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CORRS’ CONSTRUCTION LAW UPDATE JUNE 2015

IN THE NEWS ......................................... 2Draft AS 11000:2015 general conditions of contract ................................3

Litigation in the fast lane ...........................3

J W Carter, Wayne Courtney, and Gregory Tolhurst, “ ‘Reasonable Endeavours’ in Contract Construction” (2014) 32 Journal of Contract Law 36 .....................................4

NEW SOUTH WALES .............................. 6Building and Construction Industry Security of Payment Amendment (Retention Money Trust Account) Regulation 2015 .........................................6

Nazero Group Pty Limited v Top Quality Construction Pty Limited [2015] NSWSC 232 ................................................8

Meriton Apartments Pty Limited v The Owners Strata Plan No 72381 [2015] NSWSC 202 ..............................................10

Perpetual Trustee Company Ltd v CTC Group Pty Ltd [2015] NSWSC 130 ...........12

Campbelltown City Council v WSN Environmental Solutions Pty Ltd [2015] NSWSC 155 ..............................................14

UGL Rail Pty Ltd v Wilkinson Murray Pty Ltd [2014] NSWSC 1959 ...........................16

Wright v Lend Lease Building Pty Ltd [2014] NSWCA 463 ...................................18

Kitchen Xchange Pty Ltd v Formacon Building Services Pty Ltd [2014] NSWSC 1602 ............................................20

nearmap Ltd V Spookfish Pty Ltd [2014] NSWSC 1790 ............................................22

QUEENSLAND ...................................... 24Grocon Constructors (Qld) Pty Ltd v Juniper Development No 2 Pty Ltd [2015] QSC 102 ....................................................24

Baldwin v Icon Energy Ltd [2015] QSC 012 ....................................................26

Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2014] QSC 293 ....................................................28

Gladstone Area Water Board v AJ Lucas Operations [2014] QSC 331 ......................32

VICTORIA .............................................. 36Rationes Absentia — Assad v Eliana Construction and Developing Group Pty Ltd [2015] VSCA 53 ...................................36

Facade Treatment Engineering v Brookfield Multiplex [2015] VSC 41.........38

Rilgar Nominees Pty Ltd v BHA Holdings Pty Ltd [2014] VSC 632 .............................42

WESTERN AUSTRALIA ......................... 46A pig with lipstick is still a pig!: Judicial review and the Construction Contracts Act 2004 (WA) ..................................................46

Kuredale Pty Ltd v John Holland Pty Ltd [2015] WADC 61 ........................................50

Pyramid Constructions (WA) Pty Ltd v Form Doctors Pty Ltd [2015] WASC 94 ...52

Hamersley Iron Pty Ltd v James [2015] WASC 10 ...................................................54

INTERNATIONAL NEWS ....................... 56MW High Tech Projects UK Ltd and Haase Environmental Consulting [2015] EWHC 152 (TCC) .......................................56

Good faith: recognised by the Canadian Supreme Court .........................................58

LINKS TO OUR RECENT THINKING ...... 62Contacts Brisbane ...................................63

Contacts Melbourne ................................64

Contacts Sydney .......................................65

Contacts Perth .........................................66

CONTENTS

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 June 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 assist in-house practitioners and commercial managers with keeping up-to-date with recent legal developments and current legal thinking.We hope that you find it interesting and stimulating.

OUR THINKINGCorrs 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.

WELCOME TO THE LATEST EDITION OF CORRS CONSTRUCTION LAW UPDATE JUNE 2015

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CORRS’ CONSTRUCTION LAW UPDATE

IN THE NEWS

DRAFT AS 11000:2015 GENERAL CONDITIONS OF CONTRACT

LITIGATION IN THE FAST LANE

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SummaryStandards Australia has released a draft of AS 1100:2015, its proposed successor to AS 2124:1992 and AS 4000:1997.

The draft conditions of contract and an explanatory statement are publicly available.

Some of the main features of the draft are:

• Their/or there numbering is sensible, which means no more references such as “third paragraph of clause 42.1”;

• There is an express obligation on the parties to act in good faith (clause 2.1);

• There is an “early warning procedure”, in addition to requirements to make and notify claims (clauses 2.2–2.5); and

• The definition of “business day” expressly picks up the definition in the relevant security of payment legislation, to avoid confusion (clause 1.2(b)).

• The superintendent is expressly required to act impartially when certifying or assessing (clause 23.1(c)) but is otherwise the principal’s agent (clause 23.2).

• If there is concurrent delay where only some of the causes of delay entitle the contractor to an extension of time, the contractor is entitled to time but not cost (clause 37.6). The proportionate approach in AS 4000 has been abandoned, as has the “one is enough” approach of AS 2124.

• There is a distinction between “delay damages” and “delay costs” (clauses 37.22 and 37.23).

• There are alternatives for dispute resolution: conference - arbitration, or conference - expert determination - litigation (clause 45). There is also express provision for a DRB.

Further readingCorrs Thought Piece: Andrew Chew and David Starkoff, “Good Faith in Construction Contracts: A Bridge Too Far?” (12 February 2015)

LITIGATION IN THE FAST LANESauber Motorsport AG v Giedo van der Garde [2015] VSCA 37 (12 March 2015): the reference to Sauber may thrill some, but for us all, this case is a fascinating illustration of modern court procedures.

The facts are simple. Formula One driver van der Garde wanted to be reinstated as a driver for the Sauber team. Just days before the opening race, in Melbourne, van der Garde sought to enforce an arbitral award in the Supreme Court of Victoria.

The speed of the proceedings is noteworthy.

• On 2 March 2015, the (first) arbitral award was handed down in London.

• On 11 March 2015, within 36 hours of the hearing, the Supreme Court handed down judgment.

• On the same day, the Court of Appeal began hearing the appeal from the first instance judgment, and handed down its judgment on 12 March 2015.

This was not the end of the novelty. On 27 April 2015, Croft J, who had heard the case at first instance, took the unusual step of writing a lengthy blog post on the proceedings. The post concluded:

“as I emphasised in my judgment in the Sauber case, practitioners should remember that the Supreme Court’s Arbitration List is available at all times and at all hours, seven days a week. This is a critically important service and one well worth talking about to fellow practitioners both in Australia and overseas — and, most importantly, to the end-users of arbitration services, namely commercial clients and in-house counsel.”

The Court of Appeal’s decisionhttp://www.austlii.edu.au/au/cases/vic/VSCA/2015/37.html

Croft J’s blog posthttp://www.supremecourt.vic.gov.au/home/contact+us/supreme+court+blog/navigating+the+international+arbitration+arena+supreme+court+rules+on+f1+case

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J W CARTER, WAYNE COURTNEY, AND GREGORY TOLHURST,“ ‘REASONABLE ENDEAVOURS’ IN CONTRACT CONSTRUCTION” (2014) 32 JOURNAL OF CONTRACT LAW 36

KEY TAKEAWAYSThis article, by three of the five authors who robustly criticised the High Court’s decision in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205, starts its second paragraph by describing the majority judgment in Verve v Woodside as “a very disappointing exposition of contract law”.

The decision raises two separate issues. First, the correct approach to the construction of contracts and recourse to extrinsic material: the authors criticise the High Court for not quelling the heated debate between academics and courts about what ought to be done.

Secondly, what does “reasonable endeavours” mean? The authors prefer Gageler J’s dissenting judgment on this point.

IN THE NEWSCORRS’ CONSTRUCTION LAW UPDATE

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AbstractThe decision of the High Court of Australia in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd [(2014) 251 CLR 640] continues the theme of other decisions over the past 20 years of treating a statement of the objective theory of contract as a statement of the principles of construction. Disappointingly, there is no attempt to clarify matters, such as the role of context, which have frequently been the subject of much discussion in this Journal. Although the majority’s statement refers to the importance of “businesslike interpretation”, its decision seems just the opposite. The question was whether sellers of gas had breached an obligation to use “reasonable endeavours” to supply at a fixed price an additional quantity of gas, as nominated by the buyer. Because the market price exceeded the agreed price, the sellers declined to use any endeavours. According to the majority, there was no breach of contract, if not because reasonable endeavours obligations are inherently conditional, then certainly because the clause at issue expressly entitled the sellers to have regard to “commercial matters”.

Further readingJ W Carter, Wayne Courtney, Elisabeth Peden, Andrew Stewart, and G J Tolhurst, “Contractual Penalties: Resurrecting the Equitable Jurisdiction” (2013) 30 Journal of Contract Law 99

Gladstone Area Water Board v AJ Lucas Operations [2014] QSC 331, which is discussed in this Construction Law Update

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BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT AMENDMENT (RETENTION MONEY TRUST ACCOUNT) REGULATION 2015

KEY TAKEAWAYSThe Trust Regulation, which introduces a new Part 2 to the Building and Construction Industry Security of Payment Regulation, will apply to retention moneys held by a head contractor under a construction contract with a project value of $20 million or more.

If the Trust Regulation applies, a head contractor will be required to hold retention money in a trust account with an approved deposit-taking institution (ADI) and comply with a range of notification, reporting and record keeping requirements. Additionally, a head contractor may be restricted in its ability to draw upon retention money if the relevant subcontract does not adequately provide for this.

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1 Building and Construction Industry Security of Payment Regulation 2008 (NSW) reg 5(1)2 Building and Construction Industry Security of Payment Regulation 2008 (NSW) regs 5(1), 63 Building and Construction Industry Security of Payment Regulation 2008 (NSW) reg 5(1)4 Building and Construction Industry Security of Payment Regulation 2008 (NSW) regs 5(3), (4)5 Building and Construction Industry Security of Payment Regulation 2008 (NSW) reg 6(1)6 Building and Construction Industry Security of Payment Regulation 2008 (NSW) reg 6(2)7 Building and Construction Industry Security of Payment Regulation 2008 (NSW) reg 9

8 Building and Construction Industry Security of Payment Regulation 2008 (NSW) reg 8(1)9 Building and Construction Industry Security of Payment Regulation 2008 (NSW) regs 7, 11, 1210 Building and Construction Industry Security of Payment Regulation 2008 (NSW) reg 1411 Building and Construction Industry Security of Payment Regulation 2008 (NSW) cl 16(3)12 Building and Construction Industry Security of Payment Regulation 2008 (NSW) cl 16(1), (2)

Background The February 2015 update included a note on draft proposed regulations under the Building and Construction Industry Security of Payment Act 1999 (NSW) for retention money trust accounts in New South Wales. The draft regulations were open for public consultation until 16 January 2015. The Trust Regulation was made immediately before the caretaker period for the recent New South Wales State election commenced.

The Trust Regulation inserts into the existing Building and Construction Industry Security of Payment Regulation 2008 (NSW) provisions requiring retention money to be held in trust accounts in certain circumstances (Trust Provisions).

Application of the Trust ProvisionsThe Trust Provisions do not apply generally.

Prospective only. The Trust Provisions only apply to a construction contract entered into after 1 May 2015.1

Head contractors only. The Trust Provisions only apply to head contractors in relation to retention money under subcontracts.2 But entities entering into development agreements (or other upstream documents) with landowners or developers may be head contractors to which the Trust Provisions apply if the relevant entity undertakes to carry out construction work under such arrangements.

$20 million threshold. The Trust Provisions only where the head contractor’s contract with the principal has a value of $20 million or more.3 The Trust Provisions operate once the $20

million threshold is reached: that is, they may initially not apply, but if the head contractor’s contract is varied, they may then apply. The Trust Provisions will then apply prospectively for that project.4

Retention money only (not unconditional undertakings). The Trust Provisions only apply to cash retention moneys: head contractors may wish to consider requiring all security from subcontractors to be in the form of unconditional undertakings or insurance bonds. However, this may not be practical when dealing with smaller subcontractors where the use of retention moneys would be a more realistic option and relatively standard practice.

