Understanding construction law [[1st edition].] 9780409341645, 0409341649

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Understanding Construction Law Jeremy Coggins BSc (Hons) (Reading), LLM (UNN), Grad Cert Building & Construction (UND), PhD (Adel) Senior Lecturer, School of Natural and Built Environments, University of South Australia Member of the Royal Institution of Chartered Surveyors Associate of the Australian Institute of Quantity Surveryors Member of the Society of Construction Law Australia

Tom Davie LLB (Hons) (Leeds) Barrister

Tony Earls LLB (UTS) Special Counsel, Bannermans Lawyers Associate member of the Institute of Arbitrators and Mediators

Phil Evans BScEng (Merit) (UNSW), ME (Hons) (UOW), LLB (UWW), PhD (Curtin) Professor of Law, University of Notre Dame (Australia) Graded Arbitrator, Accredited Mediator, Registered Adjudicator (WA and NT), FAIB, FIE (Aust), FACICA, MIAMA LexisNexis Butterworths Australia 2016

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Coggins, Jeremy.

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Understanding construction law. 1st edition. 9780409341645 (pbk). 9780409341652 (ebk). Includes index. Building laws — Australia. Construction industry — Law and legislation — Australia. Construction contracts — Law and legislation — Australia. Torts — Australia. Davie, Tom. Earls, Tony. Evans, Phil. 343.9407869

© 2016 Reed International Books Australia Pty Limited trading as LexisNexis. This book is copyright. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Neither may information be stored electronically in any form whatsoever without such permission. Inquiries should be addressed to the publishers. Typeset in Archer and Gotham. Printed in Australia. Visit LexisNexis Butterworths at www.lexisnexis.com.au

Preface This book is designed primarily for the non-lawyer working, or aspiring to work, in the construction industry. It gives a general understanding of the legal issues specific to construction and building. As such, it aims to provide construction professionals — such as architects, building surveyors, construction managers, construction contract administrators, engineers, and quantity surveyors — with a good working knowledge of the law necessary to operate effectively within the construction industry. It is hoped that, in particular, the book will prove to be a valuable text for both undergraduate and postgraduate students undertaking construction-related degree programs. There are a number of excellent texts in existence for those desiring an indepth legal treatment of construction law, including Cremean, Whitten and Sharkey’s Brooking on Building Contracts, and we encourage our readers to refer to them for more detailed treatment of issues covered in this text. The authors were generally responsible for individual chapters as follows: Jeremy Coggins, Chapters 1 to 4; Phil Evans, Chapter 5; Tony Earls, Chapter 6; Tom Davie, Chapter 7. We extend our thanks to the staff at LexisNexis, and to Gordon Campbell, editor, for their assistance in bringing the book to press. Except where otherwise stated, this book reflects the law as at December 2015. Jeremy Coggins Tom Davie Tony Earls Phil Evans January 2016

Table of Cases References are to paragraph numbers

A A Roberts & Co Ltd v Leicestershire County Council [1961] 2 All ER 545 …. 3.234 ABB Power Generation Ltd v Chapple (2001) 25 WAR 158; (2002) 18 BCL 229; [2001] WASCA 412 …. 5.317 Abigroup Contractors Pty Ltd v ABB Service Pty Ltd [2004] NSWCA 181 …. 3.87, 3.346 — v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; [2006] NSWCA 282 …. 5.44, 5.170, 5.253, 5.265 Adams v Lindsell (1818) 106 ER 250 …. 3.49 Adelaide City Corporation v Jennings Industries Ltd (1985) 156 CLR 274; 57 ALR 455 …. 5.299 AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454 …. 3.16 Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236; (2000) 16 BCL 70; [1999] NSWSC 996 …. 7.112 Allianz Australia Insurance Ltd v Waterbrook at Yowie Bay Pty Ltd [2009] NSWCA 224 …. 3.197 Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49 …. 3.93, 3.197 Anaconda Nickel v Tarmoola Australia Pty Ltd (2000) 22 WAR 101; [2000] WASCA 27 …. 5.243 Appleby v Johnson (1874) LR 9 CP 158 …. 3.45 Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313; [1990] FCA 473 …. 7.157 Aurel Forras Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202 …. 5.210 Austotel Pty Ltd v Franklins Self Serve Pty Ltd (1989) 16 NSWLR 582 …. 5.33 Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 …. 5.80

Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (No 8) (1999) 92 FCR 375; 165 ALR 468; [1999] FCA 954 …. 5.53 — v Metricon Homes Qld Pty Ltd [2012] FCA 797 …. 3.249 — v Pioneer Concrete (Qld) Pty Ltd (1996) ATPR 41–457 …. 5.52 Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd [2015] NSWCA 275 …. 7.118

B Bains Harding Construction & Roofing (Aust) Pty Ltd v McCredie Richmond & Partners Pty Ltd (1988) 13 NSWLR 437 …. 3.167 Balfour Beatty Construction (Scotland) Ltd v Scottish Power Plc (1994) 71 BLR 20 …. 3.336 Ballas v Theophilos (No 2) (1957) 98 CLR 193 …. 3.43 Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 …. 7.49 Bannerman v White (1861) 10 CBNS 844 …. 3.150 Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428 …. 4.40 Barry v Davies [2000] 1 WLR 1962 …. 3.15, 3.16 Barton v Armstrong [1973] 2 NSWLR 598 …. 1.70, 3.217 Basely v Clarkson (1681) 3 Lev 37 …. 4.62 Beckhaus v Brewarrina Council [2002] NSWSC 960 …. 2.72 Bellgrove v Eldridge (1954) 90 CLR 613; [1954] ALR 929 …. 3.310, 3.311, 3.312, 3.313, 3.314, 3.316, 3.318, 7.68 Bendal Pty Ltd v Mirvac Pty Ltd (1991) 23 NSWLR 464 …. 4.75, 4.79 Bernstein of Leigh v Skyviews & General Ltd [1978] 1 QB 479 …. 4.73, 4.74, 4.75 Bettini v Gye (1876) 1 QBD 183 …. 3.177 Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council (1990) 3 All ER 25; 1 WLR 1195 …. 5.10, 5.26 Blyth v Birmingham Waterworks Co (1856) 11 Exch 781 …. 4.33 Bolton v Mahadeva [1972] All ER 1322 …. 3.267, 3.268 Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600 …. 3.69

Botany Municipal Council v Federal Airports Corporation (1992) 175 CLR 453 …. 1.31 Bourhill v Young [1943] AC 92 …. 4.13 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; 16 ALR 363; 52 ALJR 20 …. 3.161, 5.141, 5.246 Brace v Calder [1895] 2 QB 253 …. 3.330 Bradscot (MCL) Ltd v Hamilton-Wentworth Catholic District School Board [1999] OJ No 69 …. 3.237, 3.238 Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd [2007] VSCA 311 …. 4.83, 4.84 Brenner v First Artists’ Management Pty Ltd (1993) 2 VR 221 …. 5.33 Bressan v Squires [1974] 2 NSWLR 460 …. 3.52 Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248 …. 7.83, 7.85, 7.87, 7.92 — v — [2006] NSWCA 361 …. 3.318, 7.74 Brinkiborn Ltd v Stahag Stahl Gmbh [1983] 2 AC 34 …. 3.55 Brirek Industries v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165 …. 3.103 British Steel Corp v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504 …. 3.86, 3.346, 5.32 Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 …. 4.55, 4.56, 4.57 Brooks Robinson Pty Ltd v Rothfield [1951] VLR 405; ALR 909 …. 7.53 Bryan v Maloney (1995) 182 CLR 609 …. 4.50, 4.57 Building Insurers’ Guarantee Corp v Owners – Strata Plan No 57504 [2010] NSWCA 23 …. 7.74 Bulli Coal Mining Co v Osborne [1899] AC 351 …. 4.72 Butcher v Lachlan Elder Realty Pty Ltd [2004] 218 CLR 592 …. 3.241 Butler Machine Tool Co Ltd v Ex-Cello Corp [1979] 1 WLR 401 …. 3.41 Butt v McDonald (1896) 7 QLJ 68 …. 3.163 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 …. 3.161 Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344 …. 3.36

C Caltex Oil (Aust) Pty Ltd v Dredge Willemstad (1976) 136 CLR 529 …. [4.29] Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; 257 ALR 610; [2009] HCA 25 …. 5.84 Caparo Industries plc v Dickman [1990] 1 All ER 568 …. 4.28 Cape Lambert Resources v MCC Australia Sanjin Mining Pty Ltd [2012] WASC 228 …. 5.243 Cardiacos v Cooper Consulting & Construction Services (Aust) Pty Ltd [2009] NSWSC 938 …. 7.12 Carillion Construction Ltd v Felix (UK) Ltd [2001] BLR 1 …. 3.221 Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 QB 256 …. 3.28, 3.48 Carr v J A Berriman Pty Ltd (1953) 89 CLE 327 …. 3.297, 5.193 Cassidy v Engwirda Construction Co (No 2) [1968] Qd R 159 …. 7.57 Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20 …. 3.327 Central London Property Trust v High Trees House Ltd [1947] KB 130 …. 3.132 Chandler v Webster [1904] 1 KB 493 …. 3.281 Chapel v Hickes (1833) 2 C & M 214; 149 ER 738 …. 7.68 Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 …. 3.107 Charnock v Liverpool Corporation [1968] 3 All ER 473; 1 WLR 1498 …. 7.65 CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 8 ANZ Ins Cas 61 – 232 …. 7.41, 7.90 Claude Neon Ltd v Hardie [1970] Qd R 93 …. 3.290 Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd [1991] 24 NSWLR 1 …. 3.73, 3.76 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367; [1982] HCA 24 …. 3.282, 3.283, 3.346, 5.58, 5.82, 5.203, 5.233, 5.243, 5.246, 5.272 Collins v Godefroy (1831) 109 ER 1040 …. 3.118 Comalco Fabricators Ltd v Dillingham Constructions Pty Ltd (1977) 17 SASR 82 …. 5.9

Commonwealth v Jennings Construction Ltd [1985] VR 586; (1985) 1 BCL 252 …. 5.242 Commonwealth Bank of Australia v T L I Management Pty Ltd (1990) VR 510 …. 5.34 Commonwealth Bank of Australia Ltd v Amadio (1983) 151 CLR 447 …. 3.252 Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 …. 1.18 Concrete Developments Pty Ltd v Queensland Housing Commission [1961] Qd R 356 …. 5.242 Con-Stan Industries of Australia Pty Ltd v Norwich Winterarthur Insurance Australia (1986) 160 CLR 226 …. 3.157 Coogee Esplanade Surf Motel Pty Ltd v Commonwealth of Australia (1976) 50 ALR 363 …. 5.38 Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd (2009) 25 BCL 29; [2008] NSWCA 1163 …. 5.245 Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 All ER 716 …. 3.72 Couturier v Hastie (1856) 5 HL Cas 673 …. 3.226 Croshaw v Pritchard & Renwick (1899) 16 TLR 45 …. 3.33 Cubic Transportation Systems Inc v New South Wales [2002] NSWSC 656 …. 3.20 Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805 …. 3.186 Cutter v Powell [1775-1802] All ER Rep 159; (1795) 6 Term Rep 320 …. 3.259 Cutts v Head [1984] Ch 29 …. 7.137

D D & C Builders v Rees [1966] 2 QB 617 …. 3.128 D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 …. 7.102 D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749 …. 3.187 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 …. 3.190, 3.195, 3.196, 3.201 Davey v Harrow Corporation [1958] 1 QB 60 …. 4.96

Davie v The Lord Provost, Magistrates and Councillors of the City of Edinburgh (1953) SC 34 …. 7.155, 7.160 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696; [1956] 2 All ER 145 …. 3.286, 7.39 De Barnardy v Harding [1853] 8 Exch 822 …. 3.274 De Martin and Gasparini Pty Ltd v Ex Parte Energy Australia Pty Ltd & Austin Australia Pty Ltd [2000] NSWSC 55 …. 2.128 Delstrat Pty Ltd t/a Seacrest Homes v Bond [2004] WADC 55 …. 5.174 Denny, Mott and Dickson Ltd v James B Fraser & Co Ltd [1944] 1 All ER 678 …. 3.284 Devaugh Pty Ltd v Lamac Developments Pty Ltd (2000) 16 BCL 378; [1999] WASCA 280 …. 5.305 Dey v Victorian Railways Commissioners (1949) 78 CLR 62 …. 1.79 Di Napoli v New Beach Apartments Pty Ltd [2004] NSWSC 52 …. 4.68, 4.72 Dickinson v Dodds (1876) 2 Ch D 463 …. 3.37, 3.38 Dillingham Constructions Pty Ltd v Downs [1972] 2 NSWLR 49 …. 5.252 Diploma Construction Pty Ltd v Marula Pty Ltd [2009] WASCA 229 …. 3.299 Director of Public Prosecutions for Northern Ireland v Lynch [1975] AC 653 …. 3.216 Donoghue v Stevenson [1932] AC 562 …. 4.10, 4.11, 4.14, 4.16, 4.18, 4.48 Downer EDI Mining Pty Ltd v Wambo Coal Pty Ltd [2012] QSC 290 …. 5.243 DSND Subsea v Petroleum Geo-Services [2000] BLR 530 …. 3.219, 3.221 DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423; 19 ALR 223; [1978] ANZ ConvR 12 …. 3.298, 7.40, 7.42, 7.90 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 …. 3.325 — v Selfridge and Co Ltd [1915] AC 847 …. 3.204

E Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2013] WASCA 36 …. 3.192, 3.222 Empirnall Holdings v Machon Paull (1988) 14 NSWLR 523 …. 3.45, 3.58, 3.137

Entores v Miles Far East Corp [1955] 2 QB 327 …. 3.54 Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26 …. 3.196, 3.197, 3.198 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] 218 CLR 471 …. 3.185 — v Haxton [2012] HCA 7 …. 1.73 Eyre v Measday [1986] 1 All ER 488 …. 3.162

F Felthouse v Bindley (1862) 142 ER 1037 …. 3.46 Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 …. 3.281 Fisher v Bell [1961] 1 QB 394 …. 3.12 Fitzgerald v Masters (1956) 95 CLR 420; [1956] HCA 53 …. 3.67, 7.40, 7.42, 7.90 — v Penn (1954) 91 CLR 268 …. 4.38 Fleming v Bank of New Zealand [1900] AC 577 …. 3.115 Foakes v Beer (1884) 9 App Cas 605; [1881-5] All ER Rep 106 …. 3.127 Foran v Wight (1989) 168 CLR 385 …. 3.302 Ford Motor Co (England) Ltd v Armstrong [1915] 31 TLR 267 …. 3.325 Forrest v Scottish County Investment Co Ltd (1915) SC 115 …. 7.68 Foster v AT Brine & Sons Pty Ltd [1972] WAR 157 …. 7.57, 7.64 Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; 264 ALR 15; [2009] NSWCA 407 …. 5.77

G G H Myers v Brent Cross Service Co [1934] 1 KB 46 …. 7.59 Gagner Pty Ltd v Canturi Corporation Pty Ltd (2009) 262 ALR 691; [2009] NSWCA 413 …. 7.74 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 …. 4.21 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 …. 1.79

George Feros Memorial Hostel Committee Incorp v Hammat Constructions Pty Ltd (2001) 17 BCL 66 …. 2.127 George Hawkins v Chrysler (UK) Ltd (1986) 38 BLR 36 …. 3.165 Gigliotti Constructions Pty Ltd v Jalili [1998] NSWSC 182 …. 3.347 Glasbrook Brothers v Glamorgan County Council [1925] AC 270 …. 3.119 Goldsborough, Mort & Co. Ltd v Quinn (1910) 10 CLR 674 …. 3.38 Graham v KD Morris & Sons Ltd [1974] Qd R 1 …. 4.78 Gregory v Piper (1829) 109 ER 220 …. 4.65 Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201 …. 3.309

H H Dakin & Co Ltd v Lee (1916) 1 KB 566 …. 7.68 Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 …. 3.194, 3.195, 3.197, 3.198, 3.332, 3.334 Halsey v Esso Petroleum Co Ltd [1961] 2 All ER 145 …. 4.92 Hampton v Glamorgan County Council [1917] AC 13 …. 5.292 Hardwick v Lincoln (1946) NZLR 309 …. 7.68 Hargrave v Goldman (1963) 110 CLR 40; [1964] ALR 377 …. 5.176 Hartley v Possonby (1857) 119 ER 1471 …. 3.122 Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd [1986] 1 AC 207 …. 3.18, 5.15 Harvey v Facey [1893] AC 552 …. 3.29 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 …. 4.26, 4.28, 4.32 Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1; 4 ALR 77 …. 7.63 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No1) (1988) 39 FCR 546; 79 ALR 83 …. 3.244, 5.266 Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [1999] EWHC Technology 263 …. 3.235 Hewett v Court (1983) 149 CLR 639; 46 ALR 87 …. 3.171, 5.323

Heyman v Darwins Ltd (1942) 1 All ER 337 …. 5.243 HG v R (1999) 197 CLR 414; 160 ALR 554; [1999] HCA 2 …. 7.157 Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494; (1932) 147 LT 503 …. 3.65, 3.154, 5.86, 5.125, 5.243 HM Hire Pty Ltd v National Plant & Equipment Pty Ltd [2013] QCA 6 …. 2.55 Hoenig v Isaacs [1952] 2 All ER 176 …. 3.266, 3.267 Hollis v Vabu Pty Ltd (2001) 207 CLR 21; 181 ALR 263; [2001] HCA 44 …. 4.104, 5.288 Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] 2 All ER 785; [2003] 2 WLR 711 …. 5.81 Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 1 All ER 474 …. 3.179 Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194; 10 BCL 199 …. 7.112 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 …. 3.161 Household Fire and Carriage Accident Insurance Co. Ltd v Grant (1879) 4 ExD 216 …. 3.49, 3.51 Hughes v Lord Advocate [1963] AC 837 …. 4.46 Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151; 146 ALR 1 …. 3.19, 3.20, 3.48, 3.111, 5.17, 5.42, 5.133 Hunter v Canary Wharf Ltd [1997] AC 655 …. 4.93 Hutton v Warren [1836] EWHC Exch J61 …. 3.156 Hyde v Wrench (1840) 49 ER 132 …. 3.39, 5.14

I Ipex ITG Pty Ltd (in liq) v Victoria [2010] VSC 480 …. 3.22, 3.23, 5.19

J J-Corp Pty Ltd v Mladenis [2009] WASCA 157 …. 3.328 John Holland Pty Limited v Roads and Traffic Authority of New South Wales [2007] NSWCA 19 …. 2.93

Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190 …. 5.83 Jones v St John’s College Oxford (1870) LR6QB 115 …. 5.210 Joscelyne v Nissen [1970] 2 QB 86 …. 3.228 Jovista Pty Ltd v Pegasus Gold Australia Pty Ltd (Unreported, NT Supreme Court, Bailey J, 4 February 1999) …. 2.139 Junior Books v Veitchi [1983] AC 520 …. 4.30

K KBH Construction Pty Ltd v Lidco Aluminium Products Pty Ltd (1991) 7 BCL 183 …. 5.320 Kelsen v Imperial Tobacco [1957] 2 QB 334 …. 4.73 Kennedy v Collings Construction Co Pty Ltd (1989) 7 BCL 25 …. 7.89 Khoury v Government Insurance Office of NSW (1984) 165 CLR 622 …. 3.292, 3.293 Kirkby v Coote [2006] QCA 61 …. 7.74 Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 …. 3.179, 3.296 Kyren v Built Projects [2006] SASC 204 …. 3.32, 3.33

L Lang Parade Pty Ltd v Peluso [2005] QSC 112 …. 4.71, 4.80 Laserborne Ltd v Morrison Biggs Wall Ltd [1993] CILL 896 …. 3.85, 3.340 Legione v Hateley (1983) 152 CLR 406 …. 3.134 Leichardt Development Co Ltd v Pipeline Properties Pty Ltd (1989) 62 NTR 1 …. 2.139 Leighton Contractors Pty Ltd v Fox [2009] HCA 35 …. 4.19, 4.110, 4.111 L’Estrange v F Graucob [1934] 2 KB 394 …. 3.185 Liebe v Molloy (1906) 4 CLR 307 …. 3.347 LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 490 …. 4.74, 4.75 LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (2001) 53

NSWLR 31; [2001] NSWSC 688 …. 5.37 Lucantonio v Kleinert [2009] NSWSC 929 …. 7.161 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; 247 ALR 412; [2008] HCA 27 …. 5.317 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 …. 5.230

M Mabo v Queensland (No 2) (1992) 175 CLR 1 …. 1.26 Macmahon Mining Services v Cobar Management [2014] NSWSC 502 …. 3.198 — v — [2014] NSWSC 731 …. 3.198 Macquarie Generation v CNA Resources Ltd [2001] NSWSC 1040 …. 5.41 Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 …. 3.78 Main Roads Construction Pty Ltd v Samary Enterprises Pty Ltd [2005] VSC 388 …. 1.78 March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 …. 4.38 Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 …. 3.289 Marminta Pty Ltd v French [2003] QCA 541 …. 7.41, 7.90 Maystar General Contractors Inc v Newmarket (Town) 2009 [2009] OJ No 3939 …. 3.236, 3.238 MBF Investments Pty Ltd v Nolan (2011) 37 VR 116; [2011] VSCA 114 …. 5.43, 5.264 McDonald v Denny Lascelles Ltd (1933) 48 CLR 457; [1933] ALR 381 …. 7.47 McMaster University v Wilchar Construction Ltd [1971] 3 OR 801 …. 3.233 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 …. 3.306 Melisavon Pty Ltd v Springfield Land Development Corporation Pty Ltd [2014] QCA 233 McWilliams v Sir Arrol [1962] 1 WLR 295 …. 4.41 Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) L 252 …. 3.146, 5.82 Miller v Jackson [1977] QB 966 …. 4.94

Milne v Municipal Council of Sydney (1912) 14 CLR 54; 18 ALR 550; [1912] HCA 25 …. 5.49 Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd (1973) 71 LGR 162 …. 2.27 Mondel v Steel [1835-42] All ER Rep 511; (1841) 10 LJ Ex 426 …. 7.100, 7.102 Monk Construction Ltd v Norwich Union Life Assurance Society (1992) 62 BLR 107 …. 3.90 Moorcock, The (1889) 14 PD 64 …. 3.160 Morrison-Knudsen International Co Inc v Commonwealth (1972) 46 ALJR 265 …. 5.43, 5.170, 5.264 Multiplex Constructions Pty Ltd, Re (1997) 14 BCL 162; [1997] QSC 009 …. 5.74 Munday & Shreeve v Western Australia & Western Australian Transport Board (1962) WAR 65 …. 5.48 Musameci v Winadell Pty Ltd (1994) 34 NSWLR 723 …. 1.65, 3.124 Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556; [1969] ALR 3 …. 5.262

N Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406 …. 3.149 North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 …. 3.218 North West Metropolitan Regional Hospital Board v T A Bickerton & Son Ltd [1970] 1 All ER 1039; (1970) 1 WLR 607 …. 5.163, 5.290

O Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co (The Wagon Mound No 1) [1961] AC 388 …. 4.44, 4.45

P P & M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 All ER 121; 1 WLR 146 …. 7.80 Pakenham v Board of Land and Works (1874) 5 AJR 37 …. 5.251 Papas v Bianca Investments (2002) 82 SASR 581 …. 1.69

Partridge v Crittenden [1968] 2 All ER 421 …. 3.26 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 557 …. 1.74, 3.346, 5.57, 5.234, 5.253, 5.317 Payne v Cave (1789) 3 TR 148; 100 ER 502 …. 3.13 Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111 …. 5.212 Pearce & High Ltd v Baxter [1999] BLR 101 …. 7.79 Pearson-Burleigh Ltd v Pioneer Grain Co (1933) 1 DLR 714 …. 7.68 Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322; [2002] NSWCA 211 …. 5.189, 5.238, 6.39 Perre v Apand (1999) 198 CLR 180 …. 4.32 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795 …. 3.12 Phoenix Bessemer Steel Co Ltd, Re (1875) 44 Lj Ch 683 …. 5.78 Pinnel’s case (1602) 77 ER 237 …. 3.125, 3.127, 3.129 Planché v Colburn (1831) 8 Bing 14 …. 3.274 Plant Construction Plc v Clive Adams Associates [2000] 1 BLR 137 …. 3.166 Pratt Contractors Ltd v Palmerston North City Council (1995) 1 NZLR 469 …. 5.19 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; 57 ALR 609 …. 5.245 Psaltis v Schultz (1948) 76 CLR 547 …. 3.223

R Radic v Henley Properties (NSW) Pty Ltd [2000] FCA 1416 …. 7.134 Raffles v Wichelhaus (1864) 2 H&C 906 …. 3.230 Ramsay v Watson (1961) 108 CLR 642; [1961] HCA 65 …. 7.157 Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) LR 1 Ex 109 …. 3.43 Reardon Smith Line Ltd v Ingar Hansen-Tanger [1976] 2 Lloyd’s Rep 621 …. 3.61 Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2) [2013] WASC 356 …. 3.198

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; 9 BCL 40 …. 3.85, 3.164, 3.297, 7.53 Ringrow Pty Ltd v BP Auatralia Pty Ltd (2005) 224 CLR 656 …. 3.325 Riverside Motors v Abrahams [1945] VLR 45; ALR 70 …. 7.57 RJ Grills Pty Ltd v Dellios [1988] VR 136 …. 5.323 Robinson v Harman (1848) 1 Exch 850 …. 3.304, 7.45 Ronnoc Finance Ltd v Spectrum Network Systems Ltd (1997) 45 NSWLR 624 …. 7.89 Roscoria v Thomas (1842) 2 QB 234 …. 3.114 Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344 …. 3.319, 7.73 Ryder v Frohlich [2004] NSWCA 472 …. 7.90

S Sabemo Pty Ltd v North Sydney Municipal Council (1997) 2 NSWLR 80 …. 5.29, 5.31 Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5 …. 7.49 San Sebastian v Minister Administering the Environmental and Planning Act (1986) 162 CLR 340 …. 4.28 Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2006] NSWCA 291 …. 5.243 Sargent v ASL Developments Ltd (1974) 131 CLR 634 …. 3.293 Schawel v Read [1913] 2 IR 81 …. 3.151 Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 597 …. 3.163 Sedleigh-Denfield v O’Callaghan [1940] AC 880 …. 4.96 Segboer v A J Richardson Properties Pty Ltd [2012] NSWCA 253 …. 3.99, 3.101 Seventeenth Canute Pty Ltd v Bradley Air Conditioning Pty Ltd (in liq) [1987] 1 Qd R 11 …. 2.124 Shaddock v Parramatta CC (1981) 150 CLR 225 …. 4.28 Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854 …. 3.202 Shelfer v City of London Electric Lighting Co (1895) 1 Ch 287 …. 4.83

Shevill v Builder’s Licensing Board (1982) 149 CLR 620; 42 ALR 305; [1982] HCA 47 …. 7.37 Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 …. 3.159 Shorten v David Hurst Constructions Pty Ltd (2008) 72 NSWLR 211; (2009) 25 BCL 399; [2008] NSWCA 134 …. 7.12 Sinclair v Gavaghan [2007] EWHC 2256 …. 4.69 Sinclair Scott & Co v Naughton (1929) 43 CLR 310 …. 3.75 Sizer v Squarcini [2008] WASC 246 …. 3.328 Smith v Giddy [1904] 2 KB 448 …. 4.96 Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510; 257 ALR 182; [2009] VSCA 141 …. 3.345, 7.53 South Australian Railways Commissioner v Egan (1973) 130 CLR 506 …. 5.87, 5.189 South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd (2004) 88 SASR 65; [2004] SASC 81 …. 7.74 South Seas Drilling Company v Esso Australia Limited (1988) 5 BCL 51 …. 5.287 Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27 …. 4.22 Spencer v Harding (1870) LR 5 CP 561 …. 3.17, 5.10 Startup v Macdonald (1843) 6 Man & G 593 …. 3.272 State of Queensland v Multiplex Constructions Pty Ltd [1999] 1 Qd R 287; (1997) 14 BCL 329; 14 BCL 240; [1997] QCA 447 …. 5.74 — v Walter Construction Group [2005] QS 241 …. 2.122 State of Tasmania v Leighton Contractors Pty Ltd (2005) 15 Tas R 243; [2005] TASSC 133 …. 3.326, 5.208 State Transit Authority of NSW v Australian Jockey Club [2003] NSWSC 726 …. 3.21 Sterling Estates Development Corporation Pty Limited v Malouf (2003) 58 NSWLR 685; [2003] NSWCA 278 …. 7.66 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 …. 4.104, 4.107, 5.288

Stilk v Myrick (1809) 170 ER 1168 …. 3.120 Stockport (N.Q.) Pty Ltd, Re (2003) 127 FCR 291 …. 2.120, 2.124 Stooke v Taylor (1880) 5 QBD 569 …. 1.80 Streamline Travel Service Pty Ltd v Sydney City Council (1981) 46 LGRA 168 …. 5.13 Summers v Commonwealth (1918) 25 CLR 144; [1918] HCA 33 …. 7.40, 7.90 — v — (1919) 25 ALR 141 …. 7.40 Sumpter v Hedges [1898] 1 QB 673 …. 3.271 Swan Pools v Baker (1980) 25 SASR 103 …. 3.5 Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161 …. 4.105

T Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; 253 ALR 1; 25 BCL 256; [2009] HCA 8 …. 3.314, 3.315, 3.317, 7.69, 7.72 Tapp, McFarlane v Clarke (Home Building) [2013] NSWCTTT 619 …. 7.87 Taylor v Caldwell (1863) 122 ER 309 …. 3.279 — v Johnson (1983) 151 CLR 422 …. 3.232 Tepko v Water Board (2001) 206 CLR 1 …. 4.28 Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd [2012] QCA 276 …. 2.55 Thomas v Thomas (1842) 2 QB 851; (1842) 114 ER 330 …. 3.109 Thornton v Place [1832] EngR 767; (1832) 1 M & Rob 218; 174 ER 74 …. 7.68 — v Shoe Lane Parking [1971] 1 All ER 686 …. 3.188, 3.189 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 …. 3.188 Toomey v Scolaro’s Concrete Constructions Pty Ltd (in liq) (No 2) [2001] VSA 279 …. 2.41 Top Performance Motors Pty Ltd v Ira Berk (Qld) Pty Ltd (1975) 5 ALR 465; 24 FLR 286 …. 5.51 Trade Indemnity Australia Ltd v Parkinson Air-conditioning Pty Ltd (1994) 11 BCL 39 …. 5.314 Trade Practices Commission v David Jones (Australia) Pty Ltd (1986) 13 FCR

446; 64 ALR 67 …. 5.51 Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW) 632 …. 3.176 Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Co Australia Pty Ltd [2011] NSWSC 75 …. 3.6, 3.315, 3.317 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 …. 3.207 Trimis v Mina [1999] NSWCA 140 …. 3.297, 3.347 Trollope and Colls Limited v Atomic Power Construction Ltd [1963] 1 WLR 333 …. 3.79 Turner Corporation Ltd in liq v Co-Ordinated Industries Pty Ltd (1994) 11 BCL 202 …. 7.98 Turriff Construction Limited v Regalia Knitting Mills Limited (1971) 9 BLR 20 …. 3.74, 3.84 Tuta Products Pty Ltd v Hutcherson Bros Pty Ltd (1972) 127 CLR 253 …. 5.269, 5.272 Tweddle v Atkinson (1861) 121 ER 762 …. 3.116, 3.206, 3.207

U Ultramares Corporation v Touche [1931] 174 NE 441 …. 4.24 United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177 …. 3.77 Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251 …. 3.347 Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; [1968] HCA 8 …. 5.85

V Vacwell Engineering Co Ltd v BDH Chemicals Ltd [1971] 1 QB 88 …. 4.46 Van den Esschert v Chappell (1960) WAR 114 …. 3.144, 3.148 Victoria Laundry Ltd v Newman Industries Ltd [1949] 2 KB 528 …. 3.334 Victoria University of Manchester v Hugh Wilson (1984) 2 Con LR 43 …. 3.165

W W Higgins Ltd v Northampton Corporation [1927] 1 Ch 128 …. 3.235 Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 …. 7.41, 7.90 Walter v Selfe (1851) 4 De G & Sm 315 …. 4.94 Walton v Illawarra [2011] NSWSC 1188 …. 3.331 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; 76 ALR 513 …. 3.131, 3.133, 3.134, 3.136, 5.245 Warlow v Harrison (1859) 120 ER 925 …. 3.14, 3.16, 3.48 WB Jones Staircase & Handrail Pty Ltd v Richardson [2014] NSWCA 127 …. 4.108, 4.109 Wegan Constructions v Wodonga Sewerage Authority [1978] VR 67 …. 5.221 Weldon Plant Ltd v Commission for New Towns [2000] EWHC Technology 76 …. 3.235 Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253 …. 3.312, 3.313, 3.319, 7.74 Westripp v Baldock [1938] 2 All ER 779 …. 4.65 Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61 …. 3.315, 3.318 White Industries Pty Ltd v Piling Contractors Pty Ltd (1986) 2 BCL 353 …. 5.306 Whitlock v Brew (1968) 118 CLR 445 …. 3.63 Wik Peoples v Queensland (1996) 187 CLR 1 …. 1.26 William Tomkinson & Sons Ltd v Parochial Church of Council of St Michael (1990) 6 ConstLJ 319 …. 7.81 Williams v Pisano [2015] NSWCA 177 …. 3.245 — v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1; [1990] 2 WLR 1153 …. 1.65, 3.123, 3.124 Wilshee v Westcourt Ltd [2009] WASCA 87 …. 3.315, 3.316 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; 205 ALR 522; [2004] HCA 16 …. 4.32, 4.53, 4.54, 4.55, 4.57, 5.296 Woollerton & Wilson Ltd v Richard Costain Ltd [1970] 1 WLR 411 …. 4.63, 4.67, 4.77

Wringe v Cohen [1940] 1 KB 229 …. 4.96

Y Young v Queensland Trustees Ltd (1956) 99 CLR 560 …. 3.337

Table of Statutes References are to paragraph numbers

Commonwealth Australia Act 1986 …. 3.161 Australian Capital Territory (Self-Government) Act 1988 …. 1.96 Australian Consumer Law …. 1.53, 1.88, 3.168, 3.169, 3.170, 3.172, 3.173, 3.239, 3.247, 3.248, 5.56, 5.84, 5.267 s 18 …. 3.142, 3.239, 3.240, 3.241, 3.242, 3.243, 3.245, 3.246, 5.43, 5.170, 5.264 s 20 …. 3.250 s 21 …. 3.251 s 29 …. 3.246 s 29(1) …. 3.246 s 30 …. 3.246 s 30(1)(c) …. 3.246 s 30(1)(d) …. 3.246 s 30(1)(e) …. 3.246 s 218 …. 3.248 s 219 …. 3.248 s 224 …. 3.247 s 232 …. 3.247 s 236 …. 3.247 s 239 …. 3.247 s 247 …. 3.247 Australian Securities and Investments Commission Act 2001 ss 12GP–12GW …. 1.88

Bankruptcy Act 1966 …. 2.24 s 64ZBA(3) …. 2.24 s 73 …. 2.24 Building and Construction Industry Improvement Act 2005 …. 2.162, 2.165 Commonwealth of Australia Constitution Act 1900 …. 1.13, 1.16, 1.27, 1.28, 1.32, 1.34, 1.35, 1.37, 1.94, 1.95 s 51 …. 1.29, 1.30, 1.49 s 109 …. 1.31 Competition and Consumer Act 2010 …. 2.169, 5.84, 5.88, 5.89, 5.130 Pt VIA …. 1.88, 5.50 s 84(4) …. 3.245 Sch 2 …. 3.168, 3.239 Copyright Act 1968 …. 5.158, 5.171 Corporations Act 2001 …. 2.4, 2.5, 2.7 Pt 1.5 s 10.1 …. 2.7 Pt 7.10 …. 1.88 Div 2A …. 1.88 s 436A …. 2.22 s 451D …. 2.122 s 459E …. 2.19 s 556 …. 2.21 s 561 …. 2.21 Designs Act 2003 …. 5.171 Fair Work Act 2009 …. 2.141, 2.142, 2.143, 2.144, 2.145, 2.147, 2.149, 2.150, 2.151, 2.155, 2.159, 2.160, 2.169 s 19(2)(c) …. 2.154

Fair Work (Building Industry) Act 2012 …. 2.141, 2.162, 2.163, 2.169 s 5 …. 2.162, 2.166 s 27(1) …. 2.166 Native Title Amendment Act 1998 …. 1.26 Native Titles Act 1993 …. 1.26 Patents Act 1990 …. 5.171 Personal Properties Securities Act 2009 …. 2.16, 6.30 Trade Marks Act 1995 …. 5.171 Trade Practices Act 1974 …. 5.50 s 45 …. 5.51, 5.52 s 45(2) …. 5.50 s 45A …. 5.51, 5.53 s 52 …. 3.240, 5.43, 5.264 Work Health and Safety Act 2011 …. 2.176, 2.177 s 5 …. 2.180 s 22 …. 2.183 Work Health and Safety Regulations 2011 …. 2.176, 2.177 Ch 6 …. 2.179 Pt 3.2 …. 2.184 r 46(2) …. 2.184 r 291 …. 2.184 r 292 …. 2.179 r 293 …. 2.180 r 293(2) …. 2.181 r 293(3) …. 2.181

r 293(4) …. 2.181 r 294 …. 2.183 r 295 …. 2.183 r 296 …. 2.182 r 298 …. 2.184 rr 299–303 …. 2.184 r 308 …. 2.184 r 309 …. 2.184 r 309(2) …. 2.184 r 310 …. 2.184 r 311 …. 2.184 r 315 …. 2.184 rr 316–318 …. 2.185

Australian Capital Territory Building Act 2004 …. 2.33, 2.52 s 87 …. 2.52 s 88 …. 2.52 ss 90–95 …. 2.52 Building and Construction Industry Security of Payment Act 2009 …. 2.54, 5.58, 5.229, 5.263, 5.280 s 23(3)(a) …. 2.88 Building (General) Regulation 2008 Pt 4 …. 2.52 r 37 …. 2.52 r 38 …. 2.52 r 39 …. 2.52

Civil Law (Wrongs Act) 2002 Ch 7A …. 1.88 Construction Occupations (Licensing) Act 2004 …. 2.42 Environmental Protection Act 1997 …. 4.98 Planning and Development Act 2007 …. 2.31 Work Health and Safety Act 2011 …. 2.176, 2.177 s 5 …. 2.180 s 22 …. 2.183 Work Health and Safety Regulations 2011 …. 2.176, 2.177 Ch 6 …. 2.179 Pt 3.2 …. 2.184 r 46(2) …. 2.184 r 291 …. 2.184 r 292 …. 2.179 r 293 …. 2.180 r 293(2) …. 2.181 r 293(3) …. 2.181 r 293(4) …. 2.181 r 294 …. 2.183 r 295 …. 2.183 r 296 …. 2.182 r 298 …. 2.184 rr 299–303 …. 2.184 r 308 …. 2.184 r 309 …. 2.184 r 309(2) …. 2.184

r 310 …. 2.184 r 311 …. 2.184 r 315 …. 2.184 rr 316–318 …. 2.185

New South Wales Access to Neighbouring Land Act 2000 …. 4.70 s 11(2)(a) …. 4.70 s 15 …. 4.70 s 16 …. 4.71 s 26 …. 4.71 Builders Licensing Act 1971 …. 1.74, 3.346 Building and Construction Industry Security of Payment Act 1999 …. 2.15, 2.54, 2.130, 5.58, 5.229, 5.263, 5.280, 7.33, 7.108 s 3(3) …. 2.60 s 8 …. 7.11 s 10(1)(b) …. 2.76 s 21(3)(a) …. 2.88 s 22(2) …. 2.92 s 32 …. 7.14, 7.15 Civil Liability Act 2002 Pt 4 …. 1.88 s 5D(1)(a) …. 4.37 s 5S …. 4.58 Commercial Arbitration Act 2010 …. 7.119, 7.121 s 7 …. 7.120, 7.123 s 34(2) …. 7.122

s 34(2)(a) …. 7.123 s 34(2)(b) …. 7.123 s 34(3) …. 7.122 s 34A …. 7.122, 7.124, 7.125 Constitution Act 1902 …. 1.35 Contractors Debts Act 1997 …. 2.116, 2.127, 2.128 s 7(1) …. 2.130 s 7(5) …. 2.130 Contracts Review Act 1980 s 4 …. 5.87 Conveyancing Act 1919 s 54A(1) …. 3.145 Crown Lands Consolidation Act 1913 …. 3.67 Electronic Transactions Act 2000 …. 3.57 Encroachment of Buildings Act 1922 …. 4.85 s 2 …. 4.81 s 3(3) …. 4.87 Environmental Planning and Assessment Act 1979 …. 2.31, 2.33 s 109ZK(1)(a) …. 3.103 Evidence Act 1995 s 79 …. 7.157 Frustrated Contracts Act 1978 …. 5.236, 7.39 s 13 …. 3.281 Home Building Act 1989 …. 1.20, 2.42, 2.52, 7.12, 7.128 Pt 3A …. 7.127

Pt 6 …. 7.129 s 1 …. 2.52 s 7 …. 2.52 s 7AAA …. 2.52 s 7BA …. 2.52 s 7C …. 7.126 s 7E …. 2.52 s 8 …. 2.52 s 18B …. 2.52, 7.55 s 18B(c) …. 7.64 s 18C …. 2.50 s 18D …. 2.50 s 18F …. 7.60 s 48K …. 1.99 Sch 1 cl 2 …. 2.50 Sch 2 …. 2.52 Home Building Regulation 2004 Pt 6 …. 2.52 r 5 …. 2.52 r 7 …. 2.52 Limitation Act 1969 …. 5.102 Protection of the Environment Operations Act 1997 …. 4.98 Uniform Civil Procedure Rules 2005 s 13.1 …. 1.77, 1.79 s 13.2 …. 1.80 Sch 7 …. 7.159

Work Health and Safety Act 2011 …. 2.176, 2.177 s 5 …. 2.180 s 22 …. 2.183 Work Health and Safety Regulations 2011 …. 2.176, 2.177 Ch 6 …. 2.179 Pt 3.2 …. 2.184 r 46(2) …. 2.184 r 291 …. 2.184 r 292 …. 2.179 r 293 …. 2.180 r 293(2) …. 2.181 r 293(3) …. 2.181 r 293(4) …. 2.181 r 294 …. 2.183 r 295 …. 2.183 r 296 …. 2.182 r 298 …. 2.184 rr 299–303 …. 2.184 r 308 …. 2.184 r 309 …. 2.184 r 309(2) …. 2.184 r 310 …. 2.184 r 311 …. 2.184 r 315 …. 2.184 rr 316–318 …. 2.185

Northern Territory

Building Act …. 2.33, 2.42 Div 3 …. 2.52 s 48B(3)(a) …. 2.52 s 54B …. 2.52 Building Regulations r 41A …. 2.52 r 41HE(1) …. 2.52 r 41HE(2) …. 2.52 r 41J …. 2.52 Construction Contracts (Security of Payments) Act …. 2.54, 2.138, 5.58, 5.229, 5.263, 5.280 s 8(a) …. 2.104 s 33(1)(a)(iv) …. 2.112 s 34(2) …. 2.109 s 34(1)(b) …. 2.111 s 66 …. 2.138 Encroachment of Buildings Act 1982 …. 4.85 Environment Assessment Act 1982 …. 4.98 Planning Act …. 2.31 Proportionate Liability Act …. 1.88 Sales of Goods Act s 32(5) …. 3.272 Supreme Court Act …. 1.96 Work Health and Safety (National Uniform Legislation) Act 2011 …. 2.176, 2.177 Work Health and Safety (National Uniform Legislation) Regulations …. 2.176,

2.177 Ch 6 …. 2.179 Workmen’s Liens Act …. 2.138

Queensland Building Act 1975 …. 2.33 Building and Construction Industry Payments Act 2004 …. 1.47, 2.54, 2.126, 5.58, 5.229, 5.263, 5.280 s 19(5) …. 2.84 s 24B …. 2.88 s 25(3)(a) …. 2.88 Civil Liability Act 2003 Pt 2 …. 1.88 s 9 …. 4.34 s 22(1) …. 4.35 s 22(3) …. 4.35 s 22(4) …. 4.35 Civil Proceedings Act 2011 …. 1.75 Environmental Protection Act 1994 …. 4.98 Limitation of Actions Act 1974 …. 3.102, 5.102 s 11 …. 3.2, 4.3 Property Law Act 1974 Pt 11 Div 1 …. 4.85 s 180 …. 4.70, 4.80 s 180(3) …. 4.80 s 180(3)(c)(i) …. 4.70

s 180(4)(a) …. 4.71, 4.80 s 180(4)(b) …. 4.71 Queensland Building and Construction Commission Act 1991 …. 2.42 Pt 5 …. 2.52 s 4 …. 2.52 s 13 …. 2.52 s 14 …. 2.52 ss 20–26 …. 2.52 s 33 …. 2.52 s 34 …. 2.52 s 35 …. 2.52 s 39 …. 2.52 s 40 …. 2.52 s 41 …. 2.52 s 77 …. 1.99 s 78 …. 1.99 Sch 1B …. 2.52 Queensland Building and Construction Commission Regulation 2003 …. 2.52 Pt 5 …. 2.52 s 11(1)(c) …. 2.52 s 13 …. 2.52 s 27AC …. 2.52 Sales of Goods Act 1896 s 31(4) …. 3.272 Subcontractors’ Charges Act 1974 …. 2.116, 2.118, 2.125, 2.126, 2.127 s 3 …. 2.120

s 3AA …. 2.120 s 10A(1) …. 2.120 s 15 …. 2.122 s 15(1)(a) …. 2.122 Sustainable Planning Act 2009 …. 2.31 Uniform Civil Procedure Rules 1999 …. 1.75 Work Health and Safety Act 2011 …. 2.176, 2.177 s 5 …. 2.180 s 22 …. 2.183 s 274 …. 1.60, 2.189 Work Health and Safety Regulations 2011 …. 2.176, 2.177 Ch 6 …. 2.179 Pt 3.2 …. 2.184 r 46(2) …. 2.184 r 291 …. 2.184 r 292 …. 2.179 r 293 …. 2.180 r 293(2) …. 2.181 r 293(3) …. 2.181 r 293(4) …. 2.181 r 294 …. 2.183 r 295 …. 2.183 r 296 …. 2.182 r 298 …. 2.184 rr 299–303 …. 2.184 r 308 …. 2.184

r 309 …. 2.184 r 309(2) …. 2.184 r 310 …. 2.184 r 311 …. 2.184 r 315 …. 2.184 rr 316–318 …. 2.185

South Australia Acts Interpretation Act 1915 …. 1.24 Building and Construction Industry Security of Payment Act 2009 …. 2.54 s 11(1)(b) …. 2.78 s 17(3)(c) …. 2.81 s 36 …. 1.46 Building Work Contractors Act 1995 …. 2.42 s 3 …. 2.52 s 28 …. 2.52 s 28(1)(a) …. 3.145 s 29 …. 2.52 s 30 …. 2.52 s 32 …. 2.52 s 32(4) …. 2.50 s 32(3) …. 2.50 ss 33–35 …. 2.52 s 36 …. 2.52 Building Work Contractors Regulations 2011 r 4 …. 2.52

r 4(4)(b) …. 2.52 r 17(d) …. 2.52 Sch 2 Pt 3 …. 2.42 Civil Liability Act 1936 s 31(1) …. 4.34 Development Act 1993 …. 1.36, 2.31, 2.33 s 73(1) …. 3.103 Encroachments Act 1944 …. 4.85 s 4(2) …. 4.86 Environment Protection Act 1993 …. 4.98 s 25 …. 4.98 Frustrated Contracts Act 1988 …. 5.236 s 7 …. 3.281 Law of Property Act 1936 s 26(1) …. 3.145 Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 Pt 3 …. 1.88 Limitation of Actions Act 1936 …. 5.102 Magistrates Court (Civil Rules) 2013 …. 1.83 Sale of Goods Act 1895 s 6 …. 3.227 s 54 …. 3.172 Work Health and Safety Act 2012 …. 2.176, 2.177 Work Health and Safety Regulations 2012 …. 2.176, 2.177

Ch 6 …. 2.179 Worker’s Liens Act 1893 …. 2.116, 2.133, 2.134, 2.138 s 7 …. 2.134 s 10(2) …. 2.134 s 10(3) …. 2.135

Tasmania Building Act 2000 …. 2.33, 2.42 s 20(b) …. 2.52 s 20(c) …. 2.52 Building and Construction Industry Security of Payment Act 2009 …. 2.54, 5.58, 5.229, 5.263, 5.280 s 24(1)(a) …. 2.88 Civil Liability Act 2002 Pt 9A …. 1.88 Environmental Management and Pollution Control Act 1994 …. 4.98 Housing Indemnity Act 1992 …. 2.52 s 3 …. 2.52 s 5(1)(a) …. 2.52 s 7 …. 2.52 Housing Indemnity Regulations 2014 …. 2.52 r 4 …. 2.52 Land Use Planning and Approvals Act 1993 …. 2.31 Work Health and Safety Act 2012 …. 2.176, 2.177 Work Health and Safety Regulations 2012 …. 2.176, 2.177 Ch 6 …. 2.179

Wrongs Act 1954 s 4 …. 4.58

Victoria Building Act 1993 …. 2.33, 2.42, 2.52 Pt 2 …. 2.52 Pt 3 …. 2.52 ss 8–28 …. 2.52 s 11 …. 2.52 s 15 …. 2.52 s 16 …. 2.52 ss 29–43 …. 2.52 s 31 …. 2.52 s 34 …. 2.52 s 35 …. 2.52 s 37 …. 2.52 s 40 …. 2.52 s 128 …. 2.41 s 134 …. 3.103 s 238 …. 2.40 Building and Construction Industry Security of Payment Act 2002 …. 2.54, 5.58, 5.229, 5.263, 5.280 s 10A …. 2.77 s 21(2B) …. 2.87 s 22(4)(a) …. 2.88 Domestic Building Contracts Act 1995 …. 2.52, 5.276, 5.279 s 3 …. 2.52, 5.271

s 5 …. 2.52 s 6 …. 2.52 s 8 …. 2.52 s 30 …. 5.260 s 30(3)(b) …. 5.260 s 30(5) …. 5.260 s 31(1)(a) …. 3.145 s 53 …. 1.99 Domestic Building Contracts and Tribunal Act 1995 Div 4 …. 5.279 ss 20–23 …. 5.279 Electronic Transactions (Victoria) Act 2000 …. 3.57 Environment Protection Act 1970 …. 4.98 Limitation of Actions Act 1958 …. 5.102 s 5(1)(a) …. 4.3 s 26 …. 4.58 Occupational Health and Safety Act 2004 …. 2.177 Occupational Health and Safety Regulations 2007 …. 2.177 r 5.1.14 …. 2.186 Planning and Environment Act 1987 …. 2.31 Wrongs Act 1958 Pt IVAA …. 1.88 s 43 …. 4.34

Western Australia Building Act 2011 …. 2.33

s 4 …. 2.52 Building Services (Registration) Act 2011 …. 2.42 Civil Judgments Enforcement Regulations 2005 r 4(1) …. 1.81 Civil Liability Act 2002 Pt 1F …. 1.88 s 5C(1)(b) …. 4.42 Construction Contracts Act 2004 …. 1.57, 2.54, 5.58, 5.229, 5.263, 5.280, 5.324 Div 7 …. 5.324 s 6(a) …. 2.104 s 9 …. 5.315 s 31(2)(a)(iv) …. 2.112 s 32(2) …. 2.109 s 32(1)(b) …. 2.111 Sch 1 …. 5.246 Environment Protection Act 1986 …. 4.98 Home Building Contracts Act 1991 …. 2.52, 5.57, 5.103, 5.180, 5.278 Pt 3A …. 2.52 s 3 …. 2.52 s 4(1)(a) …. 5.57 s 7 …. 2.52 s 10 …. 2.52, 2.101 s 11 …. 2.52 s 13 …. 2.52 Industrial Relations Act 1979 …. 2.142 Interpretation Act 1918 …. 1.24

Limitation Act 2005 …. 5.102 Occupational Safety and Health Act 1984 …. 2.177 Occupational Safety and Health Regulations 1996 …. 2.177 Occupiers’ Liability Act 1985 s 5(1) …. 4.20 Planning and Development Act 2005 …. 2.31 s 10(1)(a)(i) …. 2.52 Property Law Act 1969 s 122 …. 4.85 s 122(2) …. 4.88

United Kingdom Australian Courts Act 1828 …. 1.24 Commonwealth of Australia Constitution Act 1900 …. 1.25, 1.27 Housing Grants, Construction and Regeneration Act 1996 …. 2.59 Judicature Acts 1873-1875 …. 1.72 Statute of Westminster Adoption Act 1942 …. 1.25

Contents Preface Table of Cases Table of Statutes

Chapter 1

Introduction to Australian Law What is law and why does society need it? The difference between ethics and law The construction industry and the law The classifications of law The difference in objective and terminology between criminal and civil law A brief history of landmark events in Australian law The legal framework established under the Australian Constitution The sources of Australian law Court procedure Australian courts and tribunals

Chapter 2

The Nature of the Construction Industry and its Regulatory Framework Introduction Construction business sizes Business structures and the construction industry Subcontracting in the construction industry Insolvency in the construction industry Key legislation affecting the construction industry Planning

Building control Builder licensing Home/Residential building Building and construction industry security of payment The East Coast model security of payment legislation The West Coast model security of payment legislation Industrial relations Work health & safety (WHS)

Chapter 3

Contract Law What is a contract? Limitation of action periods The elements of a contract Offer Acceptance Consideration The contents of the contract Privity of contract Vitiation of contracts Discharge of contract Recovery of debts Quantum meruit

Chapter 4

Law of Tort Introduction to the law of tort Negligence The tort of negligence Tort of trespass to land

Nuisance Vicarious liability

Chapter 5

Establishing a Contract Tenders Precedence of documents Terms and working, standard forms, documentation The form of a construction contract Provisional sums Subcontracts

Chapter 6

Contract Administration Introduction Superintendence Precommencement matters Progress claims Extensions of time and related claims Variations Contract completion Relevance of waiver and estoppel

Chapter 7

Claims and Disputes Introduction Claims Claims for the balance of the contract sum Claims for interim payment on account Claims for payment of variations Claims for payment relating to extensions of time for delay

Claims consequent upon termination Frustration and abandonment Claims for damages Claims for damages for failure to make payment Claims for damages for wrongful termination Claims for damages for defective works Claims for damages for delay Set-off and abatement What is a dispute? Contractual dispute resolution clauses Tribunals Courts Offers of compromise and Calderbank letters Scott Schedules The role of expert evidence Index

[page 1]

CHAPTER 1

Introduction to Australian Law

Key Ideas This chapter discusses: law, society and ethics the construction industry and the law the Australian legal framework and its history legislation, codes of practice and case law courts and their procedures

[page 2]

What is law and why does society need it? [1.1]

Simply defined, law is a set of rules by which a society regulates the behaviour and affairs of its individual persons. The law recognises two types of persons in society: natural and artificial persons. A natural person is a ‘flesh and blood’ human being, for example, Mr Smith or Ms Jones, whereas an artificial person is a non-human legal entity to whom legal rights and obligations are attached, such as a company (eg, Brookfield Multiplex Ltd) or a public body (eg, Adelaide City Council).

[1.2]

The easiest way to understand why we need law is to imagine a society without law. Without regulations on people’s behaviour, society would undoubtedly be a daunting and unpleasant place to live. Amongst other things, people would be able to assault and steal from others with impunity; and businesses would be able to exploit both their employees and the public, and be able to operate without any regard for the natural environment. Furthermore, commerce would be rendered virtually impossible as there would be no consequences for not performing services, or not paying monies, as previously agreed. Therefore, any civilised society that aspires to ensuring the social, environmental and economic wellbeing of its citizens needs to have in place a legal framework, and the government of that society must protect and promote the ‘rule of law’.

[1.3]

The essence of the rule of law may be summed up in two points: (i)

that all people, regardless of status or position, should be ruled by the law and obey it; and

(ii) that the law should be such that people will be able (and,

ideally, willing) to be guided by it.1 [1.4]

In the Australian federal and state governments, it is the Attorney-General’s Department that is charged with making sure that the rule of law is upheld in society by ensuring that: laws are clear, predictable and accessible; laws are publicly made and the community is able to participate in the law-making process; laws are publicly adjudicated in courts that are independent from the executive arm of government; and dispute settlement is fair and efficient where parties cannot resolve disputes themselves.2 [page 3]

The difference between ethics and law [1.5]

Ethics examines the moral standards of society, assesses their reasonableness or not, and evaluates the impact of these standards upon the lives of individuals.3 One way of evaluating whether particular acts are ethical or not is to consider whether they promote the notion of the ‘common good’.4 Accordingly, it may be said that individual behaviour which has a negative impact on society may be considered against the common good and, therefore, wrong and unethical.

[1.6]

Law and ethics are distinct from each other, although they are closely interrelated. Not all unethical behaviour is regulated by law. For example, in Australia the practice of bid shopping — where a principal attempts to use the lowest price submitted by a tenderer in a competitive tendering process as a bargaining chip with the tenderers in order to drive down prices even further by negotiation — is widely viewed by many in the construction industry to be unethical, but it is as yet unregulated by law.

[1.7]

If the consequences of a particular unethical conduct are sufficiently negative to society, then there will often be pressure from within society for the introduction of law to regulate that conduct, which may result in parliament enacting relevant legislation.

[1.8]

Law and ethics may also be said to be interrelated in that, where law does exist to regulate undesirable behaviour, compliance with the law per se constitutes ethical behaviour.

[1.9]

The ethics of construction professionals — such as construction managers, building estimators, architects, engineers, quantity surveyors and building surveyors — when carrying out their work is vital to the functioning of a healthy construction industry which acts in the best interests of society. Such an industry produces buildings which, amongst other things: are constructed as safely as possible; contribute to social, environmental and economic sustainability; give value for money to clients; and fairly reward all parties financially who are involved in design and construction.

[1.10]

The concept of ethics in a professional context (professional ethics) is tied to the notion that professionals should exercise both competence (ie, conduct themselves in accordance with professional norms) and responsibility5 in order to act in the best interests of society and serve the common good. As such, professional bodies in the construction industry — such as the Australian Institute of Building, the Australian Institute of Quantity Surveyors, the Royal Institution of Chartered Surveyors and the Royal Australian Institute of Architects — have developed their own codes of ethics [page 4]

and conduct by which their members are expected to conduct themselves. Whilst professional bodies usually require, through their own organisational by-laws, that members must follow their codes of conduct, such codes are not generally enforceable under the law of Australia.

The construction industry and the law [1.11]

Law is essential to facilitating the efficient, fair and safe operation of the construction industry. Every facet of a construction project is affected by law. Amongst other things, construction projects: require legal planning and building approvals; typically involve dozens of legal contractual relationships between clients and consultants, clients and head contractors, and contractors and subcontractors; must comply with legal regulations relating to technical building codes, work health and safety, industrial relations and payment for construction work; give rise to legal responsibilities for clients, designers, contractors, suppliers and local authorities towards third parties, such as persons who visit or work in buildings, own property adjoining construction sites or purchase constructed property from a building developer; and often generate several disputes, invariably concerning time and cost of construction, that need to be resolved in court or by some form of alternative dispute resolution.

[1.12]

The body of legal knowledge surrounding the building and construction industry is vast and is continually changing as new laws are made and/or existing laws are amended. As such, it is essential for all construction professionals to have at least a basic grounding, and be able to monitor and understand developments, in the law as it affects the construction industry.

[1.13]

As a prerequisite to studying the law affecting the construction industry, it is necessary to understand: the different types or classifications of law; a brief history of Australian law; the legal framework set up by the Australian Constitution within which the law is established, administered and interpreted; the sources of Australian law; and the Australian judicial system.

The classifications of law [1.14]

The law may be classified into two major branches: public law and private law. Public law concerns the rules made by government which affect society at large, whereas private law concerns the duties and rights of an individual in their dealings and [page 5] interactions with other individuals or groups of individuals (such as people and businesses) in society. For this reason, private law is sometimes referred to as civil law.

[1.15]

Both public and private law have many sub-branches (see Figure 1.1). Sub-branches of public law include, amongst others, constitutional law, administrative law, taxation law and criminal law. Sub-branches of private law include, amongst others, contract law, law of tort, property law and family law. Figure 1.1: Classifications of law

[1.16]

Constitutional law concerns the judicial (court) interpretation of the principles set out in the Australian Constitution6 and, in practice, often involves the courts determining the validity of state and Commonwealth legislation. Administrative law is the body of law which regulates decision-making by government departments, bodies or agencies (eg, planning approvals or building consents, visa applications, or Centrelink benefit payments). Criminal law is the body of law which regulates and punishes undesirable behaviour in society which may harm others. As well as obvious crimes such as murder and theft, criminal offences may also include failure to comply with government regulations, such as starting to construct a building without the required planning and building approvals.

[1.17]

Contract law applies to situations where there is a legally enforceable agreement between two individuals. It is concerned with individuals’ rights and obligations arising under such agreements. The law of tort applies to situations where one person’s unreasonable conduct has caused harm to another in society and applies regardless of the existence of a legally enforceable agreement between the two individuals. Property law governs the interests and obligations of individuals in relation to land (real property) and movable property (chattels). Family law concerns the governance of relationships and conduct between family members (eg, marriage and divorce).

[page 6]

The difference in objective and terminology between criminal and civil law [1.18]

The objective of criminal law is to punish those persons guilty of committing crimes, whereas the objective of civil law is to fairly and adequately compensate the injured party for any loss or damage caused due to wrongful conduct of another.7 The rationale underpinning this difference may be explained by considering that, although crimes and civil wrongs are often committed against an individual, a crime has consequences beyond the individual, reaching to the whole society. If a murderer or thief is at large, we are all affected, whereas paint peeling off a newly painted house due to poor workmanship is a matter which only affects the house owner.

[1.19]

There are many circumstances where criminal and civil law overlap. For example, a car driver under the influence of alcohol who recklessly injures a cyclist may be punished for a crime under road traffic legislation, as well as being sued by the cyclist for compensation in the tort of negligence.

[1.20]

Under criminal law, punishment may be by pecuniary (monetary) fine, community service or imprisonment. Many commonly committed crimes are set down in criminal and summary offences law to be found in Australian Commonwealth, state and territory legislation. Crimes (or offences) may also be set out in other legislation. For example, under the Home Building Act 1989 (NSW), an individual who repeatedly contracts to carry out any residential building work without a contractor licence is liable to a penalty not exceeding $55,000 or imprisonment for a term not exceeding 12 months, or both. Under civil law, compensation is almost invariably given in the form of monetary damages, although it is possible for the court to grant court orders such as injunctions (ordering

a person to stop engaging in a particular behaviour) or orders for strict performance (ordering a party to carry out a particular action, usually contractual in nature).8 [1.21]

The most minor criminal offences (eg, parking and speeding fines) are known as expiable offences and are dealt with by onthe-spot fines (expiation notices) without the need for a court trial. Crimes which are triable in court are divided into ‘summary offences’ and ‘indictable offences’. Summary offences are more minor in nature (eg, offensive behaviour or driving under the influence of alcohol), are tried by a magistrate in a Local or Magistrates Court (the lowest level state court) without a jury, and must be brought to court within a limited amount of time after the offence occurring (eg, six months in New South Wales and two years in South Australia). Minor indictable offences (eg, stalking, property damages or serious criminal trespass) are often also tried in the Local or Magistrates Court without a jury, but more serious indictable offences are heard in either the District Court (eg, malicious wounding or dangerous driving causing death) or Supreme Court (eg, murder or terrorism) by judge and jury. [page 7]

[1.22]

A person accused of a crime is prosecuted in court by the Director of Public Prosecutions on behalf of the state or Commonwealth, whereas civil court actions are initiated by an individual known as the ‘plaintiff’. In criminal trials, the defendant is the person accused of a crime, whereas in civil trials the defendant is the person who the plaintiff alleges caused them harm.

[1.23]

The court’s verdict in a criminal trial will be that the accused defendant is either ‘guilty’ or ‘not guilty’ of the crime. The burden of proof in a criminal trial is that the public prosecutor must prove to the court that the accused defendant committed

the crime ‘beyond all reasonable doubt’. The court’s decision in a civil trial will be that the defendant is either ‘liable’ or ‘not liable’ for the harm or damage caused to the plaintiff. The burden of proof in a civil trial is that the plaintiff needs to prove to the court that their claim against the defendant is correct ‘on the balance of probabilities’.

A brief history of landmark events in Australian law [1.24]

In order to understand the context of the legal framework that exists in Australia today, it is necessary to briefly consider the history of Australian law. As a former collection of British colonies, Australia has a legal system with its roots in the law of England. When the British arrived at Botany Bay in 1788 to establish their first penal colony, they declared Australia as terra nullius — ‘empty land’. In other words, the British did not recognise that the indigenous peoples of Australia had any legal rights of ownership over the land. As such, English law, as it was needed, was automatically assumed to be in force. In 1823, the British Parliament passed legislation which brought into existence a legislative (law-making) body for New South Wales as well as the New South Wales Supreme Court. When the British enacted the Australian Courts Act 1828, the reception of all applicable English law as it stood on 25 July 1828 into New South Wales, Victoria, Queensland and Tasmania was formalised. English law was also subsequently formally received into South Australia9 and Western Australia.10 Eventually, six Australian colonies — now the six Australian states of New South Wales (NSW), Victoria (Vic), Queensland (Qld), Western Australia (WA), South Australia (SA) and Tasmania (Tas) — were formed, all with their own legislatures which were empowered to make laws for the peace, order and good government of their colony. These laws were considered valid as long they did not contradict British laws applying to the colonies.

[1.25]

In order to facilitate trade and freedom of movement and to establish a coordinated approach to external affairs and defence, the six colonies agreed to federate, and the commencement of the Commonwealth of Australia Constitution Act 1900 (UK) on 1 January 1901 established Australia as a nation. The enactment of the Statute of Westminster Adoption Act 1942 by the Australian Parliament ended the power of the [page 8] British Parliament to legislate for Australia, and Australia transitioned from being a self-governing dominion of the United Kingdom to a sovereign nation.

[1.26]

In the landmark decision of Mabo v Queensland (No 2) (1992) 175 CLR 1; 107 ALR 1; [1992] HCA 23, the High Court of Australia overturned the application of the legal doctrine of terra nullius to Australia. This opened the door for native title to be held by Aboriginal and Torres Strait Islander people over land and waters that have not been the subject of a grant of freehold and with respect to which they have maintained a continuing physical or spiritual connection in accordance with their traditional law or custom. The right to native title established in Mabo was subsequently codified (passed in legislation) in the Native Titles Act 1993 (Cth), under which the National Native Title Tribunal was established to administer and make decisions regarding native title claims. In Wik Peoples v Queensland (1996) 187 CLR 1; 141 ALR 129; [1996] HCA 40, the High Court of Australia held that native title rights were not extinguished by, but could coexist with, a pastoral lease given by the Crown over land. This decision was significant in that around 40 per cent of Australia’s land mass is under pastoral lease. The Wik decision was subsequently codified in the Native Title Amendment Act 1998 (Cth), which also provided for native title to coexist with mining leases as

well as placing some restrictions on native title such as on land providing public amenities. As at mid-2012, the registered determinations of native title in Australia stood at approximately 18 per cent of the land mass.11

The legal framework established under the Australian Constitution [1.27]

The power to make and apply law in Australia is set out in the Australian Constitution, which first came into effect on 1 January 1901 under the Commonwealth of Australia Constitution Act.

[1.28]

The Constitution establishes the foundation for Australia’s federal system of governance, the key features of which include: a federal (or Commonwealth) parliament and government, responsible for national decision-making and law-making; a bicameral parliament, including the Queen (represented by the Governor-General), the Senate and the House of Representatives; six state governments; power-sharing arrangements between the federal and state parliaments; and the High Court of Australia, which is the final court of appeal. The High Court interprets the Constitution and decides its meaning, as well as settling disputes between the federal and state governments.12 [page 9]

[1.29]

Section 51 of the Australian Constitution prescribes the matters about which federal parliament may make law. Such matters

include, amongst many others, trade and commerce with other countries, taxation, naval and military defence, currency, bankruptcy and insolvency, copyrights, trading or financial corporations, marriage, immigration and external affairs. Laws made by federal parliament apply throughout the nation. [1.30]

The state parliaments have the power to make laws which are not covered under s 51 of the Australian Constitution. These include powers to make laws concerning, amongst others, health and education. Also, much of the parliament-made law (or legislation), that affects the building and construction industry is made by state parliaments (see [2.28]–[2.29] below for further details). Laws made by a state parliament only apply within that particular state.

[1.31]

In the event of a conflict between state and federal law, s 109 of the Constitution provides that the federal law is to prevail. For example, in Botany Municipal Council v Federal Airports Corporation (1992) 175 CLR 453; 109 ALR 321, the local council argued that the environmental assessment of the construction of a third runway at Sydney Airport should be carried out in accordance with state environmental planning and assessment laws and, as such, required an additional impact statement to be conducted before dredging of the bay floor could commence. However, as the Commonwealth Parliament has constitutional powers over airports, the High Court of Australia held that the Commonwealth environmental protection laws, which did not require an additional impact statement for the dredging, applied and rendered the state laws inoperative. The Federal Airports Corporation was, therefore, allowed to proceed with construction without the additional impact statement. As the court stated: There can be no objection to a commonwealth law on a subject which falls within a head of commonwealth legislative power providing that a person is authorised to undertake an activity despite a State law prohibiting, restricting, qualifying or regulating that activity.13

[1.32]

Territories are land in Australia which does not belong to any

state. Under the Australian Constitution, federal parliament may make laws for the government of any territory. The two largest federal territories — the Northern Territory (NT) and the Australian Capital Territory (ACT) — are situated in mainland Australia, and have been granted a limited right of self-government by the federal government.14 [1.33]

Like federal parliament, all state parliaments (with the exception of Queensland) are bicameral, comprising an upper and a lower house. The parliaments of Queensland, the Northern Territory and the Australian Capital Territory are unicameral, only comprising a lower house. At state level, the lower house is generally referred to as the Legislative Assembly (House of Assembly in South Australia and Tasmania) and the upper house is referred to as the Legislative Council. [page 10]

[1.34]

The Australian Constitution establishes three groups amongst whom the governance of Australia is divided. The first group is parliament (the Senate and House of Representatives) which makes and amends the law. The second group is the executive (the government departments) which puts the law into action. The third group is the judiciary (the High Court) which interprets and makes judgments about the law. The division of the governance roles between these three groups is known as the ‘separation of powers’ (see Figure 1.2). The Constitution deliberately separates the powers of governance in order that each group provides checks and balances on the others, thereby ensuring no one group holds too much power.

Figure 1.2: Separation of powers between the three groups of government

[1.35]

The Australian Constitution came into effect via a federal statute and, as such, set up the legal framework for governance at a national level. In order to set up a legal framework at a state level, each of the six states also has their own constitution,15 which similarly separates the powers of governance between parliament, executive and judiciary but at a state level. The state constitutions set up the state level courts (see [1.96]–[1.97] below) as well as providing for a system of local government by councils. [page 11]

[1.36]

The nature and extent of the functions and powers of local councils are determined by each state parliament and defined in state legislation. For example, under the local government legislation that exists in each state, councils are given the powers to grant approvals for the carrying out of water supply work, the disposal of waste into a public sewer, and the swinging or hoisting of goods across or over a public road. Another example is the state-made legislation that gives the powers to councils to grant development and building approvals for building projects within the local council areas.16

The sources of Australian law [1.37]

The sources of Australian law may be divided into written (or enacted) law and unwritten law. Generally, written law is superior and, therefore, prevails over unwritten law. There are three sources of written law. In order of importance, these are the Constitution, Acts of Parliament (or primary legislation), and delegated (or subordinate) legislation.

[1.38]

Unwritten law refers to law which is not formally written down in coded documents or statutes but instead made by judges when giving decisions in court cases. There are two main sources of unwritten law: common law and equity law.

Primary legislation [1.39]

Law is made by parliament in the form of Acts of Parliament (‘Acts’). Acts are also known as statutes or primary legislation.

How Acts of Parliament are made [1.40]

New legislation is usually initiated by the political party in government17 and typically comes about due to party policy, proposals from government departments or pressure exerted by interest (or lobby) groups in the community. Once the

government has decided to propose a new piece of legislation to parliament, the Minister under whose portfolio the subject matter of the legislation falls instructs his or her department to prepare a bill. Bills are drafted by the Office of Parliamentary Counsel in accordance with instructions issued by the relevant government department. Once drafted, a bill is ready to be introduced into parliament. Most bills are first introduced into the lower house, although it is possible for bills to originate in the upper house.18 This is because it is usual for most government ministers to sit in the lower house. The Minister (or the relevant member of parliament) presents a bill to the house by reading out the full (or long) title of the bill. [page 12] This is known as the first reading of the bill. The Minister then presents the members of the house with a copy of the bill to read and consider, which is also made public. The Minister then reads the bill a second time, this time making a second reading speech in which he or she explains the purpose, principles and effect of the bill. The second reading speech often plays an important role in the subsequent interpretation of an Act of Parliament by lawyers, academics and judges, who will typically refer back to the Minister’s speech to look for parliamentary intent when putting meaning to provisions of the Act. As an example, the Minister’s second reading speech for the Building and Construction Industry Security of Payment Bill 1999 (NSW) may be considered. The provisions of this Act provide schemes to help all contractors in the construction industry, regardless of their size, to receive progress payments in a timely manner. However, it is not until one delves into the second reading speech that one discovers that parliament’s intent when passing this Act was, in

particular, to financially protect smaller trade contractors in the industry. As the Minister stated in his speech: It is all too frequently the case that small subcontractors — such as bricklayers, carpenters, electricians and plumbers — are not paid for their work. Many of them cannot survive financially when that occurs, with severe consequences for themselves and their families.19 [1.41]

Transcripts of debates and speeches made in the houses of parliament are publicly available via the internet on the parliamentary websites. These transcripts are known as ‘Hansard’.

[1.42]

A second reading debate subsequently occurs, where the political party in opposition outlines their policy stance on the bill, and members of the house may argue for or against the bill and propose amendments to the bill. At the conclusion of the debate a vote is taken on the bill and, if passed by a majority vote, the bill progresses.20 Next, the house considers the bill in detail, section by section, until each provision in the bill has been agreed to. This gives members of the house a chance to speak to the detail of the bill and for amendments to be proposed and voted on. Once the detail of the bill has been agreed to, the Minister moves that the bill be read a third time. Any debate at this stage is usually brief. Once the house agrees to the third reading, the long title of the bill is read out to signify the bill has passed the house.

[1.43]

The bill is then transmitted to the upper house, where it goes through a similar process of three readings. Once the bill has passed through the upper house, it will be referred back to the lower house either with or without amendments. If the lower house does not agree to any proposed amendments, the bill can be referred back to the upper house for reconsideration. In the event that the two houses cannot agree, the state Governor (for state legislation) or Governor-General (for federal legislation) has the power under the relevant constitution to dissolve the houses of parliament, in which case full elections will be held.

[page 13] [1.44]

Once both houses have passed the bill in identical form, the bill is presented to the relevant state Governor (for state legislation) or Governor-General (for federal legislation) for royal assent. Once the bill has royal assent it becomes an Act of Parliament and is said to be enacted. If an Act states no specific date for its commencement, it will come into effect 28 days after the date of assent. Alternatively, sometimes an Act may state that it will come into operation on a date to be proclaimed by the state Governor or Governor-General. Such proclamation is subsequently communicated in a government gazette.

How legislation is amended [1.45]

After an Act, or statute, has been in effect for some time, it is almost inevitable that it will need to be updated. According to the Australian Law Reform Commission, this may be due to: community concern about a particular issue in the legislation that needs to be addressed; recent events or legal cases which have highlighted a deficiency with the legislation; or scientific or technological developments that have made it necessary to update the law or create new laws.21

[1.46]

When the government wishes to amend an Act, it will typically commence a legislative review. Sometimes, in recognition that an Act will need updating regularly, a date will be specified within an Act as to when it should be reviewed. For example, s 36 of the Building and Construction Industry Security of Payment Act 2009 (SA) states that the Act is to be reviewed by the Minister as soon as possible after a period of three years from when the Act came into operation.

[1.47]

Once it has been decided that a legislative review is necessary,

the Minister (through his or her government department) will organise for a discussion paper on the Act to be published. The discussion paper gives the background to the Act, researches and discusses how the Act has been operating and highlights any issues that appear to have arisen since the Act came into operation. The discussion paper is made publicly available and stakeholders in the Act are invited to make submissions to the Minister on the issues raised by a specific date. Once the submissions deadline has been reached, the Minister will appoint an appropriate person with specialised knowledge of the relevant Act to author a final report on the discussion paper which reviews and assesses the submissions received in response to the discussion paper and identifies the findings, options for reform and any recommended legislative amendments. For example, the Queensland Minister for Public Housing and Works appointed Andrew Wallace, an experienced barrister and construction adjudicator, to author the 2014 Final Report: Discussion Paper — Payment Dispute Resolution in [page 14] the Queensland Building and Construction Industry, which subsequently resulted in some key amendments being enacted to the Building and Construction Industry Payments Act 2004 (Qld). [1.48]

Sometimes the government will officially request the Australian Law Reform Commission (at a federal level), or the relevant state Law Reform Commission, to undertake a review process of particular areas of the law that might need to be changed. The Law Reform Commission is a statutory body (ie, a body established by Act of Parliament) whose purpose is to assist the government with research into law reform. For example, in 1998 the Law Reform Commission of Western Australia was asked to recommend changes to the law for the

financial protection of subcontractors, suppliers and workers in the building and construction industry.22

The issue of diverse state legislation in Australia [1.49]

Due to Australia being a federation, it has nine legislatures or parliaments: a federal (or Commonwealth) parliament, six state parliaments and two territory parliaments.23 If legislation is passed by the federal government, it applies throughout Australia and is, therefore, uniform throughout the nation. However, as discussed previously, if certain legislation does not fall within the law-making powers of the Commonwealth Parliament under s 51 of the Australian Constitution, it must be made by state or territory parliaments.

[1.50]

This has led to a fairly common state of affairs in Australia where there might exist eight separate state and territory Acts with similar objectives, covering similar areas of law and, sometimes, with similar titles. However, because each of these Acts will have been passed by separate parliaments they will not be identical. Differences, to varying degrees, will exist between the Acts in wording, form and content.

[1.51]

A good example of this is the building and construction industry security of payment legislation that has progressively been enacted by each state and territory. Each of these Acts aims to ensure contractors and suppliers in the construction industry are paid in a fair and timely manner. However, there are many differences in the payment and adjudication schemes each of the Acts sets up,24 and these differences are particularly marked as between the Northern Territory and Western Australian Acts, on the one hand, and the New South Wales, Victorian, Queensland, Tasmanian, Australian Capital Territory and South Australian Acts on the other. Furthermore, in recent times differing amendments have been enacted in the New South Wales and Queensland Acts, which means that the legislation has diversified even more.

[1.52]

Where such legislative diversity exists, productive inefficiency may often result for those businesses that operate interstate. In the case of the building and construction [page 15] industry security of payment legislation (referred to above), for instance, large contractors who construct projects across the nation need to understand several different legislative schemes, which inevitably results in some confusion and extra costs to operate.

[1.53]

Recognising that legal inconsistency across Australia is sometimes undesirable and not in the interests of the nation, the Council of Australian Governments (COAG) often identifies specific areas of the law for harmonisation as part of its national reform agenda. COAG usually meets once or twice per year, and its role is to promote policy reforms that either are of national significance or require a coordinated approach by all Australian governments. COAG’s members comprise the Prime Minister, state and territory premiers and chief ministers, and the president of the Australian Local Government Association. When COAG decides to harmonise law, its members sign an Inter-Government Agreement (IGA) to that effect. The task of harmonising the law is then referred to a ministers’ committee or council (eg, the Standing Council on Law and Justice). Once the details of a unified model Act have been agreed to by the governments, each of the state and territory parliaments enact the model Act. Examples of areas of the law that have been harmonised in this way include work health and safety,25 domestic commercial arbitration26 and the Australian Consumer Law.27

[1.54]

Alternatively, harmonisation of law may be achieved by the states surrendering their constitutional law-making power in a certain area to the Commonwealth, as has happened with

respect to the personal property securities law28 and industrial relations law.29

Subordinate legislation [1.55]

Acts often delegate power to make law in the form of statutory (or legislative) instruments on specific matters to entities other than parliament. Acts which delegate such power are known as ‘empowering Acts’. Such delegated law is referred to as delegated, subordinate or secondary legislation. Delegated legislation may be found in many forms, such as regulations and by-laws.

[1.56]

The delegation of law-making powers for certain specific matters allows: parliamentary time and, therefore, cost to the public purse to be saved; experts in the relevant field (as opposed to members of parliament) to make law that deals with detailed and complex technical matters; and laws to be implemented more rapidly than the parliamentary process allows for (eg, in the case of emergencies). [page 16]

[1.57]

It is common for Acts to have a section stating that the Governor may make Regulations associated with the Act. Regulations are developed by the relevant Minister, made by the Governor and administered by the Minister’s government department. For example, in Western Australia the Construction Contracts Act 2004 states that a person who wants to be a registered adjudicator of payment disputes on construction contracts must have the qualifications and experience prescribed by the Regulations. This empowers the Minister to make law as to the required qualifications and

experience for registered adjudicators in Western Australia. [1.58]

By-laws are made by an entity that has been empowered by an Act of Parliament to make laws for a localised area. For example, the local government Acts that exist in the states and territories empower local councils to make by-laws for certain matters, such as the use of roads and public land, which only apply within their boundaries.

[1.59]

Most statutory instruments that contain subordinate legislation, including regulations and council by-laws, are subject to parliamentary review by a legislative review committee which reports to parliament as to whether a statutory instrument should be disallowed. Public notification of new subordinate legislation which has been made is given in the relevant jurisdiction’s government gazette.

Codes of conduct or practice [1.60]

Codes of conduct, or codes of practice, guide practitioners as to how to conduct themselves or carry out their business in order to achieve required standards. Codes of practice are often published by government or statutory bodies as a practical guide for practitioners to achieve compliance with regulatory standards required by law. Codes of practice published by government or statutory bodies may be given legal recognition if referred to in Acts or Regulations. A good example of this can be seen with respect to the numerous codes of practice published by Safe Work Australia (a statutory body) for construction work (see further [2.189] below) — such as the codes of practice for safely removing asbestos, working in confined spaces and carrying out demolition work — which have been approved in state-based work health and safety legislation.30 Another example of a code which has become law by referral in legislation is the Building Code of Australia (BCA) published by the Australian Building Codes Board (ABCB),31 which provides a uniform set of technical provisions

for the design and construction of building work throughout Australia (see further [2.34]–[2.36] below). [1.61]

Codes of conduct may also be developed by professional industry bodies and associations in order to guide their members so as to meet recommended standards of professional and ethical conduct. For example, the Australian Institute of Building Surveyors has a code of conduct which guides its accredited members on such matters as acting in the public interest, having regard for the interests of others, [page 17] meeting the required duty of care, protecting and using information, and ethical behaviour. Failure of a member to comply with a professional body’s code of conduct will usually amount to a breach of the body’s rules, which may lead to disciplinary action (eg, termination of membership) being taken by the professional body against its member.

Common law [1.62]

The common law is law made by judges in the courts when they hand down their decisions. The common law originated in England about 850 years ago when King Henry II sent out judges to hear cases around England. At the time, the law across England varied widely according to local tradition and customs. Initially, as the king’s judges travelled around England they would make decisions based on the interpretation of these customs. In time, the first semblances of a unified common law began to develop throughout the nation as the king’s judges began to take notice of each other’s decisions in cases similar in fact. Eventually, the common law courts were established, one of which was the Court of Common Pleas which heard disputes between subject and subject of the king.

[1.63]

In the nineteenth century, as detailed court records started to be kept, the courts began to follow a legal rule known as stare decisis (meaning ‘to stand by the decision’), whereby they were bound to follow previous decisions of their fellow judges in cases of similar facts. In more modern times, the civil law courts in England and all other countries (or legal jurisdictions) that inherited the English common law system, such as Australia, still operate according to stare decisis or the doctrine of judicial binding precedent. This means that the common law continually evolves in Australia as the judges in the Australian courts issue their judgments. The doctrine of judicial binding precedent promotes consistency in decision-making as well as taking advantage of ‘accumulated wisdom of the past’ which has been built up through countless hours of judicial deliberation.

[1.64]

It is important, however, to note that a court is only bound by decisions of higher or more superior courts in the same court hierarchy. The decisions of courts at the same level in the court hierarchy are not binding authority, but tend to be followed to promote consistency. Superior appeal courts, such as the High Court of Australia, do not have to follow their own decisions in later cases but, again, tend to do so to promote consistency unless convinced of an error in an earlier decision concerning similar facts.

[1.65]

Decisions from courts in other legal jurisdictions32 (eg, England, New Zealand or Malaysia) are not binding on Australian judges, but they may be persuasive. Therefore it is common for lawyers to refer to decisions from (particularly higher level) courts in other jurisdictions when presenting their arguments to the court in [page 18] an attempt to influence the judge’s decision. If a party is

successful in persuading a judge to rely upon a decision from another jurisdiction, then that decision may effectively become part of Australian common law. This is one reason33 why several English court decisions become relevant to Australian common law.34 An example of this may be seen in the New South Wales Supreme Court’s decision in Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723,35 where the court decided to follow the legal principles set down in the English decision of Williams v Roffey Bros & Nicholls (Contractors) [1991] 1 QB 1, thereby adopting Williams v Roffey into the common law of New South Wales. [1.66]

The same principle of persuasive precedent applies between Australian states which are separate legal jurisdictions. As such, a judge sitting in the South Australian court system may well be persuaded by a previous decision of the Supreme Court of New South Wales in a case involving similar facts. Decisions of the High Court of Australia (the top level Commonwealth court) are, however, binding (rather than merely persuasive) on all other Australian courts, both federal and state.

