow
to reject the natural meaning of a
provision, simply because it seems
imprudent.
The majority found that even though the
Appellants would be paying £550,000
by 2072, it was not inconceivable that
this was intended. The court should
not invent a lack of clarity in order to
depart from the natural meaning. Lord
Neuberger emphasised that people
entered into all sorts of contracts on the
basis of reasons that no professional
would consider prudent [at 37].
Lord Carnwath’s dissenting speech
highlighted that the intention was for
all leases to be on similar terms, based
on clause 4(8). Further, his Lordship
emphasised the commercial purpose
of clause 3(2), being purely for the
recovery of maintenance costs. Lord
Carnwath found that there was no
grammatical connection between the
two parts of clause 3(2) and found the
parts were mutually inconsistent [at
125]. He therefore concluded that the
clause resulted in commercial nonsense
and was ambiguous. Interestingly,
the Respondent recognised the
unsatisfactory situation in which the
Appellants found themselves, and
was prepared to agree to appropriate
amendments to the leases.
PAGE 55
Australian contractual
interpretation
The High Court articulated the
Australian approach in Australian
Broadcasting Commission v Australasian
Performing Right Association Ltd.144
In this case, the Association claimed
that a provision on licence payments
had been miscalculated under the
agreement, and did not reflect the
parties’ intention. It also argued that the
term “rate applicable” in the provision
was ambiguous. Applying the provision
as it stood led to extremely low licence
payments.
The majority, Barwick CJ and Stephen J,
held that the language of the provision
calculating the licence fee was plain
and unambiguous. While the amount
calculated by the current provision did
not produce commendable results, it
was not the role of the court to attribute
an intention which did not reflect the
express words.
Justice Gibbs agreed on the law but
not on the facts, finding a lack of
grammatical exactitude in the provision.
Justice Gibbs held that if the words used
are unambiguous, the court must give
effect to them, even if the result may
appear capricious or unreasonable,
despite the suspicion that the parties
intended something different. If the
language is, however, open to two
constructions, the interpretation
that avoids unreasonable or unjust
consequences should be preferred
even if another construction may be
more obvious [at 109]. Further, Gibbs
J held it is permissible to depart from
the ordinary meaning of words of one
provision as far as is necessary to avoid
an inconsistency with the rest of the
agreement.
144 (1973) 129 CLR 99
145 [2012] VSCA 223
146 [2015] WASC 143
PAGE 56
Gibbs J’s judgment has since been
approved and applied in a range of cases
including Bytan Pty Ltd v BB Australia
Pty Ltd145 and the recent case of Fitzroy
River Corporation Ltd v Buru Energy
Ltd.146
Arnold v Britton is a significant
example of contractual interpretation
that highlights the courts’ preference
for strict linguistic interpretation.
The decision thus reiterates the vital
importance of certainty in drafting.
http://www.bailii.org/uk/cases/
UKSC/2015/36.html
PAGE 57
CORRS’
CONSTRUCTION
LAW UPDATE
INTERNATIONAL DEVELOPMENTS
MT HØJGAARD A/S
V E.ON CLIMATE AND
RENEWABLES UK
[2015] EWCA CIV 407
KEYWORDS: FITNESS FOR PURPOSE
KEY TAKEAWAY
This case highlights the difficulties that can arise where different design obligations are spread
across various arguably inconsistent contract documents.
The issue at the heart of this case is who should pay rectification costs where:
• the contractor has complied with an established, but incorrect, international design
standard; and
• compliance with the standard means that the contractor cannot satisfy the 20-year fitness
for purpose warranty.
The Court was asked to interpret the effect of this specific fitness for purpose warranty, in
conjunction with more general warranty provisions. The Court of Appeal overturned the trial
Judge’s decision, holding that the contractor was not under a “fitness for purpose” obligation
and had met the more general requirements of reasonable skill and care by complying with the
standard, regardless of the error.
Construction contracts commonly include express undertakings in regards to design or
suitability. The implications which flow from these can generate disputes when the contract
also contains obligations to perform work in accordance with certain standards. This case
considers the effect of such a provision, which stipulated design in accordance with an
established, international standard that was subsequently found to be flawed.
