Update

Who does this affect?

All parties who are involved in the preparation, completion and administration of construction contracts

What do you need to do?

If you would like to discuss these cases further, please contact Scott Budd or Mark Darian-Smith

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Scott Budd  
Partner
T +61 7 3244 8054

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Mark Darian-Smith  
Partner
T +61 2 9296 2082

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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.

Author
Scott Budd, Partner

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 July 2008 (which was a Saturday) by facsimilie. Remo claimed that it did not receive the document as the fax machine was “playing up”. A facsimilie 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 sent, it was held that the Payment Claim was successfully transmitted and received by Remo on 19 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 wasn’t 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:

(1) Any notice may be served on the person:

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 21 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.

Author
Scott Budd, Partner

Austruct Qld P/L v Independent Pub Group P/L [2009] QSC

Misleading conduct by a party issuing a payment claim under the Building and Construction Industry Payments Act 2004 may lead to the payment claim being set aside

Austruct Qld P/L (the ‘Applicant’) entered into a construction management contract (the ‘Contract’) with Munday Group Pty Ltd (‘Munday’), involving the completion of renovations to a hotel in Fortitude Valley, Brisbane (the ‘Project’). The Contract was then subsequently assigned by Munday to Independent Pub Group P/L (the ‘Respondent’).

In September 2008 disputes arose concerning the overall cost of the project. The Applicant submitted several invoices to the architect for the project, Mr Troung (the ‘Architect’), however, none of the invoices were paid. The Applicant held various trade certificates which were required by the Respondent to obtain the consents necessary to open the hotel, however, the Applicant refused to hand over such trade certificates until such time as its invoices had been paid. However, when the Respondent proposed making an application to court for production of the trade certificates the Applicant agreed to provide the Respondent with them.

On 13 November 2008, the Applicant sent a box of documents including trade certificates and copies of previously provided invoices to the Architect. However, the Applicant also sent a similar but not identical box of documents to the Respondent’s Sydney office containing a payment claim. The Sydney address is merely an address for service, however, the Respondent does not have a working office in Sydney and no one was there to receive the box of documents. The Respondent’s principle place of business is in Adelaide.

The Architect says that he received a call from a director of the Applicant shortly after receipt of the box in which the director notified the Architect that he had also sent a copy of the documents in the box to the Respondent’s office in Sydney. However, the director deliberately neglected to inform the Architect of the payment claim which was included in the box which was sent to the Respondent’s office in Sydney. The Architect informed the Respondent that a box containing the same documents which he had received had been delivered to the Respondent’s office.

Under section 18 of the Building and Construction Industry Payments Act 2004 (the ‘Act’), if the Respondent does not serve a payment schedule within ten business days of receiving a payment claim, the Respondent becomes liable to pay the full amount claimed and, under section 19 of the Act, there is no avenue for defence or counterclaim.

The head of the Respondent’s company gave evidence that he was aware of the risk of a payment claim being served by the Respondent and had alerted the Respondent’s solicitors in relation to a payment schedule. However, he said that as a result of his conversation with the Architect (who had received the information from the Applicant) he believed the documents in Sydney did not contain a payment claim. In light of this, the Respondent asserted that the Applicant had engaged in misleading and deceptive conduct in contravention of the Trade Practices Act 1974 (‘TPA’) causing the Respondent to miss the deadline for serving the payment schedule.

The Supreme Court of Queensland ruled that following evidence given by the director of the Applicant in cross-examination, it was clear that the director’s intention had been to mislead the Respondent as to the nature of the documents delivered to Sydney and to create a situation in which no payment schedule would be delivered and that this was achieved by conveying the impression that the documents in Sydney were materially identical to those received by the Architect when in fact there was a fundamental difference between them.

It was held that this conduct was misleading and clearly in contravention of section 52 of the TPA. It was held that section 19(4)(b)(ii) of the Act did not preclude the Respondent from relying on section 52 of the TPA to prevent the entry of summary judgment where a payment schedule is not delivered. Dutney J said that he was:

“… satisfied that it would be improper to permit the Applicant to take advantage of the Respondent’s failure to deliver a payment schedule in circumstances where that failure was brought about by the Applicant’s misleading conduct.”

Having regard to the misleading and deceptive conduct of the Applicant, the court set aside the payment claim with a view to a fresh payment claim being served in accordance with the legislation.

Author
Scott Budd, Partner