[1.67]

When handing down his or her judgment, a judge will typically deliver a speech of some considerable length setting out various matters which may include the facts of the case, a consideration of relevant statutory and contractual provisions, a detailed consideration of the merits and applicability of the competing parties’ legal arguments together with the previous court decisions they have relied on, and their decision with legal reasoning for each of the issues in litigation. The majority of the judge’s speech will not be binding on future cases. Only that part of the speech containing the legal reason(s) supporting their decision will be binding. This part of the speech is known in law as the ratio decidendi (often shortened to just ‘ratio’). The other parts of the judge’s speech are said to be made obiter dicta (meaning ‘sayings by the way’), and are not binding on future cases.

[1.68]

Court judgments may be found in law reports, which are

essential to the doctrine of judicial binding precedent because they not only contain the decision with supporting legal reasons, but also the facts of the case. Each of the Australian jurisdictions has its own authorised series of law reports, which are shown in Table 1.1. Authorised reports contain judgments that have been reviewed by the judges or judges’ associates prior to their publication and, therefore, are considered to be an accurate record of the judgment.36 As well as the authorised reports, there are also generalist law reports, such as the Australian Law Reports (ALR), which report on decisions from the High Court of Australia and significant decisions of the Federal and Supreme Courts. In legal writing, citation of a decision from an authorised law report is preferred. [page 19] Table 1.1: Authorised Law Reports in Australia Court

Title of Law Report Series

Abbreviation

High Court of Australia

Commonwealth Law Reports

CLR

Federal Court of Australia

Federal Court Reports

FCR

Supreme Court of the Australian Capital Territory

Australian Capital Territory Law Reports

ACTLR

Supreme Court of New South Wales

New South Wales Law Reports

NSWLR

Supreme Court of the Northern Territory

Northern Territory Law Reports

NTLR

Supreme Court of Queensland

Queensland Reports

QdR

Supreme Court of South Australia

South Australian State Reports

SASR

Supreme Court of Tasmania

Tasmanian Reports

Tas R

Supreme Court of Victoria

Victorian Reports

VR

Supreme Court of Western Australia

Western Australian Reports

WAR

[1.69]

Judicial decisions are referred to by stating the name of the case followed by its citation. The name of the case is expressed in terms of the plaintiff’s name versus the defendant’s name. For example, Papas v Bianca Investments (2002) 82 SASR 581. In this case, Papas is the plaintiff and Bianca Investments the defendant. Where a decision is appealed,37 the name of the case in the appellate court’s decision is expressed by stating the name of the appellant first followed by the name of the respondent. The citation of the decision in Papas v Bianca Investments may be interpreted as follows: (2002) is the year in which the case was decided; the abbreviation SASR denotes the law report in which the case is reported; the number ‘82’ before the abbreviation relates to the volume number in which the case may be found; and the number ‘581’ after the abbreviation refers to the page number within the volume of the law report.

[1.70]

Where the year of the decision is contained within round brackets, this indicates that the law report series is published by volume number independently from the year and therefore knowledge of the year is not essential to locating the volume number. Where the year of the decision is contained within square brackets, knowledge of the year is essential to locating the volume as the volumes are published by year and given a volume number within that year, for example Barton v Armstrong [1973] 2 NSWLR 598.

Equity law [1.71]

Equity law grew up alongside the development of the common law in England. In order to bring an action in the common law courts, it was necessary to get permission from the king in the form of a writ. However, the common law was very strictly and [page 20]

rigidly applied and there were only a limited number of permitted reasons for the issuing of a writ. Thus, if a plaintiff could not show the court their grievance fitted into one of the established writs, they would be left without a remedy. Unhappy parties, who believed they had suffered an injustice under common law, began to petition the king for justice. The king would then decide on whether an equitable remedy should be given, so establishing another source of law known as equity law. As such, the law of equity developed to compensate for injustices in the common law. Subsequently, as the king received more and more petitions, he passed the responsibility for reviewing them to his Lord Chancellor who dealt with them in the High Court of Chancery. [1.72]

Up until 1875, common law and equity law were administered in two separate sets of courts — the common law and the chancery courts. However, in 1875 the English Parliament passed the Judicature Acts which consolidated the courts into one with the jurisdiction to apply both common law and equity law. Accordingly, the contemporary courts in England and Australia have the power to apply both common law and equity. Equity law is applied at the discretion of the court, and in circumstances where there is any conflict between common law and equity law, equity will prevail.

[1.73]

There are certain maxims38 which the courts abide by when deciding whether equity law may be applied, including that equity will not provide relief to a party where the need for relief has been created by the party’s own fault, or where the party doesn’t come into equity with ‘clean hands’. This means that where a party has acted in some way improperly, the court will not employ equity law on their behalf. For example, the court has refused to allow a financier to use equity law to recover money which had specifically been loaned to investors for the purpose of investing in a scheme which allowed the investors to claim illegal tax deductions.39

[1.74]

An example of equity law providing a remedy where common

law fails to do so may be seen in the High Court of Australia’s decision in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 557; [1987] HCA 5, where Mrs Paul engaged Pavey & Matthews, a licensed builder, to undertake some building work under an oral agreement. Upon completion of the work, Mrs Paul refused to pay the full amount of the agreed price. Due to the Builders Licensing Act 1971 (NSW) providing that contracts entered into by licensed builders are only enforceable if in writing and signed by each of the parties, Pavey & Matthews was left without a course of action in common law. However, recognising that Mrs Paul had unfairly benefited from the builder’s work, the court awarded the builder the remedy of restitution based upon the equitable ground of unjust enrichment, which allowed the builder to recover a quantum meruit (a fair and reasonable amount of money)40 for the work done. [page 21]

Court procedure Initiating a court action [1.75]

The powers of the courts, and the procedural rules to be followed, in relation to civil law court actions are set down in legislation, for example the Civil Proceedings Act 2011 (Qld) and the associated Uniform Civil Procedure Rules 1999 (Qld). The basic function of the courts is to administer (ie, interpret and apply) the law in Australia. To initiate a civil court action, a plaintiff must file a statement of claim at the relevant court registry and serve a copy to the other party (the defendant). The statement of claim contains the plaintiff’s pleadings, which set out the cause of action (key facts giving rise to the claim), amount of the claim and the reasons why the plaintiff believes they are entitled to damages. Once the defendant has been

served with the statement of claim, they have a set amount of time (eg, 28 days) to file their defence with the court registry and serve a copy on the plaintiff. Failure to file a defence may entitle the plaintiff to a default judgment in their favour from the court. In their defence, the defendant should respond to the allegations in the statement of claim, presenting reasons as to why the plaintiff is not entitled to damages. Once the plaintiff receives the defence, they may file a reply to the defence. Sometimes, in addition to serving a defence, the defendant may also lodge a counterclaim in which case the plaintiff in the original action may lodge a rejoinder (or defence) to the counterclaim. After the pleadings process is finalised, parties are under a duty according to court rules to disclose to each other the documents in their possession which are relevant to the pleadings. If one party refuses to comply with disclosure, the other party may apply to the court to obtain a notice of discovery ordering disclosure. After disclosure, the plaintiff will usually apply for a trial date in court. If the courts are busy, it may take some time (sometimes several months) before the trial commences.

The procedure at trial [1.76]

Once in litigation, barristers present their client’s case to the court. The tribunal in court is made up of either a sole judge, a panel of judges or a judge and jury. Most civil law cases are heard by a judge (or judges) without a jury, although it is technically possible in some states for a plaintiff to insist on trial by jury. Australia’s judicial system is adversarial, meaning that the parties effectively compete against each other to convince the tribunal that they are right and the other party is wrong. In order to do this each party will usually present evidence and call witnesses to support their arguments. Witnesses may only be used to establish facts unless they are deemed expert witnesses, who have specialised knowledge or experience in a field relevant to the dispute, in which case they may offer an opinion to the court. As construction cases often

involve complex technical details (eg, regarding construction methods or programming of construction activities), it is commonplace for parties to call expert witnesses to testify on their behalf. Witnesses will undergo an examination-in-chief from the barrister calling them to testify, a cross-examination from the opposing [page 22] party’s barrister, and possibly a re-examination from the calling barrister to clarify any matters raised in cross-examination. After both parties have presented all their evidence to the court, the judge will adjourn to consider the evidence and law before delivering their decision at a later date (known as a ‘reserved decision’), as is normal in the state supreme courts and the High Court of Australia. Alternatively, the judge may give their decision immediately after the evidence has been presented (an ex tempore decision) without adjourning. Notably, ex tempore decisions, which are more frequently made by intermediate level courts, are not binding but merely persuasive due to their brevity.

Summary judgment [1.77]

Civil procedure rules allow for a plaintiff to apply to the court for summary judgment of the whole or any part of their claim if the plaintiff can give evidence to show that the defendant has no defence to the claim or part of the claim.41 If summary judgment is permitted, the court may make a determination on the case without the need for a full trial. Thus, the expense and delay associated with a full trial can be avoided.

[1.78]

The Australian courts, however, have traditionally been cautious in their award of summary judgment due to the possible detrimental effects of such a rapid decision. As the Victorian Supreme Court explains:

The power to order summary judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried. If it is not possible to say without doubt on the whole of the material that there is no question to be tried, there should be leave to defend.42 [1.79]

The common law test for attaining summary judgment requires that there be ‘no reasonable cause of action’ in relation to any proposed defence raised by the defendant, requiring the defendant’s case to be ‘manifestly groundless’ or ‘clearly untenable’.43

[1.80]

Accordingly, construction principals have attempted to defeat contractors’ applications for summary judgments in relation to unpaid certified amounts under the contract by raising crossclaims, which they argue form the basis of a triable issue. If a principal can convince the court that it may possibly have a reasonable basis for such a cross-claim, the court may refuse judgment until determination of the cross-claim by either court trial or arbitration.44 Cross-claims may be brought by way of set-offs or counterclaims. Whilst a set-off is similar to a counterclaim, it differs from a counterclaim in that it is a defence to an originating claim, whilst a counterclaim is an entirely independent, [page 23] offensive action brought by a defendant against a plaintiff, although in the same proceedings.45 As the Law Reform Commission of New South Wales explains: Although the economic result of counterclaim will often be the same as the one which would be achieved by set-off, the result of a hearing involving claim and counterclaim is separate judgments for each party against the other, whereas a single judgment only is issued when set-off is pleaded.46

Judgment debts and their recovery [1.81]

If the court has awarded damages to a plaintiff, the plaintiff

(the ‘judgment creditor’) has a judgment debt against the defendant (the ‘judgment debtor’), that is, the court has judged that a debt is owed. The judgment debtor must then pay the judgment debt. Interest is to be paid on the unpaid amount of a judgment debt from the date of judgment until the date on which the judgment debt is paid. The interest rate on judgment debts is usually set in legislation.47 When faced with a judgment debt, a judgment debtor has three lawful options: pay the full debt, apply to the court for permission to pay the debt by instalments, or apply to the court to enter into voluntary bankruptcy (for individual persons) or liquidation (for companies). If a judgment debtor does not pay the judgment debt, the judgment creditor may enforce payment by application to the court in a number of ways including applications for: a writ for the levy of property — the court sheriff seizes and sells the judgment debtor’s property; a garnishee order — the court orders that money be taken from the judgment debtor’s wages or bank account; and the judgment debtor to be declared bankrupt (individual person) or wound up (company).48 [1.82]

A separate court order will be made for the legal costs incurred by the party who has been successful in litigation. The general rule is that ‘costs follow the event’, which means that the losing party must pay the fair and reasonable legal costs incurred by the successful party.

Court actions against multiple parties [1.83]

It is possible for a plaintiff to bring an action against more than one party in the same matter if the damage to the plaintiff has been caused by multiple parties (known as ‘concurrent wrongdoers’). Furthermore, the court may direct that a person who

[page 24] has an interest in proceedings be joined as a party if it is satisfied that it will avoid multiplicity of proceedings and will not cause the existing parties unreasonable expense or delay.49 Where more than one party is responsible for damages caused to another person, this brings about the question of what proportion of the damages each concurrent wrongdoer is liable for. In these circumstances, there are three possibilities as to legal liability: joint liability, proportionate (or several) liability, and joint and several liability. [1.84]

If concurrent wrongdoers are jointly liable, they are seen as having a collective responsibility to perform the whole (100 per cent) of a legal obligation owed to another person. In practice, this means that an injured person may sue any one of the concurrent wrongdoers for 100 per cent of the damages caused by the breach of the obligation. An example of joint liability is when a married couple takes out a debt (eg, credit card or home loan) in their joint names. Either partner is liable for the full debt, and for any default in repayment by the other partner.

[1.85]

If concurrent wrongdoers are proportionately (or severally) liable, they are seen as having an individual responsibility for the performance of a certain proportion of the legal obligation owed to another person. In other words, the responsibility to meet the legal obligation, and pay damages for breach of that obligation, is carved up and divided between the wrongdoing parties. In practice, this means that an injured person may only sue each wrongdoing party for their individual share of the overall liability. Therefore, in a situation where party A is 75 per cent liable and party B is 25 per cent liable for damages suffered by party C, C may only recover 75 per cent of the damages from A and 25 per cent of the damages from B.

[1.86]

If concurrent wrongdoers are jointly and severally liable, they are seen as both having a collective responsibility to perform

the whole (100 per cent) of any legal obligation owed to another person, as well as having an individual responsibility to perform only a certain proportion of the whole obligation. In practice, this means that an injured person may sue any one of the jointly responsible wrongdoing parties for 100 per cent of the damages caused by the breach of the obligation, and the wrongdoing party who is sued may then bring an action to recover the relevant proportions of damages owed by the other jointly responsible wrongdoing parties. Therefore, in a situation where party A is 75 per cent liable and party B is 25 per cent liable for damages suffered by party C, C may recover 100 per cent of the damages from B, and B would then have to pursue a separate action against A in order to recover A’s contribution of 75 per cent. [1.87]

Prior to 2001, the general position in common law was that liability for concurrent wrongdoers in civil law was joint and several in nature. This was beneficial to plaintiffs, who would choose to bring a civil action against the wrongdoing party with the ‘deepest pockets’. However, it was very harsh on a concurrent [page 25] wrongdoer who: may have only been liable for a small fraction of the damages, but ended up paying 100 per cent of the damages awarded to the plaintiff as a consequence of being the concurrent wrongdoer with the ‘deepest pockets’; and subsequently could not recover contributions from the other concurrent wrongdoers for their proportion of the liability due to their impecunious state (eg, the other wrongdoers had become insolvent).

[1.88]

Often, the wrongdoer with the ‘deepest pockets’ would be the

one with insurance cover, such that it would be the insurance company who would end up paying all the damages and then be left out of pocket when other concurrent wrongdoers could not pay. However, in response to the insurance liability crisis in 2001 when public liability insurance premiums dramatically increased, a raft of proportionate liability legislation was enacted in each Australian jurisdiction.50 Whilst this legislation differs from state to state,51 it has the general effect of requiring courts to apportion liability in circumstances where joint and several liability may have previously existed for damages claims relating to economic loss or property damage arising from a failure to take reasonable care.52 This has the effect of transferring the risk that one (or more) of the concurrent wrongdoers may not be able to pay their adjudged proportion of the total damages away from those concurrent wrongdoers who are able to pay53 and to the plaintiff. [1.89]

In some states, however, it is still possible to contract out of proportionate liability. The NSW, Tasmanian and WA legislation expressly allows parties to contract out of proportionate liability. The Queensland legislation expressly prohibits contracting out of proportionate liability. The ACT, NT, SA, Victorian and Commonwealth legislation remains silent as to whether parties may contract out.

[1.90]

Where permitted, contracting out may occur when either the parties to a contract agree that the proportionate liability legislation does not apply, or expressly agree to share liability on a basis other than proportionate liability. For instance, it is common [page 26] for standard forms of construction contracts to provide that if the contractor or principal is two or more persons then they shall be bound jointly and severally.54

[1.91]

Furthermore, commercial contracts regularly contain clauses whereby one party, A, agrees to fully indemnify the other, B, for any damages caused to B even if A was not wholly liable for such damages. On a construction project, for example, this may occur where a project manager who is coordinating several professional consultants on the project (eg, architect, electrical and mechanical engineer, structural engineer etc) contractually agrees to fully indemnify a developer for any losses or damages with respect to the project works. In such a situation, the project manager will have contractually agreed to pay 100 per cent of the damages caused, say, by negligent design work, even though the architect may be 90 per cent responsible for the damages and the project manager only 10 per cent responsible due to its failure to review the design work.55 Whether such a contractual indemnity clause will operate to oust proportionate liability under the legislation will be a matter for judicial consideration in a particular jurisdiction. To avoid any doubt, it would be wise for a party seeking to rely on such an indemnity clause to ensure that the clause expressly states that the proportionate liability legislation does not apply.

The appeals process [1.92]

When a party is unhappy with the decision of a court, it may be possible for them to appeal the decision to a higher ‘appellate’ court. A party who makes an appeal is known as the ‘appellant’ and the party responding to the appeal is known as the ‘respondent’. When making an appeal, the appellant may apply for a stay of execution to prevent enforcement of the original decision until the appellate court’s judgment is made. When an appeal is made, the decision of the court of first instance (or originating court) will be reviewed by the appellate court. For an appeal to succeed, the appellant will need to show that the court of first instance made an error on a point of law (ie, applied the wrong legal principle, or interpreted a relevant legal principle incorrectly) which significantly affected its decision. The appellate court will review the documents and

evidence submitted by the parties in the original case and listen to the arguments of the parties. No new evidence (including witnesses) will be allowed in the appellate hearing unless it can be shown that the evidence was not reasonably available at the time of the original hearing. After review, the appellate court may decide to either confirm (uphold) or overturn the originating court’s decision by making a new, different decision. Before initiating an appeal, an appellant should consider that there is a chance the appellate court may arrive at a decision which the appellant will find even less favourable, especially if the respondent has filed a cross-appeal. Further, the appellant should consider that if the appeal is unsuccessful they will have to pay extra legal costs. [page 27]

Australian courts and tribunals [1.93]

Australia’s courts may be categorised both in terms of geographical and original jurisdiction. Geographical jurisdiction refers to the geographical area over which the court’s authority extends. Under Australia’s federal system, the jurisdiction of courts will either extend to the whole Commonwealth (ie, nationally) or be restricted within state or territory boundaries. Original jurisdiction, which is usually set down in legislation, refers to the types and sizes of legal matters which a particular court may hear in the first instance. All of Australia’s courts have general jurisdiction to hear both civil and criminal matters. The hierarchy of the Australian courts is shown in Figure 1.3. In addition to these courts of general jurisdiction, the judiciary comprises certain specialist courts, tribunals or commissions which have been given the jurisdiction under statute to determine disputes about very specialised matters.

Figure 1.3: The Australian court hierarchy

The Commonwealth courts [1.94]

At the very top of Australia’s court hierarchy sits the High Court of Australia, the superior Commonwealth court, which has unlimited original jurisdiction under the Australian Constitution to hear both public and private legal cases. Decisions of the High Court of Australia are binding on all other courts in Australia, both at Commonwealth and state level. There are seven High Court justices (or judges). The High Court is the final court of appeal in Australia and may hear appeals from its own original jurisdiction, the other Commonwealth courts and the state and territory supreme courts. Although its appellate function occupies most of its time, the High Court may also hear certain types of cases under its original [page 28]

jurisdiction, including cases about constitutional matters, cases concerning disputes between the states or between residents of different states and cases where the Commonwealth is a party. [1.95]

There is no automatic right to have an appeal heard by the High Court; a party wishing to appeal needs to first obtain the leave (permission) of the High Court in a preliminary hearing. Appellate cases are heard by the full court of the High Court. Despite its name, full court does not necessarily mean that all seven justices always sit on a full court hearing. All seven justices only preside over cases of the utmost importance such as those concerning interpretation of the Australian Constitution or principles of law of major public importance. A full court typically comprises benches of three or five justices to hear appeals from the family, federal and state or territory Supreme Courts.

The state and territory court hierarchy [1.96]

Each of the states and territories has its own court hierarchy, comprising three tiers of state courts of general jurisdiction (ie, they may hear both civil and criminal matters), above which sits the High Court of Australia as the final appellate court for state and territory cases (see Figure 1.3). The superior court in each of the states and territories is called the Supreme Court. The Supreme Court in each state derives unlimited jurisdiction in state matters from the respective state constitution. The territory Supreme Courts derive their jurisdiction from the relevant legislation.56 Decisions of the Supreme Court under its original jurisdiction are usually heard by a single judge. Appeals may be heard by the full court of the Supreme Court from decisions by the Supreme Court (in the first instance), as well as the intermediate and lower level state courts. Decisions of the Supreme Court are binding on the inferior courts within the same state or territory, of which there are usually two: an intermediate level court known as a District Court (or County Court in Victoria),57 and a lower level court known as a

Magistrates Court (or Local Court in NSW). [1.97]

As discussed in [1.21] above, cases concerning summary offences and minor indictable crimes are usually heard in the Magistrates (or Local) Court, with more serious indictable crimes being heard in the District (or County) Court or Supreme Court. For civil matters, the Magistrates (or Local) Court may hear disputes up to a certain threshold claim value, typically $100,000, with larger claims being heard in the higher courts. Appeals from decisions of the District (or County) and Magistrates (or Local) Courts may be made directly to the Supreme Court. [page 29]

Specialist courts and tribunals [1.98]

In addition to the courts of general jurisdiction, a number of specialist courts and tribunals (or commissions) have been set up by statute in Australia at both federal and state level to deal with disputes regarding very specific matters. The hearing of cases by tribunals and specialist courts has advantages including the easing of the case load upon the courts of general jurisdiction as well as the reduction in legal costs to the disputing parties due, in main, to tribunals following a more informal procedure and not having to follow strict and rigid courtroom procedures (such as the laws of evidence). In addition, tribunal members and specialist court commissioners typically comprise experts in the relevant specialised field who, although not necessarily legally qualified, are able to understand the disputes at a greater technical level than a judge in a court. Some examples of specialist courts and tribunals are shown in Table 1.2. Table 1.2: Examples of specialist courts and tribunals relevant to the building and construction industry Specialist

Jurisdiction

Function

Court/Tribunal

[1.99]

Australian Competition Tribunal

Cth

Reviews determinations of the Australian Competition and Consumer Commission regarding mergers, acquisitions, anticompetitive behaviour etc

Fair Work Commission

Cth

Hears workplace disputes and regulates taking of industrial action.

Environment, Development and Resources Court

SA

Reviews government decisions about the development and management of land, the natural and built environment and natural resources.

State Administrative Tribunal

WA

Reviews a wide range of decisions made by government agencies, public officials and local authorities.

The Commonwealth and many of the states have administrative tribunals. Administrative tribunals have jurisdiction to review a wide range of government decisions, ranging from tax orders to builders licensing decisions to granting of family tax benefits. In addition, some of the state Administrative Tribunals have jurisdiction to hear and determine certain civil disputes such as tenancy disputes and certain types of building disputes. For example, the Queensland Civil and Administrative Tribunal has the jurisdiction to deal with both domestic and commercial building disputes,58 and the Victorian59 and New South Wales60 Civil and Administrative Tribunals have the jurisdiction to deal with residential building disputes.

__________________________ 1

Adapted from Geoffrey de Q Walker, The Rule of Law: Foundation of Constitutional Democracy, 1st edition, Melbourne University Press, 1988.

2

Australian Government, Attorney-General’s Department website, viewed on 3 February 2015 at: .

3

K London and P Everingham, Ethical Behaviour in the Construction Procurement Process, Cooperative Research Centre for Construction Innovation, Report No 2002-62-A, 2006, at p 5.

4

Ross cited in London and Everingham, note 3 above, at p 5.

5

London and Everingham, note 3 above, at p 6.

6

For further details about the Australian Constitution, see [1.27]–[1.36] below.

7

Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 116; 104 ALR 1; [1991] HCA 54 per Deane J.

8

As discussed further in [3.348]–[3.349] below.

9

On 28 December 1836 by virtue of the Acts Interpretation Act 1915 (SA).

10

On 1 June 1829 by virtue of the Interpretation Act 1918 (WA).

11

National Native Title Tribunal, Annual Report 2011-2012, at p 19, viewed on 12 February 2015 at: .

12

Parliamentary Education Office, The Australian Constitution, viewed on 12 February 2015, at .

13

Botany Municipal Council v Federal Airports Corporation (1992) 175 CLR 453; 109 ALR 321 at [18].

14

In addition, there is one other federal mainland territory (Jervis Bay Territory), and six external island territories which are much smaller in terms of land mass and population size than the NT and ACT. Further, Australia lays claim to part of Antarctica known as the Australian Antarctic Territory.

15

For example, the Constitution Act 1902 in New South Wales.

16

For example, the Development Act 1993 in South Australia.

17

That is the party with a majority of members of parliament in the lower house.

18

With the exception of appropriation bills concerning government spending or taxation, which must originate in the lower house.

19

Morris Iemma, NSW Parliamentary Debates, Legislative Assembly, 29 June 1999, at p 1594.

20

Sometimes, at this stage, a bill may be referred to a house select committee to carry out a public inquiry and report back to the house on the bill.

21

Australian Law Reform Commission, Law Reform Process, viewed on 5 February at: .

22

See the Law Reform Commission of Western Australia (1998), Financial Protection in the Building and Construction Industry - Report, Perth, WA.

23

This excludes the legislative Assembly of the Norfolk Island Territory, which comprises nine members.

24

See [2.54]–[2.115] below for further detail on how the Acts differ.

25

See [2.175]–[2.189] below for further details about the work health and safety legislation.

26

Although, at the time of writing, the ACT had yet to introduce the model domestic commercial arbitration law into parliament.

27

See [3.168]–[3.173], [3.239]–[3.249] and [3.250]–[3.251] below for further details about the Australian Consumer Law.

28

See [2.16] below for further details about the personal properties securities legislation.

29

With the exception of WA which, at the time of writing, has yet to refer their powers in this area to the Commonwealth. See [2.140]–[2.174] below for further details about the industrial relations legislation.

30

For example, see Work Health and Safety Act 2011 (Qld) s 274.

31

The Australian Building Codes Board is a Council of Australian Government codes and standards writing body responsible for developing the technical building code in Australia.

32

In this context, a jurisdiction means a geographically defined area where a particular body of law applies.

33

Another reason why so many English court decisions have become binding in Australia is due to the reception of English law as it stood in 1828 as discussed in [1.24].

34

And, therefore, why so many English cases are reviewed subsequently in this book.

35

This decision is discussed further in [3.124] below.

36

University of Melbourne Library, Authorised Law Reports, viewed on 12 February 2015 at: .

37

See [1.92] below for further details on the appeals process.

38

A maxim may be defined as a broad statement of a self-evident principle applied by the courts, which has not been formalised as a written rule in legislation or a code.

39

See Equuscorp Pty Ltd v Haxton [2012] HCA 7.

40

For further details on quantum meruit, see [3.39]–[3.47] below.

41

See, for example, the Uniform Civil Procedure Rules 2005 (NSW) s 13.1.

42

Main Roads Construction Pty Ltd v Samary Enterprises Pty Ltd [2005] VSC 388 at [11] per Habersberger J.

43

See Dey v Victorian Railways Commissioners (1949) 78 CLR 62; [1949] ALR 333; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] ALR 636. This test has also been consolidated into legislation in several jurisdictions — see, for example, Uniform Civil Procedure Rules 2005 (NSW) s 13.1.

44

See, for example, the Uniform Civil Procedure Rules 2005 (NSW) s 13.2.

45

Consequently, set-offs can only be pleaded as a defence to an originating claim within the same action — they can act as a shield, not a sword. See Stooke v Taylor (1880) 5 QBD 569 at 575–6 per Cockburn CJ.

46

Law Reform Commission of New South Wales, Set-Off, 2000, at [1.5], viewed on 1 May 2012 at: .

47

See, for example, the Civil Judgments Enforcement Regulations 2005 (WA) r 4(1).

48

For further details on bankruptcy and insolvency, see [2.12]–[2.27] below.

49

Courts Administrative Authority of South Australia, Magistrates Court (Civil Rules) 2013, viewed on 18 February 2015 at: .

50

See Civil Law (Wrongs Act) 2002 (ACT) Ch 7A; Civil Liability Act 2002 (NSW) Pt 4; Proportionate Liability Act (NT); Civil Liability Act 2003 (Qld) Pt 2; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) Pt 3; Civil Liability Act 2002 (Tas) Pt 9A; Wrongs Act 1958 (Vic) Pt IVAA; Civil Liability Act 2002 (WA) Pt 1F. Commonwealth legislation with respect to proportionate liability for misleading and deceptive conduct exists in the Australian Securities and Investments Commission Act 2001 (Cth) ss 12GP–12GW; Competition and Consumer Act 2010 (Cth) Pt VIA; Corporations Act 2001 (Cth) Pt 7.10, Div 2A.

51

The states and territories have, however, agreed to implement unified model proportionate liability

legislation which has been drafted by the Standing Council on Law and Justice but is still pending enactment. 52

This covers damages for breach of a contractual, tortious or statutory duty of care (including misleading and deceptive conduct under the Australian Consumer Law). The proportionate liability legislation, however, does not apply to: negligence claims involving personal injury or death; intentional or fraudulent damage; vicarious liability, agency and business partnership liability.

53

A concurrent wrongdoer’s ability to pay damages may often depend on whether it has insurance (such as professional indemnity insurance — see further [4.59] below) for its negligence.

54

For example, see the AS 2127–1992 Formal Instrument of Agreement.

55

This example has been adapted from Brand South Australia, What is proportionate liability, when does it apply and how does it impact on insurance policies and contracting by you?, Government of South Australia, 9 January 2013.

56

See the Australian Capital Territory (Self-Government) Act 1988 (Cth) and the Supreme Court Act (NT).

57

Note that there is no intermediate court in Tasmania, ACT and NT.

58

See Queensland Building and Construction Commission Act 1991 s 77. Note that according to s 78, a major building dispute may be decided by the tribunal only if the tribunal is satisfied all parties to the dispute consent to it doing so.

59

See Domestic Building Contracts Act 1995 (Vic) s 53.

60

According to the Home Building Act 1989 (NSW) s 48K, the NSW Civil and Administrative Tribunal may hear domestic building disputes up to $500,000.

[page 31]

CHAPTER 2

The Nature of the Construction Industry and its Regulatory Framework

Key Ideas This chapter discusses: business structures, subcontracting and insolvency key legislation affecting the construction industry planning, building control, licensing and other regulation security of payment regimes industrial relations, work health and safety, and employee entitlements

[page 32]

Introduction [2.1]

Before considering the key statutes regulating the construction industry, it is helpful to consider the nature of the construction business environment within which parliaments legislate. As such, this chapter commences by considering business sizes, business structures, subcontracting and insolvency in the construction industry.

Construction business sizes [2.2]

According to the Australian Bureau of Statistics,1 at the end of June 2012: there were 209,783 businesses in the construction industry, 97.7 per cent of which were small construction businesses (employment range 0–19 persons) and only 0.1 per cent of which were large construction businesses (employment range of 200 persons or more); of the 209,783 total businesses, 172,697 were predominantly involved in specialist construction trade services such as concreting, carpentry and plumbing; small construction businesses accounted for 49 per cent of total industry income, whereas large businesses accounted for 27 per cent; and there were 950,000 persons working in the construction industry of which 176,000 were employed as managers, 42,000 as professionals, 314,000 as tradespeople and 194,000 as labourers. Furthermore, around 30 per cent of all construction businesses employ only between one and four people.2 In terms of sheer

numbers, therefore, the building and construction industry is characterised by small businesses offering specialist trade services.

Business structures and the construction industry [2.3]

Before starting to trade, a business will need to decide which legal structure best suits its needs. Business structures may be categorised into two types: incorporated and non-incorporated.

[2.4]

Incorporated businesses are those which are registered as companies under the Corporations Act 2001 (Cth). Companies are owned by shareholders and managed by directors. A company is a type of artificial person, having its own separate legal identity. As such: A company’s owners or shareholders (sometimes called members) enjoy limited liability for the company’s debts, not being personally liable for the debts of the company beyond the value of their shares. [page 33] A company’s directors are not personally liable for the debts of the company unless they commit an offence under the Corporations Act, such as carrying on trading after the company has become insolvent. A company forms contracts, and may sue and be sued, in the company’s name as distinct from the names of its shareholders and directors. The company’s existence will survive the death of any of its shareholders or directors.

[2.5]

Companies are taxed on their profits earned at a corporate tax

rate.3 The disadvantages of choosing an incorporated business structure stem from having to meet the strict regulatory requirements of the Corporations Act, which means that companies are generally more complex and costly to establish and run than non-incorporated business structures. For example, a company must keep financial records that correctly record and explain its transactions, financial position and performance. Further, companies generally will have to prepare formal financial reports (a profit and loss statement, a balance sheet, and a statement of cash flows) and a directors’ report (about the company’s operations, dividends paid or recommended, etc) and have them audited and lodged with the Australian Securities and Investments Commission (ASIC) each year. [2.6]

The two most common types of companies are proprietary companies (Pty Limited or Pty Ltd) and public companies (Limited or Ltd). Proprietary companies do not sell their shares to the public, whereas public companies list their shares for sale on a stock exchange. Public companies may, therefore, raise extra capital from selling shares to the public. Proprietary companies are not allowed to have more than 50 non-employee shareholders, whereas there is no limit on the amount of nonemployee shareholders that public companies may have. Usually, the directors of a proprietary company must approve the transfer of any shares in the company, which allows the directors to prevent unwanted persons becoming shareholders. This is not the case for public companies.

[2.7]

Proprietary companies are categorised into two types by the Corporations Act: small and large. A small proprietary company4 does not have to prepare formal annual financial reports and a directors’ report unless directed to do so by shareholders with at least 5 per cent of the votes in the company or by ASIC. The majority of registered companies are proprietary. As at March 2012, ASIC reported that there were 1,871,004 proprietary companies, representing 98.87 per cent of

all registered companies.5 Most medium and large sized head general construction contractors are proprietary companies — for example, Brookfield Multiplex Constructions Pty Ltd, Hansen Yuncken Pty Ltd, Badge Constructions Pty Ltd, Marshall & Brougham [page 34] Constructions Pty Ltd and WTM Constructions Pty Ltd. Also, most medium and large sized specialist trade construction contractors are proprietary companies — for example, Adelaide Plumbing Pty Ltd, Otis Elevator Company Pty Ltd, Swiss Joinery Pty Ltd and S & S Plasterboard Contractors Pty Ltd. Furthermore, many medium and large sized construction professional consultancy firms are proprietary companies — for example, Rider Levett Bucknall NSW Pty Ltd, Aquenta Consulting Pty Ltd and H2o Architects Pty Ltd. It is possible for a proprietary company to be owned by a public ‘parent’ company. For example, both Brookfield Multiplex Constructions Pty Ltd and Thiess Pty Ltd are wholly owned subsidiary companies of CIMIC Group Limited. [2.8]

The most common types of unincorporated business structures are sole traders and partnerships. A sole trader structure is suitable for a person who wants to operate their own business and make all the strategic business management decisions alone. At law, there is no distinction between the identity of the individual person conducting business under a sole trader structure and the business itself — they are seen as one and the same. As such, the individual is personally liable for all business related obligations and debts. This means that a person who starts up in business as a sole trader could potentially be forced to sell their personal assets, such as their house and car, if sued for debts incurred when trading. Even though the individual and their sole trader business are the same legal entity, it is possible for a sole trader to carry on

business in a name other than their own if they register a business name with ASIC on the national business names register. A sole trader business is relatively simple and inexpensive to establish and run compared to a company. Sole traders are not subject to the same strict statutory regulations that apply to companies and do not have to comply with the same financial reporting obligations. This means that much less paperwork is needed to run the business. Sole traders are taxed as individuals based upon their income at the relevant marginal rate of income tax. Due to the suitability of the sole trader structure for very small businesses and the predominance of small trade contractors in the construction industry, it is unsurprising that over 60 per cent of all businesses in the construction industry are sole traders.6 [2.9]

Partnerships are formed when two or more persons operate a business as co-owners with a view to sharing the profit. This may be beneficial, as it allows a number of people to contribute resources and expertise to the running of the business. A partnership, however, will inevitably mean that a person will not have as much control over the management of the business as a sole trader would. As with sole traders, partnerships are not legally viewed as having a separate identity from their owners. In other words, the partners in the business are personally liable for the partnership’s obligations and debts. Furthermore, each partner is individually liable for the debts incurred by the other partners. In other words, all partners are jointly and severally liable7 for the [page 35] debts of the business, meaning that a debt incurred by one partner is fully recoverable against another partner in the same business.

Subcontracting in the construction industry [2.10]

Subcontracting occurs when a party delegates the performance of a portion of its contractual obligations to another business, or several other businesses. As such, subcontracting involves a business-to-business relationship as opposed to an employer/employee relationship.8 Subcontracting is endemic in the construction industry, with subcontractors providing the vast majority of building work on construction sites, as it facilitates the most cost-efficient method for contractors to engage specialised labour. Most building trades are only required to be on site for a relatively short time (a few weeks or less) when compared to the duration of the construction project. Head (or principal) contractors, therefore, prefer to engage specialised tradespeople (such as bricklayers, plasterers and electricians) as subcontractors rather than fulltime employees. This has two principal cost advantages for principal contractors. Firstly, they only have to pay workers for the periods of time they are actually needed on a construction project, and, secondly, they do not incur the mandatory oncosts required by legislation with respect to paying employees, such as superannuation contributions, sick leave, annual leave and payroll tax.

[2.11]

It is typical for several pyramidal contracting chains to develop on construction projects as the head contractor engages subcontractors (first tier of subcontractors) who engage their own subcontractors (second tier of subcontractors) who then in turn engage their own subcontractors (third tier of subcontractors), and so on. As can be seen from Figure 2.1, the number of trade contractors working on a construction project proliferates with each tier of subcontractors added to the bottom of the contractual chains. Typically, the contractors in the lowest tiers of construction project contracting chains are very small specialised tradespeople, who may be self-employed one person sole traders. This explains the predominance of small businesses in the construction industry.9

Insolvency in the construction industry [2.12]

Insolvency occurs when a business cannot pay its debts at the time they fall due. When a business becomes insolvent, it often means that several of its creditors (ie, people who have supplied goods or services, leased equipment, lent money etc to the company) are left unpaid. Creditors may be categorised into two main types: secured and unsecured. [page 36]

Figure 2.1: Contractual chains on a construction project

[2.13]

A secured creditor is a person who has a security interest in the form of a legal charge (ie, a right) over specific property or assets of the business. Essentially, under a charge, the creditor

pledges to put up certain assets as collateral to secure credit. When funds are provided by a creditor under a charge against the debtor’s assets, the debtor (or borrower) is usually limited as to what they can do with the relevant asset(s) and the creditor becomes entitled to certain rights in order to recover the debt owed in the event that the debtor defaults on payment. A charge, therefore, provides the creditor with financial security in the event of payment default — hence the name ‘secured creditor’. Mortgages and liens, for example, provide charges over a debtor’s assets. Banks usually lend money to people to buy real property (houses, offices, factories etc) on the basis of a mortgage over the property being purchased, which gives the bank the right to seize and sell the property in the event of a payment default in order to recoup the value of the loan. A lien provides a creditor with the right to detain the debtor’s assets until such time payment is made. The lender can only hold the assets until payments are made and cannot sell the assets unless specifically agreed in the lien contract. [2.14]

Charges attached to specifically identified assets of a debtor are known as fixed charges. Sometimes, however, charges are attached to the collective assets of a debtor, which may change over time. For example, a company in the business of construction plant hire may secure a loan from a lender with a floating charge over the plant it owns generally, and will be able to continue hiring out the plant to its clients and replacing the plant as it wears out. Such charges are known as floating charges. Unlike fixed charges, floating charges allow companies to use the assets to which the charge is attached as they like. [page 37]

[2.15]

An unsecured creditor is a person who is owed money by a business, but does not have a security interest, or charge, over the credit extended. Typically, most of the building contractors

who carry out works on a construction project are unsecured creditors. It is often agreed in head construction contracts that progress payments be made at the end of each month for the work carried out during that month. Due to inequality of bargaining power,10 subcontractors working lower down the contractual chain generally agree to extend longer credit periods to the principal contractors they work for. In 2012, the average contractual payment terms between principal contractors and their subcontractors in New South Wales fell somewhere between 45 and 80 days, and in the worst cases extended to between 90 and 120 days.11 This results in a perverse situation whereby the smallest and most vulnerable construction businesses effectively end up financing the construction works. [2.16]

Suppliers of construction goods and materials may be able to protect themselves against a customer’s insolvency by including a retention of title clause in the contract for sale of the goods. A retention of title clause creates a security interest for the supplier over the goods supplied by ensuring that legal ownership of the goods remains vested in the supplier until payment is received. As such, the supplier will be able to repossess the goods in the event of a payment default. However, to be legally recognised as a security interest, the Personal Properties Securities Act 2009 (Cth) requires that a retention of title interest be registered on the national Personal Properties Securities Register (PPSR). A supplier who fails to register a retention of title interest on the PPSR runs the risk that title of the goods will transfer to the purchaser in the event of that purchaser’s insolvency.

[2.17]

When a company becomes insolvent, it is illegal for it to continue trading. The company must, therefore, enter into an insolvency procedure of which there are three main types: liquidation, voluntary administration and receivership. Each of these procedures involves the directors of a company handing control of the company over to an independent and suitably

qualified person. As such, the company is referred to as having entered into external administration. [2.18]

A company may be sent into liquidation either by resolution of its shareholders (known as a voluntary liquidation), by application to the court by a creditor or group of creditors to wind up the company due to non-payment of debt (known as a court or official liquidation) or by a majority vote of the company’s creditors following a [page 38] voluntary administration or termination of a deed of company arrangement (as discussed further in [2.22] below).

[2.19]

In the situation where a judgment creditor is applying to have a corporate judgment debtor wound up,12 the creditor will need to show that the debtor is insolvent (ie, cannot pay its debts). This is usually done by the creditor issuing the debtor with a statutory demand for payment under s 459E of the Corporations Act. Once served, the debtor has 21 days to pay the statutory demand otherwise the court may order that the company be wound up.

[2.20]

In liquidation, an independent and suitably qualified person, registered with ASIC as a liquidator, is appointed to wind up the company’s affairs in an orderly manner for the benefit of all the creditors. As such, the role of a liquidator is to: collect, protect and realise the company’s assets; investigate and report to creditors about the company’s affairs; inquire into the failure of the company and possible offences by people involved with the company and report in this respect to ASIC; distribute the proceeds of asset realisation to the company’s

creditors; and apply for deregistration of the company on completion of the liquidation.13 [2.21]

After a company’s secured creditors have been paid, the proceeds from the realisation of the company’s assets must be paid out to creditors in the following order of preference:14 fees and expenses due to the liquidator, any outstanding wages and superannuation contributions owed to the company’s employees15 and, finally, the debts owed to the company’s unsecured creditors. If the proceeds are not sufficient to repay all the debts owed to unsecured creditors, as is often the case, whatever funds remain are distributed between the unsecured creditors on a pro-rata basis. This means that they may only see a fraction of the money they are owed (eg, 50 cents in the dollar). Furthermore, it may well be up to 12 months before this money is paid.

[2.22]

Voluntary administration most commonly occurs when the directors of a company pass a resolution that the company is or is likely to become insolvent and that an administrator be appointed.16 ASIC describes the role of the voluntary administrator as being to investigate the company’s affairs, to report to creditors and to recommend to creditors whether the company should enter into a deed of company arrangement or go into liquidation.17 A deed of company arrangement (DOCA) is a binding arrangement [page 39] between a company and all of its creditors18 whereby the creditors agree to give the company temporary relief from its debts for an agreed period of time. This allows the company an opportunity to restructure its affairs (eg, recapitalise or sell the company) in a bid for survival or, at the very least, to obtain a better return for the creditors in the event that liquidation is

recommended. Voluntary administration, therefore, allows a company to keep trading in the interim. However, if the company breaches the terms of the DOCA, the creditors may vote to put the company into liquidation. [2.23]

The third procedure which an insolvent company can enter into is receivership. Receivership occurs when one of the company’s secured creditors appoints a receiver to take control of some or all of the company’s assets. The role of a receiver is to collect and realise sufficient of the company’s assets which are subject to a charge or security interest in order to recoup the debt owed to the secured creditor who appointed the receiver. Although a receiver’s principal duty is to their appointing secured creditor, they have a duty to unsecured creditors generally to take reasonable care to obtain at least market value for the charged assets. It is possible for a company to be in receivership at the same time as it is in liquidation or voluntary administration.

[2.24]

When a non-corporation business becomes insolvent, it will enter into bankruptcy either by the bankrupt individual voluntarily lodging a petition with the Official Receiver,19 or by a creditor applying to the court to have an individual declared bankrupt. Bankruptcy procedure is set out in the Bankruptcy Act 1966 (Cth). Once an individual is declared bankrupt, a trustee is appointed to collect and sell the bankrupt’s assets, recover contributions from any salary the bankrupt may currently be earning, investigate the bankrupt’s financial affairs and distribute the proceeds of the sale of the bankrupt’s assets to creditors. Individuals are under several obligations whilst bankrupt, including complying with all requests made by their trustee, not being able to act as a director or manager of a company without the court’s permission, and not being able to go overseas without obtaining the trustee’s prior permission. The period of bankruptcy generally lasts for a period of three years, after which an individual is discharged from bankruptcy. However, even though discharged, a bankrupt’s name will

appear on the National Personal Insolvency Index forever as a discharged bankrupt, and the bankrupt may still be liable to continue paying off creditors. An individual may have their bankruptcy annulled (cancelled) if their creditors vote to accept20 a composition or arrangement, which is an offer made by the bankrupt through their trustee to pay creditors a proportion of what they are owed in full settlement of the debts owed.21 [page 40] [2.25]

In the construction industry, unfortunately, it is an all too common occurrence that, due to a principal contractor’s insolvency, building contractors and suppliers are left unpaid and unable to fully recover the money owed to them. Indeed, the construction industry suffers from a higher rate of business insolvency than any other industry in the Australian economy. In 2013/14, ASIC reported 1802 insolvencies in the construction industry nationally. A large proportion of construction insolvencies are experienced by small contractors and subcontractors, entities with assets of less than $10,000.22 One reason for this high rate of insolvency is the pyramidal subcontracting chains on construction projects (see Figure 2.1), which mean that subcontractors are financially vulnerable to an insolvency or poor payment practice of a contractor higher up in the contracting chain. As stated by the Queensland Building Services Authority:23 The financial failure of any one party in the contractual chain can cause a domino effect on other parties with those at the bottom most at risk in the event of a client or contractor defaulting. The collapse of one element of the contractual chain or the failure to pass on monies owed can create enormous financial strain on the other parties.

[2.26]

Other reasons identified for the high rate of construction insolvencies include: slow and/or disputed payment of contractors causing cash

flow problems;24 the existence of poorly capitalised firms, which are not financially resilient;25 the inadequate strategic business management skills of many, particularly smaller, contractors;26 and the prevalence of tight profit margins in the construction industry.27 [2.27]

The insolvency of a company working on a construction project can, and often does, have disastrous financial consequences for its subcontractors and suppliers, who may be tipped over the edge into insolvency themselves if left unpaid. Particularly at risk are those small sole trader businesses, so prevalent in the construction industry, who rely on each payment for vital cash flow to keep their businesses afloat. As one judge famously stated, ‘there must be cash flow in the building trade. It is the very lifeblood of the enterprise … He [the subcontractor] cannot go on unless he is paid for what he does as he does it.’28 [page 41]

Key legislation affecting the construction industry [2.28]

The majority of the legislation that affects the building and construction industry — that is, either industry-specific legislation or general commercial legislation relevant to the industry — falls under the constitutional law-making power of the state parliaments. One of the main reasons for this is that the majority of businesses in the building and construction industry are small trade contractors who adopt a nonincorporated business structure.29 This means that, because the Australian Constitution only gives the Federal Parliament power to make law for incorporated businesses, any law

enacted at Commonwealth level will only cover a minority of the total number of building and construction businesses. As discussed in [1.53]–[1.54] above, some of this state-based legislation has been nationally harmonised by intergovernmental agreement, or by referral of constitutional powers by the states to the federal parliament. [2.29]

Legislation (Acts, Regulations, council by-laws etc) has been enacted that covers several areas relevant to the operation of the building and construction industry, many of which are shown in Table 2.1. This table lists key areas of law affecting the construction industry which are subject to legislation and provides an index as to where in this book each area is discussed. Table 2.1: Legislation affecting the building and construction industry Area of law

State or Commonwealth legislation

Harmonised

Discussed further in paragraph

Access to Neighbouring Land

State (in NSW and Qld only)

No

[4.70]–[4.71]

Builders Licensing

State

No

[2.42]–[2.45]

Building & Construction Industry Security of Payment

State

No

[2.54]–[2.115]

Building Control

State

No

[2.33]–[2.41]

Building Encroachment

State (in NSW, NT, Qld, SA and WA only)

No

[4.85]–[4.88]

Cartels/Price Fixing

Cth

Yes

[5.50]–[5.53]

Charges and Liens

State (in NSW, Qld and SA only)

No

[2.116]– [2.139]

Civil Liability

State

No

[4.34]–[4.35]

Companies

Cth

Yes

[2.4]–[2.7], and [2.17]–

[2.23]

[page 42]

Area of law

State or Commonwealth legislation

Harmonised

Discussed further in paragraph

Consumer Protection

Cth (for corporations)

Yes

[3.168]– [3.173]



State (for noncorporations)

Yes



Domestic Commercial Arbitration

State

Yes

[7.119]– [7.125]

Environmental Protection

State

No

[4.98]–[4.99]

Home/Residential Building

State

No

[2.46]–[2.53]

Industrial Relations

Cth

Yes

[2.140]– [2.174]

(except WA) Limitation of Liability

State

No

[3.2]–[3.6], and [4.3]– [4.4]

Misleading and Deceptive Conduct

Cth (for corporations)

Yes

[3.239]– [3.249]



State (for noncorporations)

Yes



Personal Property Securities

Cth

Yes

[2.16]

Proportionate Liability

State

No

[1.88]–[1.89], and [4.60]

Unconscionable Conduct

Cth (for corporations)

Yes

[3.250]– [3.251]



State (for noncorporations)

Yes



Urban Planning

State

No

[2.31]–[2.32]

Work Health & Safety

[2.30]

State

Yes (except for Victoria and WA)

[2.175]– [2.189]

Queensland, Victoria and Western Australia have established dedicated government bodies to regulate the construction industry and administer the legislation relating to builders’ licensing, home building and security of payment in the construction industry. Where such authorities exist, they also generally provide services to promote, educate, monitor and report on important issues relating to the construction industry in the interests of both construction practitioners and their clients. In those states and territories which do not have specific building authorities, administration of construction legislation is delegated to other government agencies or offices. The government bodies responsible for regulating the building and construction industry in each state and territory are shown in Table 2.2. Table 2.2: Government bodies responsible for regulating the building and construction industry State/Territory

Regulating Body

Australian Capital Territory

Environment and Planning Directorate

New South Wales

NSW Fair Trading

Northern Territory

Department of Lands Planning and the Environment (Building Advisory Services)

Queensland

Queensland Building and Construction Commission (QBCC)

[page 43]

State/Territory

Regulating Body

South Australia

Consumer and Business Services

Tasmania

Department of Justice

Victoria

Victorian Building Authority (VBA)

Western Australia

Building Commission

Planning [2.31]

Prior to commencing construction of a building development, the planning legislation30 requires a building developer to obtain a planning permit, or planning approval, from the relevant government authority (usually the local council). The building developer will have to apply for a planning permit to the relevant authority and submit supporting documentation as required. Such documentation typically includes a site plan and elevations, a description of the proposed development and a description of the surrounding area. Once in receipt of the application, the authority will publicly advertise the application in order to give neighbours a chance to object and will assess the development against the development plan, or planning scheme, for the area. Each local council has its own development plan or planning scheme, which is publicly available.

[2.32]

After assessment, the council will decide whether to grant or refuse a planning permit. Often, a planning permit will be issued with conditions (eg, that certain plans must be amended) that must be complied with before construction of the development commences. If a developer objects to a decision of the council, they may apply for a review of the decision to the relevant court or administrative tribunal.31 Once the planning permit has been obtained, the developer will then need to obtain a building permit32 from the local council before construction may commence.

Building control33

[2.33]

In addition to obtaining a planning permit, the building regulation legislation34 requires a building developer to obtain a building permit, or building approval,35 as a necessary prerequisite to commencing construction. Prior to the granting [page 44] of a building permit, the relevant local council will need to be satisfied that the developer’s application meets the technical requirements of the Building Code of Australia (BCA).36 In order to achieve this, a building permit assessment will need to be carried out by a building certifier. When applying for a building permit, the developer will need to provide specified documents to support their application, such as detailed floor, wall and roof layouts, details of construction materials and design, and engineering details. The assessing building certifier will usually be a qualified building surveyor employed by the local council or a private building certifier engaged directly by the building developer.

[2.34]

Each Australian state and territory has adopted, by legislation, the BCA as the basis for assessing building permits and approvals. Therefore, the BCA forms a consistent basis for the technical regulation of building design and construction throughout Australia. The BCA provides a uniform set of technical provisions for the design and construction of building work throughout Australia, and is produced and maintained by the Australian Building Codes Board (ABCB). 37 Although uniform, the BCA allows for variations in climate and geological or geographic conditions from state to state. The BCA is necessary in order to make sure that minimum standards are met with regard to safety, health, amenity and sustainability in the design, construction and performance of buildings.

[2.35]

The BCA is a performance-based document. This means that it

describes minimum performance criteria that must be met in the completed building. For example, with respect to room heights in residential buildings, the BCA requires that a building is to be constructed to provide height in a room or space suitable for the intended use. 38 The BCA provides building designers with two methods in order to develop a building solution. The BCA prescribes acceptable construction practices which, if complied with, will satisfy the performance requirements — these are known as ‘deemed to satisfy’ provisions. For example, with respect to room heights in residential buildings, ceiling heights in a habitable room excluding a kitchen must not be less than 2.4 m.39 Alternatively, the designer is permitted to develop an alternative solution to the prescribed ‘deemed to satisfy’ provision. As such, building designers and constructors are free to decide building materials, components, design factors, and construction methods as long as they meet the relevant performance standard in the BCA. [2.36]

The ‘deemed to satisfy’ provisions in the BCA often refer to Australian Standards. Australian Standards are documents, developed by Standards Australia and published by SAI Global, setting out specifications and procedures designed to ensure products, [page 45] services and systems are safe, reliable, and consistently perform the way they were intended to.

[2.37]

The building certifier is also responsible for the very important task of making sure that all aspects of the as-built construction work comply with the building control legislation and any building permits or approvals that have been granted. This requires the building certifier to undertake sufficient inspections of the building at certain stages during its

construction. For simpler buildings, such as houses and garages, there are generally mandatory inspection stages required by the legislation — such as before footings are poured into excavations, before the ground floor slab is poured, before any of the building frame is covered by wall, floor or roof cladding or lining, before covering waterproofing in wet areas and before covering any stormwater drainage connections. Due to the varying complexities of larger residential buildings, commercial buildings and public buildings (eg, hospitals and civic centres), it is not practical to prescribe a mandatory ‘one size fits all’ set of inspection stages. Therefore, for these buildings the building certifier must produce an appropriate inspection schedule40 for the type of building to be inspected, and incorporate the inspection schedule requirements in the conditions of the building permit or approval. This inspection schedule forms the basis for the building inspections to be carried out during construction. [2.38]

The builder must ensure the building certifier is given a notice for inspection to arrange a date for each (mandatory or scheduled) stage of inspection. If a building certifier decides that the constructed work does not comply, they will issue the builder with a non-compliance notice detailing how the work does not comply. If the builder fails to rectify the noncompliance within a reasonable timeframe, the local council may issue an enforcement notice directing rectification within a specified timeframe. If the builder still takes no action, the council may initiate action to obtain a court order that the builder comply with the enforcement notice. Furthermore, it is an offence punishable by a fine for the builder to ignore an enforcement notice.

[2.39]

The building regulation legislation also requires a building developer to obtain a certificate of occupation41 from the building certifier before the completed building can be legally occupied. The occupation certificate verifies that the certifying authority, having carried out a final building inspection, is

satisfied that the building is substantially complete and has been built in accordance with the building control legislation and any relevant building permits or approvals granted, and is suitable for occupation. [2.40]

A building certifier may have the building inspection carried out on their behalf by a competent person, usually a registered building inspector.42 However, where this [page 46] occurs, the building certifier is not absolved of any liability for mistakes made by the building inspector when carrying out checks on site. The building certifier has a duty to do all that is reasonable to make sure that any building inspectors they engage are carrying out proper auditing of the as-built construction works on site.

[2.41]

In Toomey v Scolaro’s Concrete Constructions Pty Ltd (in liq) (No 2) [2001] VSA 279, Mr Toomey was confined to a wheelchair with incomplete quadriplegia after accidentally falling over a stair balustrade railing at an apartment block. The railing height was 933mm, which was well below the BCA requirement of 1000mm. The private building certifier did not check the as-built balustrade himself, but instead paid a registered building inspector at a very cheap rate to do the inspection. Although the building inspector did not measure the height of the railing, he issued a compliance certificate covering the balustrade railing. The building certifier knew nothing about the competency of the building inspector he had engaged, and did nothing to check that the building inspector was doing his job properly on site. Mr Toomey brought an action to recover damages for his injuries against 10 defendants including the architect, the private building certifier and the building inspector. The building certifier argued that he was not liable, due to s 128 of the Building Act

1993 (Vic) providing that a surveyor ‘is not liable for anything done or omitted to be done in good faith in reliance on a certificate given by a registered building practitioner …’. The court, however, rejected this argument finding that the building certifier’s ‘hands off’ approach towards inspecting the project, and ‘blind disinterest’ with respect to checking that the inspections were being done properly could not amount to good faith. In other words, the building certifier was obliged to check that reasonable care and skill was being employed by its building inspector. Ultimately, the court awarded damages of over $2 million to Mr Toomey, holding all the defendants liable.

Builder licensing [2.42]

Each of the states and territories has legislation43 in place requiring the licensing or registration of builders as a prerequisite to the carrying on of the business of performing building works. There are different classes of builder’s licence which contractors may apply for depending on the type of work they want to carry out. Licences may be for general building work, specialist trade work, or trade work. Examples of different classes of general building work in South Australia, for example, include single storey residential work, residential work not exceeding three storeys, light commercial/industrial and residential work, and any other building work (commercial, industrial or residential).44 Specialist trade work licences include trades such as plumbing, gas fitting and electrical work. General building licences may include specialist trade work necessary to the construction of the relevant class [page 47] of building, but the general building contractor must have the specialist work carried out by the holder of a specialist trade licence. Trade work licences would need to be obtained by

subcontractors carrying out single trades such as bricklaying, carpentry, concreting, glazing, painting etc. [2.43]

Although similar in nature, the legislation and associated licensing or registration requirements differ from state to state. Having said this, the licensing schemes generally require that building practitioners have the relevant technical trade qualifications and experience in relation to the class of licence applied for, operate in a professional and honest manner, are appropriately insured and have the required financial capacity to carry on a business.

[2.44]

In addition to obtaining a licence, the legislation generally requires builders to ensure that their building work is supervised by a registered building work supervisor. To be registered as a building work supervisor, a person must have the qualifications and experience prescribed by the legislation. These qualifications and experience typically relate to building work management, building technology, and legislative requirements in respect of on-site building work.

[2.45]

In addition to building contractors, the states and territories generally require certain other types of building practitioners, such as architects, building surveyors and building inspectors, to be registered or accredited under the relevant legislation.

Home/residential building [2.46]

The home building legislation provides protection for persons who are entering into a domestic building work contract — that is, a contract for the construction of a building which will be occupied as a main place of residence (a dwelling). Broadly speaking, the legislation covers the work of constructing, altering, repairing, renovating, adding to or demolishing a house and associated structures (eg, swimming pools, garages, carports).

[2.47]

Most home owners have little (if any) knowledge and/or experience with respect to contracting in the construction industry. Furthermore, the construction or purchase of their own home is likely to be one of the most significant investments a home owner ever makes in their lifetime. For these reasons, home owners are considered by parliament to be a commercially vulnerable class of consumers who need legislative protection.

[2.48]

The provisions of the home building legislation differ quite considerably between the eight states and territories with respect to the types and values of building work covered, and the protective measures prescribed. For this reason, it is not possible to cover in summary all of the key provisions of the various Acts and Regulations. However, Table 2.3 provides a guide as to where the key legislative provisions may be found for each jurisdiction. [page 48] Table 2.3: Key provisions in the home building legislation State/Territory Legislation

Building types covered

Applies to contract value

Implied Indemnity statutory insurance terms & warranties

Australian Capital Territory

Building Act 2004 Building (General) Regulation 2008 (ACT), Part 4

s 87

›$12,000 r 37

s 88 r 38

New South Wales

Home Building Act 1989 Home Building Regulation 2004

Schedule ›$5,000 ss 7E and 1, cl 2 of for small 18B the Act jobs ›$20,000 for other jobs r 545

ss 90–95 r 39

Regs, Pt 6

Northern Territory

Building Act Building Regulations

r 41A

›$12,000 s 48B(3)(a) and r 41J

Queensland

Queensland Building and Construction Commission Act 1991, Schedule 1B Queensland Building and Construction Commission Regulation 2003

Schedule 1B of the Act, s 4 s 13 of the Reg

$3,300 Schedule 1B, Part 5 of the to ss 20 to 26 Act Part 5 of $19,999 the Reg for level 1 contract, s 11(1)(c) of the Reg, ›$20,000 for level 2 contract, s 27AC of the Reg46

South Australia

Building Work Contractors Act 1995 Building Work Contractors Regulations 2011

s 3 r 4

›$12,000 r 4(4)(b)

s 32

ss 33–35

Tasmania

Housing Indemnity Act 1992 Housing Indemnity Regulations 2014

s 3 r 4

›$12,000 s 5(1)(a)

s 7



Victoria

Domestic Building Contracts Act 1995

ss 5 and 6

›$5,000 for major domestic building contracts s 347

s 8

Required under Ministerial Order48 for contracts ›$12,000

s 54B

Division 3 of the Act

[page 49] State/Territory Legislation

Building

Applies to

Implied

Indemnity

Western Australia Home Building Contracts Act 1991

statutory insurance terms & warranties

types covered

contract value

s 3

›$7,500, 4 months ‹$500,000 defects s 3 liability period s 11

Part 3A

[2.49]

Central to most of the legislation are the requirements for certain statutory warranties to be implied into home building contracts,49 and for the builder to have building indemnity insurance.50

[2.50]

The warranties generally include that the contract work will be done with due care and skill and in accordance with the contract plans and specifications, materials supplied will be good and proper and suitable for their purpose, work will be performed in accordance with all statutory requirements and work will be performed with due diligence and completed in a reasonable time (where no completion date has been agreed). The limitation of action period for a breach of a statutory warranty is generally stated in the various legislation as six years.51 Notably, the Australian Capital Territory, New South Wales and Queensland Acts specifically provide for a much shorter warranty period for structural defects.52 The statutory warranties are transferable to any person who purchases the home from the building developer,53 as well as to any person who is a successor in title of the home (ie, subsequent owners of the home).54

[2.51]

The home indemnity insurance covers home owners against financial loss if a builder cannot complete residential building work or meet a valid claim for faulty or unsatisfactory building work because of the builder’s death, disappearance or insolvency.

[2.52]

Other of the many protection provisions which variously occur in several of the Acts and Regulations include:

formalities required in contract formation, such as requiring the contract to be in writing, set out all the contract terms, set out the contractor’s business name and licence number, be signed by the contractor or its agent, and requiring a copy of the [page 50] signed contract together with a prescribed notice to be given to the owner;55 a cooling-off period which allows an owner to terminate a home building contract within a prescribed period of time (eg, 5 business days) after the contract has been formed;56 limits on the amount of any deposits builders are allowed to demand prior to commencing building works under a home building contract;57 conditions regulating the claiming of progress payments by a building contractor;58 conditions regulating the issuing of variations to the contract works;59 and restrictions on the use of ‘rise and fall’ (price inflation) clauses in home building contracts.60 [2.53]

As mentioned in [1.99] above, the Queensland, New South Wales and Victorian legislation provides for the hearing of domestic building disputes in the respective civil and administrative tribunals.

Building and construction industry security of payment [2.54]

Legislation to help contractors and suppliers on construction projects secure payment for goods and services they have

supplied has been enacted in all eight Australian states and territories (see Table 2.4). The term ‘security of payment’61 appears in the title of six of the Australian Acts and, therefore, the legislation as a whole is often referred to as security of payment (SoP) legislation. Table 2.4: Building and construction industry security of payment legislation in Australia by date of commencement Jurisdiction

Legislation

Date of

New South Wales (NSW)

Building and Construction Industry Security of Payment Act 1999

26 March 2000

Victoria

Building and Construction Industry Security of Payment Act 2002

31 January 2003

Queensland

Building and Construction Industry Payments Act 2004

1 October 2004

Western Australia (WA)

Construction Contracts Act 2004

1 January 2005

Northern Territory (NT)

Construction Contracts (Security of Payments) Act

1 July 2005

Tasmania

Building and Construction Industry Security of Payment Act 2009

17 Dec 2009

[page 51]

[2.55]

Jurisdiction

Legislation

Date of

Australian Capital Territory (ACT)

Building and Construction Industry Security of Payment Act 2009

1 July 2010

South Australia

Building and Construction Industry Security of Payment Act 2009

10 Dec 2011

The SoP legislation covers contracts or arrangements under which one party undertakes to carry out construction work, or to supply related goods and services, for another person. This includes professional consultancy services related to

construction work (eg, architectural, engineering quantity surveying services etc). The SoP legislation binds the Crown (ie, the government), and covers construction contracts which are governed by a law of a jurisdiction other than their own. Construction work is broadly defined under the legislation as including site preparation, actual construction, repair, renovation, design, drafting and management.62 Work involved in the extraction of minerals is not covered by the legislation. The courts have, however, held that construction work done for the purpose of opening or preparing to operate a mine, such as the stripping or removal of topsoil down to the minerals, is covered.63 [2.56]

Prior to the commencement of the SoP legislation, a building contractor (or supplier) who believed they had not been paid fairly by their principal under a construction contract would have had to resort to costly and time-consuming dispute resolution processes, such as arbitration or litigation, in order to have a payment dispute legally resolved. Consequently, many (especially smaller) contractors, unable to afford arbitration or litigation, would simply write off any disputed payment monies and move on to their next job in order to ensure their financial survival.

[2.57]

SoP legislation was introduced to provide a means for contractors and suppliers to obtain swift and inexpensive resolution of payment disputes. Accordingly, it is the common objective of all of the SoP legislation to get cash flowing in as fair a manner as possible down the hierarchical contractual chains (see Figure 2.1 above). In order to achieve this, all the legislation includes, in one form or another, core provisions which: (i)

prohibit clauses in construction contracts that make payment conditional on the payer receiving payment from a third person, for example, ‘pay when paid’ or ‘pay if paid’ clauses;

(ii) establish a default right to stage, or progress, payments if the parties have failed to agree to such in the construction contract; and (iii) establish a right to refer a payment dispute arising under the contract to a rapid adjudication process for independent determination. [page 52] [2.58]

An adjudication determination of a payment dispute under the legislation is binding on the parties to the construction contract in the interim, up until the time (if ever) a court judgment or arbitration award is made concerning the same matter arising under the construction contract.

[2.59]

New South Wales was the first Australian jurisdiction to introduce security of payment legislation. The New South Wales Act commenced operation on 26 March 2000, and was broadly based on the United Kingdom’s construction industry payment and adjudication legislation.64 Although the New South Wales Act was based upon the United Kingdom Act, there are some significant differences between the two Acts. These differences stem from the fact that the New South Wales Act provides a statutory payment system which is separate from, and runs alongside, the parties’ contractually agreed payment mechanism (see Figure 2.2), whereas the United Kingdom Act provides a means of enforcing the parties’ contractually agreed payment mechanism where one exists.

Figure 2.2: Separate statutory payment system under NSW, Vic, Qld, Tas, ACT and SA Acts

[2.60]

The New South Wales Act’s statutory payment system establishes a procedure that involves: (a) the making of a payment claim by the person claiming payment; (b) the provision of a payment schedule by the person by whom the payment is payable; (c) the referral of any disputed payment claim to an adjudicator for determination; and (d) the payment of the progress payment so determined.65

[2.61]

When a payment dispute is referred to adjudication under the New South Wales Act, the adjudicator will decide the dispute according to the payment provisions set out in the legislation. By contrast, under the United Kingdom legislation (see Figure 2.3), statutory adjudication seeks to enforce payment according to the payment provisions set out in the parties’ construction contract. [page 53]

Figure 2.3: Contractual payment scheme enforced by statutory adjudication under UK, WA and NT Acts

[2.62]

In the 10 years after the New South Wales Act commenced, security of payment legislation was progressively enacted throughout the other Australian states and territories. Victoria, Queensland, Tasmania, the Australian Capital Territory and South Australia originally modelled their Acts closely upon the New South Wales Act, introducing a separate statutory payment system. Western Australia and the Northern Territory, however, enacted legislation more closely based on the United Kingdom model, which gives primacy to the parties’ contractually agreed payment system. The existence of two distinct legislative models for security of payment in the Australian construction industry gave rise to many authors referring to the New South Wales Act and its close derivatives (the Victorian, Queensland, Tasmanian, Australian Capital Territory and South Australian Acts) as the ‘East Coast model’66 legislation, and the WA and NT Acts as the ‘West Coast model’67 legislation.

[2.63]

Due to the quite marked differences in the way the East Coast model Acts operate as compared to the West Coast model, the two different models will be considered separately.

The East Coast model security of payment legislation [2.64]

The East Coast model Acts were enacted very much with the financial protection of smaller contractors in mind. As the Minister stated in his second reading speech when introducing the legislation into the New South Wales Parliament:68 It is all too frequently the case that small subcontractors — such as bricklayers, carpenters, electricians and plumbers — are not paid for their work. Many of them cannot survive financially when that occurs, with severe consequences for themselves and their families.

[2.65]

Despite this small business focus, the New South Wales legislation covers payments of all sizes, ranging from a few

hundred dollars (or less) to hundreds of millions of dollars (or more). As a result, even the very largest head contractors are able to use the legislation to recover payments from their principals. [page 54] [2.66]

With the exception of the Tasmanian Act, the East Coast model Acts do not apply to contracts for the carrying out of residential building work. Residential work is defined as construction work carried out under a contract made directly with parties who intend to live in the dwelling being constructed (‘home owners’). Thus, head residential building contractors who contract directly with home owners are not able to benefit from the SoP legislation. Subcontractors (or suppliers) engaged by head residential building contractors, however, are covered by the legislation.

[2.67]

The Tasmanian Act is unique in that it covers construction contracts between ‘home owners’ and head building contractors. The Act prescribes the same East Coast model type statutory payment system for home owners as it does for commercial operators, but allows a home owner 20 (instead of the usual 10) business days to provide a payment schedule after being served with a payment claim by a head contractor.

[2.68]

At the time of their enactment, all the East Coast model Acts operated in a very similar manner to the originally enacted New South Wales Act. As time progressed and some of the earlier Acts were reviewed, however, several quite significant and differing amendments have occurred — in particular to the New South Wales, Queensland and Victorian Acts. Consequently, the present day situation is that a considerable degree of diversification exists between the once similar East Coast model Acts.

[2.69]

Although now quite diverse, the general operation of all the East Coast legislation still has certain common features, which are discussed below under the following headings: 1.

payment claims;

2.

due dates for payment:

3.

payment schedules and adjudication applications:

4.

adjudication responses: and

5.

adjudication proceedings and adjudicator’s decision.

Where key differences exist in any particular East Coast Act, these are identified and explained in text boxes at the relevant point in the text.

Payment claims [2.70]

In order to engage the East Coast model’s statutory payment system, the ‘claimant’ (building contractor or supplier) first needs to serve a statutory ‘payment claim’ on the ‘respondent’ (principal contractor or principal). A statutory payment claim must identify the construction work (or related goods and services) to which the progress payment relates, and must indicate the amount of the progress payment that the claimant claims to be due (the ‘claimed amount’). Furthermore, in Victoria, Queensland, Tasmania, the Australian Capital Territory and South Australia, the payment claim must state that it is made under the Act.

[2.71]

Only a claimant who has engaged the statutory payment system in this way may subsequently make an adjudication application under the East Coast model legislation. [page 55] New South Wales Act – Key Difference No requirement to endorse payment claims

Whilst it used to be the case that payment claims in New South Wales needed to state they were made under the Act, as from 21 April 2014 this endorsement is no longer required except for payment claims made by subcontractors (or suppliers) against their head contractors for residential work (ie, construction work carried out under a contract made directly with home owners who intend to live in the dwelling being constructed). This means that claimants in New South Wales can make an adjudication application in relation to a payment claim even if the payment claim does not state it was made under the Act. The removal of the payment claim endorsement was enacted by the New South Wales Parliament as there was strong anecdotal evidence to suggest that smaller subcontractors were reluctant to endorse their payment claims (and, therefore, could not use the Act) for fear that their principal contractors would cut them off from future work (B Collins, Final Report of the Independent Inquiry into Construction Industry Insolvency in NSW (2012), p 73). [2.72]

In practice, there is no reason why a statutory payment claim and a contractual payment claim cannot be made at the same time, as long as the statutory claim complies with the requirements of the Act (as discussed above) and, on its face, the progress payment claim document appears to be both contractual and statutory.69

[2.73]

Under the East Coast model legislation, contractors and suppliers have a right to progress payments (and, therefore, to make a statutory payment claim) on and from each reference date stated in the construction contract. Where the construction contract makes no express provision for ‘reference dates’, the legislation states that the reference dates are to be 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 subsequent named month. A claimant cannot serve more than one statutory payment claim in respect of each reference date under the construction contract. However, a claimant is allowed to include in a payment claim an amount which has been the subject of a previous payment claim. Payment claims may also be made for the final payment at the end of a contract.

[2.74]

A statutory payment claim may be served within the latter of: the period determined by the terms of the construction

contract; or a period specified in the Act70 after the construction work to which the claim relates was last carried out. [page 56]

New South Wales Act – Key Difference Head contractors must provide supporting statements with payment claims As a result of the amendments to the New South Wales Act which came into effect as from 21 April 2014, a head contractor must not serve a payment claim on the principal unless the claim is accompanied by a signed supporting statement that indicates that it relates to that payment claim. A supporting statement is defined as a statement that is in the form prescribed by the Regulations and that includes a declaration to the effect that all subcontractors, if any, have been paid all amounts that have become due and payable in relation to the construction work concerned. This includes retention amounts which have become due and payable, but excludes amounts in dispute between the head contractor and a subcontractor. Failure to comply with the requirement to provide a supporting statement may incur a maximum penalty of $22,000. Furthermore, a head contractor who submits a supporting statement knowing that the statement is false or misleading may incur a maximum penalty of $22,000 or 3 months imprisonment, or both. [2.75]

The amount of a statutory payment claim is to be valued in accordance with the contractual terms where they are provided. Such contractual terms are likely to exist for medium and large construction contracts. Where standard forms of construction contracts are used on commercial projects, express payment terms will likely provide for contractors to be paid for variations to the contract works, delay damages, latent conditions etc, in addition to the original contract works. Where there is a dispute regarding the valuation of such amounts which the contract expressly provides are permitted to be claimed in progress payments,71 as often occurs for example with respect to variations, the contractor may include in its statutory payment claim the amount it believes it should be paid for the disputed item under the contract.

[2.76]

Where the construction contract makes no express provision with respect to valuation of payment claims, the legislation provides that the construction work is valued having regard to: (i)

the contract price for the work, and

(ii) any other rates or prices set out in the contract, and (iii) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount, and (iv) if any of the work is defective, the estimated cost of rectifying the defect.72

[page 57] [2.77]

This means that where the contract remains silent as to valuation of the works for payment, the contractor will be restricted to including in its statutory payment claim an amount for the construction works actually carried out plus the value of any agreed (but not disputed) variations. Contracts with no express valuation provisions are more likely to exist between smaller contractors towards the bottom of the hierarchical contractual chain that exists on construction projects. Victorian Act – Key Difference Excluded amounts from payment claims With respect to the valuation of payment claims, the Victorian Act is unique amongst the East Coast model Acts in that it expressly prohibits certain classes of amounts from being taken into account in payment claims. These excluded amounts include, amongst others: amounts for variations to the contract works that are not ‘claimable variations’; amounts claimed under the contract for compensation due to the happening of an event including amounts related to latent conditions, time-related costs and changes in regulatory requirements; and any amount claimed for damages for breach of the construction contract or for any other claim for damages arising under the contract. The definition of ‘claimable variations’ under s 10A of the Victorian Act is somewhat detailed and complex. Essentially, the definition limits the amount of disputed variations that may be included in a statutory payment claim depending on the value of the construction contract.

Due dates for payment [2.78]

With the exception of the New South Wales Act, progress payments under the East Coast model legislation generally become due and payable: in accordance with the terms of the contract; or if the contract makes no express provision with respect to the matter, on the date occurring 10 business days73 after a payment claim is made. [page 58]

New South Wales Act – Key Difference Prompt payment provisions Prompt payment provisions were introduced as part of the reform to the New South Wales Act which came into effect as from 21 April 2014. The prompt payment provisions require that progress payments under a construction contract become due and payable on the date occurring 15 business days after a payment claim is made by a head contractor, and 30 business days after a payment claim is made by a subcontractor. A construction contract may provide for earlier due dates of payment than stipulated in the prompt payment provisions, but cannot provide for later due dates of payment. Tasmanian and Victorian Acts – Key Difference Liens over unpaid amounts If a progress payment becomes due and payable, under the Tasmanian and Victorian Acts the claimant is entitled to exercise a lien in respect of the unpaid amount over any unfixed plant or materials supplied by the claimant for use in connection with the carrying out of the building work or construction work for the respondent.

Payment schedules and adjudication applications [2.79]

Under the East Coast model’s statutory payment system, the legislation envisages four possible scenarios after a respondent has been served with a payment claim:

(i)

The respondent pays the payment claim amount in full by the due date;

(ii) The respondent duly serves a payment schedule on the claimant after the payment claim is served, and pays the scheduled amount in full by the due date; (iii) The respondent duly serves a payment schedule on the claimant after the payment claim is served, and then fails to pay the scheduled amount in full by the due date; or (iv) The respondent does not serve a payment schedule on the claimant within the required time period after the payment claim is served, and fails to pay the claimed amount in full by the due date. [2.80]

The East Coast model legislation provides that a respondent may serve a payment schedule within 10 business days74 after the payment claim is served. [page 59] If served, a payment schedule must: identify the payment claim to which it relates; indicate the amount of the payment (if any) that the respondent proposes to make; and if the scheduled amount is less than the claimed amount, give reasons for withholding payment. Queensland Act – Key Difference Time to serve payment schedules under the Queensland Act’s dual scheme Under key reform to the Queensland Act, which came into effect on 15 December 2014, a dual scheme for payment and adjudication was introduced. This dual scheme establishes two types of payment claim: ‘standard payment claims’ which are claims up to $750,000 in value (exclusive of GST), and ‘complex payment claims’ which are claims greater than $750,000 in value (exclusive of GST). The

dual scheme was introduced as the Queensland Parliament deemed that the preexisting ‘one size fits all’ approach was not appropriate for large claims. Under the Queensland Act’s dual scheme, a respondent has: 10 business days to serve a payment schedule after receiving a standard payment claim; 15 business days to serve a payment schedule after receiving a complex payment claim which was served on the respondent 90 days or less after the reference date to which the claim relates; and 30 business days to serve a payment schedule after receiving a complex payment claim which was served on the respondent more than 90 days after the reference date to which the claim relates.

[2.81]

If the respondent schedules an amount lesser than the payment claim, the claimant may choose to make an adjudication application under the Act (as illustrated in Figure 2.4). The adjudication application must be made in writing to an authorised nominating authority (ANA) of the claimant’s choice,75 with a copy served on the respondent, within 10 business days76 after receiving the payment schedule. [page 60]

Figure 2.4: Claimant’s options where amount in payment schedule is less than payment claim

An adjudication application must identify the payment claim and the payment schedule to which it relates, and may contain submissions from the claimant to support its payment claim amount. [2.82]

An ANA is a person who has been authorised in accordance with the Act to nominate adjudicators for the purposes of the Act. The ANAs operating in the East Coast model jurisdictions comprise a mixture of legal professional bodies or associations, construction professional bodies or associations, and private for-profit companies. Each ANA maintains its own panel of adjudicators. When the ANA receives an adjudication application from a claimant, it refers the application to one of its adjudicators. Queensland Act – Key Difference Adjudicator appointment As part of key reform to the Queensland Act which came into effect on 15 December 2014, claimants no longer make adjudication applications to ANAs in Queensland. Instead, adjudication applications are made to a single government Adjudication Registrar who refers adjudication applications to adjudicators. Adjudicators in Queensland need to be registered with the Adjudication Registrar. Amongst other functions, the Adjudication Registrar keeps a register containing details of adjudicators.

[2.83]

Where the respondent fails to pay the whole or part of the scheduled amount by the due date, the claimant may serve notice on the respondent of the claimant’s intention to suspend carrying out construction work (or supplying related goods and services) under the contract. The claimant may then choose to pursue one of [page 61] two alternative paths available under the Act in order to recover the outstanding payment claim (as illustrated in Figure 2.5). The first path is for the claimant to seek summary judgment in court for the debt due, in which case the Act

provides anti-suit provisions which disallow the respondent from bringing any cross-claim against the defendant in the summary judgment proceedings, or raising any defence in relation to matters arising under the construction contract. The second path is for the respondent to apply for the payment claim to be determined in adjudication,77 in which case the claimant must make an adjudication application to an ANA78 within 20 business days after the due date for payment (except in Victoria where the claimant only has 10 business days to make an adjudication application). Figure 2.5: Claimant’s options where amount in payment schedule is not paid in full by due date

[2.84]

If a payment schedule is not duly provided by a respondent within the required timeframe, the respondent becomes liable to pay the claimed amount on the due date for the progress payment. Where no payment schedule is provided and the respondent fails to pay the whole of the claimed amount on or before the due date for the progress payment, the claimant may serve notice of its intention to suspend carrying out construction work (or supplying related goods and services) under the contract, and may choose to pursue one of the two paths (as previously discussed) of either seeking summary

judgment in court for the debt due,79 or making an [page 62] adjudication application in order to recover the outstanding payment. As illustrated in Figure 2.6, if the claimant wishes to make an adjudication application under these circumstances, they must first: notify the respondent, within the period of 20 business days (except in Victoria80) immediately following the due date for payment, of its intention to apply for adjudication of the payment claim; and give another opportunity to the respondent to provide a payment schedule to the claimant within 5 business days (except in Victoria81) after receiving the claimant’s notice (often referred to as a ‘second chance payment schedule’). Figure 2.6: Claimant’s options where no payment schedule served and claimed amount not paid in full by due date

Adjudication responses [2.85]

As illustrated in Figure 2.7, a respondent who receives a copy

of an adjudication application from a claimant may lodge an adjudication response with the adjudicator at any time within: 5 business days82 after receiving a copy of the application; or 2 business days83 after receiving notice of an adjudicator’s acceptance of the application, whichever time expires later. [page 63]

Figure 2.7: Time allowed for lodging an adjudication response

New South Wales Act – Key Difference Payment withholding requests The New South Wales Act is unique among the East Coast model Acts in that it provides the opportunity for a claimant to require a ‘principal contractor’ (ie, the party who engaged, and is responsible for paying, the respondent) to retain sufficient money to cover the amount of the payment claim which is the subject of the adjudication application. The effect of this is similar to a charging order, freezing the disputed monies in the hands of the principal contractor and thereby preventing the use of the disputed monies by the respondent. In order to do this, a claimant, who has made an adjudication application, must serve a ‘payment withholding request’ on the principal contractor which includes a statutory declaration that the claimant genuinely believes that the amount of money claimed is owed by the respondent to the claimant. If necessary, the adjudicator

may, at the request of the claimant, direct the respondent to provide information to the claimant as to the identity and contact details of the principal contractor. The principal contractor is only obligated to retain monies out of any payment it owes to the respondent. If the principal contractor has already paid all the money it owes to the respondent before receiving the payment withholding request, it must notify the claimant of that within 10 business days after receiving the request.

[page 64] [2.86]

The adjudication response must be in writing, identify the adjudication application to which it relates, and may contain submissions from the respondent to support the amount stated in their previously served payment schedule.

[2.87]

In all the East Coast model Acts (apart from Queensland and Victoria — see text boxes below for further detail), if the respondent has failed to provide a payment schedule, they will be disallowed from lodging an adjudication response. This effectively means that a respondent will not then have an opportunity to be heard by an adjudicator, who is essentially limited to a consideration of the submissions duly made by the parties84 when determining the adjudication. Even in circumstances where the respondent has served a payment schedule, they may only include in any subsequent adjudication response reasons for withholding payment which have previously been included in the payment schedule. Thus, a respondent may be prevented from being able to present its full case to the adjudicator unless it has previously served a comprehensive payment schedule which covers all the issues it may wish to rely on subsequently. Queensland Act – Key Difference New reasons may be raised in adjudication response with respect to complex payment claims As part of key reform to the Queensland Act which came into effect on 15 December 2014, if the adjudication application is about a complex payment claim (defined as a claim for more than $750,000), the adjudication response may

include any reasons for withholding payment whether or not those reasons were included in the payment schedule when served on the claimant. If the respondent raises new reasons in the adjudication response, the claimant may give the adjudicator a reply to the new reasons (the claimant’s reply) within 15 business days after receiving a copy of the adjudication response. Furthermore, the claimant may apply to the adjudicator for an extension of time, of up to 15 additional business days, to give the claimant’s reply if, because of the complexity or volume of the new reasons, an extension of time is required to adequately prepare the claimant’s reply. New reasons for withholding payment, however, still cannot be included in adjudication responses in relation to standard payment claims (ie, up to $750,000 in value).