PAGE 58
The facts
MTH and E.ON’s claims
E.ON engaged MTH to design, fabricate
and install the foundations for 60 wind
turbine generators in Scotland. The
Contract required MTH, amongst other
things, to carry out the Works with
due care and skill and to ensure they
were “fit for purpose”. Importantly, the
“fitness for purpose” requirement was
to be determined in accordance with
the Specification (also referred to as the
Technical Requirements) using “Good
Industry Practice”, which was defined
as the skill to be reasonably expected
of an experienced contractor, in a
manner consistent with international
standards. The Technical Requirements
were found within a separate document,
the Employer’s Requirements
schedule. They obliged MTH to comply
with the internationally recognised
design standard, J101, and included
a requirement that the foundation
structures “ensure a lifetime of 20 years
in every aspect without replacement”.
Both parties agreed that the contract
obliged MHT to design the works with
due care and diligence so that each
item would be fit for purpose. The
disagreement centred on whether the
general obligations, when read with
the specific requirements, imposed a
strict obligation for the turbines to have
a lifetime function of 20 years. MTH
submitted that its obligation to exercise
good practice and compliance with J101
was achieved, regardless of J101’s error
and the consequential defects in the
turbine foundations. E.ON argued MTH
took full responsibility for the design and
that its obligations to achieve “fitness for
purpose” and a design life of 20 years
were not qualified.
Each turbine foundation required a
monopile and transition piece held in
place by a grouted connection with or
without shear keys. MTH’s subcontractor
designed the grouted connection in
accordance with international standard
J101. Unfortunately, MTH and the
subcontractor did not know this standard
contained a fundamental error which
resulted in the Works being defective.
The transition piece began to slide from
the monopile. The turbine foundations
accordingly required immediate remedial
work shortly after completion. The
dispute centred on which party was liable
for the €26.25 million costs.
147 MT Højgaard a/s v E.ON Climate and
Renewables UK Robin Rigg East Ltd
[2014] EWHC 1088 (TCC)
148 The Steel Company of Canada Ltd V
Willand Management Ltd [1966] SCR
746
Findings
Trial — poor contractor!
The Technology and Construction Court
(TCC) found that MTH was liable to E.ON
for breach of contract. It held that the
design of the foundations was not fit for
purpose, as the Works failed to achieve a
minimum lifespan of 20 years.147
Edwards-Stuart J focused on the terms
of the contract to reason that although
MTH was expressly obliged to design
in accordance with the J101 standard,
it also assumed responsibility for the
overall design of the turbines. This in
turn required that they would have an
operational life of 20 years. Therefore,
as a matter of drafting, his Honour
found that these two obligations were
clearly separate and could not have been
intended to qualify each other.
His Honour referred to several Canadian
decisions in which the Canadian
Supreme Court rejected contractors’
claim for payment on the basis that the
contractors had failed to comply with
an express contractual obligation to
construct works capable of performing
the function intended, even if the works
carried out were in accordance with the
general specifications.148
Edwards-Stuart J interpreted the J101
standard as an “owner’s specification”
to find that an express warranty for
“fitness of purpose” by the contractor
can trump the obligation to comply
with a specification, even if it contains
an error.149 By finding that the 20-year
lifespan was to be read with the other
terms of the contract, E.ON was entitled
to rely upon that warranty, and MTH was
responsible for costs of rectification.
MTH appealed the decision.
Court of Appeal — a win for the
contractor!
The Court of Appeal reversed the
decision of the TCC to find that the
“fitness for purpose” clause and 20year design life, in the wider context of
the contract, were not to be construed
strictly.
The Court started by considering the
Employer’s Requirements schedule
which stated that the design foundations
“shall ensure a lifetime of 20 years
in every respect without planned
replacement”. The Court found that this
alone may constitute a warranty that the
foundations would function for 20 years.
However, in this Contract, all of the other
provisions in the same schedule referred
to a “design life” of 20 years, which did
not guarantee that the foundations would
be operationally functional for 20 years.
149 MT Højgaard a/s v E.ON Climate and
Renewables UK Robin Rigg East
Ltd [2014] EWHC 1088 (TCC) at 74
(Edwards-Stuart J)
PAGE 59
The Court of Appeal then focused on
the hierarchy of various contractual
documents, finding the contractual
conditions took overall priority, and the
schedule came fourth in precedence.