The retention money trust account requirementsThe trust account. A head contractor must hold retention money in trust for the subcontractor in a retention money trust account with an ADI.5 The retention money trust account may be established as:

• a separate trust account in respect of a particular subcontractor;

• a separate trust account for all retention money held in connection with a particular construction project; or

• a separate trust account for all retention money held in connection with two or more (or all) construction projects.6

Unless the subcontract provides otherwise, interest earned by a retention money trust account will by default be held on the same trust as the retention money.7

Withdrawal from the trust account. Unless otherwise agreed with the subcontractor or ordered by a court or tribunal, a head contractor must not withdraw money from a retention money trust account other than for payments in accordance with the terms of the construction contract under which the money was retained. The terms of subcontracts are thus critically important.8

Notification, reporting and record keeping obligations. A head contractor must notify the NSW government of various matters in connection with the establishment or closing of a retention money trust account, or such an account becoming overdrawn. Penalties of up to $22,000 apply for failing to comply.9

Also:

a. a head contractor must keep records in relation to retention money trust account for at least three years after the account is closed;10

b. the head contractor must pay a $1,500 annual fee for each account;11 and

c. a head contractor must provide the NSW government with an account review report (by a registered company auditor) and a retention account statement in the prescribed form.12

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NAZERO GROUP PTY LIMITED V TOP QUALITY CONSTRUCTION PTY LIMITED[2015] NSWSC 232

KEY TAKEAWAYThe Supreme Court of New South Wales has confirmed the usual practice that challenges to adjudication decisions will require the party challenging the decision to pay the adjudicated amount into court, even if not strictly required under the Act.

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FactsTop Quality agreed to do certain formwork and concreting for Nazero. Top Quality issued payment claims under the Building and Construction Industry Security of Payment Act 1999 (NSW). Nazero contended that Top Quality submitted two payment claims in respect of the same reference date contrary to section 13(5) of the Act. Nazero issued a payment schedule for a nil amount, which was taken to adjudication. The adjudicator made an adjudication determination in favour of Top Quality for $199,163.00, finding that there was only one payment claim embodied in two invoices.

As a result, Nazero commenced proceedings seeking that the adjudication application be found to be an abuse of process, that the adjudication determination be quashed, and an injunction preventing the enforcement of the adjudication determination.

DecisionTop Quality asked for the unpaid portion of the adjudicated amount be paid into the Court in accordance with usual practice (even though, as there was no judgment entered, section 25(4)(b) of the Act did not apply in terms).

Nazero argued that the current approach should be reconsidered, and that Chase Oyster Bar Pty Ltd v Hamo Industries Pty Ltd (2010) 78 NSWLR 393 supported that reconsideration.13

Hammerschlag J rejected those arguments and required Nazero to pay the unpaid portion of the adjudicated amount into the Court.14 He held that the Chase Oyster Bar decision did not affect this practice.15 The decision was based on the general policy aims of the Act: speedy and effective determination of disputes, and enforceable rights to progress payments.16

https://www.caselaw.nsw.gov.au/decision/550671cbe4b0b29802dc2d6c

13 [2015] NSWSC 232 at [22]–[25]14 [2015] NSWSC 232 at [46]15 [2015] NSWSC 232 at [39]16 [2015] NSWSC 232 at [40]–[45]

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MERITON APARTMENTS PTY LIMITED V THE OWNERS STRATA PLANNO 72381 [2015] NSWSC 202

KEY TAKEAWAYSThe developer of a strata-titled building is likely to owe fiduciary duties to the owners’ corporation. This may mean that the owners’ corporation may subsequently be able to disclaim agreements between the developer and the owners’ corporation (such as facilities management agreements).

Where a customer repudiates a long-term supply agreement during the course of the agreement, the supplier cannot simply recover the contract price if it did not (and could not, because it required the customer’s co-operation) perform the services. The supplier must prove its lost profit as damages.

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Base factsThe case related to the World Tower building in Sydney, which is under three separate strata schemes. Part of the building, the “mid-rise”, was residential, and there was a separate strata scheme for that part of the building.

Under a Caretaker Agreement, the original developer, Meriton Apartments Pty Ltd, was the caretaker for each separate strata scheme. The caretaker agreement was for a period of 10 years, commencing on completion of the building in 2004. The owners’ corporation purported to terminate the agreement in 2012. The validity of the termination, and some other related issues, were then the subject of proceedings in the Supreme Court of New South Wales.

Termination of the AgreementSlattery J found that the owners’ corporation was not entitled to terminate the Caretaker Agreement, either under the agreement, or at common law. The owners’ corporation had therefore repudiated the agreement.17 The caretaker elected to keep the agreement on foot.18

But what remedy was the developer/caretaker entitled to? The caretaker sought all of the remaining contract price, even though it did not incur (at least some of) the costs of providing the caretaking services. The owners’ corporation said that damages based on loss of profits should be ordered.

Slattery J applied White & Carter (Councils) Ltd v McGregor,19 in particular the principle that “an innocent promisee may ignore its right to terminate performance of a contract, elect to complete performance and receive the agreed return for performance as a contract debt”.20 But there are recognised limitations on the application of White & Carter. Relevant here was the “co-operation limitation”: as performance of the Caretaker Agreement required the owners’ corporation’s co-operation, a refusal by the repudiating party to co-operate will prevent the innocent party from earning the contract price unless they obtain an order for specific performance.21 The need for a significant degree of supervision meant that specific performance was not appropriate.22 Accordingly, the caretaker was entitled to its loss of profits (and bore the onus of proving that loss).23

Fiduciary dutiesThe owners’ corporation argued that it is well established that a developer, acting as a promoter of a strata title body corporate,24 has fiduciary duties to that body corporate. The owners’ corporation argued that the charges under the Caretaker Agreement were “well in excess of market rates”,25 and therefore a breach of the developer’s duty, meaning that the owners’ corporation was entitled to an account of profits. The developer argued that the relevant strata title legislation left “no room for the operation of fiduciary duties”.26

Slattery J held that:

• the developer (as promoter) held fiduciary duties to the owners’ corporation as a promoter (and this was not displaced by the strata title legislation);27

• the exact content of any fiduciary duty must always be specifically determined through close analysis of the incidents of the particular fiduciary relationship; and

• the assessment will be specific to the parties’ relationship and the context of any agreement that they made.28

Slattery J held that the developer had a duty to sufficiently disclose information to the owners’ corporation where (as here) the developer sells or contracts to supply their own services and deploy their own know-how to the owners’ corporation.29

Slattery J held nonetheless that even if the duty had been breached, the remedy was not an account of profits, but rather an opportunity for the owners’ corporation to affirm or disclaim the agreement. If the owners’ corporation chooses to affirm the agreement, it must do so in accordance with its terms and cannot vary the agreement.30

https://www.caselaw.nsw.gov.au/decision/54ffb23ee4b0b29802dc282c

17 [2015] NSWSC 202 at [298]–[301]18 [2015] NSWSC 202 at [312]19 [1962] AC 41320 [2015] NSWSC 202 at [328]21 [2015] NSWSC 202 at [334]22 [2015] NSWSC 202 at [336], [340]–[344]23 [2015] NSWSC 202 at [345]–[348]24 [2015] NSWSC 202 at [365]25 [2015] NSWSC 202 at [366]

26 [2015] NSWSC 202 at [369]27 [2015] NSWSC 202 at [492]28 [2015] NSWSC 202 at [401]29 [2015] NSWSC 202 at [413]30 [2015] NSWSC 202 at [408], [491]

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PERPETUAL TRUSTEE COMPANY LTD V CTC GROUP PTY LTD [2015] NSWSC 130

KEY TAKEAWAYA claim for indemnity costs under an indemnity clause may be technically available, but for the clause to apply, the requisite nexus between the claim and the event giving rise to the claim must be shown.

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FactsThis is a sequel to the seminal case on indemnities and the proportionate liability legislation, Perpetual Trustee Company Ltd v CTC Group Pty Ltd (No 2) [2012] NSWCA 252. To recap, CTC Group (a mortgage originator), proposed a loan to Perpetual. The mortgage was forged and Perpetual suffered loss. The Court of Appeal held that the indemnity in the agreement between CTC Group and Perpetual meant that CTC Group was liable for all costs, without a proportionate reduction, but left the assessment to the trial judge. Perpetual claimed losses of $437,199.41 and legal costs of $1,002,078.13, under the indemnity.

Assessing the amount payableMcCallum J accepted that the losses from the loan were as Perpetual claimed. 31 But there was significantly more controversy regarding the legal costs.

McCallum J held that, though the indemnity was broad, there needed to be some connection between the relevant event and the legal costs for them to be recoverable.32 Perpetual’s evidence on costs seemed to be simply to have its lawyers’ fee notes speak for themselves.33 McCallum J did not accept this as sufficient proof discharging Perpetual’s onus.34 She did not allow Perpetual opportunity to supplement its evidence,35 and was not prepared to act as a costs assessor.36

On the basis of the evidence, the only costs which McCallum J could be satisfied were properly incurred were agreed costs of one aspect of the case, which were agreed between lawyers as $100,000.37 Perpetual was otherwise left with the benefit of its costs orders.38

Perhaps unsurprisingly, Perpetual was dissatisfied with this outcome and sought to reopen the decision. McCallum J refused that application.39

https://www.caselaw.nsw.gov.au/decision/54f39ab9e4b007ec2d9fb397

31 [2015] NSWSC 130 at [17]–[18]32 [2015] NSWSC 130 at [27]–[28]33 [2015] NSWSC 130 at [21], [26], [27]. See also [2015] NSWSC 131 at [27]34 [2015] NSWSC 130 at [29]35 [2015] NSWSC 130 at [29]–[31]36 [2015] NSWSC 131 [27]–[28]37 [2015] NSWSC 130 at [32]–[33]38 [2015] NSWSC 130 at [35]39 [2015] NSWSC 131

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CAMPBELLTOWN CITY COUNCIL V WSN ENVIRONMENTAL SOLUTIONS PTY LTD[2015] NSWSC 155

KEY TAKEAWAYThis decision is an example of a court taking a commercial approach to contracts which contain separate dispute resolution provisions for separate disputes.

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40 [2015] NSWSC 155 at [28]41 [2015] NSWSC 155 at [25], citing Re Golden Key Ltd (in rec) [2009] EWCA Civ 63642 [2015] NSWSC 155 at [27]

FactsWSN Environmental Solutions (WSN) held long-term (15-year) contracts for processing waste, recyclables and garden organics with four councils in south-west Sydney.

The contract contained two dispute resolution provisions: one in the variation clause (providing for expert determination where the parties could not agree whether there was a variation, or what it should cost), and a general dispute resolution clause (providing for stages of negotiation, mediation, arbitration, then potentially litigation).

One of the provisions in the variation clause was:

“At any time the Contractor incurs, in connection with the Services, a demonstrable material increase in costs, which are beyond the control of the Contractor, and which were reasonably unforeseeable as at the date of the Contract, the Parties agree to negotiate reasonably and in good faith as to whether a variation circumstance should apply.”

WSN claimed that it incurred a demonstrable material increase in costs that fell within the clause. After without prejudice discussions, the councils proposed mediation. WSN referred the dispute to expert determination under the variation clause. The councils then gave a notice of dispute under the general dispute resolution clause and sought to enjoin the expert determination process that WSN had commenced.

DecisionSackar J held that “it is clear that the parties intended to create two quite distinct dispute resolution regimes; one to deal with [variations], and the other concerning all other disputes”.40 He construed the contract to give effect to that intention.

As a single Judge of the Supreme Court of New South Wales, Sackar J was bound by the Court of Appeal’s decisions in Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184 and Newey v Westpac Banking Corporation [2014] NSWCA 319 about the use of context and extrinsic materials when interpreting a contract. But this was not relevant to the result in this case.

Sackar J appeared to be more influenced by principles, such as that where there are competing interpretations of a contract, one based on textual interpretation and the other on commercial considerations, a presumption may be made that the parties intended a commercial result,41 and that “a contract should be construed in a way that avoids commercially nonsensical outcomes or commercial inconvenience”.42

In considering the interplay between the two dispute resolution procedures, Sackar J found it relevant that it would be a strange result if the question whether there was a variation was referred to an arbitrator, and then referred to an expert for valuation (a possible consequence of the councils’ argument).

The final result, in favour of WSN, was that the objective intention of the parties must have been to have two distinct dispute resolution provisions under the contract, and that the variation provision enabled the expert to decide matters of both fact and quantum in determining a variation.

https://www.caselaw.nsw.gov.au/decision/54f7afd2e4b0b773015d5d13

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UGL RAIL PTY LTD V WILKINSON MURRAY PTY LTD [2014] NSWSC 1959

KEY TAKEAWAYSThe assignee of a consultancy agreement is likely to be able to sue for negligent or misleading advice given to the assignor before the assignment. This is so even if the advice was given only to the assignor, and not the assignee.

The prescriptive approach to causation under section 5D of the Civil Liability Act 2002 (NSW) (and its equivalents in other jurisdictions43) is unlikely to apply to claims under indemnities or for misleading conduct. For principals, it is another reason to prefer broad indemnities; for consultants, it is another reason to be wary of them.

A party seeking to recover a settlement amount must prove that it was reasonable. This is likely to be carefully scrutinised by any court. If the court is not satisfied that a settlement is reasonable, the court will assess damages.