[page 65] Victorian Act – Key Difference New reasons may be raised in adjudication response The Victorian Act permits new reasons to be raised in adjudication responses relating to payment claims of any value. Section 21(2B) states: If the adjudication response includes any reasons for withholding payment that were not included in the payment schedule, the adjudicator must serve a notice on the claimant— (a) setting out those reasons; and (b) stating that the claimant has 2 business days after being served with the notice to lodge a response to those reasons with the adjudicator.

Adjudication proceedings and adjudicator’s decision [2.88]

The East Coast model legislation requires an adjudicator to make their determination of an adjudication application within 10 business days,85 although the East Coast model Acts are divided with respect to when the 10 business day period starts to run. Under the New South Wales and Victorian Acts, the period starts to run after the date on which the adjudicator notified the claimant and the respondent as to his or her acceptance of the application.86 Under the other East Coast model Acts, the period starts to run from after the date on which the adjudicator receives the adjudication response.87

Under all the East Coast model Acts, the prescribed 10 business day period for determination may be extended with the consent of the parties. Queensland Act – Key Difference Longer time period for adjudicator to determine complex payment claims As part of key reforms to the Queensland Act, which came into effect on 15 December 2014, the time period within which an adjudicator must determine an adjudication application about a complex payment claim (ie, more than $750,000) was extended to 15 business days. Where new reasons are raised by the respondent in its adjudication response and the claimant gives the adjudicator a claimant’s reply, the period for determination is extended until the day that is 15 business days after the day on which the adjudicator receives the reply.

[page 66] [2.89]

In conducting adjudication proceedings, the East Coast model legislation provides that an adjudicator may: request further written submissions from either party, and set deadlines for doing so; call a conference of the parties; and carry out an inspection of any matter to which the claim relates.

[2.90]

If the adjudicator requests any further written submissions from either party, then the adjudicator must give the other party an opportunity to comment on those submissions. If any conferences are called by the adjudicator, the parties are not entitled to any legal representation at the conference.

[2.91]

The adjudicator is to determine the amount of the progress payment (if any) to be paid by the respondent to the claimant (the ‘adjudicated amount’), the date on which any such amount became or becomes payable, and the rate of interest payable on it. If determination of an adjudication application involves the

valuation of any construction works (or related goods and services) under the contract which have been the subject of a previous adjudication application, the adjudicator is to give them the same value as that previously determined, unless the claimant or respondent satisfies the adjudicator that the value has changed since the previous determination. [2.92]

Under the East Coast model legislation, in determining an adjudication application the adjudicator is limited to a consideration of the following matters only: (a) the provisions of the Act, (b) the provisions of the construction contract from which the application arose, (c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim, (d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule, (e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.88

[2.93]

Where a certificate of value for progress payment has been duly issued under the contract, such certification has been held by the courts not to be binding on an adjudicator.89

[2.94]

The adjudicator’s determination must be in writing, and include the reasons for the determination. The adjudicator, either on their own initiative or on application of [page 67]

either party, may correct any clerical errors, arithmetical errors, or accidental slips or omissions in their determination. [2.95]

The East Coast model legislation requires that a respondent pay any adjudicated amount stated in the determination on or before the relevant date, which is 5 business days after the date on which the adjudicator’s determination is served on the respondent, unless the adjudicator determines a later date.

[2.96]

An adjudicator’s determination is binding on the parties to the construction contract in the interim, up until the time a court judgment or arbitration award is made concerning the matter arising under the construction contract. Thus, following an adjudication determination, if neither party initiates court or arbitration proceedings, the adjudicator’s determination will remain binding.

[2.97]

Where a respondent fails to pay the whole or any part of the adjudicated amount to the claimant, the claimant may request the ANA (or in Queensland, the Adjudication Registrar) to whom the adjudication application was made to provide an adjudication certificate. Further, the claimant may serve notice on the respondent of the claimant’s intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract. The claimant may then file the adjudication certificate as a judgment debt in any court of competent jurisdiction, and it is enforceable accordingly. The adjudication certificate must be accompanied by an affidavit from the claimant stating that the whole or any part of the adjudicated amount has not been paid at the time the certificate is filed.

The West Coast model security of payment legislation [2.98]

The West Coast model legislation includes the Western

Australian and Northern Territory Acts (and Regulations), which have very similar provisions to each other. As previously mentioned, unlike the East Coast model legislation, the West Coast model legislation does not operate a dual payment system, but rather payment claims referred to in the Act are those made under the contractual regime (see Figure 2.3). [2.99]

Under the West Coast model legislation, if the construction contract does not contain written payment provisions, then default payment procedure provisions are implied into the contract. These default implied provisions are contained in the Schedule to the West Coast model Acts and cover such matters, amongst others, as variations, entitlement to be paid, entitlement to claim progress payments, making claims for payment, responding to claims for payment, time for payment and retention monies.

[2.100]

In other words, the West Coast model legislation does not establish a separate statutory payment mechanism, but rather provides default payment provisions to fill in any gaps there might be within the express contractual payment mechanism. Thus, where express payment provisions are fully provided for in the construction contract, there will be minimal interference with the parties’ agreed payment mechanism. [page 68]

[2.101]

Having said this, the West Coast model legislation does require that if the contract purports to require a payment to be made more than 50 days after the payment is claimed, it is to be read as being amended to require the payment to be made within 50 days after it is claimed.90

Implied payment provisions where no written provision in the contract

[2.102]

As mentioned above, the Schedule to the West Coast model Acts provides default payment provisions to be implied where a construction contract contains no equivalent written provisions. Whilst it is beyond the scope of this book to discuss the detail of all these implied provisions, certain of the key implied provisions are discussed below. Where the contract makes no written provision on the matter: A payment claim means a claim — by the contractor to the principal for payment of an amount in relation to the performance by the contractor of its obligations under the contract; or by the principal to the contractor for payment of an amount in relation to the performance or non-performance by the contractor of its obligations under the contract. A claim by the contractor for a progress payment can be made at any time after the contractor has performed any of its obligations. The amount of a payment claim is to be calculated on one of the following bases: If the contract states the contractor is to be paid a lump sum for performance of all its contractual obligations, ‘the proportion of the contract sum that is equal to the proportion that the obligations performed and detailed in the claim are of the total obligations’; if the contract states that the contractor is to be paid in accordance with rates specified in this contract, ‘the value of the obligations performed and detailed in the claim calculated by reference to those rates’; or ‘in any other case — a reasonable amount for the obligations performed and detailed in the claim.’ Payment of any undisputed payment claims, or undisputed parts of payment claims, must be made within 28 days after a party receives a payment claim. If a party that receives a payment claim disputes the whole or

part of the claim, the party must, within 14 days after receiving the claim, give the claimant a ‘notice of dispute’ which identifies each item of the claim that is disputed and states the reasons for disputing it. [page 69]

Adjudication proceedings and adjudicator’s decision [2.103]

The Western Australian Act provides that a party to the contract must apply to have a payment dispute adjudicated within 28 days after the dispute about payment arises. Under the Northern Territory Act, this period is 90 days.

[2.104]

A dispute arises if ‘by the time when the amount claimed in a payment claim is due to be paid under the contract, the amount has not been paid in full, or the claim has been rejected or wholly or partly disputed’.91

[2.105]

Within 14 days after the date on which a party is served with an adjudication application, the party must prepare a written response to the application and serve it on the applicant and appointed adjudicator. The West Coast model legislation does not prohibit a party from raising new reasons for withholding payment in its adjudication response that were not previously raised in a notice of dispute.

[2.106]

The parties to the adjudication have the option to either agree on an individual adjudicator, or on a prescribed appointor to select an adjudicator for them. If neither an adjudicator nor a prescribed appointor is appointed by the parties, the party applying for adjudication may serve their application on a prescribed appointor of their choice. There are eight prescribed appointors listed in both the Western Australian and Northern Territory Regulations, comprising a mixture of construction professional bodies or associations and legal professional

bodies or associations. Adjudicators must be registered and the Building Commissioner (in WA) or Construction Contracts Registrar (in NT) must keep a register of registered adjudicators. [2.107]

If an adjudication application is served on a prescribed appointor, the appointor must within 5 days select an adjudicator, send the adjudication application and any response received by it to the adjudicator, and notify the parties and the Building Commissioner (WA Act) or Construction Contracts Registrar (NT Act) in writing accordingly. If a prescribed appointor does not make an appointment, the Building Commissioner or Registrar may appoint a registered adjudicator to adjudicate the payment dispute concerned.

[2.108]

With respect to the period of time within which an adjudicator must make their determination, the Western Australian Act requires determination within 14 days and the Northern Territory Act within 10 working days after the date of the service of the response to the adjudication application. This period of time may be extended with the consent of the parties.

[2.109]

In the adjudication proceedings, an adjudicator may: (a) request further written submissions from either party, and set deadlines for doing so, (b) call a conference of the parties, and [page 70] (c) unless all the parties object — (i)

inspect any work or thing to which the payment dispute relates,

(ii) arrange for anything to which the payment dispute relates to be tested, provided the owner of the thing consents to the testing,

(iii) engage an expert to investigate and report on any matter relevant to the payment dispute.92 [2.110]

The West Coast model legislation does not contain any restriction on legal representation during adjudication proceedings.

[2.111]

The adjudicator must determine, on the balance of probabilities, whether any party to the payment dispute is liable to make a payment and, if so, determine the amount to be paid, any interest upon it, and the date on or before which it is to be paid. The adjudicator ‘is not bound by the rules of evidence and may inform himself or herself in any way he or she thinks fit’.93 This potentially allows an adjudicator to investigate the payment dispute beyond the consideration of the parties’ submissions.

[2.112]

The West Coast model legislation allows an adjudicator to dismiss an adjudication application within the prescribed time for determination, without making a determination of its merits, if satisfied that it is not possible to fairly make a determination because of the complexity of the matter or the prescribed time or any extension of it is not sufficient for any other reason.94

[2.113]

The adjudicator’s determination must be in writing, and include the reasons for the determination. The adjudicator, either on their own initiative or on application of either party, may correct clerical errors, arithmetical errors, or accidental slips or omissions in their determination.

[2.114]

An adjudicator’s determination is binding on the parties to the construction contract in the interim, up until the time a court judgment or arbitration award is made concerning the matter arising under the construction contract. If, subsequent to the adjudicator’s determination, neither party initiates court or arbitration proceedings, the adjudicator’s determination will,

therefore, remain binding. [2.115]

The West Coast model legislation provides the right for a contractor to give the principal notice of the contractor’s intention to suspend the performance of its contractual obligations where the principal has not complied with the adjudicator’s determination. Where a party does not comply with an adjudicator’s determination, the other party may, with the leave of a court of competent jurisdiction, enforce the adjudicator’s determination in the same manner as a judgment or order of the court. For the purposes of such enforcement, the adjudicator’s determination must be signed by the adjudicator and certified by the Building Commissioner (WA), or Construction Contracts Registrar (NT), as having been made by a registered adjudicator. [page 71]

Liens and charges [2.116]

There are three Australian state enacted statutes currently in operation that, in certain circumstances, entitle subcontractors in the construction industry to liens and/or charges over particular assets of third party employers, principals or building owners for the monies owed by a defaulting principal contractor. These Acts are the: Subcontractors’ Charges Act 1974 (Qld); Contractors Debts Act 1997 (NSW); and Worker’s Liens Act 1893 (SA).

[2.117]

Whilst all of the Acts are concerned with protecting the rights of subcontractors to be paid, their ability to improve the security of payment problem has significant limitations. Not least of these limitations is that all these Acts require litigation in order to enforce the statutory liens or charges they create.

The operation of each Act, and their limitations with respect to improving the security of payment problem, are discussed below.

Subcontractors’ Charges Act 1974 (Qld) [2.118]

The Subcontractors’ Charges Act 1974 (Qld) enables a subcontractor to create a statutory charge, in the nature of a security interest, over the monies (including any retention and security monies) payable to the contractor who has engaged the subcontractor (the subcontractor’s contractor) from its own employer or superior contractor. Thus, as illustrated in Figure 2.8, a subcontractor (C) may create a charge over the monies owed to the subcontractor’s contractor (B) by B’s own employer (A). Similarly, a subcontractor further down the contractual chain (D) may create a charge over the monies owed to the subcontractor’s contractor (C) by C’s superior contractor (B). This enables a subcontractor to gain some protection from their defaulting and/or insolvent principal contractor by facilitating a process whereby monies are frozen in the hands of the principal contractor’s paymaster pending final contractual resolution of a payment dispute through the courts. Figure 2.8: Illustration of subcontractors’ charges within the contractual chain

[page 72] [2.119]

As stated by the Minister95 when introducing the legislation to parliament:96 The objects of the Act are to secure payment of money due to subcontractors by placing the onus on the principal to retain certain money payable to the contractor until the court in which the claim is heard directs to whom and in what manner the same is to be paid.

[2.120]

The first step in creating a statutory charge is for the subcontractor to serve a ‘notice of claim of charge’ on both its contractor and the employer (or superior contractor), who owes the money to the subcontractor’s contractor. The notice of claim of charge must specify the amount and particulars of the claim in relation to the relevant work certified,97 as prescribed by a qualified person.98 The notice must be supported by a statutory declaration from the subcontractor. Such a notice can be served at any time during the subcontract period, even after the external administration of the principal contractor has commenced.99 A notice of claim of charge may be given although the work is not completed or the time for payment of the money in respect of which the charge is claimed has not arrived. However, the notice must be served within 3 months after the completion of the work which forms the basis of the claimed amount.

[2.121]

Within 14 days after the notice of the claim of charge is given, the recipient subcontractor’s contractor must give a notice (the ‘contractor’s notice’) to its employer (or superior contractor) by whom the money is payable and also to the subcontractor. This notice must specify that the subcontractor’s contractor either: (a) accepts liability to pay the amount claimed; or (b) disputes the claim; or (c) accepts liability to pay the amount (the stated amount)

stated in the contractor’s notice, but otherwise disputes the claim. [2.122]

Where the contractor’s notice accepts liability for all or any part of the amount claimed by the subcontractor, the employer or superior contractor must pay the amount stated in the notice to the subcontractor. If the subcontractor’s contractor disputes the subcontractor’s claim in whole or in part, the subcontractor must take steps to enforce the outstanding amount of the charge by commencing proceedings in a court of competent civil jurisdiction. Such proceedings must be commenced within one month100 after the subcontractor’s notice of claim of charge has been given. Failure to meet this timeframe101 will lead to the charge being extinguished. [page 73]

[2.123]

There are several potential complications, or pitfalls, however, which might thwart a subcontractor’s attempt to successfully create or enforce a charge. Firstly, charges may be overturned by the court if the subcontractor’s notice of claim of charge is not properly drafted, does not contain the relevant details or is not given within the prescribed time frame. Secondly, the subcontractor can only lodge a charge on money owed to the subcontractor’s contractor by its employer (or superior contractor). Therefore, if there is no money owing from the employer to the subcontractor’s contractor, a charge will be of no use to the subcontractor. Thirdly, if more than one subcontractor has served a charge notice on the building contractor, the money owed by an employer to the building contractor will often be insufficient to meet the claims of all the subcontractors. Where the building contractor has become insolvent, it is indeed quite likely that several subcontractors will have served charge notices. In such circumstances, any insufficiency in the money owed by the employer must be borne by the subcontractors who have a charge in proportion

to the amounts of their claims. Fourthly, an employer may defend the subcontractor’s action to enforce the charge in court by reference to any offsetting claims the employer may have against the building contractor. [2.124]

Furthermore, a subcontractor who has lodged, or is planning to lodge, a valid charge needs to be wary of lodging a proof of debt or resolving to accept any deed of company arrangement during the insolvency administration of the contractor. A subcontractor may forfeit its right to assert a charge if it lodges a proof of debt under a deed of company arrangement.102 Additionally, a subcontractor who votes in favour of such a deed is usually bound by its terms,103 which may have the effect of invalidating any charge they have, or could have lodged,104 and relegate the subcontractor to the position of an unsecured creditor.105

[2.125]

The numerous pitfalls associated with the use of the Subcontractors’ Charges Act 1974 (Qld) have led to much criticism. For example, the Queensland Building Services Authority states: [I]n practical terms the actual application of the [Subcontractors’ Charges] Act has proved, on numerous occasions, to be an extremely frustrating experience for the majority of parties involved. Indeed it seems on many occasions that the only winners in these matters have been the lawyers representing their clients. Matters are not normally quickly resolved and the legal costs associated in pursuing payments from building contractors has [sic] forced a significant number of subcontractors not to proceed with actions initiated.106

[2.126]

Notably, a subcontractor cannot bring an action using the Subcontractors’ Charges Act 1974 and apply for an adjudication under the Building and Construction Industry Payments Act 2004 (Qld) — the subcontractor must choose either one or the other. [page 74]

Contractors Debts Act 1997 (NSW) [2.127]

The Contractors Debts Act 1997 (NSW) is similar to the Subcontractors’ Charges Act 1974 (Qld) in that it allows for a subcontractor to recover payment directly from the defaulting contractor’s principal107 for work or materials that the principal engaged the defaulting contractor to carry out or supply under a contract. The mechanism provided for achieving this, however, differs between the two Acts. The Contractors Debts Act allows: (i)

a subcontractor to seek from the court an attachment order against the defaulting contractor’s principal for the amount it claims is owed from the building contractor; and

(ii) assignment to the subcontractor of the principal’s contractual obligation to pay the amount of money owed108 to the defaulting contractor. [2.128]

Once a subcontractor has commenced legal proceedings109 to recover payment against the defaulting contractor, the subcontractor may apply to the court to make an attachment order with respect to the money owed. An attachment order may be granted by the court only if: (i)

the defaulting contractor owes the subcontractor money for work carried out or materials supplied by the subcontractor; and

(ii) the work or materials are, or are part of or incidental to, work or materials for which the defaulting contractor is to be paid under a contract with the principal against whom the order is sought. [2.129]

The effect of an attachment order is to freeze the money that is payable, or becomes payable to the subcontractor, in the hands of the defaulting contractor’s principal, thus preventing payment of that money by the principal to the defaulting contractor until judgment is given in the relevant proceedings initiated by the subcontractor against the defaulting contractor,

or until the court otherwise orders. [2.130]

In order for assignment of the principal’s payment obligation to occur for the amount owed to it by the defaulting contractor, the subcontractor must serve on the principal a notice of claim together with a copy of a debt certificate. A subcontractor may apply to the court for a debt certificate when it has obtained judgment110 in any proceedings relating to the recovery of the money it is owed from the contractor for work carried out or materials supplied.111 The subcontractor may also request [page 75] a debt certificate from the court if and when lodging an adjudication certificate obtained under the Building and Construction Industry Security of Payment Act 1999 (NSW). However, this may not necessarily be a desirable course of action as it will require a separate application to the court in relation to which the court may require a hearing.

[2.131]

If a debt certificate is issued in respect of a debt owed to a subcontractor by a defaulting contractor, the defaulting contractor must, on the demand of the subcontractor, supply to the subcontractor the names of any persons from whom the subcontractor may be able to recover the debt. The Act further provides that if a principal fails to pay a debt assigned to a subcontractor, the subcontractor can obtain payment of the debt out of money that is payable to the principal by some other person.

[2.132]

The support which the Act provides to subcontractors’ cash flow is, however, ‘handicapped by the time and cost involved with court action’.112 Furthermore, the right of recovery under the Act is subject to any defence that the principal would have had against recovery by the defaulting contractor.113

Worker’s Liens Act 1893 (SA) [2.133]

The Worker’s Liens Act 1893 (SA) provides a subcontractor or a worker114 with two potential paths by which to recover debts for work or materials which have been done, supplied or manufactured under a contract with a defaulting contractor.

[2.134]

Firstly, the Worker’s Liens Act provides that a subcontractor or worker shall have a charge over any money payable by the ‘owner’ to the defaulting contractor in respect of work done or materials furnished or manufactured by the subcontractor or worker.115 For a charge to avail as to any monies due from the owner to the defaulting contractor, the subcontractor must give notice of such charge to the owner. The subcontractor has a period of 28 days after payment has become due116 to bring an action in court to enforce the charge otherwise the charge will lapse.

[2.135]

Secondly, a subcontractor or worker is granted a lien limited to the extent of the unpaid portion of the contract price on the estate or interest in land of any owner provided that the work is done, or materials used, with the assent of the owner. A subcontractor [page 76] who is owed money by the contractor under the contract may register such a lien117 within 28 days of the money becoming due. The lien will cease unless an action is brought against the owner for enforcement of the lien within 14 days from the date of registration.118

[2.136]

A registered lien is deemed to be a caveat forbidding the registration of any dealing with the estate or interest sought to be affected by the lien, unless the dealing is expressed to be subject to the claim of the subcontractor. A lien is particularly

powerful where a building is constructed for sale on completion, such as a speculative development by an owner. In such cases, the registration of a lien often leads to the early resolution of a dispute.119 [2.137]

An owner may relieve themselves of liability with respect to either a lien or a charge by payment into court of the amount claimed. In the event that judgment is obtained in proceedings by a subcontractor against its defaulting principal contractor for the unpaid amount and the owner fails to pay the money owed, the court may order the enforcement of the lien by issuing a writ or warrant for the sale of the estate or interest in land which is the subject of the lien.

[2.138]

Despite the paths it offers for debt recovery, the worker’s liens legislation has come under much criticism for being ineffective in practice, particularly for employee workers and smaller subcontractors whom the legislation was originally intended to protect. The practical problems with the legislation were discussed in detail by the Northern Territory Department of Justice120 in its discussion paper reviewing the operation, and recommending the repeal, of the old Workmen’s Liens Act (NT), which was in all material respects the same as the Worker’s Liens Act 1893 (SA). Following this recommendation, the Northern Territory Parliament repealed the Workmen’s Liens Act upon the commencement121 of the Construction Contracts (Security of Payments) Act (NT).122 In his second reading speech for the Construction Contracts (Security of Payments) Bill (NT), the Minister summarised many of the problems associated with the operation of the workmen’s liens legislation (NT) as follows: Until now, their [subcontractors’] only recourse was to register a lien against the title to land upon which the construction works were carried out, or to which materials were supplied in respect of those works, and then to litigate. The time limits and technical requirements of the Workmen’s Liens Act often meant that contractors lost their right to

[page 77] have a lien registered against the title. It also meant that titles would be encumbered by liens when disputes proceeded slowly through the courts. Sometimes the owner of the land would only be a spectator in a dispute between a contractor and a subcontractor. Whilst the registration of a lien may have given some security of payment, it did little to speed up the payment process.123 [2.139]

Further, it has been noted that ‘the registration of a lien against land may be detrimental to an owner who is in no way at fault’.124 The worker’s liens legislation has also been heavily criticised for being antiquated and obscure,125 which has led to ‘conflicting judicial opinions as to the meaning of its sometimes puzzling language’. 126

Industrial relations127 [2.140]

The regulatory framework with respect to industrial relations in the Australian construction industry is complex mainly due to the sheer volume of relevant law which is contained within various relevant Acts and legislative instruments. It is beyond the scope of this book to give a detailed review of the industrial relations laws. However, an overview of the applicable legislation and its contents will be given.128

[2.141]

There are essentially three key tiers of industrial relations laws which apply to employees and employers in the construction industry, as shown in Figure 2.9. The first tier is to be found in the Fair Work Act 2009 (Cth), which establishes a national system for the regulation of workplace relations in Australia. The second tier is to be found in the Fair Work (Building Industry) Act 2012 (Cth), which establishes a dedicated industrial relations regulator for the construction industry. The third tier exists in the form of the Building Code 2013, which sets out industrial relations rules which must be followed by contractors and construction industry participants if they wish to tender for Commonwealth Government funded work.

[page 78]

Figure 2.9: Key industrial relations legislation affecting the construction industry

The national workplace relations system [2.142]

The Fair Work Act is the primary statute regulating industrial relations and employment conditions across all industries throughout Australia and, as such, sets up a national workplace relations system which is regulated jointly by two regulatory bodies established under the Act: the Fair Work Commission and the Fair Work Ombudsman. As a Commonwealth statute, the Act covers employees of the Commonwealth Government and constitutional corporations. The Act also covers employees of non-incorporated private entities (such as sole traders and partnerships) throughout Australia except for Western Australia, which unlike the other states and territories did not refer its constitutional law-making powers over nonincorporated entities to the Commonwealth.129 In Western Australia, employees of non-incorporated private entities are covered by the state’s Industrial Relations Act 1979 (WA).

Despite their referrals of power, each of the other states retains its own state-based industrial relations legislation, which is generally limited in its coverage to state public sector and local government employees.130 [page 79] [2.143]

The Fair Work Act generally only covers industrial relations between employers and their employees. It does not, except for limited purposes, cover relationships between employers and any independent contractors they engage. Accordingly, the legal status of a worker will need to be determined in order to see whether they will be afforded the protections of the Fair Work Act. As such, the legal distinction between an employee and an independent contractor is of paramount consideration. Whilst it is often the case that the status of a worker is clear cut — for example where a worker receives a salary, superannuation contributions, paid annual leave, and follows the instruction of their employer as to how to do their work — there are also several cases where the dividing line between employee and independent contractor is not so easy to draw. This is particularly so in the construction industry where subcontracting is so prevalent. Over the years, there have been many tests devised by the courts to assess whether the relationship between a worker and their paymaster amounts to an employer–employee relationship. These tests have tended to focus on the question of how much control the worker has, and to what extent the worker has to follow directions, when carrying out their work. Examples of relevant questions considered by the courts in such tests include, amongst many others, whether a worker receives a periodic salary or is paid according to completion of work, is supplied with tools by their employer or supplies their own tools, may only work for the employer or is free to work for other employers etc. The current common law approach to determining a worker’s employment relationship status is to weigh up the relevance of the answers

to such questions and take an overall view as to the nature of the relationship. This is known as the ‘multiple indicia’ test.131 [2.144]

The rules set out in the Fair Work Act that cover employers and employees within the national workplace relations system may be categorised into five main areas: employee entitlements, industrial action, general protections, and the establishment of two independent regulatory bodies to facilitate and enforce the Act.

Employee entitlements — the National Employment Standards and modern awards [2.145]

The Fair Work Act ensures that all employees covered by the national workplace relations system in Australia are entitled to, at least, certain minimum terms and conditions. The Act achieves this by establishing ‘safety nets’ in the form of the National Employment Standards (NES) and modern awards. The NES prescribe 10 base minimum employment standards which include, amongst others: maximum weekly hours, requests for flexible working arrangements, parental leave, annual leave, personal leave, notice of termination and redundancy pay. An employment contract cannot exclude or provide for conditions less favourable than those prescribed in the NES.

[2.146]

On top of the NES, the Act provides additional minimum entitlements for employees working in various industries and occupations via modern awards. Modern awards [page 80] may typically include, amongst others, minimum requirements as to wages, overtime and penalty rates, work arrangements (eg, rostering or variations to working hours), superannuation, and procedures for settling disputes between the employer and

employee. There are 122 industry and occupation modern awards which between them cover most employees working in Australia, together with a small number of enterprise (single business) awards. Modern awards are reviewed by the Fair Work Commission every four years. The most relevant modern awards to the building and construction industry include: the Building and Construction Award, which covers employees doing general building and construction, civil construction, and metal and engineering construction works on site; the Electrical Award, which covers electricians and electrical trade assistants and labourers; the Plumbing Award, which covers plumbers, gasfitters, plumber’s labourers, irrigation installers, fire technicians, and sprinkler fitter tradespersons; and the Clerks – Private Sector Award, which covers clerical staff working in the construction industry, such as receptionists, administrative assistants etc.

Employee entitlements — enterprise agreements [2.147]

The Fair Work Act also makes provision for an employer and its employees to make their own enterprise agreements132 covering employment conditions within their organisation. Enterprise agreements must not exclude or reduce entitlements in the NES, but they may provide extra entitlements. Employees can appoint a party to be their representative during the enterprise bargaining process with an employer. Often this bargaining representative will be a trade union. Bargaining representatives (including employers) are required to bargain in good faith — responding to proposals made by, and giving genuine consideration to the proposals of, other bargaining representatives. Where disputes occur during bargaining, a party may apply to the Fair Work Commission for dispute resolution.

[2.148]

[2.149]

An enterprise agreement will only come into effect if voted for by a majority of the affected employees, and approved by and registered at the Fair Work Commission. In order to receive approval from the Fair Work Commission, the enterprise agreement must pass the ‘better off overall test’ which requires that each of the employees to be covered by the agreement is better off overall than under the relevant modern award. Where a registered enterprise agreement exists, the minimum conditions in the agreement will override those in any relevant modern award. The Fair Work Act permits enterprise agreements to be made in relation to new enterprises (known as ‘greenfields’) of an employer before any employees are employed on the new enterprise. For this purpose, a new enterprise may include a [page 81] new construction project. Thus an existing building contractor could enter into a new enterprise agreement to specifically cover their employees working on the new construction project. As the Australian Industry Group states: Commonly head contractors and subcontractors support the use of project-specific pattern agreements on major projects as industrial risk is reduced and working conditions can be aligned with the needs of the project. There is nothing unlawful or inappropriate about a head contractor developing a greenfields agreement for a project, and then making that agreement available to subcontractors to adopt as an enterprise agreement should they freely choose133 to do so.134

[2.150]

There has been some concern, however, from building contractors and their professional associations about the practice of pattern bargaining being encouraged across building sites by trade unions in the construction industry.135 In this context, pattern bargaining occurs where a union prepares an agreement which it then adopts as a pattern to be imposed upon several employers through a ‘sign up or else’ strategy.136 This has been of particular concern where the

pattern agreement contains conditions perceived by the building contractor to be costly and unproductive — such as restrictive provisions relating to the engagement of subcontractors and labour hire, and expansive provisions relating to union entry rights onto the construction site.137 These concerns exist despite the Fair Work Act outlawing industrial action in support of pattern agreement.

Industrial action [2.151]

Industrial action — such as lock outs138 by an employer, or strikes139 and work bans140 by employees — may lawfully be taken under the Fair Work Act 2009 for two reasons: (i)

By employees, when bargaining for a new registered enterprise agreement141 has been unsuccessful and certain other requirements have been met including, amongst others, that: the existing enterprise agreement has expired; the parties have genuinely tried to reach an agreement in good faith; the proposed industrial action has been authorised by secret ballot; and notice has been given to the employer regarding the nature and timing of the industrial action.

(ii) By employers or employees, in response to industrial action taken by the other party in support of a new agreement. [page 82] [2.152]

In order to conduct a secret ballot of employees with respect to industrial action, an employees’ bargaining representative will need to apply to the Fair Work Commission for a protected action ballot order. The Fair Work Commission will only make

such an order if it is satisfied that the bargaining representative has been, and is, genuinely trying to reach an agreement with the employer of the employees who are to be balloted. [2.153]

Employees who take part in lawful industrial action are given certain protections — hence the Act refers to ‘protected industrial action’. For instance, civil action cannot be taken against the party for damages (such as financial losses suffered due to work stoppage) caused to the other party by the industrial action.142 Furthermore, an employee is protected from being dismissed, or discriminated against, by their employer as a result of having participated in protected industrial action. An employee is not entitled to be paid for the duration of the period they are engaged in protected industrial action. If industrial action is taken by an employee under any circumstances other than those required for protected industrial action, it will be deemed ‘unprotected industrial action’. If unprotected industrial action occurs, participating employees will not receive immunity from civil actions, and the Fair Work Commission can make an order to stop or prevent the industrial action.

[2.154]

In a situation where an employee refuses to work based upon a reasonable concern about an imminent risk to their health or safety, as quite often occurs on construction sites, the employee will not be considered to be taking industrial action (and, therefore, is entitled to be paid) as long as the employee did not unreasonably refuse a direction of their employer to perform other work which it is safe for them to do.143

Employee protections [2.155]

The Fair Work Act also provides general protections to safeguard workplace rights and freedom of association.144 Freedom of association refers to a party’s right to freely choose whether or not to associate with an industrial or professional organisation, such as an employee’s right to decide to join a

trade union. [2.156]

The general protections prohibit, amongst other things, ‘adverse action’ because of a personal attribute (eg, race, gender, sexual orientation) or association with industrial activities (eg, becoming a member of a trade union or taking part in protected industrial action).

[2.157]

The general protections also cover sham contracting. Sham contracting occurs when, in an attempt to avoid paying modern award wage rates and/or employee benefits (eg, superannuation contributions, annual leave entitlements), an employer misrepresents their relationship with a worker as one of employer–independent contractor when, [page 83] in fact, it should be an employer–employee relationship. Sham contracting can also occur where an employer lays off an employee from their job, only to rehire them to perform essentially the same duties as an independent contractor.

[2.158]

Employees who have worked for at least 6 months for an employer, or 12 months in the case of an employer with fewer than 20 employees, are also protected against unfair dismissal.145 This occurs where an employee’s dismissal was harsh, unjust or unreasonable (eg, without a valid reason related to the employee’s conduct). But a dismissal will not be unfair if it was a case of genuine redundancy.146

[2.159]

The Fair Work Act also provides for trade union officials to have a ‘right of entry’ to a workplace under certain conditions for the purpose of investigating a contravention of the Fair Work Act, or a fair work instrument (eg, a modern award or registered enterprise agreement), or work health and safety laws. An official may also enter workplaces to hold discussions

with current or potential union members. In order to enter premises, the official must have a valid and current entry permit from the Fair Work Commission. In deciding whether to issue such a permit, the Fair Work Commission will consider factors such as whether the official has received training about their rights and responsibilities as a permit holder, and whether the official has ever been convicted of an offence against an industrial law. The Fair Work Commission can revoke, suspend or impose conditions on an entry permit.147

Independent regulatory bodies [2.160]

The Fair Work Act establishes two independent regulatory bodies: the Fair Work Commission and the Fair Work Ombudsman. The Fair Work Commission is responsible for, amongst other things, making and reviewing modern awards, facilitating and approving enterprise agreements, regulating the taking of industrial action, and resolving disputes between employers and employees. On application by a party, the commission may resolve disputes about unfair dismissal, general protections (eg, adverse action or sham contracting issues), and issues arising under an enterprise agreement. The dispute resolution methods used by the commission may include conciliation, mediation, determinative conferences and arbitration hearings.

[2.161]

The main roles of the Fair Work Ombudsman are to provide information and education about the national workplace relations system, and ensure compliance with Australian workplace laws. In order to ensure compliance, the Ombudsman may assess complaints or suspected breaches of workplace laws, awards and registered enterprise agreements and, if it deems appropriate, litigate to enforce workplace laws. [page 84]

Fair Work (Building Industry) Act 2012 (Cth) [2.162]

The Fair Work (Building Industry) Act 2012 (FWBI Act) introduced into parliament by the Gillard Labor Government established Fair Work Building and Construction (FWBC) to replace the Office of the Australian Building and Construction Commissioner (ABCC) as the dedicated regulator for national workplace relations in the construction industry. The FWBI Act covers the construction, alteration, extension, restoration, repair, demolition and dismantling of permanent and temporary buildings or structures on land (including land beneath water).148 However, certain types of building work are excluded from the scope of the Act, such as domestic housing of four single-dwelling homes or less and off-site prefabrication. The ABCC was originally established on 1 October 2005 under the now repealed Building and Construction Industry Improvement Act 2005 (Cth) (BCII Act) introduced into parliament by the Howard Coalition Government, following the recommendations of the Cole Royal Commission into the Building and Construction Industry149 which found that the industry was characterised by a widespread disregard for the law.

[2.163]

The enactment of the FWBI Act marked a general reduction in the investigative powers given to the industry regulator, a relaxation of the construction industry specific laws that existed in the old BCII Act, and a reduction in the level of penalties for breaches of industrial law. In November 2013, the Abbott Coalition Government introduced the Building and Construction Industry (Improving Productivity) Bill 2013 (BCI Bill) into parliament with the aim of substantially strengthening regulation of industrial relations in the construction industry by: re-establishing the ABCC along with its original investigative powers; introducing new industry-specific limits on industrial action;

and issuing a new Building Code imposing more stringent obligations on building contractors (see below for further detail). [2.164]

Although the BCI Bill was defeated in the Senate in August 2015, the reintroduction of the ABCC and the reforming measures proposed in the bill very much remain as policy for the current Turnbull Coalition Government.

[2.165]

FWBC’s role is very similar to that of the Fair Work Ombudsman, but focused on the construction industry. As such, FWBC provides information and educates the industry about the national workplace relations system, and investigates and takes legal action against breaches of workplace laws. Without the industry-specific provisions of the repealed BCII Act and the extra investigative powers of the former ABCC, FWBC essentially reinforces regulation of the laws set out in the Fair Work Act in the construction industry. [page 85]

The national Building Code 2013 [2.166]

The national Building Code 2013 is a legislative instrument (subordinate legislation) which is given legal force by virtue of s 27(1) of the Fair Work (Building Industry) Act 2012 (Cth).150 The Building Code 2013 should not be confused with the technical building code issued by the Australian Building Codes Board (which is discussed in [2.33]–[2.36] above) — they are entirely separate codes. The aim of the Building Code 2013 is primarily to encourage productivity and lawful workplace relations on building sites, with the potential sanction being disqualification from work on Commonwealth-funded construction projects.

[2.167]

The Building Code 2013 does not automatically apply to all building contractors. The Code will only directly apply to a building contractor once they submit an expression of interest (EOI) or a tender for Commonwealth-funded construction work, whether before or after the commencement of the Code. This includes all building and construction work directly funded (either in whole or part) by the Commonwealth regardless of project value, and projects which receive significant151 indirect funding (eg, in the form of grants) by the Commonwealth. Thus, compliance with the Code is enforced via the Commonwealth Government’s procurement policy.

[2.168]

If the building contractor is awarded the Commonwealthfunded project, it must ensure that both it and its subcontractors152 comply with the Code whilst working on the project. Furthermore, a building contractor who has been awarded a Commonwealth-funded project must ensure that it follows the Code on all other projects it works on in the future, including privately funded projects. Even where a building contractor, who submitted an EOI or tender for a Commonwealth-funded project, is not awarded the project, it must ensure that it follows the Code on all other projects it works on in the future including privately funded projects. Although, in the situation where a building contractor who is subject to the Code works on privately funded jobs, it does not have to ensure its subcontractors are Code compliant.

[2.169]

The Building Code 2013 supplements, promotes and reinforces the requirements of the Fair Work Act. The FWBC website153 lists the most significant requirements of building contractors who are subject to the Code as: to adopt policies that protect freedom of association, including ensuring that persons are free to become, or not become, members of a union; [page 86]

to ensure that a contractor, subcontractor or consultant is not coerced, or directly or indirectly subjected to undue influence or pressure, to make an over-award payment; to comply with all court and tribunal decisions, directions and orders; to ensure that a contractor, subcontractor or consultant is not coerced, or a person is not directly or indirectly subjected to undue influence or pressure, to contribute to a particular redundancy or superannuation fund; not to engage in activity that requires, or attempts to unduly influence, a subcontractor or supplier to have particular workplace arrangements in place; not to bargain for certain types of written agreements that, for example, cannot be certified, registered, lodged or otherwise approved under a designated building law; to comply with all building industry laws, such as the Fair Work (Building Industry) Act 2012 and the Fair Work Act and other relevant legislation including the Competition and Consumer Act 2010; to ensure all contracts with subcontractors specifically require the Building Code to be complied with at the time of lodging an EOI or tender; or in the absence of an EOI or tender process, before entering into a contract; to proactively ensure compliance with the Building Code by subcontractors, including by confirming compliance at site or project meetings; to report actual or threatened industrial action to the FWBC Director as soon as practicable after the action or threat occurs; and to ensure that the FWBC Director is notified of any alleged breaches of the Building Code and voluntary remedial action taken within 21 days of becoming aware of the breach. [2.170]

FWBC monitors compliance of building contractors with the Code through site visits, site inspections and audits. FWBC may refer any breaches of the Code to the Code Monitoring

Group, who will decide whether to impose sanctions, which typically will be in the form of tendering bans or reduced tendering opportunities for Commonwealth-funded projects. [2.171]

On 17 April 2014, the Commonwealth Government published an advance release of the Building and Construction Industry (Fair and Lawful Building Sites) Code 2014. This new 2014 Code was intended to replace the Building Code 2013 once the Building and Construction Industry (Improving Productivity) Bill 2013 (BCI Bill) was passed through parliament. However, since the BCI Bill was defeated in the Senate in August 2015, commencement of the 2014 Code has, for now, been stalled. If eventually brought into force, the 2014 Code will bring in new and tougher rules, particularly for trade unions representing employees on building sites. For example, clauses and practices not permitted under the 2014 Code include, amongst others: requiring contractors to employ a non-working shop steward or job delegate; and ‘one in, all in’ clauses where, if one person is offered overtime, all the other workers must be offered overtime whether or not there is enough work.154 [page 87]

[2.172]

Significantly, if and when it ever commences, the government has indicated that the 2014 Code will apply in respect of enterprise agreements made on or after 24 April 2014. Hence, any building contractors who have entered enterprise agreements on or after 24 April 2014 that are non-compliant with the 2014 Code will not be able to tender for, or be awarded, Commonwealth-funded building work. This means that effectively, enterprise agreements are currently being bargained and made in the shadow of the 2014 Code — even though it remains unclear whether the Senate will ever approve

either the 2014 Building Code or the BCI Bill under which it is to be made.

The state Building Codes [2.173]

In addition to the national Building Code 2013, New South Wales155 and Queensland156 have their own codes of practice for the building and construction industry, which purport to supplement the national Building Code 2013. These state codes apply to all state public building and construction work that is the subject of an expression of interest or request for tender. The Queensland and NSW Codes apply to construction consultants as well as building contractors. The Queensland Code only applies to private sector projects when expressly provided for. The NSW Code applies to privately funded projects unless expressly excluded. The Queensland Code places an additional requirement to provide a Workplace Relations Management Plan.

[2.174]

South Australia also has a Code of Practice for the construction industry,157 adopted in May 2013, which was initiated by the private sector through the SA Construction Industry Forum. This Code must be observed by all parties engaged in the construction industry for South Australian Government managed or fully or partly funded projects. Other industry participants who wish to implement the Code as it may apply to their own projects, operations and/or membership are encouraged to do so, although such adoption is not compulsory.

Work health and safety (WHS) [2.175]

On 3 July 2008, the Council of Australian Governments (COAG) committed to harmonising the diverse occupational health and safety (OHS) laws that existed throughout Australia by signing an intergovernmental agreement (IGA) to that

effect.158 Under this IGA, the Commonwealth, state and territory governments agreed to jointly fund an Australian government agency — Safe Work Australia — to, amongst [page 88] other things, improve and raise awareness of work health and safety, and harmonise work health and safety laws throughout Australia.159 [2.176]

The Model Work Health and Safety Act (finalised in June 2011) and the Model Work Health and Safety Regulations (finalised in November 2011) have been developed under the IGA. This model legislation was intended to form a basis for harmonisation of the existing state and territory occupational health and safety (OHS) legislation via its adoption by each of the legislatures. To date, such harmonisation has been achieved to a limited extent, with the model legislation having been largely adopted in all states and territories with the exceptions of Victoria and Western Australia.

[2.177]

Each state and territory retains its own legislation (as shown in Table 2.5) which has been amended (except for Victoria and WA) to achieve harmonisation; although many jurisdictions have enacted the model legislation with some variations.160 Each state and territory has also retained its own work health and safety regulator.161 The model legislation has been enacted at Commonwealth level to cover work carried out on land owned by the Commonwealth. Table 2.5: Work health and safety legislation in Australia State/Territory

Legislation

Harmonisation status

Commonwealth

Work Health and Safety Act 2011 Work Health and Safety Regulations 2011

Harmonised

Australian Capital

Work Health and Safety Act 2011

Harmonised

Territory

Work Health and Safety Regulations 2011

New South Wales

Work Health and Safety Act 2011 Work Health and Safety Regulations 2011

Harmonised

Northern Territory

Work Health and Safety (National Uniform Legislation) Act 2011 Work Health and Safety (National Uniform Legislation) Regulations

Harmonised

Queensland

Work Health and Safety Act 2011 Work Health and Safety Regulations 2011

Harmonised

South Australia

Work Health and Safety Act 2012 Work Health and Safety Regulations 2012

Harmonised

Tasmania

Work Health and Safety Act 2012 Work Health and Safety Regulations 2012

Harmonised

Victoria

Occupational Health and Safety Act 2004 Occupational Health and Safety Regulations 2007

Not Harmonised

Western Australia

Occupational Safety and Health Act 1984 Occupational Safety and Health Regulations 1996

Not Harmonised

[page 89] [2.178]

The Victorian Government has stated that it will not be adopting the model health and safety laws in their current form.162 A draft harmonising Work and Health Safety Bill 2014 is in the process of being finalised by the Western Australia Government for introduction into parliament.

WHS requirements for construction projects under the model legislation

[2.179]

The model legislation provides laws specific to work health and safety for construction projects where the cost of construction work is $250,000 or more163 in Ch 6 of the Model Work Health and Safety (WHS) Regulations. The types of construction work covered by Ch 6 include the construction, alteration, conversion, fitting-out, commissioning, renovation, repair, maintenance, refurbishment, demolition, decommissioning or dismantling of a structure. There are certain exceptions from the meaning of construction work under Ch 6, including the manufacture of plant, off-site prefabrication of elements, and testing, maintenance and repair work of a minor nature.

[2.180]

For the purposes of imposing duties and responsibilities with respect to work health and safety on construction projects, the WHS model legislation identifies two categories of persons. These are: a person conducting a business or undertaking (PCBU);164 and a principal contractor.165

[2.181]

The default position under the legislation is that a PCBU that commissions a construction project is the principal contractor for the construction project. However, if the PCBU that commissions the project engages another person conducting a business or undertaking as principal contractor for the construction project and authorises that person to have management or control of the workplace and to discharge the duties of a principal contractor under Ch 6 of the model regulations, the person so engaged is the principal contractor for the project.166 This means that in practice it is typically the head building contractor who has been engaged by the building owner or developer who becomes the principal contractor for the purposes of the legislation. If the owner of residential premises engages a person conducting a business or undertaking to undertake a construction project in relation to the premises, the person so engaged is the principal contractor for the project if the person has management or

control of the workplace.167 A construction project may only have one principal contractor at any specific time.168 [page 90] [2.182]

If a PCBU that commissions a construction project engages a principal contractor for the project, that PCBU must give the principal contractor any information it has in relation to hazards and risks at or in the vicinity of the workplace where the construction work is to be carried out.169

[2.183]

The other duties which the WHS model legislation imposes may be divided into those required in the design stage and those required in the construction stage of the construction project. Duties during the design stage include: A designer must ensure any plant, substance or structure is designed to be without risks to the health and safety of persons who use, handle or store the plant, substance or structure, or who construct the structure.170 A PCBU that commissions construction work must consult with the designer of the structure about: how to ensure that risks to health and safety arising from the design during the construction work are eliminated, so far as is reasonably practicable; or if it is not reasonably practicable to eliminate the risks, minimised so far as is reasonably practicable.171 The designer must give the PCBU who commissioned the design a written report that specifies the hazards relating to the design of the structure that create a risk to the health or safety of persons who are to carry out any construction work on the structure or part.172

[2.184]

Duties during the construction stage include, amongst others, that a principal contractor must: Ensure that signs are installed that show the principal

contractor’s name, telephone contact numbers, and location of the site office for the project, and the signs are clearly visible from outside the workplace where the construction project is being undertaken.173 Prepare a written WHS management plan for the workplace before work on the project commences,174 ensure the plan is reviewed and revised as necessary to keep it up-to-date,175 and is kept until the project is completed.176 Ensure that each person who is to carry out construction work on the project is, before commencing work, made aware of: the content of the WHS management plan for the workplace, and the person’s right to inspect the WHS management plan under the Regulations.177 [page 91] Ensure that the site is secured from unauthorised access.178 Ensure that a safe work method statement has been prepared before the commencement of any high risk construction work179 on site, and is complied with, reviewed, and kept until the high risk work is completed.180 Ensure that general management duties to remove health and safety risk from the workplace are met,181 such as: layout of the workplace to allow safe movement; management of risk of falling objects; preparation of an emergency evacuation plan; ensuring workers are not exposed to hazardous levels of airborne substances; and provision of sufficient lighting, adequate sanitary facilities, first aid, and personal protective equipment. The Regulations impose a duty upon the individual worker to use or wear any personal protective equipment provided in accordance with any information, training or reasonable instruction by the PCBU.182 Manage risks to health and safety associated with: the storage, movement and disposal of construction materials and waste at the workplace;

the storage at the workplace of plant that is not in use; and traffic in the vicinity of the workplace that may be affected by construction work carried out in connection with the construction project.183 [2.185]

Furthermore, a PCBU who employs construction workers must ensure that its workers have completed general construction (or ‘white card’184) induction training before allowing them to carry out construction work.185

OHS requirements for construction projects under the Victorian and WA legislation [2.186]

The Victorian legislation creates a special health and safety role for principal contractors of construction projects worth $350,000 or more. In Victoria, the owner of the workplace is the principal contractor, unless the owner has appointed and authorised another person to manage or control the workplace, in which case that person is the principal contractor.186

[2.187]

The Western Australian legislation imposes occupational health and safety duties onto a ‘main contractor’. The main contractor is defined in the Regulations as: [page 92] (a) the person for whose direct benefit all the work done at a construction site exists upon its completion; or (b) if the person mentioned in paragraph (a) has engaged another person, other than as his or her employee, to do or cause to be done all the work at the construction site, the other person so engaged.

[2.188]

The occupational health and safety duties imposed on the principal/main contractor under the Victorian187 and Western Australian legislation are broadly similar to those in the model

WHS legislation.

Codes of practice for safe working in the construction industry [2.189]

Safe Work Australia has developed numerous codes of practice — such as the codes of practice for safely removing asbestos, working in confined spaces, and carrying out demolition work — to provide practical guidance on how to meet the requirements under the WHS Act and Regulations. Many of these codes have been given legal effect by virtue of having received statutory approval under the work health and safety legislation.188 As such, compliance with an approved code of practice would satisfy the health and safety duties under the WHS legislation. Approved codes of practice are also admissible in court proceedings as evidence of what is known about a hazard, risk or control and the courts may rely on an approved code in determining what is reasonably practicable in the circumstances to which the code relates.189

__________________________ 1

Australian Bureau of Statistics, 2011-12 Private Sector Construction Industry Australia, 8772.0.

2

Australian Constructors Association/Australian Industry Group, State of Play – The Australian Construction Industry in 2008, The Australian Industry Group, November 2008, at p 19.

3

In 2015/16, the general company tax rate is 28.5%, except for small business entities which are taxed at 30%.

4

According to the Corporations Act s 1.5.10.1, a proprietary company is small if it satisfies at least two of the following tests: gross operating revenue of less than $10 million for the year; gross assets of less than $5 million for the year; fewer than 50 employees at the end of the year.

5

As reported by the Governance Institute of Australia, Difference between private and public company structure under the Corporations Act.

6

Australian Constructors Association/Australian Industry Group, State of Play – The Australian Construction Industry in 2008, The Australian Industry Group, November 2008, at p 19.

7

See further [1.86] above for a discussion about joint and severable liability.

8

For further discussion on the legal distinction between a subcontracting relationship and an employer/employee relationship, see [4.104]–[4.105] below.

9

As previously discussed in [2.2].

10

Inequality of bargaining power refers to the weak bargaining position which smaller businesses find themselves in when negotiating contracts with larger businesses. Often smaller trade contractors

will accept contractual terms unfavourable to themselves upon the insistence of the principal contractor who regularly employs them for fear of losing future work. 11

B Collins, Final Report of the Independent Inquiry into Construction Industry Insolvency in NSW (2012), at 77. Subsequent to this finding, the NSW Parliament introduced prompt payment provisions into the Building and Construction Industry Security of Payment Act 1999 (NSW) requiring that progress payments under a construction contract become due and payable on the date occurring no later than 15 business days after a payment claim is made by a head contractor, and no later than 30 business days after a payment claim is made by a subcontractor.

12

As previously discussed in [1.81] above.

13

Australian Securities and Investments Commission, Liquidation: a guide for creditors, Information Sheet 45, 30 January 2012.

14

Corporations Act s 556.

15

Although, according to s 561 of the Corporations Act, claims by employees for unpaid entitlements have priority over secured creditors with floating (but not fixed) charges.

16

Corporations Act s 436A.

17

Australian Securities and Investments Commission, Creditors – Voluntary Administration, Australian Securities and Investments Commission website, at http://asic.gov.au/regulatoryresources/insolvency/insolvency-for-creditors/creditors-voluntary-administration/#10.

18

To be binding on all creditors, a DOCA must be voted for by a majority of the company’s creditors at a meeting held about five weeks after the administrator’s appointment.

19

The Official Receiver is an office set up under the Bankruptcy Act to carry out statutory functions related to bankruptcy.

20

Acceptance of a composition requires the majority of creditors, in accordance with s 64ZBA(3) of the Bankruptcy Act to vote in favour of its acceptance.

21

See Bankruptcy Act s 73.

22

BIS Shrapnel Report, NSW Construction Activity and Insolvencies (November 2012).

23

Queensland Building Services Authority, Security of Payment Discussion Paper, Queensland Building Services Authority, South Brisbane, 2001, at 7.

24

WA Security of Payment Taskforce, Security of Payment Taskforce for the Western Australian Building and Construction Industry: Report to the Minister for Housing and Works, Department of Housing and Works, West Perth, 2001, at 7.

25

Australian Procurement and Construction Council, National Action on Security of Payment in the Construction Industry in Australia, Deakin West, ACT, 1996, at 1.

26

WA Security of Payment Taskforce, n 24, at 8.

27

Queensland Building Services Authority, n 23, at 7.

28

Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) Ltd (1973) 71 LGR 162 at 167 per Lord Denning.

29

As previously discussed in [2.8] above.

30

See Environmental Planning and Assessment Act 1979 (NSW); Planning and Environment Act 1987 (Vic); Sustainable Planning Act 2009 (Qld); Planning and Development Act 2005 (WA); Development Act 1993 (SA); Land Use Planning and Approvals Act 1993 (Tas); Planning and

Development Act 2007 (ACT); Planning Act (NT). 31

For example, the Victorian Civil and Administrative Tribunal (VCAT) in Victoria; or the Environment, Development and Resources Court in South Australia.

32

See [2.33]–[2.41] below for further details.

33

The author wishes to acknowledge and thank Troy Olds, SA State Manager of Tecon Australia, and President of the Australian Institute of Building Surveyors, SA Chapter, for reviewing the Building Control section.

34

See Environmental Planning and Assessment Act 1979 (NSW); Building Act 1993 (Vic); Building Act 1975 (Qld); Building Act 2011 (WA); Development Act 1993 (SA); Building Act 2000 (Tas); Building Act 2004 (ACT); Building Act (NT).

35

Also sometimes called building rules consent (SA), or a construction certificate (NSW), or building development approval (Qld).

36

See further [1.60] above.

37

The Australian Building Codes Board is a Council of Australian Government codes and standards writing body, established by an intergovernmental agreement, that is responsible for developing the technical building code in Australia.

38

Australian Building Codes Board, National Construction Code Series 2012, Volume Two, Building Code of Australia Class 1 and Class 10 Buildings, s F2.4.2.

39

Australian Building Codes Board, National Construction Code Series 2012, Volume Two, Building Code of Australia Class 1 and Class 10 Buildings, s 3.8.2.2.

40

Government published guidelines as to how to prepare suitable inspection schedules exist. For example, see Guidelines for Inspection of Class 2 to 9 Buildings, published by the Department of Housing and Works, Queensland Government.

41

Or certificate of classification in Queensland.

42

See, for example, Building Act 1993 (Vic) s 238, which authorises a building surveyor’s reliance on a registered building practitioner.

43

See Home Building Act 1989 (NSW); Building Act 1993 (Vic); Queensland Building and Construction Commission Act 1991 (Qld); Building Services (Registration) Act 2011 (WA); Building Work Contractors Act 1995 (SA); Building Act 2000 (Tas); Construction Occupations (Licensing) Act 2004 (ACT); Building Act (NT).

44

These classes have been taken from the Building Work Contractors Regulations 2011 Sch 2, Pt 3.

45

The NSW legislation recognises two categories of home building contract. The higher value category of contracts are afforded additional protection under the legislation.

46

As per the NSW legislation (see n 57), the Queensland legislation is similarly categorised.

47

Part 2 (ss 8–28) of the Victorian Act (which covers amongst other things implied warranties, deposits, cost escalation clauses, and provisional sums) applies to all domestic building contracts. Part 3 (ss 29–43) of the Victorian Act (which covers amongst other things builder registration, contract formalities and cooling-off period) only applies to major domestic building contracts.

48

Building Act 1993, Domestic Building Insurance Ministerial Order, published in the Victoria Government Gazette, No. S 98, 23 May 2003.

49

With the exception of the Western Australian legislation, which instead provides for a four-month defects liability period.

50

With the exception of Tasmania.

51

Except for SA, which is 5 years.

52

2 years in ACT and NSW; 1 year in Queensland.

53

See, for example, Home Building Act 1989 s 18C; Building Work Contractors Act 1995 (SA) s 32(4).

54

See, for example, Home Building Act 1989 s 18D; Building Work Contractors Act 1995 (SA) s 32(3).

55

See NSW Act ss 7 and 7AAA; Qld Act Sch 1B, ss 13 and 14; SA Act s 28; Vic Act s 31; WA Act s 4.

56

See NSW Act s 7BA and NSW Reg r 7; Qld Act ss 35–39; SA Act s 36; Vic Act ss 34 and 35.

57

See NSW Act s 8; NT Regs r 41HE(1); Qld Act Sch 1B, s 33; SA Regs r 17(d); Tas Act s 20(b) and (c); Vic Act s 11; WA Act s 10(1)(a)(i).

58

See NT Regs r 41HE(2); Qld Act Sch 1B, s 34; SA Act s 30; Vic Act s 40; WA Act s 10.

59

See NSW Act Sch 2, s 1; Qld Act Sch 1B, ss 40 and 41; Vic Act s 37; WA Act s 7.

60

See SA Act s 29; Vic Act ss 15 and 16; WA Act s 13.

61

The NT Act refers to ‘security of payments’.

62

N Speranza, ‘An evaluation of Australian security of payment and United States construction lien Law’, 27 Building and Construction Law at 171.

63

See Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd [2012] QCA 276; HM Hire Pty Ltd v National Plant & Equipment Pty Ltd [2013] QCA 6.

64

The Housing Grants, Construction and Regeneration Act 1996 (UK), which commenced on 1 May 1998, was the first construction industry payment and adjudication legislation to be enacted internationally.

65

NSW Act s 3(3).

66

So called because of the east coast location of NSW, Victoria and Queensland — the first three Acts to introduce this particular legislative model.

67

So called because of the west coast location of WA, the pioneering Act of this particular model in Australia.

68

Morris Iemma, NSW Parliamentary Debates, Legislative Assembly, 29 June 1999, at 427.

69

See Beckhaus v Brewarrina Council [2002] NSWSC 960 at [65] per Macready AJ.

70

12 months in NSW, Tasmania, ACT; 6 months in Queensland and South Australia; 3 months in Victoria.

71

Most commercial standard forms of construction contracts provide for a contract superintendent to assess the value of progress payments. Although the contract superintendent is under a legal duty to carry out such a certifying role fairly, the fact that the contract superintendent is usually paid by the contract principal may cast doubt in the mind of a contractor or supplier as to the impartiality of the assessment.

72

NSW Act s 10(1)(b).

73

Except in the SA Act which allows 15 business days – SA Act s 11(1)(b).

74

Except for: the South Australian Act which allows 15 business days for the serving of payment schedules with respect to all payment claims; the Queensland Act which allows longer for the serving of payment schedules with respect to payment claims more than $750,000 in value (see textbox below for further details); and the Tasmanian Act which allows 20 business days for the

serving of payment schedules in relation to payment claims on residential construction contracts. 75

Except for Queensland where the adjudication application is made to a single government Adjudication Registrar. Notably, in South Australia, the Review of Building and Construction Industry Security of Payment Act 2009 (SA), prepared by Alan Moss on 12 March 2015, recommends that all adjudication applications be made to the South Australian Small Business Commission as the sole ANA; although this recommendation is yet to be acted upon by the South Australian Parliament.

76

Except in the SA Act which allows 15 business days — SA Act s 17(3)(c).

77

In practice, the majority of claimants choose this second path as it is generally speedier to enforce an adjudicator’s determination under the Act than seek summary judgment from the court.

78

Except for Queensland where, as previously discussed, the adjudication application is made to a single government Adjudication Registrar.

79

Before taking such a court action in Queensland, s 19(5) of the Queensland Act requires that the claimant give the respondent a notice of their intention to take court action, and allow the respondent another 5 business days to serve a payment schedule as stated in the notice.

80

The Victorian Act provides 10 business days.

81

The Victorian Act provides 2 business days.

82

Except in the Tasmanian Act which provides 10 business days, the ACT Act which allows 7 business days, and the Queensland Act which provides 10 business days for adjudication responses in relation to standard payment claims and 15 business days for adjudication responses in relation to complex payment claims.

83

Except in the Tasmanian and ACT Acts which allow 5 business days, and the Queensland Act which provides 7 business days for adjudication responses in relation to standard payment claims and 12 business days for adjudication responses in relation to complex payment claims.

84

Namely, the payment claim, the payment schedule and all submissions that have been duly made in their support.

85

Except in the Queensland Act for adjudication applications concerning complex payment claims (more than $750,000) for which 15 business days are allowed or longer where the claimant gives the adjudicator a claimant’s reply in accordance with s 24B of the Queensland Act.

86

NSW Act s 21(3)(a); Vic Act s 22(4)(a).

87

Qld Act s 25(3)(a); Tas Act s 24(1)(a); SA Act s 21(3)(a); ACT Act s 23(3)(a).

88

See, for example, NSW Act s 22(2).

89

John Holland Pty Ltd v Roads and Traffic Authority of New South Wales (2007) 23 BCL 434; [2007] NSWCA 19 at [38].

90

See, for example, WA Act s 10.

91

WA Act s 6(a); NT Act s 8(a).

92

WA Act s 32(2); NT Act s 34(2).

93

WA Act s 32(1)(b) and NT Act s 34(1)(b). Note that the NT Act substitutes the word ‘appropriate’ for ‘fit’ in this provision.

94

See WA Act s 31(2)(a)(iv); NT Act s 33(1)(a)(iv).

95

The Honourable William Knox.

96

As seen in Queensland Building Services Authority (2001), Security of Payment Discussion Paper, Queensland Building Services Authority, South Brisbane, at 17.

97

For definition of the work covered by the Subcontractors’ Charges Act 1974 (Qld), see ss 3 and 3AA of the Act.

98

A qualified person is defined in s 10A(1) of the Act, and includes a registered architect and registered engineer.

99

Re Stockport (N.Q.) Pty Ltd (2003) 127 FCR 291 at 305–6.

100Or, in the case of retention monies only, within 4 months after such retention money or the balance

thereof is payable and no later: Subcontractors’ Charges Act 1974 (Qld) s 15(1)(a). 101 In Queensland v Walter Construction Group [2005] QS 241, it was held that the one month limitation

period for commencement of proceedings will be suspended where the contractor is in voluntary administration as s 15 of the Subcontractors’ Charges Act 1974 (Qld) should be read together with s 451D of the Corporations Act. 102 Seventeenth Canute Pty Ltd v Bradley Air Conditioning Pty Ltd (in liq) [1987] 1 Qd R 11. 103 Re Stockport (N.Q.) Pty Ltd (2003) 127 FCR 291 at 297. 104 For example, see Seventeenth Canute Pty Ltd v Bradley Air Conditioning Pty Ltd (in liq) [1987] 1 Qd R

11. 105 A Shepherd, S Guthrie and S Pyman, ‘Subcontractors’ Charges Act and Proofs of Debt — Beware the

Double Dip’, Australian Construction Law Newsletter (90), 2003, 51-53 at 52. 106 Queensland

Building Services Authority, Security of Payment Discussion Paper, Queensland Building Services Authority, South Brisbane, 2001, at 18.

107 The Contractors Debts Act 1997 (NSW) uses the term ‘principal’ in lieu of ‘employer’ as found in the

Subcontractors’ Charges Act 1974 (Qld). 108 The court has held that money owed for the purposes of the Contractors Debts Act 1997 (NSW) does

not include uncalled security, such as a performance bond issued by a bank, provided by a contractor to a principal: see George Feros Memorial Hostel Committee Incorp v Hammat Constructions Pty Ltd (2001) 17 BCL 66. 109 It

has been held that the reference of a dispute to arbitration under a contract amounts to commencement of proceedings for the purposes of the Contractors Debts Act 1997 (NSW): see De Martin and Gasparini Pty Ltd v Ex Parte Energy Australia Pty Ltd & Austin Australia Pty Ltd [2000] NSWSC 55 at [27].

110 Including a default judgment: Contractors Debts Act 1997 (NSW) s 7(5). 111

Contractors Debts Act 1997 (NSW) s 7(1).

112 S

Mort and R Riddell, Contractors’ Debts Act 1997, Gadens Lawyers, Sydney, Building and Construction Update, November 2010.

113 JB Dorter and JJA Sharkey, Building & Construction Contracts in Australia, NSW, Lawbook Co,

Pyrmont, NSW, 2007, at 2661. 114 A worker is an employee of either the builder owner, building occupier, building contractor or

subcontractor. 115 Worker’s Liens Act 1893 (SA) s 7. Note that the amount of a worker’s charge is limited to a maximum

of $200. No such limit, however, is stated with respect to a subcontractor.

116 According to Worker’s Liens Act 1893 (SA) s 10(2), for the purposes of the Act, an amount becomes

due for payment if unpaid for 7 days after the money (being payable) has been demanded by notice in writing given to the defaulting contractor who is liable to pay the money. 117 A subcontractor may register a lien by lodging in the General Registry Office a notice in the

prescribed form accompanied by the prescribed fee: see s 10(3) of the Worker’s Liens Act 1893 (SA). 118 For discussion of all the significant decisions on the worker’s liens legislation from South Australia

and the Northern Territory, see R Fenwick Elliott, The Workers’ Liens Casebook, Adelaide, FEG Services Pty Limited, 2010. 119 T Grace, Worker’s Liens and Unlicensed Builders, Fenwick Elliott Grace, Construction Law Update,

2008. 120 Northern Territory Department of Justice, Review of the Operation of the Workmen’s Liens Act — How

to Better Protect Payments Due to Subcontractors in the Northern Territory, Darwin, NT, Northern Territory Department of Justice, Northern Territory Government, 2002, at 30. 121 On 1 August 2006. 122 See Construction Contracts (Security of Payments) Act (NT) s 66. 123 PH Toyne, NT Parliamentary Debates, Legislative Assembly, 14 October 2004. 124 Law Reform Commission of Western Australia, Contractors’ Liens, Project No 54, Perth, WA, 1974, at

[35]. 125 Jovista Pty Ltd v Pegasus Gold Australia Pty Ltd (Unreported, NT Supreme Court, Bailey J, 4

February 1999) at 5, as cited in Northern Territory Department of Justice, n 120, at 27. 126 Leichardt Development Co Ltd v Pipeline Properties Pty Ltd (1989) 62 NTR 1 per Angel J, as cited in

Northern Territory Department of Justice, n 120, at 27. 127 The

author wishes to acknowledge and thank Andrew Stewart, John Bray Professor of Law, University of Adelaide for reviewing the Industrial Relations section.

128 For a detailed review of industrial relations law in Australia, see A Stewart, Stewart’s Guide to

Employment Law, 5th edition, The Federation Press, Annandale, NSW, 2015. 129 The reason for WA’s non-referral appears to have been political, with WA’s Liberal government

disagreeing with the industrial relations reform introduced in the Fair Work Act 2009 (Cth) by the Labor Commonwealth government at the time. 130 Both state public sector and local government employees are covered by state-based industrial

relations legislation in NSW, Queensland and South Australia. In Tasmania, state public sector employees are covered by state-based industrial relations legislation and local government employees by the national system. In Victoria, both state public sector and local government employees are generally covered by the national system. 131 See [4.104]–[4.105] below for further discussion of this test. 132 Enterprise

agreements have previously been known as ‘workplace agreements’ or ‘collective agreements’.

133 Coercion of its subcontractors by a head contractor to adopt their enterprise agreement would be

unlawful. 134 Australian Industry Group, Enterprise Bargaining and Agreement Making Workshop Paper, National

PIR Conference, 5 & 6 May 2014, at 15. 135 See, for example, Australian Construction Industry Forum, Australian Construction Industry Forum

Policy Compendium 2014, April 2014, at 17; Australian Industry Group, n 134. 136 Australian Construction Industry Forum, n 135. 137 Australian Industry Group, n 134. 138 Where employees are locked out of the workplace by their employer. 139 Where employees refuse to attend or perform work. 140 Where employees limit the amount (such as overtime bans) or type of work they perform. 141 Although protected industrial action is not permitted when bargaining for greenfields or multi-

enterprise agreements. 142 Although a party taking lawful industrial action may still be sued for injuring another person,

damaging or stealing property, and defamation. 143 Fair Work Act 2009 (Cth) s 19(2)(c). 144 These general protections also generally apply to independent contractors as well as employees. 145 The unfair dismissal provisions only apply to employees and not independent contractors. 146 Genuine redundancy occurs when the employee’s job position is no longer needed by the employer’s

business due to changes in operational requirements. To rely on this defence, the employer must have complied with any consultation obligations and explored any redeployment options for the employee. 147 Fair Work Ombudsman, Right of Entry Fact Sheet, Australian Government, January 2014. 148 For a more detailed definition, see the FWBI Act s 5. 149 T

Cole, Final Report of the Royal Commission into the Building and Construction Industry, Commonwealth of Australia, February 2003.

150 As such, the Building Code 2013 covers the same scope of building works as defined in s 5 of the

FWBI Act. 151 For indirectly funded projects, the Code applies where the Commonwealth has contributed: at least

$5 million which represents at least 50 per cent of the total project value, or $10 million or more regardless of the proportion of total project value. 152 In order to achieve this, a head contractor must ensure all of its contracts with subcontractors

include a term requiring Code compliance. Model contract clauses for this purpose are suggested in the Building Code 2013 – Supporting Guidelines for Commonwealth Funding Entities, 1 February 2013, published by the Australian Government Department of Employment. 153 http://www.fwbc.gov.au/building-code-2013-0, accessed on 23 October 2015. 154 FWBC website at http://www.fwbc.gov.au/building-code-2014, accessed on 23 October 2015. 155 Code of Practice for Procurement, NSW Government, 18 January 2005; also see Implementation

Guidelines to the New South Wales Code of Practice for Procurement: Building and Construction, NSW Government, July 2013. 156 Queensland Code of Practice for the Building and Construction Industry, Queensland Government,

August 2000. 157 Code

of Practice for the South Australian Construction Industry, May 2013, published by the Construction Industry Forum with the support of the Government of South Australia through the Department of Planning, Transport and Infrastructure.

158 Inter-Governmental Agreement for Regulatory and Operational Reform in Occupational Health and

Safety.

159 It should be noted that Safe Work Australia is not a regulator. 160 These variations have been listed by Safe Work Australia on their website at

http://www.safeworkaustralia.gov.au/sites/swa/model-whs-laws/pages/jurisdictional-progress-whslaws, accessed on 26 October 2015. 161 Namely, WorkSafe ACT, SafeWork NSW, NT WorkSafe, Workplace Health and Safety Queensland,

SafeWork SA, WorkSafe Tasmania, WorkSafe Victoria and WorkSafe WA. 162 See further Safe Work Australia website at http://www.worksafe.vic.gov.au/laws-and-

regulations/occupational-health-and-safety/national-work-health-and-safety-reform, accessed on 26 October 2015. 163 Model Work Health and Safety Regulations r 292. 164 See further the Model Work Health and Safety Act s 5. 165 See further the Model Work Health and Safety Regulations r 293. 166 Model Work Health and Safety Regulations r 293(2). 167 Model Work Health and Safety Regulations r 293(3). 168 Model Work Health and Safety Regulations r 293(4). 169 Model Work Health and Safety Regulations r 296. 170 Model Work Health and Safety Act s 22. 171 Model Work Health and Safety Regulations r 294. 172 Model Work Health and Safety Regulations r 295. 173 Model Work Health and Safety Regulations r 308. 174 Model Work Health and Safety Regulations r 309. The required contents of a WHS management

plan are prescribed in r 309(2). 175 Model Work Health and Safety Regulations r 311. 176 Or, if a notable incident occurs, until 2 years after the incident occurred. See Model Work Health and

Safety Regulations r 311. 177 Model Work Health and Safety Regulations r 310. 178 Model Work Health and Safety Regulations r 298. 179 High risk construction work is defined in the Model Work Health and Safety Regulations r 291. 180 Model Work Health and Safety Regulations rr 299–303. 181 These duties are provided within Pt 3.2 of the Model Work Health and Safety Regulations. 182 Model Work Health and Safety Regulations r 46(2). 183 Model Work Health and Safety Regulations r 315. 184 So called because construction workers are issued with a white plastic card by a registered training

organisation upon successful completion of the training. 185 See Model Work Health and Safety Regulations rr 316–318. 186 Occupational Health and Safety Regulations 2007 (Vic) r 5.1.14.

187 For further details of the duties under the Victorian legislation, see WorkSafe Victoria, A handbook

for the construction regulations, Working safely in the general construction industry, 1st ed, State Government of Victoria, February 2008. 188 For example, see Work Health and Safety Act 2011 (Qld) s 274. 189 Safe Work Australia website, Model Codes of Practice, at

http://www.safeworkaustralia.gov.au/sites/swa/model-whs-laws/model-cop/pages/modelcop##model, accessed on 28 October 2015.

[page 93]

CHAPTER 3

Contract Law

Key Ideas This chapter discusses: the elements of a contract: offer, acceptance, consideration ‘agreements to agree’ and letters of intent express and implied contractual terms privity of contract and transferring contractual rights and obligations duress, mistake, unconscionable, misleading or deceptive conduct performance, partial performance and substantial performance frustration, breach and repudiation of contracts remedies: damages, quantum meruit, injunction and specific performance

[page 94]

What is a contract? [3.1]

A simple definition of a contract is an agreement which the law will enforce. Each of the parties to a contract obtains rights and owes duties (or obligations) as a result of their agreement. If either contractual party fails to perform (or breaches) their obligations under the contractual agreement, the other party may take action in court to enforce the contract. In practice, this usually means that the contractual party who has suffered damages or incurred loss as a result of the other’s breach will sue the breaching party for compensation in the form of monetary damages. In order for one party, A, to successfully sue another party, B, in contract law, it is necessary to show that: (i)

a legally enforceable contractual agreement exists between A and B;

(ii) a term of that contract has been breached by B; and (iii) the injury or loss suffered by A was caused by B’s breach.

Limitation of action periods [3.2]

A limit on the time period between the date on which a cause of action accrues (ie, the date of the breach in contract law) and the date that action may be brought to court is imposed by legislation. In contract law, a cause of action accrues from the date a contract is breached. The general limitation of action periods are 6 years1 for simple contracts and 12 years2 for formal contracts (or contracts under deed). The limitation period, however, reduces generally to 3 years from the date of injury where the cause of action is for personal injury (ie, bodily

harm).3 [3.3]

In all states and territories apart from Queensland and Western Australia, however, there is a maximum permitted (or longstop) limitation period of 10 years applying to actions in relation to defective building works. Depending on the state or territory, this 10 years starts to run from either the date of completion of the building work or the date the occupancy certificate is issued. In practice this 10-year long-stop period will not affect the limitation period for simple contracts. It will, however, usually have the effect of shortening the limitation period for contracts under deed.

[3.4]

An interesting consideration with respect to limitation periods arises where contractual warranties are given by suppliers or builders. For example, the minimum design life of a building structure shall be 50 years, or a swimming pool shell will be free from defect for 15 years. In this context, it seems unlikely that the 10-year long-stop limitation period would apply, otherwise it would render useless the specific contractual warranty effectively sold by the supplier or builder to its principal. Where such contractual warranties are given, it is important to consider the detail of the wording in order to establish the extent of the limitation period. [page 95]

[3.5]

In Swan Pools v Baker (1980) 25 SASR 103, Swan Pools agreed to supply and install a fibreglass swimming pool and warranted that it would rectify and make good any defect caused by faulty workmanship or materials which appear in the fibreglass tank within 3 years of commencement of filtration. The pool was installed in late 1971 and the principal, Baker, notified Swan Pools that something was wrong with the pool in August 1972. Although Swan Pools attempted to repair the pool several times over the next few years, the pool remained defective as

there was a serious fault in the manufacture of the tank which necessitated its replacement. Eventually, the principal initiated court proceedings in August 1978. Swan Pools argued that the court action was barred by the statutory limitation period as the breach had occurred in 1971 when the defective pool tank had been delivered. The court, however, disagreed, holding that the breach of the warranty occurred once Swan Pools had failed to rectify the defect within a reasonable time of having been told about it which, under the circumstances, the court found to be at the beginning of 1978. As such, Baker had 6 years as from the beginning of 1978 to bring an action. [3.6]

In Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Co Australia Pty Ltd [2011] NSWSC 75, swimming pool shells were supplied to customers with a warranty that the pool shell was to be free from defects caused by workmanship or raw materials used in the fabrication process for 10 years from the date the pool shell is first filled with water. Defective resin used in the pool shells resulted in osmosis occurring in the pools which caused blistering and black spots to appear on the pool shells. The plaintiff claimed that the pool owners had a maximum of 16 years to bring an action for the defective pool shells on the basis that if the defect appeared on the last day of the 10-year warranty period then this was the date upon which a breach of warranty had occurred, the cause of action had accrued and, therefore, the 6 years limitation period began to run from. The court, however, construed the wording of the warranty to mean that the limitation period started to run from the date the pool shell was delivered; thus, the pool shell customers had to bring an action within 10 years of delivery. As the court stated: … the proper interpretation is that if a pool was supplied with a latent defect, such that it would eventually develop osmosis, the express warranty would be breached upon supply, since the shell would not be free of defects caused by workmanship and/or raw materials. That is … at the time of delivery the customer’s cause of action for breach of the express warranty would have accrued. In my view, the words ‘for 10 years when the shell is first filled with water’, define the period in which a claim for breach of the express warranty, based on the fact that defects had become manifest, could be made against Tranquility.

The elements of a contract [3.7]

In order for a contract to exist, the following key elements need to be present in the agreement: offer; acceptance; [page 96] consideration; intention to create legal relations; and capacity. In addition to the above, the common law requires that the contractual parties have a ‘meeting of the minds’ with respect to the fundamental nature of the contract. This means that the parties must have the same understanding of the key terms of the contract. As long as the key terms can be given objective meaning by the court, it is likely that a ‘meeting of the minds’ will have occurred. For example, suppose party A agrees to sell his computer to party B for $1000, with A believing he has agreed to sell his Hewlett Packard personal computer and B believing she has agreed to buy A’s Apple MacBook Pro. Under these circumstances, it is unlikely that a valid contract exists unless a reasonable person could identify the specific model of computer which was the subject of the contract from the terms agreed.

Offer [3.8]

An offer is a promise made by one party, the offeror, to be bound to perform an act or suffer a forbearance if the other party, the offeree, accepts the offer. In other words, an offer is a proposal to which its maker is prepared to be contractually

bound. Most commonly in commercial transactions, the offeror promises to perform an act or supply goods or services in return for a sum of money. [3.9]

Forbearances are sacrifices made by a party. An offer based on a forbearance would occur, for example, where an offeror promises to give up their legal planning right to build on their land in return for the offeree’s promise to pay a lump sum of money.

[3.10]

In law, an offer must be clear and certain, and communicated to the offeree before it can be validly accepted. Without communication, the offeree would not know what they were agreeing to, and the legal requirement that the acceptance must meet the offer would not be able to be satisfied.

Offers distinguished from invitations to treat [3.11]

Offers must be distinguished from invitations to treat which often, at first sight, resemble offers. Whereas the law views an offer as indicating an intention to be bound if acceptance of the offer is made, such an intention is not seen to exist when an invitation to treat is made. As such, an invitation to treat is seen as a communication by a person to other parties that they are willing to enter into negotiations or dealings which may eventually lead to an offer being made. Being merely a preliminary to an offer, it is not possible for an invitation to treat to form the basis upon which a contract is formed. For this reason, the distinction between an offer and an invitation to treat is critical in contract law. Common examples of invitations to treat include goods on display in shops, goods for sale at auctions, requests for tenders, and advertisements. [page 97]

Goods displayed in shops

[3.12]

Goods displayed in shops, even with price tags, are merely invitations for customers to treat. The offer is actually made by the customer when expressing willingness to pay a specific sum of money at the shop counter, and acceptance (or rejection) is made when the shop keeper takes (or refuses) the money offered. In Fisher v Bell [1961] 1 QB 394, the defendant successfully managed to circumvent legislation, which made illegal the offering of flick knives for sale, by arguing that the display of a flick knife in a shop window with a price tag was only an invitation to treat. Similarly, in Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB 795, the defendant successfully circumvented legislation, which made it illegal to offer for sale listed poisons unless under the supervision of a registered pharmacist, by arguing that displaying such poisons on the shop shelves was only an invitation to treat.

Auctions [3.13]

A call for bids by an auctioneer is only an invitation to treat. In Payne v Cave (1789) 100 ER 502, the court held that the defendant was not obligated to purchase goods being auctioned where he had withdrawn his bid prior to the auctioneer having ‘knocked down’4 the goods to him. In other words, no contract had been formed, as the defendant’s bid was an offer, made in response to the auctioneer’s invitation to treat, that had been revoked by the defendant prior to the auctioneer having accepted the bid signified by the action of banging down his gavel.

[3.14]

However, in Warlow v Harrison (1859) 120 ER 925, the court held that where an auction is called for the sale of goods ‘without reserve’ and the auctioneer refuses to accept the highest bid, it is possible for the highest bona fide bidder to sue the auctioneer for damages for breach of a collateral contract. A collateral contract is one which is separate to and runs alongside a main contract.5 In this case, the court viewed

that a collateral contract was formed when the auctioneer’s offer to sell the goods to the highest bidder (ie, an auction without reserve) was accepted by the bidding party via the acts of participating in the auction and submitting the highest bid. This is an example of what is called at law a ‘unilateral contract’ whereby only one party (the offeror) to a contract makes a promise to which it is willing to be bound without the other party (the offeree) making a promise in return. Unilateral contracts may be accepted by the conduct of the offeree in complying with the conditions set out in the offer. [3.15]

In Barry v Davies [2000] 1 WLR 1962, an auction was called without reserve. The auctioneer withdrew two engine analyser machines from the auction when it materialised that the highest bid received was insufficient. Although such withdrawal was lawful in the context of the main contract for the sale of goods, the court held that there had been a breach of a preliminary separate contract made between the [page 98] auctioneer and the highest bidder. The defendant auctioneer was, therefore, found liable to pay damages to the plaintiff highest bidder.

[3.16]

Some doubt, however, has been cast on the decisions in Warlow v Harrison and Barry v Davies by the NSW Supreme Court’s decision in AGC (Advances) Ltd v McWhirter (1977) 1 BPR 9454, where the court expressed the opinion that, regardless of whether an auction is held with or without reserve, an auction remains an invitation to treat.

Request for tenders [3.17]

Requests for suppliers or contractors to submit tenders are generally considered as invitations to treat at law. The bids

submitted by the tenderers are the legal offers which may then be either accepted or rejected by the person calling the tenders. This means that a tender caller is not generally under any contractual obligation to accept any of the bids received. In Spencer v Harding (1870) LR 5 CP 561, the defendant called a competitive tender for the purchase of a single lot of company stock (or shares). The plaintiff sued on the basis that, as he had submitted the highest bid, the defendant was obligated to sell to him but chose not to. The plaintiff was unsuccessful as the court held that the request for tenders was not an offer to sell to the highest bidder, but rather merely an attempt to ascertain whether an offer could be obtained which the sellers were willing to adopt. [3.18]

The courts have, however, held that if conditions are stated in the request for tender that indicate the tender process creates contractual obligations separate from the actual award of the tender, then it is possible for such a request for tender to constitute an offer that is capable of being accepted by the act of a tenderer in submitting a tender. In such cases, it is said that a ‘pre-contract’ or preliminary contract exists. In Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd [1986] 1 AC 207, the defendant invited tenders for the purchase of shares. In the invitation, the defendant promised to accept the highest complying tender received. The plaintiff, who submitted the highest complying bid, was not awarded the contract and sued. The court held that the defendant was obligated to accept the plaintiff’s tender, as a unilateral contract had been formed when the plaintiff submitted the highest complying tender.

[3.19]

It is also possible for conditions in an invitation to tender which set out a process by which the tenders received will be evaluated to create a preliminary ‘tender process contract’. In Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151, the court held that such a tender process contract had been formed in the circumstances where

Airservices Australia failed to evaluate the submitted tenders in accordance with the defined procedures and criteria it had set out in its formal request for tenders. Instrumental in the court’s reasoning was its finding that Hughes had relied on the representations made in the request for tender as to evaluation procedure when deciding whether to submit a tender or not. Further, the court found that there was an implied term in the tender process contract obligating Airservices Australia, especially as a public body, to deal fairly with the tender evaluation process. [page 99] As such, Hughes was allowed to recover the considerable costs they had incurred in compiling and submitting their tender. [3.20]

Since Hughes, there have been attempts by tender callers to prevent the possibility of a tender process contract arising via wording in the invitation to tender or tender conditions. In Cubic Transportation Systems Inc v New South Wales [2002] NSWSC 656, where the defendant called tenders for the implementation of an integrated ticketing system on public transport across Sydney, a clause was included in the call for tenders stating that ‘Each Proponent agrees and acknowledges that notwithstanding anything contained in this Call … no contractual relationship exists between the Principal … and any Proponent … in relation to the evaluation of revised Proposal …’. The court, however, found this attempt to prevent a tender process contract failed due to it being outweighed by certain of the other tender conditions — including that a probity auditor had been engaged to oversee the conduct of the tender evaluation committee and ensure the process was conducted in accordance with the NSW Government Code of Tendering — which implied a contractual term of fair dealing when assessing the tenders.

