Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26

The Victorian Court of Appeal, in a unanimous decision delivered on 26 February 2008, rejected the approach taken in a line of English and single judge Australian authorities (describing it as ‘flawed’) that had construed the term ‘consequential loss’ when used in contracts as limited to the ‘second limb’ of Hadley v Baxendale (1854) 9 Ex 341.

Instead, the Court of Appeal held in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd that, in the context of an exclusion clause, the term ‘consequential loss’ should be given its ordinary and natural meaning and that the true distinction is between:

• normal loss, which is loss that every plaintiff in a like situation will suffer, and
• consequential loss, which is “anything beyond the normal measure, such as profits lost and expenses incurred through breach”.

This decision is a marked departure from the old approach to the interpretation of the term ‘consequential loss’. Parties should consider the losses for which they wish to exclude their liability when negotiating contracts and what their potential exposure is now likely to be under the terms of any existing contracts where the expression ‘consequential loss’ is used.

Case Note

Shepherd Homes Ltd v Encia Remediation Limited and Green Piling Limited [2007] EQHC 70 (TCC)

Shepherd Homes Limited v Encia Remediation Limited and Green Piling Limited [2007] EWHC 70 (TCC) highlights the importance of considering the interrelationship between contractual limitations on liability and the existence of professional indemnity insurance.

The decision demonstrates that caps on liability will not necessarily be affected by assurances given in relation to the extent of professional indemnity insurance exceeding the amount of the cap. The decision stands as a reminder in any contracts negotiation or review, to consider both issues simultaneously.

Case Note

BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2007] VSC 409

In this decision of the Victorian Supreme Court (Court), the primary claim of BMD Major Projects Pty Ltd (BMD) against Victorian Urban Development Authority (VicUrban) is founded upon a latent conditions clause of a contract between them dated 22 March 2002 (contract).

The contract was based upon AS 2124 1992. BMD alleged that in the course of its works it encountered latent conditions which caused it to carry out additional works, to use additional and different constructional plant and to incur additional costs in the performance of its works.

The balance of the proceedings comprises of BMD’s claims against VicUrban for breach of contractual warranties, contractual variations, extensions of time, breaches of the Trade Practices Act 1974 (Cth) (TPA), unjust enrichment and other claims on the contract.

In this case useful guidance was provided on the interpretation of certain words and phrases in the contract between the parties including “forthwith” in the latent conditions clause, “within 28 days after the delay occurs” in the extension of time clause and “reasonable rates” in the variations clause.

While allowing most of BMD’s claims for latent conditions, Pagone J assessed additional works arising from these claims at “reasonable rates”. In respect of BMD’s other claims, Pagone J rejected BMD’s claims for breach of contractual warranties, misleading and deceptive conduct, delay costs resulting from variations under the contract and interest for late payment on certain progress claim payments.

Case Note

Vos Construction & Joinery Qld Pty Ltd v Sanctuary Properties Pty Ltd & Anor [2007] QSC 332

Recently, the Queensland Supreme Court considered an application to restrain an owner from calling on a bank guarantee provided as security under a construction contract.

In the case, the Queensland Supreme Court held that:

• The financier’s obligation in such commercial instruments is independent of the underlying construction contract. This means that a security provided under a construction contract may prima facie be called up unless there is a breach of a negative stipulation in the underlying contract which conditions the right to call it up.
• Unless expressly so stated, the dispute resolution clauses of a contract do not affect an owner’s right to draw on the contractor’s security for a debt owed whether, disputed or not.
• The time within which to give notice of an intention to call on a security under s 67J of the Queensland Building Services Authority Act 1991, only begins to run in circumstances where the right to payment accrues to a party, but not before. Here, that did not occur until the issuance of the architect’s final certificate confirming rejection of the applicant’s dispute.
• It was also held that, on the facts, the circumstances that the applicant might suffer embarrassment and loss of reputation within the industry if the call was made did not justify the grant of an injunction.

Case Note

CPC Energy Pty Ltd v Bellevarde Constructions Pty Ltd & Anor [2007] NSWSC 1397

This case concerns a challenge over the adoption of a referees’ report which was prepared in accordance with Part 20 Rule 23 of the Uniform Civil Procedure Rules 2005 (NSW). Whilst CPC Energy Pty Ltd (CPC) as Plaintiff sought orders for the adoption of the report the defendants, Bellevarde Constructions Pty Ltd (Bellevarde) and Mr John Fielding (Mr Fielding) contended for the adoption of only certain conclusions in the report.

Einstein J of the New South Wales Supreme Court (Court) agreed with the referees’ finding that Mr Fielding’s fraudulent conduct vitiated subsequent progress certificates and made an order for judgment against Mr Fielding for damages for fraud. Essentially Einstein J adopted most of the recommendations contained in the referees’ report.

Case Note