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FactsThese proceedings arise out of the Epping to Chatswood Rail Link project (ECRL). UGL Rail claimed over $26,000,000 (plus interest and costs) from a consultant, Wilkinson Murray, for deficient advice in relation to the sound absorbent panels needed to satisfy reverberation specifications.

Alstom Australia Limited entered into a Systems Subcontract for the systems installation component of the ECRL. In 2003, Wilkinson Murray provided advice to ALSTOM Australia Limited under a consultancy agreement. Subsequently, UGL Rail acquired ALSTOM’s transport business, and ALSTOM assigned the consultancy agreement to UGL Rail and the Systems Subcontract was novated to UGL Rail.

In 2007, Wilkinson Murray undertook reverberation time testing that showed that the panels did not meet the specifications. Rectification work was undertaken and further testing took place, but the tunnels still failed to meet the reverberation specifications. For that and other reasons, there was excessive in-car noise.

In 2009, the parties agreed a settlement deed to resolve the reverberation and in-car noise issues. UGL Rail sought the costs of complying with the settlement deed from Wilkinson Murray.

DecisionBall J found that Wilkinson Murray’s advice had been both negligent, and misleading and deceptive (in the sense that they implied that the advice had a rational basis and it would be reasonable to rely on the advice, each of which was false).44

Some of the advice was given to Alstom, not to UGL Rail. Ball J held that UGL Rail nonetheless relied on the advice and this did not prevent UGL Rail’s proceeding. UGL Rail had, in effect, picked up where Alstom left off, and Wilkinson Murray had agreed to the assignment of the consultancy agreement.45

Wilkinson Murray relied on section 5D of the Civil Liability Act 2002 (NSW) — which prescribes the approach a court must take to determining causation in certain cases — to argue that its conduct did not cause at least some of the damage UGL Rail claimed. Ball J held that, while section 5D applied to claims in contract and negligence, it did not apply to claims under an indemnity or for misleading conduct.46 Here, the broad indemnity Wilkinson Murray gave under the consultancy agreement47 meant that the (potentially restrictive) approach in section 5D did not apply.

Under the settlement deed, UGL Rail agreed to do certain work at no charge to either the head contractor or the principal. UGL Rail paid a related company, UGL Infrastructure, a lump sum amount to perform the work. It claimed that lump sum as damages from Wilkinson Murray under the principle that the cost of a reasonable settlement of a dispute is recoverable as damages.48

Ball J was not satisfied that the work UGL Rail agreed to do under the settlement deed was a reasonable settlement, as the cost of complying with the underlying specification was likely to be less expensive,49 and the costs incurred by UGL Rail in carrying out the work were not reasonable.50 Ball J assessed the damages payable by Wilkinson Murray as the extra-over costs of panelling that would have complied with the reverberation specification,51 and the costs of the dispute (reduced because Wilkinson Murray’s advice was only part of the reason that the in-car noise requirements were not met).52

https://www.caselaw.nsw.gov.au/decision/5514dfa4e4b04b50e5e96ac0

43 Eg, Wrongs Act 1958 (Vic) s 51, Civil Liability Act 2003 (Qld) s 11, Civil Liability Act 2002 (WA) s 5C

44 [2014] NSWSC 1959 at [133]–[142], [144]–[164]

45 [2014] NSWSC 1959 at [189]46 [2014] NSWSC 1959 at [175]47 [2014] NSWSC 1959 at [237]

48 [2014] NSWSC 1959 at [12], [205]–[213], [221]

49 [2014] NSWSC 1959 at [224], [229], [232]50 [2014] NSWSC 1959 at [234]–[237]51 [2014] NSWSC 1959 at [238]–[249]52 [2014] NSWSC 1959 at [250]–[261]

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WRIGHT V LEND LEASE BUILDING PTY LTD[2014] NSWCA 463

KEY TAKEAWAYA subcontract can define parties’ obligations (eg, a right to return of security) by reference to a head contract, even if the subcontractor did not see the head contract before executing the subcontract. When reviewing subcontracts, be alert to head contract dates and requirements being passed through. They are outside the subcontractor’s control and may have serious effects.

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FactsLend Lease was the head contractor under a contract with the Commonwealth for the Mulwala Redevelopment Project. Lend Lease refused to release bank guarantees or retention money under four subcontracts. The subcontractors commenced legal proceedings seeking release of the security.

Under the subcontracts, which were entered into in 2009, Lend Lease had to release the final security on the Date of Final Acceptance under the head contract, not a date referable to the subcontract works. The subcontracts were in relevantly identical terms. (It seems likely they were Lend Lease’s standard form of subcontractors, at least for this project.) The subcontracts provided that the defects liability period under the subcontractors commenced on substantial completion under that subcontract, and ended “24 months after the Date of Final Acceptance (as defined under the Head Contract)”. It was agreed before the primary judge and on appeal that:

• the subcontractors had not seen the head contract before entering into the subcontract;

• the works under the subcontracts were all “substantially complete” and there were no outstanding defects notices;

• the claims for return of the retention were made two years after substantial completion under the subcontracts; and

• at least at the time of the trial, the Date for Final Acceptance under the head contract (as extended) was in February 2015.

Assuming the subcontractors provided full security at the time of entry into the subcontract, Lend Lease’s position was that it could hold that security for about eight years, even though the construction period was, under at least one subcontract, about six months.

DecisionThe subcontractors’ proceedings were based on a purely contractual argument. No unconscionable conduct was alleged. Both Ball J at trial and the Court of Appeal rejected the subcontractors’ arguments that the literal meaning of the provision providing for the end of the defects liability provision was absurd (at [45]). The Court of Appeal accepted that parties could define their rights and obligations by reference to a date unknown at the time of executing the contract and defined by reference to a future event (at [46]). The evident commercial purpose — that Lend Lease wanted to hold security from the subcontractors while it was at risk of defects liability under the head contract — was given effect (at [47]).

On appeal, the subcontractors tried to raise a new argument that “Date of Final Acceptance” in the subcontracts should be construed as meaning “Date for Final Acceptance” in the head contract as at 2009. That date was in June 2011, which would mean that the subcontractors were entitled to the return of their security in June 2013. Lend Lease argued this could not be raised for the first time on appeal (at [6]–[7]), but the Court held that there was no evidence at trial that supported the argument (at [56]–[57]). The Court noted that, if Final Acceptance under the head contract were never achieved, other legal principles (eg, frustration) were likely available to compel the return of the subcontractors’ security (at [58]).

http://www.austlii.edu.au/au/cases/nsw/NSWCA/2014/463.html

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KITCHEN XCHANGE PTY LTD V FORMACON BUILDING SERVICES PTY LTD [2014] NSWSC 1602

KEY TAKEAWAYThis case was the first to grapple with the recent amendments to the New South Wales security of payment legislation requiring “supporting statements” (confirming that subcontractors and suppliers have been paid) for payment claims made by head contractors. McDougall J held that a payment claim that must be accompanied by a supporting statement, but is not, is not invalid, but that service is ineffective. Action to enforce an ineffectively served payment claim (including seeking adjudication) will be invalid.

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FactsKitchen Xchange engaged Formacon to fit out its shop. They entered into the contract on 2 May 2014, shortly after the commencement of the most recent amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW), which commenced in April 2014 (2014 amendments).

On completion of the works in June 2014, Formacon made three payment claims. The first (for about $28,000) was purportedly withdrawn by agreement after discussions. Kitchen Xchange responded to the second (for about $1,200 less than the first payment claim) with a payment schedule.

Apparently dissatisfied with the payment schedule, Formacon then made a third payment claim for about $15,500 more than the second payment claim. This included a claim of $10,400 for “damages for failing to pay on time”. There was no payment schedule in response to this claim. Formacon gave notice of its intention to apply for adjudication, and there was no second-chance payment schedule. An adjudicator determined that Formacon was entitled to the entire amount except for the $10,400 component.

Kitchen Xchange applied to set aside the adjudicator’s determination.

Multiple payment claimsMcDougall J, following previous authority, accepted that parties can agree to withdraw a payment claim, which can later be substituted by another payment claim for the same reference date (at [17]). He left open the possibility that it could be done unilaterally. So the second payment claim was valid. But the second and third payment claims related to the same reference date (at [20]), and there was no purported withdrawal (at [24]–[28]). The third payment claim was therefore prohibited by section 13(5) of the Security of Payment Act (at [29]–[30]). The adjudication founded on the third payment claim was thus invalid (at [31]).

Supporting statementsSection 13(7) of the Security of Payment Act, which was added as part of the 2014 amendments, provides that “a head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement”. None of the payment claims were accompanied by the requisite supporting statement (at [34]). It seems to have been agreed that Formacon was a head contractor and (at [42]) that a supporting statement was therefore necessary.

McDougall J held that the “must not” requirement of section 13(7) was mandatory, and prohibited the service of a payment claim unaccompanied by the supporting statement (at [41]). His Honour held that a payment claim served without a supporting statement is not duly served under the Security of Payment Act. The progress payment machinery is thus not available for that payment claim (at [46]–[47]). Further, valid service is a “basic and essential” requirement for a valid adjudication, so any adjudication founded on a payment claim not accompanied by a supporting statement (if needed) is invalid (at [48]–[51]).

http://www.austlii.edu.au/au/cases/nsw/NSWSC/2014/1602.html

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NEARMAP LTD V SPOOKFISH PTY LTD[2014] NSWSC 1790

KEY TAKEAWAYA typical arbitration agreement (or arbitration clause) will not prevent a party from seeking preliminary discovery to determine whether to commence further proceedings (whether arbitral or curial).

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FactsAs well as having super-cool names, nearmap and Spookfish did super-cool stuff: they were both geospatial imaging companies.

Some of the directors and employees of Spookfish were previously involved with nearmap. nearmap was concerned that Spookfish’s business involved a breach of nearmap’s confidential information and intellectual property by two of its previous executives (C and P) and a previous consultant (von B), now associated with Spookfish. nearmap sought preliminary discovery against Spookfish under the Uniform Civil Procedure Rules 2005 (NSW) for documents to help it decide whether to take action against those people.

The relevant dispute resolution provisions in the executive employment agreements and consultant contract provided disputes were to be resolved by arbitration. Spookfish asked for the preliminary discovery application to be permanently stayed under the commercial arbitration legislation.

Were arbitration agreements in effect?nearmap had agreements with C and P, which expressly provided for disputes to be resolved by arbitration. Bergin CJ in Eq held, following established law, that the arbitration agreements embodied in the employment agreements survived the termination of those agreements (at [33]–[38]).

But there was no agreement between von B, though he was the sole director and shareholder of a company that had a consultancy contract with nearmap. Bergin CJ in Eq was not satisfied that von B was a party to that arbitration agreement, and therefore no arbitration agreement was in effect between nearmap and von B (at [47]–[48]).

Could preliminary discovery be obtained?Bergin CJ in Eq accepted that section 8 of the Commercial Arbitration Act 2012 (NSW) required a party to stay any proceeding within the scope of the arbitration agreement (at [50]–[51]). She accepted the scope should usually be construed broadly (at [67]). But Bergin CJ in Eq held that a claim for preliminary discovery is not a dispute relating to the employment agreements to the arbitration agreement applied: “it is a right arising under the Uniform Civil Procedure Rules and any obligation to produce the documents arises from a judicial determination” (at [72]). Bergin CJ in Eq therefore dismissed the motion to stay the application for preliminary discovery.

Can an arbitral tribunal order preliminary discovery?The defendants argued that an arbitral tribunal could order preliminary discovery under section 17(3) of the Commercial Arbitration Act (which gives an arbitral tribunal a power to grant interim measures, including discovery). Presumably, this argument was to give the Court comfort that nearmap would not be left without a remedy if the preliminary discovery application in the Supreme Court was stayed. Bergin CJ in Eq did not agree, either as a matter of principle (at [75]), or on construction of section 17 of the Commercial Arbitration Act (at [76]).

http://www.austlii.edu.au/au/cases/nsw/NSWSC/2014/1790.html

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GROCON CONSTRUCTORS (QLD) PTY LTD V JUNIPER DEVELOPMENT NO 2 PTY LTD [2015] QSC 102

KEY TAKEAWAYThe usual form of a liquidated damages for delay clause has survived a challenge to its enforceability on the basis that it is a penalty. The court accepted that it is an amount payable on only a single breach (that is, delay) rather than the causes of delay, which would have made it more susceptible to attack.