[3.21]

By contrast, in State Transit Authority of NSW v Australian Jockey Club [2003] NSWSC 726, where the defendant called tenders for the purchase of land they owned adjacent to the Royal Randwick Racecourse, the court held that the establishment of a tender process contract was successfully precluded by a clause in the tender conditions stating, ‘The tenderer acknowledges and agrees that no legal rights or obligations will be deemed to have arisen between the vendor and the tenderer until a tender is, if at all, accepted.’ This clause, however, was reinforced by other clauses in the tender conditions, such as one permitting the vendor to consider and accept a non-conforming tender and disallowing in that event any unsuccessful tenderer entitlement to any redress whatsoever.

[3.22]

In IPEX ITG Pty Ltd (in liq) v Victoria (2010) VSC 480, the state called tenders for the design and implementation of a new computer system for the entire Victorian Parliament. In its request for tender (RFT), the state: provided an overview of the selection process and set out detailed criteria upon which the tenders would be evaluated, although it did not inform the tenderers as to the weightings each of the criteria would be given in the evaluation process; provided that ‘value for money’ would be used as the primary determinant in assessing tenders; and expressly reserved its right not to accept the lowest quotation, as well as to be able to change any details of the RFT including the conditions of tendering.

[3.23]

IPEX submitted the lowest tender, but were not awarded the contract. IPEX claimed that a tender process contract existed between itself and the state, and that the state had breached this contract by, amongst other things, failing to give sufficient weighting to the financial aspects of the tender and failing to do a proper value for money analysis. IPEX asserted that as it had submitted the cheapest ‘compliant’ tender, the ‘value for

money’ criteria required it to be selected. The court found that [page 100] an examination of the whole of the RFT showed the presumed intention of the parties was to enter into a legally binding process contract. In reaching this conclusion, the court stated: A review of the authorities suggests that courts are more willing to find process contracts as governing the relationship of the parties pre-award in cases where a timeline and detailed process, including evaluation criteria, are set out in such a way that suggests that an obligation (promissory in nature) to follow such timeline and process has been incurred.6 [3.24]

Although a tender process contract was found to exist, the court held that the state had not breached this contract, noting that the state had expressly reserved for itself the right not to accept the lowest quotation, and that an obligation to assess tenders on the basis of value for money does not compel the selection of the cheapest tender. As such, IPEX’s claim was dismissed.

[3.25]

The judicial decisions to date, therefore, demonstrate that tender process contracts are quite likely to arise in public tenders where assessment criteria are stated in the request for tender. The ability of a tender caller to obviate the formation of a tender process contract by including appropriate wording in the request for tender is by no means a certainty, and the court will consider such wording in the context of the other terms in the request for tender to arrive at a balanced view as to whether the parties intended to enter into a legally binding tender process contract. It should be noted that the relevant judicial decisions all concern tenders called by public bodies, from whom high standards of probity are expected.

Advertisements [3.26]

Generally, the law considers advertisements to be invitations to

treat. In Partridge v Crittenden [1968] 2 All ER 421, an advertisement placed in a periodical which stated ‘Bramblefinch cocks, bramblefinch hens, 25 s each’ was held not to constitute an offer but merely an invitation to treat which encouraged parties interested in purchasing the birds to contact the seller in order to make an offer. [3.27]

An exception to this general rule, however, may be found in advertisements making promises which are conditional upon the viewer of the advert engaging in conduct prescribed by the advert. For example, a notice promising a reward of $500 to anybody who finds a lost dog and returns it to a specific address is likely to be a legally valid offer. This is an example of what the common law calls a ‘unilateral contract’, which may be defined as a contract where only one party (the offeror) to the contract makes a promise to which it is willing to be bound without the other party (the offeree) making a promise in return.

[3.28]

In Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 QB 256, Mrs Carlill bought smoke balls from the defendant after seeing their advertisement which stated that the Carbolic Smoke Ball Company would give £100 to any person who contracted [page 101] a cold or influenza after using its medicinal smoke balls as directed. The advert also stated that the defendant had set aside £1000 in a separate bank account in order to meet any claims. Mrs Carlill used the smoke balls as directed and caught influenza, but the Carbolic Smoke Ball Company refused to pay her £100. The court held that the defendant was liable to pay Mrs Carlill the £100 promised as, under the circumstances, a unilateral contract had been formed when Mrs Carlill had accepted the offer set out in the advertisement by her actions in buying and using the smoke balls as directed.7 The court

rejected the defendant’s argument that their promise was merely an ‘advertisers’ puff’,8 and found the defendant had demonstrated its intention to be bound by its claim by setting aside monies in a separate bank account to meet any claims.

Responses to requests for information are not offers [3.29]

On the basis that a person who responds to a request for information does not intend to be legally bound to their answer, such a response cannot comprise an offer at law. In Harvey v Facey [1893] AC 552, Harvey sent a telegram to Facey asking, ‘Will you sell us Bumper Hall Pen? Telegraph lowest price.’ Facey replied, ‘Lowest cash price for Bumper Hall Pen, £900.’ Harvey then telegraphed, ‘We agree to buy Bumper Hall Pen for £900 asked by you.’ Facey refused to go through with the sale of the property, and Harvey attempted to enforce the sale in court. The court held that no contract to sell Bumper Hall Pen existed, as Facey had not made an offer, but merely supplied information in response to Harvey’s request. As such, Facey’s statement that the lowest cash price for its property was £900 only indicated the minimum price Facey would accept if made an offer, and did not evince an intention to be bound.

Can estimates be offers? [3.30]

An estimate is a statement of what a customer can expect to be charged.9 The term ‘estimate’ is usually understood in the construction industry to be a good faith calculation, based upon the information available, of the final cost (or price) to complete a specified scope of works and which may be subject to change.

[3.31]

Whether an estimate provided by a building contractor to a developer, or by a subcontractor to a head contractor, forms an offer upon which a contract may be formed would seem to depend upon whether, under the circumstances in which the estimate was given, a reasonable person would believe the

estimate was intended to be a fixed price quotation or an estimate subject to a margin of error. [page 102] [3.32]

In Kyren v Built Projects [2006] SASC 204, Kyren engaged Built Projects as a project manager to arrange contractors, materials and labour to undertake certain works on an apartment building and to be paid on the basis of a 20 per cent commission on all labour and material costs. Built Projects faxed an estimate for the supply of labour and consumables for the installation of balcony ceilings to levels 5, 6, 7 and 8 of the building. The estimate was quite detailed, setting out the details of materials to be used, including the quantities, price per unit, and delivery costs. Despite their best efforts, however, Built Projects could not complete the works due to a shortage of subcontractors. Built Projects sued Kyren for unpaid invoices amounting to $22,604.22, but Kyren refused to pay, claiming that by not finishing the full scope of works in the estimate, Built Projects had committed a breach of contract which entitled Kyren to set off monies for extra costs they incurred in having to hire another contractor to complete the works. The court held that the estimate was not a binding fixed quote that obligated Built Projects to finish all the works and, as such, Built Projects was awarded the amount of their outstanding invoices. In making their decision, the court stated: … the word ‘estimate’ was used in its ordinary meaning and there is no reason to go behind that. There is nothing inherently inconsistent with it being an estimate. This in my view is the manner in which a reasonable person in the situation of … [Kyren] … would have interpreted the offer. The mere fact that the facsimile is detailed is not a contra-indication to it being an estimate and the reason for the detail is well explained by Mr Henderson in his evidence, namely, that it is a matter of good practice and also allows the client to know what ‘he was going to be up for’.10

[3.33]

Notwithstanding the decision in Kyren, however, Grace notes that the traditional common law (pre-Kyren) position has allowed estimates to be accepted as offers,11 and that where a

building contractor intends for a document to be an estimate they should be careful to make such clear on the face of the document with words to the effect that ‘This price is an estimate only and is subject to change’.12

Termination of offers [3.34]

An offer may be legally terminated by, amongst other things, revocation, rejection, lapse of time, or failure of condition.

Revocation [3.35]

A contract cannot be formed until such time an offer is accepted. As such, it is possible for an offeror to revoke (take back) their offer at any time up to acceptance. For revocation to be effective, it must be communicated to the offeree. This means that the revocation must have reached the offeree. [page 103]

[3.36]

In Byrne & Co v Leon Van Tienhoven & Co (1880) 5 CPD 344, Van Tienhoven sent a letter dated 1 October from the UK to Byrne in New York offering to sell a quantity of tin plate. Byrne received this letter on 11 October and immediately accepted the offer by sending Van Tienhoven a telegram. Van Tienhoven, however, had posted Byrne a letter on 8 October revoking their offer. The letter of revocation did not reach Byrne until 20 October. A dispute arose as to whether a contract had come into existence. The court held that a contract had indeed been formed because acceptance of the offer had been communicated (on 11 October) before revocation had been communicated (on 20 October).

[3.37]

For revocation to be effective, it need not always be communicated either by words or directly from the offeror. An action of the offeror that is contradictory to the offer still being

alive may be a valid revocation if it comes to the attention of the offeree before acceptance. In Dickinson v Dodds (1876) 2 Ch D 463, Dodds offered to sell his dwelling in a letter to Dickinson for the sum of £800. The letter was delivered on Wednesday 10 June and also stated ‘This offer to be left over until Friday, 9 o’clock’. On the Thursday afternoon, Dickinson was informed by a third party that Dodds had been offering or agreeing to sell the property to another party. Around 7am on Friday, Dickinson handed Dodds a notice of acceptance, but Dodds declined to receive it, saying, ‘You are too late. I have sold the property.’ Dickinson sought an order from the court that Dodds be directed to sell him the property. The court, however, refused to grant such an order, finding that Dickinson had been perfectly well aware that Dodds had changed his mind about offering him the property for sale before he accepted the offer. [3.38]

Dickinson v Dodds also demonstrates that where an offeror promises to keep an offer open for acceptance by the offeree until a specific deadline, this will not generally prevent the offeror from being able to revoke the offer before the deadline arrives. An exception to this, however, arises where the offeree has purchased an option from the offeror. An option is, in effect, a separate contract in which the offeree gives the offeror something of value (usually money) in consideration for the offeror’s promise to keep the offer open until a specific time. In Goldsborough, Mort & Co Ltd v Quinn (1910) 10 CLR 674, Quinn granted the plaintiff the right to purchase his freehold property for a specified price within one week in return for a payment of 5 shillings. Before one week had elapsed, however, Quinn informed Goldsborough that he was withdrawing his offer. Subsequently, and still within the one-week period, Goldsborough accepted Quinn’s offer to sell his property. Quinn refused to go through with the sale. The court, however, held that the promise to keep the offer open had been given for value and, therefore, could not be revoked by Quinn. As such, the court ordered that a contract had been formed, and Quinn

was ordered to convey the property to the plaintiff.

Rejection of an offer [3.39]

Offers may be rejected by an offeree in either an express or implied manner. An express rejection can be either a direct written or oral communication that the offeree does not wish to accept the offer, and only takes effect once communicated to the offeror (ie, the rejection must reach the offeror). An implied rejection occurs when [page 104] an offeree indicates in an indirect manner that he or she does not wish to accept the offer. For example, counteroffers are considered implied rejections. In Hyde v Wrench (1840) 49 ER 132, Wrench offered to sell his farm to Hyde for £1000. In reply, Hyde made an offer of £950. After Wrench declined this counteroffer, Hyde agreed to buy the farm for £1000 as per Wrench’s original offer. Wrench refused to sell and a dispute arose as to whether a contract had been established. The court held that no contract had been formed because Hyde’s counteroffer of £950 had destroyed Wrench’s original offer. In other words, once the counteroffer had been made, the original offer no longer existed and could not be revived and accepted by Hyde.

[3.40]

When entering into contracts, businesses often attempt to impose their own set of standard terms and conditions onto each other — a state of affairs which is often referred to as a ‘battle of the forms’. This typically leads to situations where quotations and orders containing contradictory terms and conditions start ‘flying back and forth’ between parties. Once a contract is eventually formed, this often gives rise to the question as to what were the exact terms and conditions upon which the contract was made. Generally, the simple answer to

this question — which is founded upon the principle that counteroffers destroy preceding offers — is that the contract is made upon the last set of terms and conditions which were communicated before acceptance occurred. [3.41]

In Butler Machine Tool Co Ltd v Ex-Cello Corp [1979] 1 WLR 401, on 23 May 1969 Butler quoted a price of £75,535 for the supply of machinery to Ex-Cello with delivery to be within 10 months of order. The quotation included terms and conditions which were stated to prevail over any terms and conditions in the buyer’s order. One of these terms and conditions was a price variation clause which entitled Butler to an inflationary price increase if delivery occurred later than 10 months from order. Subsequently, Ex-Cello submitted an order form on 27 May 1969 upon which was printed its own set of terms and conditions. Ex-Cello’s terms and conditions made no provision for price variation and adjusted the delivery time to ‘10 to 11 months’. There was a tear-off confirmation slip at the bottom of Ex-Cello’s order form that stated ‘We accept your order on the terms and conditions stated therein’. Butler signed this tear-off slip and returned it to Ex-Cello along with a covering letter which stated that delivery was assumed to be in accordance with Butler’s quotation of 23 May for delivery in March/April 1970. As it turned out, Ex-Cello could not take delivery until November 1970, and Butler claimed an increased cost of £2892 under their price variation clause. Ex-Cello refused to recognise the variation clause as part of the contract. The court agreed with Ex-Cello, finding that Butler’s quotation of 23 May was an offer and that Ex-Cello’s order of 27 May was a counteroffer which had extinguished the terms and conditions of Butler’s original offer. Acceptance of Ex-Cello’s counteroffer had taken place when Butler signed and delivered the tear-off slip at the bottom of Ex-Cello’s order.

Lapse of an offer [3.42]

Offers cannot remain alive indefinitely. Therefore, if the offer

does not state a time until which it remains open for acceptance, it will lapse after a reasonable amount of [page 105] time. The question as to what constitutes a reasonable amount of time will depend on the nature of the offer, in particular its subject matter. As a general rule, the more perishable or volatile in nature the subject matter, the shorter will be the length of time for which the offer remains open. [3.43]

In Ramsgate Victoria Hotel Co Ltd v Montefiore (1866) LR 1 Ex 109, the defendant offered to buy shares in the plaintiff company in June. The plaintiff did not notify acceptance of the offer until November. The court held that it was not reasonable to expect an offer to buy shares to remain open for a period of five months and, therefore, the defendant was not bound to purchase the shares. In Ballas v Theophilos (No 2) (1957) 98 CLR 193, the court held that an option for a business partner to purchase his deceased partner’s share of the business could not survive a period of 16 months.

Failure of a condition [3.44]

Sometimes an offer is made subject to a stipulated condition, for example ‘subject to building inspection’, ‘subject to finance’, or ‘subject to mechanic’s inspection’. In such circumstances, satisfaction of the condition is a precedent to the validity of the offer and, therefore, a contract coming into existence. Therefore, if the specified condition is not met, the contract will not eventuate even if there has been acceptance.

Acceptance [3.45]

An acceptance may be defined as the communication by an

offeree of their unqualified intent to be bound by the precise terms of an offer. Once acceptance occurs, the offer comes to an end and an agreement exists. Generally, an acceptance must meet the following rules: (i)

Acceptance must be in reliance on the offer.

(ii) Acceptance must be absolute and unqualified — in other words, acceptance must be unequivocal in that nothing is left to be negotiated between the parties.13 (iii) An offer can only be accepted by the person or persons to whom it is made. (iv) Acceptance may be verbal, in writing or even by conduct.14 (v) If a particular method of acceptance is prescribed in the offer, then the offeree should follow that method to accept the offer — thus, if the offeror states that acceptance must be in writing, then acceptance will only be valid if it is delivered in a written form. (vi) Acceptance must be communicated to the offeror. In other words, acceptance must actually be received by the offeror. This means that silence cannot generally be acceptance. [page 106] [3.46]

In Felthouse v Bindley (1862) 142 ER 1037, the plaintiff offered by letter to buy a horse from his nephew in which he wrote that if he did not hear from his nephew, he would consider the horse to be his at £30 15s. The nephew did not reply to the letter and the horse was sold to somebody else. The plaintiff attempted to enforce a contract, but the court held that the nephew’s silence could not amount to an acceptance.

Exceptions to communication rule [3.47]

There are two principal exceptions to the general rule that

acceptance must be communicated: unilateral contracts and the ‘postal rule’. [3.48]

Previously, when considering advertisements,15 auctions16 and tender process contracts,17 we saw that a unilateral contract is one where an express promise is made by only one party to the contract. Due to their nature, offers related to unilateral contracts usually prescribe a performance, or set of actions, which an offeree must carry out in order to accept the offer in lieu of a communication of acceptance.

[3.49]

The postal rule, established in Adams v Lindsell (1818) 106 ER 250, states that if acceptance is made by letter and posted, then acceptance is considered to take effect from the time the letter is mailed. The postal rule even applies if the letter’s delivery is delayed or it never reaches the offeror.18

[3.50]

The logic behind the postal rule is not absolutely clear despite having been considered in several court decisions. It gives certainty to the offeree that it has entered into a binding contract as soon as the letter is posted. Under the rule, however, the offeror may be bound to a contract without being aware of such for the period of time it takes to deliver the letter. This is a risk that an offeror should be aware of when permitting acceptance to take place via post.

[3.51]

The postal rule can easily be negated by an offeror by stating or implying such in the offer. For example, the court has considered the postal rule could be excluded by the words, ‘Your answer by post is only to bind if it reaches me.’19

[3.52]

In more modern times, the courts in Australia have made it clear that the postal rule will only apply where it is very clear that the parties objectively intended it to do so. In Bressan v Squires [1974] 2 NSWLR 460, Bressan sent a letter on 18 December 1972 accepting an option to purchase land from Squires. The letter was received by Squires on 21 December 1972. The option stated that it may be exercised by notice in

writing addressed to Squires at any time on or before 20 December 1972. Thus, the question of whether the postal rule applied was critical to the existence of a contract. The court held that the postal rule had been excluded because the wording in the option did not make it clear enough that it was the intention of the parties for the postal rule to [page 107] apply. The court considered that if the option had stated it may be exercised by notice in writing posted to Squires, then the postal rule would have applied. [3.53]

At common law, the postal rule does not apply to instantaneous forms of communication, such as telex, fax and email.20 Therefore, acceptance communicated by these media must be received by the offeror to be effective.

[3.54]

In Entores v Miles Far East Corp [1955] 2 QB 327, Entores telexed an offer from England to Miles who was based in Amsterdam. Miles accepted by telex. A dispute subsequently arose on the contract, and the court was required to decide whether the contract had been formed in the Netherlands or England, so as to know which country’s law to apply. The court held that the dispute should be subject to English law as the contract had been formed when the telex of acceptance had been received by Entores (the offeror) in England.

[3.55]

In Brinkiborn Ltd v Stahag Stahl Gmbh [1982] 1 All ER 293 at 296, Lord Wilberforce considered the situation where a delay occurs between the time an instantaneous form of communication is sent and the time it actually ends up coming to the offeror’s attention as follows: The message may not reach, or be intended to reach, the designated recipient immediately; messages may be sent out of office hours, or at night, with the intention, or upon the assumption, that they will be read at a later time … No universal rule can

cover all such cases. They must be resolved by reference to the intentions of the parties, by sound business practice …. [3.56]

Therefore if, for example, a fax is sent outside normal business hours then, in accordance with sound business practice, it would most likely be deemed as communicated at the next resumption of normal business hours for that industry.

[3.57]

In recognition that several contracts are now formed by electronic communications such as email, each Australian state has passed electronic transactions legislation.21 Under this legislation, electronic transactions now have equal validity to written contracts. The legislation provides that where an electronic address (such as an email address) has been designated by the addressee, the time of receipt is when the electronic communication becomes capable of being retrieved by the addressee. Thus an acceptance by email to an email address designated by the offeror will likely be deemed as communicated when it arrives in the offeror’s inbox. Where an electronic communication has been sent to an electronic address that has not been designated, receipt occurs when the addressee becomes aware that the electronic communication has been sent to that address. [page 108]

Acceptance by conduct [3.58]

It may be possible under certain circumstances for the conduct of a party to amount to acceptance of terms and conditions in a written offer even though acceptance has not yet been expressly communicated either orally or in writing. For example, in Empirnall Holdings v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, Empirnall (a property developer) engaged Machon Paull (an architect and construction project manager) to undertake building work. Machon Paull sent two copies of a building contract it had prepared for Empirnall to

sign. However, on the basis that Empirnall’s director asserted that he ‘does not sign contracts’, the contracts remained unsigned. The building works proceeded normally for almost one year, and several progress payments were duly made by Empirnall in accordance with the printed contract terms. Subsequently, however, Empirnall failed to pay Machon Paull for building works carried out and a dispute ensued as to whether a binding contract had been formed on the printed terms in the unsigned building contract sent by Machon Paull. The court found that acceptance of the unsigned building contract could be inferred from the conduct of the parties and, therefore, a binding contract did exist on Machon Paull’s printed terms. As the court stated: [W]here an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms.

Revocation of acceptance not possible [3.59]

Once an acceptance has been communicated, it is impossible to revoke it as a contract will have been formed. An attempted revocation of a communicated acceptance is, in fact, a repudiation22 — that is, a refusal to perform a contractual obligation which amounts to a breach of the contract.

Vague, uncertain or meaningless terms [3.60]

It is frequently the case that after the terms of an offer have been accepted, the contractual parties subsequently have a dispute over the precise scope of their rights and/or obligations contained in one, or more, of the terms agreed upon. In other words, the parties have a different understanding of, or intention as to, the meaning of the disputed terms. In such circumstances, it is possible for the disputed terms to be severed from the agreement, or even for the whole agreement to be rendered void,23 if the court cannot find certainty in the meaning of the terms.

[page 109] [3.61]

When deciding upon such a dispute, the court is not interested in the parties’ own subjective interpretation of the terms in question, but rather in ascertaining an objective interpretation. An objective interpretation may be defined as the meaning which a reasonable thinking person would give to the terms having regard to the surrounding circumstances in which the contract was made.24 In order to ascertain an objective interpretation, the courts apply an objective test: What is to be taken as the intention which reasonable people would have if placed in the situation of the parties.25

[3.62]

If an objective meaning can be given to the terms with a reasonable degree of certainty, then the court will enforce the terms accordingly. However, if the wording of the terms is so ambiguous or confusing that an objective meaning cannot be given, those terms will be deemed unenforceable by the court. Without objective meaning, the common law views that there could be no ‘meeting of the minds’ between the parties with respect to the terms, which is essential to the formation of a valid contract.26

[3.63]

In Whitlock v Brew (1968) 118 CLR 445, the parties agreed a contract for the sale of land that included a term which required the purchaser to lease a specified part of the land to the Shell oil company ‘upon such reasonable terms as commonly govern such a lease’. Having paid a deposit, Brew changed his mind about the purchase and claimed the contract was unenforceable on the basis that the term requiring land to be leased to Shell was too vague because there were no ‘common terms’ (with respect to duration, rent etc) which govern such leases. The court held the contract unenforceable for uncertainty, agreeing with Brew who was able to recover his deposit.

[3.64]

When faced with vague or uncertain terms in a contract, the

courts may decide to take one of three courses of action: (i)

Hold that the contract is totally unenforceable. This will only occur where the uncertain term affects the fundamental nature of the contract;

(ii) Sever (or strike out) the uncertain term, but leave the rest of the contract as valid and enforceable. This will occur where the uncertain term does not affect the fundamental essence of the contract; or (iii) Imply sufficient terms into the contract in order to give it certain commercial effect.27 [3.65]

The courts will always do their best to find objective and certain meaning in terms, and abide by the maxim ‘the courts will make certain that which is capable of being made certain’. In Hillas & Co v Arcos [1932] All ER Rep 494, for example, the parties entered into a written contract for the supply of timber during 1930 with an option to buy further timber the following year. The option clause in the contract, however, gave [page 110] no description of the timber to be supplied the following season or of how it was to be delivered. The suppliers attempted to argue that the option terms in the contract were too vague to be enforceable. The court, however, disagreed and found that certainty could be given to the option agreement by implying the same terms, on the basis of prior course of dealing, as had applied in the agreement to supply the timber during 1930. In their decision in Hillas & Co v Arcos, the court stated that business persons: … often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly without being too astute or subtle in finding defects.28

[3.66]

If, under an objective interpretation, a term is found to be meaningless it is treated in a similar fashion to a vague and uncertain term, either being severed from the contract or rendering the contract unenforceable if it affects the fundamental nature of the contract.

[3.67]

In Fitzgerald v Masters (1956) 95 CLR 420, a dispute arose concerning an agreement for the sale of a half share of a farm in which there was a clause which read, ‘the usual conditions of sale in use or approved by the Real Estate Institute of New South Wales relating to sales by private contract of lands held under the Crown Lands Consolidation Act 1913 (NSW) shall so far as they are inconsistent (sic) herewith be embodied herein’. The vendor’s executors claimed that this clause was meaningless as there were actually no such conditions of sale in existence in New South Wales and, as such, the contract was unenforceable. The court, however, held that the sale of the farm must proceed as the agreement could subsist without the meaningless clause. In other words, the court viewed the meaningless clause as only incidental to the agreement to sell the farm rather than fundamental to its nature. The clause was, therefore, severed from the agreement. The court’s reasoning for this was that the parties had intended to contract on the essential matters agreed, regardless of the existence or otherwise of the standard conditions of sale specified. If they had known these conditions did not exist, they would have simply proceeded on the basis of another set of conditions.

[3.68]

If a contract is substantially certain, but there are particular vague terms which it was agreed in the contract would subsequently be made certain by referral to either a nominated third party or specified mechanism, then the court is likely to uphold the relevant terms and, therefore, the contract as enforceable.

[3.69]

In Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (1982) 149 CLR 600, Wilson leased a service station and car park from Booker. A clause of the lease gave an option for a

further three years at a rent to be mutually agreed. Failing such agreement the lease provided for rent to be set by an arbitrator appointed by the President of the Law Society. Wilson claimed their right to exercise the option, [page 111] but Booker contested on the basis that the option was unenforceable due to the agreement being incomplete, and amounting to only an ‘agreement to agree’.29 The court found that parties can provide a procedure in their agreements which allows even essential terms to be determined by a third party and, therefore, the option was held enforceable.

‘Agreements to agree’ in preliminary agreements [3.70]

Agreements to agree are often found in preliminary agreements such as heads of agreement, memoranda of understanding, or letters of intent. A preliminary agreement has been described as being: … utilised where for one reason or another it is desirable to enter into an interim or initial agreement or understanding pending the parties’ mutual rights and obligations being set out in a formal contract.30

[3.71]

This may typically occur during negotiations where the parties want to recognise and consolidate their agreement to date. The preliminary agreement forms a basis from which to carry out negotiations of further, or more detailed, terms necessary to conclude the formal contract. As such, preliminary agreements often contain agreements to agree, or negotiate, the outstanding terms at a future time.

[3.72]

Agreements for parties to agree outstanding terms at a future time cannot be binding for the simple reason that the outcome of future negotiations is too uncertain. As one judge put it, ‘No one could tell whether the negotiations would be successful or

would fall through; or if successful what the result would be.’31 [3.73]

Accordingly, in Coal Cliff Collieries Pty Ltd v Sijehama Pty Ltd [1991] 24 NSWLR 1, the parties’ heads of agreement to develop mining rights together, which stated that the parties ‘would proceed in good faith to consult together upon the formation of a more comprehensive and detailed Agreement’, was held not to be enforceable due to uncertainty.

[3.74]

Notwithstanding that a preliminary agreement may contain an agreement to agree, it is possible for the agreement to agree to be severed and the remaining terms of the preliminary agreement to be binding if: (i)

it contains sufficient essential terms (eg, parties’ names, price, delivery times, scope of work etc) to form an ancillary contract which binds the parties during the interim period prior to the formal contract being concluded;32 and [page 112]

(ii) it is evident from the preliminary agreement that the parties intended to be immediately bound by the terms agreed. [3.75]

This class of contract was recognised by the High Court of Australia in Sinclair Scott & Co v Naughton (1929) 43 CLR 310 as follows: … one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.

Agreements to negotiate, or deal, in good faith [3.76]

Although the Coal Cliff Collieries decision, as discussed above, held that generally an agreement to agree is too uncertain to be

binding, the court also recognised that under certain circumstances it may be possible for an agreement to negotiate in good faith to be enforceable if there was ‘an objective yardstick’ present by which to measure whether a party has negotiated in good faith or not. In other words, if attempts to negotiate in good faith can be measured against a reasonable standard, then a contractual obligation to negotiate in good faith may be given sufficient certainty to make it binding. Therefore, a defendant’s failure to conclude a final agreement which it promised to negotiate in good faith is not in itself a breach, but it could be a breach if a plaintiff can show that, when measured against an objective standard, a good faith attempt to reach a final agreement was not made by the defendant. [3.77]

This position was developed further in United Group Rail Services Ltd v Rail Corporation New South Wales [2009] NSWCA 177, where a contract to design and build rolling stock for a railway contained an express provision that required, in the event of a dispute arising on the contract, senior representatives of the parties to ‘meet and undertake genuine and good faith negotiations with a view to resolving the dispute or difference’. The court found sufficient certainty could be given to this term for it to be enforceable, as a party’s engagement in ‘genuine and good faith negotiations’ could be assessed by having regard to whether the parties negotiated by reference to an honest and genuine assessment they had made of the rights and obligations arising out of their contractual relationship and affecting the dispute. The court gave the following examples of what a party is required to do to meet its obligation to negotiate in good faith when measured against this yardstick: a party is not entitled to threaten a future breach of contract in order to bargain for a lower settlement sum than it genuinely recognises as due; a party is not entitled to pretend to negotiate, having decided

not to settle what is recognised to be a good claim, in order to drive the other party into an expensive arbitration that it believes the other party cannot afford; and if a party recognises, without qualification, that a claim or some material part of it is due, payment of it may well be required. [page 113] [3.78]

This good faith requirement to negotiate within genuine commercial bounds appears to have been extended even further in Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268. In this case, the parties entered into a Heads of Agreement (HOA) in September 1989 for the development of a private hospital on the Area Health Service’s land which required them to act with the utmost good faith in the performance of their respective duties, in the exercise of their respective powers and in their respective dealings with one another. Prior to entering into the HOA, much discussion had been held between the parties as to the importance to the commercial viability of the private hospital that it be co-located and physically linked to the existing Royal Prince Alfred Hospital (RPAH). The HOA further stated that the eventual site of the private hospital should ensure the creation of a campus concept encouraging the movement of people between the hospital and RPAH. Subsequently, in mid-1994 and before reaching any final agreement for the construction of the private hospital, the Area Health Service developed a strategic asset plan for RPAH which did not propose any co-location or linkages with the private hospital. The Area Health Service did not disclose this plan to Macquarie until several months after it had been developed and acted upon. The court held that the obligation of utmost good faith required the Area Health Authority to disclose the strategic asset plan at the time it was made in order to give Macquarie an opportunity to persuade the Area

Health Service to take a different course in developing RPAH and possibly also consider revising its own plans or withdrawing from the project. The Macquarie International Health Clinic decision is significant in that it appears to extend an obligation to act in good faith during negotiations with respect to the contemporaneous disclosure of any information that differs from that expected when entering into a preliminary agreement.

Letters of intent [3.79]

Letters of intent have been, and still are, a common occurrence in the construction industry as a mechanism by which to initiate works prior to the signing of a formal contract document. Although the forms and wording of letters of intent are numerous and varied, they all essentially indicate one party’s intention to award a contract to another party at some time in the future. A letter of intent has been defined as ‘a precontractual written instrument that reflects preliminary agreements or understandings of one or more parties to a future contract.33 For example, typical wording used may state: As soon as matters outstanding between us are settled, we will enter into a contract agreement with you, and in the meantime please accept this letter as an instruction to proceed with the work necessary to permit you to meet the agreed programme.34

[page 114] [3.80]

Where letters of intent arise on construction projects, they are written and acted upon during the period between the submission of a tender for construction works and the signing of the formal contract for the works. It is infrequently the case that a contractor will submit its tender in complete accordance with the principal’s proposed contractual documents. For example, there may be issues related to insurance requirements, pricing of alternative options or amendment of proposed contractual terms — particularly if the form of

contract proposed is either an amended standard form or client-drafted form. In these circumstances, the principal is faced with a situation where it has selected a preferred contractor but cannot yet appoint the contractor on a full set of contractual terms until the outstanding matters are negotiated and agreed. In practice, the negotiation of such outstanding matters may involve a time-consuming series of proposals and counterproposals being exchanged between the parties. [3.81]

This often presents an undesirable state of affairs, as most construction projects are required for commercial reasons to be completed in accordance with strict deadlines. Therefore, the principal is usually keen to expedite matters and initiate works as soon as possible, especially if the works involve the manufacture or supply of items with long lead-in times or if significant preliminary design work is required prior to works commencing (eg, for specialised electrical and mechanical equipment). The contractor, however, whilst being keen to be awarded the contract works, is reluctant to start committing finance and resources to the works without any form of assurance that it will ultimately be awarded the contract works and receive payment for the work done. The principal, therefore, issues a letter of intent to serve the interests of both parties: enabling the works to get started, whilst at the same time giving assurance or comfort to the contractor.

[3.82]

If, as envisaged by a letter of intent, the terms of the subsequent formal building contract are successfully agreed and the formal contract is entered into by the parties then it is usually the case that the letter of intent will be superseded by the terms of the building contract itself. In such situations, the courts will generally seek to give effect to the intentions of both parties by retrospectively applying the terms of the concluded contract to the works carried out as from the date the letter of intent was issued.35

[3.83]

Where letters of intent are issued to initiate construction works, it is quite possible that the intended contract never

eventuates. This may occur where, for example, the parties cannot reach subsequent agreement on any outstanding terms or where the parties fall into dispute during the works and consequently refuse to enter into the formal intended contract. In such circumstances, disputes frequently arise as to whether the letter of intent has caused a legally binding contract to come into existence. [page 115] [3.84]

The traditional position of the courts with respect to a letter of intent is that it is ‘no more than the expression in writing of a party’s present intention to enter into a contract at a future date. Save in exceptional circumstances it can have no binding effect.’36 In other words, letters of intent are not generally binding unless it can be shown from the circumstances of the case that there were sufficient essential terms agreed in the letter to form an ancillary ‘stand-alone’ contract and that the parties intended to be immediately bound by these terms.

[3.85]

Where a contract does not eventuate from a letter of intent, the contractor will be unable to claim payment for the work done or goods supplied in accordance with the valuation methods and procedures which would have been in place if the formal contract had been agreed. However, the contractor can be awarded a quantum meruit (ie, a fair and reasonable payment based on market prices) at equity law for work done or goods supplied by way of restitution for unjust enrichment at the expense of the contractor. The courts will generally assess quantum meruit on the basis of a fair commercial rate for the services.37 This basis of assessment would be particularly advantageous to a contractor who had submitted an extraordinarily competitive tender.38

[3.86]

In British Steel Corporation v Cleveland Bridge [1984] 1 All ER 504, British Steel carried out the manufacture and delivery of

steel nodes in response to a letter of intent issued by Cleveland which proposed that Cleveland’s own standard form of subcontract should be used. British Steel did not agree to this form and, furthermore, the parties were in disagreement about price and delivery dates for the nodes, two crucial contractual matters. Upon delivery of the final node, British Steel claimed £229,832 as the price of the nodes. Cleveland refused to pay, arguing that a contract had been formed by the letter of intent, and counterclaimed for damages in the amount of £867,335 for late and out of sequence delivery of the nodes. In this respect, the court found it was apparent from other correspondence between the parties that British Steel was not prepared to accept unlimited liability for damages for delay. This was inconsistent with the terms of the contract which Cleveland asserted was in existence, which pointed to a lack of consensus between the parties on the matter of damages for delay. The court held that even though Cleveland’s request in the letter of intent to carry out the works had been acted upon by British Steel, it was impossible to say that this conduct had formed a contract, as crucial terms (including price, delivery dates and damages for delay) of the contract remained unresolved. The court, therefore, denied Cleveland’s counterclaim and held that British Steel was entitled to payment on a quantum meruit basis for the steel nodes. [3.87]

In Abigroup Contractors Pty Ltd v ABB Service Pty Ltd [2004] NSWCA 181, after receiving a tender from ABB, Abigroup issued ABB with a letter of intent for the fabrication and construction of the roof works to the Multi-Use Arena (Superdome) [page 116] within the Sydney Olympic Park precinct. The letter of intent described Abigroup’s acceptance of ABB’s tender as conditional upon entry into a formal subcontract based upon

amended SC.JCC-D 1994 conditions and Project Related Conditions of Contract (the general conditions). The letter had other provisions including that: progress payments would be made on a 45-day basis; liquidated damages could be levied up to a maximum of $1,400,000; commencement of the works would be deemed to be full acceptance of the terms of this subcontract agreement and confirms the existence of a subcontract between our two companies; and no monies would become due and payable to ABB until the subcontract agreement had been executed. [3.88]

ABB began the works on 25 February 1998. By mid-1998, despite ongoing communications and discussions, agreement upon the outstanding contractual matters had not been reached. ABB commenced proceedings in which it claimed that there was no contract and as such it was entitled to be paid on a quantum meruit basis. The court agreed with ABB, finding that Abigroup’s letter of intent had no contractually binding effect for several reasons, which the court categorised into three headings: 1.

Circumstances in which the letter is issued, which included the facts that: despite ABB having made it clear to Abigroup that seeing the Project Related Conditions was essential to the validity of their tender as an offer capable of acceptance, Abigroup did not provide the Project Related Conditions to ABB before issuing the letter of intent; and the terms of the letter of intent contradicted the terms that ABB had, at post-tender meetings and prior to the issuance of the letter of intent, insisted be present in any contract formed. These terms included a limitation of liability, an exclusion of consequential loss, provision in

the contract for milestone payments and a capping of liquidated damages at no more than $40,000 per day for costs actually incurred, capped at 10 per cent of the contract sum, which Abigroup had said would be acceptable at a post-tender meeting. 2.

Textual considerations, which included that the contract which Abigroup contended to be in existence under the letter of intent did not entitle ABB to any payment until the formal subcontract had been agreed. This did not correlate with the provisions in the same letter for progress payments and retention.

3.

Subsequent conduct, including that ABB’s letter in response to receiving the letter of intent did not identify an offer in the letter of intent, and actually referred to ABB’s own tender as the offer subject to the proviso that there were no adverse commercial conditions in the head contract or the Project Related Conditions. Further, Abigroup did not respond to ABB’s letter to point out that, in fact, the letter of intent was the offer which, upon commencement of the works, would bring into effect a binding contract. Indeed, it was not until litigation commenced that Abigroup asserted that a contract had come into existence via the letter of intent. [page 117]

[3.89]

Sometimes an employer may seek to limit the authority of terms contained in a letter of intent by stating a spending cap or stating that the letter of intent only applies to a defined scope of preparatory works, for example, design work. In such situations, the question arises as to whether the terms contained in the letter of intent will bind the contractor for any portion of works which exceed the spending cap or the defined scope of preparatory works.

[3.90]

In Monk Construction Ltd v Norwich Union Life Assurance Society (1992) 62 BLR 107, a letter of intent was issued to Monk (the contractor) authorising mobilisation and ordering of materials up to a maximum expenditure of £100,000. The letter also stated that if no contract materialised, Monk would only be entitled to their ‘proven costs’. In the event, Monk completed the whole of the project works with no formal contract ever being agreed. Monk claimed a quantum meruit for the works carried out in excess of the stated spending cap. The employer, Norwich Union, argued that the terms of the letter of intent should cover all the works carried out in the event that no contract materialised, and that Monk was only entitled to their proven costs for the whole of the project works — which would have amounted to a lesser sum than valuation on a quantum meruit basis. The court held that the words contained in the letter of intent were only intended to apply to the preliminary works referred to in the letter in the event that no formal contract was agreed and no further works in addition to the preliminary works were carried out by Monk. Monk was, therefore, successful in their claim for a quantum meruit.

Back-to-back contracts [3.91]

In the construction industry, it is common practice for head contractors to require that the terms of the head contract between themselves and their principal are mirrored, or replicated, in so-called ‘back-to-back’ contracts which they make with their subcontractors. By incorporating the head contract terms into their subcontracts, a head contractor ensures that whatever liabilities it incurs under the head contract to its principal are passed on down the contractual chain, such that if the head contractor is contractually liable for damages to its principal, it may in turn recover these damages from its subcontractor.

[3.92]

If well drafted, there is no reason why the terms of back-to-back contracts should not be fully enforceable by a head contractor

against its subcontractor. A well drafted back-to-back contract is likely to take the form of a purpose-written contract which integrates the head contract and subcontract terms together into a unified contractual document. Sometimes, however, head contractors may hastily compile back-to-back contracts by appending special subcontract conditions in a separate document to the head contract conditions. Where this occurs, care must be taken to ensure that the special conditions and head contract conditions are properly coordinated so that, when read together, the contractual terms are certain — making sense and being free of ambiguities and contradictions. [page 118] [3.93]

In Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49, Alstom undertook the refurbishment of a power station under a performance-based head contract, which contained a provision whereby Alstom guaranteed to their principal, Flinders Power Partnership, that certain performance guarantees would be achieved for each stage and for the whole of the works. Alstom engaged the defendant, known in the proceedings as YDMRL, as a subcontractor to carry out the substantial electrical, control and instrumentation systems work at the power station. Initially, Alstom and YDMRL entered into a pre-contract agreement which required the parties to negotiate in good faith in order to reach agreement on a subcontract based on a back-to-back arrangement with the head contract conditions. Several months later, agreement on the subcontract terms was reached. They provided for the incorporation into the subcontract of the whole of the head contract, subject to the superimposition of a number of specified alterations, omissions and additions contained in a 40-page ‘Special Conditions of Contract’ document. Subsequently, Alstom had to pay damages to its principal when it failed to meet the performance guarantees in the head contract. Alstom attempted to recover these damages from

YDMRL, claiming that YDMRL had been responsible for this failure and was liable under the back-to-back performance guarantee terms in the head contract which been mirrored in the subcontract. The court considered whether the obligation in the head contract, ‘to ensure that the Refurbished Facility achieved the Performance Guarantees’, extended to YDMRL via the subcontract. When applying the modifications to this head contract term agreed in ‘The Special Conditions of Contract’ in the subcontract, the term read that YDMRL ‘will ensure that Performance Guarantees in any area which fall within the Subcontractor works scope that the Refurbished Facility achieves the Performance Guarantees’. The court deemed that this term was uncertain of concept and that ‘it is not possible to reach a conclusion as to what was in the drafter’s mind’. In its judgment, the court stated that the drafting technique for the subcontract was ‘not necessarily a poor drafting technique if done competently, in appropriate circumstances and with care’, but in this case ‘a drafting disaster’ had been created where the ‘superimposition of terms results in numerous ambiguities, inconsistencies, lacunae and, in some cases, grammatical nonsense’.

Consideration [3.94]

Consideration may be simply thought of as the price paid by a party who has received a promise (‘the promisee’) in order to make that promise legally binding on the party who made the promise (‘the promisor’). In other words, to secure the promise of another at law, a party needs to effectively purchase that promise by giving something of value in return.

[3.95]

Most contracts are bilateral in nature, which means that in their agreement both parties make, or exchange, promises to which they are willing to be bound or obligated. If one party to a bilateral contract does not perform in accordance with its promise, then the other party will need to show that it has

provided consideration in order to enforce that promise at law. In other words, consideration must move from the promisee. [page 119] [3.96]

Consideration may be given by promising to perform an act for the promisor (eg, a promise to pay money on a particular date, or a promise to carry out building works by a specified date). Alternatively, consideration could be in the form of a promise to refrain from carrying out an act or right (eg, a promise by a person to forgo their right to build on their own land). Accordingly, the following definition of consideration has been approved by the courts: Consideration is some act or forbearance of one party, being the price for which the promise of the other is bought.39

If consideration is not provided in response to a promise, then that promise is not binding on the promisor but merely gratuitous. A gratuitous promise may be withdrawn at any stage.

Agreements under deed [3.97]

Agreements supported by some form of consideration in order to make them legally binding are known as ‘simple contracts’ (note: this doesn’t refer to the content of the contract being simple!). Most contracts made in day-to-day life, and many business contracts, are simple contracts. It is, however, possible for legally binding obligations to be created without consideration if they are made ‘under deed’ (sometimes also referred to as ‘under seal’).

[3.98]

The main distinction between a deed and other forms of written contract is that some additional execution formality is required (ie, more than just simple signatures or oral agreement) for the obligations to be fully enforceable. A deed

must state clearly on its face that it is intended to be a deed, must be signed and then ‘delivered’. When deeds are made by individuals, the deed also needs to be signed by a witness. Where a deed is made by a body corporate, the deed must be signed either by two company directors or a company director and the company secretary. [3.99]

Delivery is not limited to the physical handing over of the deed to a beneficiary. A deed is also considered delivered if the deed maker indicates by words or actions that he or she intends to be bound by the deed immediately. Delivery may, for example, occur if it states on the deed that it is delivered, without the need for the deed to be physically handed over to the beneficiary.40

[3.100]

Deeds are used to give binding effect to agreements where no consideration is provided. For example, bank guarantees and performance bonds that building developers commonly require their contractors to purchase are often executed as deeds. In bank guarantees and performance bonds, the bank or bondsman typically promises to pay money to the building developer in the event that the contractor defaults on their obligations under the construction contract. However, because the building developer provides no consideration for that promise (it is the contractor [page 120] who pays for the guarantee or bond), the guarantee or bond must be executed as a deed in order to make it binding.

[3.101]

In Segboer v A J Richardson Properties Pty Ltd [2012] NSWCA 253, a builder organised for its bank to provide two bank guarantees to a building developer. The guarantees were executed by the bank as deeds. The bank faxed copies of the guarantees to the developer with a covering letter that stated:

‘The originals will be forwarded to you in due course.’ The guarantee contained a clause which stated: This guarantee shall continue in force until either notification in writing has been received by the Bank from the Beneficiary that this guarantee is no longer required by the Beneficiary or until payment to the Beneficiary by the Bank of the whole of the guaranteed Sum or the first year anniversary of practical completion, whichever occurs first.

The originals were never sent to the developer. About one year after the guarantee was executed, the builder cancelled the guarantees even though none of the conditions for their discontinuance had been met. About another year after this, the developer called in the sum of $375,000 on one of the guarantees. The builder claimed that the guarantee was not binding as the original deed had not ever been delivered to the developer. The court rejected the builder’s argument, and found that the acts and words of the bank pointed overwhelmingly to an intention that the bank should be bound immediately by the guarantees. [3.102]

Construction contracts may be executed as either simple contracts or deeds. Many construction clients and developers prefer the contract to be executed as a deed due to the longer statutory limitation of actions period that applies to contracts under deed. A limitation of actions period refers to the period of time which a party has to bring an action to court. If a contract is a ‘simple contract’, the limitation of actions period in contract law is 6 years (3 years in the Northern Territory) from the date on which the cause of action first accrues (usually the date when the contract was breached).41 However, if the contract is under deed, this limitation of actions period extends to 12 years (15 years in Victoria and South Australia). Therefore, if a contract is formed under deed, a building contractor will be exposed to a longer period of legal liability for any breaches of contract, and this is something that will need to be borne in mind when tendering for the contract.

[3.103]

However, building actions in all Australian jurisdictions apart

from Queensland and Western Australia are now specifically subject to a long-stop of 10 years from, depending on the jurisdiction, the date of completion of the building work42 or the occupancy permit.43 In Victoria, in Brirek Industries v McKenzie Group Consulting (Vic) Pty Ltd [2014] VSCA 165, the Court of Appeal has even held that this 10-year limitation period for building actions replaces (and, therefore, extends) the 6-year limitation period for simple contracts under the limitation of actions legislation. [page 121] However, it should be noted that this decision is confined to Victoria and does not, for the time being, extend to other jurisdictions.

The principles of consideration [3.104]

The following principles apply to the provision of valid consideration: consideration must be legal; consideration must be real, but need not be adequate; consideration may be executory or executed, but it must not be in the past; consideration must move from the promisee; and performance of an existing duty is no consideration.

Consideration must be legal [3.105]

Clearly, the law will not recognise an illegal act as consideration to enforce a promise.

Consideration must be real, but need not be adequate [3.106]

This means that although consideration must have some value

in the eyes of the law, its value does not need to be of an equal value to the promise given. To be real, consideration would usually need to have some intrinsic worth, and not be something too vague, nebulous or impossible to perform. Thus, a promise to pay $1 to purchase a company could be viewed as good consideration, but promises of love and affection would not be considered to be valuable consideration at law. The rationale behind the principle that consideration need not be adequate lies in the concept of upholding freedom of contract — that parties should be free to choose the terms of their contract. Therefore, as long as the consideration has some real value, the court will not question whether it is proportionate in value to the thing given in return. [3.107]

In Chappell & Co Ltd v Nestle Co Ltd [1959] 2 All ER 701, Nestle made a promotional offer to sell a popular music record at a price of 1s 6d (about a quarter of the normal retail price) to any member of the public who collected and sent in three chocolate bar wrappers with the payment. Under copyrights legislation, Nestle was under a legal obligation to pay 6.25 per cent ‘of the ordinary retail selling price’ to the copyright owner of the song, Chappell, for each record sold. Nestle was prepared to pay 6.25 per cent of the promotional purchase price of 1s 6d only. Chappell contended this was not enough, and that the value of the chocolate bar wrappers should also be taken into consideration when calculating the royalties as they formed consideration in return for the record. The court agreed with Chappell, and held that the chocolate bar wrappers were good consideration, even though Nestle threw them away when received from the public. As the court stated: A contracting party can stipulate for what consideration he chooses. A peppercorn does not cease to be good consideration if it is established that the promisee does not like pepper and will throw away the corn.44

[page 122]

[3.108]

The courts will not recognise as good consideration the fact that a promisor’s motive for entering into an agreement has been satisfied. In order for consideration to be real, some benefit needs to have moved away from the promisee and to the promisor, by the performance of an act or suffering of a forbearance. If, however, something of value moves away from the promisee when entering into an agreement that happens to fulfil the promisor’s motive, then the court will recognise that consideration has been given.

[3.109]

In Thomas v Thomas (1842) 2 QB 851, just before passing away, the late Mr Thomas had expressed his wish that his widow be allowed to live in one of the houses which he owned (in his name only) for life. In order to meet the desire of Mr Thomas, his executor promised to convey a life interest in one of Mr Thomas’s houses to his widow if she paid a ground rent of £1 per annum and kept the premises in good repair. Subsequently, however, the executor refused to complete the conveyance. Mrs Thomas sued to enforce the executor’s promise. The court held that, because Mrs Thomas had promised to pay £1 per annum and to keep the premises in good repair, she had given good consideration for the executor’s promise and therefore the executor was bound to follow through with the conveyance. In the absence of agreement to pay a rent and maintain the house, however, the court would have not recognised an argument that, by agreeing to stay in the house, Mrs Thomas would have given consideration by satisfying the motive of the executor to honour Mr Thomas’s dying wish.

Consideration may be executory or executed, but it must not be in the past [3.110]

Executory, or future, consideration is given by a party who promises to give consideration at some future time in order to secure the promise of the other. Most contracts are formed on the basis of executory consideration, which means that they are essentially an exchange of promises by the parties to perform

in the future. In construction contracts, for example, the principal promises to pay for construction works carried out in the future, and the contractor promises to carry out construction works in the future. Executory consideration is valid in the eyes of the law. [3.111]

Executed, or present, consideration is given by a party to an agreement by the actual performance of an act in response to a promise, rather than by making a promise to perform in the future. Executed consideration is given by a promisee in a unilateral contract. For example, in the case of Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151 (as previously discussed in [3.19] above), Hughes gave executed consideration by submitting their tender, which bound Air Services Australia to their promise to evaluate the tender in accordance with the defined procedures and criteria set out in its formal request for tenders. Executed consideration is valid in the eyes of the law.

[3.112]

Consideration cannot be given in the past. This means that an act or forbearance of one party cannot be consideration to secure the subsequent promise of another. This is because the consideration would not have been given in response to the promise, [page 123] making it impossible for there to have been a ‘meeting of the minds’,45 which is an essential element of a contract. An act performed before the other party’s promise, therefore, is viewed by the courts not as consideration, but rather a gift.

[3.113]

For example, suppose after moving into his new house, Steve wants to arrange for some landscaping works to be carried out. Steve meets with PaveIt Contractors at his house to discuss the landscaping works. During the meeting PaveIt tells Steve that

they will carry out the works at the following prices, ‘Paving to driveway — $5000, Paving to patio — $3000, Retaining walls to garden — $4000’. Subsequently, Steve instructs PaveIt that he wants to go ahead with the paving works to the driveway and patio immediately, but hasn’t made his mind up about the retaining walls just yet. PaveIt prepares a simple written contract for the paving works only which Steve reads and signs. A few days later, PaveIt sends their workers to Steve’s house to start work. When the workers arrive at the house at 8am, Steve is not there as he has already left for work in the city. Due to a communication error within PaveIt, the workers start by building the retaining walls. When Steve returns from work that evening, he is surprised to see the completed retaining walls. Nevertheless, he is delighted with the appearance of the retaining walls and promises PaveIt that he will pay them $4000 for the retaining walls even though he did not agree to their construction. One week later, however, Steve refuses to pay the $4000 promised for the retaining walls as he is unhappy with the quality of the paving work PaveIt has since carried out. Under these circumstances, Steve would not be bound to pay PaveIt the $4000 promised for the retaining walls as the act of building the walls occurred before Steve made the promise to pay for their construction. In other words, PaveIt has given past consideration in relation to Steve’s promise to pay the $4,000. [3.114]

In Roscoria v Thomas (1842) 2 QB 234, the plaintiff purchased a horse from the defendant. After the deal had been done, the defendant promised the plaintiff that ‘the said horse was sound and free from vice’. The horse turned out to be vicious, and the plaintiff sued for breach of contract. The court held that the claim must fail, as the plaintiff had paid for the horse before receiving the defendant’s promise as to the horse’s temperament.

Consideration must move from the promisee

[3.115]

Traditionally in common law, a promisee can only enforce a promise if he or she was the one who gave consideration for it. If the consideration did not move from the promisee but from another person instead, then the promisee cannot enforce the promise. The one exception to this rule is where the consideration is provided on behalf of the promisee by their authorised agent.46 This means that a party who stood to benefit from the terms of the contract but was not a party to the contract who gave consideration, cannot bring an action to enforce the terms of the contract. Such a party is known as a third party beneficiary to the contract. [page 124]

[3.116]

In Tweddle v Atkinson (1861) 121 ER 762, the fathers of a recently married couple made an agreement with each other to each pay a sum of money to the newly wed husband. Despite the agreement stating that the husband would have the power to sue for the money, the husband’s attempt to sue his deceased father-in-law’s estate for the money promised to him failed on the grounds that the husband had provided no consideration to secure his father-in-law’s promise to pay.

Performance of an existing duty is no consideration [3.117]

The performance by a promisee of an act in return for another party’s promise will not be good consideration if the promisee was already under an existing public or contractual duty to perform the act.

[3.118]

In Collins v Godefroy (1831) 109 ER 1040, the plaintiff sued the defendant for money which the defendant had promised to pay him in return for his testimony in court. The plaintiff’s action failed as he was already under an existing public duty, by way of a subpoena, to appear as a witness. Therefore, due to a want

of consideration, the defendant’s promise to pay was not binding. [3.119]

If the performance given exceeds that expected under a public duty, however, there may be good consideration. For example, in Glasbrook Brothers v Glamorgan County Council [1925] AC 270, a mining company requested that the police provide a stationary guard at their premises for protection because of a workers’ strike. When the police deemed that a mobile patrol would be sufficient, the mining company agreed to pay the police to provide a stationary guard. After the strike was over, the mining company refused to pay the money to the police, claiming that the police were under an existing public duty to provide a stationary guard. The court, however, held that the mining company must pay because the police were only under a public duty to provide a level of protection which they deemed necessary, in this case a mobile patrol. Therefore, by providing a stationary guard, the police had exceeded their public duty and, thus, provided consideration for the mining company’s promise to pay.

[3.120]

An act or forbearance cannot be used again as consideration by a promisee if that act or forbearance has already been used as consideration in a previous agreement with the same promisor. In other words, a fresh act is required as consideration to secure the promise in a second agreement with the same promisor. In Stilk v Myrick (1809) 170 ER 1168, two sailors out of a crew of 12 hired to sail a ship back to London ‘jumped ship’ at a port of call. The ship’s captain promised to divide the wages of the two deserting sailors amongst the remaining sailors if they sailed the ship back to London. Upon arriving in London, the captain reneged on his promise and one of the sailors sued to recover the extra wages promised. The sailor’s action, however, failed due to a want of consideration. The court found that the sailor had done no more than he was originally contracted to do at the start of the voyage. In other words, he had not provided any fresh

consideration in return for the captain’s promise of extra wages. [page 125] [3.121]

Exceptions to the rule that an existing duty cannot be consideration have been made by the courts where the existing duty is performed under riskier circumstances, and the promisor receives an extra benefit from the duty than that originally anticipated.

[3.122]

In Hartley v Possonby (1857) 119 ER 1471, upon reaching a port part way through the voyage, 17 out of 36 crew members hired to sail a ship to Bombay refused to complete their duties and were sent to prison. As an inducement to the remaining 19 crew members, the captain promised an extra payment of £40 each if they successfully completed the voyage. Upon reaching Bombay, the captain reneged on his promise, and one of the sailors successfully sued the captain. The court held that, because depleted crew made the level of danger for the ship to complete its voyage exceed that originally contracted for, the sailor had given consideration.

[3.123]

In Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 2 WLR 1153, Roffey was a main building contractor who employed Williams as a subcontractor to carry out carpentry work in a block of flats. As a result of having underbid for the work, Williams experienced financial difficulties and fell behind schedule with their work. Worried that the building owner would seek damages from them if the project was not finished on time, Roffey made an oral offer to pay Williams an extra £575 for each flat in which the carpentry work was completed within time. Subsequently, Roffey refused to pay the extra money promised for the completed flats. Williams sued to recover the additional money promised. Although Williams appeared to be performing the same scope of works within the

same timeframe as originally agreed, the court held that Williams had provided consideration in the form of the following practical benefits which had accrued to Roffey by having the flats completed on time: (i)

the continuance of the carpentry work without stoppage, which would have been a breach of the subcontract;

(ii) avoidance of having to pay the building owner for delay; and (iii) avoidance of the trouble and expense of engaging other people to complete the carpentry work. [3.124]

The practical benefit test applied in Williams v Roffey, although controversial, was endorsed by the NSW Supreme Court in Musameci v Winadell Pty Ltd (1994) 34 NSWLR 723. In Musameci, Winadell leased a shop unit in a shopping centre to Musameci to run a fruit and vegetable shop. Subsequently, Musameci discovered that Winadell was planning to lease another unit in the shopping centre to a much larger rival fruit and vegetable business. Musameci sought a reduction in the agreed rent of their shop unit by one-third to which Winadell agreed. Relations between the two parties deteriorated, however, and Winadell abandoned their promise to reduce the rent, instead charging the full rent originally agreed. When Musameci subsequently defaulted on the full rental payments, Winadell repossessed the shop unit. Musameci sued claiming, amongst other things, that they did not have to pay the full rent. The court ruled in Musameci’s favour finding that they had given consideration in return for Winadell’s promise to reduce the rent in the form of the following practical [page 126] benefits that Winadell had obtained by virtue of Musameci’s continued occupation of the shop unit:

(i)

avoidance of a vacant unit in the shopping centre;

(ii) preservation of landlord’s reputation; and (iii) immediate receipt of rental payment instead of having to go through the time, effort and expense of finding another tenant.

Part payment of debt [3.125]

There is an important and ancient common law rule relating to the principle of consideration regarding the part payment of debt. This rule states that ‘payment of a lesser sum on the day [it is due] in satisfaction of a greater sum cannot be any satisfaction for the whole’. This rule was established in Pinnel’s case (1602) 77 ER 237, and is often referred to as the ‘rule in Pinnel’s case’. The rationale behind this rule is that for consideration to be good, it must convey some benefit upon the promisor that they were not already entitled to.

[3.126]

A simple example of this concept is as follows: Supposing Dave enters into an agreement on 1 July 2014 to borrow a sum of $10,000 from QuickLoans to finance his struggling business through tough times. Under the terms of the loan agreement, Dave is due to pay back the loan plus agreed interest on 30 June 2015. On the date the loan is due for repayment, Dave has insufficient funds to settle the whole debt. Dave explains that his business is in severe financial difficulties and requests that QuickLoans accept a total sum of $8000 in full settlement of the loan. Concerned that Dave might become bankrupt soon, QuickLoans agrees to Dave’s request. Two months later, Dave’s business picks up when he wins a few lucrative contracts. QuickLoans regrets their decision to accept only $8000 from Dave and now demands that Dave pay the remaining $2000 plus interest. Dave refuses. QuickLoans decides to sue Dave. Will QuickLoans succeed? Let’s analyse this situation. In this case there have actually been two agreements made:

Agreement No. 1: The first agreement was made when the initial loan agreement was formed on 1 July 2014. In this agreement, Dave promised to pay back the $10,000 plus interest. This is a binding contractual obligation as, by promising to lend the money to Dave, QuickLoans gave consideration to secure Dave’s promise. Agreement No. 2: The second agreement was made on 30 June 2015 when QuickLoans promised to accept $8000 from Dave in full settlement of the loan. In other words, QuickLoans has effectively promised to let Dave off paying a sum of $2000 plus interest. QuickLoans’ promise is not contractually binding, however, as Dave has not given consideration in response to the promise. Thus, QuickLoans is likely to be successful in suing Dave for the remaining $2000 plus interest. [page 127] [3.127]

This concept may be seen in the case of Foakes v Beer (1884) 33 WR 233, where Dr Foakes owed Mrs Beer a sum of £2090 by reason of a court judgment debt which Mrs Beer had obtained against him. In order to pay off the debt, the parties came to an arrangement whereby Dr Foakes would repay the principal sum of the debt by regular instalments. The arrangement remained silent as to payment of any statutory interest due on judgment debts. Further, under the arrangement, Mrs Beer promised she would not commence court proceedings to enforce the payment provided Dr Foakes kept paying the instalments. After Dr Foakes had eventually repaid the sum of £2090, a dispute arose between the parties as to whether their arrangement included the repayment of interest. Mrs Beer successfully sued to recover £360 for interest. The court found that even if Mrs Beer had promised to forgo the interest due to her, her promise could not be enforced. Dr Foakes’s repayment of £2090 was only a part payment that did not satisfy the whole debt of £2090 plus £360 interest. Furthermore, Dr Foakes’s part

payment could not be consideration for Mrs Beer’s promise not to commence court proceedings. [3.128]

In D & C Builders v Rees [1966] 2 QB 617, Mrs Rees owed D & C Builders a sum of £482 for work carried out at her premises. After delaying payment for several months, and knowing that D & C was experiencing financial difficulties, Mrs Rees offered to pay £300 in full settlement of the debt. D & C was unwilling to accept, but acquiesced and accepted the £300 when Mrs Rees effectively said that if D & C did not accept, they would get nothing. Subsequently, D & C successfully sued to recover the balance of money owing to them on the basis that part payment of the debt could not satisfy the whole.

[3.129]

An exception to the rule in Pinnel’s case, however, may apply where there is ‘accord and satisfaction’ present in the part payment agreement. ‘Accord’ means that the creditor has willingly agreed to accept the part payment. ‘Satisfaction’ means that the creditor received some form of benefit in addition to receiving the part payment. This satisfaction or benefit will be viewed by the courts as consideration given by the debtor to secure the creditor’s promise to accept a lesser amount. Satisfaction need not be much. For instance, it simply could be a repayment made at an earlier date than originally agreed. For example, in the example in [3.126] above, it could be that Dave repays $8000 on 29 June 2015 instead of 30 June 2015.

The doctrine of promissory estoppel [3.130]

Promissory estoppel is equitable in nature (ie, from the equity law). The objective of promissory estoppel is to rectify the injustice of a situation where a promise has been made by one party which another party has relied upon to its detriment. The court considers such conduct by a promisor to be unconscionable and, thus, may apply promissory estoppel in certain limited circumstances.

[3.131]

Promissory estoppel, where applicable, gives force to a gratuitous promise (ie, a promise unsupported by consideration). This goes against the fundamental [page 128] principles of contract law and, as such, for a long time the Australian courts would not allow promissory estoppel. However, in the landmark decision of Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 (discussed further in [3.134]–[3.136] below), the High Court of Australia for the first time applied promissory estoppel when deciding a case.

[3.132]

The origins of the doctrine of promissory estoppel lie in the English decision of Central London Property Trust v High Trees House Ltd [1947] KB 130. In this case, the plaintiff leased a block of flats to the defendant on a 99-year lease at an annual rent of £2500. Due to the outbreak of World War II, in 1940 the defendant was unable to sublet several of the flats and, as such, the plaintiff agreed to halve the annual rent. After the war had ended in 1945, the plaintiff brought a successful action against the defendant claiming that the annual rent should be restored to the originally agreed rate of £2500 as from mid-1945. The court recognised that it was the mutual intention of the parties that the promise was only to apply during the wartime period. Crucially, the court went on to state obiter dicta that, hypothetically, had the plaintiff attempted to claim for the full rent backdated between 1940 and early 1945 whilst the war was on, it would have been estopped from enforcing its contractual right to do so due to the promise it had made. According to the court, equity law had developed to such a stage where a gratuitous promise must be honoured if: (i)

it was made with the intention of creating legal relationships;

(ii) to the knowledge of the promisor, it was going to be acted

upon by the promisee; and (iii) it was acted upon by the promisee to its detriment. [3.133]

Traditionally, the application of promissory estoppel has been restricted in two ways. First, it could only apply to situations where the parties were in an existing contractual relationship (of which the relevant promise made by the promisor was not an original term). Second, promissory estoppel could only be used by a defendant to defend a claim against the plaintiff. Promissory estoppel could not be used by a plaintiff as the grounds upon which to mount an action. In other words, promissory estoppel could only be used as a ‘shield, not a sword’. However, the 1988 Australian High Court decision in Waltons Stores (Interstate) Ltd v Maher (as discussed below) has now cast considerable doubt as to whether these restrictions will apply in the future.

[3.134]

The High Court of Australia first accepted that the doctrine of promissory estoppel could apply in Australia in the case of Legione v Hateley (1983) 152 CLR 406. This case, however, was eventually settled amicably and, therefore, not decided using estoppel. The first time the High Court actually used promissory estoppel to decide a case was in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. In this case, Waltons negotiated terms with Maher for the lease of a retail premises to be newly constructed by Maher on land they owned in Nowra. Waltons’ solicitors drafted the terms of the agreement, and sent a copy to Maher stating that they believed their client’s (ie, Waltons’) approval of the terms would be forthcoming and that if there were any terms not agreed to by Waltons, ‘we shall let you know tomorrow’. Maher received the terms, signed them and returned them to Walton’s solicitors marked [page 129]

‘by way of exchange’, indicating that Maher thought they had a contract. Waltons subsequently did not sign the terms. Maher then started building in the belief that a contract had been formed. A couple of months later, Waltons informed Maher that they did not intend to proceed. By this time Maher had demolished the existing building on site, poured 40 per cent of the concrete works and laid approximately 70 per cent of the bricks. Maher sued for specific performance to enforce Waltons to go through with their promise to lease the shop. [3.135]

The court agreed with Maher, and Waltons was estopped from retreating from its implied promise to complete the leasing agreement. The court considered that it was unconscionable for Waltons to encourage Maher to build and expose themselves to detriment on the basis of a false assumption that a contract had come into existence. This was a highly significant decision because: (i)

Waltons and Maher were not actually in a contractual relationship; and

(ii) Maher appeared to use promissory estoppel as a ‘sword, not a shield’. However, the High Court saw the use of estoppel in the case, not as the cause of action itself, but ‘as the factual foundation of a cause of action arising under ordinary principles of law’. In other words, the cause of action was that there was a binding contract, and Walton’s conduct gave rise to an operative estoppel which precluded them from denying the existence of a binding agreement.47 [3.136]

Brennan J listed the elements necessary for a plaintiff to prove in order to establish an equitable estoppel as follows: In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that: (1) The plaintiff assumed or expected that a particular legal relationship exists between the plaintiff and defendant or that a particular legal relationship will exist between them and, in the latter case, that the defendant is not free to withdraw from the expected legal relationship;

(2) The defendant has induced the plaintiff to adopt that assumption or expectation; (3) The plaintiff acted or abstained from acting in reliance on the assumption or expectation; (4) The defendant knew or intended him to do so; (5) The plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) The defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.48 [3.137]

Note that the court in Empirnall Holdings v Machon Paull (1988) 14 NSWLR 523, as previously discussed in [3.58] above, stated obiter dicta that there was a strong case for Machon Paull to argue that Empirnall should be estopped from denying the [page 130] existence of a contract on the printed terms provided by Machon Paull. However, the court could not apply promissory estoppel in this case because it was not pleaded by Machon Paull.

The contents of the contract [3.138]

After having previously considered the essential ‘ingredients’ for the formation of a contract, attention is now turned to what the parties have actually agreed to in the contract — in other words, the contents of the contract.

[3.139]

Contracts contain statements of rights (ie, what the parties will receive) and statements of obligations (ie, what the parties must give). These statements are known as ‘terms’ and they are binding (ie, may be enforced) at law. Contractual terms may either be express or implied in nature.

[3.140]

Express terms are those statements made, and included in the

contract, by the parties themselves. Express terms may be either oral or written. Implied terms are inserted into a contract by law. Implied terms, therefore, exist in contracts even if they are not expressly stated therein. [3.141]

Prior to the formation of a contract, the parties often engage in precontractual negotiations during which several statements — typically oral, but sometimes written — are made. Negotiations often occur over an extended period of time (perhaps several days, weeks or even months). Essentially, most statements made during precontractual negotiations may be categorised as either: (i)

binding contractual terms; or

(ii) representations, which are typically made by the parties to attract each other into the contract and do not become part of the contract. [3.142]

Upon contract formation, a crucial question, therefore, becomes exactly which of these categories do the statements made during precontractual negotiations fall into? A breach of a term will allow an injured party to the contract to sue for damages under contract law. However, where a mere representation turns out to be untrue, or is unfulfilled by the representor, a contractual party cannot take action under contract law. However, it may be possible to obtain remedies under other areas of the law, such as for misleading and deceptive conduct under s 18 of the Australian Consumer Law (ACL).49

Distinguishing terms from representations [3.143]

The test used by the courts to determine whether or not a statement is a term or a representation is an objective test of intention of the parties. In other words, the [page 131]

courts consider whether or not a reasonable person would consider that the parties intended the statement to be a term having regard to the surrounding circumstances of the particular case. In order to assist in applying this test, the courts have developed several guidelines including those relating to the: timing of the statement; form of the statement; importance of the statement; and specialist knowledge or skill possessed by one of the parties.

Timing of the statement [3.144]

Generally, the longer the time span between the making of the statement and the formation of the contract, then the less likely the statement will be considered a term. In Van den Esschert v Chappell (1960) WAR 114 (discussed in further detail in [3.148] below), the timing of an oral statement that a house was free from infestation by white ants, being made immediately before the signing of the sales contract, was instrumental in the court’s decision to classify the statement as a term.

Form of the statement [3.145]

Where a contract is made orally, it is likely that it will be more difficult for the parties to establish in court what they actually agreed to when forming the contract. As such, sound business practice dictates that commercial contracts should be put into writing to provide proof of the terms agreed. Indeed, it is a statutory requirement that certain types of contracts — such as contracts for the sale of land50 and domestic building work51 — be put into writing in order to be enforceable at law.

[3.146]

Generally, if the statement is put into writing then the court is more likely to consider it to be a term. If several of the negotiated statements are put into writing, such that a

comprehensive written contract appears to exist, it may not be possible for an oral statement which has been left out of the written contract to become a term due to the parol evidence rule which states that: Where a contract is reduced into writing, where the contract appears in the writing to be entire, it is presumed that the writing contains all the terms of it and evidence will not be admitted of any previous or contemporaneous agreement which would have the effect of adding to or varying it in any way.52 [3.147]

In other words, where a written agreement exists that, when considered objectively, appears to encompass all the terms the parties intended to contract upon, no extrinsic evidence (ie, evidence from outside the written agreement, such as an oral statement) [page 132] may be introduced in order to prove the existence of a term in the contract. The practical effect of the parol evidence rule is that it is difficult for a party to successfully argue that an oral term exists where a comprehensive written contract has been entered into between the parties. Having said this, the courts may make an exception to the parol evidence rule if it can be shown that the parties intended for the contract to be mixed, or partly written and partly oral.

[3.148]

In Van Den Esschert v Chappel (1960) WAR 114, immediately before signing the written sales contract for a house, the vendor, in response to a question from the purchaser, said that the house was free from infestation by white ants. The house was subsequently discovered to be infested with white ants, and the purchaser sued for breach of contract in order to recover damages incurred in eradicating the white ants. The court held the vendor’s oral reassurance as to the absence of white ants to be a term of the contract, stating: [O]n the purchase of a house in this country an enquiry regarding the presence of

white ants was most important; when the prospective purchaser immediately before signing a contract makes a specific request to be informed about that matter and gets an affirmative answer … it was intended to be made part and parcel of the contract and was to be regarded as a term. [3.149]

Graw notes that there is some scope for the court to find that a standard printed form of contract, where the parties fill in the blanks amongst standard terms, is a partly written and partly oral contract because the ‘standard clauses may not exactly cover everything that was agreed’.53 Conversely, there is less scope for a purpose-written contract, drafted especially for the parties’ specific agreement, to be excepted from the parol evidence rule. To demonstrate this, Graw refers to the decision in Nemeth v Bayswater Road Pty Ltd [1988] 2 Qd R 406, where the plaintiff sued for extra hire charges that it claimed were orally agreed prior to entering into a purpose-written agreement which included a provision that ‘all the terms … are contained in this written agreement’. The court applied the parol evidence rule, disallowing the admission of the alleged oral evidence and finding that the written contractual document did indeed contain all the terms of the contract.

Importance of the statement [3.150]

If the recipient of the statement had made it clear to the maker of the statement that the statement was a matter of such significance that it would affect their decision whether to enter the contract, then the statement is more likely to be considered a term. In Bannerman v White (1861) 10 CBNS 844, a buyer of hops made it abundantly clear to the vendor that he only wished to buy the hops if they hadn’t been treated with sulphur. Having been told by the vendor that sulphur had not been used on the hops, the buyer purchased the hops and subsequently discovered that a small [page 133]

proportion of the hops had been treated with sulphur. The court held the vendor’s statement regarding the non-use of sulphur to be a term because he had been made aware of the importance of this statement by the buyer during precontractual negotiations.

Specialist skill or knowledge of one of the parties [3.151]

If the maker of the statement had some specialist knowledge or skill relating to their statement, it is more likely that the statement will be considered a term due to the maker of the statement being in a stronger position to know the truth than the recipient. In Schawel v Read [1913] 2 IR 81, during negotiations for the purchase of a stallion for stud purposes, the buyer began to inspect the stallion. The vendor interrupted the inspection stating, ‘You need not look for anything: the horse is perfectly sound’. Relying upon this statement, the buyer abandoned his inspection and agreed to purchase the horse. Subsequently, the stallion proved unfit for stud purposes and the buyer successfully sued for breach of contract. The court held the vendor’s statement to be a term because of the specialist knowledge he had about the condition of the horse at the time of making the statement.

When can terms be implied into a contract? [3.152]

Terms may be implied into a contract under certain circumstances, including: on the basis of past dealings; on the basis of trade usage or custom; where necessary to give business efficacy to a contract (terms implied in fact); by law; and by statute.

[3.153]

For the first four instances above, terms are implied to give

effect to provisions which both parties clearly intended be included in the contract, but did not express therein. Terms implied into contracts by statute are generally considered to be an incursion into ‘freedom of contract’ by parliament, and are usually justified on the basis of providing protection to a vulnerable class of persons, such as consumers dealing with corporations.

Past dealings [3.154]

If it can be shown that the parties have a history of consistently including a particular term in their past dealings, the courts may imply that term into a contemporaneous contract in which the term has been left out. In Hillas & Co v Arcos [1932] All ER Rep 494 (as previously discussed in [3.65] above), for example, the court implied terms into a contract for the sale of timber regarding the timber specification and delivery arrangements in the light of a prior course of dealing between the parties and in accordance with the usual trade practice in the timber industry. [page 134]

Custom or trade usage [3.155]

Sometimes, where a contract is made in the context of a particular trade or industry, terms may be implied into the contract according to what is normal practice or custom (ie, established procedure) in that trade or industry as long as the practice or custom is clearly and universally accepted within the trade or industry and there is no contradictory express term in the contract.

[3.156]

In Hutton v Warren (1836) 1 M&W 460, the plaintiff (tenant farmer) had just spent money planting seeds on his land when the landlord gave notice to end the leasing contract for the

land. According to local agricultural custom at the time, the court implied a term into the contract that the tenant farmer should be compensated for his planting costs (of labour and seeds) by the landlord in these circumstances. [3.157]

In Con-Stan Industries of Australia Pty Ltd v Norwich Winterarthur Insurance Australia (1986) 160 CLR 226, ConStan entered into an insurance contract, which had been selected by their broker, with Norwich. Con-Stan paid the insurance premiums to their broker, who was supposed to pass the payments on to Norwich but failed to do so. The broker went into liquidation and Norwich sued Con-Stan for the unpaid premiums. Con-Stan argued that there was an implied term in the contract arising by virtue of custom or trade usage in the insurance industry that payment of the premiums to the broker absolved the insured person from liability to pay the insurance company. Con-Stan, however, was unsuccessful as it was unable to show that the custom relied upon was one which everyone making insurance contracts could reasonably be presumed to know and acknowledge such that they would have intended for it to be imported into the contract as a term.

Terms implied in fact, or to give business efficacy [3.158]

Terms may be implied on the basis of the specific facts of a case (‘in fact’) in order to give a contract business efficacy where it is obvious to a reasonable person that, at the time of making the contract, the parties intended such terms in order for the reasonable and effective operation of the contract.

[3.159]

In order to decide whether a term should be implied into a contract for business efficacy, the courts developed the ‘officious bystander test’, explained in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 All ER 113 at 124 as follows: Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying. Thus, if, while the parties were making their bargain, an officious bystander were to suggest some express provision

for it in their agreement, they would testily suppress him with a common ‘Oh, of course’. [3.160]

In The Moorcock (1889) 14 PD 64, the plaintiff ship owner contracted with the defendant owner of a wharf in the River Thames to use the wharf for unloading their ship in return for landing charges. Both parties were aware that if the river was at low tide then the ship would run aground on the river bed whilst at the wharf. Whilst the ship was unloading, the tide went out and the ship was grounded on hard rock causing [page 135] major damage to the ship. The ship owner sued for the damage. In their defence, the wharf owner argued that there was nothing in the contract guaranteeing the safety of the ship whilst at the wharf. The court, however, implied a term into the contract that the conditions at the wharf should be reasonably safe for the vessel in order to give the contract business efficacy. The ship owner’s action, thus, succeeded.

[3.161]

In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 52 ALJR 20, the Privy Council54 required that for a term to be implied in fact, the term must: (i)

be reasonable and equitable;

(ii) be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (iii) be so obvious that ‘it goes without saying’; (iv) be capable of clear expression; and (v) not contradict any express terms of the contract. These requirements have been approved by the High Court of Australia in several subsequent decisions.55

Terms implied by law [3.162]

Some terms will be implied at common law into all contracts of a particular type by default for reasons of policy unless the contracting parties have expressly provided otherwise. Examples of terms implied by law include: (i)

an obligation on the supplier of goods that the goods will be of merchantable quality (ie, reasonably fit for the purpose for which goods of the type supplied are normally used — for example, an umbrella must not leak);

(ii) a duty to cooperate; (iii) a duty to act in good faith under certain circumstances; and (iv) a duty that a professional will exercise reasonable care and skill when performing contractual obligations.56 [3.163]

The duty to cooperate has been defined by the courts as follows: It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract.57

[page 136] Accordingly, in a construction contract, where the contract remains silent on such matters, terms will be implied for such duties as the giving of timely possession of the site and providing timely working drawings and specifications to the contractor. [3.164]

There is a duty, in certain circumstances, to act in good faith. In Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR, the principal gave notice under the express terms of a construction contract to the contractor, who had fallen behind schedule, to show cause as to why the principal

should not take over the work or terminate the contract. The contractor responded that it was willing and able to complete the contract within a reasonable time. Despite the delay being partly due to the principal’s failure to supply essential materials on time as stipulated under the contract, and despite the contractor bringing extra resources onto site to complete the works, the principal took the work out of the contractor’s hands. The contractor successfully sued for wrongful repudiation of contract.58 The court found that, in considering whether the contractor had failed to show cause, and making their decision to exercise their right to take the work out of the contractor’s hands, the principal had an implied duty to act both reasonably as well as honestly (ie, in good faith), and in this case had failed to do so. [3.165]

A reasonable level of care and skill is that exercised by the ordinary competent professional of that type in the community. Therefore, if the professional can show that his or her actions would have been adopted by sufficient of their peers, then they will have exercised reasonable care and skill. For example, in George Hawkins v Chrysler (UK) Ltd (1986) 38 BLR 36, an engineer specified shower floor tiles which turned out to be slippery when wet. He was held not to have breached his duty to take reasonable care and skill as he had carefully referred to relevant technical data sheets and brochures as well as a flooring specialist when deciding to specify the tiles. However, where professional building designers want to adopt an untried design they should warn of any risks and obtain consent from their client as to adoption of the design in order to meet their duty of care.59

[3.166]

This implied contractual professional obligation to exercise care and skill carries with it a duty for a building contractor to warn its principal about a defect it has noticed in the design information provided by the principal’s design consultants. Where the design defect poses a safety risk, the court may well require a contractor to do even more than just warn. In the

English High Court decision of Plant Construction Plc v Clive Adams Associates [2000] 1 BLR 137, a principal’s consulting engineer designed temporary propping to a roof. The principal engaged a contractor to carry out substructure works which included the roof propping. Despite raising concerns about the adequacy of the temporary works with the consulting engineer, the contractor proceeded with the roof propping. Subsequently, the propping failed and the roof [page 137] collapsed. The court held the contractor to be 20 per cent liable for the total damages awarded for its failure to ‘protest vigorously against any instruction to proceed with works to a design which that contractor knew, or ought to have known, was defective’. [3.167]

In Bains Harding Construction & Roofing (Aust) Pty Ltd v McCredie Richmond & Partners Pty Ltd (1988) 13 NSWLR 437, Bains (a building contractor) hired McCredie Richmond (a quantity surveying company) to prepare a schedule of quantities for roofing and wall cladding to be used by Bains for submitting a tender. When McCredie Richmond supplied the schedule of quantities to Bains, one of the pages was accidentally omitted. Consequently, Bains underbid and won the tender. Upon realising the quantity surveyor’s error, Bains was already committed to the contract. Bains sued and the court held McCredie Richmond liable for two-thirds of Bains’ losses caused by their failure to exercise reasonable care and skill.

Terms implied by statute [3.168]

Many Acts of Parliament expressly provide for certain terms to be implied into contracts of a specific class or category. With regard to the sale of goods by contract law, there are two

important pieces of legislation which imply terms into contracts: the Australian Consumer Law (ACL), which is provided in Sch 2 of the Competition and Consumer Act 2010 (Cth) and incorporated into the Fair Trading Acts enacted in each state and territory; and the Sale of Goods Acts enacted by each state and territory. [3.169]

Because the ACL is provided in both Commonwealth and state legislation, it covers business contracts made by both corporations and non-corporations with consumers. In addition to goods, the ACL covers contracts for services provided to consumers. Generally, the ACL only applies to contracts between businesses and consumers. However, under the ACL, business-to-business contracts may be considered as consumer contracts if the contract is for goods or services and does not exceed $40,000 in value and, in the case of goods, the goods are not purchased for the purpose of resupply or for using them up or transforming them in trade or commerce. Therefore, for example: a photocopying machine purchased by a business for administrative use, or factory equipment purchased for manufacturing, would be covered under the ACL as long as the purchase price was $40,000 or less; but raw materials used in manufacturing products, or materials purchased to repair an investment property, would not be covered under the ACL even if they cost less than $40,000.

[3.170]

Any contracts over $40,000 are only covered by the ACL if they are for goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption. The ACL implies ‘guarantees’ (or terms) into contracts for the supply of goods and services, which includes contracts for lease or hire purchase of goods.

[3.171]

The Sale of Goods Acts cover business-to-business contracts as

well as business-to-consumer contracts. They do not cover contracts for the supply of services [page 138] (ie, workmanship and labour). A grey area exists as to the application of the sale of goods legislation where a contract is for both the supply of goods and services together, such that a person agrees to perform work for another that by necessity requires goods to be supplied in order to deliver the end product. A good example of this is a construction contract where a head contractor agrees to plan and supervise construction works and activities in order to deliver a completed building. In Hewett v Court (1983) 149 CLR 639, the court found that a contract for the construction of a transportable house was a contract for work and services rather than a contract for sale of goods. The Sale of Goods Acts imply ‘warrantees’ (or terms) into contracts for the sale of goods, defined as the transfer of property in goods for a money consideration which excludes contracts for lease or hire purchase of goods. [3.172]

The implied terms under both the ACL and Sale of Goods Acts for the sale of goods are very similar, and include the following: The seller has the right to sell the goods. Where the contract is for the sale of goods by description, the goods shall correspond with the description. Goods supplied must be of an ‘acceptable’ (ACL) or ‘merchantable’ (Sale of Goods Acts) quality — this means that the goods must be fit for all the purposes for which goods of that kind are commonly supplied. If, however, the buyer has had the chance to examine the goods before deciding to purchase, there will be no implied term as to acceptable or merchantable quality with respect to any defects in the goods

that the buyer ought reasonably to have discovered upon examination. Goods supplied must be reasonably fit for their purpose — such a term will be implied in circumstances where the buyer purchases the goods in reliance upon the seller’s skill or judgment, after making known to the seller the particular purpose for which the goods are required. This term is, however, not likely to be implied where the goods sold are outside the course of the seller’s usual business. Where goods are sold by sample: –

the quality of the bulk goods supplied shall correspond with the quality of the sample;

–

the buyer shall have a reasonable opportunity to compare the bulk of the goods with the sample; and

–

the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample.