The leading judgment of Jackson LJ
noted that the Technical Requirements
could, by reference to the other relevant
provisions in the contract, require a
20 year functioning lifespan. However,
the Technical Requirements were
inconsistent with contractual conditions
which sit above them in the hierarchy.
The Court was “not to be led astray by
that inconsistency”. 150
Jackson LJ also cited with approval a
judgment of Lord Clarke of the Supreme
Court, who observed “if there are two
possible interpretations of a provision,
the court is entitled to prefer the
construction which is consistent with
business common sense” 151
Hence, the problem for E.ON was that
the Court found that a reasonable person
in the position of the parties would
know that the normal standard required
that the design of offshore wind farms
comply with J101. That compliance was
expected, but not guaranteed, to achieve
a life of 20 years. The inconsistency
between the obligations to achieve a
20-year operational life and the other
contractual provisions were to be read
strictly.
150 MT Højgaard A/S V E.ON Climate and
Renewables UK [2015] EWCA Civ 407 at
104 (Jackson LJ)
151 Rainy Sky SA v Kookmin Bank [2011]
UKSC 50; [2011] 1 WLR 2900. After the
present case was decided, the Supreme
Court of the United Kingdom revisited
the extent to which a court may prefer
a “commercial common sense” and
has, by contrast, emphasised the
importance of linguistic meaning. See
the note on Arnold and Britton [2015]
UKSC 36 above
PAGE 60
Comments
The UK Court of Appeal decision
shows considerable sympathy for the
contractor. The error in J101 was clearly
significant in the Court’s interpretation of
the contract.
This case also demonstrates the
difficulties that arise where absolute
obligations co-exist alongside obligations
qualified to the standard of reasonable
skill and care. The judgment is the
latest in a string of cases considering
this interplay (see also MW High
Tech Projects v Haase Environmental
Consulting).152 While this most recent
judgment stressed that each case must
be decided on the wording of the contract
in question, parties must be cautious
when drafting provisions imposing
potentially inconsistent strict and
general obligations.
Court of Appeal:
http://www.bailii.org/ew/cases/EWCA/
Civ/2015/407.html
Technology and Construction Court
(Trial):
http://www.bailii.org/ew/cases/EWHC/
TCC/2014/1088.html
152 MW High Tech Projects v Haase
Environmental Consulting [2015] EWHC
152 (TCC)
PAGE 61
CORRS’
CONSTRUCTION
LAW UPDATE
INTERNATIONAL DEVELOPMENTS
BATH AND NORTH EAST
SOMERSET DISTRICT COUNCIL
V MOWLEM PLC
(2004) [2015] 1 WLR 785 AB V CD
[2015] 1 WLR 771
ASHTON MANUFACTURING PTY
LTD V EXPRESS SIGN LABS PTY LTD
[2015] FCA 975
KEYWORDS: HOW CONTRACTUAL LIMITATIONS AND EXCLUSIONS
OF DAMAGES AFFECT INTERLOCUTORY INJUNCTIONS
KEY TAKEAWAY
These three decisions153 all deal with an issue that arises when seeking interlocutory
injunctions: will damages be an adequate remedy? While this is not a separate factor for
Australian courts to consider (see Australian Broadcasting Corporation v O’Neill (2006) 227
CLR 57, 81–84 [65]–[72] (Gummow and Hayne JJ; Gleeson CJ and Crennan J agreeing at 68
[19]), it is used as part of determining the balance of convenience.
The upshot of the English cases is (per Underhill LJ in AB v CD [2015] 1 WLR 771, 783 [28]): “The
primary commercial expectation must be that the parties will perform their obligations. The
expectations created (indeed given contractual force) by an exclusion or limitation clause are
expectations about what damages will be recoverable in the event of breach; but that is not the
same thing.” This is consistent with the trend of High Court of Australia decisions, including Zhu v
Treasurer (New South Wales) (2004) 218 CLR 530 and Tabcorp Holdings Ltd v Bowen Investments
Pty Ltd (2009) 236 CLR 272, which reject the notion of economic breach of contract.
PAGE 62
The decisions
Bath and North East Somerset District
Council v Mowlem plc [2015] 1 WLR
785 is a construction case. It has been
reported (as a note) over 10 years after
the date of the decision (20 February
2004). The primary judge had granted
the Council an injunction restraining
Mowlem plc (the head contractor) from
denying subcontractors access to the
relevant site for testing, purportedly in
accordance with the contract. It was
accepted there was a serious question
to be tried about whether the contract
authorised this testing (at 788–789 [7]).