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The facts The proceedings arose out of the Soul Project in Surfers Paradise, Queensland. Juniper was the developer, and engaged Grocon under a design-and-construct contract based on AS4300 1995. Juniper had a counterclaim against Grocon for about $33,600,000 in liquidated damages.

Grocon contended that the liquidated damages clause was penal, and this was determined as a separate question in advance of the hearing. In related proceedings, Juniper sued Norton Rose for its role in preparing the contract. Whether the liquidated damages clause is a penalty was in issue in those proceedings, so Norton Rose participated in the hearing.

As the total indicates, the liquidated damages claim was significant. The daily rates varied by separable portion and time (the rates increased the later completion was).53 Alternatively: ‘the later the completion date, the more the rates increased’.

Grocon’s essential argument was that “although it may have completely performed the contract but for some minor defects or omissions, yet the existence of those defects or omissions would result in its liability under the liquidated damages clause for each day on which the failure was not remedied”.54 Grocon characterised this is a lump sum payable for several events, the seriousness of which varies, leading to a presumption that the clause was penal.55 It was common ground that Grocon had the onus of establishing the clause was penal. 56

DecisionPeter Lyons J framed the critical question as identifying the breach on which money becomes payable.57 He answered that question thus:

“the liquidated damages clause operates when there has been a failure to achieve Practical Completion by a specified time. That is a breach of a single obligation, namely, to achieve a particular stage in the project, by a time to be determined under the contract. That breach may itself be a consequence of other breaches, some of which may be themselves relatively insignificant. Those breaches might themselves give rise to damages, for example, if Juniper were required to engage others to rectify them. But the liquidated damages clause is not directed to the consequence of those breaches. Rather, it operates because of a failure to achieve Practical Completion by the relevant date.”58

Peter Lyons J considered that this conclusion accords with most previous cases.59 The exception was J Jarvis & Sons Ltd v Westminster City Council,60 in which dicta of Salmon LJ supported Grocon’s position. Peter Lyons J regarded that as an outlier case against the trend of authority.61

Peter Lyons J also noted — and appeared to find some comfort in the proposition — that “there appear to be no recorded cases in the United Kingdom where periodical liquidated damages for delay in building contracts have been held to constitute a penalty”.62 For those reasons, Peter Lyons J held that the presumption that the clause was penal did not apply.63

Grocon accepted that, in a serious case of delay (that is, where there were more than minor omissions or defects) then the stipulated liquidated damages were not out of all proportion to the damages that Juniper could suffer, as assessed at the date of the contract. As such, the clause was an effective liquidated damages clause.64

http://www.austlii.edu.au/au/cases/qld/QSC/2015/102.html

53 [2015] QSC 102 at [14]–[15]54 [2015] QSC 102 at [27]55 [2015] QSC 102 at [28]56 [2015] QSC 102 at [53]57 [2015] QSC 102 at [74]58 [2015] QSC 102 at [75]59 [2015] QSC 102 at [76]–[89]

60 [1969] 3 All ER 102561 [2015] QSC 102 at [77]62 [2015] QSC 102 at [90], citing Alfred

McAlpine Capital Projects Ltd v Tilebox Ltd [2005] EWHC 281 (TCC) at [47] (Jackson J)

63 [2015] QSC 102 at [95]64 [2015] QSC 102 at [96]

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BALDWIN V ICON ENERGY LTD[2015] QSC 012

KEY TAKEAWAYObligations to negotiate “in good faith” and “to use reasonable endeavours” to reach agreement will not be enforceable if they lack sufficient legal content or certainty. This is a particular concern for memorandums of understanding.

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The facts The plaintiffs, Ronald Baldwin and Southern Fairway Investments Pty Ltd, were interested in purchasing gas from the defendants, Icon Energy Ltd and Jakabar Pty Ltd. The plaintiff company executed a memorandum of understanding (MOU) with the defendants, agreeing to use “reasonable endeavours to negotiate” a gas supply agreement (GSA). The MOU did not contractually require any gas to be supplied or purchased.

The MOU was said to be legally binding, but it did not purport to oblige the parties to enter into any further agreements contemplated in the MOU. Schedule 2 of the MOU was headed “Key Terms and Conditions for the Purchase of Gas from Icon Energy” and set out several potential terms for the GSA, including the quantities of gas to be supplied, the commencement date of supply, and various conditions precedent, one of which was a conceptual study verifying the commercial viability of the pipeline. Schedule 2 provided that if the study did not verify the viability of the pipeline, the parties would “negotiate in good faith” to amend the GSA. Schedule 2 concluded by stating that the outlined terms were indicative only and “submitted as a means of encouraging discussion.”

The parties never concluded a GSA. The plaintiff company alleged that the defendants breached the MOU by not negotiating the GSA as they had promised. Mr Baldwin had a separate contract with the first defendant under which he was appointed as an agent to introduce buyers for the gas supply. Mr Baldwin alleged that his contract had an implied term that the first defendant would negotiate with the plaintiff company to bring about the GSA. In effect, Mr Baldwin relied on the same acts and omissions said to be breaches of the MOU. His claim therefore depended on the claim by the plaintiff company.

Did the obligation to negotiate have sufficient legal content?The agreement to negotiate was qualified by both reasonableness and good faith. McMurdo J held that the each standard lacked certain legal content and that it therefore could not be determined whether a party had failed to negotiate in accordance with the MOU. In determining the content of these standards, McMurdo J distinguished the case on two grounds.

First, the case was distinguished from the situation where the standard of reasonableness could be determined from an existing contractual relationship. In the case of Electricity Generation Corporation v Woodside Energy Ltd,73 the High Court considered the seller’s obligation under an existing contract to use reasonable endeavours to make gas available for delivery. The Court’s decision in favour of the sellers was based on the terms of the contract, particularly how the parties had defined the seller’s obligation. Here, the parties were to use reasonable endeavours to negotiate a new contract.

Second, this case was also distinguished from situations where the promise to negotiate is constrained by the particular context, making it possible to identify the legal content of the promise. In United Group Rail Services Ltd v Rail Corporation of New South Wales, a promise to undertake “genuine and good faith negotiations” as part of a dispute resolution clause in a construction contract was held to be certain and enforceable. The negotiations were “anchored to a finite body of rights and obligations capable of ascertainment and resolution”74 and not open-ended commercial interests. The negotiations would comprise a discussion of rights, entitlements and obligations said to arise from a finite and fixed legal framework involving acts or omissions said to have happened.

Reflecting on the case law, McMurdo J observed that, in the present context, a duty to carry on negotiations in good faith or with reasonable endeavours was “repugnant to the adversarial position of the parties when involved in negotiations.”75 In the context of negotiations “about a myriad of commercial interests to be bargained for from a self-interested perspective,”76 a standard of reasonableness would be inapt and uncertain.

The parties to the MOU had provided some framework for their negotiations by defining some matters and by specifying the indicative terms in Schedule 2. However, this did not provide the content needed to negotiate the GSA. Consequently, the agreements in the MOU to negotiate in good faith and to use reasonable endeavours each lacked sufficient certain legal content and were thus unenforceable. The claims of both the plaintiff company and Mr Baldwin therefore failed.

http://www.austlii.edu.au/au/cases/qld/QSC/2015/12.html

73 (2014) 251 CLR 64074 United Group Rail Services v Rail Corporation of NSW (2009) 74 NSWLR 618 at 637 at [70] (Allsop P)75 At [51], citing Walford v Miles [1992] 2 AC 128 at 138 (Lord Ackner)76 At [51], citing United Group Rail Services v Rail Corporation of NSW (2009) 74 NSWLR 618 at 637 at [71]

(Allsop P)

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LEAN FIELD DEVELOPMENTS PTY LTD V E & I GLOBAL SOLUTIONS (AUST) PTY LTD [2014] QSC 293

KEY TAKEAWAYSParties do not have absolute freedom to contract as to when a “reference date” arises for the purpose of progress payments under the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA).

Parties must take special care when drafting contractual terms that impose pre-conditions to be satisfied before a reference date arises. These terms should facilitate, rather than impede, the purpose of the BCIPA.

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The facts Lean Field Developments Pty Ltd (the respondent) subcontracted E&I Global Solutions (Aust) Pty Ltd (the claimant) to supply services relating to high voltage and fibre optic cables in Central Queensland. The subcontract outlined the process to be followed before the claimant could serve a payment claim:

• at specific times, including those set out in the subcontract appendix, the claimant was to submit a draft payment claim for works carried out until that time;

• within 14 days after receiving a draft payment claim, the respondent was to issue the claimant a preliminary assessment of the amount which, in its opinion, was payable; and

• no earlier than 14 days after delivering the draft payment claim, the claimant was entitled to deliver a payment claim for works carried out until that time. (Thus, the actual payment claim would include works carried out since the draft payment claim.)

Despite this process, the respondent paid several payment claims without the claimant submitting a draft payment claim. On one occasion, the respondent questioned the validity of a delivered payment claim, noting that the claimant had failed to provide a draft. Later, the claimant brought an adjudication action and was awarded over $500,000. The respondent subsequently contested the adjudication in the Supreme Court on the basis of jurisdictional error.

The BCIPAThe purpose of the BCIPA is to provide a statutory mechanism for the recovery of progress payments for construction work. The BCIPA confers a statutory entitlement to a progress payment from each reference date under their construction contract.77

“Reference date” is defined as:78

1. a date stated in, or worked out under, the contract as the date on which a claim for a progress payment may be made for construction work carried out or undertaken to be carried out, or related goods and services supplied or undertaken to be supplied, under the contract; or

2. if the contract does not provide for the matter –

– the last day of the named month in which the construction work was first carried out, or the related goods and services were first supplied, under the contract; and

– the last day of each later named month.

Importantly, section 99 of the BCIPA prevents parties from contracting out of the operation of the BCIPA. Consequently, contract provisions will be void to the extent that they purport to exclude, modify, restrict or change the effect of a provision of the BCIPA.

Applying the BCIPA to the subcontract:

• the payment claim was a claim for a progress payment; and

• the date “not earlier than 14 days after delivering the draft payment claim” was the reference date “worked out” in accordance with the BCIPA.79

The parties’ claimsThe claimant argued that the preconditions to a reference date prescribed by the subcontract were void under section 99. A failure to satisfy these mandatory conditions, even in form, would extinguish the claimant’s right to serve a payment claim.

The respondent argued that the payment claims were void for want of a valid reference date: the claimant had simply failed to comply with contractual pre-conditions to a reference date.

FindingsThe law regarding reference dates

Applegarth J recognised that there was “no hard and fast rule about the validity” of the preconditions for a reference date.80 He noted that the BCIPA provided “some freedom to the parties to determine when a reference date arises” and “does not automatically impose a default position of monthly reference dates if the agreed condition is not met.”81 However, the purpose of the BCIPA and the constraining role of section 99 also meant that parties did not have an unconstrained freedom to contract about when a reference date will arise. The BCIPA also did not allow for onerous conditions that made a reference date more a theoretical possibility than an actuality.82

His Honour observed that the extent to which a condition is void under section 99 turns on its content and practical consequences. He suggested a useful inquiry was to consider whether the condition facilitated or impeded the purpose of the BCIPA.83 A condition is likely to be void where it does not facilitate the statutory entitlement to progress payments or the resolution of payment claims made under the BCIPA. This is likely to be the case where a condition impedes the making of a payment claim, but does not provide a corresponding benefit related to achieving the BCIPA’s purpose.84

Therefore, a condition that has no significant utility in terms of the scheme created by the BCIPA may be invalid, not because it is particularly onerous, but because it impedes a statutory entitlement without any corresponding benefit.85

77 See BCIPA ss 12 and 17 and Schedule 278 See BCIPA Schedule 2 (emphasis added)79 At [30]80 At [72]81 At [72]

82 At [74]83 At [75]84 At [74] and [75]85 At [76]

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His Honour then commented on different conditions.

