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Projects and construction

Risk of inserting ‘Nil’ or ‘N/A’ in Annexure of Australian Standard Contracts

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.

Exercise caution when deleting, amending or adding clauses to contracts and particularly when considering using the words ‘N/A’ and/or ‘NIL’.

Serving payment claims via facsimile - risk of non-receipt

Zebicon Pty Ltd v Remo Constructions Pty Ltd [2008] NSWSC 1408

A contract between Zebicon and Remo provided a reference date of the 20th of each month, unless the 20th day was not a business day, in which case the reference date would be the next following business day.

Zebicon argued that it had served a payment claim on Remo on the 19th of July 2008 (which was a Saturday) by facsimile. Remo claimed that it did not receive the document as the fax machine was ‘playing up’. A facsimile transmission report produced by Zebicon at the hearing indicated a positive transmission result ‘OK’.

Whilst the Court accepted that the fax machine was indeed malfunctioning, and at that time did not print out faxes that had been received, it was held that the Payment Claim was successfully transmitted and received by Remo on 19th of July 2008.

It did not matter that the document was not brought to the attention by someone at Remo’s office where the facsimile machine was located and that it was not printed out. The Court reasoned that if such factors were relevant, it would essentially mean that a recipient of a facsimile could avoid service by means of facsimile, by simply ensuring that the paper tray in the machine remained empty.

Counsel for Remo further argued that section 31 of the Building and Construction Industry Payments Act 1999 (‘the Act’) required the Payment Claim to be lodged ‘during normal office hours’. Section 31(1) provides:

Any notice…may be served on the person:

  • by lodging it during normal office hours at the person’s ordinary place of business, or

  • by sending it by post or facsimile addressed to the person’s ordinary place of business.

The Court held that the requirement of ‘normal office hours’ did not apply to documents sent by post or facsimile addressed to the person’s ordinary place of business.

Finally Remo argued that the Payment Claim could only be served on the 21st of July 2008 (pursuant to the reference date under the Contract). The Court suggested that ‘premature service may have afforded a good answer to [the] payment claim’, however as this was not raised in the payment schedule, the Court was not required to make a determination on it.

Documents served by facsimile pursuant to 31(1)(c) of the Act, are not required to be served in ‘normal office hours’ and service can still be effective service even if faxed documents are not printed out by the machine. Even if the machinery is malfunctioning, this will not automatically provide the recipient with a means of relief.

Who does this affect?

Companies whose business operations are involved in the energy and resources sector.

What do you need to do?

This publication aims to provide you with an overview of recent legal developments that are relevant to your business. Should you wish to discuss any of the information attached please contact the relevant Partner.



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