Mance LJ (with whom Brooke LJ and
Park J agreed) noted that “the decisive
issue is … whether … an injunction
should be granted as a matter of
convenience” (at 789 [8]).
The Council contended that damages
would not be an adequate remedy
because, if the injunction was not
granted, there would be “an indefinite
stalemate” between the Council and the
head contractor, causing delay, the loss
from which would exceed the amount
of liquidated damages agreed in the
contract (at [9]).
This argument found favour in the Court
of Appeal. Mance LJ said (at 793–794
[15]–[16], emphasis in original):
“The council accepts—indeed it
asserts—that it would be bound
in any claim for damages by its
contractual agreement regarding
liquidated and ascertained damages.
The council is not seeking to avoid
that agreement, but to rely on it. It
is the reason why the council seeks
an injunction, and why the council
submits that interlocutory injunctive
relief is appropriate. Mowlem is
not entitled to breach its contract.
The agreement on liquidated and
ascertained damages is not an
agreed price to permit Mowlem to do
so, and it does not preclude the court
granting any other relief that may be
appropriate. In my view, the council’s
case is right in principle.
I would only add that the fact that
difficulty of quantification is an
acknowledged basis for treating
damages as an inadequate remedy
means that the court recognises,
when deciding whether to grant an
interlocutory injunction, that it can
be unjust to leave a party to a claim
to damages which the court would if
necessary have to quantify. The court
may in other words be sufficiently
lacking in confidence about its
own ability fairly and adequately to
quantify damages after the event
to prefer to grant an injunction.
The court ought not to discourage
parties from agreeing liquidated and
ascertained damages. But it ought
to recognise that the assessment of
the totality of any likely loss before
the event is an even more rough
and ready and difficult exercise
than after the event; and that such
an assessment may prove in the
event not to give rise to adequate
compensation, so that to leave a party
to a claim in damages may mean
that it will suffer loss which the grant
of an interlocutory injunction would
completely avoid.”
In terms that may apply to many public
infrastructure projects, Mance LJ also
held (at 795 [21]):
“Independently of this conclusion,
I also consider that it is open to the
council on the facts of this case
to rely on the likelihood that delay
would cause further loss which
would be felt by the general public,
through the negative effect of delay
on economic regeneration (loss of
extra visitors, loss of additional trade
for local hotels and restaurants, loss
of additional car parking revenue and
general loss of “spend” in the local
economy) and through general loss of
public confidence in the council (with
consequential negative implications
for further council projects).
These items represent the type of
unquantifiable, and in substantial
measure, irrecoverable damage
to public interests that may well
be suffered if a Millennium project
undertaken by a public authority
moves (as Mr Cavanagh puts it) from
the status of ‘Eden’ to ‘Dome’.”
http://www.bailii.org/ew/cases/EWCA/
Civ/2004/115.html
153 The English decisions were recently
noted by Young AJA in (2015) 89
Australian Law Journal 379 at 379–380
PAGE 63
The decision in Bath v Mowlem was
applied in AB v CD [2015] 1 WLR 771.
(The parties’ names were anonymised
because the dispute was under an
agreement with an arbitration clause
and arbitration proceedings were
commenced: at [2].)
In that case, the agreement between
the parties excluded consequential
loss, including loss of profits (at 774
[5], 775 [10]). The applicant sought an
interlocutory injunction requiring the
respondent to continue to perform its
obligations under the agreement (at
773 [2]), the breach of which would have
caused the applicant loss of profit which
would not be recoverable because of the
exclusion clause.
Underhill LJ (with whom Ryder and
Laws LJJ agreed) considered that Bath
v Mowlem was both binding and right
in principle (at 782 [24]). In his short
concurring reasons, Laws LJ held (at 785
[33]):
“Where a party to a contract
stipulates that if he breaches his
obligations his liability will be limited
or the damages he must pay will be
capped, that is a circumstance which
in justice tends to favour the grant of
an injunction to prohibit the breach in
the first place.”