• A condition would not be void solely because a reference date arose after certain work was completed.86

• A condition would be valid if it facilitated the prompt payment of claims under the BCIPA, such as by providing that a reference date arises a few days after a contractor provides a basic document estimating work to be done by the reference date and its expected value. (Such a condition reduces the element of surprise and enables the principal to prepare time for payment.)87

• A condition would be void if it made the existence of a reference date and the statutory entitlement to a progress payment illusory, such as by providing that a reference date only arises once the principal determines that it should pay a progress payment. The effect of this condition is that the reference date depends on a subjective state of mind which may never exist.88

Were the pre-conditions void?His Honour concluded that the draft payment claim was a mandatory condition for the claimant to make a payment claim under the BCIPA.89 He held the condition had little, if any, utility in facilitating payment claims under the BCIPA or in the payment of a progress payment to which the contractor was otherwise entitled. Failure to deliver a draft payment claim on the one day window of opportunity for delivery extinguished what would otherwise be a reference date under the subcontract or a default reference date.90

The condition provided for the possibility of a reference date, but not its actuality. Whether a reference date arose under the subcontract was contingent on compliance on a particular day with a condition of no significant utility in facilitating the payment of a progress payment to which the respondent had a statutory entitlement.91

Since there was not a direct nexus between the draft claim for payment and the actual claim for payment, his Honour found it hard to see why the delay of one day in delivering the draft payment claim should extinguish the statutory entitlement to a progress payment. The condition unjustifiably impeded, rather than facilitated, a reference date arising and thereby defeated the respondent’s statutory entitlement to a progress payment.92

In summing up, Applegarth J recognised that there may be circumstances in which it is possible for a condition to provide not only when, but whether or not, a reference date arises. However, these clauses would be justified as facilitating the purpose of the BCIPA and would therefore not be rendered void under section 99.93

http://www.austlii.edu.au/au/cases/qld/QSC/2014/293.html

86 At [68]87 At [70]88 At [69]89 At [87] and [88]90 At [92]91 At [88]92 At [89] and [92]93 At [92]

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GLADSTONE AREA WATER BOARD V AJ LUCAS OPERATIONS[2014] QSC 331

KEY TAKEAWAYSThe case affirmed the position in Codelfa, that extrinsic evidence will only be admitted to aid contractual interpretation where there is ambiguity and a lack of plain meaning. In deliberately declining to follow the recent NSWCA decision in Mainteck Services Pty Ltd v Stein Heurty SA, Jackson J held that:

“the requirement that there must be ambiguity, before extrinsic evidence of surrounding circumstances is admissible, operates as a threshold or barrier to the reception of such evidence”.

The case also includes helpful commentary on deeds. While an agreement may be formalised by the execution of a deed and exchange of counterparts, the rule in Masters v Cameron still applies: the parties’ conduct may suggest that they intended to be bound before that point.

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The factsOn 7 September 2011, two government corporations, the Gladstone Area Water Board (GAWB) and Gladstone Regional Council (GRC) (together, the plaintiff) entered into an agreement. They agreed to provide water and sewerage infrastructure and access roads between Gladstone and Curtis Island, where there were liquefied natural gas plants and facilities for a number of gas field projects. GAWB acted as disclosed agent for GRC.

On 12 September 2011, GAWB engaged the defendant, AJ Lucas Operations Pty Ltd (AJ Lucas), to construct the project. On 8 June 2012, GAWB and AJ Lucas terminated the contract by agreement.

At this point, AJ Lucas had not submitted Payment Claim 12 or its final payment claim, number 13.

On 16 November 2012, two meetings took place between the parties to negotiate about a commercial dispute. The chairman and chief executive of AJ Lucas signed a final document, “Deed of Settlement No.1” (Deed), expressing assent to the terms. The document provided that it was to be executed as a deed. AJ Lucas had not executed the document as a deed and it subsequently sought to resile from it, by adding further terms.

The issuesThe plaintiff claimed that the Deed bound the parties because it had been properly executed by an agent of the plaintiff (or was subsequently ratified by the plaintiff) before AJ Lucas purported to withdraw from it. The plaintiff thus argued that AJ Lucas could not claim Payment Claim 12 as it was settled by the Deed.

AJ Lucas claimed that it had withdrawn from the Deed before it became effective, arguing that the plaintiff’s execution of the Deed constituted an offer and that the defendant, by issuing an amended version of the Deed after 22 November 2012, was responding to that offer. AJ Lucas also argued that the plaintiff’s representative lacked authority to reach a conclusive agreement, and that in any event the Deed did not cover Payment Claim 12.

The first issue was whether, or at what point, the Deed was binding on the parties. The second issue concerned the ambit of the Deed. It provided that the Deed settled all claims by AJ Lucas, with the exception of Payment Claims 12 and 13. However, the “Other heads of claim” section of the Deed that also dealt with this only referred to Payment Claim 13.

Was there a binding agreement?Jackson J found that even though the Deed was expressly to be “executed as a Deed” and had not been, the parties intended to be bound when AJ Lucas accepted the terms of the offer by signing the document on 16 November 2012.94

Jackson J considered:

• whether a history of prior contracts by exchange or deed indicated that the parties intended to be bound by the exchange of counterparts;

• whether the words “executed as a deed” were definitive of the parties’ intentions; and

• other matters including the authority of the plaintiff and how precisely the document reflected the oral terms.

He considered the facts analogous to a “second class Masters v Cameron contract”,95 noting that the law permits parties to make a contract and agree to be bound by its terms, even though they intend for a later written document to be executed.96 Jackson J found that the parties intended to be bound by the contract when the defendant signed the Deed and not when counterparts were exchanged, on the basis of the objective conduct of the parties at the second meeting, which included:

• settling the terms of the agreement;

• arranging for the defendant’s signature; and

• arranging for a later exchange of counterparts.

Jackson J also made some interesting comments about ratification in agency relationships. His Honour accepted that the plaintiff’s representative lacked authority to make the 16 November 2012 offer.97 His Honour found nonetheless that retrospective ratification by those with actual authority is possible,98 and that this took place on 22 November 2012.

His Honour referred to Bolton Partners v Lambert,99 in which the Court found that the company could not withdraw from an agreement once the authority was later ratified. Jackson J hinted, on the basis of criticism from the High Court100 and NSW Court of Appeal,101 that Bolton Partners may not be the law in Australia.

94 At [70] and [123]95 At [106]96 At [96] and [106]97 At [115]-[119]98 At [119]99 (1889) 41 Ch D 295100 At [121], referring to Isaacs J’s comments in Davison v Vickery’s Motors Ltd (in liq) (1925) 37 CLR 1, 18-19101 At [121], referring to Hughes v NM Superannuation Pty Ltd 1993) 29 NSWLR 653, 665

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Ambiguity required before extrinsic evidence is admissibleThe second issue concerned the ambit of the Deed. As noted above, whether the Deed covered Payment Claim 12 was disputed. The parties thus disputed whether extrinsic evidence could be led on the construction of the Deed. Jackson J held that he was bound to follow Mason J’s decision in Codelfa.102

In reaching this conclusion, he analysed cases that arguably depart from Mason J’s “true rule”. Notably, his Honour declined to follow the decision of NSWCA in Mainteck Services Pty Ltd v Stein Heurty SA.103 In that case, the NSW Court of Appeal relied on Electricity Generation Corporation v Woodside Energy Ltd104 to hold that “whether a contractual text has a plain meaning is a conclusion that “cannot be reached until one has regard to the context”. Jackson J held that the principle in Mainteck was “difficult to comprehend”. Whilst recognising that Mason J’s “true rule” is not ratio, Jackson J held that “too many subsequent cases ... have proceeded on the basis that a lack of plain meaning or ambiguity is required.”105

Jackson J found that the Deed was ambiguous and that it was appropriate to rely on mediation documents discussing the payment claims. On this basis, he found that the Deed did not settle Payment Claim 12. 106

This decision continues confusion about the correct approach to interpreting contracts. Jurisdictions now differ on whether ambiguity is needed before evidence of the surrounding circumstances will be admitted. Only the High Court can clarify this.

http://www.austlii.edu.au/au/cases/qld/QSC/2014/311.html

102 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 347, 352

103 Mainteck Services Pty Ltd v Stein Heurty SA (2014) 310 ALR 113104 (2014) 25 CLR 640 at [35] (French CJ, Hayne, Crennan and Kiefel JJ)105 At [163]106 At [183]

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RATIONES ABSENTIA — ASSAD V ELIANA CONSTRUCTION AND DEVELOPING GROUP PTY LTD [2015] VSCA 53

KEY TAKEAWAYSWhere a trial judge fails to provide sufficiently detailed reasons for judgment, an appellate court can set aside the first instance judgment and either determine the matter itself (on the evidence adduced at trial) or remit the matter for rehearing. In Assad v Eliana Construction and Developing Group Pty Ltd, the Victorian Supreme Court of Appeal (VSCA) found that the trial judge had not made findings about critical matters of fact and credit, and so had no option but to remit the matter.

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The factsMr Assad and Mr Sowiha purchased land and entered into a loan agreement as joint venturers to develop 11 apartments on that land. Mr Sowiha did so in his capacity as sole director of Eliana Construction & Developing Group Pty Ltd (Eliana).

Mr Assad constructed the apartments, and seven of them were sold. A dispute arose between the parties regarding the remaining four apartments. In this context, Mr Assad registered the transfer of title form for apartments 2, 3 and 4 in his name, and Eliana registered the transfer of title form for apartment 11. Eliana also lodged a caveat over Mr Assad’s three apartments.

The parties attempted to settle their joint venture dispute in a settlement agreement, the substance and terms of which were disputed. Eliana later brought proceedings against Mr Assad claiming he was not authorised to transfer the properties into his name, and seeking to have the transfer and registration set aside.

The decisionAt trial, Vickery J found that there had been a joint venture between the parties to develop the land. His Honour held that there was no clear agreement between the parties as to the terms of the settlement agreement (including its purported termination).

Redlich, Kyrou and McLeish JJA held that Vickery J had not provided an adequate explanation for that finding. Specifically, their Honours found that Vickery J did not properly deal with Mr Assad’s evidence; and that he arrived at his conclusion — that there was no agreement beyond an agreement to merely end the joint venture — without proper consideration and elaboration.

The VSCA held that Vickery J miscarried the “indispensable requirement” to “expose the reasons for resolving points critical to the contract between the parties”.107 The VSCA could either remit the matter for a rehearing or determine the matter itself. The VSCA held that without findings on key credit and factual questions, it was necessary to order a remittance for rehearing.

CommentThe VSCA identified features of the case (including deficient pleadings, inconsistent and late evidence) that placed the trial judge in a difficult position.108 The VSCA also noted that trial judges are not, in the ordinary course, required to set out “every detail of the process of reasoning to a finding.” The point, apparent from the VSCA’s reasoning, is that appellate courts should only intervene and disturb a trial judge’s finding where “there is a substantial risk that the fact-finding task [was] miscarried”.109 Lord Hoffmann articulated in Biogen Inc v Medeva Plc the cautious approach to be adopted by appellate courts:110

“The need for appellate caution in reversing the judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la vérité est dans une nuance), of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.”

http://www.austlii.edu.au/au/cases/vic/VSCA/2015/53.html

107 Assad v Eliana Construction & Developing Group Pty Ltd [2015] VSCA 53 at [34] (Redlich, Kyrou and McLeish JJA)108 At [45]109 At [45]110 [1996] UKHL 18 at [54] (Lord Hoffmann)

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FACADE TREATMENT ENGINEERING V BROOKFIELD MULTIPLEX[2015] VSC 41

KEY TAKEAWAYAt least in the circumstances of this case, to the extent of an inconsistency between the Corporations Act and security of payment legislation, the Commonwealth’s legislation prevails. Here, this meant the contractor could rely on a set-off for its counterclaims against the subcontractor.

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The facts Brookfield Multiplex Constructions Pty Ltd (Multiplex) subcontracted Facade Treatment Engineering Pty Ltd (Facade) to design, supply and install a facade and curtain wall on a building under construction. In August and September 2012, Facade submitted Payment Claims 18 and 19 in accordance with section 14 of the Building and Construction Industry Security of Payment Act 2002 (Vic) (SOP Act). Multiplex subsequently paid part of Payment Claim 18 and none of Payment Claim 19.

On 6 February 2013, a court ordered that Facade be wound up, and it was placed into liquidation. On 26 September 2014, Facade issued proceedings seeking nearly $1.2 million which it claimed it was entitled to under section 16 of the SOP Act.

Overview of the claimsFacade alleged that Multiplex had not provided a payment schedule in response to Payment Claims 18 and 19. Section 16(2)(a)(i) of the SOP Act provides that where a payment claim has been validly submitted and a payment schedule has not been served in response, the claimant may recover the unpaid amounts as a debt.

Multiplex contended that it had significant contractual counterclaims (which it claimed exceeded the amount Facade was seeking) for liquidated damages and for a failure by Facade to complete work. Multiplex argued it was entitled under section 553C of the Corporations Act 2001 (Cth) to set-off its counterclaim against Facade’s entitlements.

