Client Update

Author
Scott Budd  
Partner

---

Scott Budd  
Partner
T +61 7 3244 8054

---

Mark Darian-Smith  
Partner
T +61 2 9296 2082

---

Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246

A property developer (the ‘Respondent’) and contractor (the ‘Applicant’) entered into a building contract using the Australian Standard General Conditions of Contract AS2124-1992 (the ‘Contract’) for the construction of a 12 storey apartment building.

Subsequently, numerous disputes arose which were referred to arbitration. One of the Respondent’s claims in the arbitration was for general damages for non-completion by the Date for Practical Completion and the arbitrator ruled in the Respondent’s favour.

The Applicant sought leave to appeal this decision, claiming that on the proper construction of the relevant clause of the Contract, the Respondent was not entitled to such damages for delay.

Clause 35.6 of the Contract stated that if the Applicant failed to reach Practical Completion by the Date for Practical Completion then the Applicant would be liable to pay the Respondent liquidated damages for each day which exceeded the Date for Practical Completion at the rate set out in the Annexure to the Contract. In respect of clause 35.6 in the Annexure, beside the item entitled ‘Liquidated Damages per day’ was handwritten ‘N/A’, which was initialled by both parties. However, the parties had written ‘NIL’ in respect of one of the other items contained in the Annexure.

Reading the Annexure in light of the entire Contract, the arbitrator adopted a broad interpretation in concluding that the use of the abbreviation ‘N/A’ in the Annexure meant that the parties intended that the entire clause 35.6 was not applicable and not that the rate at which liquidated damages was fixed was nil. In reaching this position the arbitrator concluded that the use of the two different terms in the Annexure (ie ‘N/A’ and ‘NIL’) indicated that the parties intended them to bear different meanings. He also held that a number of clauses in the Contract as well as letters of intent evinced an intention to preserve the common law right to claim damages for delay. He ruled that the parties had failed to use “clear and unequivocal words” in expressing any intention to abandon a remedy in general damages. Thus the arbitrator held that the option to claim general damages was left open to the Respondent and the Applicant was liable to pay damages.

In considering whether to grant leave to appeal, the judge was to determine whether the arbitrator made an error of law in deciding that the Respondent was entitled to claim general damages.

The judge agreed with the arbitrator that a reasonable person would believe that the use of the different terms ‘N/A’ and ‘NIL’ were to bear different meanings. Therefore, he agreed that the inclusion of ‘N/A’ beside clause 35.6 indicated that the entire clause was no longer applicable to the Contract, thereby leaving the Respondent’s option to claim general damages intact. The judge concluded that any alternative construction of the clause and Annexure would result in consequences which were “unreasonable, inconvenient or unjust” to one or other party.

The judge conceded that:

“There is no doubt that there is an issue in the construction industry as to the meaning of amendments or additions to standard form contracts containing liquidated damages clauses which have rates for liquidated damages inserted as ‘NIL’ or ‘N/A’. The constructions of such contracts is not certain given the unlimited ways standard form contracts containing liquidated damages clauses can be altered and completed… However, in my opinion the delivery of another case interpreting such a clause in a particular contract which has been amended in a particular fashion by the parties is unlikely to add to the certainty of commercial law”.

In light of this, the judge confirmed that he saw no need to grant leave in this case and instead advised that parties to such contracts should exercise caution when deleting, amending or adding clauses to contracts and do so in a clear and consistent manner. The uncertainty which exists in this area primarily occurs because parties fail to adhere to this principle.