Underhill LJ also noted that the court
must still undertake a balancing exercise
despite an exclusion or limitation clause
(at 784 [30]):
“[Counsel for the respondent] argued
that it could not be right that in every
case where the victim of a threatened
breach of contract sought an interim
injunction he could rely on the
existence of an exclusion or limitation
clause to claim that damages would
not be an adequate remedy. I think
that that overstates the consequences
of the case which I have accepted.
A claimant will still have to show
that if the threatened breach occurs
there is (at least) a substantial risk
that he will suffer loss that would
otherwise be recoverable but for
which he will (or at least may) be
prevented from recovering in full, or
at all, by the provision in question.
If he does, then certainly it will not
be sufficient for the defendant to
say that the restriction in question
was agreed; and to that extent the
claimant will indeed have established
that his remedy in damages may
not be adequate. But that only
opens the door to the exercise of
the court’s discretion; and in the
exercise of that discretion the fact
that the restriction in question was
agreed may, depending on the
circumstances of the case, be a
relevant consideration—as may the
scale of any shortfall and the degree
of risk of it occurring.”
http://www.bailii.org/ew/cases/EWCA/
Civ/2014/229.html
PAGE 64
Ashton Manufacturing Pty Ltd v Express
Sign Labs Pty Ltd [2015] FCA 975 was
a dispute between two parties “both
involved in enterprises concerning the
wrapping of coffins” (at [1]). The issue
was whether certain representations
made by one of the parties, including
whether they had “AFL approval for Club
themed wraps” were misleading.
Edelman J ultimately did not grant an
interlocutory injunction because the
evidence before him did not establish
a prima facie case. But he noted that
the potential difficulty of assessing
damages would have been a relevant
factor, though it seems the other way (at
[12]–[15]):
“In [the plaintiff’s solicitor’s] affidavit
he says that that [the plaintiff] is likely
to suffer ‘irreparable damage to its
commercial operations and goodwill’.
…
I accept that in relation to the two
representations in issue loss would
be difficult to assess (in particular
loss of future custom based upon
these representations). In a case like
this, like cases involving restraint of
trade, there can be some inadequacy
in damages because of (i) the
difficulties in establishing causation
between any loss of business with
customers and any actions of a
respondent, and (ii) the difficulty of
the calculation of the quantum of any
damage arising from loss of business
…
These concerns about assessing
damages should not be overstated.
There are many cases where proof of
quantum of damages can be difficult,
and cases involving claims for loss of
a chance of obtaining, or retaining,
customers often involve these
assessments.
Overall, even if I had been satisfied
that there was a prima facie case,
the weakness of any prima facie
case would mean that the difficulty
of assessment of possible loss would
not be sufficient to restrain Express
Sign Labs from making the two
representations it seeks to make as
part of its continuing business.”
http://www.austlii.edu.au/au/cases/cth/
FCA/2015/975.html
PAGE 65
JOURNAL ARTICLES
OF INTEREST
J W Carter and Wayne
Courtney, ‘Implied Terms
in Contracts: Australian
Law’ (2015) 43 Australian
Business Law Review 246
David Bailey, ‘International
Commercial Arbitration
— A Critique’ (2015) 43
Australian Business Law
Review 344
Keywords: implied terms in contracts
Keywords: practical issues and
experiences with arbitration
Key takeaways
This article by two of the leading
contract law academics in Australia
summarises the current Australian
and English approaches to the
implication of terms in contracts,
and takes the view that the
Australian approach is preferable.
Robert Boadle, ‘Conscience
and Unjust Enrichment’
(2015) 89 Australian Law
Journal 641
Keywords: unjust enrichment and
change of position
Key takeaways
This article, by one of the counsel
for Castel Electronics Pty Ltd (the
party with the benefit of the arbitral
awards that were challenged
in numerous ways by TCL Air
Conditioner (Zhongshan) Co Ltd),
describes what is said to be an
unsatisfactory experience with
international commercial arbitration.
It provides a different, personal
perspective of what he describes
as “an unfortunate example of the
worst features of international
commercial arbitration”.
Justice Clyde Croft,
‘Providing Clarity to
Judicial Support of
Arbitration’ (2015) 89
Australian Law Journal 143
Keywords: arbitration and the courts
Key takeaways
Key takeaways
Quantum meruit and unjust
enrichment claims not infrequently
arise in the construction context.