The Sale of Goods Acts allow these implied terms to be excluded by express agreement of the parties,60 whereas the ACL does not permit such exclusion. [3.173]

The ACL additionally implies guarantees (or terms) into consumer contracts relating to the supply of services requiring that services will be rendered with due care and [page 139] skill, services will be reasonably fit for any purpose made known to the supplier, and services will be supplied within a reasonable time where no time has been fixed in the contract.

[3.174]

Examples of legislation which implies terms into constructionrelated contracts include the state-based home building Acts,61 and building and construction industry security of payment

Acts.62

Altering the terms of a contract [3.175]

After entering into the contract, neither party is allowed to change the terms of the contract unless: by mutual agreement, properly supported by legal consideration where necessary — for example, as seen in [3.129] above, parties may mutually agree to a part payment of debt in full satisfaction of the debt (ie, alter the terms of the original contract) if ‘accord and satisfaction’ has been given; or the contract itself contains provisions which allow for the terms to be altered — for example, most standard forms of construction contract provide variations clauses which allow the scope of works agreed at the time of contract formation to be changed, and set out an agreed mechanism for valuing the pricing of variations to the contract sum for such changes. If no such variations terms are included in a construction contract, then a separate additional agreement supported by consideration would have to be made every time a postcontract variation was made to the building works in order to make the variation contractually binding.63

Classification of terms [3.176]

Business contracts typically contain numerous terms. Not all of these terms are considered by law to have equal standing. Terms which are viewed as major (or more important) are called ‘conditions’, and the minor (or less important) terms are called ‘warranties’. The court will decide whether a term is to be classified as a condition or a warranty by considering the facts of each case. If a party would not have entered a contract but for the existence of a particular term, this will indicate that the term is a condition. As the court stated in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd (1938) 38 SR (NSW)

632: The question whether a term in a contract is a condition or a warranty, i.e. an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract

[page 140] considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of strict and substantial performance of the promise, as the case may be and this ought to have been apparent to the promisor. [3.177]

For a term to be deemed a ‘condition’ (or essential) by the courts, it must be a stipulation that ‘goes to the root’ or ‘reaches the heart’ of the contract’s subject matter, so that a failure to perform it would render the performance of the rest of the contract by the plaintiff a thing different in substance from what had been stipulated in the original contract.64 A breach of condition is often referred to as a material breach.

[3.178]

The practical difference between conditions and warranties lies in the remedies available under contract law for their breach. If a condition is breached, then the injured contractual party may sue for damages and, in addition, terminate the contract if they so choose. If a warranty is breached, then the injured contractual party may sue for damages only and the contract will continue to be ‘on foot’.

[3.179]

It is not always straightforward for the courts to distinguish whether a particular term is a condition or warranty, especially where the breach of that term may potentially lead to either major or minor consequences for the performance of the overall contract. For this reason, the courts developed a third category of term known as an ‘innominate term’. Where faced with an innominate term, the court will consider the effects of the breach before deciding whether to treat it as a condition or warranty. If the consequences of the breach of the innominate

term are ‘such as to deprive the injured party of a substantial part of the benefit to which he is entitled under the contract’, then the term will be treated as a term that goes to the root of the contract (ie, a condition).65 In Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 1 All ER 474, the defendant entered into a contract to charter a ship from the plaintiff. The contract contained a term that required the ship to be ‘in every way fitted for ordinary cargo service’. During the charter period, the ship lost 20 weeks of use due to the engine room crew being incompetent and the poor condition of the ship. The defendant treated the contract as terminated for breach of condition, but the plaintiff claimed that the defendant was only permitted to claim damages and by terminating had repudiated66 the contract. The court agreed with the plaintiff on the basis that the defendant had not been deprived of the whole of the commercial benefit of the contract.

Deeds of collateral warranty [3.180]

As a requirement of a main contract, a principal may require a contractor or consultant to provide a deed of collateral warranty to a third party. This commonly occurs in the construction industry where, for example, a building developer engages an architect [page 141] under a design contract. Although the design contract covers the developer in case of any building defects caused by any negligent design of the architect, it does not establish any contractual liability from the architect to any party who may purchase the building from the developer due to the doctrine of privity of contract. Therefore, in order to increase the attractiveness of purchase, the developer may require its architect, as a condition of the main design contract, to execute a deed of collateral warranty in which it promises to any third

party building owners that its design work has been carried out with reasonable care and skill. The existence of such a deed of collateral warranty would enable a third party building owner to sue the architect in contract law for any building rectification damages caused due to negligent design. [3.181]

Such collateral warranties may also be required by construction principals from their head contractors with respect to promising third parties that the building works have been carried out with reasonable care and skill. Furthermore, construction principals may also require that their head contractor obtains similar collateral warranties from its subcontractors, such that any third party building owners may have a course of action in contract law to recover any building rectification damages from the subcontractor who carried out the works in the event that, say, the head contractor had become insolvent.

Advertisers’ puffs [3.182]

During precontractual negotiations, one party may make a statement to the other which is so fantastical or far-fetched in nature that no reasonable person would believe it. Such statements are known as advertisers’ puffs. Advertisers’ puffs are employed as a marketing tactic — for example, ‘This washing powder will make your clothes whiter than the purest white snow.’ Advertisers’ puffs are not binding on the party who makes them as long as a reasonable person would not believe them to be true.

Exemption clauses [3.183]

Exemption clauses enable a party to protect themselves in the event of a breach by either: excluding a right which the other party may have had; limiting a party’s liability to a specific amount (eg, by setting

a cap on the amount of damages that can be claimed for a particular breach); or limiting a right by placing conditions on how it may be exercised (eg, by stipulating that a claim of a right under the contract must be made within a certain time otherwise it will be barred — known as a ‘time bar’ provision). [3.184]

Exemption clauses are legitimate in commercial contracts and are often used to allocate which party should take responsibility for, and therefore insure against, particular risks. In the construction industry, for example, where the unique and [page 142] unpredictable nature of construction projects increases the risk that events may occur that may potentially cause loss or injury, exemption clauses are frequently employed by contractual parties as a means to allocate risk.67

[3.185]

For an exemption clause to be effective, the person seeking to rely on the clause must have given sufficient notice to the other party whose rights will be exempted by the clause. Generally, if a party signs a written contract which contains an exemption clause, then that party is considered to have received actual notice of the exemption clause. The court will not accept that failure to read the written terms of a signed contract document is sufficient reason to render an exemption clause ineffective. In the landmark case of L’Estrange v F Graucob [1934] 2 KB 394, this was held to be the case even though the exemption clause was in very small print on poor quality paper. In other words, a party is bound by a document containing contractual terms which they have signed whether they have read the document or not.68

[3.186]

An exemption clause in a written and signed document, however, may be rendered ineffective if the clause has been

misrepresented by the person seeking to rely on it. In Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805, the plaintiff took a wedding dress to the dry cleaners. She was given a receipt to sign, and she questioned what it was for. The shop assistant explained that it was to exempt the dry cleaning company from certain types of damage, in particular damage to beads and sequins. The dress was returned badly stained and the plaintiff sued. The defendant dry cleaning company sought to rely on the exclusion clause on the receipt which in actual fact exempted liability ‘for any damage, howsoever arising’. The defendant, however, was not allowed to rely on the clause as the misrepresentation by the assistant as to the scope of the clause had induced the plaintiff to sign the document. [3.187]

Additionally, an exemption clause may be ineffective if it appears in a document which the party whose rights will be exempted by the clause reasonably did not regard as contractual. In D J Hill & Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749, subsequent to making an oral agreement for the carriage of goods, the carrier company presented a receipt for the receiving party to sign to acknowledge delivery. The receipt contained a clause, which had not been brought to the recipient’s notice, exempting the carrier’s liability for any loss or damage to the goods carried. The court found the exemption clause to be ineffective as there was no justification for holding the receipt to be a contractual document.

[3.188]

Where an exemption clause is contained within an unsigned contractual document, then the person seeking to rely on it will have to actually draw the other party’s attention to it or give them ‘constructive notice’ of it. Constructive notice means that all has been done that was reasonably necessary in order to bring the clause to the attention of a reasonable person. In Thornton v Shoe Lane Parking [1971] 1 All ER 686, a driver [page 143]

entered a car park by taking a ticket from the automatic vending machine. Printed on the ticket were the words ‘this ticket is issued subject to the conditions of issue as displayed on the premises.’ There was a notice with an exclusion clause displayed on a pillar opposite the ticket vending machine which was not easy for drivers to see. The exclusion clause exempted the car park operator from liability for personal injury that customers may suffer whilst on the premises howsoever caused. The driver suffered injuries when collecting his car from the car park and, notwithstanding the exclusion clause, successfully sued the car park operator. The court held that the exclusion clause had not been incorporated into the contract because there had not been reasonable steps taken to bring its existence to the notice of the driver before the contract was formed at the time the driver took the ticket from the vending machine. [3.189]

The wider the scope of the exemption clause, the more that will have to be done to give sufficient notice. As Lord Denning stated in reference to the exclusion clause in Thornton v Shoe Lane Parking: [I]t is so wide and so destructive of rights that the court should not hold any man bound by it unless it is drawn to his attention in the most explicit way … In order to give sufficient notice, it would need to be printed in red ink with a red hand pointing to it — or something equally startling.69

[3.190]

The Australian courts’ current position in relation to exemption clauses was laid down by the High Court of Australia in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, as follows: [T]he interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity.70 [emphasis added]

[3.191]

Contra proferentem means that where any confusion arises as to the meaning of the clause when read objectively, the clause will be interpreted against the interests of the party who put

forward (or proposed) the clause in the contract. [3.192]

Darlington Futures was applied in Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2013] WASCA 36, where Verve entered into a gas sales agreement (GSA) with the seller under which the seller had a firm obligation to supply up to an agreed maximum daily quantity of gas. In addition to the agreed maximum daily quantity, Verve was also contractually entitled to nominate an additional quantity of gas, defined as SMDQ (supplemental maximum daily quantity), which the seller had to use reasonable endeavours to make available for delivery. The GSA contained a clause which provided that the remedies expressly set out in the GSA be the sole and exclusive remedies of the parties in respect of any breach of [page 144] the GSA or for negligence or any other tort arising from any act or omission in the course of or in connection with the performance of the GSA. After a fire at the only other gas processing facility apart from the seller’s supplying the West Australian domestic gas market, the overall gas supply to the market was reduced by 30 to 35 per cent. On the basis that it could not supply all demand to its existing buyers, the seller refused to supply SMDQ gas to Verve for an indefinite time and instead offered to supply Verve gas to meet their shortterm supplementary needs at a new market price that was many multiples higher than the GSA price. Under protest, Verve accepted. Subsequently, Verve brought an action in unjust enrichment for economic duress71 on the basis the seller left it with no option but to accept.

[3.193]

The court had to consider whether a claim in economic duress was excluded by the limitation of liability clause in the GSA. The court applied the ‘natural and ordinary meaning’ approach

set out in Darlington Futures to the construction of the clause, ‘that the remedies expressly set out in the GSA be the sole and exclusive remedies of the parties in respect of any breach of the GSA’. Using this approach, the court viewed that there must be a sufficient or material connection between the seller’s liability in unjust enrichment for economic duress and the breach of the SMDQ clause in the GSA. As such, the court found (by a majority) that the connecting words ‘in respect of’ are not wide enough to capture liability in unjust enrichment for economic duress. Even though the seller had breached the GSA by its failure to use reasonable endeavours to make the SMDQ available, the court found that the seller’s liability for economic duress stems not from its failure to use reasonable endeavours, but in taking advantage of the pressure generated by that breach to obtain a benefit that is well outside the scope of the GSA.

Exemption clauses for consequential loss [3.194]

Clauses which exclude parties from liability to pay consequential (or indirect) loss arising from a breach of contract are often found within construction contracts, and commercial contracts generally. Traditionally, with respect to such exemption clauses, the Australian common law has followed the English approach in distinguishing between direct loss and consequential (or indirect) loss according to the first and second limbs of the test for remoteness of damages set out in Hadley v Baxendale (1854) 9 Exch 341.72 Under this approach, direct loss is loss that may fairly and reasonably be considered as arising naturally from the breach of contract; and consequential loss is loss that, whilst not flowing naturally from the breach, may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.

[3.195]

Under the Hadley v Baxendale approach, the courts have been willing to categorise loss of profits and extra costs incurred due

to a breach of contract as direct loss — that is, consider these types of losses as flowing naturally from the breach under the first limb of Hadley v Baxendale. [page 145] [3.196]

However, in Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26, the Victorian Court of Appeal found the English position, with respect to distinguishing direct and consequential loss for the purposes of exemption clauses, to be ‘flawed’.73 Instead, in defining consequential loss, the court preferred a distinction: … between ‘normal loss’, which is loss that every plaintiff in a like situation will suffer, and ‘consequential losses’, which are anything beyond the normal measure, such as profits lost or expenses incurred through breach.74

[3.197]

The Peerless decision is significant in that it has the effect of expanding the scope of a clause excluding consequential loss. Under the Peerless approach, a contractual party would likely to be able to escape liability for loss of profits and extra costs incurred due to a breach of contract where an exemption clause for consequential loss is provided within the contract. The Peerless decision has subsequently been followed in Allianz Australia Insurance Ltd v Waterbrook at Yowie Bay Pty Ltd [2009] NSWCA 224, and Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49. In Alstom, the court explained: To limit the meaning of indirect or consequential losses and like expressions, in whatever context they may appear, to losses arising only under the second limb of Hadley v Baxendale is, in my view, unduly restrictive and fails to do justice to the language used. The word ‘consequential’, according to the Shorter Oxford English Dictionary means ‘following, especially as an effect, immediate or eventual or as a logical inference’. That means that, unless qualified by its context, it would normally extend, subject to rules relating to remoteness, to all damages suffered as a consequence of a breach of contract.75

[3.198]

In more recent decisions, however, instead of following either the Hadley v Baxendale or Peerless approaches, the Supreme Courts of Western Australia76 and New South Wales77 appear

to have preferred an approach to construing the meaning of consequential loss in relation an exemption clause based upon the individual circumstances of each case, giving the exemption clause its natural and ordinary meaning in the context of the contract as a whole as per Darlington Futures. [3.199]

Given the ambiguity of the common law approach to defining consequential loss with respect to exemption clauses, as seen above, it is recommended that contractual parties clearly define exactly which types of losses they intend to be covered by an exemption clause for consequential loss in the express terms of the contract. [page 146]

Collateral contracts [3.200]

A collateral contract is a contract which comes into existence essentially as a byproduct of precontractual negotiations being carried out for another ‘principal’ contract. As such, a collateral contract runs alongside the ‘principal’ contract to which it is associated. A collateral contract may come into existence if, during negotiations for a ‘principal’ contract, a statement is made which: is promissory in nature; is intended to be legally binding; is not intended to be a term in the ‘principal’ contract; is relied upon by the recipient party when deciding to enter, or attempt to enter, into the ‘principal’ contract; and does not contradict a term of the ‘principal’ contract.

[3.201]

As with regular contracts, collateral contracts require consideration to be given to make them binding.

[3.202]

It is possible for collateral contracts to be formed where three

parties are involved. In Shanklin Pier Ltd v Detel Products Ltd [1951] 2 KB 854, Shanklin engaged a contractor to carry out repairs and repainting to its pier. Detel, a paint manufacturer, told Shanklin that its paint would last for at least 7 years in the harsh conditions to which the pier was exposed. On faith of that assurance, Shanklin specified in the contract with its contractor that the contractor must purchase and use Detel’s paint. The paint turned out to be unsuitable, lasting only 3 months and costing around £40,000 to rectify. Due to privity of contract,64 Shanklin could not sue Detel for breach of the contract under which the paint was purchased as it had been their contractor who had bought the paint. However, Shanklin was successful in recovering damages for Detel’s breach of the collateral contract which the court held to exist between the two parties. The court found that Shanklin had given consideration for Detel’s promise regarding the paint’s durability by having instructed its contractor to purchase and use Detel’s paint.

Privity of contract [3.203]

The privity of contract doctrine states that only the parties who enter into the contract are bound by the contractual terms and entitled to enforce them against each other. In other words, any third parties to a contract (ie, parties who did not enter into the contract) may not bring a legal action to enforce the terms of that contract. For privity of contract to arise with respect to a particular person, therefore, there must have been an intention when making the contract for that person to become a party to the contract.

[3.204]

The leading case for privity is Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 79, where Dunlop supplied tyres to a distributor under a contract which [page 147]

provided that the distributor was not allowed to resell the tyres below Dunlop’s list price unless the tyres were sold to a trade buyer, in which case the distributor was required to impose a similar price restriction upon the trade buyer. The distributor sold some of the tyres to Selfridge under a contract which imposed Dunlop’s list price restriction, and further stated that Selfridge would have to pay £5 damages for each tyre that was sold below list price. Selfridge sold the tyres below list price, and Dunlop sued for damages. Dunlop’s action, however, failed as Dunlop was not a party to the contract under which the tyres had been sold to Selfridge. In other words, there was no privity of contract between Dunlop and Selfridge. [3.205]

The privity rule is closely connected to (although not the same thing as) the rule that consideration must move from the promisee (as previously seen in [3.115]–[3.116] above). Unless consideration has been given by a promisee, it will not be able to enforce the terms of a contract. Therefore, in order to be able to successfully bring an action to enforce the terms of a contract, a person must be shown to have been an intended party to the contract (privity) as well as to have provided consideration.

[3.206]

Often a contract between two parties (A and B) may confer a benefit on a third party (C), but C won’t be able to enforce the contract due to an absence of privity and movement of consideration. This situation occurred in Tweddle v Atkinson (1861) 121 ER 762, as previously considered in [3.116] above, where a bridegroom was unable to enforce an agreement between his father and father-in-law to pay sums of money promised to him upon marriage.

[3.207]

As seen in Tweddle v Atkinson, the privity doctrine has meant that, traditionally, a third party will not be able to sue either of the parties to a contract for breach of that contract even though the primary purpose of the contract is to confer a benefit upon the third party. In more recent times, some international jurisdictions — such as the United Kingdom, Singapore and

New Zealand — have reformed the privity doctrine via contracts (rights of third parties) legislation, which allows a third party to enforce a contract where it can demonstrate that it stood to benefit from the contract.78 In Australia, it would appear that the privity doctrine remains strong, although there has been some doubt cast on the doctrine in the decision of Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107, where McNiece, a contractor working at Blue Circle Cement Ltd’s plant, successfully brought an action for indemnity under an insurance contract, even though the insurance contract was made between Blue Circle and Trident.

Transferring of rights and obligations under the contract [3.208]

Notwithstanding the privity doctrine, it may be possible for a third party to acquire the right to enforce the terms of a contract where the rights and/or obligations of the [page 148] contract have been transferred to the third party by one of the original contracting parties. This could occur by assignment of contractual rights, or novation of the contract.

[3.209]

Assignment is the transferring of the benefits (obligations cannot be assigned), which a party has contracted to receive from another, over to a third party. For example, a building contractor could assign its rights to receive payments from its principal under a construction contract to its bank, in which case the bank will be able to sue the principal for any overdue payments under the contract. For assignment to occur, all that is necessary is for it to be shown that the parties intended to assign. Most standard forms of construction contract, however, require that neither party shall assign any payment or other benefit without the other’s prior written approval.79

[3.210]

Novation is the complete substitution (or replacement) of one of the original parties to a contract with a third party. The third party, who has been substituted into the contract, effectively ‘steps into the shoes’ of an original contracting party, with full contractual rights and obligations being transferred. Novation takes the form of a tripartite agreement between the two original contracting parties and the substituting third party and, therefore, requires the consent of all three parties. Novation sometimes occurs in the construction industry where a principal engages an architect under a design contract to work up a conceptual design of a building, upon which a design and build tender is called, and subsequently requires in the design and build contract that the design contract is novated to the successful design and build contractor in order that the same architect work up the detailed design.

Subcontracting [3.211]

The subcontracts made between the head contractor and each of its subcontractors are separate from the head construction contract, which is made between the building developer and the head contractor. This means that there is actually no contractual relationship between the building developer and the subcontractors who carry out most of the building works on site. Therefore, due to the privity doctrine, neither the building developer nor the subcontractors can enforce contractual terms against each other.

[3.212]

Most building developers are willing to allow subcontracting because the head contractor remains responsible under the head contract for any works carried out by its subcontractors. If a head contractor has to pay damages to the building developer under the head contract for defective or late works carried out by a subcontractor, then the head contractor may attempt to recover the damages from its subcontractor under the relevant subcontract.80 This is often referred to as a ‘chain of liability’ which runs down through the hierarchical contracting chains

that exist on construction projects. [page 149]

Vitiation of contracts [3.213]

Having considered the formation and content of contracts, attention is now turned to the issue of how the legal validity of contracts may be destroyed. Conditions where contracts may be vitiated include where they have been formed under economic duress or mistake. Additionally, contracts may be vitiated where one of the parties has entered the contract due to misleading and deceptive, or unconscionable, conduct by the other.

[3.214]

Where a contract is vitiated, the court may classify the contract as either void or voidable. A contract which has been declared void is viewed by the courts as being ‘empty from the beginning’, or never having come into existence. As such, a void contract has no binding effect at any stage. Thus, it is impossible to enforce, or claim any damages under, a void contract. However, where a party has conferred benefits (eg, goods or money) on the other under a void contract, it is possible to obtain a remedy of restitution in order that the benefits be restored. The remedy of restitution is based upon the equitable ground of unjust enrichment, that no person should be unfairly enriched at the expense of another.

[3.215]

The courts recognise the formation of a voidable contract and its binding effect. When a contract is rendered voidable, however, the courts will consider that one of the parties is not bound by the contract and has a ‘window of opportunity’ to elect to avoid the contract. The opportunity to avoid will expire if the unbound party indicates, either expressly or impliedly through their conduct, that they intend to ‘affirm’ the contract in which case they will be bound to the contract again. A

voidable contract will, for example, be affirmed by conduct if the unbound party fails to rescind within a reasonable time. If the unbound party chooses to avoid, the contract will become void from the beginning. A claim in restitution will only be possible in respect of a voidable contract if the avoiding party rescinds the contract. This generally requires the avoiding party to give a rescission notice, informing the other party that they intend to terminate the contract.

Duress [3.216]

A contract is made under duress where one party enters into a contract as a result of the other’s coercion. The degree of coercion needs to be so great that it prevented the exercise of free will when consenting to form the contract. To amount to duress, the coercion exerted must be such as to cause a reasonable person, exercising that ordinary degree of firmness which the law demands of us all, to do something they would otherwise not do. Therefore, it needs to be something beyond normal commercial pressure encountered in precontractual negotiations. It is sufficient for the coercion to be contributory to, rather than the sole reason for, the victimised party’s decision to enter into the contract. As one judge put it, ‘the will is deflected, not destroyed’.81 [page 150] Where duress is found to have occurred, the contract is rendered voidable, thus giving the victimised party the option to rescind the contract.

[3.217]

Duress may occur by actual physical violence or threats of physical violence. To be recognised as duress, traditionally a physical threat must be illegal in nature and made against persons (either the other contracting party or their family members).82 The threat by itself is not sufficient to prove

duress. It must also be shown that it was a threat of sufficient gravity to cause a reasonable person to take it seriously and give in to it. [3.218]

Duress may also be applied through threats of an economic nature. In North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705, North Ocean contracted Hynudai to build a ship in return for a lump sum price agreed in US dollars and to be paid in five instalments. After the first instalment had been paid, Hyundai demanded a 10 per cent increase in the contract price due to the devaluation of the US dollar on the international currency market. Hyundai threatened that they would not complete the ship unless paid the extra money. As North Ocean had agreed to charter the ship upon completion, they gave in to Hyundai’s demand and paid the extra money, but made it clear to Hyundai that they had no legal obligation to do so. Eight months after the ship had been completed, North Ocean sought to recover the extra money they had paid. The court recognised that Hyundai had applied economic duress onto North Ocean but, nevertheless, held the contract remained valid because North Ocean’s delay in seeking a remedy amounted to an affirmation of the contract.

[3.219]

In DSND Subsea v Petroleum Geo-Services [2000] BLR 530, the English High Court set out the following test for actionable economic duress which required: there must be pressure, (a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim, (b) which is illegitimate, and (c) which is a significant cause inducing the claimant to enter into the contract … and, further, [i]n determining whether there has been illegitimate pressure, the court takes into account a range of factors. These include whether: there has been an actual or threatened breach of contract; the person allegedly exerting the pressure has acted in good or bad faith;

the victim had any realistic practical alternative but to submit to the pressure; the victim protested at the time; and [the victim] confirmed and sought to rely on the contract.

[page 151] These are all relevant factors. Illegitimate pressure must be distinguished from the rough and tumble of the pressures of normal commercial bargaining. [3.220]

It should be noted that, in the Australian context, the factors regarding exerting the pressure in bad faith, lack of any realistic practical alternative and protestation at the time are merely guiding, rather than necessary material facts, in establishing illegitimate pressure.83

[3.221]

In the English High Court case of Carillion Construction Ltd v Felix (UK) Ltd [2001] BLR 1, Carillion, a head contractor, engaged Felix as a subcontractor to carry out the design, manufacture and supply of cladding work to an office building. About six weeks after the agreed completion date for the cladding, areas of the cladding were incomplete which was causing delay to the building works. Despite not having yet finished the contract works, Felix submitted their final account in the sum of £3.314 million, which ran to more than £500,000 above Carillion’s valuation of the cladding works. Felix then made a threat that it would not continue to supply cladding units in accordance with the subcontract unless a final account sum of £3.2 million was paid. Carillion, being liable to its principal under the head building contract for substantial liquidated damages in the event of a late building completion, gave in and agreed to pay the £3.2 million demanded, after which Felix lifted its threat to withhold deliveries. The court applied the test set out in DSND Subsea, and found, amongst other things, that: Felix’s threat to withhold deliveries was a threat to commit a clear breach of contract;

there was a lack of a realistic practical alternative for Carillion as the cladding panels were not standard items that could be bought off the shelf and it would take several months for another supplier to deliver; and the pressure applied by Felix was illegitimate as there was no contractual entitlement to insist on agreement of the final account before completion of the subcontract works, and still less to suspend deliveries until the account was agreed. As such, the court held that economic duress had been present, and set the final account settlement aside. [3.222]

In Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd [2013] WASCA 36, as previously discussed in [3.192] above, after a fire at one of Western Australia’s two gas processing facilities had caused a gas supply shortage in the market, the seller of gas to Verve breached their contractual obligation to use reasonable endeavours to supply additional quantities of gas to Verve (above the agreed maximum daily limits in the contract) at a price agreed before the fire. Instead, the sellers would only supply Verve with extra gas if they agreed to enter into new short-term gas supply agreements with a market price that was many multiples higher than the original contract price. The court found that the seller’s behaviour constituted the application of illegitimate pressure, which amounted to economic [page 152] duress, on Verve, which was a cause of it entering into the short-term gas supply agreements. However, the court held that Verve could have no cause of action for restitution (of the excess paid under the short-term gas supply contracts) in unjust enrichment for economic duress because Verve had failed to rescind the short-term gas supply contracts.

Mistake [3.223]

In the process of forming a contract, it is possible that some kind of mistake may be made by one, or both, parties. Where a contract has been formed on the basis of a mistake, it may be possible that the court will set aside the contract, declaring it void. Where a mistake operates to render a contract void, it is known as an operative mistake. Not all mistakes in the formation of a contract will be operative, only those which are fundamental to the performance of the contract, or which go to the very core of the transaction. In other words, the mistake must be about something which completely transforms the intended outcome of the contract, rather than merely influences it. As the High Court of Australia stated: [F]or no contract to come into existence through fundamental error, the mistake must be as to the identity of the other party — as opposed to his attribute; as to the substance matter — as opposed to its qualities; or as to the nature of the transaction — as opposed to its terms.84

[3.224]

Three types of mistake may be distinguished in the common law: common mistake, mutual mistake and unilateral mistake.

Common mistake [3.225]

Common mistake occurs when both parties to a contract make a mistake about the same thing, which is fundamental to the performance of the contract. For example, common mistake is held to exist where the parties contract under the belief that the subject matter of the contract exists but, in fact, it does not. Where such a common mistake exists, it effectively renders the agreement meaningless,85 which means that no contract can come into existence (ie, it is void from the beginning).

[3.226]

In Couturier v Hastie (1856) 5 HL Cas 673, a contract was made between two parties for the sale of a cargo of corn being shipped to England. Unbeknown to both parties at the time they made the contract, the corn had started to deteriorate whilst at sea and the ship’s captain had decided to dispose of

the corn en route. The seller of the corn sued the buyer to enforce payment, but the court held that the buyer was not liable as the contract was void due to common mistake. [3.227]

Common mistake about things that have perished is now also rendered void under state-based sale of goods legislation in Australia.86 [page 153]

[3.228]

Common mistake about a fundamental aspect of the contract needs to be distinguished from a common mistake regarding the reduction of the agreed terms into writing. Sometimes the written terms drafted into the final contract document do not accurately convey the common intent of the parties as agreed during negotiations. If sufficient evidence can be provided to the court by one of the parties that such a mistake has occurred in the drafting, the court will order rectification of the contract terms in line with the common intention of the parties.87

Mutual mistake [3.229]

A mutual mistake occurs where the parties to the contract have a differing understanding with respect to a fundamental aspect of the contract. Mutual mistake is related to the concept of uncertainty in the terms of an agreement (as previously discussed in [3.60]–[3.65] above). Mutual mistake can only exist if a reasonable person is unable to understand what the fundamental terms of the parties’ agreement meant. If objective meaning can be given to the fundamental terms, then the court will enforce the contract according to their objective meaning even if one of the parties claims to have a different understanding of the terms. Where mutual mistake exists, it operates to void a contract.

[3.230]

In Raffles v Wichelhaus (1864) 2 H&C 906, the parties made an

agreement for the sale of cotton arriving on a ship sailing from Bombay named ‘Peerless’. Coincidentally, there were two ships called ‘Peerless’ both sailing from Bombay, one of which had set sail in October and the other in December. The buyer understood they were buying the cotton from the ship that set sail in October, whereas the seller understood they were selling the cotton from the ship that set sail in December. The court held that the contract was void as there was no correlation between the offer and acceptance, and, hence, there was no agreement.

Unilateral mistake [3.231]

A unilateral mistake occurs where only one party to a contract has formed the contract under a mistaken belief as to a fundamental aspect of the contract. Often, where a unilateral mistake occurs regarding a term of the contract, the term in question will be capable of being given objective meaning (and, therefore, being made certain), but the mistaken party will have put its own incorrect subjective meaning to the term. This means that where a unilateral mistake has been made in the formation of a contract, the court is unlikely to regard the contract as being void from the beginning on the basis of a fundamental term being meaningless or uncertain. However, where a unilateral mistake has resulted in an injustice, the court has the discretion to decide whether to apply equity law in order to declare the contract voidable, which would allow the mistaken party to rescind the contract thereby rendering it void. The court is likely to exercise such discretion and declare a contract voidable where the non-mistaken party knew of the other party’s mistake and sought to take advantage of it. [page 154]

[3.232]

In Taylor v Johnson (1983) 151 CLR, the parties entered into a contract for the sale of approximately 10 acres of land. After

signing the contract, Mrs Johnson (the vendor) claimed that she had made a mistake in believing that the sales price in the contract was $15,000 per acre instead of a total purchase price of $15,000 actually stated in the contract. Based upon the evidence presented, the court considered that the purchaser knew about Mrs Johnson’s misapprehension and deliberately set out to ensure that Mrs Johnson did not realise her mistake. The purchaser initiated an action for specific performance of the contract, and Mrs Johnson counterclaimed seeking either rectification of the contract or an order setting it aside. The court considered the contract not to be void from the beginning, but did hold that it was voidable in equity law. Mrs Johnson was, therefore, allowed to set aside the contract. [3.233]

In the Canadian decision of McMaster University v Wilchar Construction Ltd [1971] 3 OR 801, the court held that a party may not ‘snap at’ an obviously mistaken offer. In tendering for a construction contract Wilchar inadvertently omitted the entire first page of their bid which contained an intended escalation clause to cover the foreseeably higher costs of labour for the duration of the contract. As soon as they realised their mistake, Wilchar hastened to make it known to the plaintiff long before the tender or offer was accepted. The court found that, because McMaster had been notified of the mistake in advance of their acceptance of the bid, this was a case where one party intended to make a contract on one set of terms and the other intended to make it upon another set of terms. Thus, there was a lack of consensus between the parties as to the terms of the contract (ie, no ‘meeting of the minds’), which prevented the formation of a contract. The court further held that even if a contract had come into existence, the conduct of McMaster in taking advantage of Wilchar’s unilateral mistake had been so unjust that the contract would be voidable and Wilchar would be entitled to the equitable right of rescission.

[3.234]

Where a unilateral mistake has occurred in relation to the contract documents, rectification of the documents to reflect

the parties’ original common intention may be possible in equity law, but is only allowed by the courts in limited circumstances. Rectification, for example, may be ordered where a plaintiff can show that a term beneficial to itself, and which both parties intended to be included in the contract, has subsequently been omitted in the final contract document to the knowledge of the other contractual party. The case for rectification will be particularly strong if it can be shown that the other contractual party kept quiet about the omission of the term in order to gain advantage. In A Roberts & Co Ltd v Leicestershire County Council [1961] 2 All ER 545, Roberts successfully tendered to build a school in a period of 18 months. The contract documents drawn up by the council, however, stated the contract period to be 30 months. Without realising this, Roberts signed the contract. Upon discovering the extended contract duration Roberts, concerned about the extra site costs, successfully sought rectification of the contract. [3.235]

Where a pricing error is made by building contractors when tendering in bills of quantities and schedules of rates, they will generally not be rectified by the courts and, therefore, will be binding upon the contractor if the principal accepts their [page 155] tender before noticing the error.88 Therefore, it is extremely important for a building contractor to thoroughly check their rates and prices in the tender document before submitting. Furthermore, the courts have even held that where the contract provides for pricing rates in a contract to be used for valuing post-contract variations,89 even erroneous pricing rates in a contract must be used to value variations and cannot be rectified.90 As the court stated in Weldon Plant Ltd v Commission for New Towns [2000] EWHC Technology 76,

when considering the valuation of a post-contract variation under the ICE Conditions of Contract, 6th edition: Variations are performed by the contractor involuntarily, as it were, in the sense that the contractor does not tender to do the variation since it is of course unknown at the date of tender or contract. A contractor offers to carry out variations ordered under clause 51 that may be required by the Engineer to meet the employer’s needs, but that offer is not unqualified. First, the variation must be within the scope of the Works. Secondly, the variation must be valued in accordance with clause 52, the provisions of which are clearly directed to seeing that the contractor will not have to bear the costs of the variation, except to the extent that, where Rules 1 and 2 apply,91 the contract rates or prices were inherently insufficient, or to the extent that the costs incurred are not reasonably or properly to be treated as forming part of the valuation. The contractor therefore takes the risk that its rates and prices for the work may not cover its costs of carrying out a variation which is the same as or comparable to contract work, just in the same way that the employer takes the risk that by having second thoughts more might have to be paid for the work than might otherwise have been the case had the need been known prior to the date of contract and rates or prices for the work in question then obtained. [3.236]

Where a tender has been priced or set out in such a way that it is impossible to form an objective view as to the total price tendered for the works, then any contract purported to be formed on the basis of that tender will be void from the beginning on the basis that a fundamental term of the agreement is uncertain. This occurred in the Canadian case of Maystar General Contractors Inc v Newmarket (Town) [2009] OJ No 3939 (QL), where a building contractor’s tender was set out as follows: Stipulated Price of ‘Thirty-three million Five Hundred twentyeight’ Dollars ($33,000,528.00) Goods and Services Tax (GST): ‘Two million Three Hundred Forty-six Thousand Nine Hundred sixty’ Dollars ($2,346,960.00) The total cost of the work (Stipulated Price + GST) is: ‘Thirtyfive million eight hundred Seventy-four Thousand nine hundred sixty’ Dollars ($35,874,960.00) The stipulated price, set out in words and in numbers, was $33,000,528. However, the GST amount of $2,346,960 was not 7 per cent (the GST percentage in Canada) of

[page 156] $33,000,528, but 7 per cent of $33,528,000, a figure not shown in the document, and the total cost of the work was $35,874,960.00, which is the total of the GST of $2,346,960.00 plus $33,528,000.00. Because the GST and the total cost of the work both reflected a stipulated price that was different from the one shown, the court held it was not possible to know which price the tendering building contractor intended and set the contract aside as being void from the beginning. [3.237]

If, however, it is still possible to objectively identify the total tendered price despite the existence of a clerical or arithmetical error in the tender, the tender is most likely to remain valid. In another Canadian case, Bradscot (MCL) Ltd v HamiltonWentworth Catholic District School Board [1999] OJ No 69 (QL), the tender form provided that the contractor set out its stipulated price in Section 2. In Section 3, which was entitled ‘Tender Amount Summary and GST’, there was an initial line for the stipulated price, a line beneath it for GST and another line for the total which was called the overall stipulated sum tender amount. The tender in issue set forth in words and numbers in Section 2 a stipulated price of $17,720,000.00. In Section 3, the stipulated price was set forth in numbers as $17,200,000.00 and the GST was set forth as $1,240,000.00 (7 per cent of 17,720,000.00). The overall stipulated tender sum amount was $18,460,400.00. The court viewed that Section 3 of the tender form appeared to be a superfluous paragraph, being little more than a summary of the contract price to which GST is applied, and that it was clear that what occurred was a clerical error in transposing the figure from Section 2 to Section 3. As such, the court found that it was the stipulated price in Section 2 of the bid form that governed, and that the price listed in both words and numbers in Section 2 was not uncertain.

[3.238]

The critical difference between the Maystar and Bradscot

decisions appears to have been that in Bradscott the pricing error occurred on a tender summary sheet, whereas in Maystar it did not. Therefore, on the basis of these decisions, it may be observed that errors on tender summary sheets are unlikely to invalidate the tender if the tender price is stipulated clearly elsewhere in the bid.

Misleading and deceptive conduct [3.239]

Section 18 of the ACL92 states that ‘a person must not, in trade or commerce, engage in conduct that is misleading and deceptive or likely to mislead or deceive’.

[3.240]

Misleading and deceptive conduct used to be covered by s 52 of the Trade Practices Act 1974 (Cth), until it was replaced by s 18 of the ACL on 1 January 2011. Although contained within the ACL, s 18 is not restricted to contracts between businesses and consumers, but also covers business-to-business contracts. Section 18 covers conduct which is either misleading or deceptive. However, because the burden of proof is higher for deceptive conduct (it needs to be shown that the defendant had [page 157] dishonest intentions), most s 18 actions are brought on the basis of misleading conduct. The definition of misleading conduct under s 18 covers a multitude of potential circumstances where a person may have suffered loss or damage due to being led into error because of the acts or omissions of another. In the context of contract formation, s 18 provides relief for parties who have been induced into entering contracts based upon untrue representations (or misrepresentations) made by another party during precontractual negotiations. Due to both the wide scope of s 18 and the wide range of remedies available under the ACL (as discussed below), contraventions of s 18 represent a heavily

litigated area of the law and have largely replaced actions under the law of misrepresentation in Australia.93 [3.241]

To establish a case under s 18, a plaintiff only needs to establish that the conduct in question was likely to, rather than actually did, deceive or mislead. The court assesses whether conduct is likely to mislead on the basis of an objective test. In other words, would the conduct have likely misled or deceived a reasonable thinking person belonging to the class of persons to whom the conduct was directed? If the answer to this question is ‘yes’, then misleading or deceptive conduct will have occurred. Furthermore, in Butcher v Lachlan Elder Realty Pty Ltd [2004] 218 CLR 592, the High Court of Australia found: … [that it] is unnecessary to show on the balance of probabilities whether the impugned conduct was misleading or deceptive … that conduct is likely to mislead or deceive if there is a real and not remote chance or possibility that a person is likely to be misled or deceived. This is so even though the possibility of that occurring is less than 50 per cent.94

[3.242]

Section 18 covers false advertising, but does not extend to advertisers’ puffs95 which, by definition, cannot be misleading or deceptive as they would not be believed by a reasonable person.

[3.243]

Liability under s 18 is ‘strict liability’, meaning that the court will not accept any excuse for misleading or deceptive conduct where it has occurred. As such, where a person has misled another unintentionally, without being negligent, and believing their conduct to be true, they will still be held liable for their conduct. It also means that liability will exist even where there has been contributory fault by the misled person (ie, the misled person has not taken reasonable precautions to protect themselves in relying upon the other’s misleading conduct). Furthermore, the courts have consistently held that it is not possible for parties to expressly exclude, or contract out of, s 18 in their contract.

[3.244]

Accordingly, in Henjo Investments Pty Ltd v Collins

Marrickville Pty Ltd (1988) 39 FCR 546, where the purchaser of a restaurant was misled and deceived by the vendor as to the seating capacity of the restaurant, the court found that the vendor [page 158] should take full responsibility for their conduct despite the fact that the purchaser’s solicitor had been negligent in failing to check that all council by-laws were complied with before the restaurant was sold. Additionally, the court considered that an entire agreement clause in the sales contract — the effect of which was to limit liability to the terms of the written contract and prevent the buyer from claiming reliance on the seller’s precontractual representations — could not exclude the seller’s liability for misleading and deceptive conduct. [3.245]

An important limitation of s 18 is that the misleading and deceptive conduct must occur in trade or commerce. This covers most contractual situations where at least one of the parties is a business. However, it does not generally cover sales contracts between private individuals (ie, one consumer selling to another consumer). In Williams v Pisano [2015] NSWCA 177, the New South Wales Court of Appeal, overturning the primary court’s decision, found that a private individual selling their own home did not fall in the course of trade or commerce, even where the individual had engaged a real estate agent to market the property. The court arrived at this finding despite s 84(4) of the Competition and Consumer Act, which provides that conduct engaged in by an agent acting for a person within their apparent authority shall be deemed to have been engaged in also by the person for whom they are acting.

[3.246]

In addition to s 18, ss 29 and 30 of the ACL more specifically prohibit false or misleading representations by businesses with respect to, respectively, goods or services and sale of land.

These include, amongst many others, requirements that a person, in trade or commerce, must not: make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use;96 and make a false or misleading representation concerning the price payable for the land, the location of the land or the characteristics of the land.97 [3.247]

Where a person, in trade or commerce, has engaged in unfair practices under the ACL, a court may impose civil pecuniary penalties98 (monetary fines) of up to $1.1 million for corporations, or $220,000 for individuals, for each contravention.99 In addition, other remedies that may be given by the court under the ACL for false and misleading conduct include: the granting of injunctions to stop the false or misleading conduct on application by the regulator100 or any other person;101 [page 159] the awarding of damages to claimants who have suffered loss or damage as a result of the conduct;102 the making of compensation orders, on application by an injured person or the regulator, to compensate persons suffering loss or damage as a result of the conduct;103 making certain orders, such as varying a contract or refunding money, as the court thinks appropriate against a person to redress loss or damage suffered by non-party consumers (ie, parties not named in the court proceedings) on application by the regulator;104 and the making of adverse publicity orders, on application of the

regulator, requiring a person to disclose or advertise specified information.105 [3.248]

Additionally, the ACL gives the power to the regulator (the Australian Competition and Consumer Commission) to accept written undertakings from a person with respect to their future undertaking which, if breached, may be enforced in court.106 Further, the regulator has the power to require a person to hand over to it information to substantiate any representations the person has made with respect to (amongst other things) supply of goods or services and sale of land (‘substantiation notices’).107

[3.249]

In Australian Competition and Consumer Commission v Metricon Homes Qld Pty Ltd [2012] FCA 797, Metricon Homes was ordered to pay $800,000 in penalties after conceding that it had engaged in the following misleading and deceptive conduct with respect to its advertising and promotional material:108 Between July 2010 and January 2011, Metricon Qld published brochures of house designs with photographs that Metricon Qld represented were available from a certain price, when some of those features and fittings were either not available to be provided by Metricon Qld, or were not available at the price represented in the brochures. Between January 2009 and August 2011, Metricon Qld advertised a ‘Build Time Guarantee’ that guaranteed build times between 14 and 24 weeks for houses it offered to supply, and that it would compensate purchasers for their rental costs if the house was not completed in the guaranteed time. However, the Build Time Guarantee was subject to terms and conditions which meant that the guarantee did not automatically apply to the majority of houses offered by Metricon Qld during that period. [page 160]

Between July 2009 and December 2010, Metricon Qld ran a number of promotions including the ‘Home Expo Promotion’ and ‘Red Hot Rollback Promotion’ containing price lists which included for each of its house designs advertised prices called a ‘list price’, a ‘pay only price’ and the amount that would be saved if the house was purchased during the relevant promotion at the ‘pay only price’. Metricon Qld represented that the ‘list price’ for each of the houses was the price at which each of those houses had been genuinely offered for supply by Metricon Qld immediately prior to the commencement of the promotion. In fact, the houses had either never been offered for supply by Metricon Qld at all, or had not previously been offered by Metricon Qld at the ‘list price’ immediately prior to the commencement of the promotion. Between January 2009 and June 2011, Metricon Qld advertised an ‘Upgrades Package’ which represented that consumers would obtain specific features and fittings which had a normal ‘standard price’ or ‘Recommended Retail Price’ and then a discounted ‘promotional price’ and that consumers would be saving the difference between the total of the ‘standard price’ or ‘Recommended Retail Price’ and the ‘promotional price’ if they acquired the ‘Upgrades Package’. However, immediately before the commencement of the promotion, Metricon Qld had not sold most of the advertised features and fittings at the ‘standard price’ or the ‘Recommended Retail Price’ and consumers were accordingly misled about the value and price of the ‘Upgrades Package’. In addition to the penalty imposed, the court ordered that Metricon Qld not make any similar misrepresentations with respect to its promotional activity for a period of three years.

Unconscionable conduct [3.250]

Section 20 of the ACL states that ‘a person must not, in trade or commerce, engage in conduct that is unconscionable, within

the meaning of the unwritten law from time to time’. Section 20 applies to both business-to-consumer as well as business-tobusiness contracts. [3.251]

In addition, s 21 of the ACL provides that a person must not, in trade or commerce, engage in unconscionable conduct in connection with the supply or possible supply of goods or services to a person, or the acquisition or possible acquisition of goods or services from a person. Section 21 protects consumers and businesses with the exception of listed public companies.

[3.252]

Unconscionability falls under equity law in the courts, and concerns circumstances where a party has acted in a clearly unfair or unreasonable way that is against good conscience in order to take advantage of another. In Commonwealth Bank of Australia Ltd v Amadio (1983) 151 CLR 447, the High Court of Australia found that, in order for unconscionability to exist at common law, advantage must be taken by a stronger party with respect to a ‘special disability’ of a weaker party of which the stronger party was aware. In Amadio, the Commonwealth Bank was found to have engaged in unconscionable conduct by allowing an elderly migrant couple, with poor English language and business skills, to [page 161] execute a mortgage and guarantee securing debts of their son’s building company when the bank knew that the couple had a mistaken understanding about the extent of the guarantee they were signing and failed to explain to them the true position.

[3.253]

In the context of contract formation, unconscionability requires more than the existence of a seeming unfairness or harshness in the eventuating contract terms. The courts do not see it as their role to decide the contract terms for the parties and, thus,

seek to uphold the sanctity of freedom of contract (ie, that parties are free to contract whatever terms they want). As such, unconscionability requires a clearly unfair exploitation of the weaker party’s ‘special disability’, against society’s view of good conscience, in order that the weaker party’s ability to make a decision in their own best interests is clouded. For this reason, the courts have not too readily found that unconscionable conduct exists in contract formation. [3.254]

Therefore, a small building trade contractor who has agreed to an onerous damages clause for late completion in a contract with a larger principal contractor will not be able to legitimately claim unconscionability purely on the basis of unequal bargaining power, unless it can show that some underhanded conduct by the principal beyond normal commercial pressure has affected its ability to make a logical and reasoned judgment when agreeing to the term.

[3.255]

Where unconscionable conduct is found to have been a factor in contract formation, the contract will be declared voidable at common law. Under the ACL, a wide range of remedies will be available which are essentially the same as those previously listed for misleading and deceptive conduct in [3.247] above (with the exception of ‘substantiation notices’).

Discharge of contract [3.256]

Discharge of a contract occurs when the parties to a contract are relieved from their obligations to perform under the contract. As such, when a contract is discharged it comes to an end. There are four principal ways in which a contract may be discharged: by performance, by agreement, by frustration, and by breach.

Discharge by performance

[3.257]

Clearly, if both parties satisfactorily complete their obligations promised under the contract, they will be discharged from the contract. The traditional presumption at common law is that the parties intended for each to carry out fully (100 per cent) their obligations before being discharged from the contract — known as the ‘entire contract’ principle. Where an entire contract exists, a party is required to fully perform their contractual obligations to a satisfactory standard as a condition precedent to being paid. Furthermore, if the contractual obligations are not completely performed, then the non-performing party technically becomes liable for breach of contract. [page 162]

[3.258]

The rationale behind the entire contract principle is that the worth of the contract to a party would be significantly devalued by allowing anything less than full performance by the other party. This was illustrated by the court in Re Hall & Barker (1878) 9 Ch D 538 as follows: If a man engages to carry a box of cigars from London to Birmingham, it is an entire contract, and he cannot throw the cigars out of the carriage half-way there, and ask for half the money; or if a shoemaker agrees to make a pair of shoes, he cannot offer you one shoe and ask you to pay one half the price.109

[3.259]

In Cutter v Powell (1795) 101 ER 573, the court found that an agreement for a seaman to serve on a ship sailing from Jamaica to Liverpool in return for a lump sum payment was an entire contract. Therefore, when the seaman unfortunately died 19 days before the ship reached its destination, the court held that the defendant did not have to pay any part of the seaman’s wages to the seaman’s administrator as he had not fully completed his performance in strict accordance with the contractual terms.

[3.260]

In the context of construction contracts, the entire contract

principle (ie, not being entitled to any payment until the building works are fully constructed) places a heavy financial burden upon the building contractor. As construction contracts, especially of a commercial nature, are generally high value (often running to millions of dollars), application of the entire contract principle would require building contractors to finance the whole of the building works over the contract duration. As many building contractors are poorly capitalised, this would require them to obtain loans from financial institutions. The generally risky nature of lending to poorly capitalised firms would likely mean that financial institutions either refuse to lend or lend at premium interest rates. This would respectively result in a lessening of competition within the construction market (with fewer contractors being able to tender for contracts) and significantly higher tender prices as the premium costs of borrowing are passed on to building developers. This is an undesirable state of affairs and hence it is usual practice in the construction industry for building developers to finance their own construction projects. Consequently, most construction contracts are drafted to obviate the common law position with respect to payment under an entire contract by including provisions for the building contractor to be paid at intermittent periods throughout the construction period. [3.261]

A construction contract where the payment terms provide for stage payments upon completion of clearly defined portions of the building works is likely to be considered a ‘divisible contract’ at common law, where it is clear that the value of the stage payments appropriately correlate to the amount of work carried out in each stage. For example, a contract for the construction of a house is likely to be found divisible if the total contract price of $200,000 is broken down, apportioned to the following work trades, and it is agreed that payments will be made upon successful completion of each trade: $35,000 for slab and foundations;

$40,000 for frame; [page 163] $60,000 for lock up (external walls, roof, doors and windows); $40,000 for fixtures and fittings; and $25,000 for internal finishes, appliances, electrical and plumbing works. [3.262]

Divisible contracts arise where, under the contract, it has been clearly agreed that the total consideration be divided up and apportioned to clearly defined parts of the overall obligation. A divisible contract is, thus, divided into several parts. However, for a contract to be deemed divisible, it must be clear that this was the intent of the parties. The performance of each separate part of a divisible contract by the performing party obliges the other party to pay for that individual part. Therefore, even if the performing party fails to complete the whole contract, they will still be entitled to payment for those individual parts of the contract which have been fully completed. Effectively, the courts view a divisible contract as if it were a collection of separate smaller contracts grouped together. In divisible contracts, the general rule of entire contract remains in the sense that each and every subdivided part of the contract must be completed in its entirety before the contractor becomes entitled to payment for that individual part of the contract.

[3.263]

Rather than defined stage payments (which are often used for residential building contracts), however, most commercial construction contracts provide for payment in the form of periodic (usually monthly) progress payments to be made by the principal according to an estimate of the value of the work carried out by the building contractor during the relevant payment period. It is likely that such progress payments will not render a contract divisible because payments are not intended to be full consideration for clearly defined portions of

the works. However, despite failing to alter the entire nature of the contract, progress payments will expressly modify the common law position with respect to payment and allow the contractor to receive monies as the work progresses. [3.264]

The definition of performance under the ‘entire contract’ principle sets a very rigid and high standard which, in a number of cases, is unrealistic or unfair to expect. For this reason, in addition to divisible contracts, the courts have developed exceptions to the requirement for entire performance which the court may apply in certain circumstances to discharge the contract. These exceptions include substantial performance, partial performance, tender of performance, and prevention of performance.

Substantial performance [3.265]

The doctrine of substantial performance allows a party to be discharged from a contract where delivery of the thing contracted for has, in essence, been made, but there has been some shortfall in the performance of contractual obligations in the process of delivery. For example, substantial performance would likely occur where, in a contract to build a pergola, the builder has finished constructing the pergola but, due to poor workmanship in the construction process, defects exist in the finished article in the form of leaking gutters. [page 164]

[3.266]

When the doctrine of substantial performance is applied by the courts, the performing party is entitled to be paid the agreed contract price for work done under the contract with a deduction made to take account of any defects or shortfalls in performance. In Hoenig v Isaacs [1952] 2 All ER 176, a contract was agreed to decorate and furnish the defendant’s flat for a lump sum of £750 with payment being made as the work

proceeds. Upon completion of the works, the defendant claimed that the contractor’s workmanship was poor and defective and, therefore, refused to pay any more than the £400 already paid in progress payments. The builder sued to recover the outstanding portion of the contract sum. The court held that, as the contract works had been substantially completed, the builder could be discharged from the contract and was entitled to be paid the full contract sum less an amount of around £55, being the cost to rectify the defective works. [3.267]

An interesting contrast to Hoenig v Isaacs exists in Bolton v Mahadeva [1972] All ER 1322, where the plaintiff agreed to install a central heating system in the defendant’s house for a lump sum of £560. Upon completion of installation, the heating system was defective, failing to give out sufficient heat to warm the house. Even though the heating system could have been rectified for an estimated cost of £174, the court refused to find that the works had been substantially completed and held that the plaintiff was not entitled to any payment.

[3.268]

Bolton v Mahadeva demonstrates that the doctrine of substantial performance is limited, so that it may not be applied to circumstances where the shortfall in performance of the obligations is of such a nature that it causes the main purpose of the contract to be unfulfilled.

Partial performance [3.269]

Partial performance occurs where only a fraction of the thing contracted for is actually delivered. For example, partial performance would likely occur where, in a contract to build a pergola, the builder abandons the works after having only finished constructing the timber framework and 25 per cent of the roof covering.

[3.270]

Partial performance, being a failure to complete the contractual obligations, is a serious breach of contract which allows the non-defaulting party to terminate the contract and sue for

damages. Alternatively, the non-defaulting party may elect to accept partial performance, in which case further performance under the contract will be discharged and the non-defaulting party will be liable to pay for the partially completed performance on a quantum meruit basis. [3.271]

The common law, however, will only recognise acceptance of partial performance if made as a result of a genuine free choice. Consequently, if the receiving party has no choice but to accept the partial performance, the performing party will not be entitled to receive any compensation for the work carried out. In Sumpter v Hedges [1898] 1 QB 673, a builder agreed to build two houses on the defendant’s land for £565. After completing about 60 per cent of the work, the builder walked away from the project. The defendant completed construction of the houses using the materials the builder had left behind on site. The builder sued to recover payment for the work [page 165] they had carried out. The court held that the builder was not entitled to any payment because the defendant had been left with no choice but to complete the building work himself. The builder, however, was awarded compensation for the cost of the building materials they had left on site and which had been used in completing the buildings as the defendant had the free choice whether to use the materials.

Tender of performance [3.272]

A performing party may elect to treat their obligations as discharged under a contract where they have tendered (offered) performance in accordance with the terms of the contract and their performance has been refused by the other contractual party.110 This is subject to the requirement under sale of goods legislation that delivery be made at a reasonable hour.111 In the

eyes of the common law, tender of performance is equivalent to actual performance. Refusal to accept performance will amount to a repudiation of the contract, which the performing party may elect to accept and treat their obligations for further performance as discharged under the contract. Furthermore, the performing party will be entitled to damages at common law,112 or to a quantum meruit to recover the cost of the work actually done up until the time they were stopped from performing.113

Prevention of performance [3.273]

Often, to perform its obligations under a contract, the performing party needs the reasonable cooperation of the other contractual party. If such cooperation is not forthcoming and, as a result, the performing party is prevented from completing its contractual obligations, the defaulting party will have repudiated the contract allowing the performing party to take action for breach of contract.

[3.274]

In De Barnardy v Harding (1853) 155 ER 1586, the defendant contracted the plaintiff as an agent to promote and sell tickets for a procession on behalf of the defendant. The contract stated that the plaintiff would receive a payment on a commission basis on the tickets sold. After the plaintiff had expended a considerable sum of money advertising the procession, but before the tickets had gone on sale to the public, the defendant wrongfully revoked the plaintiff’s authority to sell the tickets. The plaintiff succeeded in his action to recover the costs of the work carried out to date under the contract on a quantum meruit basis.114 [page 166]

Discharge by agreement

[3.275]

Just as two parties form a contract by agreement, they may also agree to discharge that contract. In other words, a contract may be brought to an end by the mutual agreement of both contractual parties. For a discharge agreement to be binding, it will need to have all the essential ingredients of a contract including consideration. Where a contract has been formed but neither party has yet performed all of their contractual obligations, consideration may be given by the parties simply promising to release each other from future performance. Termination of a contract in this way is known as ‘bilateral discharge’.

[3.276]

Two important issues to be taken into account when terminating a contract by bilateral discharge are highlighted by Grace.115 First, a contractual party needs to be very careful when proposing bilateral discharge to the other, lest their proposal be construed as a statement of repudiation (ie, a statement indicating that a party does not intend to perform their contractual obligations), which would entitle the other party to take action for breach of contract. As such, Grace suggests that ‘[a]ny attempt to mutually terminate a contract must be made on the basis that the party making the approach is willing to continue to perform the contract and is simply enquiring as to whether there may be a mutual willingness to terminate’. Second, the parties need to negotiate and agree (preferably in writing) the exact extent of any outstanding liabilities under the contract up to the date bilateral discharge becomes effective. A bilateral discharge of a construction contract may, for example, leave a contractor with unpaid progress claims, or a principal with potentially defective works with respect to the works carried out prior to the agreed date of termination.

[3.277]

In circumstances where one of the parties to a contract has entirely performed their obligations but the other party still has outstanding obligations, it is still possible for the performing party to agree to discharge the other from any future

performance, thereby terminating the contract. However, for such a ‘unilateral discharge’ to be binding, the non-performing party must give accord and satisfaction to the performing party in order to support the discharge agreement. An example of a unilateral discharge occurs where one party agrees to let the other party off part of a debt owed, as previously discussed in [3.125]–[3.129].

Discharge by frustration [3.278]

Naturally, when two parties form a contract they assume that the contract is capable of performance. However, this may not always be the case. For example, as seen in [3.225]–[3.228] above, where, unbeknown to the parties, a contract is not capable of performance from the beginning, the contract will be void for common mistake. A further example occurs in circumstances where a contract is capable of performance at the time of formation, but subsequently becomes impossible to perform for some [page 167] reason beyond the control of the contracting parties. In such situations, we say that the contract has been frustrated.

[3.279]

The most obvious way in which frustration may occur is when the subject matter of the contract is destroyed. In Taylor v Caldwell (1863) 122 ER 309, the parties entered into a contract under which Caldwell agreed to hire out a music hall to Taylor for a specified four-day period. Taylor intended to use the music hall to stage concerts, but shortly before the first concert was scheduled the music hall was completely destroyed by fire. Taylor attempted to sue Caldwell for non-performance. The court, however, held that both parties were excused from any further performance of the contract because the contract had been frustrated.

[3.280]

If frustration occurs, then the contract is considered to be discharged from the moment that the frustrating event occurred and rendered further performance impossible. In other words, as soon as the contract becomes frustrated, the contract will be automatically terminated and the parties will be released from any further performance of their obligations. This includes any obligations that should have been, but were not, performed before the date of frustration.

[3.281]

A frustrated contract will not be void from the beginning. Rather, any rights conferred and obligations performed before the frustrating event occurred remain legally valid and enforceable. This position, however, has in the past led to unjust situations where an obligation has been performed by one party prior to frustration for which the benefit (or right) is not due to be given by the other until a time after the frustration (eg, where it is agreed that a non-refundable deposit be given at the start of a contract as part payment for performance of an obligation that is subsequently discharged by frustration).116 The potential for such injustices to arise has now been addressed in the common law, which now allows recovery of any benefits conferred under the contract for which there has been a total failure of consideration.117 Furthermore, frustrated contracts legislation exists in New South Wales, Victoria and South Australia, which specifically provides for adjustment of certain losses and gains under frustrated contracts.118

[3.282]

Frustration of contracts has also been held to occur at common law for, amongst other things, radical difference and supervening illegality. Radical difference occurs when the parties enter into a contract ‘on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available, neither party undertaking responsibility in that regard, and that common assumption proves to be mistaken’.119

[3.283]

In Codelfa Construction Pty Ltd v State Rail Authority of New

South Wales (1982) 149 CLR 337, the State Rail Authority engaged Codelfa to excavate tunnels and carry [page 168] out concrete works for the Eastern Suburbs Railway in Sydney. The price to be paid for the works under the contract was to be payable in accordance with the contract schedule of rates regardless of its difficulty. It was agreed that all the works were to be completed within 130 weeks. To meet this tight schedule, Codelfa proposed to work 3 shifts per day, 6 days per week, although these working hours were not agreed as an express term of the contract. At the time of tendering and forming the contract, there was a mutual belief by Codelfa and the State Rail Authority that legislation existed in New South Wales that gave immunity to Codelfa from the granting of court injunctions to restrict their working hours for any nuisance created by their works. This, however, turned out to be an erroneous belief, and a couple of months after the works had commenced, local residents successfully applied to the court for an injunction effectively preventing Codelfa from working on Sundays, and between 10pm to 6am on all other days. Due to these restrictions, Codelfa suffered substantial delays in completing the works. Although the State Rail Authority granted 12 months extension of time for the delay caused by the injunction, it refused to pay any compensation for the delay. Codelfa sued on the grounds (amongst others) of frustration and claimed a quantum meruit for the works carried out after the injunction had been granted. The court held the contract to be frustrated on the basis that the conditions under which performance had been carried out were radically different from those commonly assumed by the parties when entering into the contract. A quantum meruit was awarded because the works carried out post-injunction had been completed without a contract (the original contract being discharged upon

frustration) and, therefore, were not subject to any agreed schedule of rates. [3.284]

Sometimes, although the purpose of a contract may be entirely legal at the time of formation, it may subsequently be rendered illegal due to a change in the law. In such circumstances, the contract becomes frustrated due to supervening illegality. In Denny, Mott and Dickson Ltd v James B Fraser & Co Ltd [1944] 1 All ER 678, a contract agreed for the sale of timber overseas subsequently became frustrated for supervening illegality when new legislation was enacted upon the outbreak of World War II, which made the export of timber illegal.

[3.285]

There are some limitations to the operation of the doctrine of frustration in the common law. Frustration will not be recognised where: a party’s performance under a contract has become more difficult due to a reason for which the party took the risk; the frustrating event is self-induced; or the frustrating event is expressly provided for in the contract.

Where performance has become more difficult [3.286]

If a party agrees to perform an obligation under contract, then they cannot claim that the contract is frustrated just because the performance of that obligation turns out to be more onerous, time-consuming or expensive than expected. In Davis Contractors Ltd v Fareham Urban District Council [1956] 2 All ER 557, Davis agreed to build [page 169] 78 houses within a period of eight months. However, due to a lack of supply of skilled labour and adequate materials in the marketplace, the works took 22 months to complete, and cost

Davis around £20,000 more to build than they were paid by Fareham UDC under the contract. Davis brought an action on the ground that the contract had been frustrated, and claimed a quantum meruit in order to be fully compensated for the works at a fair market rate. The court, however, held that no frustration had occurred, stating: It is not hardship or inconvenience or material loss itself which calls the principle of frustration into play. There must be as well such a change in the significance of the obligation that the thing undertaken would, if performed, be a different thing from that contracted for.120 [3.287]

Furthermore, the court considered that the risk of materials and labour being unavailable was ‘foreseeable’ and ‘obvious’ at tender stage and, as such, Davis should have made an appropriate tender allowance to cover such a risk.

Where the frustrating event is self-induced [3.288]

For an event to genuinely frustrate a contract, its occurrence must be beyond the control of the contractual parties. Therefore, if performance of a contract becomes impossible as a consequence of an event brought about by a contractual party’s voluntary action (ie, the party had a choice whether to take the action or not), then this event will not frustrate the contract in law.

[3.289]

In Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524, Ocean Trawlers chartered a trawler, named the St Cuthbert, to Maritime. Maritime operated five trawlers in total, including the St Cuthbert. Knowing that each trawler required a licence to operate, Maritime applied for five licences. Only three licences were granted, none of which Maritime chose to apply to the St Cuthbert (although they could have). Unable to use the St Cuthbert, Maritime claimed that the charter contract was frustrated and refused to pay the agreed hire charge to Ocean Trawlers. The court, however, held that the contract was not frustrated as Maritime was to blame for the St Cuthbert being non-operational. As the court stated, ‘[r]eliance cannot

be placed on a self-induced frustration’.121

Where the frustrating event is expressly provided for in the contract [3.290]

If the terms of a contract expressly state what should happen upon occurrence of a particular frustrating event, then the contract will not be frustrated if that event occurs. Instead, the express provisions in the contract will be enforced.122 Many standard forms of construction contract, for example, expressly provide that if during construction the contract works are destroyed by fire or flood, the works are to be [page 170] rectified by the contractor at its own expense.123 Furthermore, most standard forms expressly require the contractor to insure the works in case of such an event.124

Discharge by breach or repudiation [3.291]

It is possible for a contract to be discharged if one of the parties acquires the right to terminate the contract and elects to do so. At common law, a contractual party is allowed to terminate a contract where there has been either: a breach of a condition (or essential term) of the contract; a breach of an innominate term, the consequence of which substantially deprives the innocent party of the benefit of the contract; or a repudiation (sometimes called a renunciation) of the contract.

[3.292]

It is important to realise that where a substantial breach or repudiation occurs, the innocent party has the option to either terminate or affirm the contract. The option to terminate will

likely be lost if the innocent party impliedly affirms the contract by either continuing to perform the contract after the right to terminate arises or unreasonably delays in notifying the defaulting party of its decision to terminate. As stated by the court in Khoury v Government Insurance Office of NSW (1984) 165 CLR 622 at [19]: A person confronted by two truly alternative rights or sets of rights, such as the right to avoid or terminate a contract and the right to affirm it and insist on performance, may lose one of them by acting ‘in a manner which is consistent only with his having chosen to rely on (the other) of them.’ [3.293]

The courts have found it is possible for an innocent party to affirm a contract after a breach by the other even where the innocent party was unaware of its right to terminate.125 Although, the court in Khoury added that a party who has affirmed, although unaware of its right to terminate, must be at least aware of the facts giving rise to the right to avoid the contract. Therefore, by way of example, a contractor who continues with the contract works despite not being paid on time may by its conduct have affirmed the contract (and lost its right to terminate) as long as it was aware that payment had not been made.

[3.294]

The effect of a substantial breach or repudiation is to render the contract terminated as at the date of breach. As such, all contractual rights and obligations prior to the breach stand and are enforceable whilst the parties are discharged from those after the breach. As such, breach or repudiation of a contract does not render a contract voidable as does, say, mutual mistake or economic duress. Where a contract is voidable, the innocent party may elect to rescind the contract, which has the effect of making the contract void as from the beginning. Table 3.1 below summarises the differences between the legal terms void, voidable, breach and repudiation. [page 171]

Table 3.1: Summary of terms relating to discharge and vitiation of contracts Term

Options for innocent party

Void

Effect

Remedies

Possible triggers

No option. The Vitiates contract is contract. deemed void. Contract is viewed as void from the beginning, as if it never existed.

Restitution may be ordered whereby benefits transferred under the purported contract are restored to the parties.

Mistake as to a fundamental aspect of the contract.

Voidable

Rescind or affirm the contract.

If rescinded, the contract is treated as if void from the beginning. If affirmed, the contract continues (remains ‘on foot’).

If rescinded, restitution may be ordered whereby benefits transferred under the contract are restored to the parties.

Mistake as to nonfundamental aspect of the contract. Duress. Unconscionable conduct.

Breach of substantial term

Terminate or affirm the contract.

If terminated, the parties are discharged from contract as from the time of the breach. If affirmed, the contract continues (remains ‘on foot’).

Damages for breach of contract or restitution on a quantum meruit basis

Breach of a condition. Breach of innominate term resulting in serious consequences.

Repudiation

Accept repudiation, in which case the contract is terminated by breach, or affirm the contract.

If repudiation accepted, the parties are discharged from contract as from the time of the repudiation. If affirmed, the

Damages for breach of contract or restitution on a quantum meruit basis

Refusal to perform contract (expressly or by conduct). This is known as ‘renunciation’.

contract continues (remains ‘on foot’). [3.295]

Breaches of conditions and innominate terms with serious consequences have been previously discussed in [3.176]– [3.179] above. Such breaches occur when the time for performance under the contract arrives and the defaulting party fails to deliver performance as agreed. This may be a failure to perform altogether, a failure to perform the full obligation, or a failure to perform to the required specification.

[3.296]

A repudiation of a contract occurs when a contractual party indicates either through actions or words an unwillingness or an inability to render substantial performance of the contract.126 When a party repudiates a contract, the other party may terminate for a breach of contract. The test for repudiation is whether the [page 172] conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it.127

[3.297]

Examples of construction contracts being repudiated include: where a principal wrongfully terminates the contract;128 where a principal engages a contractor to carry out works which form a significant part of a pre-existing contract with another contractor — such as occurred in Carr v J A Berriman Pty Ltd (1953) 89 CLE 327, where the court found that repudiation occurred when the principal engaged a contractor to carry out steel fabrication works and directed the omission

of the same works from an existing contract with Berriman; and where a principal shuts the building contractor out of the site in order to prevent any further continuance with the contract works.129 [3.298]

It is also possible for repudiation to occur when one party insists that a contract is carried out according to an incorrect interpretation (ie, not in accordance with an objective interpretation). However, the court has held that such insistence by a party will not amount to a repudiation unless the other party has first explained the true contract interpretation, allowing the mistaken party a chance to see the error of its ways.130

[3.299]

Often construction contracts provide express provisions regarding termination rights, defaults and procedures.131 Where such termination clauses exist in a contract, unless expressly excluded, the common law right to termination continues to exist. Therefore, parties under a construction contract may have the choice whether to terminate the contract under the express contract terms or at common law. Where a party chooses to follow express termination provisions, they must be careful to follow the exact procedure and requirements set out in the contract. In Diploma Construction Pty Ltd v Marula Pty Ltd [2009] WASCA 229, Diploma engaged Marula under a plastering subcontract that contained a provision entitling Diploma to terminate if Marula failed ‘to carry out any of its obligations under this Subcontract and fails to rectify the default within 3 days of becoming aware of details of the default (by notice from Diploma or otherwise)’. Frustrated with the progress of the plastering works, Diploma purported to terminate the subcontract on the basis that they had given Marula notice of their failure to meet obligations in two faxes sent to them. The first fax complained about what had happened on site that day in terms of plastering, and the second complained about the failure of Marula to keep their

promise to work on two specified days. The court, however, found the faxes to be insufficient to [page 173] constitute notice of a default in that they did not require the respondent to rectify the default within three days, they did not inform the respondent that if it failed to do so the appellant may terminate the subcontract, and they did not contain details of a default within the meaning of the express termination clause in the contract. As Grace notes, Diploma Construction demonstrates ‘that Courts do not offer lenience to those who liberally interpret the contract clause to their own benefit to achieve termination’ and that this is especially so where the contract clause gives a ‘draconian right’.132

Remedies for breach of contract [3.300]

Where a breach of contract occurs, the injured party may seek to ‘enforce’ the contract in court. Although referred to as enforcement, the court rarely compels a defaulting party to actually rectify or perform their breached obligations, although this may be possible via an order for specific performance. Instead, by far the most commonly awarded remedy to enforce a contract is that of damages, in the form of monetary compensation. In addition to damages, courts may at their discretion make equitable orders, such as for specific performance or an injunction (as discussed further below), where damages alone do not fairly compensate the injured party. It is also possible that a monetary amount based on quantum meruit be awarded for breach of contract in lieu of damages.

[3.301]

In order to successfully enforce a contract and recover remedies, a plaintiff needs to first establish, on the balance of probabilities, that:

a contract between the plaintiff and the defendant exists; a breach of one or more terms of that contract has occurred; and that breach was the cause of loss to the plaintiff. [3.302]

Furthermore, in order to be entitled to remedies for a breach of contract, the plaintiff must be able to show that they were ready, willing and able to perform their obligations under the contract.133

Damages [3.303]

Where a breach of contract is established by a plaintiff, the award of damages is a right at common law in order to substitute for the lost or inadequate performance of the defendant. In contract law, damages may be unliquidated or liquidated. Unliquidated damages are not expressly dealt with in the contract, but are assessed by the court with respect to the actual loss or injury suffered. Liquidated damages are expressly provided for in a contract in the form of a pre-agreed, stipulated amount for a specific type of breach. [page 174]

Unliquidated damages [3.304]

The most common remedy for breach of contract is the award of unliquidated damages by a court. When awarding unliquidated damages for a breach of contract, the rule of the common law is, so far as money can do it, to place the injured party in the same situation, with respect to damages, as if the contract has been properly performed.134

[3.305]

There are two approaches for calculating this amount of damages, which a plaintiff may adopt when calculating the quantum of damages to include in their statement of claim.

The first approach is to claim on the basis of expectation loss (or ‘loss of bargain’). Expectation damages cover the benefit lost to the plaintiff as a consequence of the contract not having been performed through to successful completion, and can be recovered where the expectation loss can be calculated with reasonable certainty. In the context of a building contract, expectation damages for a contractor would represent the difference between the agreed contract price and the cost to the contractor of carrying out the works (ie, the profits lost by not being able to complete the contract works). [3.306]

The second approach, as an alternative to expectation loss, is to claim on the basis of reliance loss. Reliance damages cover any unrecovered reasonable expenses incurred by the plaintiff in performing the contract. Claiming on the basis of reliance losses may be a prudent course of action where the profits that may arise from the contract are too uncertain or speculative to ensure a successful claim on the basis of expectation loss. In McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, for example, reliance losses were claimed where in a contract for the salvage of a tanker which did not actually exist, it was impossible to calculate loss of profit as there was nothing stated in the contract regarding the capacity of the tanker or the quantity of oil on board. However, the amount of reliance losses will be reduced to reflect any net benefits that the injured party may have received from the defaulting party’s performance prior to its breach.

[3.307]

Examples 1 and 2 below demonstrate the differences in calculating expectation damages versus reliance damages where a construction contract is breached. Example 1 – Expectation versus reliance damages where the principal breaches a construction contract A principal (P) calls a competitive tender for the construction of an office building. A building contractor (C) submits the winning tender in the lump sum amount of $1,000,000. In their

tender, C has calculated their construction costs (labour, plant and materials) to be $900,000 and has added a further $100,000 on for overheads and profit. After five months, C has spent $450,000 on labour, plant and materials on the construction of the works, and has received $500,000 in progress payments. P then [page 175] repudiates the contract. C accepts P’s repudiation, terminates and sues. C may choose to claim compensation on the basis of either expectation or reliance damages. Option 1: Expectation damages At the end of the contract, if successfully completed, C would expect to receive $100,000 in overheads and profit. To date, C has received $500,000 and spent $450,000 for the construction works, a net receipt of $50,000. Total expectation damages would be $100,000 less $50,000 = $50,000. Option 2: Reliance damages To date, C has spent $450,000 for the construction works. As C has already received $500,000 from P, C is not entitled to any further damages. Total reliance damages for C would be zero. [3.308]

Example 2 – Expectation versus reliance damages where the contractor breaches a construction contract A principal (P) calls a competitive tender for the construction

of an office building. A building contractor (C) submits the winning tender in the lump sum amount of $1,000,000. In their tender, C has calculated their construction costs (labour, plant and materials) to be $900,000 and has added a further $100,000 on for overheads and profit. After five months, C has spent $450,000 on labour, plant and materials on the construction of the works, and has received $500,000 in progress payments. C then repudiates the contract. P accepts C’s repudiation and terminates the contract. P engages another contractor to complete the construction works for a price of $650,000. P may choose to claim compensation on one of three bases: Option 1: Expectation damages At the end of the contract, if successfully completed, P would expect to have a completed office building for a price of $1,000,000. P had to pay $1,150,000 in order to get the completed office building ($500,000 paid to the defaulting contractor (C) and a further $650,000 paid to another contractor to finish the works). Total expectation damages would be $1,150,000 less $1,000,000 = $150,000. Option 2: Reliance damages To date, P has spent $500,000 on the construction works. P has received building works which are worth $1,000,000 (what it should have cost to build) less $650,000 (the costs to complete the partially completed works) = $350,000. [page 176]

Therefore, total reliance damages for P would be $500,000 less net benefit received by P of $350,000 = $150,000. [3.309]

It is often not an easy task to accurately quantify the exact amount of a claim if precise evidence of damages does not exist. However, it is vital that ‘at the barest minimum … the plaintiff … establish a rational foundation for a proper assessment of damages’,135 otherwise the plaintiff may only be awarded a nominal amount of damages. Therefore, in construction contracts plaintiffs’ claims are frequently based upon detailed estimates of their losses.

Assessment of damages for building defects [3.310]

In Bellgrove v Eldridge (1954) 90 CLR 613, as a result of not using the specified concrete mix, a builder constructed a house with defective foundations. The court had to consider whether it was appropriate to award damages on the basis of rectification costs by way of demolishing and re-erecting the house, or whether damages should be assessed (as per the builder’s claim) either: on the basis of the cost to rectify the defective foundations only (via underpinning); or alternatively based on the diminution in value of the house (ie, the difference in value between the house as built and the value it would have had if built properly). In their deliberation, the court stated the following principles: (i)

In the circumstances where a building has been constructed with defects, there may be cases where remedial work (often requiring demolition of some part of the structure) is the only practicable method of producing conformity with plans and specifications. In such cases, an award of damages sufficient to pay for remedial work is required in order to place the injured party in the same position as if the contract had been performed properly.

(ii)

This default position is, however, subject to the qualification that, not only must the work undertaken be necessary to produce conformity (with the contract drawings and specifications), but that also it must be a reasonable course to adopt. As an example where restitution would be an unreasonable course, the court stated: No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of second-hand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks.136

(iii) In cases where remedial works are necessary to produce conformity but would not constitute a reasonable method of dealing with the situation, the true measure of the building owner’s loss will be the diminution in value of the building works. [page 177] (iv) That remedial work is both ‘necessary’ and ‘reasonable’ in any particular case must be established as a matter of fact. (v) It is quite immaterial to an award of restitution damages whether the house owner actually would use the damages to demolish and re-erect the house. [3.311]

In Bellgrove, the court found that in the circumstances when defective foundations seriously threaten the stability of a house, there could be no question of demolition and re-erection being a reasonable course of action as it was the only course of action which could remove the threat. As such, the court ordered the builder to pay damages to cover the expense of demolishing and re-erecting the house.

[3.312]

In Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253, redevelopment works were carried out

for the conversion of an old factory building into apartments by a building contractor. Upon completion, there were several matters where the finished works did not conform with the contract plans and specifications. The defects included, amongst others, deficiencies in the mechanical ventilation system, the installation of hollow rather than solid internal doors, and the installation of skirting boards with a nonconforming profile. Despite the defects, the apartments were sold by the building developer. The developer sought damages for the rectification of the defects. The court, however, found that it had not been established as fact, in accordance with Bellgrove principles (limb (iv) above), that the award of damages on a remedial work basis was a reasonable course of action due to: the purchasers of the apartments apparently being content, not having asked for rectification of the defects; and the sale of the apartments meaning that rectification works could not be carried out without causing massive disruption. [3.313]

The court also followed Bellgrove principles (limb (v) above) in Westpoint Management, finding that the developer’s intention not to spend the damages on rectification but rather distribute them to its shareholders, whilst not of itself making the award of rectification damages unreasonable, may be evidentiary of unreasonableness if the reason for the intention is that the property is perfectly functional and aesthetically pleasing despite the non-complying work. Accordingly, the court ruled against the developer’s claim for an award of damages on the basis of restitution of the defects. Neither were damages awarded on the basis of diminution in value due to no evidence of such being led by the developer.

[3.314]

In Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272, the parties signed a contract for the lease of offices. The tenant (Tabcorp) carried out renovation works to the foyer of the office building, including ripping out the existing cherry wood panelling and granite floors, without the

necessary required approval of the landlord (Bowen) as agreed in the contract. Unhappy with the new foyer, Bowen sued for damages on the basis of restitution costs (ie, the cost to restore the foyer to its [page 178] original condition). The court of first instance awarded Bowen damages of $34,820 on the basis of diminution value (ie, the difference in value of the building with the newly renovated foyer as compared to the old foyer). On appeal by Bowen, however, the Full Federal Court following Bellgrove held that damages should have been awarded on the basis of the cost to restore the foyer to its original state (ie, restitution costs), and significantly increased the amount of damages to $1.38 million. Tabcorp appealed to the High Court of Australia. The High Court upheld the Full Federal Court’s decision, finding (amongst other things) that: restitution of the works was reasonable, deducing from the second-hand brick example given in Bellgrove (see [3.310] above) that the test of ‘unreasonableness’ is only to be satisfied by fairly exceptional circumstances;137 the requirement of reasonableness did not mean that the amount recoverable for restitution needed to be reasonable when compared with the diminution in value of the building works;138 and it was irrelevant that the old foyer may have been no more effective in attracting tenants to the building for commercial purposes than the new foyer.139 [3.315]

Tabcorp has been followed in several subsequent decisions, including Wilshee v Westcourt Ltd [2009] WASCA 87 and Tranquility Pools & Spas Pty Ltd v Huntsman Chemical Co Pty Ltd [2011] NSWSC 75.140

[3.316]

In Wilshee, a builder used limestone in the external cladding of a house that was of an inferior quality to that contracted for. The court of first instance awarded damages to the building owner in the amount of $9290 for cleaning and sealing work to the limestone. The NSW Court of Appeal, however, held that the trial judge had erred in his method of assessment, and that application of the ‘ruling principle’ from Bellgrove governing the measure of damages for breach of contract meant that the building owner is entitled to the amount of money required to put him in the position in which he would have been had his house been constructed using only limestone of high quality. Accordingly, the building owner was awarded $257,977.91 for the removal and replacement of the limestone.

[3.317]

In Tranquility Pools, where a defective fibreglass swimming pool had developed black spots and blistering due to a vinyl esther product used in its manufacture, the court held that it was reasonable for damages to be awarded on the basis of the cost of replacing the swimming pool. Here, the court relied on the Tabcorp approach to the test of ‘unreasonableness’ only being satisfied by fairly exceptional circumstances.

[3.318]

From the above decisions, it seems that it is difficult for a defendant builder to establish that restitution costs are an unreasonable basis for damages where defective works [page 179] have been carried out. Having said this, however, in addition to the second-hand brick example given in Bellgrove (see [3.310] above), the courts have recognised that: [t]he rectification work would be unreasonable if it was out of all proportion to the achievement of that objective or to the benefit to be obtained therefrom.141

[3.319]

In Ruxley Electronics and Construction Ltd v Forsyth [1996] AC 344, the reconstruction of a swimming pool which was nine

inches less deep than it should have been, but was perfectly serviceable as a swimming pool, was considered to be unreasonable.142 As such, the court rejected a claim for £21,560 damages for reconstructing the swimming pool as being out of all proportion to the benefit to be obtained, and found the appropriate measure of damages was not the cost of reinstatement but the diminution in the value of the work occasioned by the breach, which in this case was a nominal award of £2500 for loss of amenity.

Liquidated and ascertained damages [3.320]

Contracting parties may expressly pre-agree a specified amount of damages to be paid in the event that a particular breach may occur. These contractually pre-set damages are called liquidated and ascertained damages, and are often referred to as liquidated damages, LADs or LDs.

[3.321]

It is common for commercial construction contracts to include a liquidated damages clause that provides for a pre-set amount of damages to become due and payable to the principal where the contractor finishes the contract works later than the agreed practical completion date due to a reason for which the contractor is culpable.143 For example, where a construction contract states that liquidated damages of $1500 are to be paid each day for late completion and the contractor completes the work six days late, the principal will become entitled to a total of $9000 liquidated damages as a debt owed by the contractor.

[3.322]

Typically, the principal decides the amount of the liquidated damages and inserts the rate into the proposed contract conditions which are distributed with the invitation to tender at tender stage. This allows bidding contractors to be aware of their financial exposure if they complete the works late, and to price their tender accordingly to allow for the risk.

[3.323]

The provision of liquidated damages in a contract is advantageous to a principal for the following reasons:

liquidated damages allow recovery of damages from the contractor without the costly and time-consuming process of a court action; because liquidated damages are ascertained in advance, there is no requirement for the principal to prove the amount of their losses before recovery; and [page 180] in practice, the principal will usually have no problem in recovering liquidated damages as they may be set off against any monies due to the contractor in its next progress payment. [3.324]

Keeping in line with the compensatory objective of civility liability, the common law requires that the amount of liquidated damages should not be so high as to amount to a penalty (known as the ‘penalty doctrine’). If deemed a penalty by the court, the liquidated damages clause will be void and effectively severed from the contract. This means that the principal will not be entitled to liquidated damages under the contract. However, the principal will still be entitled to bring an action to the courts under common law for unliquidated damages due to the contractor’s breach of contract in completing the works late.