The constitutional questionThe central issue for the Court was the side-by-side operation of the SOP Act and the Corporations Act. The specific provisions central to this dispute were:

• section 16(4)(b) of the SOP Act, which Facade claimed prevented Multiplex from bringing any cross-claim or raising any defence in relation to matters under the contract; and

• section 553C of the Corporations Act which provides a statutory set-off scheme where there have been “mutual credits, mutual debts or other mutual dealings” between an insolvent company that is being wound up and a company that wants to have a debt or claim admitted against that company.

Subsidiary issuesNotice of insolvency

Section 553C(2) of the Corporations Act limits the right of set-off under section 553C. Section 553C(2) prevents a company from claiming the benefit of a set-off if, at the time of giving or receiving credit from the other company, it had notice of the other company’s insolvency.

Facade claimed that the relevant date was when Multiplex became liable under the SOP Act to pay the payment claims, contending that at this time Multiplex had notice of its insolvency. Multiplex argued that the relevant date was when the parties entered into the sub-contract, and that payment obligations under clause 42 of the sub-contract commenced then.

Payment schedulesThe Court also addressed what constitutes a valid payment schedule. Under section 15 of the SOP Act, a payment schedule must identify the related payment claim, indicate the respondent’s proposed payment amount (and any excluded amounts) and must be in the prescribed form and contain any prescribed information.

The parties disagreed on whether an email Multiplex sent Facade in response to Payment Claim 19 constituted a payment schedule. Further, Facade argued that Multiplex’s email did not indicate the amount to be paid, as required by section 15(2)(b) of the SOP Act.

Facade argued that the wording of the email demonstrated clearly that even Multiplex did not believe the email constituted service of a payment schedule, referring to the wording “upon FTE remedy of the above and attached Brookfield Multiplex will be in a position to issue FTE with a payment schedule”.111

DecisionThe Court found in favour of Multiplex.

The constitutional question

Vickery J concluded section 16(4)(b) of the SOP Act is invalid to the extent that is inconsistent with section 553C(2) of the Corporations Act. Thus, no judgment was entered in Facade’s favour as the bar under section 16(4)(b) could not be relied on. Vickery J did, however, leave open the possibility that this position may change if Multiplex expressed an intention not to proceed with the counterclaims or if it let “a further and inordinate time pass without taking steps to prosecute these claims”.112

111 Schedule 1 to Facade Treatment Engineering v Brookfield Multiplex [2015] VSC 41 (emphasis added)112 At [84]

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Payment schedules

Vickery J found there was a valid payment schedule, observing that no particular form is required to satisfy section 15. Accordingly, Facade was not entitled to judgment in respect of that payment claim.

Why did his Honour find that there was a valid payment schedule? His Honour:

• stated that the Courts must not approach security of payments legislation “in an overly technical manner”113; and

• found that it was clear from a plain reading of the email, when read as a whole, that Multiplex did not propose to pay Facade anything in respect of Payment Claim 19. Further, he held that a proposal to pay “nothing” or “nil” or “zero” was an amount for purposes of section 15(2)(b) of the SOP Act.114

Timing of notice of insolvency

Vickery J held, citing authorities,115

that the obligation to make monthly payments arises from the subcontract itself. Accordingly, he held that the date the subcontract was executed was the relevant date for the notice provision in section 553C(2) of the Corporations Act. Vickery J found that there was no suggestion Facade manifested any signs of insolvency before February 2012, some five months after the sub-contract was executed.

Vickery J dismissed Facade’s proceedings with costs.

http://www.austlii.edu.au/au/cases/vic/VSC/2015/41.html

113 At [29]114 At [36]–[37]115 At [94]–[96]

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PAGE 42

RILGAR NOMINEES PTY LTD V BHA HOLDINGS PTY LTD [2014] VSC 632

KEY TAKEAWAYWhere a mediation agreement requires the parties’ signatures, a hand shake and an agreement to produce a formal document will not suffice as evidence of a party’s signature, according to the Supreme Court in Rilgar Nominees Pty Ltd v BHA Holdings Pty Ltd [2014] VSC 632 (Rilgar Nominees).

RECENT VICTORIAN DECISIONS

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The facts Bha Holdings Pty Ltd (BHA) had three classes of shares: A Class, B Class and Ordinary Shares. Voting rights attached to the Ordinary Shares. Both Rilgar Nominees Pty Ltd (Rilgar) and HPE3TA Pty Ltd (HPE) held Ordinary Shares in BHA and between them owned 100% of the voting shares in BHA. Two individuals held the B Class shares.

In September 2014, Rilgar instituted proceedings against HPE seeking relief for oppressive conduct on the grounds that a proposed issue of BHA Ordinary Shares to HPE was at an unrealistically low price and designed to dilute Rilgar’s shareholding.

The parties entered into mediation to settle the allegation of oppressive conduct. While representatives of Rilgar and HPE attended the mediation, neither BHA nor any of its other shareholders attended.

The parties attending the mediation reached a compromise whereby:

• Rilgar would lend $722,000 to BHA at an interest rate of 10% (payable as director’s fees), with the loan able to be converted at any time into BHA shares;

• Rilgar would subscribe to $722,000 of additional shares in BHA;

• HPE would surrender/cancel $1.44 million worth of its shares (the newly issued shares); and

• A Mr Shane Rose would be appointed as a director of BHA with a salary of $50,000.

The parties documented the terms of the settlement on a whiteboard, after which they shook hands and each took photos of the whiteboard, agreeing that a formal document would later be prepared (Settlement Agreement). Rilgar’s solicitors prepared a draft settlement agreement which BHA later rejected.

Rilgar commenced proceedings seeking specific performance of the terms of the Settlement Agreement. This prompted the defendants to apply for summary judgment against Rilgar on the basis the claim had no real prospect of success.

The decisionSifris J accepted BHA’s primary submission, ruling that Rilgar’s case had no real prospects of success under section 62 of the Civil Procedure Act, because:

• BHA was not a party to the Settlement Agreement; and subsequently

• BHA’s signature was required in accordance with clause 2.10 of the Settlement Agreement for it to be a valid and enforceable document.

Was BHA party to the Settlement Agreement?

Rilgar relied heavily on the In re Duomatic principle – the doctrine of unanimous assent.116 Rilgar argued that as Rilgar and HPE together owned 100% of the voting shares, they could approve BHA’S entry into the Settlement Agreement in general meeting. This would bypass the need for BHA to be a party to the Settlement Agreement.

Rilgar also submitted that because BHA’s Shareholders’ Deed required HPE’s consent for the BHA to appoint other directors, issue shares or make loans, it was within Rilgar and HPE’s power to enter into a Settlement Agreement binding BHA.

In reply, BHA argued it was not a party to the Settlement Agreement because it did not file a defence in the oppression proceeding and did not attend the mediation. BHA emphasised that its presence at the mediation would have been essential as the Settlement Agreement including several obligations on BHA’s part, such as borrowing money from Rilgar, paying interest on that loan, and issuing shares to Rilgar.

116 [1969] 2 Ch 365

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Sifris J: Duomatic no helpSifris J agreed that BHA needed to be party to the Settlement Agreement. He held that the doctrine of unanimous assent was of no assistance to Rilgar as the unanimous agreement of shareholders entitled to vote does not overcome the requirement that non-voting shareholders must still receive notice and have the opportunity to attend and participate in the debate at the shareholders’ meeting. As the two B Class shareholders were not notified of the meeting and did not attend, Rilgar could not rely on the In re Duomatic principle.

No Settlement Agreement unless signed by BHASifris J also found that the Settlement Agreement did not bind BHA as clause 2.10 of the Settlement Agreement provided that no settlement of the dispute would take place unless the Settlement Agreement had been signed by all relevant parties.

The parties in attendance shook hands and agreed to produce a more formal document at a later date, but Sifris J found there was quite plainly no evidence that BHA had, in fact, signed the document.

Settlement Agreement incomplete and uncertain in any eventSifris J also commented on BHA’s alternative pleading that even if a Settlement Agreement had been reached, it was incomplete and void for uncertainty. The Settlement Agreement included terms that the parties had not previously agreed on at the mediation, such as a definition of the “Maturity Date” on which BHA had to repay the loan to HPE. Sifris J found that terms such as “Maturity Date” were so critical that they required the prior consideration and assent of the parties. This rendered the Settlement Agreement both incomplete and uncertain.

http://www.austlii.edu.au/au/cases/vic/VSC/2014/632.html

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PAGE 46

A PIG WITH LIPSTICK IS STILL A PIG!: JUDICIAL REVIEW AND THE CONSTRUCTION CONTRACTS ACT 2004 (WA)

KEY TAKEAWAYSThe recent Western Australian Supreme Court decision in Delmere Holdings Pty Ltd v Green [2015] WASC 148 is interesting for three reasons.

First, it is an example of the Court emphasing the importance of defining carefully what is alleged to be the “payment claim” and the “payment dispute” in an application for adjudication under the Construction Contracts Act 2004 (WA) (the Act).

Second, the decision provides further (although not conclusive) guidance on what constitutes a “payment claim” for the purposes of s 3 of the Act.

Third, it is another example of the Court quashing an adjudication determination on the basis of jurisdictional error committed by a non-legally trained adjudicator.1

The decision also touches on a growing body of case law giving guidance about the exercise of the Court’s discretion to grant leave to enforce adjudication determinations under s 43 of the Act.

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Background factsDelmere (as head contractor) engaged Alliance (as subcontractor) to carry out fabrication, supply, delivery and installation works in relation to plant piping and general infrastructure works at Cape Lambert, Western Australia.

The contract contained (in clause 34 (GC34)) a comprehensive regime involving a number of steps by which the cost of a direction to vary the contractual scope of work could be added to the contract price.

In accordance with the procedure for making a variation claim, Alliance issued (on 9 October 2014) a Variation Claim expressed as having been made under clause 34(d)) (VC17).

Some two weeks later (on 24 October 2014), Delmere’s engineer rejected VC17.

Subsequently, Alliance applied for adjudication of what it asserted was a payment dispute arising from Delmere’s rejection of VC17. Alliance sought to categorise VC17 as a “payment claim” (under s 3 of the Act) and Delmere’s rejection of VC17 as giving rise to a “payment dispute” (under s 6 of the Act). In its adjudication application, Alliance submitted that, despite the complicated contractual mechanics in GC34 dealing with pricing variation works, it was entitled to claim “reasonable remuneration” for the variation works, in accordance with a term to be implied into the contract. Thus, Alliance made the “audacious” argument that VC17 was, in fact, a payment claim under the implied term which, when rejected, gave rise to a payment dispute.

After Alliance had served its adjudication application, but before Delmere served its adjudication response, Alliance issued an invoice (Invoice 024), backdated to 9 October 2014, for the works claimed for in VC17.

Delmere’s adjudication response annexed a copy of Invoice 024 and contended that that invoice was the relevant “payment claim” and that there was, therefore, no identifiable “payment dispute” upon which Alliance should have based its adjudication application.

The adjudicator determined that Delmere should pay Alliance almost $900,000. In arriving at that finding, the adjudicator concluded (erroneously) as follows.

• VC17 (rather than Invoice 024) was the relevant “payment claim” which, given its rejection, in turn gave rise to a “payment dispute”.

• He was not entitled to consider Invoice 024 because that document had not been included in Alliance’s submissions, even though:

– it had been included in Delmere’s adjudication response; and

– it was logically impossible for it to be included in the adjudication application given it was not created until after the adjudication application had been served.

• The implied term argued for by Alliance ought to be recognised.

• Thus, Alliance was entitled to “reasonable remuneration” for changes Delmere made to the construction methodology. The change to the construction methodology caused “unjust enrichment and hence, a right in equity to be paid for such an act or circumstance.”

Discussion

The arguments

Alliance applied under s 43(2) of the Act for leave to enforce the determination as a judgment of the court. Delmere applied for certiorari to quash the adjudicator’s determination. The two proceedings were heard together. The thrust of Delemere’s application was that the adjudicator committed a jurisdictional error in finding that Alliance’s VC17 was a “payment claim” and that the rejection of that claim by Delmere’s engineer was a “payment dispute”.

In short, Delmere contended that, at the time Alliance filed its adjudication application, there was no relevant “payment claim” and therefore no “payment dispute”. Consequentially, the adjudicator “was never jurisdictionally enabled to proceed with [the] adjudication”. Delmere argued that the existence of a “payment claim” and of a “payment dispute” were “fundamental elements, necessary to validly commence an adjudication application under [the Act]”. Thus, the adjudicator should have summarily dismissed Alliance’s application under s 31(2)(a) of the Act.