This article examines some of
the principle and theoretical
underpinnings of unjust enrichment
claims, and focuses on the operation
of the change of position defence.
In this short article, Croft J
describes and extols the benefit
of the Supreme Court of Victoria’s
Arbitration Rules and Commercial
Arbitration Practice Note.
PAGE 66
Javad Asghari, Kristian
Cywicki, and Wayne
Jocic, ‘Enforcement
of Adjudication
Determinations’ (2015) 31
Building and Construction
Law Journal 208
Keywords: enforcement of security of
payment determinations
Key takeaways
This article, two of the three co-authors
of which are associated with Corrs,
contains a good outline of the current
state of the law about enforcing
adjudicator’s determinations. Though
it is mostly focussed on the West
Coast Model legislation, the general
comments about the extent to which an
adjudicator’s determination supports
a statutory demand are also likely to
apply in East Coast Model jurisdictions.
Albert Monichino
QC, ‘Termination for
Convenience: Good
Faith and Other Possible
Restrictions’ (2015) 31
Building and Construction
Law Journal 68
Keywords: termination for
convenience
Key takeaways
This article covers some of the
potential restrictions on contractual
provisions entitling a party to
terminate a contract for its
convenience, including an implied
duty of good faith with examination
of relevant cases. There is also a
lengthy section about the penalty
doctrine.
CORRS
THINKING
PIECES
LINKS TO OUR
RECENT THINKING
Email negotiations
- Beware, you
might already be
bound!
Liquidated
damages post
Andrews - A
double-edged
sword
The WTO
Agreement on
Government
Procurement:
A world of
opportunity or
a threat to local
business?
Regional China
rises: Australian
businesses should
venture beyond
Shanghai and
Shenzhen to ride
the Project of the
Century
Don’t believe the
Andrews hype Service credits
are unlikely to be
penalties
Better together:
Can multiasset PPPs help
governments
deliver priority
infrastructure
projects?
PAGE 67
CONTACTS
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ANDREW MCCORMACK
PETER SCHENK
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Resolution, Litigation and Regulatory
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MATTHEW MUIR
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[Matt] provided valuable support,
strategic advice, insight and good
humour in a troublesome case.
Steps ahead of the opposition,
commercially, legally and tactically—
proves a winning formula.
PARTNER
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PAGE 68
CONTACTS
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Builds a strong relationship with
the client and delivers
SA Water
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PAGE 69
PARTNER
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– Construction/Infrastructure
Chambers Global Guide, 2012-2016
Best Lawyers – Construction
and Infrastructure
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PARTNER
Tel +61 3 9672 3501
[email protected]
Melbourne Project Finance
& Development Lawyer of the Year
Best Lawyers Peer Review, 2011
Best Lawyer – Construction
Infrastructure, Project Finance
& Development and Water
Best Lawyers Peer Review, 2009–2016
Leading Lawyer
– Projects & Government
Chambers Global Guide, 2010-2016
DAVID WARREN
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Leading Lawyer
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Chambers Global Guide, 2009–2016
Best Lawyer – Construction/
Infrastructure and Project Finance
& Development
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CONTACTS
SYDNEY
SIMON ASHWORTH
SHAUN BAILEY
ROBERT REGAN
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Australasian Legal Business Guide to
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A high calibre, specialist practitioner.
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Featured Expert – Construction
International Who’s Who Legal of
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PAGE 70
CONTACTS
PERTH
SPENCER FLAY
PARTNER
Tel +61 8 9460 1738
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Best Lawyer - Construction/Infrastructure
Best Lawyers Peer Review, 2013-2016
Leading Lawyer - Construction (WA)
Doyle’s Guide to the Australian Legal
Profession, 2012-2014
PAGE 71
SARAH LEONARD
PARTNER
Tel +61 8 9460 1693
[email protected]
Best Lawyer - Construction/Infrastructure
Best Lawyers Peer Review, 2012 - 2016
CHRIS RYDER
PARTNER
Tel +61 8 9460 1606
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Perth Construction Infrastructure
Lawyer of the Year
Best Lawyers Peer Review, 2013
Leading Lawyer - Construction
Chambers Global Guide, 2008-2016
Best Lawyer - Construction Infrastructure
Best Lawyers Peer Review, 2009-2016
SYDNEY
8 Chifley
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Tel +61 2 9210 6500
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