[3.325]

The leading case with respect to the distinction between liquidated damages and penalties is Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79. In Dunlop, the court had to consider whether a liquidated damages clause in a contract between a tyre manufacturer and wholesaler, which stated that the wholesaler was liable to pay £5 for each tyre sold below the manufacturer’s minimum specified price, amounted to a penalty. In finding that the liquidated damages clause in question did not amount to a penalty, the court enunciated the following principles,144 amongst others, which are still followed

in the High Court of Australia to the present day:145 (i)

The essence of liquidated damages is a genuine covenanted pre-estimate of damages.

(ii) The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract judged of as at the time of the making of the contract, not as at the time of the breach. (iii) To assist this task of construction various tests have been suggested which, amongst others, include:

d.

a.

It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.

b.

It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid.

c.

There is a presumption (but no more) that it is penalty when ‘a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage’146

It is no obstacle to the sum stipulated being a genuine preestimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. [page 181]

[3.326]

In Tasmania v Leighton Contractors Pty Ltd [2005] TASSC 133, Leighton contracted with the state to design, construct and

maintain 13.65 km of new highway. The contract stipulated a liquidated damages rate of $8000 per day for late completion. Leighton completed the works 229 days late, and the state withheld a total sum of $1,832,000 in liquidated damages. Leighton contested that this amount was a penalty. In the first instance, the Supreme Court of Tasmania considered that this sum amounted to a penalty, and ordered the state to repay the liquidated damages with interest. The state appealed to the Full Court of the Supreme Court who overturned the original decision, and held that the liquidated damages amount was not a penalty. Amongst other things, the reasons given by the court for reaching a differing outcome to the trial judge included: Although some items in the pre-estimate prepared by the state (upon which the liquidated damages rate of $8000 per day had been based) were overinflated, on an overall view the estimate represented a genuine attempt to provide a general basis for the assessment of an overall figure. The trial judge had erred by not allowing any consideration in the liquidated damages amount of an amount for loss of amenity to the public, or delay in access to infrastructure, caused by late delivery of the project. Leighton was a large corporation, well experienced in work of the nature subject to the contract, and did not question the calculation during negotiations or at the time the agreement was concluded. An equivalent ‘breach’ clause had been agreed at the comparable figure of $7170 for delay damages to be paid to Leighton by the state if the state caused a delay to the completion of the works. That the state was to be reimbursed by the Commonwealth for all the costs of the project did not mean that the state would suffer no loss from late delivery as the trial judge had found. The fact remains that the state was required to be accountable for the expenditure of public money, irrespective of source. Accountability and diligent financial management

entitled it to seek reasonable compensation for delay or default. [3.327]

If the amount of liquidated damages stated in the contract turns out to be less than the actual losses suffered by the principal, then the court will enforce the liquidated damages provision and not allow the principal recourse to its general rights at common law to sue for unliquidated damages due to breach of contract. In Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20, Acetate Silk contracted Widnes to deliver and erect an acetone recovery plant. The contract provided for payment of £20 per week by Widnes for each week delivery of the plant was delayed past the contractual completion date. Widnes delivered 30 weeks late, and Acetate Silk claimed their actual loss suffered due to the breach which amounted to £5850. The court, however, held that Widnes was only liable to pay the amount of liquidated damages as agreed in the contract, being £600 (ie, 30 weeks multiplied by £20 per week).

[3.328]

Although a principal will lose its right to sue for unliquidated damages where a positive amount, albeit insufficient in amount to cover actual losses, has been expressly stated [page 182] in a liquidated damages provision, the Western Australian courts have held that this is not the case where the liquidated damages amount is stated as ‘N/A’147 or ‘NIL’.148 As the court stated in J-Corp Pty Ltd v Mladenis [2009] WASCA 157, ‘clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law’.149

Limitations in awarding damages

[3.329]

Whilst an injured contractual party may be entitled to claim compensation at common law in the form of unliquidated damages for loss caused by a breach of contract, the amount of damages that may be awarded is subject to limitations in accordance with the following two principles: damages cannot be awarded for any losses which the plaintiff could have mitigated by acting reasonably; and damages must not be too remote from the breach.

Mitigation of loss [3.330]

A plaintiff has a common law duty to take reasonable steps to mitigate, or minimise, the losses arising from a breach of contract. The requirement to mitigate prevents an injured party from exploiting the breach by unreasonably ‘sitting back’ after a breach has occurred and allowing their losses to accumulate. For example, an employee who is wrongfully dismissed cannot sue their employer for the full amount of wages lost if that employee had unreasonably refused to accept other job offers during the remainder of the employment contract period.150 The court will not compensate an injured party for any losses which they consider are caused by their own failure to mitigate. The burden of proof is on the injured party to show that they have acted reasonably to mitigate their losses.

Remoteness of damage [3.331]

When a breach of contract occurs, a plaintiff could attempt to claim for a wide range of potential losses that it alleges are caused by the breach in some way. In order to draw a limit to the liability for breach of contract, the common law only allows recovery for losses that either flow naturally from the breach or were within the reasonable contemplation of the parties as a probable result of the breach at the time of forming the contract. For losses to be recoverable, it is not necessary that the contracting parties should have had in contemplation ‘the

precise details of the events giving rise to the loss’. It is enough ‘that they contemplate the kind or type of loss or damage suffered’.151 [page 183] [3.332]

The test for remoteness of damages in relation to contract law, which is still followed by the English and Australian courts in the present day, was set down in Hadley v Baxendale (1854) 156 ER 145, which concerned a contract between a mill owner (Hadley) and carrier firm (Baxendale). The steam engine crank shaft at Hadley’s mill had broken and, as there was no spare, it had to be sent to the manufacturer as a pattern for the manufacture of a new shaft. Hadley engaged Baxendale to transport the broken crank shaft to the manufacturers with a specified delivery date agreed, telling them that the item for delivery was a broken crank shaft from the mill. Nothing was mentioned about the mill owners having no spare shaft or the continuing operation of the mill depending upon the delivery of the broken shaft. Due to their negligence, Baxendale delivered the crank shaft later than agreed resulting in the mill being out of action for longer than it should have been. Hadley sued Baxendale on the basis of breach of contract for the loss of profit suffered during the delay period. In considering whether Baxendale was liable, the court set out a ‘two limb’ test for whether losses were recoverable. This test sets out that where a breach of contract occurs, the injured party is entitled to receive damages which either: (i)

may fairly and reasonably be considered as arising naturally (ie, according to the usual course of things) from the breach of contract; or

(ii) although not arising naturally from the breach, may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.152

[3.333]

The court found that, as Hadley’s losses fell into neither of these limbs, they were not recoverable. The losses did not arise naturally (first limb) because it was not obvious that a delay in delivery would cause the mill to be inoperative as it was reasonably conceivable that Hadley may have had a spare crank shaft. Nor could the losses be said to have been within the contemplation of both parties at the time the delivery contract was made as Hadley had not told Baxendale about the mill being out of action without the crank shaft.

[3.334]

Losses which arise naturally from the breach, under the first limb of Hadley v Baxendale, are recoverable only to the extent that they were to be reasonably expected or foreseeable as resulting from the breach. In Victoria Laundry Ltd v Newman Industries Ltd [1949] 2 KB 528, Newman agreed to repair Victoria Laundry’s boiler by an agreed date. Newman, however, was 22 weeks late in repairing the boiler during which period Victoria Laundry’s capacity to work was reduced. As a result, Victoria Laundry claimed the following damages: loss of profits of £16 per week for the plaintiff’s normal workload during the 22-week delay period; and loss of profits of £262 per week for an unusually lucrative contract the plaintiff could have earned during the 22-week delay period if not for the defendant’s breach. [page 184]

[3.335]

The court awarded Victoria Laundry damages of £16 per week only as this amount was a reasonably foreseeable loss arising as a natural consequence of a failure to repair the boiler on time. The claim for £262 per week did not succeed because, although some loss of profits could have been contemplated, there was no way that Newman could have expected that such exceptional profits would be lost if the boiler wasn’t repaired on time unless alerted to that possibility at the time of entering

into the contract. [3.336]

In the Scottish case of Balfour Beatty Construction (Scotland) Ltd v Scottish Power Plc (1994) 71 BLR 20, Scottish Power agreed to provide an uninterrupted supply of electricity to Balfour Beatty who was constructing a roadway and aqueduct. During the concrete pour for the construction of the aqueduct channel, which needed to be done in a single continuous operation in order to make the aqueduct watertight, the power supply failed affecting the site batching plant. As a result of the interruption to the pour, Balfour Beatty had to demolish the partially constructed channel and rebuild the channel. Balfour Beatty sued Scottish Power for the extra costs involved on the basis of breach of contract. However, the court found that contracting parties could not be presumed to possess the knowledge of each other’s technical processes and, as such, the demolition and reconstruction of the aqueduct concrete works was not within the reasonable contemplation of Scottish Power as a probable result of their breach at the time the contract was made. In other words, the damages were too remote from the breach.

Recovery of debts [3.337]

If an outstanding debt has become due under the terms of the contract, a plaintiff may frame its action as a claim for debt. The common law considers indebtedness under a contract not as a mere breach, but as a detention of a sum of money.153 As such, pleading for a debt as opposed to damages has certain advantages. Firstly, the onus of proof will be on the defendant to show that it has paid the debt rather than on the plaintiff to show that it has not been paid. Secondly, there is no need for a plaintiff to prove a breach, causation or show a foundation for a proper assessment of damages. And, thirdly, any duty to mitigate loss that applies to damages, does not apply to the recovery of a debt due.

[3.338]

With respect to construction contracts, once a payment certificate has been issued by the superintendent pursuant to the contractor’s progress claim, the certified amount becomes a debt under the contract.

Quantum meruit [3.339]

Quantum meruit literally translates as ‘the amount he deserves’. The award of a quantum meruit derives from the equitable remedy of restitution which is based on the concept of unjust enrichment. Where the courts believe it is justified, they may [page 185] order a party who has unfairly benefited from receiving goods or services supplied by another to pay a quantum meruit in order to restore the value of those goods or services to the supplying party. Unlike damages, therefore, a quantum meruit does not aim to compensate a plaintiff for their losses. Rather, it aims to give back to the plaintiff a fair amount for the benefit unfairly gained by the other. In order to recover a quantum meruit, a plaintiff must generally show that the defendant has received some benefit at the plaintiff’s expense, and that the defendant would be unjustly enriched if it was not enforced to pay for the benefit.

[3.340]

The courts will generally assess a quantum meruit on the basis of a fair commercial rate for the services.154 This is likely to cover the reasonable costs of the goods or services plus an allowance for overheads and profit at the market rate prevailing at the time of supply.

[3.341]

There are three categories of situations in which courts will award a quantum meruit:

(i)

within contract;

(ii) where there has been a repudiation of contract as an alternative to unliquidated damages at common law; and (iii) in relation to a ‘quasi-contract’.

Quantum meruit within contract [3.342]

This is where the court will award a quantum meruit notwithstanding the existence of a valid contract between the parties. The court may be willing to award a quantum meruit within contract in circumstances where: a contract has been formed without a price, or terms which provide for the valuation or calculation of a price, being agreed; and where partial performance of a contract by one party has been accepted.

Quantum meruit for repudiation of contract [3.343]

Where one party has repudiated the contract allowing the other party to accept the repudiation and terminate the contract, the injured party may elect to recover a quantum meruit instead of unliquidated damages at common law. Recovery of a quantum meruit means that, unlike for damages, the agreed contract price will not act as a ceiling to the amount that can be claimed for the repudiation.

[3.344]

This is, therefore, an advantageous path for an injured contractual party to follow where there has been a repudiation of a ‘losing contract’. A losing contract is one where the supplier of goods or services stands to make a financial loss if the contract is carried through to successful completion (ie, the supplier has submitted a loss-making bid). Where a losing contract has been breached, expectation damages will be

[page 186] negative. Furthermore, reliance losses will be curtailed by the contract price because the common law aims to place the injured party into the same position, and not a better position, as if the contract has been properly carried out. Therefore, reliance damages for losing contracts will be adjusted downwards for contract losses. As such, where the injured party’s costs of performing the contract works outweigh the agreed contractual remuneration, it is preferable for the contractor to claim a quantum meruit. [3.345]

In Sopov v Kane Constructions Pty Ltd (No 2) (2009) 257 ALR 182, a building contract was agreed for the renovation and extension of a disused boiler house. The works were to be completed in 130 working days. However, due to a series of delays, the works were still incomplete after one year. The builder complained of a long list of matters: insufficient detail in plans and drawings necessitating delays in shop drawings and works, the lack of a suitably qualified superintendent, the refusal or insufficient allowance of extensions of time by the superintendent, the failure to issue certain progress certificates and the failure to allow certain variations under the contract. These complaints culminated in the builder serving a progress claim No. 14 in the sum of $340,562, from which the owners deducted a substantial amount for liquidated damages, leaving a balance of $132,618.20. The builder alleged that the owners breached the contract when progress certificate No. 14 was not paid in full and on time, and that the liquidated damages were wrongfully deducted from the amount certified. The builder followed the contractual provisions to commence termination of the contract, but the owner rejected the allegations. Consequently, the builder suspended the works. In response, following the relevant contract provisions, the owner purported to take the works out of the hands of the builder and served a notice to call up the bank guarantee provided by the builder. The builder asserted that the owners were not entitled to do so

and through their actions had repudiated the contract. The builder accepted the alleged repudiation, terminated the agreement, and chose to claim for a quantum meruit for the value of the works it had carried out rather than damages. The Victorian Court of Appeal found in favour of the builder’s claim, holding that it was entitled to a quantum meruit and that the contract price does not impose a ceiling on the amount recoverable. Quantum meruit

Quantum meruit in relation to a ‘quasi-contract’ [3.346]

A quantum meruit may be awarded in circumstances where one party has not been paid for work performed for another in circumstances where the court deems a quasi-contract exists. A quasi-contract may arise where work has been carried out on the basis of agreements which resemble contracts but turn out, for one reason or another, not to be enforceable at law. Such circumstances, which have been previously discussed, may include where: a contract has been rendered unenforceable by legislation, such as in Pavey & Matthews v Paul (1987) 162 CLR 221, where a licensed builder could not enforce a contract due to it not being made in writing and signed as required by the Builders Licensing Act 1971 (NSW); [page 187] a contract is void; work is carried out on the basis of a preliminary agreement, such as a letter of intent, but a formal contract never eventuates such as in British Steel Corporation v Cleveland Bridge [1984] 1 All ER 504 and Abigroup Contractors Pty Ltd v ABB Service Pty Ltd [2004] NSWCA 181;155 and a contract is frustrated, but work continues after the date of

frustration such as in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.156 [3.347]

Furthermore, the courts have awarded a quantum meruit to building contractors who have carried out variations to the contractually agreed scope of works pursuant to verbal instructions by their principal, but have not been able to claim extra payment for the variation works due to the express terms of the contract requiring variations to be given in writing in order to be deemed as authorised. Although, it should be noted that the courts will only award a quantum meruit for unauthorised variations where the variation works were outside the contract, the principal knew the variation works were being done and that the contractor was expecting to be paid for them as extras.157 As such, the court has held in Update Constructions Pty Ltd v Rozelle Child Care Centre Ltd (1990) 20 NSWLR 251 that a builder who carried out works costing $20,000 to reinforce the sub-surface of the site necessitated by a change in regulations, and was unable to claim under the contract because they failed to provide a written notice for the additional works as required by the express terms, was not permitted a quantum meruit for unjust enrichment as the additional works were within the scope of work encompassed by the contract.

Equitable orders for injunction and specific performance [3.348]

In addition to damages, courts may grant certain equitable orders as a remedy, such as orders for an injunction or specific performance. Injunctions are usually prohibitory in nature in that they compel a party to refrain from carrying out specific acts. Specific performance typically compels a party to perform specific contractual obligations.

[3.349]

Being equitable in nature, orders for injunctions and specific performance are granted at the discretion of the court. A party may seek an injunction or specific performance in lieu of

damages or in addition to damages. Typically the court will need to be satisfied that damages alone would not provide an adequate remedy in the circumstances before granting such equitable orders. __________________________ 1

Except for the Northern Territory, which allows 3 years.

2

Except for Victoria and South Australia which allow 15 years, and Western Australia which allows 20 years.

3

See, for example, Limitation of Actions Act 1974 (Qld) s 11.

4

This refers to the action of an auctioneer banging down their gavel to signify that a bid has been accepted.

5

See further [3.180]–[3.181] below.

6

IPEX ITG Pty Ltd (in liq) v Victoria (2010) VSC 480 at [42] per Sifris J.

7

As previously mentioned, unilateral contracts may be accepted by the conduct of the offeree in complying with the conditions set out in the offer.

8

An ‘advertisers’ puff’ is an often outrageous claim made by an advertiser which no reasonable person would be expected to take seriously. For further discussion, see [3.185] below.

9

J Bailey, Construction Law, Informa, Abingdon, Oxon, 2011, at 393.

10

Kyren v Built Projects [2006] SASC 204 at [25] per Layton J.

11

See, for example, Croshaw v Pritchard & Renwick (1899) 16 TLR 45.

12

T Grace, ‘Managing Civil Contracts’, Fenwick Elliott Grace, 2013.

13

See Appleby v Johnson (1874) LR 9 CP 158.

14

See, for example, Empirnall Holdings v Machon Paull (1988) 14 NSWLR 523 discussed in [3.58] below.

15

Carlill v Carbolic Smoke Ball Co Ltd [1893] 1 QB 256.

16

Warlow v Harrison (1859) 120 ER 925.

17

Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151.

18

Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 ExD 216.

19

Household Fire and Carriage Accident Insurance Co Ltd v Grant (1879) 4 ExD 216, Bramwell LJ (dissenting).

20

For emails of acceptance, the time of receipt for legal purposes is defined in the electronic transactions legislation, as discussed in [3.57] below.

21

For example, the Electronic Transactions Act 2000 (NSW) and the Electronic Transactions Act 2000 (Vic).

22

See further [3.296]–[3.298] below.

23

See further [3.214] below.

24

Such as, for example, the commercial purpose of the contract.

25

Reardon Smith Line Ltd v Ingar Hansen-Tanger [1976] 2 Lloyd’s Rep 621, 625.

26

As previously discussed in [3.7] above.

27

For further discussion of implied terms, see [3.152]–[3.174] below.

28

Hillas & Co v Arcos [1932] All ER Rep 494 at 367 per Lord Wright.

29

See further [3.70]–[3.72] below.

30

J Arthur, ‘Contract Law — Avoiding Legal Risk with MOUs & Heads of Agreement’, Professional Development Young Lawyers Lecture Series 2011.

31

Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 All ER 716 per Lord Denning.

32

See, for example, Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) 9 BLR 20 at 29, where a letter of intent was held to be binding.

33

RB Lake and U Draetta, ‘Letters of Intent and Other Precontractual Documents’, Butterworths, Stoneham, Mass, 1989.

34

Trollope and Colls Ltd v Atomic Power Construction Ltd [1963] 1 WLR 333 at 335.

35

J McGuinness, ‘The Effect of Letters of Intent’, Society of Construction Law (UK), 1997.

36

Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) 9 BLR 20 at 29.

37

Laserborne Ltd v Morrison Biggs Wall Ltd [1993] CILL 896.

38

See Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234.

39

Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd [1915] AC 847.

40

See Segboer v A J Richardson Properties Pty Ltd [2012] NSWCA 253.

41

See, for example, Limitation of Actions Act 1974 (Qld) s 10(1).

42

See, for example, Development Act 1993 (SA) s 73(1).

43

See, for example, Building Act 1993 (Vic) s 134; Environmental Planning and Assessment Act 1979 (NSW) s 109ZK(1)(a).

44

Chappell & Co Ltd v Nestle Co Ltd [1959] 2 All ER 701.

45

See further [3.7] above.

46

See Fleming v Bank of New Zealand [1900] AC 577.

47

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at [18] per Deane J.

48

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at [34] per Brennan J.

49

See further [3.239]–[3.249] below.

50

See, for example, Law of Property Act 1936 (SA) s 26(1); Conveyancing Act 1919 (NSW) s 54A(1).

51

See, for example, Building Work Contractors Act 1995 (SA) s 28(1)(a); Domestic Building Contracts Act 1995 (Vic) s 31(1)(a) for contracts more than $5000.

52

Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252 at 262 per Innes J.

53

S Graw, An Introduction to the Law of Contract, 7th edition, Thomson Reuters, Rozelle, NSW, 2012, at p 208.

54

The Judicial Committee of the Privy Council is the court of final appeal for the UK overseas territories and Crown dependencies, and for those Commonwealth countries that have retained the

appeal to Her Majesty in Council. Notably, since the commencement of the Australia Act 1986 appeals to the Privy Council from decisions of Australian state Supreme Courts are no longer possible. Further, federal legislation was enacted in the late 1960s and early 1970s which effectively puts an end to appeals from the Australian High Court to the Privy Council in all but theory. 55

See, for example, Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 66, 117–18; Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, 441.

56

See Eyre v Measday [1986] 1 All ER 488.

57

Butt v McDonald (1896) 7 QLJ 68 at 70–1 per Griffith CJ. See also Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 597.

58

A repudiation is when a party behaves in a manner that indicates they are unwilling to perform their contractual duties or obligations and, therefore, gives the other party the right to terminate the contract — see further [3.296]–[3.298] below.

59

See Victoria University of Manchester v Hugh Wilson (1984) 2 Con LR 43.

60

See, for example, Sale of Goods Act 1895 (SA) s 54.

61

See further [2.46]–[2.53] above.

62

See further [2.54]–[2.115] above.

63

Although, it may be possible for a building contractor to be compensated for such a variation on a quantum meruit basis under equity law — see further [3.347] below.

64

Bettini v Gye (1876) 1 QBD 183 at 188.

65

Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [55].

66

A repudiation is when a party behaves in a manner that indicates they are unwilling to perform their contractual duties or obligations and, therefore, gives the other party the right to terminate the contract.

67

R Tate, ‘A Guide to Standard Forms of Construction Contract’, Local Government Taskforce and Society of Chief Architects of Local Authorities, 2003.

68

Also, see Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] 218 CLR 471; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.

69

Thornton v Shoe Lane Parking [1971] 1 All ER 686 at 690.

70

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at [16].

71

See further [3.218]–[3.222] below.

72

As discussed in further detail in [3.332]–[3.334] below.

73

Environmental Systems Pty Ltd v Peerless Holdings Pty Ltd [2008] VSCA 26 at [87] per Nettle JA.

74

Ibid.

75

Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49 at [281] per Bleby J.

76

See Regional Power Corporation v Pacific Hydro Group Two Pty Ltd (No 2) [2013] WASC 356.

77

See Macmahon Mining Services v Cobar Management [2014] NSWSC 502; Macmahon Mining Services v Cobar Management [2014] NSWSC 731.

78

Although it is possible for parties to contract out of this legislation.

79

See, for example, AS4000 General Conditions of Contract, cl 9.1.

80

See further ‘back-to-back’ contract clauses as discussed in [3.91]–[3.93] above.

81

DPP for Northern Ireland v Lynch [1975] AC 653 at 695 per Lord Simon.

82

Barton v Armstrong [1973] 2 NSWLR 598 at 609 per Jacobs JA.

83

See further E Bant, ‘An Opportunity Saved: Duress in the High Court of Australia: Verve Energy’, University of Melbourne High Court Blog, 2014, viewed on 12 August 2015 at: http://blogs.unimelb.edu.au/opinionsonhigh/2014/03/12/bant-verve-energy/.

84

Psaltis v Schultz (1948) 76 CLR 547 at 561 per Dixon J.

85

See further [3.66]–[3.67] above.

86

See, for example, Sale of Goods Act 1895 (SA) s 6.

87

See, for example, Joscelyne v Nissen [1970] 2 QB 86.

88

See W Higgins Ltd v Northampton Corporation [1927] 1 Ch 128.

89

See, for example, the AS4000-1997 General Conditions of Contract, clause 36.4 b) and c).

90

See Henry Boot Construction Ltd v Alstom Combined Cycles Ltd [1999] EWHC Technology 263.

91

Rule 1 requires contract bill rates to be used to price variation works of a similar character and carried out under similar conditions. Rule 2 requires reasonably adjusted contract bill rates to be used to price variation works which are not of a similar character or carried out under similar conditions.

92

The Australian Consumer Law is provided in Sch 2 of the Competition and Consumer Act 2010 (Cth) and incorporated into the Fair Trading Acts enacted in each state and territory.

93

For this reason, although still ‘alive’, the law of misrepresentation is not covered in this book with the exception of negligent misstatement which is considered in [4.26]–[4.28] below.

94

Butcher v Lachlan Elder Realty Pty Ltd [2004] 218 CLR 592 at [112].

95

See further [3.182] above.

96

Australian Consumer Law s 29(1)(a).

97

Australian Consumer Law ss 30(1)(c), (d) and (e).

98

Civil pecuniary penalties are not the same thing as criminal penalties. A civil pecuniary penalty is ordered by a civil court (rather than a criminal court), requires proof on the balance of probabilities (rather than beyond all reasonable doubt), and can be enforced through civil proceedings rather than by threat of imprisonment. In short, civil pecuniary penalties are not imposed as a consequence of a criminal offence, as are criminal penalties.

99

Australian Consumer Law s 224.

100The regulator under the ACL is the Australian Competition and Consumer Commission (ACCC). 101 Australian Consumer Law s 232. 102 Australian Consumer Law s 236. 103 Australian Consumer Law s 237. 104 Australian Consumer Law s 239. 105 Australian Consumer Law s 247. 106 Australian Consumer Law s 218.

107 Australian Consumer Law s 219. 108 The summary description of Metricon’s false and misleading conduct below has been extracted from

the Australian Competition and Consumer Commission website on 17 Aug 2015 at: https://www.accc.gov.au/media-release/metricon-homes-qld-to-pay-800000-penalty-for-misleadingrepresentations. 109 Per Jessel MR at 545. 110 Startup v Macdonald (1843) 6 Man & G 593. 111

See, for example, Sale of Goods Act 1896 (Qld) s 31(4); Sale of Goods Act (NT) s 32(5).

112 See further [3.303]–[3.309]. 113 See further [3.343]–[3.345] above. 114 Also, see Planché v Colburn (1831) 8 Bing 14. 115 T Grace, ‘Managing Civil Contracts’, Fenwick Elliott Grace, 2013. 116 See, for example, Chandler v Webster [1904] 1 KB 493. 117 See Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32. 118 See, for example, Frustrated Contracts Act 1978 (NSW) s 13; Frustrated Contracts Act 1988 (SA) s 7. 119 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at [41]

per Mason J. 120 Davis Contractors Ltd v Fareham Urban District Council [1956] 2 All ER 557 at 729 per Lord Radcliffe. 121 Maritime National Fish Ltd v Ocean Trawlers Ltd [1935] AC 524 at 530 per Lord Wright. 122 See Claude Neon Ltd v Hardie [1970] Qd R 93. 123 See, for example, AS 4000 General Conditions of Contract, Clause 14.2. 124 See, for example, AS 4000 General Conditions of Contract, Clause 16. 125 See Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 658 per Mason J. 126 See Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 at [44]. 127 Ibid. 128 See Renard

Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, as previously discussed in [3.164] above.

129 See Trimis v Mina [1999] NSWCA 140. 130 See DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423. 131 See, for example, AS 4000 General Conditions of Contract, Clause 39. 132 T Grace, ‘Managing Civil Contracts’, Fenwick Elliott Grace, 2013. 133 See Foran v Wight (1989) 168 CLR 385 at [32] per Mason CJ. 134 Robinson v Harman (1848) 1 Exch 850 at 855 per Parke B. 135 Griffiths & Beerens Pty Ltd v Duggan [2008] VSC 201 at [173] per Pagone J. 136 Bellgrove v Eldridge (1954) 90 CLR 613 at 618. 137 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [17]. 138 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [19].

139 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272 at [16]. 140 Also see Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61. 141 Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2006] NSWCA 361 at [89] per Tobias JA. Also,

see Wheeler v Ecroplot Pty Ltd [2010] NSWCA 61. 142 As referred to in Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA

253 at [47]. 143 For example, see AS 4000 General Conditions of Contract, clause 34.7. 144 Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 at 86–8 per Lord Dunedin. 145 See, for example, Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656. 146 See, for example, Ford Motor Co (England) Ltd v Armstrong [1915] 31 TLR 267. 147 See Sizer v Squarcini [2008] WASC 246. 148 See J-Corp Pty Ltd v Mladenis [2009] WASCA 157. 149 J-Corp Pty Ltd v Mladenis [2009] WASCA 157 at [44] per Newnes JA. 150 Brace v Calder [1895] 2 QB 253. 151 Walton v Illawarra [2011] NSWSC 1188 at [113] per MacDougall J. 152 Hadley v Baxendale (1854) 156 ER 145 at 351 per Alderson B. 153 See Young v Queensland Trustees Ltd (1956) 99 CLR 560 at 567. 154 See Laserborne Ltd v Morrison Biggs Wall Ltd [1993] CILL 896. 155 See further [3.87]–[3.88] above. 156 See further [3.283] above. 157 See Liebe v Molloy (1906) 4 CLR 307; Trimis v Mina [1999] NSWCA 140; Gigliotti Constructions Pty

Ltd v Jalili [1998] NSWSC 182.

[page 189]

CHAPTER 4

Law of Tort

Key Ideas This chapter discusses: negligence and duty of care causation and contributory negligence building defects, insurance and negligence trespass to land, subsoil and airspace, access to land and encroachment nuisance vicarious liability and subcontractor negligence

[page 190]

Introduction to the law of tort [4.1]

A tort is a civil wrong committed by one person in society which detrimentally affects another. If the affected party suffers damage or injury due to the tort of the other, this may give a right to claim damages under the law of tort. There are many different categories of tort, including the tort of negligence, trespass to land, nuisance, trespass to person, defamation and deceit. Actions in tort differ from actions in contract law in that torts are actionable where no contract exists between the defaulting (known as tortfeasor) and injured parties.

[4.2]

Torts differ from crimes in that an action for tort is brought by a person, whereas crimes are prosecuted in court by the state. Having said this, it is possible for some crimes to also form the basis of a civil action in tort. For example, if A drives his car whilst under the influence of alcohol and badly injures B by knocking her off her bicycle, this is a criminal act for which A may be prosecuted by the state as well as a tort for which B may sue in a civil action for compensation for her injuries.

[4.3]

The general limitation of action period for tort differs from contract. The limitation period for tortious actions is generally six years,1 which starts to run from the date on which the cause of action accrued. In tort, the cause of action accrues on the date that a person suffers damage or loss. Notably, in the context of latent (hidden) building defects (eg, an inadequately designed floor slab) which often do not become apparent for several years (eg, when cracks appear), the Queensland Court of Appeal has held in Melisavon Pty Ltd v Springfield Land Development Corporation Pty Ltd [2014] QCA 233 that the limitation period does not commence until the building owner ‘first became aware, or ought to have become aware, that it had

sustained loss because of the alleged defective design’.2 The limitation period generally reduces where the tortious action is for personal injury (ie, bodily harm as opposed to damage to property or economic loss) to three years from the date a person first knew that he or she had suffered those personal injuries.3 [4.4]

The fact that the limitation period in tort only starts to run from the time when damage or injury is suffered or becomes known (as opposed to contract, where the limitation period runs from the date of breach — see further [3.2] above) has meant in practice that it is possible for tortious liability to be actionable for very long periods of time (much longer than for actions in contract). It was for this reason that, as previously mentioned in [3.3] above, parliaments in all states and territories apart from Queensland and Western Australia have set a long-stop maximum permitted limitation period of 10 years applying to actions in relation to defective building works, which starts to run from either the date of completion of the building work or the date the occupancy certificate is issued, depending on the state or territory. This prevents an unreasonable state of affairs, for example, where a builder or [page 191] designer may be liable in tort to a building owner for damages which may have only recently become apparent (eg, cracks in the floor slab of a house) but were caused by a latent defect in a building (eg, inadequate reinforcement in the floor slab) which was constructed, say, 20 years ago.

[4.5]

For the purposes of this book, our review of tort will be limited to the three torts that most often affect construction projects: negligence, trespass to land and nuisance.

Negligence [4.6]

It has long been established in common law that a person owes a duty to take reasonable care to prevent foreseeable harm or injury to others. The term negligence at law refers to any situation where a person fails to take such reasonable care. This could be, for example, a builder who fails to follow proper working methods in accordance with the Building Code of Australia during construction of an office building which subsequently leads to a leaky roof in the completed building, or it could be a structural engineer who acts unprofessionally in specifying a weak concrete mix for house footings which subsequently leads to structural cracks in the house.

[4.7]

Negligence itself is not a concept confined to the law of tort. Negligence could, and frequently does, occur when a party is carrying out its contractual obligations. In such a situation, where the negligence causes harm or injury to the other contractual party, the injured party may bring an action under contract law for breach of an implied contractual duty to exercise reasonable care and skill (see further [3.165]–[3.167] above). However, where no contractual relationship exists between the negligent and injured party, the tort of negligence provides an avenue for compensation.

[4.8]

Notably, where a contract exists between a negligent party and the injured party, tortious liability will run concurrent to contractual liability. Where such concurrent liability exists, it will usually be preferable for a plaintiff to sue under contract law as it will be easier to establish that the defendant owed a duty to take reasonable care under the contract, as well as the principles of assessment of damages generally being more favourable in contract law. However, there may be some circumstances in a concurrent liability situation where a plaintiff chooses to sue under the law of tort, for example where the contractual limitation of action period for contract law has expired.

The tort of negligence [4.9]

In order to succeed in an action for the tort of negligence, a plaintiff needs to prove on the balance of probabilities that: 1.

the defendant owed the plaintiff a legal duty of care;

2.

the defendant has breached that duty of care; and

3.

the plaintiff has suffered injury or harm caused by that breach. [page 192]

Duty of care at common law [4.10]

The origin of the modern day tort of negligence stems from the English House of Lords’ landmark decision in Donoghue v Stevenson [1932] AC 562. In Donoghue v Stevenson, Mrs Donoghue was partway through drinking a bottle of ginger beer, which had been bought for her by a friend, when she noticed the decomposed remains of a snail in the bottle. Mrs Donoghue had not been able to see that the ginger beer had been contaminated before drinking it as the glass bottle was opaque. The bottle of ginger beer had been manufactured by Stevenson, who had carelessly failed to properly wash out the recycled bottle before filling it with ginger beer. Subsequently, Mrs Donoghue fell sick with gastroenteritis, and sued Stevenson for damages for their negligence. Mrs Donoghue could not sue under the law of contract as it had not been her, but her friend, who had bought the bottle of ginger beer. Neither could her friend sue under the law of contract, as the friend had suffered no injury. In a landmark decision, the House of Lords held Stevenson liable in the tort of negligence for their carelessness when bottling the ginger beer.

[4.11]

In Donoghue v Stevenson, Lord Atkin established the first test

at common law that could be universally applied to determine whether, in a particular set of circumstances, a person owed a duty of care to another outside a contractual relationship. This test, known as the ‘neighbour test’, states: You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour.4 [4.12]

Lord Atkin attempted to put some restriction on the existence of a duty of care by using a proximity concept. In other words, in addition to there being reasonable foreseeability of harm from a person’s actions or omissions, there also had to be a sufficiently proximate (or close) relationship between the tortfeasor and injured person for a duty of care to exist. Lord Atkin defined the level of proximity required in the following way: Who, then, in law is my neighbour? The answer seems to be … — persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.5

[4.13]

According to the neighbour test, therefore, when carrying out a task or activity, we owe a duty of care to those classes of persons we should reasonably have in our minds as being at risk of injury due to our conduct. For example, a car driver will owe a duty of care to other road users (eg, car drivers, cyclists and pedestrians) in close vicinity and who are within the driver’s field of vision, as it is reasonable for a car driver to expect that his or her conduct when driving a car may impact on this class of persons. However, it is unlikely that a car driver will owe a duty of care to a person who is [page 193] getting off a tram 20 metres away and cannot be seen by the driver,6 as it would not be reasonable to expect the driver to have such a person in their contemplation as being at risk of

harm from their careless driving. To put it another way, there would not be sufficient proximity between the car driver and the person getting off the tram. [4.14]

The duty of care established in Donoghue v Stevenson only allowed a plaintiff to recover for ‘injury to the consumer’s life or property’ caused by the defendant’s negligent act or omission.7 As such, recovery of any loss which is purely economic (or monetary) in nature by the plaintiff — that is, loss which did not arise as a consequence of physical harm to the defendant’s person or property — was not permitted.

[4.15]

Notably, the common law categorises any loss in value occurring to a negligently manufactured product due to its defective nature not as damage to the defendant’s property, but rather as pure economic loss. As such, whilst Mrs Donoghue would have been allowed to recover compensation for the losses suffered as a consequence of her gastroenteritis (eg, medical expenses, loss of income whilst sick), hypothetically she would not have been allowed to recover monies to compensate her for the replacement cost of the contaminated bottle of ginger beer. This approach accords with the traditional approach of the common law that recovery of pure economic loss be excluded from tort — known as the ‘exclusionary rule’ — and doctrinally confined to the realms of contractual relationships.

[4.16]

After Donoghue v Stevenson, the number of circumstances in which tortious liability for negligence was held to exist grew rapidly. This was due to a combination of the errant nature of humankind and the neighbour test being a very broad test. Consequently, tortious liability for negligence became very well established in many walks of life, applying to negligent manufacturers with respect to their consumers, negligent car drivers with respect to other road users, negligent event organisers with respect to their audiences, negligent medical professionals with respect to their patients, negligent building professionals with respect to their clients, and the list goes on.

[4.17]

Furthermore, as human knowledge and technology developed and societal standards changed through time, new avenues of negligence continued to open up. For example, consider the numerous actions in negligence concerning internet security, and the injurious effects of cigarettes and asbestos which would not, at one time, have formed the grounds for a negligence action.

[4.18]

As Lord Macmillan stated in Donoghue v Stevenson: In the daily contacts of social and business life human beings are thrown into, or place themselves in, an infinite variety of relations with their fellows; and the law can refer only to the standards of the reasonable man in order to determine whether any particular relation gives rise to a duty to take care … The grounds of action may be as various and manifold

[page 194] as human errancy; and the conception of legal responsibility may develop in adaptation to altering social conditions and standards. The criterion of judgement must adjust and adapt itself to the changing circumstances of life. The categories of negligence are never closed.8

Duty of care by reference to legislation [4.19]

In order to establish the scope of a common law duty of care in a particular set of circumstances, the court may refer to any relevant legislation that exists. For example, in Leighton Contractors Pty Ltd v Fox [2009] HCA 35, when assessing the duty of care a head building contractor owes to workers on its construction site, the court referred to the occupational health and safety (OHS) regulations9 in place at the time which required a principal contractor be satisfied that a person has undergone OHS induction training before allowing them to carry out construction work on the project. The court found that any head contractor who had not put reasonable measures in place to confirm that workers coming onto the site had undergone OHS induction training would have breached its

duty of care.10 [4.20]

In addition to the common law, a duty of care may in certain circumstances be expressly imposed by statute. For example, under the occupiers’ liability legislation, the occupier of a premises is under a duty to take reasonable care to make sure visitors are not injured by reason of any dangers that exist due to the state of the premises.11

The expansion of duty of care to cover pure economic loss [4.21]

The established common law position with respect to assessing the measure of damages in tort is that damages are awarded with the object of placing the plaintiff in the position in which he or she would have been had the tort not been committed.12 Traditionally, as previously mentioned in [4.14], this measure did not include amounts for pure economic loss (ie, monetary loss not consequent upon harm or injury to person or property). Pure economic loss had been very much viewed by the common law as the exclusive role of contract law where the movement of consideration between the parties justified the recovery of expectation losses (see further [3.305] above).

[4.22]

The distinction between pure economic loss and economic loss consequent upon physical damage to property may be seen in the case of Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] 1 QB 27, where Martin negligently damaged an electricity power cable supplying Spartan’s steel factory with an excavator. As a result, [page 195] the power was cut to the factory for 15 hours, which caused the following damages to Spartan: physical damage to furnaces and the steel being melted in

(i)

the furnaces during the power cut;

(ii) loss of profit on the steel in the furnaces which was ruined; and (iii) loss of profit on steel which could not be manufactured whilst the power was out. [4.23]

The court allowed (i) to be recovered as it was physical damage to property. The court allowed (ii) to be recovered as it was economic loss directly consequent upon physical damage to property. However, the court would not allow (iii) to be recovered as it was a pure economic loss.

[4.24]

Another reason why the courts had been reluctant to extend the scope of tortious duty of care to cover pure economic loss was the issue of indeterminate liability.13 In contract law, the number of persons who can sue for pure economic loss is restricted by the doctrine of privity of contract (see [3.203]– [3.207] above). In tort, however, one party’s negligence could cause pure economic loss to be suffered by a multitude of people who may then bring a court action. In other words, the ‘floodgates’ would be opened for litigation to pour into the courts. The problem of indeterminate liability is illustrated in the following example given by Cooke: A negligently severs an electricity cable which leads to the business premises of B, C, D and E, who are unable to produce goods for 48 hours and suffer economic loss as a result. B has contracts with F, G and H, each of whom suffers economic loss as a result of B’s being unable to perform. C, D and E each have several further contracts which are interrupted. If liability is imposed on A, then where would the liability end? 14

[4.25]

In the 1960s, 1970s and 1980s, however, the expansion of tortious liability for negligence took a big leap when the courts began to allow the recovery of pure economic loss in circumstances where they believed the relationship between the plaintiff and defendant justified an exception to the longstanding exclusionary rule.

[4.26]

In Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465,

Hedley Byrne was an advertising agency who received an order from a client. Concerned as to the financial position of the client, Hedley Byrne contacted the client’s bank for a reference before acting upon the order. The bank replied in a letter that their client was ‘considered good for its ordinary business engagements’. No contract was formed between Hedley Byrne and the bank as the reference was provided free of charge. Subsequently, Hedley Byrne accepted the client’s order and carried out approximately £17,000 worth of work without payment before the client went into liquidation. Hedley Byrne brought a court action against the bank for their negligent misstatement to recover their economic losses of £17,000 (note, this money was not lost consequent upon injury or harm to person or property and, therefore, was pure economic loss). [page 196] The court found that there was a ‘special relationship’ between the bank and Hedley Byrne, which arises whenever: a person possessing a special skill applies their skill to assist another; it was reasonable for the other party to rely upon that assistance given (‘reasonable reliance’); and the person in possession of the special skill ought reasonably to have known that the other party would rely on their assistance. [4.27]

In other words, the court found that it was reasonable for Hedley Byrne to rely on the bank’s reference, and the bank should have reasonably known Hedley Byrne would rely on their reference for the purposes of deciding whether to accept the client’s order. Due to the existence of such a ‘special relationship’, the court found there had been an ‘assumption of responsibility’ by the bank for their actions when giving the reference which gave rise to sufficient proximity between the

bank and Hedley Byrne for a duty of care to arise in relation to the prevention of economic loss. Despite this, however, Hedley Byrne’s action ultimately failed due to a written disclaimer at the top of the reference which stated that the bank’s advice was given ‘without responsibility’. [4.28]

Since Hedley Byrne, there have been several other cases before the courts involving tortious liability for negligent misstatement.15 In L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225; 36 ALR 385, for example, a local council was held liable for their negligent misstatement when, in response to an inquiry by Shaddock as to whether a particular property which Shaddock was considering purchasing was subject to any road widening plans, it advised that it was not when, in fact, it was. As such, when Shaddock, relying upon the council’s advice, purchased the property, which subsequently decreased in value when the road widening was carried out, it was able to recover damages for the pure economic loss suffered.

[4.29]

In Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529; 11 ALR 227, Caltex entered into an oil processing agreement with a company called Australian Oil Refining Pty Ltd (AOR). Under this agreement, Caltex delivered oil to AOR’s refinery, and AOR delivered the refined oil back to Caltex’s oil terminal through a pipeline owned by AOR that ran under Botany Bay. Under their agreement with Caltex, AOR agreed to take the risk of any damage to the oil (which was owned by Caltex) whilst the oil was in AOR’s pipeline. The Dredge, a third party, negligently damaged the pipeline whilst carrying out dredging operations in the bay. AOR, who owned the pipeline, was able to recover compensation for damages to their pipeline (damage to property) as well as the cost of oil inside the pipeline (economic loss consequent upon damage to property). Caltex also sued The Dredge for the losses they suffered as a result of the extra costs incurred due to having to make alternative arrangements to transport the oil whilst the

pipeline was out of operation. Even though [page 197] the court recognised Caltex’s damages to be pure economic loss, it held that under these circumstances — where the defendant knew of the pipeline’s existence, and knew that a particular person (in this case, Caltex) used the pipeline and would suffer economic loss without its use — the loss was recoverable. [4.30]

In Junior Books v Veitchi [1983] AC 520, Junior Books engaged a head contractor to construct their new factory. The head contractor engaged Veitchi, a specialist flooring subcontractor who had been nominated by Junior Books, to lay the factory floor. Although Junior Books nominated Veitchi, there was no contract between Junior Books and Veitchi. Veitchi carried out their works negligently with the result that the floor was defective and had to be re-laid. Junior Books brought an action in tort of negligence against Veitchi, successfully recovering the pure economic losses they had suffered — namely, the cost of re-laying the floor and loss of profit whilst this was being done. The House of Lords held that sufficient proximity existed between the parties, due to Veitchi having been nominated by Junior Books, for a duty of care to exist. As Lord Roskill stated (at 542), the relationship between the parties was ‘almost as close a commercial relationship … as it is possible to envisage short of privity of contract’.

[4.31]

With the expansion of negligence liability into the traditional realms of contract law, the courts started to become concerned that they had an ‘all devouring monster’16 on their hands. The potential for excessive liability had implications for commerce, in particular, the difficulties in obtaining adequate insurance to cover the new types of liability.17

[4.32]

Since the 1990s, however, the courts have sought to rein in the boundaries of negligence by narrowing the circumstances under which a person owes a duty of care to prevent economic loss. Consequently, the current common law position with respect to establishing a duty of care for economic loss is quite complex, and involves a consideration of a number of potentially salient features to see whether a sufficiently close relationship exists to give rise to such a duty of care.18 These salient features include, amongst others: reasonable foreseeability;19 reasonable reliance and assumption of responsibility;20 physical, temporal and relational proximity of the parties; vulnerability of the injured party;21 and whether the issue of indeterminate liability should apply to prevent a duty of care under the circumstances. [page 198]

Breach of duty of care [4.33]

Once it has been established that a duty of care exists, a plaintiff must then show that the duty was breached. This requires the plaintiff to prove that the defendant did not take reasonable care. The court has defined the standard of care required for negligence to occur as follows: Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs would do, or doing something which a prudent and reasonable man would do.22

[4.34]

The common law definition of negligence has been formalised in the civil liability or wrongs legislation that exists on a stateby-state basis around Australia,23 although the wording varies from Act to Act. Section 31(1) of the Civil Liability Act 1936 (SA), for example, states:

For determining whether a person (the ‘defendant’) was negligent, the standard of care required of the defendant is that of a reasonable person in the defendant’s position who was in possession of all information that the defendant either had, or ought reasonably to have had, at the time of the incident out of which the harm arose.

The civil liability or wrongs legislation also variously states that a professional will have exercised the standard of care required to avoid negligence where he or she has acted in a manner which was widely accepted by their peers. Sections 22(1), 22(3) and 22(4) of the Civil Liability Act 2003 (Qld), for example, state:

[4.35]

A professional does not breach a duty arising from the provision of a professional service if it is established that the professional acted in a way that (at the time the service was provided) was widely accepted by peer professional opinion by a significant number of respected practitioners in the field as competent professional practice. The fact that there are differing peer professional opinions widely accepted by a significant number of respected practitioners in the field concerning a matter does not prevent any 1 or more (or all) of the opinions being relied on … Peer professional opinion does not have to be universally accepted to be considered widely accepted.

Causation [4.36]

In order for a plaintiff to recover damages for harm suffered in the tort of negligence, the court must be satisfied that the defendant’s negligence was the actual cause of the plaintiff’s harm. Determination of such causation comprises two elements: (1) the harm must be factually caused by the defendant’s negligence (‘factual causation’); and (2) damages must not be too remote (‘legal causation’). [page 199]

Factual causation

[4.37]

Factual causation requires ‘that the negligence was a necessary condition of the occurrence of the harm …’.24 This is a requirement under both the common law and the civil liability or wrongs legislation.

[4.38]

The question of whether the breach caused the damage is ultimately a matter of common sense.25 Often the somewhat straightforward ‘but for’ test has an important role to play in determining factual causation.26 The ‘but for’ test asks the question: But for the defendant’s behaviour, would the harm to the plaintiff have occurred?

[4.39]

If the answer to this question is ‘yes’, then it was not the defendant’s negligence that caused the plaintiff’s damage.

[4.40]

This test was clearly demonstrated in Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428, where a man, suffering from arsenic poisoning, died shortly after a doctor sent him away from a hospital emergency department having refused to examine him. The doctor had clearly breached a duty of care owed to the patient. In order to determine causation, the court asked ‘would the man have died but for the doctor’s negligence?’ The answer was ‘yes’, as it was established that even if the doctor had examined the patient there was no treatment that could have saved the man’s life in time. The doctor, therefore, was not held liable for the man’s death.

[4.41]

In McWilliams v Sir Arrol [1962] 1 WLR 295, a steel erector fell to his death whilst working at a great height. His employer had been negligent by not providing him with a safety belt. The court asked whether the steel erector would have fallen to his death but for the employer’s negligence. The answer was ‘yes’, as it was established through evidence that on the balance of probabilities the steel erector would not have worn the safety belt even if one had been provided. The employer, therefore, was not held liable for the worker’s death.

Legal causation or remoteness of damage [4.42]

Just as in contract law, there is a limit as to the scope of damages which the court is prepared to allow a plaintiff to recover in the law of tort. The common law concept of remoteness for damages in tort has been formalised in the civil liability or wrongs legislation which, for a determination that negligence caused particular harm, requires that ‘it is appropriate for the scope of the tortfeasor’s liability to extend to the harm so caused (“scope of liability”)’.27

[4.43]

As long as damages are not too remote and are, therefore, within the scope of liability, ‘legal causation’ is established. If damages are too remote, or outside the scope of [page 200] liability, it means that the damage resulting from the defendant’s negligence was of a type of damage that was not reasonably foreseeable under the circumstances.

[4.44]

In Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co (The Wagon Mound No 1) [1961] AC 388, the defendant negligently spilled a large quantity of bunkering oil into Sydney Harbour which drifted to the plaintiff’s wharf where welding was in progress. Although it is very difficult to set bunkering oil alight on water, the oil caught fire, damaging the wharf and the ships docked there for repair works. The plaintiff sued in the tort of negligence, but the court held that the defendant was not liable for the damages, as it was not reasonably foreseeable that fire damage would result under the circumstances.

[4.45]

Whilst the test of reasonable foreseeability is used by the courts to determine both whether a duty of care exists as well as whether damages are too remote, the test is applied

separately to each of these considerations. For example, in the The Wagon Mound No 1 decision above, there was a duty of care to other ocean users as it was reasonably foreseeable that spilling bunkering oil into the ocean could cause damage to them generally. However, damages were too remote because, on the facts of the case, the specific type of damage (fire damage) could not have been reasonably foreseen. [4.46]

As long as reasonable foreseeability of the specific type of damage is established, there will be liability for the full amount of the plaintiff’s damages even if the extent of damage is far greater than could have been expected,28 or the manner in which the damage occurred was not foreseeable.29

Claims in negligence for building defects by subsequent building owners [4.47]

Building defects are generally caused by either building contractors or designers. Where a builder or designer causes a building defect due to their negligence, damages to rectify the defect may be obtained for breach of contract by the building developer who engaged the builder or designer. However, it is often the case that the owner of a building at the time when a building defect is realised is not the original building developer but, instead, a subsequent building owner who has purchased the building either from the building developer or a previous building owner. The time lag between when negligent construction or design occurs and when the resultant defect first becomes apparent in the building may be several years. In other words, a latent (hidden) defect in a building may only become patent (apparent) after a considerable period of time. For example, weak footings may only become apparent for the first time when structural cracks start occurring in a building’s walls many years after construction, by which time ownership of the

[page 201] building may have changed. Due to the absence of a contractual relationship, a subsequent building owner who wants to recover damages from a negligent builder or designer to rectify a building defect will have to take action under the tort of negligence. [4.48]

The courts view damages to third parties, such as subsequent building owners, in the form of building defects as pure economic loss. Returning to Donoghue v Stevenson principles (see further [4.15] above), damage to a negligently produced good itself is categorised as pure economic loss at common law. In the context of construction, the building is the defective product. Therefore, a building defect which is discovered but does not cause damage to person or property (other than the building itself) is considered as purely economic, the economic loss being the reduction in value of the building due to its defective nature.

[4.49]

Despite this, the Australian courts have allowed the owner of a house to recover damages for a building defect caused by negligent construction. However, they have not been prepared to allow recovery of pure economic loss due to building defects by owners of commercial buildings.

[4.50]

In Bryan v Maloney (1995) 182 CLR 609; 128 ALR 163; 13 BCL 104; [1995] HCA 17, the defective premises was a house which had been purchased by Mrs Maloney as her primary place of residence. Mrs Maloney was, in fact, the third owner of the house, it having been built by the builder, Allan Bryan, for the first owner, Mrs Manion, in 1979. It was not until six months after Mrs Maloney acquired the house in 1986 that cracks became manifest in the walls as a consequence of the latently defective footings. The Supreme Court of Tasmania’s decision in favour of Mrs Maloney was appealed to the High Court of Australia who upheld the Supreme Court’s decision. The court

held that there was sufficient proximity between the builder and first building owner on the bases that: the builder had assumed responsibility for erecting a structure with footings adequate to support it, and the first owner had relied on the builder’s skill in this respect; and the contract between the builder and the first building owner ‘was non-detailed and contained no exclusion or limitation of liability’30 with regards to the extent of tortious liability. [4.51]

Further, the court held that, despite the only ‘connecting link’ between the builder and the subsequent purchaser being the house itself, proximity also existed between these two parties in a number of respects including: the permanent nature of the house as a structure; the likelihood that the purchase of the house would be one of the most significant investments the subsequent owner would ever make; the foreseeability of the economic loss being suffered by the person who owned the house at the time when the latent defect first became manifest; [page 202] the lack of intervening negligence or other event which would break the chain of causation; and the relationship between builder and subsequent owner being like that between builder and first owner, in that it is marked by the kind of assumption of responsibility and known reliance which is commonly present in the categories of case in which a relationship of proximity exists with respect to pure economic loss.

[4.52]

The court viewed that the established causal proximity was ‘unextinguished by either lapse of time or change of ownership’

and, therefore, recognised that liability for economic loss under these circumstances could be transferred along the line of subsequent building purchasers. The legitimate policy consideration of indeterminate liability, which traditionally has excluded claims for pure economic loss in the tort of negligence, was thought by the court to have no basis in the relationship of proximity that existed between the builder and subsequent building owner. [4.53]

In Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; 205 ALR 522; 20 BCL 176; [2004] HCA 16, the defective premises was a building comprising warehouses and offices which had been purchased in 1992 by a company, Woolcock Street Investments Pty Ltd, for commercial purposes. Woolcock purchased the building from a company who was trustee of a property trust. The first building owner, the company who contracted for the building to be designed and constructed, was, in fact, the vendor’s predecessor as trustee of the property trust. The building was substantially completed by late 1987, but it wasn’t until 1994 that structural distress to the building became apparent due to settlement of the latently defective foundations. The foundations had been designed by a consultant engineering company, CDG Pty Ltd. Woolcock commenced proceedings against CDG (the first respondent) and its employee (the second respondent) in the Supreme Court of Queensland, and the case eventually came before the High Court of Australia in the form of a case stated — that is, a request for a higher court to rule on a point of law — which asked the question as to whether, on the agreed facts, the statement of claim disclosed a cause of action in negligence against the defendant.31 The High Court dismissed Woolcock’s claim.

[4.54]

Their Honours in Woolcock were unanimous in their view that vulnerability was a key issue in determining whether the defendant owed a duty of care to the plaintiff and, consequently, this factor was considered in some detail in each

of their Honours’ judgments. In particular, the critical issue identified was whether the appellant building owner was in a position to protect itself from the risk of injury or damage which materialised. An analysis of the facts before them led the majority of the court to the emphatic view that, in this case, the appellant was not vulnerable, primarily due to the availability of protection via various commercial mechanisms which the appellant, as a corporate investor in real estate, should have been aware were at its disposal. For instance, as the court pointed out, no warranty of freedom from defect was included in the contract under which Woolcock had purchased the premises, and [page 203] Woolcock could have done more to have discovered the defect prior to purchase by carrying out investigations. [4.55]

The High Court of Australia also considered the issue of vulnerability highlighted in Woolcock as an important factor when deciding Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; 313 ALR 408; [2014] HCA 36. In this case, Brookfield Multiplex was engaged by a developer to design and construct a 22-storey apartment building in Chatswood, NSW. The first nine levels of the building were operated as serviced apartments. Upon registration of the strata plan for the serviced apartments, the Owners Corporation came into existence by statute. The Owners Corporation was responsible for management of the areas common to the serviced apartments. The serviced apartments were sold by the developer to investors. In the design and build contract with the developer, Brookfield Multiplex had agreed to rectify any defects that became apparent within 52 weeks of practical completion (the ‘defects liability period’), after which a final certificate would be issued and stand as evidence that the works had been completed in

accordance with the contract with the exception of any defects which had not become apparent by the end of the defects liability period. Furthermore, the design and build contract required Brookfield Multiplex to maintain professional indemnity insurance with a run-off period of four years after the defects liability period. In the standard form contract used for sale of the serviced apartments to the investors, the developer gave a warranty to the investors that the apartments and common areas would be finished in a proper and workmanlike manner, and agreed to repair defects in the common property due to faulty materials or workmanship upon written notice being given by the Owners Corporation within seven months after the date of registration of the strata plan. [4.56]

Defects which had been latent at the time of building completion subsequently became apparent in the common areas. As an agent for the apartment investors, the Owners Corporation sued Brookfield Multiplex in the tort of negligence for the loss and damage suffered, particularised as the cost of rectifying the defects and the diminished value to the building and the loss of rents and income during the period of and due to the rectifying of the defects. This was considered to be pure economic loss by the court. In reaching their decision, the High Court of Australia placed considerable reliance on their finding that the investors were not vulnerable with respect to economic loss arising from latent defects in the common property. The court found that the parties in both the design and build contract and the apartment sales contracts had negotiated in full their rights and obligations with respect to liability for latent defects and, as such, the imposition of a tortious duty of care ‘would be to alter the allocation of risks effected by the parties’ contract’.32 The fact that the apartment investors had only negotiated limited protection in the sales contract did not affect the court’s view. [page 204]

[4.57]

In Brookfield Multiplex, the court also drew attention to the ‘sharp distinction’ in relation to vulnerability that exists between a builder and house owner as per Bryan, and that which exists in a commercial or investment context such as in Woolcock and Brookfield Multiplex. In this respect, the court viewed the considerations of sufficient proximity in Bryan as elements of the notion of vulnerability, which justified treating it as a ‘special case’.33

Contributory negligence [4.58]

A defence may be available against a tortious action for negligence if a defendant can prove that the damages caused by their negligence were also caused by the plaintiff’s failure to take reasonable care to protect themselves against a foreseeable risk of harm. Where such contributory negligence is established then, under statute, the damages recoverable in respect of the wrong will be reduced to such extent as the court thinks just and equitable having regard to the plaintiff’s share in the responsibility for the damage.34 Such a reduction in damages may even extend to 100 per cent if the court sees fit.35

Negligence and insurance [4.59]

The insurance industry has an extremely important role to play in settling legal actions for negligence, both in contract and tort. Most professionals will purchase professional indemnity insurance to cover themselves in the event that they are sued for causing harm or injury to clients or third parties due to errors in carrying out their services. Indeed, without insurance, many professionals would not be able to fully meet the judgment debts made against them in negligence and carry on in business. For this reason, the decisions of the courts with respect to the circumstances in which a duty of care exists and the types of damages that may be recovered can have a big impact on the insurance industry. Imagine, for instance, the ramifications for the professional indemnity insurance

providers if the High Court of Australia suddenly decided to allow recovery of damages for pure economic loss in tort against construction professionals due to defects in commercial buildings caused by professional negligence. This would expose architects, engineers and builders to a huge liability in negligence, and undoubtedly result in vastly increased insurance payouts as well as huge increases in professional indemnity insurance premiums (presuming that it would still be financially viable for insurance providers to continue offering such policies). [4.60]

A good example of the interrelationship between negligence law and the insurance industry may be seen in the changes to legislation that occurred in the wake of the [page 205] insurance liability crisis in 2001 when two of Australia’s largest insurance providers collapsed and insurance premiums for public liability and medical liability insurance dramatically increased. The resultant legislative measures aimed to limit the quantum of damages to be paid out in negligence cases by, amongst other things, introducing proportionate liability to generally replace joint and several liability (see further [1.85]– [1.91] above), capping the quantum of damages payable in certain circumstances and increasing the reduction of damages to 100 per cent for contributory negligence (see further [4.58] above).

Tort of trespass to land [4.61]

Trespass to land is the direct interference with land under the possession of another person without lawful authority. A person in possession of land is typically either the owner or lessee of the land. The common law definition of land includes

not only the land itself, but also anything which is physically attached to the land — such as buildings (with footings) and trees. [4.62]

Once direct interference has been proven by a plaintiff landowner, the trespasser will need to justify the interference to defeat an action in trespass. Justifying interference to land is typically not easy unless the defendant can show that he or she had acquired a legal right (such as an easement or a licence) to enter the land, or the interference was necessary to avert disaster. Generally, mistake is not a justification for trespass. As such, a person who accidentally mows their neighbour’s grass is liable for trespass.36

[4.63]

The tort of trespass is actionable per se (by itself), which means that it is not necessary for a plaintiff to prove damage in order to win their case. This is because, although trespass to land often does no harm to the plaintiff, the mere act of a continuing or repeating trespass may detract from the possessor’s legal right to enjoy their own land. Therefore, a plaintiff may often just want to obtain a mandatory injunction, rather than damages, as a remedy from the court to stop the defendant from repeating their trespass.37

[4.64]

If a plaintiff wants to claim damages for a trespass to land, they will need to prove that either: the trespass has denied them beneficial use of their land, in which case a reasonable remuneration for loss of use will be assessed (eg, on the basis of a reasonable market rental value for the relevant period or the value of the benefit obtained by the trespasser); or the trespass caused physical damage to their land, in which case damages may be awarded for restitution costs.

[4.65]

Trespass to land most obviously occurs where a person physically enters (eg, by walking or driving) onto another’s land without permission or where a person refuses

[page 206] to leave another’s land when their permission (or licence) to be on the land is revoked or expires. Perhaps less obviously, objects placed against the wall of neighbouring premises have been held to be trespass, such as a ladder leaned against a wall.38 Further, objects which have been deliberately placed near a boundary and have moved over the boundary as a natural consequence have been held to be a trespass. In Gregory v Piper (1829) 109 ER 220, rubbish which blew onto Gregory’s land from a pile of rubbish which Piper had caused to be placed on a path very close to Gregory’s land was held to be a trespass. [4.66]

Trespass may also occur where the erection of equipment, structures or fixtures encroach on another’s land without permission. For the purposes of trespass, the common law definition of land includes subsoil and, to a limited degree, airspace.

Access to neighbouring land [4.67]

Sometimes, in order to carry out construction works it may be necessary to enter onto, or interfere with, neighbouring land. This may particularly be the case with respect to maintenance or repair works to existing buildings erected on or near site boundaries. Where access is needed to neighbouring land then, at common law, consent will need to be obtained from the neighbour in order to avoid trespass. Where the neighbour is unwilling to grant consent, this may present a significant problem to a building developer or owner as there is no common law power for a court to grant access. Where the neighbour has been unreasonable in denying a licence, however, the courts have taken a pragmatic view towards the awarding of remedies, as may be seen in Woollerton & Wilson v Richard Costain [1970] 1 All ER 483; 1 WLR 411 (see further [4.77] below).

[4.68]

Where a person enters onto their neighbour’s land without consent for the purposes of carrying out construction works, this will be considered as trespass. In such circumstances, the court will almost certainly order an injunction. As stated by Young CJ in Di Napoli v New Beach Apartments Pty Ltd [2004] NSWSC 52: In connection with cases of trespass to land, the authorities do seem to have taken a consistent line. That is that where a person seeks to develop their land by utilising neighbouring land for their convenience without consent … then the court will, almost as a matter of course, grant an injunction to restrain it. This is because people are entitled to the exclusive use of their land and it is no answer to say that that person is not suffering financial loss by the defendant’s use and that it is extremely important to the defendant to be able to make use of the plaintiff’s land for its purposes.

[4.69]

In addition to an injunction, the court is likely to award damages to compensate the neighbour for any benefit or profit gained due to the use of their land by the trespasser. The court’s assessment of damages in these circumstances will attempt to reflect the amount which would have been hypothetically negotiated and agreed [page 207] by the parties in any agreement for use of, or access to, the neighbouring land. As such, the amount of damages will be based upon the value of the profit39 obtained by the trespasser in using the neighbouring land.40 In Sinclair v Gavaghan [2007] EWHC 2256 (Ch), Gavaghan used Sinclair’s land to temporarily gain access to their construction site even though there was an alternative access route they could have used which did not require entry onto Sinclair’s land. Sinclair sought an injunction and claimed damages of £125,000, claiming this was the amount that Gavaghan would have paid to obtain the value to them of the temporary use of the land. Whilst the court ordered the injunction, they only awarded Sinclair nominal damages of £5000, as the existence of an alternative route meant that Gavaghan had obtained no real commercial benefit

from the use of Sinclair’s land beyond a more convenient way of servicing their development in the precontract period. In other words, the existence of an alternative route significantly depreciated the value of the trespass. [4.70]

In New South Wales and Queensland, however, there now exists legislation that allows the court to grant a neighbouring land access order (NSW), or statutory right of user in the form of an easement or licence (Queensland), upon application by a person who wants to carry out work on their land.41 The court will not grant such an order unless the applicant has first made a reasonable effort to reach agreement with their neighbour as to the access and carrying out of the work.42 The New South Wales legislation provides that before determining an application for an access order the court will consider whether: (a) the work cannot be carried out or would be substantially more difficult or expensive to carry out without access to the land the subject of the application; and (b) the access would cause unreasonable hardship to a person affected by the order.43 The Queensland legislation provides that a statutory right to access be allowed where it is reasonably necessary in the interests of effective use in any reasonable manner of any land.

[4.71]

In New South Wales, compensation is limited to payment for loss, damage or injury, including damage to personal property, financial loss and personal injury arising from the access.44 Under the Queensland legislation, the neighbouring landowner is entitled to payment in the order of such amount by way of compensation or consideration as in the circumstances appears to the court to be just.45 In Lang Parade Pty Ltd v Peluso [2005] QSC 112 (as discussed further in [4.80] below), the Queensland Supreme Court found that the proper approach under the legislation

[page 208] is to compensate the neighbouring landowner for any loss or disadvantage it may suffer by the trespass.46 Under both the New South Wales and Queensland legislation, the court may include conditions on the right to access.47 Such conditions may include, for example, specifying precautions and safeguards that must be taken by the applicant and requiring insurance cover to be taken out by the applicant for specified risks. As such, the legislation allows a balance to be struck between the loss of a neighbouring landowner’s exclusive occupation rights and ensuring the neighbour receives adequate protection against the risks of allowing access to its land.

Trespass into subsoil [4.72]

Entry into the subsoil beneath another’s land to any considerable depth48 without permission is trespass. In Bulli Coal Mining Co v Osborne [1899] AC 351, the mining of coal from beneath another’s land was held to be trespass. In Di Napoli v New Beach Apartments Pty Ltd [2004] NSWSC 52, rock anchors which were placed into the defendant’s land at an angle during construction and protruded across the boundary beneath the ground into neighbouring land were held to be a trespass.

Trespass into airspace [4.73]

Direct interference above land may be a trespass if it invades airspace which is necessary for the owner’s ‘ordinary use and enjoyment of his land and the structures upon it …’.49 In Bernstein of Leigh v Skyviews & General Ltd [1978] 1 QB 479, the court held that an aeroplane that flew a few hundred feet above the plaintiff’s land for the purposes of taking aerial photographs was not a trespass, whereas, in Kelsen v Imperial Tobacco [1957] 2 QB 334, an advertising sign overhanging the

plaintiff’s building by 20 centimetres was held to be a trespass. [4.74]

In LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (1989) 24 NSWLR 490, the court held that scaffolding erected on the defendant’s land for the construction of a commercial development, which ran about 16 metres along the boundary and projected about 1.5 metres into the airspace above the plaintiff’s property, was a trespass. In considering the defendant’s argument that no trespass had occurred because the scaffolding had not actually interfered with the plaintiff’s use of its land, Hodgson J elaborated upon Bernstein v Skyviews as follows:50 I think the relevant test is not whether the incursion actually interferes with the occupier’s actual use of land at the time, but rather whether it is of a nature and at a height which may interfere with any ordinary uses of the land which the occupier may see fit to undertake.

[page 209] [4.75]

Following LJP Investments, the court in Bendal Pty Ltd v Mirvac Pty Ltd (1991) 23 NSWLR 464, held that protective mesh screens protruding into the plaintiff’s airspace from a high-rise building site constituted a continuing trespass. In distinguishing the circumstances in Bendal from those in Bernstein v Skyviews, the court stated: The activities complained of in the present cases are supported by the ground surface. They have a clear relation to ownership of the right to control the ground surface and they do not involve the kind of problems presented by overflying aircraft for trespass law.51

[4.76]

As an example of how the mesh screens could potentially interfere with the plaintiff’s ordinary use of their land, the court pointed out that the plaintiff would be prevented from carrying out similar high-rise building activity if they chose to do so.

[4.77]

In Woollerton & Wilson Ltd v Richard Costain Ltd [1970] 1 All ER 483; 1 WLR 411, a building contractor operated a tower

crane which regularly encroached into the plaintiff’s airspace at a height of 15 metres above roof level. It was established that the contractor had initially offered the plaintiff a substantial payment for use of their airspace, but this offer had been refused. Without use of the tower crane in its existing position, the construction works would be considerably delayed. The court held that there was a trespass and awarded an injunction. Critically, however, the court postponed the effect of the injunction until the construction works were complete. The court’s approach in this case appears to have been somewhat pragmatic, acknowledging that a trespass had taken place but, at the same time, taking into consideration the unreasonable denial of consent by the plaintiff. [4.78]

Graham v KD Morris & Sons Ltd [1974] Qd R 1 also involved the encroachment of a crane into neighbouring airspace. The crane jib regularly encroached into the plaintiff’s airspace at a height of around 19 metres above her house. The building contractor only sought permission for the encroachment after the plaintiff had initiated court action. The court granted an injunction to prevent the building contractor from continuing to use the crane, finding that ‘[t]he time to seek permission and for negotiation was prior to the commencement of the work’.52

[4.79]

In Bendal v Mirvac Pty Ltd (1991) 23 NSWLR 464, the court refused the grant of an injunction for encroachment of a crane jib due to ‘weathervaning’ (ie, the free movement of the unloaded crane with the wind), on the bases that weathervaning posed a small discernible risk to the plaintiff’s land and served a good practical purpose by minimising the stresses exerted on the crane by the wind.53

[4.80]

In Lang Parade Pty Ltd v Peluso [2005] QSC 112, two tower cranes were erected on Lang’s land in order to develop two apartment blocks. The jibs and counterdecks of the cranes regularly encroached into the airspace above Peluso’s neighbouring land. Lang had attempted to negotiate an agreement with Peluso to obtain their consent to the

encroachment. Lang had initially offered $5000 and gradually [page 210] increased this offer to $35,000. Peluso rejected all Lang’s offers believing them to be well short of the commercial benefit which Lang obtained from the encroachment in terms of savings, which Peluso suggested was in the order of $160,000. Not being able to reach agreement, Lang sought relief under s 180 of the Property Law Act 1974 (Qld) (as previously discussed in [4.70]–[4.71] above) by the imposition of a statutory right of user by way of a licence permitting it to use Peluso’s airspace to complete the construction of the apartment blocks. Finding that Peluso had been unreasonable in refusing to grant permission during negotiations, the court found that the conditions necessary under s 180(3) of the Property Law Act for the imposition of a statutory right over Peluso’s land had been met. As to the appropriate amount of ‘compensation or consideration’ to be paid to Peluso under s 180(4)(a) of the Act, the court viewed that correct approach was one ‘that will compensate the owner of the air space for any loss or disadvantage it may suffer by the trespass’,54 and not one ‘designed to compensate the neighbouring owner for the loss of the opportunity to extract money which would have been available had s 180 not been enacted’.55 The court considered that ‘the adequate recompense meant for the adjoining owner should not be used as a means of a developer being held to ransom’.56 Accordingly, the court set the appropriate compensation at a figure of $20,000.

Encroachment of buildings onto another’s land [4.81]

An encroachment by a building onto another’s land occurs when any part of a building extends across a boundary and intrudes onto another person’s land. This includes encroachment by overhang of any part (eg, a balcony) as well

as encroachment by intrusion of any part in or upon the soil (eg, footings).57 Building encroachment is a trespass of a more permanent nature than other encroachments considered so far. [4.82]

Building encroachments may be caused by errors in setting out the building, failures to check boundary locations, or even a common mistake between the neighbouring landowners as to the location of the boundary. The risk of a building encroachment is especially high where buildings are constructed on or very near to boundaries. The owner of an encroaching building may be entirely blameless for the encroachment if they purchased the building from a previous building owner.

[4.83]

Building encroachment is a trespass, for which the common law rule is that a plaintiff will be entitled, at first sight, to an injunction, which would ordinarily mean that the encroaching building needs to be either altered or demolished. The alteration or removal of an encroaching building by demolition represents quite a drastic step and will undoubtedly result in a significant loss of investment to the building developer. As the Victorian Law Reform Commission states: [page 211] Building encroachments are of particular concern because a highly valuable building might encroach by a very small amount into a neighbouring property. In some cases the loss or detriment which would result from removal or alteration of the building would far exceed the value of any loss or detriment to the owner of the adjacent land from the continuation of the encroachment.58

As such, at their discretion, the courts may choose to relax the injunction rule and instead, where the circumstances merit such an approach, award damages as a substitute for an injunction. The courts have followed the ‘good working rule’ in order to determine whether damages should be awarded in lieu of an injunction, which states that damages may be awarded:

(1) if the injury to the plaintiff’s legal rights is small; and (2) is one which is capable of being estimated in money; and (3) is one which can be adequately compensated by a small money payment; and (4) the case is one in which it would be oppressive to the defendant to grant an injunction.59 [4.84]

The ‘good working rule’ seeks to establish whether the harm to the defendant caused by the demolition of the encroaching building would be out of all proportion to the detriment caused to the plaintiff by having to live with the permanent encroachment. If the detriment to the plaintiff is considerable, then the courts will most likely order an injunction for the removal of the building. In Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd [2007] VSCA 311, metal cladding on a 12-storey building in East Melbourne extended between 3 and 6 centimetres into the airspace above the adjoining property. After considering the ‘good working rule’, the court refused to award damages in lieu of an injunction because the protrusion, when multiplied by the total length and height of the cladding, amounted to a permanent encroachment of very considerable proportions which impeded future development of a valuable site in a prime commercial location. The court, therefore, ordered a mandatory injunction for the removal of the cladding, which was non-structural and would not require demolition of the building.

[4.85]

Legislative provisions to deal with building encroachment exist in five Australian jurisdictions: New South Wales,60 South Australia,61 Western Australia,62 Queensland63 and the Northern Territory.64

[4.86]

The New South Wales, South Australian, Queensland and Northern Territory Acts allow either the adjacent owner or the encroaching owner to apply to the court for

[page 212] relief wherever an encroachment exists. These Acts also give the courts wide-ranging discretionary powers to make such orders as it deems just with respect to: (a) the payment of compensation to the adjacent owner; (b) the conveyance transfer or lease of the subject land to the encroaching owner, or the grant to them of any estate or interest therein, or any easement, right, or privilege in relation thereto; (c) the removal of the encroachment.65 [4.87]

When deciding the appropriate relief to grant under the circumstances, the court may consider: (a) whether it was the adjacent owner or the encroaching owner who made the application to the court; (b) the situation and value of the subject land, and the nature and extent of the encroachment; (c) the character of the encroaching building, and the purposes for which it may be used; (d) the loss and damage which has been or will be incurred by the adjacent owner; (e) the loss and damage which would be incurred by the encroaching owner if he or she were required to remove the encroachment; and (f) the circumstances in which the encroachment was made.66

[4.88]

The Western Australian legislation is more limited in its scope, only providing the court with the power to provide discretionary relief where the encroachment was not intentional and did not arise from gross negligence or where the building was not erected by the encroaching owner. Furthermore, the options for relief are limited to:

(a) vesting in the encroaching owner or any other person any estate or interest in any part of the adjoining land; or (b) creating in favour of the encroaching owner or any other person any easement over any part of the adjoining land; or (c) giving the encroaching owner or any other person the right to retain possession of any part of the adjoining land.67

Nuisance [4.89]

The legal concept of nuisance is associated with the violation of a person’s right to reasonable use and enjoyment of land. As such, nuisance is usually caused by the activities of a person which cause discomfort or inconvenience to others. [page 213]

[4.90]

At law, nuisance is categorised into two types: public nuisance and private nuisance. Although the difference between the two has not been definitively determined, it is possible to make the general distinctions shown in Table 4.1. Table 4.1: Key differences between public and private nuisance Public Nuisance

Private Nuisance

Causes harm or infringement to the common rights of the public, an annoyance to the public at large.

Unlawful interference with a person’s use or enjoyment of their land.

The public is defined as a large number of people or a class of people (eg, road users) in society.

Plaintiff must have an interest in the affected land to bring an action.

Generally a crime punishable by the state.

The source of the interference is created by a person (the defendant) on their land.

An action may lie in tort only if the plaintiff has suffered harm over and above that suffered by the other people affected.

Actionable in law of tort.

[4.91]

Actions in tort generally lie for private nuisance. Public nuisance, however, is only actionable in tort if it causes special damages over and above the harm suffered by other affected members of the public. Mandatory injunctions and/or damages are available as remedies for nuisance torts. It is possible for a person’s activity to cause both public and private nuisance.

[4.92]

In Halsey v Esso Petroleum Co Ltd [1961] 2 All ER 145, the plaintiff lived in the vicinity of the defendant’s oil storage depot which operated throughout the night. As a result, the plaintiff’s sleep was disturbed by the noise and wretched smell emanating from delivery trucks on the roads and noisy boilers at the depot. In addition, acid smuts from the depot ruined the plaintiff’s clothing on their washing line and caused damage to the paintwork of the plaintiff’s car which was parked on the public road. The court held the defendant liable: in public nuisance for the noise and smells emanating from the delivery trucks on the public road, as well as the damage to the car parked on the public road; and in private nuisance for the noise and smells emanating from the boilers at the defendant’s depot, as well as the ruined clothing on the defendant’s washing line.

Tort of private nuisance [4.93]

Private nuisance consists of some unlawful interference with a person’s use or enjoyment of their land. To bring an action in the tort of private nuisance, it is necessary for a plaintiff to: have an interest in the land affected;68 and prove that the defendant’s interference has caused damage to,

or has had a substantial impact on the use and enjoyment of, their land. [page 214] [4.94]

Private nuisance has been defined by the courts as the unreasonable use by a man of his land to the detriment of his neighbour.69 Therefore, for an interference or disturbance to amount to nuisance it must be something more than an everyday inconvenience. Guidance as to what amounts to unreasonable interference may be found in the words of the court in Walter v Selfe (1851) 4 De G & Sm 315, that the level of inconvenience caused must materially interfere: … with the ordinary comfort physically of human existence, not merely according to elegant or dainty modes and habits of living, but according to plain and simple notions among the English people.70

[4.95]

As well as discomfort due to noise, smells or vibrations, private nuisance may be caused by encroachment of tangible objects onto another’s land. In this respect, nuisance differs to trespass in that nuisance concerns consequential harm from a defendant’s act, whereas trespass concerns direct interference from a defendant’s act. As such, to deliberately throw a brick onto neighbouring land constitutes a trespass, but a brick that falls onto neighbouring land from a dilapidated and crumbling wall is likely to be a nuisance. A further difference between the torts of trespass and nuisance is that trespass is actionable per se (ie, without proof of damage) whereas nuisance requires damage to be established.

[4.96]

Private nuisance has been held to be actionable in tort for, amongst other things, encroachment of tree branches or roots,71 flooding due to the overflow of a blocked drain,72 and the collapse of a building73 onto neighbouring land.

Nuisance and construction sites

[4.97]

Building sites, quite clearly, have great potential to cause nuisance to the surrounding public at large as well as private nuisance to nearby local residents. The many potential sources of nuisance from construction sites include noise, dust, water pollution, vibrations and obstruction of the highway. Whilst nuisances emanating from construction sites have potential to cause private nuisance if they cause damage to persons on their own land, it is more common for construction site nuisances to cause public nuisance.

[4.98]

The majority of nuisances generated by construction sites are regulated under state-based environmental protection legislation74 as well as local council by-laws. Several of [page 215] the environmental protection Acts75 set out a general environmental duty of care that requires anyone doing something that pollutes or might pollute the environment to take all reasonable measures to prevent or minimise environmental harm or nuisance.76 All the legislation makes environmental nuisance either a criminal offence and/or a civil penalty punishable by a hefty fine, and some environment protection regulators even name and shame offenders who have been prosecuted on their websites.77

[4.99]

The environment protection regulators in each state and territory provide specific guidelines to help manage construction noise.78 These guidelines advise on such matters as hours of construction site operation, permitted noise levels, noise management, and community notification expectations. Although these guidelines are not mandatory per se, they often become the standards to which the environment protection regulators refer to assess unreasonable levels of noise and which councils apply through conditions on building permits. Local councils often manage construction site issues, including

commercial construction site noise, through building permits. For example, as a condition to the granting of a building permit, a council may require builders and developers to submit a construction management plan that addresses a range of issues to be managed on site,79 including: public safety, amenity and site security; operating hours; noise and vibration controls; air and dust management; stormwater and sediment control; and waste and materials re-use and traffic management.

Vicarious liability [4.100]

Generally, employers will be held vicariously liable for torts committed by their employees during the course of their employment. That is, if a worker causes injury by negligence to a third party whilst carrying out their duties under an employment contract with their employer, then the employer may be held liable in tort.

[4.101]

The policy reasons justifying the imposition of vicarious liability onto an employer include that an employer benefits from the work of its employees and, therefore, should bear the risks of that employment, and an employer is more likely to have sufficient assets and insurance to cover a tortious liability claim than an employee. [page 216]

[4.102]

Critically, vicarious liability only arises where there is an employer/employee relationship between the worker and their employer at law. If the court deems this relationship to be

principal/independent contractor instead of employer/employee, then vicarious liability will not arise. Where a principal/independent contractor relationship exists, the worker is said to be engaged under a contract for services, whereas under an employer/employee relationship, the worker is said to be engaged under a contract of service. [4.103]

Where a plaintiff sues a person for the negligence of one of its workers, therefore, it will need to establish that the worker is hired under a contract of service; in other words, that an employer/employee relationship exists.

Establishing an employer/employee relationship [4.104]

Over the years, there have been many tests devised by the courts to assess whether the relationship between a worker and their paymaster amounts to an employer/employee relationship. These tests have tended to focus on the question of how much control the worker has and to what extent the worker is required to follow directions when carrying out their work. The current common law approach is to consider the totality of the relationship using the ‘multiple indicia’ test as a guide for examination of the relationship.80 In other words, the nature of the relationship is weighed up against several criteria rather than any one of those criteria being determinative by itself. The multiple indicia used by the courts81 within this test are shown in Table 4.2. Table 4.2: Key factors to be taken into account when determining whether a worker is a contractor or an employee82 Contractor

Employee

The worker chooses how, where and when to perform tasks.

The employer exercises, or has the right to exercise, control over the manner in which work is performed, place of work and/or hours of work.

The worker works on a number of different projects for different principals or genuinely has the right to do so.

The worker works exclusively for the employer.

The work can be delegated, outsourced or sub-contracted to one or more third parties.

The work cannot be delegated, outsourced or subcontracted to third parties.

The worker provides and maintains their own equipment.

Tools and equipment are provided by the employer.

[page 217]

[4.105]

Contractor

Employee

The worker has separate places of work and/or advertises their services at large.

The worker is presented to the world at large as an emanation of the business (eg, works at or from the employer’s business location, is required to wear a uniform).

The worker is responsible for business expenses such as income tax and insurance.

The employer deducts income tax and makes superannuation contributions on the worker’s behalf.

The worker is paid by reference to completion of tasks.

The worker is paid a periodic wage or salary.

The worker carries a risk of loss or has the opportunity to profit from undertaking the work.

The worker does not stand to make a profit/loss.

In Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161; 227 ALR 46; [2006] HCA 19, Mrs Sweeney was injured when a door fell off a refrigerator when she went to buy a carton of milk at a service station convenience store. A few hours before the accident a mechanic had been sent out by Boylan, who leased the refrigerator to the convenience store, to repair the faulty door. The mechanic negligently failed to repair the door properly. Mrs Sweeney sued Boylan for her injuries, claiming that Boylan was vicariously liable for the negligent repair works carried out by the mechanic. Applying the multiple indicia test, the court found the mechanic to be an independent contractor based on a number of criteria, including the fact that he:

did not receive wages from Boylan, but rather rendered weekly invoices; had his own proper workers’ compensation and public liability insurance; supplied his own tools and equipment; used a van which was not supplied by Boylan; did not receive wages or superannuation contributions from Boylan; and did not wear a shirt bearing Boylan’s insignia, which the respondent required its employees to wear. As such, the court did not hold Boylan vicariously liable for the mechanic’s negligence.