1 See, for example, Red Ink Homes Pty Ltd v Court [2014] WASC 52

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In response, Alliance argued that the four criteria set out in s 31(2)(a) of the Act are “broad” jurisdictional facts and, further, the existence of a “payment claim” or of a “payment dispute” were also to be approached as “broad” jurisdictional facts. Thus, Alliance submitted, whether or not a “payment claim” or “payment dispute” ever actually existed shall have no bearing on whether the reviewing court should quash the adjudicator’s determination. Alliance argued that the reviewing court could not evaluate whether a “payment claim” or “payment dispute” had existed but, rather, the court’s review was limited to scrutinising the adjudicator’s reasoning.

The Court’s decision

Kenneth Martin J found the adjudicator was in jurisdictional error identified by Delmere. Accordingly his Honour issued orders absolute for certiorari quashing the adjudicator’s determination. Consequently, Alliance’s enforcement application under s 43 was dismissed.

Central to Martin J’s reasoning were the complex contractual mechanics in the parties’ construction contract regarding valuing variation claims and the compelling evidence that VC17 was, on its face, drafted and submitted to Delmere’s engineer in compliance with those contractual mechanics. His Honour described Alliance’s attempt, in its adjudication application, to re-cast VC17 as a payment claim as “something akin to an exercise in applying ‘lipstick to a pig.’

Having found that there was no payment claim, and thus no payment dispute, when the adjudication application commenced, his Honour turned to consider the effect of that. Finding his starting point was s 25 of the Act, which his Honour held created four “necessary jurisdictional facts”, namely:

• the existence of a “construction contract”;

• the existence of a “payment dispute”;

• the existence of a “payment claim”; and

• that the payment dispute arises under the “construction contract”.2

His Honour held that he did not need to enter into the debate in the authorities about whether the jurisdictional facts he had identified were broad or narrow. It was sufficient for his reasoning that the facts were objective, factual and fundamental to the adjudicator’s jurisdiction. The existence of a payment dispute under a construction contract was a core, objective, jurisdictional fact and that fact was capable of being evaluated objectively without any need for complicated contractual construction exercises. His Honour concluded that the adjudicator fell into jurisdictional error by failing to observe the objective fact that no payment dispute existed at the moment the adjudication application was served. That failure was amplified by the adjudicator’s misconceived failure even to review Invoice 024, which would have confirmed the otherwise obvious conclusion that there was no payment dispute when the application was made.

The alternative analysis

Delmere also argued that the adjudicator fell into jurisdictional error by misconstruing the words “payment claim” in the Act as including a claim for unjust enrichment or a claim in equity. While it was not necessary for his Honour to find on this point, he provided brief comments about the issues.

Central to this issue was the adjudicator’s reliance on the decision in ASIC v Edwards3 in support of the proposition that there was an implied term in the contract that Alliance ought to be awarded reasonable remuneration for changes in methodology.

Martin J said that the difficulty with that conclusion is that it is manifestly wrong. The decision cited by the adjudicator does not support the implication of such a term; rather, it is an orthodox example of the application of “well accepted” principles regarding quantum meruit claims.

Martin J reviewed at length the relevant paragraphs of the adjudicator’s determination on this point and was unable to reconcile the reasoning with the current state of Australian law. For that reason, he held that he would have quashed the decision on that basis alone. In making that finding, he essentially reiterated the view he had expressed in Red Ink Homes Pty Ltd v Court,4 that while:

“no unduly technical or legalistic approach should be taken towards picking apart the reasons of an adjudicator ... where a clear jurisdictional error is shown in an adjudicator’s decision, [the] court cannot turn a blind eye”.

1 See, for example, Red Ink Homes Pty Ltd v Court [2014] WASC 522 As to the requirement that the claim be made “under” a construction contract, his Honour held that claims such as quantum

meruit are not made under a construction contract as they were not claims “for a liquidated amount falling due under a contract.”

3 (2005) 220 ALR 1484 [2014] WASC 52

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Enforcement under s 43

Having decided that the determination should be quashed, it was unnecessary for Martin J to decide the enforcement application. However, his Honour noted that:

“if Delmere’s judicial review application [had failed] then, absent some extraordinary, intervening circumstance, a registration of that Determination as an order of this court would usually follow.”

While it was not argued in the case, this passage may be taken to set a higher threshold (an “extraordinary, intervening circumstance”) than that set by Corboy J in Thiess Pty Ltd v MCC (Mining) Western Australia Pty Ltd5 and Pritchard J in Cape Range Electrical Contractors Pty Ltd v Austral Construction Pty Ltd 6 who each held that a “sufficient reason” would be needed for a court to refuse leave under s 43.

In this case, Martin J found that if he had been unable to quash the determination, he would have stayed the enforcement application because of his satisfaction to a standard of “almost certainty” that Delmere would later have overturned the determination in litigation or arbitration. How the test of ‘extraodinary intervening circumstances’ will be deployed by dissatisfied parties remains to be seen. It may be a useful starting point for an argument where the determination is infected with manifest errors of law then it ought not be enforced as a determination if a substantive dispute resolution mechanism is in operation.

http://www.austlii.edu.au/au/cases/wa/WASC/2015/148.html

5 [2011] WASC 806 [2012] WASC 304

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KUREDALE PTY LTD V JOHN HOLLAND PTY LTD[2015] WADC 6

KEY TAKEAWAYSThere is a perception that the Construction Contracts Act 2004 (WA) (the Act) is weighted in favour of parties who are in “subordinate” positions on the payment pecking order (generally contractors and subcontractors). This decision is an example of how the courts are willing to construe the purpose and object of the Act to further favour contractors and subcontractors.

The decision also adds to a growing body of case law on the circumstances that will provide a court with “sufficient reason” to decline to grant leave to enforce adjudication determinations under s 43 of the Act.

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BackgroundJohn Holland Pty Ltd (as head contractor) (John Holland) engaged Kuredale Pty Ltd, which was trading as Metro Lintels (Metro Lintels) to supply steel for the Gorgon NPI project in Western Australia (Supply Contract).

Metro Lintels issued Payment Claim 34 seeking payment of nearly $700,000, including $498,000 for a “workshop building”. John Holland responded to Payment Claim 34 disputing that payment for workshop building. Metro Lintels applied for adjudication.

Between the time the adjudication application was served and the adjudicator’s determination was issued, Metro Lintels issues Payment Claim 35, seeking about $124,000. That claim include a further claim for payment for a “workshop building”. John Holland assessed Payment Claim 35 and, before the adjudicator issued his determination), paid Metro Lintels $470,000. John Holland led evidence in the enforcement proceedings that about $377,000 of this payment related to works for which Metro Lintels had claimed in Payment Claim 34.

The adjudicator determined in respect of Payment Claim 34 that John Holland pay Metro Lintels $525,000, including $431,000 for the “workshop building”. Metro Lintels applied for leave, under s 43 of the Act, to enforce the adjudicator’s determination as a judgment of the District Court.

The Court’s decisionThe central issue was whether Metro Lintels’ Payment Claim 35 included a claim for work that was the subject of Payment Claim 34.

Ultimately, Keen DCJ allowed Metro Lintels’ application to enforce the determination notwithstanding a finding that John Holland had appeared to have paid for the relevant item of work twice. Having made this finding, his Honour concluded that an overpayment under the contract would not be sufficient reason for him to exercise his discretion against granting leave. In reaching his view, his Honour considered the object and purpose of the Act and, in particular, he focused on the interim nature of the adjudication regime.

Keen DCJ’s closing remarks were that “[n]ot to grant leave pursuant to the [Act] would be to fly in the face of the intent and purpose of the statute and that could bring the administration of justice into disrepute.” Those comments are arguably surprising because the effect of his Honour’s orders was an overpayment down the contractual payment chain. Keeping money flowing the contracting chain is the primary purpose of the Act. Allowing subcontractors, contractors or suppliers to enforce determinations where an overpayment under the contract arises arguably goes beyond that purpose.

SummaryKeen DCJ made new law in holding that an overpayment under the contract does not constitute a ‘sufficient reason’ for a court to decline to grant leave under s 43 of the Act. This decision suggests that principals and head contractors should not attempt to pre-empt an adjudication determination by paying some or all of the disputed amount before that determination is made in an attempt to off-set any determination debt. The result also raises the question of whether the primary object and purpose of the Act (which is to keep money flowing in the contracting payment chain) will be achieved if the position on the operation of s 43 taken in this case continues to be adopted by Western Australian courts.

http://www.austlii.edu.au/au/cases/wa/WADC/2015/61.html

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PYRAMID CONSTRUCTIONS (WA) PTY LTD V FORM DOCTORS PTY LTD [2015] WASC 94

KEY TAKEAWAYSA party that unreasonably resists an application to remove an arbitrator under section 13 of the Commercial Arbitration Act 2012 (WA) (Act) will be exposed to a risk of costs, even where no substantive relief is granted.

Where an arbitrator has made prior disparaging comments about a party to an arbitration agreement, there is at least an arguable case for removing that arbitrator.

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BackgroundMr Riley was engaged to act for a client in dispute with Pyramid Constructions (WA) Pty Ltd (Pyramid). He asserted that Pyramid had bullied and been aggressive towards his client, and described Pyramid’s claim as “contractually unfounded, blatantly unconscionable and opportunistic”. At the time, Pyramid was in another dispute with Form Doctors Pty Ltd (Form Doctors). Mr Riley was nominated to act as an arbitrator in that dispute.

Pyramid brought these proceedings under section 13 of the Act to challenge Mr Riley’s appointment on the grounds that his prior comments about Pyramid gave rise to justifiable doubt about his impartiality.

Form Doctors advised Pyramid of its intention to oppose Mr Riley’s removal before it knew about the comments he had made. Mr Riley advised the Court he would withdraw if the parties agreed to his removal, but would otherwise await the Court’s judgment. As Form Doctors ultimately withdrew its opposition, Mr Riley withdrew from the reference and no substantive relief was required in the proceedings.

This judgment relates to the Court’s determination of Pyramid’s motion for costs orders against Form Doctors.

Can an order for costs be made where substantive relief is not required?Pyramid was granted an order for its costs, to be taxed if not agreed. Martin CJ based his decision on two alternative lines of reasoning:

• that the Court could make an order for costs on the grounds that Pyramid was substantially successful, which success serves as the “event” to which the order of costs may relate;1 and

• given there was a strongly arguable case in support of Mr Riley’s removal, and Form Doctors had taken the stance to oppose Pyramid’s application before knowing the grounds for his removal, Form Doctors had acted unreasonably in opposing the application.

The judgment is reminiscent of Pipeline Services WA Pty Ltd v ATCO Gas Australia Pty Ltd,2 which also demonstrated the Court’s attitude to deterring parties from inefficient use of the Court’s resources by making orders for costs. In that case, Martin CJ ordered indemnity costs against Pipeline because it had commenced proceedings in the Supreme Court when the disputes were the subject of an arbitration agreement.

http://www.austlii.edu.au/au/cases/wa/WASC/2015/94.html

1 See Champagne View Pty Ltd v Shearwater Resort Management Pty Ltd [2000] VSC 214; Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 [5]

2 [2014] WASCA 10

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HAMERSLEY IRON PTY LTD V JAMES [2015] WASC 10

KEY TAKEAWAYSThis is the first decision in WA in which an application for leave to enforce an adjudication determination has been unsuccessful. Generally, where a successful adjudication applicant applies for leave to enforce its determination, it can expect that the court will exercise its discretion and grant leave. However, where (as here) a successful adjudication applicant is clearly insolvent at the time that it applies for adjudication, and the adjudication respondent has an arguable case that it has a counterclaim against the applicant, the court may refuse to grant leave under section 43 of the Construction Contracts Act 2004 (WA).

Before applying for adjudication of a payment dispute under the Construction Contracts Act, insolvent parties will now need to think carefully about the risks of obtaining an unenforceable determination and of the adjudication respondent bringing a subsequent counterclaim.

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The facts In February 2014, Forge Group Construction Pty Ltd (Forge) hit the headlines when it went into voluntary administration. At this time, Forge had a construction contract with Hamersley Iron Pty Ltd (Hamersley). Shortly after Forge’s administrator was appointed, Hamersley had recourse to $5.6M of Forge’s contract security and terminated this contract. Forge applied for adjudication (under the Construction Contracts Act) of a payment claim for $14.3M that it had earlier submitted to Hamersley. Hamersley defended the adjudication application on the basis that, after accounting for the recovery of Forge’s contractual security, it was entitled to a set-off against Forge, for an amount of $7.4M.