Claims against head building contractors for negligence of their subcontractors [4.106]

As discussed in [2.10]–[2.11] above, subcontracting is endemic in the construction industry. This means that, typically, the vast majority of workers on a construction site are either subcontractors or employees of subcontractors. Consequently, whilst a head contractor is generally liable to the building developer under contract for any negligent works carried out by its subcontractors,83 such vicarious liability will [page 218] not generally extend to the law of tort as subcontractors will usually be classified as independent contractors.

[4.107]

Although not generally vicariously liable for their subcontractors’ acts or omissions, a head contractor may be held liable in tort for breaching their duties of care with respect to selecting competent independent contractors, coordinating the activities of independent contractors on site84 and

inspecting the work of their subcontractors in order to make sure it has been competently executed. [4.108]

In WB Jones Staircase & Handrail Pty Ltd v Richardson [2014] NSWCA 127, Mr Richardson injured his back in an accident at his house in 2006 when a balustrade on the first floor gave way under his foot causing him to fall. Mirvac, the home builder, had completed the home in 1999. Mirvac designed the balustrade and subcontracted its manufacture and installation to WB Jones. WB Jones, in turn, engaged their own subcontractor, JMKG Pty Ltd, to install the balustrade. Mirvac had engaged WB Jones to manufacture and install balustrades on many occasions over many years, as had WB Jones engaged JMKG, with no problems. Mirvac therefore had a reasonable basis for regarding WB Jones as a competent subcontractor and, likewise, WB Jones had a reasonable basis for regarding JMKG as a reasonable subcontractor. JMKG failed to fix the timber base plate of the balustrade to the floor beam in accordance with the relevant Australian Standard, AS 1720.1 — Timber Structures Code. As there was a gap between the base plate and floor beam, JMKG should have fixed the nails using a hammer but, instead, used a nail gun which did not sufficiently drive the nails into the beam. Further, the nails used were not of sufficient strength or gauge. Mirvac did not inspect the installation work sufficiently to detect the defective nailing in the joint. WB Jones did not inspect JMKG’s work at all, having assumed that Mirvac would do so. Mr Richardson brought an action in contract and in tort against Mirvac, WB Jones and JMKG to recover damages related to his injuries. His action in contract was unsuccessful due to the expiry of the statutory limitation period. Mirvac contended that its duty to take reasonable care did not extend to inspecting the work of WB Jones, who was an experienced subcontractor, and that it had met its duty of care by taking reasonable steps to engage a competent subcontractor with a proven track record. Further, Mirvac contended that as a general builder, whilst they had an overall knowledge of building requirements, they did not have

the specific specialised knowledge concerning the installation of balustrades to make it reasonable for them to carry out an inspection to detect defects. WB Jones submitted that it did not have an obligation to inspect the work of JMKG. WB Jones argued that its obligation to the plaintiff was to exercise reasonable care in selecting a competent contractor to install the balustrade and that it had satisfied that obligation by retaining an expert installer like JMKG. [4.109]

The court, however, found that Mirvac did owe a duty of care to inspect the balustrade installation works and to detect the defective nailed joint. The court considered that Mirvac should not be treated in the same way as a non-technical builder, like an owner/builder, who was working entirely through contractors and who had little [page 219] expertise in the building field. After all, Mirvac was not only the builder but also the designer of the balustrade. As such, whilst the court did not expect a designer/builder such as Mirvac to be aware of every standard which was applicable to the construction of a project home, it did expect Mirvac to be aware of such an important standard as the Timber Structures Code, especially as a substantial part of the house was made of timber. Further, Mirvac accepted that contractually it was obliged to ensure that the house was built in accordance with relevant legislation, standards and codes and that this obligation extended to it making sure its subcontractors maintained those standards. The court also found that WB Jones had responsibility to supervise and inspect JMKG’s work. Having both expertise and experience in installing balustrades, the court stated that ‘it is difficult for WB Jones to argue that it was entitled to rely entirely upon the expertise of JMKG and not carry out any supervisory role itself’.85 Further, the court found that WB Jones had failed to exercise

reasonable care to appoint a competent contractor, as evidenced by JMKG’s lack of understanding of how to properly construct the joint and follow the relevant building code. As to JMKG’s liability, the court found that JMKG as installer must bear primary responsibility for the failure of the joint. Consequently, the court held all the defendant parties to be liable in tort for their negligence, and apportioned liability 25 per cent to Mirvac, 25 per cent to WB Jones and 50 per cent to JMKG. [4.110]

A head contractor will not be vicariously liable for failure by their subcontractor to provide specialised safe method of work training (as opposed to general ‘white card’ training86) to the subcontractor’s own workers on site. In Leighton Contractors Pty Ltd v Fox (2009) 240 CLR 1; 258 ALR 673; [2009] HCA 35, Mr Fox suffered severe injury when working at the construction site of the Hilton Hotel in Sydney where Leighton was the head contractor. Leighton had contracted with Downview Pty Ltd to carry out concreting works on site, Downview had engaged a subcontractor to do concrete pumping and the subcontractor had engaged Mr Fox as an independent subcontractor to clean the concrete delivery pipes. Whilst Mr Fox was doing his job, he was struck on the head by an unrestrained pipe which swung around due to negligent supervision by the concrete pumping subcontractor. Mr Fox attempted to sue Leighton for his injuries. The court, however, held Leighton not liable for negligence, finding that: Leighton could not be held vicariously liable for the negligence of the concrete pumping subcontractor, who was an independent contractor; Leighton had met its duty of care to persons coming onto the site to use reasonable care to avoid physical injury to them by making sure that all workers coming onto the site had undergone general and work activity based occupational health and safety induction training; and Leighton’s duty of care did not extend to providing training in

the safe method of carrying out every specialised activity on site, such as pipe cleaning, to every worker on the site. [page 220] [4.111]

Notably, the court in Leighton Contractors v Fox stated that if the unrestrained pipe had hit one of Leighton’s own employees on the site, then Leighton would have been liable to its own employee for the negligent conduct of an independent contractor. This is because an employer owes a personal, nondelegable duty of care to its employees requiring that reasonable care is taken for their safety at work, which is a more stringent obligation than a duty to take reasonable care to avoid foreseeable risk of injury to a person (such as an independent contractor like Mr Fox) generally on the site.87

__________________________ 1

Except for the Northern Territory, which has a three-year limitation period for tort.

2

See, for example, Limitation of Actions Act 1958 (Vic) s 5(1)(a).

3

See, for example, Limitation of Actions Act 1958 (Vic) s 5(1A).

4

Donoghue v Stevenson [1932] AC 562 at 580 per Lord Atkin.

5

Donoghue v Stevenson [1932] AC 562 at 580 per Lord Atkin.

6

See Bourhill v Young [1943] AC 92.

7

Donoghue v Stevenson [1932] AC 562 at 599 per Lord Atkin.

8

Donoghue v Stevenson [1932] AC 562 at 619 per Lord Macmillan.

9

Now called work health and safety regulations.

10

See Leighton Contractors Pty Ltd v Fox [2009] HCA 35 at [32], [54].

11

See, for example, Occupiers’ Liability Act 1985 (WA) s 5(1).

12

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at [10] per Mason, Wilson and Dawson JJ.

13

See Ultramares Corporation v Touche [1931] 174 NE 441 at 444.

14

J Cooke, Law of Tort, 5th edition, Longman, London, 2001, at 63–4.

15

See, for example, San Sebastian v Minister Administering the Environmental and Planning Act (1986) 162 CLR 340; 68 ALR 161; Caparo Industries plc v Dickman [1990] 1 All ER 568; Tepko Pty Ltd v Water Board (2001) 206 CLR 1; 178 ALR 634; [2001] HCA 19.

16

F Rochford, ‘The Role of Public Policy in Determining an Educator’s Duty of Care’ (2001), Australia &

New Zealand Journal of Law & Education, Vol 6, Nos 1 & 2, 63–78 at 67. 17

As noted by Cooke, n 11 above, at 33.

18

See Perre v Apand (1999) 198 CLR 180 at 253 [198]; 164 ALR 606 per Gummow J; Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 at 576; 11 ALR 227 per Stephen J.

19

As per the neighbour test.

20

As per Hedley Byrne.

21

See further Woolcock Street Investments v CDG in [4.53]–[4.54] below.

22

Blyth v Birmingham Waterworks Co (1856) 11 Ex 781 at 784 per Alderson B.

23

See, for example, Wrongs Act 1958 (Vic) s 43; Civil Liability Act 2003 (Qld) s 9.

24

Civil Liability Act 2002 (NSW) s 5D(1)(a).

25

Fitzgerald v Penn (1954) 91 CLR 268 at 277 per Fullagar and Kitto JJ.

26

March v Stramare (E & MH) Pty Ltd (1991) 171 CLR 506 at [20]; 99 ALR 423 per Mason CJ.

27

See, for example, Civil Liability Act 2002 (WA) s 5C(1)(b).

28

See, for example, Vacwell Engineering Co Ltd v BDH Chemicals Ltd [1971] 1 QB 88.

29

See, for example, Hughes v Lord Advocate [1963] AC 837.

30

Bryan v Maloney (1995) 182 CLR 609 at 622; 128 ALR 163; 13 BCL 104; [1995] HCA 17.

31

Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 at 517; 205 ALR 522; 20 BCL 176; [2004] HCA 16.

32

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; 313 ALR 408; [2014] HCA 36 at [144] per French CJ.

33

Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; 313 ALR 408; [2014] HCA 36 at [22]–[23] per French CJ.

34

See, for example, Wrongs Act 1958 (Vic) s 26; Wrongs Act 1954 (Tas) s 4.

35

See, for example, Civil Liability Act 2002 (NSW) s 5S.

36

Basely v Clarkson (1681) 3 Lev 37.

37

See further Woollerton & Wilson v Richard Costain [1970] 1 All ER 483; 1 WLR 411 at 413 per Stamp J.

38

Westripp v Baldock [1938] 2 All ER 779.

39

Although, damages are unlikely to extend to the full amount of profit gained by the trespasser otherwise there would have been no commercial incentive for the trespasser to use the neighbouring land.

40

See Sinclair v Gavaghan [2007] EWHC 2256 (Ch).

41

See Access to Neighbouring Land Act 2000 (NSW); Property Law Act 1974 (Qld) s 180.

42

Access to Neighbouring Land Act 2000 (NSW) s 11(2)(a); Property Law Act 1974 (Qld) s 180(3)(c)(i).

43

Access to Neighbouring Land Act 2000 (NSW) s 15.

44

Access to Neighbouring Land Act 2000 (NSW) s 26.

45

Property Law Act 1974 (Qld) s 180(4)(a).

46

Lang Parade Pty Ltd v Peluso [2005] QSC 112 at [36] per Douglas J.

47

Access to Neighbouring Land Act 2000 (NSW) s 16; Property Law Act 1974 (Qld) s 180(4)(b).

48

Di Napoli v New Beach Apartments Pty Ltd [2004] NSWSC 52 at [18].

49

Bernstein of Leigh v Skyviews & General Ltd [1978] 1 QB 479 at 488 per Griffiths J.

50

At 495–6.

51

Bendal Pty Ltd v Mirvac Pty Ltd (1991) 23 NSWLR 464 at 470 per Bryson J.

52

Graham v KD Morris & Sons Ltd [1974] Qd R 1 at 7 per Campbell J.

53

See further Bendal Pty Ltd v Mirvac Pty Ltd (1991) 23 NSWLR 464 at 467 per Bryson J.

54

Lang Parade Pty Ltd v Peluso [2005] QSC 112 at [40] per Douglas J.

55

Lang Parade Pty Ltd v Peluso [2005] QSC 112 at [36] per Douglas J.

56

Lang Parade Pty Ltd v Peluso [2005] QSC 112 at [33] per Douglas J.

57

Encroachment of Buildings Act 1922 (NSW) s 2.

58

Victorian Law Reform Commission, Review of the Property Law Act 1958 Final Report 20, Melbourne, 2010, at p 52.

59

Shelfer v City of London Electric Lighting Co (1895) 1 Ch 287 at 322–3 per AL Smith LJ; Break Fast Investments Pty Ltd v PCH Melbourne Pty Ltd [2007] VSCA 311 at [40].

60

Encroachment of Buildings Act 1922 (NSW).

61

Encroachments Act 1944 (SA).

62

Property Law Act 1969 (WA) s 122.

63

Property Law Act 1974 (Qld) Pt 11 Div 1.

64

Encroachment of Buildings Act 1982 (NT).

65

See, for example, Encroachments Act 1944 (SA) s 4(2).

66

See, for example, Encroachments of Buildings Act 1922 (NSW) s 3(3).

67

Property Law Act 1969 (WA) s 122(2).

68

Hunter v Canary Wharf Ltd [1997] AC 655.

69

Miller v Jackson [1977] QB 966 per Lord Denning.

70

Walter v Selfe (1851) 4 De G & Sm 315 at 322 per Knight-Bruce VC.

71

See Smith v Giddy [1904] 2 KB 448; Davey v Harrow Corportaion [1958] 1 QB 60.

72

See Sedleigh-Denfield v O’Callaghan [1940] AC 880.

73

See Wringe v Cohen [1940] 1 KB 229.

74

Protection of the Environment Operations Act 1997 (NSW); Environmental Protection Act 1994 (Qld); Environment Protection Act 1970 (Vic); Environment Protection Act 1986 (WA); Environment Protection Act 1993 (SA); Environmental Protection Act 1997 (ACT); Environment Assessment Act 1982 (NT); Environmental Management and Pollution Control Act 1994 (Tas).

75

Namely, the ACT, NT, Queensland, South Australian and Tasmanian Acts.

76

For example, see Environment Protection Act 1993 (SA) s 25.

77

For example, see the South Australian Environment Protect Authority website, Completed Prosecutions and Civil Penalties page at:

http://www.epa.sa.gov.au/data_and_publications/completed_prosecutions_and_civil_penalties. 78

For example, see South Australian Environment Protection Authority, Construction Noise Information sheet EPA 425/14; Victorian Environment Protection Authority, Noise Control Guidelines, Publication no. 1254.

79

See, for example, Construction Management Plan Guidelines, City of Melbourne, at http://www.melbourne.vic.gov.au/BuildingandPlanning/BuildingandConstruction/Documents/ConstructionManage

80

Office of the Australian Building and Construction Commissioner, Sham Contracting Inquiry Report 2011, Australian Government, at p 10.

81

See Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16; Hollis v Vabu Pty Ltd (2001) 207 CLR 21.

82

This table sourced from Office of the Australian Building and Construction Commissioner, Sham Contracting Inquiry Report 2011, Australian Government, at p 11.

83

Most standard forms of construction contract include express clauses that provide the head contractor shall be liable to the principal for the acts, defaults and omissions of subcontractors and employees and agents of subcontractors as if they were those of the head contractor — see, for example, AS4000-1997 General Conditions of Contract, cl 9.5.

84

Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 at 31; 63 ALR 513.

85

WB Jones Staircase & Handrail Pty Ltd v Richardson [2014] NSWCA 127 at [57].

86

See [2.185] above for an explanation of ‘white card’ training.

87

Leighton Contractors Pty Ltd v Fox [2009] HCA 35 at [21].

[page 221]

CHAPTER 5

Establishing a Contract

Key Ideas This chapter discusses: tenders: documentation and process precedence of documents: contract documents and their interpretation terms and workings, standard form contracts latent conditions: rights and obligations provisional sums, contingencies and prime cost items subcontracts and subcontractors

[page 222]

Tenders Introduction [5.1]

The majority of major construction and infrastructure projects commence with the tender process. The process may commence after the design and documentation stages of a project or may occur at some preliminary stage to determine interest in bidding for subsequent projects. The process may apply not only for construction work but also for the supply of materials and equipment or construction-related services such as the engagement of consultants.

[5.2]

The object of a tender is to establish procedures that will generate competitive situations in order to: allow owners and principals to obtain the best price and quality mix; allow them to obtain the best value of work or product; and ensure probity, fairness and transparency in the selection process. Probity rules and regulations also generally require that government contract work must be open to tender; however, many large private contracts will also be entered into through a process of competitive tendering.1

[5.3]

The most common form of tender is known as a ‘request for tender’, and it is used where the extent and scope of the work under the contract are defined in the accompanying contractual documentation. However, where there is some uncertainty regarding the project or lack of specific details in the design or documentation, a principal may employ what is

known as a ‘request for proposal’. Where a principal wishes to assess the suitability of prospective contractors or suppliers by way of what might be described as pre-qualification, the principal may request parties to submit an ‘expression of interest’. Whether any of these are contractually binding on the principal will depend upon the wording of the request.

Key components to tendering [5.4]

The key components to tendering may vary depending on the nature of the project but will generally include: the call for tender submissions; the response to invitations to tender; tender meetings and discussions; amendments to documentation; and submissions and closing of tenders. [page 223]

Terminology [5.5]

Before considering the legal issues related to tendering, it will be helpful to consider some common terminology, in addition to those terms mentioned above.

Principal and tenderer [5.6]

For consistency in this section, the party inviting and receiving tenders is described as the principal. Other terms in use are client or owner. The party submitting a tender to the principal is described as the tenderer.

The process [5.7]

The term ‘tender’ can mean either the process or the

documents, depending on the context in which it is used. When a principal requires a certain product or service to be supplied or work to be carried out, it may send out or advertise an ‘invitation’ to parties to provide competitive quotations. Here, ‘tender’ refers to the process, that is, a process where an invitation is issued by a principal seeking prospective contractors or suppliers to make an offer to do the work or supply the goods in accordance with the terms of the invitation. The term ‘invitation’ is significant. We will see shortly that this definition reflects the legal basis of a tender which is ‘an invitation to treat’.

Tender documentation [5.8]

The particular tender will contain a number of documents which describe the contractual rights and obligations of the parties and details of all work and/or materials to be carried out or supplied in connection with the contract. The tender documents provide full details of all works to be covered by the tender and, importantly, all known information for the tenderer to reasonably assess the project risks. Tender documents usually comprise the following: the notice to tenderers; conditions of tendering; form of tender; general conditions of contract; specifications; drawings; bill of quantities, if required by the general conditions of contract.

The legal definition of a tender [5.9]

When used legally, the word ‘tender’ has the Shorter Oxford Dictionary definition:

An offer made in writing by one party to another to execute at an inclusive price or uniform rate an order for the supply or purchase of goods or for the execution of work the details of which have been submitted by the second party.2

[page 224]

The legal issues with respect to awarding of a tender [5.10]

The starting point is that in common law an invitation to tender is not an offer or firm commitment but is, as mentioned above, an invitation to treat, which is simply an invitation to other persons to make an offer. Consequently, an announcement inviting tenders is a request for offers.3

[5.11]

As with any other offer, but depending upon the express terms of the tender invitation, there are a number of options available to the tenderer. They may: accept the offer; reject the offer; do nothing; request further information; or make a counteroffer.

[5.12]

On some occasions a contract will not arise. The party calling the tenders may simply decide not to go ahead. This is one of the benefits of the tender process. It may allow the principal to assess the financial viability of the project.

[5.13]

In Streamline Travel Service Pty Ltd v Sydney City Council,4 the court held that the terms and conditions of tender do no more than specify the conditions which a tenderer must fulfil in order to have their tender considered by the council, and that one of the purposes of such a tender document is to test the market and to obtain offers. It is designed entirely for the benefit of the council and is not intended to commit the council to any obligation.

[5.14]

Similarly, a counteroffer does not create any binding obligations. Even though it is concerned with the same subject matter, it is not an acceptance, because the terms of the original offer are not accepted. The counteroffer is in effect a rejection of the original offer and negates the original offer.5

[5.15]

The response to the tender offer will, however, be dependent upon the express provisions of the tender. For example, a term which states (in the absence of any other express conditions) that the highest (or lowest) tender will be accepted creates a binding obligation.6

[5.16]

While a party calling for tenders may do no more than issue an invitation to treat, it may result — depending on the terms and the wording of the invitation to tender — in the creation of contractual commitments in relation to the whole or part of the tender in process. [page 225]

[5.17]

In Hughes Aircraft Systems International v Airservices Australia,7 the tender documentation expressly stated that the tender would be evaluated fairly in accordance with certain detailed procedures and criteria. The Civil Aviation Authority (CAA), the predecessor of Airservices Australia, did not comply with these procedures. Airservices argued that the tender was simply an invitation to treat and the response by Airservices could follow the usual common law responses to offers.

[5.18]

The court found in favour of Hughes. It acknowledged that a request for tenders may generally be no more than a simple invitation to treat, but in this case the CAA express provisions relating to the evaluation criteria imposed binding obligations on the CAA. They had not evaluated the tenders in accordance with those obligations, and Hughes was entitled to judgment.

While there was no obligation to award the tender to Hughes, they were compensated for the costs associated with the preparation of the tender. [5.19]

In the public sector, where competitive tenders are sought and the principal agrees to consider all tenders fairly or in accordance with specific tender procedures, a collateral process agreement or pre-award agreement may arise. Whether such agreements arise or not depends upon the wording of the invitation.8

[5.20]

In other words, there is a preliminary contract (Contract A) between the organisation seeking bids and those who submit a complying tender. The actual acceptance of a particular tender creates a second contract (Contract B). Thus the tender advertisement is both an invitation to treat asking for offers for Contract B — its traditional role — and an offer capable of being accepted, thus creating Contract A by each person who puts in a complying tender. The terms of this preliminary Contract A are those stated in the tender advertisement or request for tender and they govern the actual conduct of the tender process. The body seeking tenders may then be in breach of Contract A if it does not comply with the terms.

[5.21]

The implications of these decisions are serious because they remove a degree of flexibility in the tendering process. Flexibility must be maintained if the whole purpose of seeking tenders to obtain the most competitive offer is not to be undermined. At the same time, it is important for the probity of the tendering process that the body seeking tenders, particularly a government body, should adhere to its own stipulated terms and procedures.

Codes of tendering [5.22]

All state and Commonwealth authorities will have prescribed procedures or guidelines with respect to tendering.9 These guidelines have been developed to foster ethical

[page 226] principles that emphasise best practice tendering procedures. The benefits in adopting these procedures include a clear understanding by all parties of their rights and obligations, an increase in the likelihood of procuring a project to satisfy the essential requirements of time, cost and quality parameters, a reduction in the possibility of disputes and enhancement of confidence in the process through transparency. [5.23]

For example, Australian Standard AS4120-1999 sets out in detail the ethics and the obligations of principals and contractors in tendering in the construction industry. It requires tendering at all levels in the industry to be conducted honestly and in a manner which is fair to all parties involved (clause 4A). The code provides that principals may only call for tenders after they have made a firm commitment to proceed with a project but that a principal may reject a tender if acting honestly and with probity in doing so (clauses 4E and 6.5).

[5.24]

With respect to obligations of the contractor, the code provides that they may bid only when they intend to carry out the work if successful and that they may only submit tenders if they genuinely believe that they have the competency and capacity to undertake the work being offered (clauses 4D and 7.1). The code also specifies that only the tender most advantageous to the principal should be considered for acceptance and at the same time notes that any tender which does not comply with the tender documentation is liable to be rejected (clause 6.5).

Other legal issues with respect to tenders [5.25]

Whilst the following is not exhaustive, there are a number of other legal issues which arise with respect to the acceptance and operation of tenders.

Conforming tenders

[5.26]

A conforming tender is one which conforms to the requirements of the tender documents.10 A nonconforming tender is one which is not an offer to perform the works precisely as specified but is instead an offer to execute the works which departs in some way from the contract documents. The departure or departures may be very extensive. The tenderer may suggest, for example, an alternative method of construction which is radically different from that proposed.

[5.27]

Whether a nonconforming tender is acceptable will depend upon the terms of the document calling for the tenders.

Cost of tendering [5.28]

The starting principle is that the cost of tendering must be borne by the unsuccessful tenderer. Put simply, the builder undertakes the work as a gamble, and the cost of [page 227] preparing a tender is part of the overhead expense of the builder’s business, which the builder hopes will be met out of the profits of the contract it gains from successful tenders. However, the general rule that the unsuccessful tenderer cannot recover wasted costs is not inflexible.

[5.29]

In Sabemo Pty Ltd v North Sydney Municipal Council,11 the council invited tenders for developing a civic centre to be financed by the developer and leased by the council. Sabemo was chosen as the successful tenderer, but it was agreed between the parties that the acceptance of the tender did no more than bring the parties together so they could plan the project until they reached the point where they could enter into a contractual relationship.

[5.30]

Subsequently, Sabemo, at considerable expense, prepared

several plans for the council’s requirements. One of the plans was agreed as satisfactory to both parties, but later the council decided to reject this plan and to confer with Sabemo regarding the provision of an amended plan. Sabemo then sent the council an account for $426,000 for work done by them in connection with the initially accepted proposal. The claim was rejected by the council, and Sabemo sued. [5.31]

While there was no contract, the court noted: It is now recognised that there are cases where an obligation to pay will be imposed (a promise to pay implied) notwithstanding that the parties to a transaction actual or proposed did not intend expressly or impliedly that such an obligation should arise. The obligation is imposed by the law in the light of all the circumstances of the case.12

[5.32]

The principle was earlier considered in British Steel Corp v Cleveland Bridge and Engineering Co Ltd: … the true analysis of the situation is simply this. Both parties confidently expected a formal contract to eventuate. In these circumstances to expedite performance under that anticipated contract, one requested the other to commence the contract work and the other complied with that request … If contrary to their expectation no contract was entered into then the law simply imposes an obligation on the party who made the request to pay a reasonable sum for such work as has been done pursuant to that request, such an obligation arising in restitution.13

[5.33]

The principle falls within the doctrine of unjust enrichment. That is, the law will recognise in a variety of situations an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff.14 The usual remedy is to pay the party the wasted expenditure incurred in preparing the tender. [page 228]

Letters of intent [5.34]

The principal may wish to obtain the services of the tenderer without entering into a formal binding contract. This is done

through what is known as a letter of intent or sometimes a letter of comfort, which simply expresses an intention to enter into a contract with a party at some future time. Normally, such a letter will not give rise to any binding obligations on the principal.15 These letters serve various purposes: They may be used as an aid to negotiations indicating the present state of negotiations. They are useful in attempting to seek a commitment of some type whilst not yet binding either party. They may be needed to show to a third party, such as a financier. [5.35]

However, problems may arise if one party considers the document to contain binding obligations and the other party does not. The understanding of letters of intent differs markedly, with some sectors of the industry regarding them as similar to contracts and other sectors regarding them as no more than unenforceable statements of intention.

[5.36]

Whether such a document can give rise to contractual relations is determined by ascertaining the objective intentions of the parties. As stated above, these types of documents will not as a general rule be treated as contractual, but this depends very much on the particular facts of the case and the conduct of the parties.

[5.37]

In LMI v Baulderstone,16 a ‘Heads of Agreement’ document was treated as a binding contract.17 The document stated that it was legally binding even though a more formal agreement was also to be prepared.

[5.38]

Another example of a letter of intent is provided in the case of Coogee Esplanade Surf Motel Pty Ltd v Commonwealth. The Commonwealth provided a letter of intent which said in part: With reference to previous correspondence approval has now been given to acquire the above property for $700,000. The Deputy Crown Solicitor has been requested to

complete the transaction as early as possible in July 1975. To achieve this it will be necessary to receive prompt replies to the necessary requisitions.18 [5.39]

It was held that there was no contract and that the letter of intent did not generate any legal liability nor was it evidence of an already concluded agreement. The fact that a future formal procedure for making a contract of this kind was the normal practice of the Commonwealth was a critical factor in reaching the conclusion that the letter could not amount to a contractual document. [page 229]

[5.40]

It may be difficult to decide whether a document drawn up by the parties is intended to be a statement of what a contract will contain, subject to future negotiations, or whether it is a formal binding agreement. Consequently, considerable care must be taken in the drafting of documents so that the intention is expressly clear.

Withdrawal of tender [5.41]

A tender, like any other offer, may be withdrawn by the tenderer at any time prior to acceptance, notwithstanding that it is expressed to remain open for a certain period of time. The general rule is that a party is free to withdraw its offer at any time before acceptance.19 Again this will be subject to the express terms of the tender documentation.

Disclaimers [5.42]

The tender documents may contain disclaimers, for example, that the principal will not necessarily accept the lowest offer, will not be bound to accept any of the tenders submitted, or will not accept responsibility regarding site information in the tender documents. However, this does justify some overall departure from proper practices or the provisions relating to

how the tender will be assessed or awarded, as we saw in Hughes Aircraft Systems International v Airservices Australia.20 [5.43]

Additionally, if the principal has provided misleading or deceptive information in the tender documents with respect to the site, the contractor may have a claim in tort as in Morrison Knudsen v Commonwealth,21 where it was held that the Commonwealth failed to take reasonable care to ensure that the tender information was accurate, as defined under the misleading or deceptive conduct provisions of the Australian Consumer Law (s 18). These claims were formerly brought under s 52 of the Trade Practices Act 1974 (Cth).22

[5.44]

In Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3),23 the failure of the Sydney Catchment Authority to provide the contractor with plans showing the location of a particular outlet pipe constituted misleading or deceptive conduct and the contractor was entitled to damages for the extra costs of the additional work required because the plans were not made available to them at the time of tendering.

Recalling tenders [5.45]

There may be occasions when the lowest tender in a competitive bid is too high, indicating that the scope of the proposed work exceeds the budget of the principal. The design and scope of works may have to be modified so as to reduce costs, and [page 230] the principal may decide to recall tenders on the basis of amended drawings and specifications. As discussed above, the process of recalling would fall within the options available to

the principal in accordance with the common law principles regarding invitation to treat. [5.46]

If the principal decides to recall tenders, the original tenderers should be advised of the reasons and, as a general principle, be invited to resubmit where appropriate.

Standing offers [5.47]

A contractor or supplier may tender for the execution of work or the supply of materials over a specific period of time detailed in the tender documentation. A common example is where a local government or statutory authority requests a tender for the supply of materials or equipment for the next year.

[5.48]

Thus, a firm contract for the execution of a certain amount of work or for the supply of a certain quantity of materials over a period may be given to a number of different parties. There is usually a contractual term that the principal is not bound to give the contractor or supplier any order at all during the period of the tender. The contractor, however, is under an obligation to perform in accordance with the order, if the principal chooses to give an order for work or materials during a stipulated time. A binding contract arises upon the placing of each order for the doing or supply of the work or goods ordered.24

[5.49]

The wording of the standing offer must be carefully expressed if it is the intention of the principal to maintain the discretion to order selectively. In Milne v Municipal Council of Sydney,25 Milne agreed with the council to perform the mechanical repairs required for the council’s electrical plant for 12 months. The court held that there was an implied promise on the part of the council to employ Milne to do those repairs to the exclusion of all others.

Collusive tendering

[5.50]

Collusive tendering may take several forms. Contractors may jointly agree that only one of them will tender, or they may agree that they will put in the same tender price. They may also agree to geographical restrictions with respect to supply or performance. Where corporations are involved, the practice was prohibited under the provisions of the Trade Practices Act. While the Trade Practices Act did not refer specifically to collusive tendering, it was prohibited in Pt IV of the Act, which deals with restrictive trade practices. The original provision in the Trade Practices Act was s 45(2). It is now found in Pt IV of the Competition and Consumer Act 2010 (Cth). This section also incorporates the relevant state-based provisions originally found in the respective Fair Trading Acts. [page 231]

[5.51]

Section 45 prohibits ‘contracts, arrangements or understandings’ (CAU) between competitors and s 45A prohibits price fixing irrespective of its effects on competition in the market. The terminology (contracts, arrangements or understandings) is extremely broad and picks up all arrangements whether contractually binding or not.26 These arrangements are usually informal agreements or understandings. Where parties do engage in these practices, the parties involved will be subject to pecuniary penalties.

[5.52]

In Australian Competition and Consumer Commission v Pioneer Concrete (Qld) Pty Ltd,27 the Federal Court found that a cartel had existed for the supply of premixed concrete in the Brisbane, Gold Coast and Toowoomba markets between mid1989 and mid-1994. The court found that Pioneer Concrete (Qld) Pty Ltd, Boral Resources (Qld) Pty Ltd and CSR Ltd had engaged in price fixing and market sharing conduct in breach of s 45 of the Trade Practices Act. Penalties exceeding $20 million were awarded against the three suppliers and personally against a number of executives. While the

companies admitted their guilt and provided information to the ACCC, if they had not cooperated even higher penalties would have been sought. [5.53]

This unlawful practice was also considered in Australian Competition and Consumer Commission v CCC (NSW) Pty Ltd (No 8).28 This case concerned an arrangement between four construction companies that tendered to Australian Construction Services (ACS) for building work. A term of this arrangement was that the successful tenderer would remit a fee of $1,000,000 to an association of construction contractors (AFCC) and $750,000 to each of the unsuccessful tenderers. The court held that this constituted controlling the price of the building work to be done by the successful tenderer and thus was in breach of s 45A (price fixing) of the Act.

Conclusion [5.54]

A successful construction project commences with a tendering process and documentation. Successful projects require a clear understanding of the rights and obligations of both parties. This will increase the likelihood of meeting the required time, cost and quality objectives and will reduce costly misunderstandings, delays and disputes.

[5.55]

While the principles relating to the concept of an invitation to treat still apply to tenders generally, it is obligatory that the principal strictly complies with the stated evaluation requirements when evaluating and awarding tenders. Industry codes of practice relating to tenders have significantly increased the probity and transparency relating to the award of tenders. [page 232]

[5.56]

Finally, the provisions of the Australian Consumer Law provide

strict liability with respect to issues of collusive tendering and price fixing. Breaches of these provisions will result in significant penalties to both the corporation and individuals involved in the practice.

Precedence of documents Introduction [5.57]

While there are numerous standard form or industry-based pro forma contracts in use in the building and construction industry,29 it is not a legal requirement that construction contracts be evidenced in writing except where specifically required by statute. For example, the Home Building Contracts Act 1991 (WA) requires all contracts for residential construction work valued between $7500 and $500,000 to be in writing.30 Nevertheless, as discussed elsewhere in this text, even in the absence of a written enforceable agreement a builder may be able to recover the costs for work done and materials supplied on the basis of quantum meruit.31

[5.58]

Many contracts, particularly with respect to subcontracting, are entirely oral. This is acknowledged in the various security of payment legislation in Australia.32 Additionally, many contracts will be classified as partly written and partly oral where it is evident that the parties have not fully agreed all the essential terms of the contract. Additionally, where the written terms are incomplete, terms may be implied.33

[5.59]

Nevertheless, all major construction contracts will have the provisions in writing, contained in a number of documents. However, it is not unusual, particularly with bespoke (custommade) contracts or where standard form contracts have been significantly amended, for issues relating to the interpretation and precedence of these documents to occur.

[page 233]

Contract documents [5.60]

Before considering the issues which arise with respect to the interpretation and precedence of documents, the individual documents which collectively make up the contract will be considered. These documents generally are: the agreement; the general conditions of contract; the drawings; the specifications; the schedule of rates; the bill of quantities; and the special conditions of contract.

Agreement [5.61]

The instrument of agreement is a document signed by the principal and contractor that sets out the essential aspects of the contract. The agreement — or, as described in AS2124-1992, the Formal Instrument of Agreement — is generally a one-page document which sets out the basic details of the contract. It will include the date on which the agreement is made, the names of the parties to the agreement and the list of documents which together form the contract between the parties. It is important that these are clearly specified in order to reduce the possibility of disputes.

General conditions of contract (GCOC) [5.62]

This document is essentially the heart of the contract. It will set out all the rights and obligations of the parties to the agreement with respect to the works under the contract. As mentioned above, there are numerous standard or industry-

based general conditions of contract which have been designed for use with a wide range of projects. It is important that the general conditions of contract should expressly indicate the precedence of documents in the event of any inconsistency and ambiguity between them.

Drawings [5.63]

A large number of drawings prepared or commissioned by the principal will be required in order to complete the works under the contract. These will include design drawings by an architect, structural engineer, mechanical and services engineer and heating, ventilation and air conditioning (HVAC) engineer, and drawings by any other specialist trades required to complete the works. The extent of the drawings will depend upon whether it will be a construct only contract or a design and build contract.

[5.64]

From time to time, the exact dimensions of a component or element of the design drawings may be in issue. Where any discrepancy exists between the figured and [page 234] scaled dimensions, the figured dimensions will take precedence. This is usually expressly stated in the general conditions of contract.34

Specifications [5.65]

Many design requirements (eg, quality of workmanship or materials) cannot be expressed by way of drawings. An accompanying written document is therefore needed to accurately convey all of the essential requirements of the design and to elaborate on the graphical details of the works under the contract.

[5.66]

In construction contracts it is not unusual for inconsistencies to exist between the specifications and the general conditions of contract. In an attempt to resolve or prevent disputes arising out of these differences, the contract should expressly provide guidance as to the precedence of documents.35

Schedule of rates [5.67]

A schedule of rates is a table prepared by the principal based on the design, which lists the items to be performed, together with their rates; that is, the cost to perform each item. These costs are then used for measuring and valuing the works done by the contractor when lodging progress payment claims.

Bill of quantities (BOQ) [5.68]

The bill of quantities (BOQ) is a table which shows each of the items on the schedule of rates together with the quantity of each item as estimated by the principal, together with the rates included by each bidder at the time of tendering. The quantities and the rates are extended in order to allow the contractor to calculate the lump sum for which they are willing to do the work. Not all contracts will contain a BOQ.36

Special conditions of contract (SCOC) [5.69]

The legal rights and obligations of the contracting parties will normally be adequately covered by the general conditions of contract. However, special conditions of contract are important in that they attempt to ensure that the more project-specific needs of the principal are adequately dealt with.

[5.70]

As the title suggests, special conditions are amendments or extensions of the general conditions and apply specifically to the project. They normally contain a term that in the event of conflict or inconsistency between the general and special conditions, the special conditions shall take precedence. Often

the special conditions of contract are extensive and may modify a significant number of provisions contained in the [page 235] general conditions. This may be problematic, as the parties may lose the benefits associated with the use of the unamended standard form general conditions. [5.71]

Where the principal’s special conditions radically differ from the standard form general conditions, the obligations and rights of the contractor may be significantly changed. Consequently, the contractor may be forced to seek legal advice and have to spend considerable amounts of time and money in the process. The principal may also be subject to higher tender prices brought about by greater uncertainty from the contractor regarding their obligations. By contrast, standard form contracts, particularly the Australian Standard forms with their long history, reduce the tendency to disputation due to recognised meaning of the terms of the standard in question through interpretation by the courts.

Amending standard form general conditions of contract [5.72]

Australian Standard forms are concise, and there is the danger that any amendment to the terms may fundamentally alter the meaning not only of the term being altered but of other terms within the contract.

[5.73]

Documents with significant amendments will not have had a long period of use allowing parties to familiarise themselves with their terms and conditions. In standard form contracts, the terms have precise and well understood meanings, and it is important that anyone who amends an Australian Standard form be fully conversant with the meaning of the various definitions to ensure that inadvertent use of a defined word out

of context does not create ambiguity in sections of the document as a whole. [5.74]

In Re Multiplex Constructions Pty Ltd,37 an amendment made by the principal to clause 36 of AS2124-1992 was held by the trial judge to have altered the meaning of the phrase ‘after the delay occurs’ in the unaltered clause 35.5 of the standard contract. Although that decision was overturned on appeal,38 it highlights the dangers of altering standard contract conditions without reviewing and evaluating the effect on other clauses.

Interpretation of contract documents [5.75]

The collection of documents which make up the contract may not avert the possibility of dispute or differences over the parties’ intentions or the interpretation of the terms. Additionally, there may be inconsistencies between similar provisions in different documents, or there may be ambiguities in the terms.

[5.76]

In general, we must consider the individual documents as a whole so as to produce a congruent interpretation and to avoid the unfeasible situation which could result [page 236] if clauses given their normal operation would be in conflict. On occasions, however, the inconsistency between documents in the contract may be so fundamental as to make it obvious that there is no consensus between the parties as to the meaning of the clause or clauses.

Rules of interpretation [5.77]

To assist us with the interpretation of discrepancies or inconsistencies in contract documents, a number of ‘rules’, or

rather guidelines, have been developed.39 A number of these are summarised as follows.

Consistency and ambiguity [5.78]

In Re Phoenix Bessemer Steel Co, a well-established rule of construction as stated by Jessel MR was ‘that if contemporaneous documents can be read in two ways in one of which they appear consistent and in the other inconsistent, then the construction is to be preferred that will render them consistent’.40

[5.79]

He further added ‘that if one of two contemporaneous documents is ambiguous in its terms, but the other is clear, the force is to be given to the one whose terms are clear so as to interpret the one containing the ambiguous terms.’ The reference to contemporaneous means ‘concurrent’ or ‘coexistent’ documents.

[5.80]

In Australian Broadcasting Commission v Australasian Performing Right Association Ltd, the High Court held that if a term is open to two possible constructions, the court will choose the option that ‘avoids a result which is capricious, unreasonable, inconvenient or unjust even if it is not the most obvious or most grammatically accurate’.41

[5.81]

When there is conflict between the written and typed words on the printed document the handwritten or later typed words will apply. A court will attribute greater weight to the more recent or later additions since they are representative of the parties’ attempt to amend the original intent of the wording to reflect particular circumstances of the agreement.42

Parol evidence rule [5.82]

Where it is objectively clear that the written agreement contains all of the terms that would normally be expected in an agreement of the type in consideration, then

[page 237] the ‘parol evidence rule’, subject to certain exceptions,43 prevents the adducing of extrinsic44 evidence which adds to, contradicts or detracts from the written terms. That is, the written terms will be construed as containing all of the terms of the agreement agreed between the parties.45

Entire agreements [5.83]

Entire agreement clauses are commonly found in construction contracts.46 Their purpose is to expressly require that the written agreement sets out all of the terms of the contract between the parties.47 The clause will include a provision that the wording excludes any other terms not expressly stated in the document. An entire agreement clause may also seek to confirm that the parties have not relied on any precontractual representation.

[5.84]

However, no matter how generally the entire agreement clause is expressed, it cannot exclude liability for claims arising out of breaches of the misleading and deceptive conduct provisions of the Australian Consumer Law.48 These provisions are discussed in the section in this text dealing with latent conditions.

Uncertainty or ambiguity [5.85]

A basic premise is that the courts will enforce the terms of a freely agreed bargain and will enforce them if at all objectively possible. In Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd, it was held: So long as the language … is not ‘so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention’ the contract cannot be held to be void or uncertain or meaningless. In the search for that intention no narrow or pedantic approach is warranted, particularly in the case of commercial agreements.49

[5.86]

The principle was stated long ago in Hillas & Co v Arcos Ltd,50 where it was noted that it is the duty of the court to construe agreements fairly and broadly without being too astute in finding defects. Put simply, courts do not wish to be ‘destroyers of bargains’. [page 238]

Unfair terms [5.87]

From time to time, a party may seek to have a contract set aside or terms removed on the basis of unfairness. Unfortunately, under common law, harshness or unfairness alone is not an invalidating factor, no matter how much courts might like it to be.51 In South Australian Railways Commissioner v Egan, Menzies J stated: This appeal is concerned with perhaps the most wordy, obscure and oppressive contract that I have come across … I am sure that not one oppressive provision which could have been found was omitted. The contract is so outrageous that it is surprising that any contractor would undertake work for the Railways Commissioner upon its terms … The employment of such a contract tempts judges to go outside their function and attempt to relieve the harshness rather than give effect to what has been agreed between the parties.52

Menzies J continued that he was bound by the law, however, and the contract must stand. [5.88]

However, there are currently reforms proposed to the Competition and Consumer Act 2010 (Cth).53 A number of submissions to the Harper Review have suggested reforms which would assist small business in particular. One of these is to extend the unfair contract terms provisions to contracts involving small business. This was also the subject of a separate review by the Commonwealth Government.54

[5.89]

These reviews have now resulted in the drafting of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015, which was read for the second time on 17

August 2015. The proposal is to amend the Competition and Consumer Act to extend the unfair contract terms protections to a business with less than 20 employees agreeing to standard form contracts valued at less than $100,000 or $250,000 if the duration of the contract is more than 12 months.55 This would significantly address some of the concerns raised by small business operators, particularly when faced with unilateral contract provisions or changes by larger organisations.

Conclusion [5.90]

Courts will try to uphold commercial agreements which have been freely entered into between the parties without being too astute or subtle in finding defects which would overturn the parties’ agreement: they do not wish to be ‘destroyers of bargains’. [page 239]

[5.91]

Disputes arising from the interpretation of terms in contracts may be avoided through the use of standard form contracts which have had widespread acceptance and use in the construction industry. Contracts should contain express provisions dealing with precedence of documents where any inconsistencies may occur.

[5.92]

Care must be taken in the drafting of special conditions of contract to ensure that there are no inconsistencies or significant structural changes to the terms of the accompanying general conditions of contract. Where there are significant amendments to standard form general conditions of contract this greatly increases the risk of disputes.

Terms and working, standard forms,

documentation Introduction [5.93]

A feature of our economic system is that commercial organisations and government authorities are constantly entering into complex agreements for the provision of goods or the supply of services.

[5.94]

Microeconomic reform compels all organisations to reduce operating costs and there has been a consequent standardisation of operating procedures and an increase in outsourcing or contracting out. Subsequently, both principals and employees are being increasingly confronted with the administration of large and complex contracts that place significant responsibilities upon them and for which they are unprepared or unfamiliar.

[5.95]

The building and construction industry is a major driver of the Australian economy. The sector makes a significant contribution to national wealth and to the wellbeing of the community, particularly through the provision of shelter. The construction sector added a record $118.3 billion to the Australian economy in the year to March 2014. This was 2 per cent higher than the previous year as the resources sector also remained strong.56

[5.96]

At the core of construction activities are carefully drafted agreements between parties which outline the work to be completed with respect to the important parameters of time, cost and quality. In order to work effectively, these contracts need to clearly set out the rights and obligations of all parties to the contract in terms which are readily understood. The contract should include an effective dispute resolution clause to allow for a speedy and cost-effective resolution of any dispute arising out of or in connection with the contract.

[page 240]

Construction contracts [5.97]

A construction contract is essentially no different to any other commercial agreement. While there is no universal definition of a contract, it may be regarded as an agreement entered into freely between two or more parties to perform obligations, in which, in the event of a failure to perform these obligations in part or total, the injured party intends to seek a legal remedy.

[5.98]

A construction contract attempts to balance a number of complex issues. These include: a large number of participants in the process; approval authorities; designers, contractors, principals, architects, engineers, quantity surveyors, project managers, unions; economic conditions; fluctuating workforce; complex interaction of diverse trades; complexity and variation of material; procurement issues; and participant skills.

[5.99]

The contractual arrangements necessary to deal with such issues are therefore also necessarily complex. Goldfayl57 has suggested that a construction contract must clearly define: the scope of the work; the quality standards of the materials and workmanship; the timeframe within which the work is to be constructed; the price which is to be paid to the contractor for carrying out the work; and a mechanism for varying all of these parameters.

Additionally and importantly, it should include: an operative dispute resolution clause. [5.100]

The terms of the contract must be then expressed to cover questions such as these: Is the scope of the work clearly defined in the contract documents? What documents constitute the ‘contract’? Is the quality of materials and workmanship defined in the documents? What happens in the event of noncompliance with respect to quality and workmanship? [page 241] Can the superintendent58 accept defective materials or performance not in accordance with the contract? Does performance have to be entire or is ‘substantial performance’ acceptable? What are the rights and obligations of the parties where there has been a breach by one or more parties to the contract? What events give rise to termination of the contract? Can the parties vary the obligations under the contract? Must obligations be performed in accordance with specified or reasonable times? At what point will practical completion or final completion be reached? How is the price to be paid for work carried out under the contract determined? How are any disputes to be resolved? This list is non-exhaustive, but it gives some indication of the

general issues arising in the administration of a construction contract.

The form of a construction contract [5.101]

The form of a construction contract is essentially the same as any other commercial agreement. The essential features include: date of the contract; names and addresses of the parties; definitions; terms of the contract; the contract sum; time for completion of the works; a dispute resolution clause; a waiver clause; and attestation (signatures).

Date of the contract [5.102]

This is important, as the rights and obligations only accrue from this date. It is also relevant with respect to the provisions of the various state Limitations Acts.59 Under these Acts, a party generally has six years from the date when the breach occurred to seek a remedy.60 [page 242]

Parties to the contract [5.103]

Only the parties to the contract have rights or obligations with respect to the contract. This is known as the doctrine of privity. An exception to the doctrine is contracts for insurance. For

example, under the Home Building Contracts Act 1991 (WA), builders take out home indemnity insurance with an insurance company in the name of the owner to cover default by the builder. The parties’ addresses are important with respect to service of notices or correspondence between the parties.

Definitions [5.104]

The definitions section defines the terms used in the contract. For example, a definition may be provided for terms such as owner, contractor, principal, calendar week or practical completion.

The terms of the contract [5.105]

These are the promises made by the parties to the contract. They are essentially the heart of the contract. They are the rights and obligations arising from the contract. They may be express, that is, agreed to either orally or in writing at the time of entering into the contract, or in some instances they will be implied on the basis of obviousness or business efficacy, or by statute.

The contract sum [5.106]

The contract sum will be typically a lump sum. A lump sum contract is the traditional means of procuring construction and is still the most common form of construction contract. Under a lump sum contract, a single price for all of the works is agreed before the works begin.

[5.107]

A lump sum is generally appropriate when tenders are sought where the project is already well defined and changes are unlikely. This means that the contractor is able to accurately price the risk they are being asked to accept. Lump sum contracts might be less appropriate where speed is important or where the nature of the works is not well defined.

Time for completion of the works [5.108]

Construction contracts will specify completion by a particular date or within a certain period of time, that is, within a specified number of working days or in accordance with a construction schedule — critical path method or otherwise. Issues arising out of completion dates will be extensions of time or the triggering of a liquidated damages claim.

A dispute resolution clause [5.109]

We can always seek to have any dispute arising out of the interpretation or performance of the contract resolved through the court system. The amount in dispute will determine which court determines the issue. Court actions are costly and [page 243] time-consuming, and increasingly parties are inserting dispute resolution clauses that call upon alternate forms of dispute resolution such as expert determination, mediation or arbitration. These dispute resolution clauses are terms of the contract just like any other express provisions, and courts will uphold and enforce them.

Waiver [5.110]

There will usually be a term which states that ‘subject to law’ any waiver of the written terms of the contract must be in writing.

Attestation [5.111]

This is the signatures of the parties to the contract. It is important in that the court will presume that parties have read and understood a document they have signed.

Standard form construction contracts [5.112]

While a construction contract may be tailored for each individual project, a large number of standard contracts and industry-based contracts have been written over the years by various organisations. The two main contracts are the Standards Australia General Conditions of Contract AS21241992 and AS4000-1997.61

[5.113]

The advantages of these standard contracts, in part, are that they: have been designed to balance and equitably allocate the risks with respect to the project; are widely used and enjoy a high level of recognition; allow a level of status of the bill of quantities; allow for the provision of a superintendent to administer the contract; feature a lump sum price; have the option of staged practical completion; apply to construction in both the public and private sector; and expressly contain all of the relevant terms which would normally be found in a contract of this type, thus avoiding issues arising for the implication of terms. Their adoption and use attempts to balance the risk in the project. Their widespread use means that the provisions are generally well understood by all of the participants in the project.62 [page 244]

Selecting a standard form contract

[5.114]

The selection of the type of standard contract depends on the nature and scope of the works. In the housing sector, there is no Standards Australia General Conditions of Contract, but various organisations such as the Property Council of Australia, the Housing Industry of Australia and the Master Builder Associations have produced contracts for a wide range of projects.

[5.115]

In the non-housing sector of the construction industry, there are a range of contracts used. These include: PC1-1998 Project Contract; ABIC BW-1 2002 Basic Works Contract; ABIC EW-1 2002 Early Works Contract; ABIC SW-1 2002 Simple Works Contract; NPWC3-1981 General Conditions of Contract; AS2124-1992 General Conditions of Contract; and AS4000-1997 General Conditions of Contract.

[5.116]

Some of the factors to be considered in the selection of these contracts include:63 the type of project (engineering, commercial, residential); the magnitude of the project (large, medium, small); the complexity of the project; whether the work is principally alterations or new work; who will administer or supervise the work; whether a bill of quantities will be provided, and whether it will form part of the contract; whether there will be staged practical completion; and whether payment to the contractor will be by a lump sum, a schedule of rates or cost plus. Again, you can see that this list is non-exhaustive, and there may be other factors to be considered.

The terms of the contract [5.117]

If you examine the terms and conditions in a range of construction contracts you will see that they essentially cover the same matters or issues. While the specific wording may differ with respect to the individual clauses, the legal issues underpinning the interpretation and application of the clauses are similar. These will be discussed in detail below. [page 245]

Avoiding disputes and claims [5.118]

As mentioned above, a contract must include an effective dispute resolution clause which allows for a speedy and costeffective resolution in the event of any dispute whatsoever arising out of or in connection with the contract.

[5.119]

The significance of these issues was noted in the Western Australian Auditor General’s Report No 6.64 The report notes that the expected outcomes and benefits from contracting out road maintenance have not been achieved due to weaknesses in the contracts and that a number of major contracts incurred difficulties resulting from disputes between contractors and Main Roads Western Australia. There was a high level of noncompliance with contract measures for which there were no effective dispute resolution mechanisms in the contracts.

[5.120]

Additionally, the Federal Department of Infrastructure, Transport, Regional Development and Local Government has determined that disputes in the nonresidential construction industry incur costs of $7 billion annually. The Australian construction industry undertakes some $120 billion of nonresidential construction work annually: disputes therefore cost some 6 per cent of project costs.65

[5.121]

The department lists a number of key causal factors contributing to disputes, including: poor contract documentation that arises from the organisational system (eg, inadequate or incomplete design information or ambiguities in contract documentation); scope changes that arise from innate uncertainty that exists within the project management system (eg, variations due to client, design errors or site conditions); and educational and behavioural adaptations of individuals within the system (poor communication, poor management skills and experience, and personality traits).

Typical terms in a construction general conditions of contract (GCOC) [5.122]

The specific terms listed below are from AS2124-1992, which is the most used common form in the construction industry.66 They are terms typically featured in construction contracts. These terms are discussed below under the heading ‘Discussion of the terms of the contract’: Construction of contract Interpretation [page 246] Nature of contract Bill of quantities Security, retention monies and performance undertakings Evidence of contract Service of notices Contract documents Assignment and subcontracting Selected and nominated subcontractors

Provisional sums Latent conditions Patents, copyright and other intellectual property rights Statutory requirements Protection of people and property Care of the work and reinstatement of damage Damage to persons and property other than the works Insurance of the works Public liability insurance Insurance of employees Inspection and provision of insurance policies Clerk of works and inspectors Superintendent Superintendent’s representative Contractor’s representative Control of contractor’s employees and subcontractors Site Setting out the works Materials, labour and constructional plant Materials and work Examination and testing Working hours Progress and programming of the works Suspension of the works Times for commencement and practical completion Delay or disruption costs Defects liability Cleaning up [page 247]

Urgent protection Variations Daywork Certificates and payments Payment of workers and subcontractors Default or insolvency Termination by frustration Time for notification of claims Dispute resolution Waiver of conditions

Annexures [5.123]

In addition to the main body of the GCOC, at the end there are a number of annexures. The annexures to a contract concentrate in the one place all of the variable factors relating to the particular construction project. It lists all of the variables relative to the contract.

Annexure Part A [5.124]

This is a significant document which in fact forms part of the contract. It contains a large number of items. These terms are extremely important and care must be taken when inserting the appropriate information. After each item there is a reference to the relevant term of the contract where appropriate.

[5.125]

If an entry is missing it may not be fatal to the contract. Courts do not wish to be ‘subtle’ in setting aside agreements or seen as the ‘destroyer of bargains’.67

[5.126]

For example, where a date for practical completion is missing, the court will infer a ‘reasonable time’. Where there is no insertion for liquidated damages, the court will infer that in the event of a breach the innocent party will claim general

damages. At the end of the annexure there is usually a page which allows for the insertion of details if there are separable portions to the contract.

Approved form of conditional undertaking [5.127]

This part of the annexure suggests the appropriate form of the agreement with respect to the performance security for the contract. It will be read in conjunction with the clause dealing with security, retention monies and performance undertakings. [page 248]

Annexure Part B [5.128]

This section allows the parties to clearly identify those parts or terms of the Standard which have been added, amended or deleted from the main body of the contract. It is an important section. Any amendments to an AS GCOC should be made with caution. These GCOC have been prepared over many years with consultation and agreement between all of the respective parties. Thoughtless changes can make some sections inoperable. Also, changes to one clause may inadvertently affect the sense of another clause.

Special conditions [5.129]

Because of the specific nature of the works under contract or specific interests of the parties it may be necessary from time to time to add what are described as special conditions. Some contracts68 do not contain a provision for special conditions but they can nevertheless be incorporated into the contract by writing them into the document directly or by means of a separate supplement.

[5.130]

In including special conditions, it is important to ensure that

they are not inconsistent with the main terms of the contract and do not breach any statutory provisions.69

Conditions of tendering and form of tender [5.131]

The contract document will generally include a section dealing with the conditions of tendering and form of tender. This section specifies the documents which will be provided by the principal to those tendering. The names of the individual documents must be specific and clear.

[5.132]

The form further states how the tender is to be submitted. There will invariably be a clause stating that the principal is not bound to accept the lowest or any tender. As discussed above at [5.7], under common law, a tender is an ‘invitation to treat’. The principal can accept the tender, reject the tender, call for more information or do nothing.

[5.133]

However, if the tender documentation specifies procedures which will be used by the principal in evaluating the tender, then these procedures must be strictly followed.70

[5.134]

The second part of the form requires the contractor to insert details of their firm or company and the lump sum where appropriate. [page 249]

Australian Standard form of formal instrument of agreement [5.135]

This is an extremely important document that evidences the ‘contract’ between the parties. It is the evidence of the offer and acceptance which form the commencing stages of a binding agreement.

[5.136]

The form contains: the date of the agreement; the names of the parties; a list of the documents which form the contract; tender document; general conditions of contract (GCOC); specification; drawings (numbered); any other document (eg, special conditions); signatures of the parties.

Discussion of the terms of the contract Construction of the contract [5.137]

Every contract will contain a starting clause referring to what we describe as the relevant law. This means that in the event of any dispute arising out of the contract, any determination will be made in accordance with the legal system as stated in the clause or, more usually, in the annexure. For example, in AS2124-1992, Annexure Part A requires the parties to insert the law applicable with respect to the conduct of the contract. Parties need to specify the state law that governs the contract.

Interpretation [5.138]

In any contract there will be a large number of terms that are used repeatedly. The interpretation is essentially the definition section of the contract. In this section the parties define the meaning of all the operative terms in the contract.

[5.139]

In some cases, these terms define responsibilities of the parties; they also ensure consistency. For example: ‘Date for practical completion’ means — Where the annexure provides a date for practical completion, the date:

Where the annexure provides a period of time for practical completion, the last day of the period.

[page 250] But if any extension of time for practical completion is granted by the superintendent or allowed in any arbitration or litigation, it means the date resulting therefrom. ‘Superintendent’ means the person stated in the annexure as the superintendent or other person from time to time appointed in writing by the principal to be the superintendent and notified as such in writing to the contractor by the principal and so far as concerns the functions exercisable by the superintendent’s representative, includes the superintendent’s representative.71 [5.140]

This section provides uniformity and consistency in the interpretation of all the operative terms of the contract.

Nature of contract [5.141]

This is a very simple description of the contract with respect usually to performance and payment. There will be a term that says the contractor shall execute and complete the work under the contract and the principal shall pay the contractor for the work performed or materials supplied. However, even if these terms are not included, they will be implied on the basis of business efficacy.72

Bill of quantities (BOQ) [5.142]

The BOQ is a document which states the measured quantities of work to be done and which has been: supplied by the principal to the contractor for tendering purposes; and priced and extended by the contractor so that the total equals the contract price for the work included. The BOQ is used not only for preparing tenders but also for

pricing variations and determining the value of progress claims. [5.143]

There usually is an optional clause which will state clearly whether or not a BOQ will form part of the contract or the specification or shall not form any part of the contract. This section will usually specify what will be done in the case of errors in pricing or in the BOQ.

[5.144]

The actual wording usually allows the principal to determine the contractual status of the BOQ in three ways: (1) as a contract document to the extent provided in the contract; (2) as a non-contract document; or (3) as part of the specification and therefore as a contract document even though it is not a separate contract document in its own right. [page 251]

[5.145]

If there is found to be an error in the BOQ where it is a contract document, the contract sum may be adjusted. The error must be notified to the superintendent by the party who discovers the error. The correction must be made by agreement between the contractor and the superintendent. Where agreement cannot be reached, the correction will be made by the superintendent.

Security, retention monies and performance undertakings [5.146]

Security under a contract is a financial pledge that the party providing the security will perform its obligations under the contract and that in the event of non-performance the other party will be able to access the security by way of

compensation. The purpose of this clause is to allow for security, retention monies and performance undertakings for the purpose of ensuring the due and proper performance of the contract. The terms in this section will contain details of the provision, the form and the time for lodging of security, and the recourse to retention monies and release of security, amongst other things. [5.147]

The provision will normally require that security be provided by either the principal or the contractor or both, if named in the Annexure, for the respective amounts stated in the Annexure. The form of the security may be cash, bonds or performance guarantees provided by a bank or insurance company. It can be provided as an up-front payment (usually in the form of bank guarantees) or in the form of retention by the principal of an agreed percentage of all payments due to the contractor up to a predetermined maximum.

[5.148]

Up-front security will be deposited with a third party who is not a party to the contract. Retention monies are retained progressively by deduction from progress payments. The security must be lodged within a specified time (usually 28 days) from acceptance of the tender.

[5.149]

Interest on the security and retention monies belongs to the party lodging it and is paid in two instalments: after practical completion; and after the issue of the final certificate.

[5.150]

Security is required from the commencement of the work until the issue of the final certificate, that is, for the duration of the works. In the event of default by a party, the other party may demand access to the security in compensation for their loss.

[5.151]

The party entitled to the security may claim it after having given the other party the periods of notice on intention stated in the Annexure. There must be a lawful reason for claiming

the security, that is, a substantial failure to perform. Also, all notice provisions under the contract relating to accessing the security payment must be followed. The various state security of payment legislation will also contain provisions relating to disputes over security of payment issues. [page 252]

Evidence of contract [5.152]

This section will contain details with respect to the form and evidence of the contract. It will contain details such as the number of copies of the contract and responsibilities with respect to preparation of the contract.

[5.153]

Where there is no formal instrument of agreement, an agreement in writing between the parties and any other document which establishes the rights and obligations of the parties shall be the evidence of the contract.

[5.154]

Where there is a formal instrument of agreement, the principal must forward it to the successful tenderer within a specified time from acceptance of tender. The tenderer then must execute it within the specified time from receipt. The principal is then required to execute the agreement within the specified time and send a copy to the contractor.

Service of notices [5.155]

All contracts require specific details of the business address for the service of any notices required under the contract. There will also be a term requiring the principal, contractor and superintendent (where relevant) to notify each other of a change in address. The Appendix to the contract details the address of the parties for the service of notices.

Contract documents [5.156]

Under this heading there will be reference to items such as discrepancies between the documents which form the contract, discrepancies between figured and scaled dimensions, and the number of documents to be supplied to the contractor by the principal. Similarly, there may be a reference to the supply of documents by the contractor.

[5.157]

If there is any discrepancy or ambiguity, the contract will usually contain a term requiring the party to notify the superintendent, who shall make an interpretation on the discrepancy. If there is a difference between scaled and figured dimensions, the figured dimensions will prevail.

[5.158]

The Annexure will state the number of copies of the contract documents to be supplied by the principal. These documents are the property of the principal and must be returned on demand. In accordance with intellectual property law,73 these documents should not be copied for any other purpose than the execution of the works under the contract.

[5.159]

There may also be situations where the contract requires the contractor to supply documents to the superintendent. There will usually be a term that the superintendent is not bound to check the documents for any errors or omissions. [page 253]

Assignment and subcontracting [5.160]

Assignment occurs where one party assigns its rights and obligations under a contract to another party. There will be a term that neither party should assign its rights or obligations without the prior approval of the other party. There may also be a term requiring the contractor to obtain written approval of

the superintendent for the appointment of a subcontractor. These terms will provide that the contractor is to supply the principal with details of the subcontractor. At the same time, there will be a provision that permission should not be unreasonably withheld.

Selected and nominated subcontractors [5.161]

Where a contract provides that certain work or certain items shall be subcontracted to a selected or nominated subcontractor, there will be a clause which sets out the definition of the nominated subcontractor along with the provisions required to be followed for the nomination.

[5.162]

The purpose of permitting the principal to specifically nominate a subcontractor is to allow the principal to select persons who in the opinion of the principal have specialist skills and experience to perform the work to the level of quality and prices as required under the contract.74

[5.163]

The process of nominating subcontractors was described in North West Metropolitan Regional Hospital Board v T A Bickerton & Son Ltd, as follows: The scheme for nominated sub-contractors is an ingenious method of achieving two objects which at first sight might seem incompatible. The employer wants to choose who is to do the prime cost work and to settle the terms on which it is to be done and at the same time avoid the hazards and difficulties which might arise if he entered into a contract with a person whom he has chosen to do the work.75

[5.164]

A subcontractor who operates under a building contract and who is nominated to the head contractor by the principal enjoys certain privileges, and by virtue of those privileges enjoys special treatment under the contract.76 Having accepted the nominated subcontractors, the main or head contractor treats them as normal subcontractors. However, most contracts will contain a provision that a nominated subcontractor can be paid directly by the principal.

Provisional sums [5.165]

A provisional sum is a sum of money provisionally specified in construction contract documents for an item which is foreseeable, but which at the time of inviting tenders cannot be described or priced because its nature, size and details are unknown. When [page 254] the details become known, the contractor is instructed accordingly and the contract sum adjusted in the light of the true price.

[5.166]

In most contracts a provisional sum is for expenditure on something the need for which is at least partly foreseeable if not wholly. A contingency sum is generally for expenditure on the unforeseeable and should be distinguished from a provisional sum. An exception is found in AS2124-1992, in which the interpretation clause states that the provisional sum includes a contingency sum.

Latent conditions [5.167]

A latent condition is generally considered to be a subsoil condition. However, it may be defined differently in different contracts, and it can include any physical condition on or about the site which the contractor could not reasonably have anticipated at the time of tendering.

[5.168]

Some contracts make no mention of latent conditions, and others provide that the contractor will only be entitled to extra remuneration on account of a latent condition to the extent that the latent condition necessitates a variation to the work. Such clauses usually serve no purpose because even in the absence of the clause the contractor would be entitled to extra

payment for performing a variation. The absence of a latent condition clause does not bar the contractor’s entitlement to be paid for a variation. [5.169]

The latent condition clause in AS2124-1992 has been copied in numerous standard forms and is now the best known latent condition clause in Australia. It provides the contractor with an entitlement to recompense for additional costs caused by a latent condition whether or not the latent condition constitutes a variation. For example, the latent condition may consist of greater quantities of rock than anticipated but not rock of a different composition to that shown in precontractual geotechnical investigations. Latent conditions are confined to physical conditions. They do not include shortages of labour or inflation. Frequently they are defined to exclude weather conditions and the water table level.

[5.170]

Where there is no latent condition clause in the contract and the additional cost caused by the latent condition cannot be recouped as the cost of a variation, the contractor may have a claim based on a right existing independently of the contract. If the principal has provided misleading information the contractor may have a claim in tort77 or under s 18 of the Australian Consumer Law for misleading or deceptive conduct. The advantage of the statutory claim is that it cannot be defeated by an exclusion clause. Generally, an exclusion clause cannot protect the owner or principal against liability for misleading or deceptive conduct in the course of trade or commerce. [page 255]

Patents, copyright and other intellectual property rights [5.171]

Intellectual property rights are a range of rights established by statute. In Australia, copyright law is covered by the Copyright

Act 1968 (Cth), designs are protected by virtue of the Designs Act 2003 (Cth), patents are covered by the Patents Act 1990 (Cth) and trademarks are protected by the Trade Marks Act 1995 (Cth). Trademarks are an indication of the trader’s identity and are in effect a badge of origin. [5.172]

For each of these rights there will be an owner who has exclusive rights to reproduce the documents, to copy the designs or to manufacture items which are subject to patent protection. These are known as monopoly rights, and if any person attempts to infringe these rights then the respective Act sets out a range of remedies and, in some cases, penalties.

[5.173]

Each party to a contract is required to warrant that there will be no breach of any of the rights of the intellectual property owner with respect to the above intellectual property regimes.

[5.174]

The issues relating to breach of copyright together with typical remedies and penalties are discussed in Delstrat Pty Ltd t/a Seacrest Homes v Bond.78

Statutory requirements [5.175]

In all contracts there will be a clause requiring a contractor or supplier to comply with all of the statutory requirements of both the state and the Commonwealth. These are any Acts, Regulations or by-laws. As noted previously, the various states’ security of payment legislation has had a significant effect on common law contract rights and obligations to do with payment.

Protection of people and property [5.176]

A contract will contain a general catch-all provision with respect to the contractor providing all things and taking all measures necessary to protect people and property. There may also be a reference to avoiding unnecessary interference with persons or property and preventing any nuisance. A nuisance

is simply an unlawful interference with an owner’s or occupier’s use or enjoyment of land, or some right over or in connection with it.79

Care of the work [5.177]

There will generally be a clause which establishes the responsibility for the care of items and materials which are located on site without limiting the contractor’s obligation. [page 256]

Damage to persons and property other than the works [5.178]

This is the general indemnity by the contractor clause which attempts to indemnify the principal against any loss or damage to property arising as a consequence of the contractor carrying out the work under the contract.

Insurance of the works [5.179]

Contractors will be required to take out an insurance policy covering all of the works under the contract. These items are normally specifically listed in a term of the contract. Without limiting the generality of the clause, these include: unfixed items; things entrusted to the contractor; and things brought on to the site, the works, temporary works, construction plant.

[5.180]

With respect to domestic construction, there may also be a statutory requirement for the builder to take out an insurance policy in the name of the owner in the event of the builder failing to complete the works or going into receivership or administration.80

[5.181]

There may be an alternative option; for example, in AS21241992,81 on or before the date of acceptance of the tender, the principal may take out a policy for the works under the contract and pay all premiums.

Public liability insurance [5.182]

With respect to public liability, the contractor will be required to take out a policy of insurance in the joint names of the principal and the contractor which covers the principal, the contractor, the superintendent and all subcontractors against liability for death or injury to third parties.

Insurance of employees [5.183]

Before commencing work, the contractor must insure against liability for death or injury for any person employed by the contractor. This must be maintained until all work is completed. The cover must also indemnify the principal for the statutory liability to persons employed by the contractor.

Inspection and provision of insurance policies [5.184]

These clauses set all of the procedural matters associated with the operation of the insurance policies. These include proof of insurance, failure to provide proof of insurance, notices to or from the insurers, notices of potential claims and settlement of claims. [page 257]

Clerk of works and inspectors [5.185]

An important aspect of any contract is the provision of the name of any person acting with authority on site. For example, clause 22 of AS2124-1992 sets out that the superintendent shall

notify the contractor of any clerk of works or inspector appointed by the principal or the superintendent.

Superintendent [5.186]

As mentioned above, one of the inclusions that distinguish a construction contract from a commercial contract is the appointment of a superintendent to act on behalf of and to exercise the functions of the principal in the administration of the contract.

[5.187]

Specifically, the superintendent has dual roles in the administration of the contract: as an agent of the principal in carrying out the principal’s lawful instructions in connection with the contract; and as an independent certifier and assessor for the purposes of arriving at reasonable measures of value of work, quantities or time. By way of example, clause 23 of AS2124-1992 states: The Principal shall ensure that at all times there is a Superintendent and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent: acts honestly and fairly; acts within the time prescribed under the contract or where there is no time prescribed within a reasonable time; and arrives at a reasonable measure or value of work quantities or time. By comparison, clause 20 of AS4000-1997 imposes an obligation on the principal to ensure that the superintendent fulfils its functions ‘reasonably and in good faith’.

[5.188]

The role of the superintendent has given rise to considerable litigation over the years, particularly the requirement of the superintendent to act honestly and fairly within the times

prescribed under the contract or within a reasonable time and to arrive at a reasonable measure of value of work or quantities of time. [5.189]

The issues usually relate to the independence of the superintendent. The superintendent, as certifier, is usually an employee of the owner or principal, but this will not of itself be sufficient to imply that they will not act independently.82 As long as the superintendent acts honestly and impartially, a certificate issued by the superintendent will be valid.83 [page 258]

Superintendent’s representative [5.190]

Again, this clause simply allows the superintendent from time to time to appoint individuals to exercise any of its functions.

Contractor’s representative [5.191]

This is a clause requiring the contractor to notify and nominate a representative on the site.

Control of contractor’s employees and subcontractors [5.192]

This is a clause which allows the superintendent to direct the contractor to remove persons from the site. However, this does not permit the superintendent to act arbitrarily, capriciously or unreasonably.

Site [5.193]

A site clause will contain such details as those relating to the possession of the site and access for the principal, delivery of materials to the site prior to possession and general details with respect to the use of the site by the contractor.84

[5.194]

At common law, a site is a piece of land on which improvements are to be made or provided. The word is defined in some statutes, particularly those dealing with obtaining permits and approval for construction work. It is a common word in building contract documentation. The site for building contract works may be identical to the land as defined on a certificate of title, or it may be only part of that land. The site for purposes of the contract must be adequately defined to avoid any possible misinterpretation. This is usually known as the site of the works.

Setting out the works [5.195]

This is sometimes described as the surveying clause. It will outline the obligations and responsibilities of the parties particularly with respect to the contract and to take care of survey marks. There will usually be details of the responsibility of who is to provide the surveying information.

Materials, labour and construction plant [5.196]

This is simply a catch-all phrase requiring a contractor to supply all materials, plant and labour to enable the proper performance of the contractor’s obligations. In view of the importance of quality of materials and the number of disputes that arise from inappropriate materials, there may also be a clause which requires the contractor to provide details of the source and performance characteristics of the materials. [page 259]

[5.197]

Even if there is no clause dealing with the manufacture, quality and supply of materials, there will be an implied term in every contract that materials used shall be of merchantable quality and fit for purpose.

Materials and work [5.198]

The issue with this type of materials and workmanship clause is what standard must the contractor meet in order to comply with such a clause? The standard forms variously provide that the materials and standard of workmanship employed by the contractor shall be as required by the contract,85 or the clause might state that the materials and workmanship must comply with the provisions of the agreement or of the respective kinds described in the contract.

[5.199]

This is a question of fact and degree, and the ease with which it is resolved will depend in part on the clarity of the contractual provisions. It is important to note that construction contracts invariably incorporate terms of all statutes and Regulations relevant to the construction work.86 This means that compliance with these requirements is part of the standard imposed by construction contracts.

[5.200]

It is the role of the superintendent to decide whether the work has been carried out in accordance with the contract. If in their opinion it has not, then they are entitled to act under a materials and workmanship clause. The superintendent’s decision may be reviewable where an appropriate clause is included in the contract or as part of a dispute resolution clause.

[5.201]

Upon deciding that the work is defective, the superintendent generally has a number of options depending upon the provisions of the individual contract. These options will include rectifying the defect, ordering a variation or perhaps accepting the defect with an appropriate alteration to the contract sum being made.

Examination and testing [5.202]

An examination and testing clause allows the superintendent to direct that any material or work under the contract be tested.

Such clauses will contain terms relating to covering up the work and the responsibility for conducting the tests, access to the building or the site to perform the tests and what is to happen with respect to availability of results of tests and, finally, who pays for the testing.

Working hours [5.203]

This is an important aspect of any contract. A contract should clearly state what the working hours are to be on site and must take into account factors not related only to the progress of the work. An example is Codelfa Construction Pty Ltd v State Rail Authority (NSW).87 Here, the residents of the eastern suburbs of Sydney were [page 260] successful in obtaining an injunction to prevent the contractor from working between the hours of 10pm and 6am. Considerable litigation arose from this decision with respect to whether this was a factor which frustrated the terms of the contract or gave rise to an implied condition that the contractor would be given an extension of time in the circumstances.

Progress and timing of the works [5.204]

All standard forms of contract impose obligations on the contractor in respect of its rate of progress. Typically, the term will require progress to be made ‘with due expedition and without delay’ or to ‘regularly and diligently’ proceed with the works or that progress is to be ‘at a rate satisfactory to the superintendent’.

[5.205]

Construction contracts will often provide for the contractor to submit a construction program to the superintendent at the outset of the project, or a contractor may voluntarily do so.

Questions arise as to the effect of a construction program on the rights and obligations of the parties. The standard contracts deal with these questions with various degrees of comprehensiveness. [5.206]

It is relevant to consider the relationship between the program and the contractor’s obligations as to progress. A contract term may state specifically that a construction program shall not affect rights or obligations as to satisfactory progress and further it shall not relieve the contractor of any obligations under the contract. However, it may also provide that the contractor not depart from a submitted construction program without ‘reasonable cause’. Thus the requirement places two parallel obligations upon the contractor. One is to proceed at a satisfactory rate, and the other not to depart without reasonable cause from the construction program. The contractor’s obligation is to adhere to a construction program, but that is subject to its obligation to maintain a satisfactory rate of progress.

Suspension of the works [5.207]

The standard form contract will set out the situations where a superintendent may suspend the work under the contract. The reasons for suspension will usually relate to the protection or safety of persons or property or to comply with an order of a court. There will usually be a term that relates to situations where there is a suspension of the work by the contractor. Usually a suspension shall not affect a date for practical completion but the cause of suspension may be a ground for extension of time.

Times for commencement and practical completion [5.208]

These clauses are usually the lengthiest and most contentious in construction contracts, particularly as a consequence of construction contract terms entitling the principal to claim

liquidated damages for late completion by the contractor.88 [page 261] These are measured by reference to the amount of time it takes the contractor to complete the works over and above the amount of time to which the contractor was entitled under the contract. [5.209]

A contractor does not have to execute the work to absolute completion in order to protect itself against a liquidated damages claim. Liquidated damages are calculated by reference to a concept of practical completion.89 Practical completion can be achieved even though minor defects and omissions may still exist in the works. The question whether practical completion has been achieved is a factual one to be answered by reference to the definition provided in each standard contract. In essence, practical completion has been reached if the works are at a stage such that the defects and omissions existing: do not prevent reasonable use of the works; do not significantly inconvenience the principal; and can reasonably be remedied at some time in the future rather than immediately.

Date for completion [5.210]

Construction contracts will specify a date by which practical completion must be achieved. It has been held that if the contract clearly fixes the date or period for completion as an absolute fixed obligation then the courts will give effect to that provision.90

[5.211]

Delaying events can usually be divided into three categories:

those which are the fault of the contractor; those which are the fault of neither party — commonly called neutral delaying events; and those which are caused by the principal or any party for whom the principal is responsible, for example, the superintendent. [5.212]

Such delays are not necessarily the fault of any party, as, for example, a variation order may cause delay. Such delaying events are called preventative acts. At common law, where a contract fixes a specific date for completion, a contractor will not be relieved from its obligation to complete by that date merely on the grounds of some neutral delaying event such as inclement weather. Only preventative acts relieve the contractor of this obligation.91

Extensions of time (EOT) [5.213]

Construction contracts address the risks associated with delays by providing for extensions of time. While the contractor retains responsibility for delaying events [page 262] which are its own fault and the principal does likewise, the responsibility for neutral delaying events is partly shifted away from the contractor to the principal. Thus, it is also possible to categorise delaying events into those which are the contractual responsibility of the contractor and those which are the contractual responsibility of the principal.

[5.214]

The length of the extension to which the contractor is entitled is a major area of dispute in the context of claims because it impacts upon the amount of liquidated damages recoverable by the principal.

[5.215]

Generally, the contractor will be entitled to an extension of time in respect of all delaying events which are beyond the reasonable control of the contractor occurring on or before the date for practical completion. Further, the contract will normally contain a list of the specific delaying events which entitle the contractor to an extension of time even if they occur after the date for practical completion. This list will include delays caused by preventative acts, latent conditions and numerous other events.92

Defects liability [5.216]

A defects liability clause is operative during the defects liability period, which generally begins on the date of practical completion and continues for a specified period. During the defects liability period, the contractor is required to rectify any defects, omissions, faults or shrinkages. As can be seen from the terminology, there is often some difficulty in interpreting the exact meaning of these terms.

[5.217]

Each of the standard contracts will have a number of remedies available to the principal under the defects liability clause. Generally, the contractor may rectify any defect either of its own motion or under the direction of the superintendent. If the contractor fails to abide by the direction of the superintendent by the date stated in that direction, the principal may have the work of rectification carried out at the contractor’s expense by another contractor. Depending on the express terms of the contract, there may be a provision for the principal to simply accept a defect with appropriate monetary compensation under the defects liability clause.

Cleaning up [5.218]

This is a clause found in all construction contracts, which requires a contractor to regularly remove surface material and to remove all temporary works and construction plant within a

specified time following the reaching of practical completion.

Variations [5.219]

A variation is a change in the work or works of a construction contract, such as an addition to or reduction in the quantities, changes in levels, dimensions and positions [page 263] of work, changes in character or quality of work, changes in specified methods and procedures, or substitution of materials as provided for in the agreement.

[5.220]

The difficulty with variations is deciding whether the work is either in accordance with or outside the scope of the contract and, additionally, whether the superintendent has the power to order the work under a variation clause. AS2124-1992 provides an example of the powers of the superintendent under its provisions. Here the superintendent may direct the contractor to: increase, decrease or omit any part of the work under the contract; change the character or quality of any material or work; change the levels, positions or dimensions of any part of the work under the contract; execute additional work; and demolish or remove material or work no longer required by the principal.

[5.221]

Even in the absence of the express provisions there is a point beyond which the contractor cannot be required to carry out work outside the scope of the contract. In interpreting the terms of these contracts the courts have held that this power should not be construed as giving rise to a completely

unfettered power in the principal to order variations.93 [5.222]

Finally, a typical variation clause will also contain details requiring the variation to be in writing, and details regarding the pricing of the variation.

Day work [5.223]

Day work is a process by which a contractor is paid for specifically instructed work on the basis of the cost of labour, materials and plant plus a mark-up for overheads and profit. It is generally used when work cannot be priced in the normal way. Also, construction contracts commonly empower the superintendent to order that variations be carried out as day work.

[5.224]

Under this arrangement, the parties agree to be given daily rates for wages and hire charges in respect of constructional plant and then the cost is calculated retrospectively by reference to the number of days actually taken. These clauses are generally beneficial to the contractor, and there seem to be fairly few disputed claims arising from day work agreements.

Certificates and payments [5.225]

This is probably the next most contentious issue arising in construction contracts. On very small projects the contractor will usually not be paid until all the work is done. The obligations here are considered to be entire. However, on most projects the contractor will be paid as work progresses, with claims being submitted by the contractor as set out in the contract. [page 264]

[5.226]

If a contract is being administered by an agent or

superintendent nominated in the building contract, the usual procedure is for the contractor to lodge with the superintendent a claim for work done since the previous claim. The contractor’s claim should be made in the form required by the contract. It is up to the superintendent, possibly with the aid of other consultants, to decide whether or not the work has been done properly or at all and to issue a certificate to the contractor within the prescribed time. The contractor will then present the certificate to the principal, who will be obliged under the contract to pay the amount on the certificate in the time stipulated in the contract. The major building contracts spell out the consequences of failure by the superintendent to issue a certificate on time and of failure by the principal to pay the contract on time. [5.227]

The typical terms that are found in certificates and payments clauses deal with correction of payment certificates, retention monies, payment for unfixed plant and materials, certificate of practical completion, final payment claims, final certificates and interests on overdue payments amongst other things.

Payment of workers and subcontractors [5.228]

Any disputation arising out of the failure of the contractor to pay workers or subcontractors on site will affect the principal. Consequently, there will often be a term of the contract allowing the principal or owner to request from the contractor information that such payments have been made. Additionally, there may be a term that allows the principal to withhold payments to the contractor if this information is not given and subsequently make the payments directly to the workers or subcontractors.

[5.229]

As discussed in Chapter 2, issues relating to payments of subcontractors are also subject to the provisions of state security of payment legislation.94

Default or insolvency [5.230]

The breach of a condition95 of a contract may give rise to the election to terminate the contract. At the same time, an unlawful termination can give rise to a claim for damages by the affected party. Because of the draconian nature of termination and the fact that it should only be taken in the most serious of circumstances, a default or insolvency clause in a standard contract sets out instances where a contract may be terminated. [page 265]

[5.231]

These are often described as ‘substantial’ breaches of the contract. A default and insolvency clause will also set out the procedures to be undertaken before termination for default. These will usually require the principal to give the contractor a written notice to show cause why the contract should not be terminated. Terms under this section will include the requirements of the notice and the rights of the principal and will include the procedure when a principal takes over the work. As is generally common in all commercial contracts, with respect to insolvency there will be a right for the principal to terminate the contract or take out of the hands of the contractor the whole or part of the work remaining to be completed.

Frustration [5.232]

The doctrine of frustration provides that if the performance of a contract becomes impossible or radically different from that envisaged at the time of entering into an agreement, and that if in the circumstances it would be unjust to hold the parties to the contract, then subject to any other express provisions in the contract,96 the parties are excused from further obligations.

[5.233]

The principle is illustrated in Codelfa Construction Pty Ltd v State Rail Authority of NSW.97 Codelfa contracted with SRA to excavate and do concrete works on the Eastern Suburbs Railway. The time for completion was 130 weeks but the work was noisy and local residents obtained an injunction restraining work between 10pm and 6am. Consequently, Codelfa could not complete the contract on time, incurring additional costs and loss of profit. Codelfa claimed the contract had been frustrated (by the injunctions) and performance had become different from that contracted for. Codelfa was successful, but as the court noted, the increase in the ‘burden of performance’ did not amount to frustration. The essential issue was that the performance in the way contemplated by the parties had become impossible.