Forge was successful (in the sum of $705.8K) in the adjudication. Hamersley had defended the adjudication application on the basis that it had a counterclaim against Forge but the adjudicator held that Hamersley had failed to satisfy him, on the balance of probabilities, that the amount of its counterclaim exceeded the amount Forge claimed.

The decisionForge applied to the Supreme Court, under section 43 of the Construction Contracts Act, for leave to enforce the adjudicator’s determination (determination). Hamersley objected to the enforcement on the basis that it was entitled to set off its larger counterclaim against any monies that it owed to Forge under section 553C of the Corporations Act 2001 (Cth).

The starting point adopted by His Honour was that, in normal circumstances, the existence of a counterclaim against the party wanting to enforce an adjudication determination will not be a basis for the court to refuse leave to enforce under section 43 of the Construction Contracts Act. However, given Forge’s insolvency, Justice Beech went on to consider the relationship between the purposes of the Construction Contracts Act and the Corporations Act.

Justice Beech considered that the purpose of section 553C of the Corporations Act required the Court to do ‘substantial justice’ between the parties. In contrast to the adjudicator, Justice Beech was satisfied that Hamersley’s evidence for its counterclaim established that it had an arguable case against Forge. His Honour, applying the High Court authority of Gye v McIntyre117 (which considered an equivalent section of the Bankruptcy Act 1966 (Cth)), held that it would be unfair for Forge’s liquidators to recover the full amount of Hamersley’s debts to Forge where, at the same time, Hamersley was left to prove in the liquidation of Forge in respect of Hamersley’s counterclaim.

Beech J held that the primary purpose of the Construction Contracts Act (maintaining the flow of money in the contracting chain) did not demand the grant of leave to enforce Forge’s favourable determination.

Ultimately, Beech J held that since Hamersley had demonstrated an arguable case for its counterclaim, Forge’s application for leave should be stayed (rather than dismissed) until Hamersley had either:

• agreed with Forge the quantum of its counterclaim; or

• commenced legal proceedings against Forge and thereby proved its counterclaim.

This decision gives hope to parties who are concerned about the solvency of a counterparty to a construction contract. Importantly, the court hearing the insolvent company’s application for leave to enforce under section 43 (namely, whether the respondent has an arguable case, giving rise to a serious question to be tried, that it has a counterclaim against the insolvent company) will apply a lower standard of proof than the adjudicator (who will assess on the balance of probabilities). This is crucial for respondents, as was the case for Hamersley, who are unable to prove their counterclaim on the balance of probabilities before the adjudicator.

http://www.austlii.edu.au/au/cases/wa/WASC/2015/10.html

117 (1991) 171 CLR 609

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MW HIGH TECH PROJECTS UK LTD AND HAASE ENVIRONMENTAL CONSULTING [2015] EWHC 152 (TCC)

KEY TAKEAWAYA party may be liable for non-negligent breaches of specific obligations in a contract, even if it complies with its overarching obligation to use “reasonable skill and care”. The outcome, while hardly surprising, does emphasise courts’ reluctance to allow parties to deviate from concluded bargains, even where that deviation is an enhancement.

INTERNATIONAL NEWSCORRS’ CONSTRUCTION LAW UPDATE

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The facts MW High Tech (MW) subcontracted Haase Environmental Consulting (HEC) to develop and complete the design of the process engineering elements at a waste energy plant at site in West Sussex, UK (the Plant). MW was a contractor specialising in the construction of waste energy plants, and HEC was a consultancy specialising in the engineering services associated with waste treatment and recycling technologies. HEC’s services were to include the design, installation and commissioning of the Plant using HEC’s “Basic Design Proposal’, which was included in the EPC Delivery Plan agreed between MW and the Owner (Biffa). Importantly, MW based its tender to Biffa on the Basic Design Proposal that HEC has submitted.

Clause 5.9.1 of the Contract between MW and HEC required that HEC use:

“all the reasonable skill, care and diligence to be expected of a properly qualified and competent design professional experienced in the design of works similar in size, scope, nature and complexity.”

Within two weeks after executing the contract, HEC began proposing design changes and enhancements. MW alleged (amongst other things) that HEC’s design changes/enhancements were in breach of contract because they were unnecessary (that is, the basic design proposal would have complied with the contractual specifications and the overriding duty to take reasonable care even without the changes/enhancements).

The dispute was referred to adjudication. In respect of the “over-design” issue, the adjudicator found in favour of HEC, concluding:

“If the design is carried out with reasonable skill and care, then the fact that it would cost MW more to implement that design cannot be a breach of contract. To say otherwise makes HEC the guarantor of both the design and price and I think it would require very clear words to place a consultant rather than an EPC contractor in that position.”

The parties’ claimsMW did not seek to challenge the adjudicator’s specific finding before the Court but instead sought a declaration as to the proper construction of the Contract. MW argued that the adjudicator failed to correctly construe the relevant terms. It asserted that under the Contract, HEC held two separate duties. One was to use reasonable skill and care; and the other was to design the work in accordance with the EPC requirements (including the Basic Design Proposal). MW asserted that even if HEC was not negligent in its design, its failure to comply with this strict obligation was a breach of the Contract.

HEC denied the declaration would be of utility to the parties. It asserted that provided it complied with the overriding obligation to exercise reasonable skill, care and diligence, the risk of additional costs being incurred as a result of design enhancements rested fairly and squarely with MW.

The decisionThe court found in favour of the MW. It held:

• HEC’s overriding, paramount obligation was to exercise reasonable skill and care under clause 5.9.1 (extracted above). This obligation was paramount.

• HEC had additional specific obligations to comply with, for example, the EPC Delivery Plan. Those obligations were subject to the overriding obligation of exercising reasonable skill and care, so that if

compliance with the Delivery Plan was not possible without HEC being negligent, HEC would not be obliged to comply with it.

• If it was possible for HEC to comply with the EPC Delivery Plan using non-negligent design, then in the first instance it was obliged to take reasonable skill and care to do so.

• To the extent that there were modifications to the design which did not comply with the EPC Delivery Plan, then under the Contract, HEC was prima facie liable to MW for the cost consequences of those non-compliant modifications.

DiscussionAs noted above, the finding in this case is not particularly surprising. As Coulson J pointed out (at [24]):

“If HEC subsequently produced a design that was not negligent, but failed to comply with the EPC Output Specification or the EPC Delivery Plan (because it up-rated the agitators), then they were in breach of the contractual obligations that required them to design in accordance with those documents. That is not particularly onerous: at root, it involves sticking to the terms of the Appointment as agreed between the parties.”

A different, but much more interesting, issue arises where there is some inconsistency between a specific contractual obligation on the one hand; and a general warranty on the other. This issue came up in the recent case of MT Hojgaard A/S v E.ON Climate and Renewables UK [2015] EWCA Civ 407 (30 April 2015). This case will be considered in the next Corrs Construction Law Update.

http://www.bailii.org/ew/cases/EWHC/TCC/2015/152.html

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OTHER NEWS

GOOD FAITH:RECOGNISED BY THE CANADIAN SUPREME COURT

KEY TAKEAWAYSThe state of the law in Australia regarding a duty of good faith in the performance of contracts is uncertain.

A recent decision of the Supreme Court of Canada will no doubt be important for the continued development of the law in this area in Australia. In Bhasin v Hrynew 2014 SCC 71, the Supreme Court of Canada established an “organising principle” of good faith and, as a manifestation of that organising principle, a specific common law duty of honesty in contractual performance.

Beyond the case law, contractual obligations to act in good faith are also highly relevant on construction projects.

INTERNATIONAL NEWSCORRS’ CONSTRUCTION LAW UPDATE

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The Australian positionDiscussion of the position in Australia often starts with the judgment of Priestley JA in Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.

In that case, a clause in a building contract empowered the principal to take over the whole or part of the work, or to cancel the contract upon the contractor’s default if the contractor failed to show cause as to why the principal should not exercise its powers. Priestley JA said a term of reasonableness could be implied (in fact and in law) such that the principal’s power had to be exercised reasonably. Priestley said (at 268):

‘people generally, including judges and other lawyers, from all strands of the community, have grown used to the courts applying standards of fairness to contract which are wholly consistent with the existence in all contracts of a duty upon the parties of good faith and fair dealing in its performance. In my view this is in these days the expected standard, and anything less is contrary to prevailing community expectations’.

Post-Renard, some decisions at first instance and by intermediate courts of appeal have recognised that an obligation of good faith in the performance of contractual obligations and exercise of powers may be implied as a matter of law as a legal incident of a commercial contract.118 Other decisions have approached the issue as one of implication in fact.119

The standard of conduct required by good faith obligations has been described as “reasonableness”,120 and as an obligation on a party “not to act capriciously”.121

It does not require a party to a contract to act in the interests of the other party or to subordinate its own legitimate interests to those of the other party.122

Until the High Court of Australia is asked to consider whether a duty of good faith applies to all commercial contracts and in what circumstances, the state of the law remains unclear.123

The decision in Bhasin v HrynewThis case concerned a dispute between Harish Bhasin, a retailer, and Canadian American Financial Corp (CAF), the wholesaler. Larry Hrynew was a competitor of Bhasin’s working with CAF. Bhasin and CAF were party to a three year contract under which Bhasin and his sales agents retailed CAF products. Hrynew attempted to capture Bhasin’s clientele. CAF thus terminated Bhasin’s contract and his sales agents moved to work with Hrynew. Bhasin sued both parties, claiming (among other things) that CAF’s conduct constituted a failure to act in good faith.

The question on appeal was whether Canadian common law imposed a duty on parties to perform their contractual obligations honestly (and if so, whether either of the respondents breached that duty).

Justice Cromwell delivered the Court’s judgment.

‘In my view, it is time to take two incremental steps in order to make the common law less unsettled and piecemeal, more coherent and more just. The first step is to acknowledge that good faith contractual performance is a general organizing principle of the common law of contract which underpins and informs the various rules in which the common law, in various situations and types of relationships, recognizes obligations of good faith contractual performance. The second is to recognize, as a further manifestation of this organizing principle of good faith, that there is a common law duty which applies to all contracts to act honestly in the performance of contractual obligations.’

Cromwell J explained that an organising principle is a standard that underpins and manifests itself in more specific legal doctrines. The organizing principle of good faith is that “parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily”. A contracting party should have “appropriate regard” to the legitimate contractual interests of the other contracting party. “Appropriate regard” requires that a party not seek to undermine those interests in bad faith. Cromwell J clarified that, unlike fiduciary duties, good faith performance does not engage duties of loyalty to the other contracting party or a duty to put interests of the other contracting party first.

118 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151; Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349; Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703

119 Vodafone Pacific Limited v Mobile Innovations Limited [2004] NSWCA 15; Saxby Bridge Mortgages Pty Ltd v Saxby Bridge Pty Ltd [2000] NSWSC 433; Insight Oceania Pty Ltd v Philips Electronics Australia Ltd [2008] NSWSC 710

120 Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Vodafone Pacific Limited v Mobile Innovations Limited [2004] NSWCA 15; Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310

121 Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310; Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703

122 Trans Petroleum (Australia) Pty Ltd v White Gum Petroleum Pty Ltd (2012) 268 FLR 433; Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187

123 In Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436, the High Court left the issue open

PAGE 60

Under this organising principle of good faith, Cromwell J created a new common law duty of honesty in contractual performance. This means that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract.

Cromwell J reasoned that a duty to perform contracts honestly will make the law more certain, more just and more in tune with reasonable commercial expectations.

Under Australian law, good faith has been approached on the basis of implication by law, implication in fact, or purposive interpretation. Cromwell J, however, said the duty should not be thought of as an implied term, but a general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance. It is analogous to equitable doctrines which impose limits on the freedom of contract, such as the doctrine of unconscionability.

Cromwell J summarised the position in Australia at paragraph [58] of his judgment, stating that the duty of good faith will be implied as a matter of law or fact in certain circumstances but that the law is still developing and remains unsettled. It will be interesting to see how this decision of the Canadian Supreme Court affects future good faith claims in Australia.

http://scc-csc.lexum.com/scc-csc/scc-csc/en/item/14438/index.do

Alongside the developing case law, the draft AS 11000:2015 contract that Standards Australia has proposed to replace AS 2124:1995 and AS 4000:1997 obliges both parties to act in good faith. See further the article on AS 11000:2105 earlier in this Construction Law Update.

PAGE 61

PAGE 62

Good faith in construction contracts: A bridge too far?

The G20 Infrastructure Hub – Footsteps towards bridging the global infrastructure gap.

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Renewable energy for remote Australia – Can our rural and indigenous communities go off-grid?

LINKS TO OUR RECENT THINKING

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