[5.234]

Where an amount has been paid for performance, but there has been no performance at the time of frustration, the party who has paid is entitled to reimbursement under the principle of unjust enrichment.98 Although the contract is discharged from the moment the frustrating event occurs, the contract remains valid and binding until that time.

[5.235]

In some construction contracts you will also see reference to the term ‘force majeure’ rather than frustration. This is an expression imported from French law into English law. It includes the events considered under Act of God (storm, tempest, etc) and may include such things as war or strikes.

[5.236]

In the absence of any express provisions in the contract, under the common law, losses lie where they fall upon the occurrence of a frustrating event. In order to modify the harshness of this rule, a number of states have introduced legislation so that there is [page 266]

some adjustment between the parties to ensure that no party is unfairly advantaged or disadvantaged as a consequence of the frustrating event.99

Time for notification of claims [5.237]

In order to claim for damages arising out of breach or for extras, a contractor must comply with certain notice provisions. These are in effect ‘conditions precedent’ to recover under the contract. For example, in AS2124-1992 a time limit of either 28 (breach) or 42 days (extras) is imposed, depending on the legal basis of the claim (clause 46.1).

[5.238]

However, the decision in the case of Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd100 has modified this approach depending on the express terms of the contract. As discussed in the section dealing with the role of the superintendent, there will generally be a term requiring the superintendent or principal to act ‘honestly and fairly’ and ‘fulfil its functions reasonably and in good faith’.

[5.239]

The court held that in the exercise of these obligations the superintendent could not bar a legitimate claim simply because it was submitted out of time.

[5.240]

The notification of the claim will generally be required to be in a prescribed form which must include certain particulars and supporting documents in order for the superintendent to reasonably assess the claim.101 The refusal of the owner or principal to respond within a specified time may trigger the dispute resolution mechanism or result in the payment being deemed to be approved.

Dispute resolution [5.241]

If a dispute proceeds to litigation, the direct cost of the litigation can quickly amount to more than the value of the matter at stake. There are also the indirect costs which may be

difficult to measure in money terms but will be much greater than the lawyer’s fees. [5.242]

Consequently, a commercial contract will invariably contain a clause which sets out a procedure to be followed in the event of a dispute arising out of or in connection with the contract. A problem sometimes arises in the definition of what constitutes a dispute. In Concrete Developments Pty Ltd v Queensland Housing Commission, Philp J noted, ‘I think a dispute arises when one party claims something and the other party notifies the other that he rejects the claim’.102 This definition was also noted by the Supreme Court of Victoria in Commonwealth v Jennings Constructions Ltd.103 [page 267]

[5.243]

A dispute resolution clause contained in a contract is a term like any other term and will be upheld by a court on the basis that, particularly with respect to commercial agreements, courts will enforce a freely agreed bargain and will not, as we have observed, wish to be seen as the destroyer of bargains.104 However, a unique feature of an arbitration clause in a contract is that it survives the breach, and future performance of the provisions of the clause will still be required by the parties.105

[5.244]

Typical dispute resolution clauses will be based on a continuum or staged approach, commencing with negotiation and proceeding through to arbitration by default. At the same time, the dispute resolution clause may specify a single mode or method of dispute resolution. The typical stages are: negotiation; bilateral; supported; mediation; conciliation;

expert evaluation; non-binding; determinative; and commercial arbitration.

Waiver of conditions [5.245]

Contracts will generally contain a clause stating that none of the terms may be waived (usually without prior consent in writing) or that the contract is ‘entire’. However, this may not prevent a party seeking a remedy under the contract or in equity. If you have expressly or implicitly indicated clearly to the party that you have waived your rights to insist on the strict performance of the obligations under the contract, you may be estopped106 from asserting your rights to strict performance by the other party at some later date.107 This often occurs in the context of a superintendent accepting performance inconsistent with the terms of the contract and then at some later date insisting on compliance. [page 268]

Implied terms [5.246]

Finally, it is impossible to expressly record all of the terms which may be appropriate in a given context, and there will be a large number of terms which will be implied into an agreement. BP Refinery (Westernport) Pty Ltd v Hastings Shire Council108 stated a number of criteria that must first be met before a term can be implied in a contract: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;

(3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; and (5) it must not contradict any express terms of the contract. Additionally, under the state security of payment legislation, where a construction contract is silent with respect to terms relating to payment, then the various Acts will imply payment terms in the contract.109 Summary [5.247]

The overall success of a construction project, as measured against the essential criteria of time, cost and quality with the associated absence of disputes, is only achieved through the use of a carefully drafted agreement which clearly and equitably sets out the rights and obligations of the parties to the contract and provides a quick and effective means for the resolution of any dispute which arises in the course of the contract.

[5.248]

A contract which contains the terms as discussed above will assist in achieving the required level of performance. While a bespoke contract may achieve these purposes, there are clear advantages to both parties through the use of Australian Standard forms for general conditions of contract.

Latent conditions Introduction [5.249]

The term latent condition is usually considered in relation to subsoil conditions, but may refer generally to items which are dormant, hidden or concealed, such as hazardous or toxic materials, groundwater, utility services and, more usually, differing foundation materials. For example, the latent condition may consist of rock of a

[page 269] different composition to that shown in precontractual geotechnical investigations. Latent conditions are confined to physical conditions. They do not include shortages of labour or inflation. Frequently they are defined to exclude weather conditions and the water table level. [5.250]

The term may be defined differently in various contracts, and it can include any physical condition on or about the site which the contractor could not reasonably have anticipated or identified at the time of tendering or prior to the commencement of the works under the contract. The term should not be confused with the term latent defects, which refers to defects that exist in the work that cannot be ascertained or identified by making reasonable inquiries or conducting reasonable investigations at the time of ‘practical completion’.

Rights and obligations of the parties [5.251]

Initially, the courts gave very limited relief to contractors when encountering delays or additional costs as a consequence of latent defects. In Pakenham v Board of Land and Works, the court stated: We think that the statement in the contract that ‘the contractor is to satisfy himself as to the correctness of the levels and dimensions’ sufficiently indicates the intention of the parties that each was to take his own risk of the accuracy or inaccuracy of the plans.110

[5.252]

In the Australian jurisdiction, it was stated in Dillingham Constructions Pty Ltd v Downs111 that a party who has contracted to carry out building work on or under land is duty bound to satisfy themselves of the nature and characteristics of the land both on the surface and below it.

[5.253]

Whilst not common, there are contracts that still require the

contractor to bear the risk for any latent conditions at the site, as in Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3).112 Some contracts make no mention of latent conditions, and others provide that the contractor will only be entitled to extra remuneration on account of a latent condition to the extent that the latent condition necessitates a variation to the work. Such clauses usually serve no purpose because even in the absence of the clause the contractor may be entitled to extra payment for performing a variation. Put simply, the absence of a latent condition clause does not bar the contractor’s entitlement to be paid for a variation.113 [page 270]

The influence of Australian Standard general conditions of contract [5.254]

As noted above, the definition of a latent condition, and the subsequent rights and obligations of the parties relating to the discovery of the condition, will depend on the terms of the contract. Each of the Australian Standard GCOC, AS2124-1992 (clause 12), AS4000-1997 (clause 25) and AS4300-1995 (Design and Construct), contain similar definitions of latent conditions.114

[5.255]

For example, AS2124-1992 (clause 12.1) defines latent conditions as physical conditions on or under the site or its surroundings which differ materially from the physical conditions which should reasonably have been anticipated by the contractor at the time of tender, if the contractor had examined all information made available by the principal and examined all information relevant to the risks, contingencies and other circumstances that are obtainable by reasonable inquiry and from inspection of the site and its surroundings.

The consequence of latent conditions

[5.256]

In the Australian Standard contracts, where the conditions encountered fall within the requirements of the clause there will be grounds for an extension of time due to latent conditions and for payment of the increased costs incurred in dealing with latent conditions by way of a variation. There is an exception in AS4300-1995, which provides that a latent condition will not entitle the contractor to any extra cost or extension of time, though they must still give written notice of any latent condition to the superintendent.

[5.257]

The latent condition clause in these standard contracts has been reproduced in numerous construction contracts, for example the Australian Building Industry Contracts (ABIC) suite of contracts.115 The Australian Standard clause is now the most well-known latent condition clause in Australia. It provides the contractor with an entitlement to recompense for additional costs caused by a latent condition whether or not the latent condition constitutes a variation.

Allocation of the risk [5.258]

The terms of standard form contracts and construction contracts generally govern which party bears the risk for those latent conditions. The benefit arising from use of [page 271] the standard form latent conditions clause is that it attempts to balance or allocate the risk equitably. Put another way, which party is best equipped by possessing the relevant site information or has the greater expertise and ability to principally bear the risk? At the same time, there are some contracts which place the burden of the risk on the contractor. The PC-1 2000 form of contract prepared by the Property Council of Australia — used particularly for non-residential building projects — has a latent conditions clause using similar

wording to the Australian Standard GCOC but also requires the principal or owner to provide a warranty to the contractor that it has made all relevant information about the site available to them. The PC-1 contract has been written specifically in order to protect the interests of building owners and project financiers. [5.259]

As a consequence of the use of the Australian Standard latent condition clause over a long period of time, parties are able to interpret its application easily. It might be expected that this would prevent disputes arising from the issue of latent conditions, but unfortunately this is not always the case. Latent conditions claims are common, as contractors — and innovative lawyers — use other causes of action apart from contract.

Domestic building contracts [5.260]

Section 30 of the Domestic Building Contracts Act 1995 (Vic) places significant legal obligation on builders to determine information on the site conditions before entering into a contract where the works will involve the construction or alteration of footings or may adversely affect the footings of a building. Section 30(3)(b) imposes penalties on builders if they do not obtain this information, which includes any reports, surveys, plans or specifications relating to the footings design.116

Claims under the contract The latent condition clause [5.261]

The starting point is that where the contract contains an express latent conditions clause, this will allow the contractor to claim both an extension of time and the additional costs incurred in dealing with the latent condition. However, as stated above, this is dependent on the latent condition differing from what could have reasonably been anticipated at the time

of tender or of entering into the agreement.

Misrepresentation [5.262]

Where the contract is silent with respect to any express right to payment for the latent condition, a claim may be made, for example, on the basis that the contractor was induced to enter into the contract on the basis of inadequate or incorrect site [page 272] information provided by the principal at the time of tendering. The law imposes a duty on those making representations to be careful and to ensure that such statements are truthful and reliable.117 It is, however, unlikely that a claim in misrepresentation would be likely to succeed in view of the onerous burden of proof. The contractor would have to show that a false statement was made, that the statement was one of fact, that it was addressed to the party misled before or at the time the contract was made, and that it was intended to induce and did actually induce the contractor to enter into the contract.

Claims outside of contract Security of payment legislation [5.263]

Each state and territory has enacted what might be described as security of payment (SoP) legislation.118 Where there is a dispute over the payment of a latent conditions claim, the contractor may invoke the provisions of the relevant Act. The objectives of these Acts are to outlaw certain terms in construction contracts, imply terms for payment where the contract is silent on the issue of payment and to provide a rapid adjudication process to resolve payment disputes. The Acts prohibit contracting out of the provisions of the Acts.

Consumer protection law [5.264]

If the wording of the latent conditions clause in the contract prevents any additional cost caused by the latent condition to be recouped as the cost of a variation, the contractor may have a claim based on a right existing independently of the contract. If the owner or principal has provided misleading or deceptive information with respect to the site, the contractor may have a claim in tort as in Morrison-Knudsen v Commonwealth,119 where it was held that the Commonwealth failed to take reasonable care to ensure that the tender information was accurate, or under the misleading or deceptive conduct provisions of the Australian Consumer Law (s 18).120 These claims were formerly brought under s 52 of the Trade Practices Act.

[5.265]

In Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3),121 the failure of the Sydney Catchment Authority to provide the contractor with plans showing the location of a particular outlet pipe constituted misleading or deceptive conduct, [page 273] and the contractor was entitled to damages for the extra costs of the additional work required due to the plans not being made available to them at the time of tendering.

[5.266]

The advantage of a statutory claim is that liability is strict: intention to mislead or deceive is not a necessary element of the claim and it cannot be defeated by an exclusion clause. An exclusion clause is generally ineffective in protecting the owner or principal against liability for misleading or deceptive conduct in the course of trade or commerce.122

Conclusion

[5.267]

In order to alleviate this risk, the owner or principal should provide the contractor with as much information in their possession as possible without providing any warranty as to the veracity or accuracy of that information, but at the same time require the contractor to undertake their own site investigations as well as verifying the information regarding the site provided by the principal. This information, particularly with respect to site investigation details or geotechnical information, is often accompanied by a negligence disclaimer, but this may not be effective in preventing a possible claim under the Australian Consumer Law for misleading or deceptive conduct.

Provisional sums Introduction [5.268]

A provisional sum is generally described as a sum of money specified in the construction contract documents123 for an item of work or material which is foreseeable and has always been intended to form part of the works under the contract but which — at the time of inviting tenders or entering into the agreement — cannot be priced because its nature, size or details are unknown.

[5.269]

A typical example is for excavation or site works. Even with the assistance of a geotechnical investigation, it is often difficult to predict the subsoil conditions, and it is not until construction commences that the site costs or consequential effects on the design will be known. When the cost does become known, the amount which is paid is determined in accordance with the terms of the contract, and the amount is adjusted accordingly and paid within the contract sum.124

[5.270]

The work carried out with respect to provisional sums is frequently carried out by nominated subcontractors when the

work involves some specialist expertise.125 [page 274]

Definition of provisional sum [5.271]

While there is no universally accepted definition, the Domestic Building Contracts Act 1995 (Vic) (s 3 Definitions) describes a provisional sum as: … an estimate of the cost of carrying out particular work (including the cost of supplying any materials needed for the work) under a domestic building contract for which a builder, after making all reasonable inquiries, cannot give a definite amount at the time the contract is entered into.

Payment of a provisional sum [5.272]

The payment details and procedures will be dependent on the terms of the contract agreement. In the Australian Standard GCOC, the definition of provisional sum in AS4000-1992 is identical to that in AS2121-1992 but with the additional prescription of payment procedures as follows: A provisional sum included in the Contract shall not itself be payable by the Principal but where pursuant to a direction the work or item to which the provisional sum relates is carried out or supplied by the Contractor, the work or item shall be priced by the Superintendent, and the difference shall be added to or deducted from the contract sum.126

At the same time, a construction agreement which includes provisional sums but contains no express provision for the adjustment of the contract price will ordinarily be held to contain an implied term127 for adjustment of the price when it becomes known.128

Contingency sum [5.273]

A provisional sum should not be confused with the term ‘contingency sum’, which applies to items which are not

foreseeable or anticipated at the time of tendering or entering into the contract. This is often applied to work in remote or difficult locations, utilising innovative construction techniques or restoration or renovation work where details of the structural stability of the building are unknown. An exception is found in AS2124-1992, in which the interpretation clause states that the provisional sum includes a contingency sum.129 [page 275] [5.274]

Contingency sums are usually expressed as a percentage of the overall contract price or a respective item. It is usual to find a figure of 10 per cent added to the contract price for the unforeseen items. A more accurate approach is to multiply the probability, expressed as a percentage, by the estimated cost impact, giving a risk contingency for each line item. For example, a risk probability of 25 per cent multiplied by a cost impact of $40,000 suggests a risk contingency of $10,000.

Prime cost items [5.275]

You will note in the definition of provisional sums in both AS2124-1992 and AS4000-1997 that the term also includes ‘prime cost’ items. The term ‘prime cost’ refers to a set budget allocated for an item or set of items that are specified in the contract documents. So by way of differentiating from provisional sums and contingency sums, at the time of tender or entering into the agreement it is expressly known to the parties that these specified items will be required as part of the works. It is simply that when entering into the agreement it is not possible to accurately determine the cost of the items. Alternatively, particularly in the case of domestic or residential construction, it may also be possible that the client has not specified a particular brand, model and style of an item, and then the builder will allocate a certain amount of dollars for the item rather than specifying exact costs.

[5.276]

Again, the definition in s 3 of the Domestic Building Contracts Act 1995 (Vic) is helpful: ‘prime cost item’ means an item (for example, a fixture or fitting) that either has not been selected, or whose price is not known, at the time a domestic building contract is entered into and for the cost of supply and delivery of which the builder must make a reasonable allowance in the contract.

Inclusion of payment for overheads and profit [5.277]

Provisional sums and prime cost items stated in the contract will generally exclude the costs of delivery to the site, the cost of installation, fixing, supervision overheads and profit, which are included in the contract price.130

Effect of legislation Domestic construction [5.278]

With domestic construction, legislation also applies in some states to the issue of provisional sums and prime cost items. In Western Australia, the Home Building Contracts Act 1991 requires that a builder must not enter into a contract that contains an amount or an estimated amount for a prime cost item or a provisional sum if the amount [page 276] or estimated amount is misstated by being less than the least amount that it could reasonably cost to supply the item or perform the work to which the amount relates.

[5.279]

The Domestic Building Contracts Act 1995 (Vic) contains similar but extensive provisions relating to prime cost item requirements, provisional sum warranties and estimates, and requirements that provisional sums must be set out in writing and that the builder must supply evidence of the cost of prime

cost items and provisional sums.131

Security of payment legislation [5.280]

Each state and territory has enacted what might be described as security of payment (SoP) legislation.132 Where there is a dispute over payment for provisional sums or prime cost items, a contractor can utilise the provisions of the respective SoP Acts. The objectives of these Acts are to outlaw certain terms in construction contracts, imply terms for payment where the contract is silent on the issue of payment and provide a rapid adjudication process to resolve payment disputes. The Acts prohibit contracting out of the provisions of the Acts.

Conclusion [5.281]

The law dealing with provisional sums, prime cost items and contingency sums is well settled, particularly as a consequence of the effect of statute on domestic construction; nonetheless, in order to avoid issues relating to these items, parties should ensure that the contract is as detailed and precise as possible, with realistic costs specified in the contract documents.

Subcontracts Introduction [5.282]

Subcontracting is an essential part of the construction industry. It is particularly ubiquitous in Australian construction. In the report of the inquiry into the building industry of Western Australia by Mr C H Smith QC in 1973, it was noted that the growth of the subcontracting system has brought with it a waning of the traditional master builder and the entry of the entrepreneurial builder. Clearly, these observations are still pertinent some 40 years later.

[5.283]

While the contractor will execute various parts of the work themselves, they will normally employ a large number of specialist contractors. The contracts whereby the builder arranges for the various performances of parts of the contract by others are [page 277] known as subcontracts. Consequently, a subcontractor is a skilled person or company selected and paid by the head contractor, or nominated or selected by the principal, to carry out selected portions of the work under the building contract.

[5.284]

Often the subcontractor will be engaged in highly specialised aspects of the construction and may also be involved in the design of the portion of the work to be executed. For example, structural steel, pile foundations or airconditioning may be not only installed but designed by a specialist subcontractor. Note also that any supplier of goods is in reality a subcontractor.

[5.285]

The engagement of subcontractors does not relieve the contractor from any liability under the contract, and except where expressly stated in the contract, the contractor will be liable to the principal for any acts or omissions of the subcontractors and employees and agents of subcontractors as if they were acts or omissions of the contractor.133 As a consequence, the provisions with respect to the appointment of subcontractors will invariably contain a clause stating that the subcontractor will indemnify the contractor against loss resulting from any breaches by the subcontractor.134 Clearly, the intention of these provisions is to include any tortious or statutory breaches in addition to breaches of the terms of the contract.

Issues arising in the performance of subcontracting

[5.286]

There are a number of issues with respect to subcontracting. The important issues include the legal definition of a subcontractor, the role of nominated and selected subcontractors, subcontract conditions of contract, and payment.

The legal definition of a subcontractor [5.287]

The legal definition of a subcontractor was considered in South Seas Drilling Company v Esso Australia Ltd. The court noted: In its ordinary meaning ‘sub-contractor’ means (1) ‘a contract, or one of several contracts, for carrying out a previous contract or part of it’ (The Oxford English Dictionary); (2) one who contracts to render some performance for another which the latter requires for the performance of his own contract (Macquarie Dictionary). ‘Sub’ is a prefix meaning ‘under’ (Macquarie Dictionary).

And further: … in order to find a sub contractor there must exist somewhere a ‘head contract’ and a further contract under the ‘head contract’ whereby a contractor has agreed to perform the whole or portion of the head contract for the principal contractor.135

[page 278] [5.288]

An issue which arises from time to time in a range of commercial agreements is whether a person is in fact a subcontractor or an employee. This often arises when a worker is injured and a principal or employer attempts to avoid liability, or when the Deputy Commissioner of Taxation claims that a person is an employee and not an independent contractor, thus affecting taxation obligations. The factors to be taken into account in making the determination are detailed in Stevens v Brodribb Sawmilling Co Pty Ltd136 and Hollis v Vabu Holdings Pty Ltd (t/as Crisis Couriers).137 The courts will look at the totality of the relationship between the parties, with control of the activities being an important but not decisive factor.

Nominated subcontractors [5.289]

The purpose of permitting the principal to specifically nominate a subcontractor is to permit the principal to select persons who in the opinion of the principal have specialist skills and experience to perform the work to the level of quality and prices required under the contract.138

[5.290]

The process of nominating subcontractors was described in North West Metropolitan Regional Hospital Board v T A Bickerton & Son Ltd as follows: The scheme for nominated sub-contractors is an ingenious method of achieving two objects which at first sight might seem incompatible. The employer wants to choose who is to do the prime cost work and to settle the terms on which it is to be done and at the same time avoid the hazards and difficulties which might arise if he entered into a contract with a person whom he has chosen to do the work.139

[5.291]

A subcontractor who operates under a building contract and who is ‘nominated’ to the head contractor by the principal enjoys certain privileges and by virtue of those privileges enjoys special treatment under the contract.140 Having accepted the nominated subcontractors, the main or head contractor treats them as normal subcontractors. However, most contracts will contain a provision that a nominated subcontractor can be paid directly by the principal.141 The other legal issues with respect to nominated subcontractors will be further discussed below.

[5.292]

It may appear that the process of nomination creates privity of contract between the principal and the nominated subcontractor, but Hampton v Glamorgan County Council142 found this not to be the case. [page 279]

[5.293]

The nomination and acceptance by the contractor of nominated subcontractors are governed by the conditions laid

down in the particular GCOC, and these must be strictly adhered to by all contracting parties. Failure to do so can lead to disputes, litigation, extra costs and extension of time. [5.294]

The definitions of and provisions relating to both selected and nominated subcontractors are extensively detailed in a number of standard form GCOC, for example, AS2124-1992 (s 10(1)–(6)) and AS4000-1997 (s 9(1)–(5)). The terminology is also used in a number of other standard form contracts.143

[5.295]

The standard forms of GCOC permit builders and subcontractors to subcontract to various degrees. AS2124-1992 permits builders to subcontract with the written approval of the principal. AS4000-1997 permits builders to subcontract but provides a means by which this can be specifically limited. Note that, as mentioned above, the security of payment legislation in each state and territory significantly affects the common law position of principals, contractors and subcontractors with respect to payment.

[5.296]

While each of the major standard form contracts expressly states the conditions relating to the appointment and use of nominated subcontractors, they may be described generally as follows: The head or main contractor must have no objections to the nominated subcontractors. Therefore, the head contractor must see a list of the nominated subcontractors before tenders are called and can object to any nominated subcontractor on sound and reasonable grounds. The nominated subcontractor must be willing to work for the contractor. The submission of a tender by the subcontractor establishes willingness. The nominated subcontractor’s work must be to the satisfaction of the contractor and the superintendent. Nominated subcontractors must indemnify the contractor for breaches by the subcontractor.

Loss or damages are recoverable by the contractor for nonperformance by the subcontractor.144 [5.297]

Payment to the nominated subcontractor must be made within the specified days after the contractor has received payment. The sum to be paid to the nominated subcontractor must be identified in the progress certificate. There is usually a clause [page 280] that nominated subcontractors may suspend work for nonpayment after a specified period of time.

[5.298]

However, as stated earlier, the general conditions of the contract or the common law with respect to payment of subcontractors must now comply with the provisions of the various state security of payment legislation.

Termination and insolvency [5.299]

There will be occasions when a nominated subcontractor repudiates the contract or becomes insolvent. With respect to the issue of the responsibility for the completion of the subcontract works, it is usual for the contract to contain a provision which allows a superintendent to nominate another subcontractor to complete the unfinished work. In the absence of an express provision, the contractor is considered to be liable for completion of the subcontractor’s work and no term will be implied requiring renomination.145

Provisional sums and prime cost items under subcontracts [5.300]

Both provisional sums and prime cost items will form part of contracts where specialist work or the supply of items is to be undertaken by subcontractors. A provisional sum is generally

described as a sum of money specified in the construction contract documents146 for an item of work or material which is foreseeable and has always been intended to form part of the works under the contract but is unable to be costed at the time of tendering.147 The term ‘prime cost’ refers to a set budget allocated for an item or set of items that are specified in the contract documents. [5.301]

The head contractor will be entitled to be paid the costs incurred under the subcontract’s works or items supplied after an adjustment of the amount specified in the contract to reflect the difference (up or down) between the provisional or prime cost amount and the actual amount payable under the subcontract. The major standard form contracts specify how the amounts are to be determined.148 [page 281]

Incorporated terms of the head contract [5.302]

An important issue in determining questions of damages or loss incurred by the contractor as the consequence of a breach by the subcontractor is whether the subcontractor was aware of the terms of the head contract.

[5.303]

At common law, a subcontractor is not bound by the terms of the main contract without having agreed to be bound by them unless the breach relates to an implied term. Secondly, it is well established at common law that damages are only recoverable for those losses which arise naturally from the breach or are actually contemplated as a probable result of the breach.149 However, depending on the facts, such knowledge might be implied by the behaviour or conduct of the parties.

[5.304]

Often a subcontract will specifically incorporate reference to parts of the head contract. For example, there may be a term

similar to the following: You shall observe the form and comply with all the provisions of the head contract on the part of the builder to be observed performed and complied with so far as they relate and apply and are not repugnant to or inconsistent with the express provisions of this subcontract. [5.305]

The Australian Standard GCOC AS2124-1992 clause 10.3 requires the contractor to ensure that the provisions of the subcontract are severally set out in the subcontract documents so that the subcontract is fully expressed and complete in itself and includes provisions that the subcontractor will undertake towards the contractor’s obligations and liabilities which will enable the contractor to discharge the contractor’s obligations and liabilities to the principal under the terms of the contract.150

[5.306]

This ensures that the subcontractor must be expressly or implicitly aware of and agree to the terms of the subcontract, or rather the incorporation of the terms of the main contract into the subcontract. Also, if the head contract terms are found to be incorporated into the subcontract, it is only to the extent that they are able to be applied to that subcontract and are not inconsistent with the terms of the subcontract.151

The use of standard form subcontracts [5.307]

The widespread practice of subcontracting has given rise to the development of a wide range of bespoke — that is, especially made for a particular purpose — subcontracts used by contractors and purchasers.152 These are extremely problematic and have frequently given rise to considerable and costly litigation. [page 282]

[5.308]

For example, the cost of tendering by contractors may increase

because they are concerned that there are hidden risks that they might have to price within the base contract conditions. Contracts where risk allocation follows equitable principles generally work better and are less prone to claims by the contractor than unfair onesided contracts written for one party’s interests only. For this reason, contracts which attempt to transfer risks controlled by one party, usually the principal, onto the other party, who is usually the contractor who may not be able to control those risks, expose both parties to the risk of dispute if the meaning or intent is not entirely clear. Finally, new documents will not have had a long period of use allowing parties to familiarise themselves with their terms and conditions. [5.309]

By contrast, standard form contracts with their long history of use and interpretation by the courts reduce the tendency to disputation.153 As the ‘No Dispute’ report commented: Standard forms of contract are preferred by the industry to contracts that are individually drafted for each project, if for no other reason than that as both parties are more likely to be fully familiar with the obligations assumed by each party using a standard form they will thereby reduce incidents of dispute caused by concealing obligations in unfamiliar documents.154

[5.310]

The efficiency and effectiveness of subcontracting in the Australian construction industry has been greatly assisted by the introduction of a number of ‘companion’ standard form subcontracts which may be used in association with the major standard form GCOC. For example, AS2545-1992 is used with AS2124-1992; AS4901-1997 with AS4000-1997; ABIC MW-SC-1 with ABIC MW-2008; and PC-1 1998 with PC-1.

Payments to subcontractors [5.311]

There is no privity of contract between a proprietor and a subcontractor, and the subcontractor must look for payment to the head contractor alone unless stated otherwise in the contract. All major construction contracts contemplate direct payments by the proprietor to the subcontractor and permit the

ability to deduct this amount from any sum due to the builder. For example, AS2124-1992 permits a direct payment by the principal to a subcontractor by operation of clauses 10.6 and 10.5. This provision is also found in clause 38.3 of AS4000-1997. [5.312]

As noted above, the position of subcontractors with respect to payment has been greatly improved by the introduction of security of payments legislation in all Australian states and territories. The legislation is detailed elsewhere in this text, but essentially the objects of these Acts generally is to ensure that any person or organisation who [page 283] carries out construction work or who supplies related goods and services under a construction contract is able to receive and is able to recover specified progress payments in relation to the carrying out of the work and the supplying of those goods and services without resort to costly arbitration or litigation. An important feature of the legislation is that it applies to both oral and written construction contracts. However, not all construction work is designated as construction work under the Acts and each Act contains a number of exemptions. Another essential feature of these Acts is that it is prohibited to ‘contract out’ of their provisions.

[5.313]

These Acts provide for a quick and independent adjudication of the subcontractor’s claim, and upon an adjudicator’s determination the successful party will be able to have the amount of the determination paid to them regardless of any subsequent arbitration or litigation. The provisions of the various Acts also prohibit certain terms in construction contracts and will allow the implication of terms relating to payment where the contract is silent with respect to these issues.

Pay when paid clauses [5.314]

Prior to the introduction of security of payment legislation, it was not unusual for a subcontract to feature a ‘pay when paid’ or ‘pay if paid’ clause. A ‘pay when paid’ clause will state that it is expressly agreed that the subcontractor’s right to receive payment is entirely dependent upon the builder having already actually received from the principal payment in respect of the work.155

[5.315]

These types of clauses are now prohibited in the various SoP Acts. For example, s 9 of the Construction Contracts Act 2004 (WA) prohibits these clauses. A provision in a construction contract has no effect if it purports to make the liability of a party to pay money under the contract to another party contingent, whether directly or indirectly, on the first party being paid money by another person (whether or not a party).

Payment to subcontractors outside the contract [5.316]

There may be occasions when a subcontractor is entitled to payment despite being denied payment by a principal or head contractor due to noncompliance with the terms of the contract. The principles relevant here — relating to payments by way of quantum meruit (in order to avoid ‘unjust enrichment’) — are further discussed elsewhere in this text.

[5.317]

In Pavey & Matthews Pty Ltd v Paul,156 the court determined that the law imposes an obligation independent of contract to pay a fair and reasonable price for the goods and services, such obligation arising from the law of restitution or unjust enrichment. [page 284] These principles were applied in the context of a subcontractor

claim in ABB Power Generation Ltd v Chapple.157 While there was no contractual arrangement between the subcontractor (Chapple) and ABB, ABB was held to have received a benefit from Chapple associated with modifying scaffolding on its orders to suit an agreement with other contractors on site. However, the decision is not without controversy and in Lumbers v W Cook Builders Pty Ltd (in liq)158 the High Court held that the issue in claims of this type is how the claim relates to the particular contract between the parties.

Security or retention monies [5.318]

Standard form subcontracts commonly provide for retention monies to be held by the builder out of payments received by the builder as security for the proper performance of the subcontract work. For example, clause 5 of AS2545-1993 and clause 5 of AS4901-1998 state that the purpose of security retention monies and performance undertakings is to ensure the due and proper performance of the contract. These provisions usually state that the interest of the builder in the money shall be fiduciary only, with the money being held by the builder as trustee for the subcontractor without obligation to invest or to account to the subcontractor for any income or profit derived.

[5.319]

At common law, the effect of such a provision was to oblige the builder to appropriate and set aside the retention monies in a fund to be held on trust for the subcontractor.159

[5.320]

The respective security of payment legislation in each state and territory now imposes strict obligations on principals and head contractors with respect to the retention and release of security and retention monies.

Materials on site supplied by a subcontractor [5.321]

An issue which often arises in the context of construction contracts is whether a subcontractor can recover materials

delivered to site in the absence of payment by the contractor. This issue also arises when a builder becomes insolvent and access to the site by a subcontractor is prevented. The legal issues involve a consideration of when property passes, which in turn raises the issue of what type of contract governed the supply. Many contracts will include a ‘retention of title’ clause, which details how and when property in materials will pass from the subcontractor to the contractor or owner. [5.322]

In the case of Hewett v Court,160 the court held that where a contract is not only to supply an article but to erect or install it so that it becomes a fixture or part of the [page 285] land, the contract is for work done and materials supplied. The principle is that for delivery of equipment and materials on site, the property in these items will not pass to the builder. Ordinarily, the property in materials brought to a site by a contractor passes to the principal only when those materials are integrated with the building under construction.161

[5.323]

In the past, the usual way to avoid any problems regarding retention of material at common law was to put a specific retention of title clause in a subcontract that clearly prevents the title passing to the contractor, which in turn limits a principal’s rights to that equipment. However, the issue was extremely problematic and was subsequently addressed through specific provisions in the various state and territory security of payment Acts.

[5.324]

For example, the Construction Contracts Act 2004 (WA) provides for ownership of goods in a construction contract that does not have a written provision about when the ownership of the goods that are related to construction work and supplied to the site of the construction work by the contractor under its

obligations, passes from the contractor. Under Div 7 of the schedule to the Act, ownership of the goods passes from the contractor when the contractor is paid for the goods or when the goods become fixtures.

Conclusion [5.325]

Universally, construction contracts will provide a right to subcontract parts of work under the contract subject to specified conditions of approval. Nevertheless, the contractor remains responsible for the performance of the subcontractor. There are a range of standard form subcontract agreements which are associated with the main standard form general conditions of contract. These subcontracts, like the main contracts, attempt to equitably balance the risk, and the terminology is well understood as a consequence of widespread use. The introduction of security of payment legislation has greatly assisted subcontractors by prohibiting certain unfair terms in contracts and providing a process for the rapid resolution of any payment dispute between the subcontractor and the head contractor.

__________________________ 1

An alternative form of procurement of traditional contracts is known as relationship contracting or alliance contracting. In a relationship of this type, an alliance brings the principal, designer and contractor together into a single entity for the purposes of delivering a project. Alliances are usually used when the project involves complexity and high risk.

2

Comalco Fabricators Ltd v Dillingham Constructions Pty Ltd (1977) 17 SASR 82 at 86.

3

Spencer v Harding (1870) LR 5 CP 651; Blackpool & Fylde Aero Club v Blackpool Borough Council (1990) 1 WLR 1195.

4

Streamline Travel Service Pty Ltd v Sydney City Council (1981) 46 LGRA 168.

5

Hyde v Wrench (1840) 49 ER 132.

6

Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd [1986] AC 207. Consequently, in tender invitations it is usual to include a term that the highest (or lowest) tender will not necessarily be accepted.

7

Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151; 146 ALR 1.

8

See Pratt Contractors Ltd v Palmerston North City Council (1995) 1 NZLR 469; Ipex ITG Pty Ltd in liq v Victoria [2010] VSC 480.

9

New South Wales Government, Code of Practice for Procurement, January 2005; Victorian Government, Office of Building & Development, Department of Infrastructure, Tendering for Public Construction and Related Consultancy Services, January 1997; Queensland Government, State Purchasing Policy (Rev No 10), May 1997; West Australian Government, Code of Practice for the WA Building & Construction Industry, August 1996; Australian Standard AS4120-1999 (A Code of Tendering).

10

Blackpool & Fylde Aero Club Ltd v Blackpool Borough Council (1990) 3 All ER 25 at 31; 1 WLR 1195.

11

Sabemo Pty Ltd v North Sydney Municipal Council (1997) 2 NSWLR 80.

12

Sabemo Pty Ltd v North Sydney Municipal Council (1997) 2 NSWLR 80 at 902–3.

13

British Steel Corp v Cleveland Bridge & Engineering Co Ltd [1984] 1 All ER 504 at 511.

14

While not in the context of tenders, other cases where this principle has been applied are Austotel Pty Ltd v Franklins Self Serve Pty Ltd (1989) 16 NSWLR 582 at 621; Brenner v First Artists’ Management Pty Ltd (1993) 2 VR 221 at 258–9.

15

Commonwealth Bank of Australia v T L I Management Pty Ltd (1990) VR 510.

16

LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (2001) 53 NSWLR 31; [2001] NSW SC 886.

17

It is generally considered that a ‘Heads of Agreement’ is an informal and non-binding document which does nothing more than set out the proposed agreement between the parties. In certain circumstances, however, the Heads of Agreement can be held to be a legally binding contract.

18

Coogee Esplanade Surf Motel Pty Ltd v Commonwealth (1976) 50 ALR 363 at 368.

19

Macquarie Generation v CNA Resources Ltd [2001] NSWSC 1040.

20

[5.17]–[5.18] above.

21

Morrison Knudsen International Co Inc v Commonwealth (1972) 46 ALJR 265.

22

In MBF Investments Pty Ltd v Nolan (2011) 37 VR 116; [2011] VSCA 114, it was held that the former s 52 principles will apply to liability under s 18 of the Australian Consumer Law.

23

Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; [2006] NSWCA 282.

24

Munday & Shreeve v Western Australia & Western Australian Transport Board (1962) WAR 65.

25

Milne v Municipal Council of Sydney (1912) 14 CLR 54; 18 ALR 550; [1912] HCA 25.

26

Top Performance Motors Pty Ltd v Ira Berk (Qld) Pty Ltd (1975) 5 ALR 465; 24 FLR 286; Trade Practices Commission v David Jones (Australia) Pty Ltd (1986) 13 FCR 446; 64 ALR 67.

27

Australian Competition and Consumer Commission v Pioneer Concrete (Qld) Pty Ltd (1996) ATPR 41–457.

28

Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (No 8) (1999) 92 FCR 375; 165 ALR 468; [1999] FCA 954.

29

PC1-1998 Project Contract; ABIC BW-1 2002 Basic Works Contract; ABIC EW-1 2002 Early Works Contract; ABIC SW-1 2002 Simple Works Contract; AS 2124-1992 General Conditions of Contract; AS 4000-1997 General Conditions of Contract. The Standards Australia (SA) Technical Committee MB010, General Conditions of Contract, is currently revising the suite of Standards related to general conditions of contract, AS2124-1992 and AS4000-1997. Under the proposed revision, the two existing Standards are to be merged into a new suite of Standards, AS11000: General conditions of contract.

The proposed AS11000 is meant to supersede AS2124-1992 and AS4000-1997. For a discussion of standard form contracts in the construction industry, see J Sharkey, M Bell, W Jocic and R Marginean, Standard Form Contracts in the Australian Construction Industry, University of Melbourne Research Report, June 2014. 30

Section 4(1)(a).

31

Pavey and Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 557.

32

Building and Construction Industry Security of Payment Act 2009 (ACT); Building and Construction Industry Security of Payment Act 1999 (NSW); Construction Contracts (Security of Payments) Act 2004 (NT); Building and Construction Industry Payments Act 2004 (Qld); Building and Construction Industry Security of Payment Act 2009 (Tas); Building and Construction Industry Security of Payment Act 2002 (Vic); Construction Contracts Act 2004 (WA).

33

See Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367.

34

For example, see AS2124-1992 clause 8.2.

35

As an alternative, the general conditions of contract may provide that any issue regarding inconsistencies between documents is to be referred to the superintendent for determination: for example, AS2124-1992 clause 8.1.

36

See AS2124-1992 clause 4.

37

Re Multiplex Constructions Pty Ltd (1997) 14 BCL 162; [1997] QSC 009.

38

Queensland v Multiplex Constructions Pty Ltd [1999] 1 Qd R 287; (1997) 14 BCL 329; 14 BCL 240; [1997] QCA 447.

39

A detailed discussion of the principles of commercial contract interpretation may be found in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; 264 ALR 15; [2009] NSWCA 407.

40

Re Phoenix Bessemer Steel Co Ltd (1875) 44 LJ Ch 683.

41

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973); 129 CLR 99; [1973] HCA 36.

42

While not in the context of a construction contract but rather a bill of lading, the principle was applied by the House of Lords in Homburg Houtimport BV v Agrosin Private Ltd (The Starsin) [2003] 2 All ER 785; [2003] 2 WLR 711.

43

The rule will not apply to partly written, partly oral contracts; contracts subject to trade usage or custom; contracts which are suspended by oral agreement; invalid contracts; contracts where a mistake has been made in the writing of the agreement; and where parol evidence is required to resolve some ambiguity or uncertainty.

44

Extrinsic evidence is evidence that relates to a contract, but is not contained within the document itself; for example, circumstances surrounding the formation of the contract. This type of evidence is not admissible unless it falls within one of the exceptions in the parol evidence rule.

45

Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) L 252; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367.

46

See AS2124-1992 and AS4000-1997.

47

Johnson Matthey Ltd v AC Rochester Overseas Corp (1990) 23 NSWLR 190.

48

Competition and Consumer Act 2010 (Cth); Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; 257 ALR 610; [2009] HCA 25.

49

Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429 at 437; [1968] HCA 8.

50

Hillas & Co v Arcos Ltd [1932] All ER Rep 494; (1932) 147 LT 503.

51

In NSW, the Contracts Review Act 1980 (NSW) confers upon the Supreme, District and Local Courts, powers to review contracts that are ‘unjust’, which is defined in s 4 to include harsh, oppressive or unconscionable conduct.

52

South Australian Railways Commissioner v Egan (1973) 130 CLR 506 at 512.

53

I Harper, P Anderson, S McCluskey and M O’Bryan, Competition Policy Review Final Report, Commonwealth of Australia, 2015 (The Harper Review) .

54

‘Extending Unfair Contract Term Protection to Small Businesses’ (Consultation Paper), The Treasury, 23 May 2014 .

55

.

56

BIS Shrapnel, Long Term Forecast 2014-29, September 2014.

57

G Goldfayl, Construction Contract Administration, University of NSW Press, Sydney, 2002.

58

For consistency with the terminology used in the major standard general conditions of contract, the term ‘superintendent’ will be used for the role of the contract administrator.

59

For example, Limitation Act 1969 (NSW); Limitation of Actions Act 1974 (Qld); Limitation of Actions Act 1936 (SA); Limitation of Actions Act 1958 (Vic); Limitation Act 2005 (WA).

60

Note that there are separate timeframes for seeking extra-contractual remedies.

61

The Standards Australia (SA) Technical Committee MB-010, General Conditions of Contract, is currently revising the suite of Standards related to general conditions of contract, AS2124-1992 and AS4000-1997. Under the proposed revision, the two existing Standards are to be merged into a new suite of Standards, AS11000: General conditions of contract. The proposed AS11000 is meant to supersede AS2124-1992 and AS4000-1997.

62

For a discussion of the use of standard form contracts in the Australian construction industry, see J Sharkey, M Bell, W Jocic and R Marginean, Standard Form Contracts in the Australian Construction Industry, University of Melbourne Research Report, June 2014.

63

G Goldfayl, Construction Contract Administration, University of NSW Press, Sydney, 2002.

64

Auditor-General Western Australia, Maintaining the State Road Network, Report No 6, June 2009.

65

CRC for Construction Innovation, Guide to Leading Practice for Dispute Avoidance and Resolution, 2009.

66

J Sharkey, M Bell, W Jocic and R Marginean, Standard Form Contracts in the Australian Construction Industry, University of Melbourne Research Report, June 2014.

67

Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494; (1932) 147 LT 503.

68

For example, AS2124-1992.

69

For example, the various state security of payment Acts and the Competition and Consumer Act 2010 (Cth).

70

Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151; 146 ALR 1.

71

AS2124-1992.

72

BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; 16 ALR 363.

73

Specifically, the Copyright Act 1968 (Cth).

74

Each of the major general conditions of contract forms allow for the appointment of nominated contractors, although the terminology may differ. See AS2124-1992, AS4000-1997, ABIC MW-2008 and PC-I 1998.

75

North West Metropolitan Regional Hospital Board v T A Bickerton & Son Ltd [1970] 1 All ER 1039; (1970) 1 WLR 607.

76

See AS2124-1992 s 10.1 and AS4000-1996 s 9.3.

77

Morrison Knudsen International Co Inc v Commonwealth (1972) 46 ALJR 265; Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; [2006] NSWCA 282.

78

Delstrat Pty Ltd t/a Seacrest Homes v Bond [2004] WADC 55.

79

Hargrave v Goldman (1963) 110 CLR 40; [1964] ALR 377.

80

For example, Home Building Contracts Act 1991 (WA); for the equivalent legislation in other states, see Table 2.3.

81

Clause 19 (Alternative 2).

82

See South Australian Railways Commissioner v Egan (1973) 130 CLR 506.

83

Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322; [2002] NSWCA 211.

84

Carr v JA Berriman Pty Ltd (1953) 89 CLR 327.

85

AS2124-1992 clause 30.1.

86

AS2124-1992 clause 14.1.

87

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367; [1982] HCA 24.

88

For a discussion of the principles relating to the award of liquidated damages, see Tasmania v Leighton Contractors Pty Ltd (2005) 15 Tas R 243; [2005] TASSC 133.

89

AS2124-1992 subclause 35.6.

90

See Jones v St John’s College Oxford (1870) LR6QB 115; Aurel Forras Pty Ltd v Graham Karp Developments Pty Ltd [1975] VR 202 at 211.

91

These are described in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111.

92

For example, AS2124-1992 clause 35.5.

93

Wegan Constructions v Wodonga Sewerage Authority [1978] VR 67.

94

Building and Construction Industry Security of Payment Act 2009 (ACT); Building and Construction Industry Security of Payment Act 1999 (NSW); Construction Contracts (Security of Payments) Act 2004 (NT); Building and Construction Industry Payments Act 2004 (Qld); Building and Construction Industry Security of Payment Act 2009 (Tas); Building and Construction Industry Security of Payment Act 2002 (Vic); Construction Contracts Act 2004 (WA).

95

The distinction between conditions and minor terms is discussed in Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286.

96

For example, see AS2124-1992 clause 45 (a)–(f).

97

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367.

98

See Pavey and Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 557.

99

Frustrated Contracts Act 1978 (NSW); Frustrated Contracts Act 1988 (SA).

100Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322; [2002] NSWCA 211. 101 AS2124-1992 clause 46.1. 102 Concrete Developments Pty Ltd v Queensland Housing Commission [1961] Qd R 356. 103 Commonwealth v Jennings Construction Ltd [1985] VR 586; (1985) 1 BCL 252. 104 See Hillas & Co v Arcos Ltd [1932] All ER Rep 494; (1932) 147 LT 503. Similar statements in a

construction sector context can be seen in the judgment of Ipp J in Anaconda Nickel v Tarmoola Australia Pty Ltd (2000) 22 WAR 101 at 112–113; [2000] WASCA 27. See also Cape Lambert Resources v MCC Australia Sanjin Mining Pty Ltd [2012] WASC 228; Downer EDI Mining Pty Ltd v Wambo Coal Pty Ltd [2012] QSC 290. 105 See Heyman v Darwins Ltd (1942) 1 All ER 337; Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land

Council [2006] NSWCA 291; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367. 106 See Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; 76 ALR 513. 107 See Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17; 57 ALR 609; Corbett Court

Pty Ltd v Quasar Constructions (NSW) Pty Ltd (2009) 25 BCL 29; [2008] NSWCA 1163. 108 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266; 16 ALR 363. See also

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367. 109 For example, Construction Contracts Act 2004 (WA) Sch 1: Implied Provisions. 110 Pakenham v Board of Land and Works (1874) 5 AJR 37. 111

Dillingham Constructions Pty Ltd v Downs [1972] 2 NSWLR 49.

112 Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; [2006]

NSWCA 282. 113 Where a party has received a benefit from work done or items supplied in circumstances where they

had an opportunity to accept or reject the work, they may be required to compensate the performing party on the basis of the equitable doctrine of unjust enrichment. See Pavey and Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 557. 114 The Standards Australia (SA) Technical Committee MB-010, General Conditions of Contract,

is currently revising the suite of Standards related to general conditions of contract, AS2124-1992 and AS4000-1997. Under the proposed revision, the two existing Standards are to be merged into a new suite of Standards, AS11000: General conditions of contract. The proposed AS11000 is meant to supersede AS2124-1992 and AS4000-1997.

115 The Australian Building Industry Contracts (ABIC) are jointly published by the Australian Institute

of Architects and Master Builders Australia. ABIC contracts are intended for use in building projects where an architect administers the contract. They are designed to make contract administration clear and less prone to dispute or time-consuming negotiation. 116 The builder is excused from this obligation if adequate site information exists and it is reasonable

for the builder to rely on it: see s 30(5).

117 Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556; [1969] ALR 3. 118 Building

and Construction Industry Security of Payment Act 2009 (ACT); Building and Construction Industry Security of Payment Act 1999 (NSW); Construction Contracts (Security of Payments) Act 2004 (NT); Building and Construction Industry Payments Act 2004 (Qld); Building and Construction Industry Security of Payment Act 2009 (Tas); Building and Construction Industry Security of Payment Act 2002 (Vic); Construction Contracts Act 2004 (WA).

119 Morrison-Knudsen International Co Inc v Commonwealth (1972) 46 ALJR 265. 120 In MBF Investments Pty Ltd v Nolan (2011) 37 VR 116; [2011] VSCA 114, it was held that the former s

52 principles will apply to liability under s 18 of the Australian Consumer Law. 121 Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) (2006) 67 NSWLR 341; [2006]

NSWCA 282. 122 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546; 79 ALR 83. 123 The specifications and bills of quantities will usually contain a number of prime cost items and

provisional sums. 124 Tuta Products Pty Ltd v Hutcherson Bros Pty Ltd (1972) 127 CLR 253. 125 A nominated subcontractor is one selected by a principal which the contractor is required to use.

They are also known as selected subcontractors. 126 AS

4000-1997 clause 3, General Conditions of Contract, Standards Australia: terms which are italicised are defined in clause 1 Interpretation and construction of contract.

127 For a discussion of implied terms in the context of a construction contract, see Codelfa Construction

Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; 41 ALR 367. 128 Tuta Products Pty Ltd v Hutcherson Bros Pty Ltd (1972) 127 CLR 253. 129 In clause 2 of AS2124-1992, ‘provisional sum’ includes monetary sum, contingency sum and prime

cost item. Prime cost items are not defined in AS2124-1992 but are generally described in this way because the intention of the parties is that the contractor will be paid for them not by way of an agreed sum but by an amount based on the actual cost. See also ABIC MW-1 2001 s K. 130 For example, see the Housing Industry Association Limited of Australia HBCA Lump Sum Building

Contract clause 11(c). See also AS2124-1992 (clause 11), AS4000-1997 (clause 3) and Property Council PC-1 2000 (clause 8.12). 131 Domestic Building Contracts and Tribunal Act 1995 (Vic) Div 4 ss 20–23. 132 Building

and Construction Industry Security of Payment Act 2009 (ACT); Building and Construction Industry Security of Payment Act 1999 (NSW); Construction Contracts (Security of Payments) Act 2004 (NT); Building and Construction Industry Payments Act 2004 (Qld); Building and Construction Industry Security of Payment Act 2009 (Tas); Building and Construction Industry Security of Payment Act 2002 (Vic); Construction Contracts Act 2004 (WA).

133 AS2124-1992 clause 9.3 and AS4000-1997 clause 9.5. 134 For example, see AS2124-1992 clause 10(3)(b). 135 South Seas Drilling Company v Esso Australia Ltd (1988) 5 BCL 51. 136 Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16; 63 ALR 513. 137 Hollis v Vabu Holdings Pty Ltd (t/a Crisis Couriers) (2001) 207 CLR 21; 181 ALR 263; [2001] HCA 44. 138 Each of the major form GCOC allows for the appointment of nominated contractors although the

terminology may differ: see AS2124-1992, AS4000-1997, ABIC MW-2008 and PC-1 1998. 139 North West Metropolitan Regional Hospital Board v T A Bickerton & Son Ltd [1970] 1 All ER 1039 at

1043; (1970) 1 WLR 607. 140 See AS2124-1992 s 10.1 and AS4000-1996 s 9.3. 141 See AS2124-1992 clause 10.5. 142 Hampton v Glamorgan County Council [1917] AC 13. 143 The AS4000 suite of contracts retains the nominated contractor concept but refers to them as

subcontractors: see clause 9.3. PC-1 1998 removed direct nomination and replaced it with a means by which a list of approved subcontractors could be specified by the principal for the particular part of the works. In ABIC MW1-2001, major works contract (MBA/RAIA), the nominated subcontractor concept has been replaced with a provision which entitles the proprietor to remove from the builder’s works identified parts of the works and hand that work to separate contractors (see clause G14). 144 While

there is no privity of contract between the principal and the subcontractor, in some circumstances a subcontractor might be liable to a principal in negligence. However, it would be difficult to establish a duty of care if the critical elements of reliance and vulnerability are missing: see Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; 205 ALR 522; [2004] HCA 16.

145 Adelaide City Corporation v Jennings Industries Ltd (1985) 156 CLR 274; 57 ALR 455. 146 The specifications and bills of quantities will usually contain a number of prime cost items and

provisional sums. 147 In clause 2 of AS2124-1992, ‘provisional sum’ includes monetary sum, contingency sum and prime

cost item. Prime cost items are not defined in AS2124-1992 but are generally described in this way because the intention of the parties is that the contractor will be paid for them not by way of an agreed sum but by an amount based on the actual cost. See also ABIC MW-1 2001 s K. 148 Housing Industry Association Limited of Australia HBCA Lump Sum Building Contract (clause

11(c)); AS2124-1992 (clause 11); AS4000-1997 (clause 3), Property Council PC-1 1998 (clauses 8.10– 8.12) and ABIC MW-2008 (clause K4). 149 Hadley v Baxendale (1854) 2 CLR 517; 156 ER 145. 150 The way in which the payment provisions operate in AS2124-1992 and AS2545-1992 was considered

in Devaugh Pty Ltd v Lamac Developments Pty Ltd (2000) 16 BCL 378; [1999] WASCA 280. 151 White Industries Pty Ltd v Piling Contractors Pty Ltd (1986) 2 BCL 353. 152 These

contracts are generally more favourable to the principal and the risk allocation will be significantly different to the Australian Standard general form contracts.

153 For a discussion of the use of standard form contracts in the Australian construction industry, see J

Sharkey, M Bell, W Jocic and R Marginean, Standard Form Contracts in the Australian Construction Industry, University of Melbourne Research Report, June 2014. 154 NPWC/NBCC,

‘No Dispute — Strategies for improvement in the Australian Building and Construction Industry’, a report by the NPWC/NBCC joint working party, National Public Works Conference, May, 1990.

155 Trade Indemnity Australia Ltd v Parkinson Air-conditioning Pty Ltd (1994) 11 BCL 39. 156 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; 69 ALR 577.

157 ABB Power Generation Ltd v Chapple (2001) 25 WAR 158; (2002) 18 BCL 229; [2001] WASCA 412. 158 Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; 247 ALR 412; [2008] HCA 27. 159 KBH Construction Pty Ltd v Lidco Aluminium Products Pty Ltd (1991) 7 BCL 183. 160 Hewett v Court (1983) 149 CLR 639; 46 ALR 87. 161 RJ Grills Pty Ltd v Dellios [1988] VR 136.

[page 287]

CHAPTER 6

Contract Administration

Key Ideas This chapter discusses: claims, notices and certificates role of the superintendent pre-commencement matters progress claims: claim, certificate and payment extensions of time, critical path and variations completion: date for practical completion, date of practical completion

[page 288]

Introduction [6.1]

Things do not always go exactly as planned, especially on construction projects. Indeed, any plan in place prior to the commencement of the work may be only approximate. Therefore construction contracts have mechanisms that provide some certainty as to how the variables and contingencies of future events are to be dealt with. Those mechanisms are particularly concerned with regulating the rights and obligations of the parties to a contract and therefore require careful, and often specialist, attention. The management of those mechanisms is usually referred to as ‘contract administration’.

[6.2]

‘Contract administration’ is a term of mixed colloquial usage in the construction industry, perhaps because contract administrators are often persons whose employment also charges them with other commercial and project duties unrelated to administration of the contract. This can lead to misunderstanding and confusion. For example, in some contexts ‘contract administration’ is intended to refer only to the special activities of a contract superintendent. However, it will always be the case that the builder will also have to attend to some matters of contract administration, and may assign a specialist to that role.

[6.3]

Contract administration is primarily given effect through documents. This is intended to ensure clear communication and an evidentiary record. The substance of the documents will usually involve the application of professional expertise. With any construction contract it is vital for contract administrators to understand each form of notice, claim and certificate prescribed by the contract, and when it is required. Failure to

attend to required documentation may have serious legal consequences. The main types of documentation may be categorised as follows.

Notices Under the contract, one party may be required to notify the other that an event has occurred or has the potential to occur. This is usually required because the other party to the contract has a legitimate interest in that event, and may wish to take steps to protect that interest. For this reason there is often a requirement that notices be issued within a certain time. The failure to issue a notice may have legal consequences if it causes the party entitled to receive such notice to suffer a loss. Notices are also frequently a prerequisite to an entitlement to make a claim.

Claims Where a party considers the contract entitles it to: the payment of money from another party; have some particular of the contract adjusted due to some circumstance that has arisen; or have some circumstance, such as practical completion, confirmed for the purposes of the contract; [page 289] the contract will normally require pursuit of that claim to be formally initiated by the provision of a communication documented in a particular form.

Certificates Contracts that provide for a superintendent will usually authorise that superintendent to determine particular issues

conclusively, such as: an amount to be paid, an extension of the time for practical completion, or that a stage of the works has been satisfactorily completed on a given date. The parties to the contract are bound by that certification, unless they instigate dispute resolution procedures, although there is normally provision for a superintendent to amend a certificate where the superintendent considers a correction is necessary. [6.4]

Construction contracts will normally formally set out the manner and method by which the parties to the contract are to communicate and deliver notices to each other. For example, see clause 7 of Australian Standard AS2124-1992.

[6.5]

Where a construction contract requires a notice, claim or certificate, it will also stipulate the information which that document is required to contain. It is important when drafting such documents to reread the relevant contract clause and ensure each item of required information is included, otherwise the document may be invalidated. It is normally considered good practice to include a reference to the contract clause under which the document is issued in the document itself.

[6.6]

Time is normally crucial to both parties to a construction contract. The receipt of a notice, claim or certificate will usually indicate that some action is required; therefore, the timely provision of documentation is an important discipline. This is especially so when the works are in progress, as the options a party may have to react to the information contained in a formal document may be limited by the stage the works have reached. For example, if the contractor gives notice that a particular variation will give rise to additional time, or cost, the superintendent (in consultation with the principal) may decide not to proceed with the variation, or to change the works in some other way. The option to make such a decision may be lost if the works have proceeded past a certain point before the superintendent is made aware of the potential for additional cost or delay to the works.

[6.7]

Construction contracts will normally set strict time periods within which notices, claims or certificates are to be issued. Failure to comply with such time requirements will probably constitute a breach of the contract, and may expose the party that should have issued the document to a claim for damages, if the failure in timeliness has caused the other party to suffer a loss.

[6.8]

In some instances construction contracts may go further, and attempt to provide that the consequence of a late notice or claim will be to extinguish any entitlement the contractor may have resulting from that notice or claim. Clauses intended to have that effect are commonly known as ‘timebars’. [page 290]

[6.9]

A well-drafted construction contract coherently sets out the contract administration steps required in relation to each eventuality that can reasonably be anticipated to arise, and how the legal rights and obligations of the parties to the contract are to be maintained or altered. At its best a construction contract is well structured, clear and consistent: a virtual manual enabling those charged with contract administration to know what they have to do. Alas, this standard of drafting is not always achieved; nevertheless, the importance of contract administrators studying the contract, and making regular reference to it as events proceed, cannot be overstated. If they are unclear on any particular aspect, they should seek advice or clarification, preferably before the matter assumes urgent importance.

[6.10]

Contract formation and drafting, including the various standard forms and delivery methods available, have been dealt with at [5.112]–[5.116] above. One of the advantages of standard forms is that contract administrators build up a familiarity with what is required, and how clauses are

interpreted, through regular usage of those standard forms. This should not be done without caution, as even where standard forms are used, they are often amended and supplemented with additional conditions. Each new contract needs to be read afresh. However, for the purposes of the explanations that follow, AS2124-1992 has been used to provide examples of typical construction contract provisions. Only certain central elements of contract administration are dealt with. It would be impossible to deal with each and every type of provision here; however, a contract administrator must attempt to be familiar with every provision of the particular contract they are called upon to administer.

Superintendence [6.11]

Through the regular course of their business, contractors, and the contractor’s relevant personnel, usually develop sufficient expertise in contract administration to know what is required, and to protect their own interests. This is not so for principals. Unless they are major corporations or property developers, it is likely that their construction project is for them a one-off, or at least a rare event, in relation to which they do not have all of the expertise required. Principals usually engage specialist consultants to advise them and act on their behalf. Invariably this commences at an early stage when the principal is considering the feasibility of the project, and through the design and documentation phases to entering into a contract for the work to be performed. Often this requires the coordination of many separate consultants, and commonly an architect, engineer or project manager will be engaged to oversee the whole process and make sure it is properly coordinated.

[6.12]

On projects of any significant size or complexity, the principal will continue to need someone to provide advice and representation during the construction phase. Often this is the

architect, engineer or project manager who coordinated the design and documentation processes. It need not necessarily be so, but the advantages of continuity will be apparent. Whoever that central coordinating construction expert is, [page 291] they will commonly be given a central role in the administration of the construction contract as a ‘superintendent’. Some standard forms use the word ‘Architect’ or ‘Engineer’ instead, on the assumption that someone with that type of expertise will take the role. The nomenclature is not important: what is important are the duties, powers and obligations cast upon that person to enable the contract administration processes. [6.13]

Because the superintendent is central to the administration of most construction contracts, very many of the contract clauses will mention them, and require them to exercise themselves in some way. For example, under AS2124-1992: the superintendent is responsible for providing the information and survey marks from which the contractor is to set out the works (clause 28.1); the superintendent monitors the quality of the work performed, and has the power to order tests, and require rectification work by the contractor (clauses 30.2–30.6, also clause 37); the superintendent has the power to extend the time for practical completion (clause 35.5); the superintendent has the power to vary the works (clause 40); the superintendent determines the amounts payable by the principal to the contractor progressively and certifies accordingly (clause 42.1);

the superintendent determines when the works are practically complete and the date of practical completion (clause 2). [6.14]

Because the superintendent is almost always engaged by the principal, they have a duty, and indeed a commercial imperative, to act favourably in the principal’s interests. However, traditionally the types of persons called upon to be superintendents have been of a professional standing such that they not only have the qualifications and experience that enable them to exercise reliable judgment in dealing with matters such as those exampled at [6.3] above, but can be relied upon to act fairly and with some independence of mind. AS2124-1992 encapsulates that expectation thus: The Principal shall ensure that at all times there is a Superintendent and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent — (a) acts honestly and fairly; (b) …. (clause 23).

The intention is that by acting as an honest and competent broker, the superintendent can prevent performance of the contract being plagued with haggling and dispute between the principal and the contractor on points of judgment or controversy. Disputes may still arise, and the contract will provide mechanisms for challenging actions and determinations by the superintendent. But the accepted wisdom is that such disputes are generally fewer than would be the case if there was no superintendent to exercise functions in this way. It is also a truism that for construction works to [page 292] proceed, decisions need to be made for good or ill, and they usually need to be made promptly. Construction contracts provide the superintendent with the power to address that.

[6.15]

It is nevertheless worth noting that the superintendent’s role can be fraught by having to make judgment calls that may displease either the contractor or the principal, or occasionally both. Given the superintendent is usually in the pay of the principal, this calls for a high level of integrity. As the confidential advisor to the principal, and to some extent a neutral referee, it is sometimes said that the superintendent wears two hats.1 In some instances the superintendent is required to represent the principal’s interests; on other occasions they must attempt to be impartial. It is frequently a balancing act that can only be mastered through experience.

[6.16]

Although there may be some scenarios where the superintendent owes a duty of care to the contractor, it is useful for principals to understand that the contractual obligation for the superintendent to exercise certain functions in good faith often lies with them (eg, see clause 23 of AS2124-1992). The superintendent is not a party to the construction contract.

[6.17]

Where a construction contract does not provide for a superintendent, then the essential duties and obligations are usually cast on the principal, or the principal’s representative, with no obligation to act fairly and in good faith. This is usually only practical on smaller size construction works.

Precommencement matters [6.18]

Once the construction contract has been executed, there are a number of matters that need to be attended to before work can start on site. Most obviously these relate to the terms under which the contractor will take possession of the site.

[6.19]

The definition of the ‘site’ is worthy of particular attention. AS2124-1992 uses the following formula: ‘Site’ means the lands and other places to be made available and any other lands and places made available to the Contractor by the Principal for the purpose of the Contract; (clause 2; see also clause 27.1)

[6.20]

The date for possession of the site will commonly be synonymous with the date for commencement of the works, and therefore has implications in terms of the date for practical completion. Therefore, the contractor may not wish to take possession of the site until it is ready to make a substantive start. Conversely, the first claim for an extension of the time for practical completion often relates to a principal’s inability to provide the contractor with possession of the site by the required time. [page 293]

[6.21]

The most immediate consequence as a result of the transfer of possession of the site is a change in the party who is better able to manage any risks associated with the site, and activities on the site. The extent to which visitors to the site (including employees and workers), the general public, and surrounding properties may be exposed to harm by reason of the nature of the site or activities on the site is primarily under the control of the contractor. It is important that the contract unambiguously allocates responsibility and potential liability for such risks upon the transfer of possession (see [5.176]–[5.178]). Primarily this is done by obliging the contractor to take out appropriate insurances for public liability (see [5.182]).

[6.22]

Although the contractor may be the person most likely to be liable for any harm or damage emanating from the site during the contract period, the manifold circumstances under which accidents causing harm may occur are often unpredictable. It is entirely possible that although the contractor has control and possession of the site, the principal may in some way become liable for injury to a third party, as may other non-contracting parties involved in the project, such as the superintendent. Therefore it is entirely sensible and reasonable that the public liability insurance taken out by the contractor should also indemnify the principal and other such persons who could

potentially be exposed to public liability. This is sensible risk management, particularly given that in the case of a major accident or catastrophe, neither the contractor, the principal nor persons such as the superintendent may have sufficient funds to compensate public claimants who have suffered damage. [6.23]

Because parties other than the contractor, in particular the principal, have an interest in making sure that public liability insurance is properly effected, it is appropriate that the principal have a right to proof that such insurance is in place, by examination of the relevant insurance policy (see [5.184]). A prudent principal will require such proof prior to providing the contractor with possession of the site.

[6.24]

Similarly, although it is in contractors’ own interests to insure against damage to the works under construction and injury to employees, the risk of potential liability on the part of the principal or other cannot be excluded, particularly in the event of insolvency on the part of the contractor. It is therefore sensible that the construction contract not only require the contractor to insure against such events, but that insurance also cover the principal and others, and that the principal have a contractual right to proof that adequate insurances have been taken out, prior to the commencement of works.

[6.25]

A contractor will include an amount within their tender price, and therefore subsequent contract price, for the cost of the premiums for the required insurances. Given this reality, there are occasional instances where principals may prefer that they, rather than the contractor, take responsibility for insurances and bear the cost directly. Where this occurs the contract obligations will be reversed, and it is the contractor who will want a right to proof and examination of the insurance policies.

[6.26]

Failure by the contractor to complete the contract works, particularly in the event of insolvency, usually exposes the principal to costs beyond what would have been

[page 294] budgeted for under the agreed contract sum. To mitigate that risk, construction contractors usually provide for a fund available to the principal upon the occurrence of certain contractor defaults: for example, see clause 5 of AS2124-1992. Such a fund is commonly set up in one of two ways (or occasionally a combination of both).

Retention The contract can provide for the principal to retain a set percentage of the amounts otherwise due and payable under each progress payment (commonly 5 per cent). This has the advantage that the fund is developed progressively. Some contracts may provide that monies thus retained be kept in a separate bank account under certain terms.

Security The contract can provide for security in the form of an instrument such as a bond. Commonly, unconditional bank guarantees are used. Where this is required the contractor will provide an instrument, or instruments, which the principal can convert to cash for an amount based on a percentage of the contract sum (commonly 5 per cent). Where securities are required, the contract should require the contractor to provide them to the principal before work commences, or at the very least before the first progress claim becomes payable. [6.27]

Occasionally commercial imperatives are such that a principal will invite a contractor to take possession of the site and start work before the contract documentation is settled and agreed. The parties will usually attempt to accommodate that situation by utilising ‘letters of intent’ (see [5.34]–[5.40]). Where this occurs it is important that the parties remain aware of the risk

allocations consequent upon possession of the site, particularly with respect to insurances.

Progress claims [6.28]

In the absence of contract provisions to the contrary, payment for work under construction contracts could be interpreted as requiring the whole of the works to be performed before the contractor is entitled to payment.2 However, the likelihood of this has been greatly reduced by the introduction of security for payment legislation (see [2.54]–[2.115]).

[6.29]

Works under construction contracts normally involve an expense and duration that necessitate progressive payments through the works. Cash flow is the lifeblood of the construction industry. Lack of cash flow may be responsible for more insolvencies [page 295] than lack of profitability, a concern recognised by statutory interventions such as security for payment legislation.

[6.30]

Progress payments are premised on an assumption that even though the construction project is not complete the principal is receiving something of value. That is to say that, even were the works brought to a halt, incomplete at the time of the progress claim, the materials, labour and expertise expended by the contractor would be of benefit to the principal, even if only to the extent that the principal would not have to pay others to carry out that portion of the desired construction. However, progress payments do not have to be a matter of final accounting. A level of approximation is often appropriate. At law, progress payments are ‘on account’ by nature, or rather interim payments pending final accounting and payment.3 It

follows that the mere fact that a progress payment has been calculated or valued on the basis of certain particulars does not bind either party to acceptance of those particulars. The works may be valued differently in subsequent progress payments and at the time of final accounting. [6.31]

Most construction contracts provide for a three-step progress payment process.

Step 1 – Payment claim The contract will stipulate the dates or periods on which the contractor should submit its claims for a progress payment to the superintendent. The claim should be based on the work performed and materials supplied up to the date of the claim. Construction contracts tend to be vague in terms of what is required in the calculation and substantiation of progress claims. This can have the advantage of providing some flexibility in methodology. Ultimately, the relevant touchstone is the provision of something that can reasonably satisfy the superintendent of the amount that should be certified for payment. Clause 42.1 of AS2124-1992 expresses the requirement thus: … the Contractor shall deliver to the Superintendent claims for payment supported by evidence of the amount due to the Contractor and such information as the Superintendent may reasonably require …

Commonly, the amount is calculated by assessing the extent to which the contract works are complete in percentage terms, on a trade by trade basis, and then applying those percentages to the amount allocated to each trade (including preliminaries) within the overall contract sum. The contractor is usually also entitled, within each payment claim, to claim for the amount of variation work performed. Some contractors have a practice of invoicing for variations separately. As always, the correct course will be that provided for in the contract. Similarly, where a contract has run over

time, for reasons that contractually entitle the contractor to delays costs, these may also be included within the progress claim. [page 296] Clause 42.1 of AS2124-1992, also provides a catch-all for the inclusion of: … all amounts then due to the Contractor arising out of or in connection with the Contract or for any alleged breach thereof …

It will often be the case that contractors will wish to claim and receive payment for materials that they have procured for the works, but which have not yet been incorporated into the works. Construction contracts should make provision for the progress payment of ‘materials on site’ and ‘materials off site’. Clause 42.4 of AS2124-1992 requires the parties to choose between three alternative contract provisions: Alternative 1 If the Contractor claims payment for plant or materials intended for incorporation in the Works but not incorporated, the Principal shall not be obliged to make payment for the plant or materials unless the Contractor provides additional security in one of the forms provided by Clause 5.3 in an amount equal to the payment claimed for the plant or materials. Alternative 2 If the Contractor claims payment for plant or materials intended for incorporation in the Works but not incorporated the Principal shall not be obliged to make payment for such plant or materials but the Principal may make payment, if the Contractor establishes to the satisfaction of the Superintendent that — (a) such plant or materials have reasonably but not prematurely been delivered to or adjacent to the Site; (b) ownership of such plant and materials will pass to the Principal upon the making of the payment claimed; and (c) such plant or materials are properly stored, labelled the property of the Principal and adequately protected. Upon payment to the Contractor of the amount claimed, the plant or materials the subject of the claim shall be the property of the Principal free of any lien or charge.

Alternative 3 The Contractor shall not be entitled to payment for plant or materials not incorporated in the Works.

The closing provisions of clause 42.1 should also be noted. Where it is anticipated that an expensive item of plant or equipment from overseas is to be incorporated into the works, it is usual to draft a bespoke clause to deal with progress payments, particularly given the valuation difficulties that can arise where there are fluctuating exchange rates. The main concern in administering progress payment conditions for materials on and off site is the protection of the principal’s interest in the property paid for. The problems with this frequently arise when a contractor becomes insolvent. [page 297] Often the best protection is to require the contractor to provide a bond or bank guarantee to the value of the materials claims. The protection of registration under the Personal Property Securities Act 2009 (Cth) should also be utilised.

Step 2 – Payment certificate It is the responsibility of the superintendent to assess the payment claim and certify any amount payable within a stipulated time; in the case of AS2124-1992, within 14 days of receipt of the payment claim (clause 42.1). In some contracts, failure by the superintendent to issue a progress payment certificate within the stipulated time renders the payment claim payable in full. Often superintendents will obtain assistance from other construction professionals, such as quantity surveyors, to properly assess the value of the amount payable. Where superintendents disagree with the amount claimed, there is

usually a contractual requirement that they provide an explanation as to why their valuation differs from the amount claimed. Progress payment certification is commonly one of the areas where principals have an obligation to ensure that superintendents act fairly and in good faith. Most construction contracts will provide the superintendent with the power to issue a progress payment certificate even when there has been no payment claim. This is primarily to allow the superintendent to correct any serious errors in previous certificates. The power may become particularly relevant when circumstances arise that render an amount payable by the contractor to the principal.

Step 3 – Payment by principal The contract should normally provide some formality as to how, and by whom, the progress payment certificate is to be delivered to the principal. This is because it may subsequently become necessary to prove not only that the certificate was received by the principal, but when it was received by the principal. This appears to be less important in AS2124-1992, which appears to assume that the principal will become aware of the progress payment claim and the progress payment certificate as soon as they are issued: … Subject to the provisions of the Contract, within 28 days after receipt by the Superintendent of a claim for payment or within 14 days of issue by the Superintendent of the Superintendent’s payment certificate, whichever is the earlier, the Principal shall pay to the Contractor or the Contractor shall pay to the Principal, as the case may be, an amount not less than the amount shown in the Certificate as due to the Contractor or to the Principal as the case may be, or if no payment certificate has been issued, the Principal shall pay the amount of the Contractor’s claim. … (clause 42.1)

[page 298] The principal (or, if applicable, the contractor) must pay the full

amount of the progress payment certificate, even if there are strong or reasonable objections to doing so. Payment does not prejudice a party’s rights to dispute the progress payment certificate and seek a subsequent adjustment. Failure to pay a certified amount may constitute a serious breach of contract, entitling the aggrieved party to suspend performance of the contract. The principal may have a right of set-off against an amount payable under a progress payment certificate, but only to the extent that the claimed set-off relates to something other than the contract and its subject matter: for example, see clause 42.10 of AS2124-1992. [6.32]

While most construction contracts will usually provide for progress payments to be based on valuations of the works at set calendar intervals, a common alternative is to schedule, as part of the contract, that certain progress payments will be made upon the contractor achieving certain milestones during the course of performance; for example, that a specified amount is to be payable upon the completion of all earthworks. This may have the advantage of the parties having greater predictability for cashflow purposes, and a reduction in the amount of administration required. This may well be appropriate where the monies involved are relatively small compared with the costs of administration, such as some domestic constructions. However, this method is too simplistic for larger more complex projects, where different aspects of the project may progress at different rates, and lead to gross underor over-valuations compared with the actual value of work actually performed.

[6.33]

Once upon a time the contract was king. It was all a contract administrator needed to refer to in order to understand what was required to manage the progress payment process for a particular project. However, statute has the power to override contract conditions, and in many cases the security of payment legislation may change entitlements under the contract. There

is less excuse for contracts inconsistent with these relevant statutory conditions as time passes; nevertheless, contract administrators should be on their guard, particularly where old standard forms are utilised. Of course, in many instances the security for payment legislation expressly defers to the contract, and only introduces provisions on matters where the contract is silent.

Extensions of time and related claims [6.34]

At general law, if no time is specified for the completion of performance under the contract, then it is taken that the contract is to be performed within a ‘reasonable’ time.4 Where there is a specified time for completion, a party cannot complain of a breach of the requirement to complete within time, if that party was responsible for an event that somehow prevented timely completion. On construction projects, [page 299] principals can rarely guarantee that they won’t in some way be responsible for an event that prevents completion within the stipulated time. For example, there may be some delay in providing something the principal is obliged to provide to the contractor for the performance of the works, or the principal may want to change some aspect of the design, necessitating a variation to the works that will require more time to perform. In such circumstances, the contractor would be relieved of the obligation to complete the works by the agreed date, even though there may also be delays of the contractor’s own making.5 To prevent this circumstance, it is in the principal’s interest for construction contracts to contain a mechanism whereby a contractually enforceable date for completion can be maintained, by extending the date for that completion, but only

to the extent of any delay for which the principal may be considered responsible. [6.35]

The types of delay events for which a principal may be held responsible are often not clear, and need to be made clear within the terms of the contract. These will be the types of events which will entitle the contractor to an extension of time. It is normally conceded that there are also neutral events that can delay a project for which neither the principal nor the contractor is directly responsible: these can range from inclement weather to civil commotion. Such risk allocation is often a key issue in the negotiation of construction contracts.

[6.36]

In the context of attempting to arrive at principles for fair and evenly balanced standard form contracts, it is often suggested that as various risks are considered, they should be borne by the party better able to manage that risk.6 However, contracting parties are often prepared to depart from that logic for commercial reasons.

[6.37]

From the contractor’s point of view, there are two major financial considerations: the financial compensation the contractor may have to provide to the principal should the contractor fail to complete within the stipulated time; and the cost to the contractor of maintaining certain project resources necessary for the works over a longer period of time if the works are delayed. If these costs are not very great, then the contractor, in bargaining for the contract, may be more inclined to accept the responsibility for risk events that would delay completion.

[6.38]

Pragmatically, the risk of delay and allocation of extension of time entitlements are often assessed through the prism of potential financial consequences. Table 6.1 below represents a common starting point for negotiations:

[page 300] Table 6.1: Responsibility for delay Principal accepts responsibility for delay event.

Contractor gets an extension of time.

Principal compensates the contractor for the costs borne by the contractor as a result of the delay (prolongation costs).

Contractor accepts responsibility for delay.

Contractor does not get an extension of time.

Contractor compensates the principal for the costs borne by the principal as a result of the delay (usually in the form of liquidated and ascertained damages).

The delay is a neutral event for which neither the principal nor the contractor is responsible.

Contractor gets an extension of time.

Principal and contractor each bear their own costs suffered as a result of the delay, with neither party required to compensate the other.

[6.39]

It will invariably be the case that the contractor will be responsible for all delays except those the contractor has properly notified as delays which give a contractual entitlement to extensions of time.

[6.40]

Even amongst the standard forms, there is a wide variation in the ways in which construction contracts deal with extension of time issues. In addition to permutations of risk allocation and entitlements to delay damages, there are differing regimes as to how and when claims are to be notified, assessed and certified. The administration of these claims is often timecritical in the sense that rights may be forfeited if the proscribed regime is not complied with.

[6.41]

Invariably, there is a strict claims procedure for contractors to follow if they seek an extension of time. In AS2124-1992, clause

35.5 commences by imposing obligations on both the contractor and the principal to promptly notify the superintendent as soon as it becomes evident to either of them that an event for which the principal is likely to be responsible may delay the performance of works under the contract. Often construction contracts make such notifications a prerequisite to an entitlement to the making of an extension of time claim. This appears not to be the case with AS2124-1992, which deals with claims as follows: If the Contractor is or will be delayed in reaching Practical Completion by a cause described in the next paragraph and within 28 days after the delay occurs the Contractor gives the Superintendent a written claim for an extension of time for Practical Completion setting out the facts on which the claim is based, the Contractor shall be entitled to an extension of time for Practical Completion. Subject to this Clause 35.5, the causes are — (a) events occurring before the Date for Practical Completion which are beyond the reasonable control of the Contractor including but not limited to — –

industrial conditions of a state or national scale or industry wide scale

–

but does not include inclement weather.

[page 301] (b) any of the following events whether occurring before, on or after the Date for Practical Completion — (i)

delays caused by — –

the Principal;

–

the Superintendent;

–

the Principal’s employees, consultants, other contractors or agents;

(ii) latent conditions; (iii) variations directed under Clause 40; (iv) repudiation or abandonment by a Nominated Subcontractor; (v) changes in the law; (vi) directions by municipal, public or statutory authorities but not where the direction arose from the failure of the Contractor to comply with a requirement referred to in Clause 14.1; (vii) delays by municipal, public or statutory authorities not caused by the Contractor;

(viii)claims referred to in Clause 17.1(v); (ix) any breach of the Contract by the Principal; (x) any other cause which is expressly stated in the Contract to be a cause for extension of time for Practical Completion. … (clause 35.5)

It is worth reiterating the key requirements of the claim: it must be in writing; it must be given to the superintendent within the 28 days after which the claimed delay event occurred; it must set out the facts on which the claim is based (obviously the person drafting the notice must clearly have in mind which of the causes identified in subparagraphs (a) and (b) give rise to the claim, and ensure that the facts given are relevant). AS2124-1992 further requires that the contractor give the superintendent written notice of the number of days’ extension claimed ‘as soon as practicable’ after submission of the claim. There is no restriction on the contractors providing additional information with the claim, and they will normally want to provide whatever will facilitate the claim’s success. In AS2124-1992, if the contractor gives the superintendent an extension of time claim beyond the 28 days specified it is arguably not a valid claim; however, the better view is that the claim is merely in breach of a contract requirement. If the principal can demonstrate any loss as a result of the breach of that contract requirement then the principal may claim damages for that breach; however, the contractor is still entitled [page 302] to press the extension of time claim. This point is worth making, because some contracts are drafted in such a way as to introduce timebars, where claims made outside the stipulated

time are invalidated and effectively quash any entitlement the contractor may have. It is worth contextualising the reason why contract clauses attempt to place time requirements around the issuance of notices, claims and certificates. The parties are entitled to know where they stand so that the conduct of their business is not prejudiced. For example, a late claim brought at the end of a project, in relation to events that occurred many months earlier, may potentially have deprived a party of taking steps in mitigation or making budgetary adjustments. It is important to note that most construction contracts will contain a clause equivalent to the following within clause 35.5 of AS2124-1992: Notwithstanding that the Contractor is not entitled to an extension of time the Superintendent may at any time and from time to time before the issue of the Final Certificate by notice in writing to the Contractor extend the time for Practical Completion for any reason.

On a benign view, the main purpose of such a provision is to enable the superintendent to deal with issues unanticipated by the contract, which could become the subject of a dispute between the principal and the contractor. However, it is also open to the interpretation that where a contractor is barred from pursuing a claim because of a failure to comply with some technical or administrative requirement of the contract, the superintendent can resolve the issue. In the case of Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd,7 the court considered this power together with a contract obligation that the principal ensure the superintendent exercise his powers fairly and in good faith. In the circumstances of that case, the court decided that the superintendent should, in good faith, have exercised a power to unilaterally extend the time for completion notwithstanding the contractor’s failure to comply with timebar provisions. [6.42]

It is important to appreciate that not every delay to construction works will necessarily result in a corresponding

delay to the date for practical completion. Therefore, even when the cause of delay appears to be one which gives rise to an extension of time claim, it will not be so, unless it can be demonstrated that the date for practical completion is affected. Traditionally, the way this has been done is by critical path analysis of the effect of the delay on the contract program. Some forms of contract specifically require such analysis, it is implicit in others, and some explicitly reject that approach. [6.43]

Where critical path analysis is used, it may be seen that some activities are not time-critical, and therefore delays involving those activities may not affect the works overall. Critical path analysis also assists the identification of concurrent delays, that is, two or more delays with different causes are affecting the date for practical [page 303] completion at the same time. Contractually, this gives rise to considerations where one of the causes gives an entitlement to an extension of time and the other does not. Should the contractor still be entitled to an extension of time, or should the principal escape liability? Some contracts provide for an apportionment, but the AS2124-1992 approach is quite common: Where more than one event causes concurrent delays and the cause of at least one of those events, but not all of them, is not a cause referred to in the preceding paragraph, then to the extent that the delays are concurrent, the Contractor shall not be entitled to an extension of time for Practical Completion. … (clause 35.5)

[6.44]

Construction contracts will normally provide that a superintendent must respond to an extension of time claim within a certain number of days. The superintendent must certify the number of days by which the date for practical completion is to be extended and, if the full amount of the claimed extension of time has not been granted, give reasons

to the extent that the claim has been rejected: for example, see clause 35.5 of AS2124-1992. Some contracts provide for the automatic granting of the extension of time claimed, if the superintendent does not respond within the required time. [6.45]

Clause 35.5 of AS2124-1992 further provides that: In determining a reasonable extension of time for an event causing delay, the Superintendent shall have regard to whether the Contractor has taken all reasonable steps to preclude the occurrence of the cause and minimise the consequences of the delay. …

Such requirements are commonplace; however, ‘reasonable steps’ do not normally involve the contractor incurring additional expense unless there is a procedure for the contractor to be compensated, and this will normally require a direction from the superintendent. [6.46]

It is important that construction professionals appreciate a crucial distinction between two similar phrases in relation to time-related matters on construction contracts. ‘The date for practical completion’ is the date by which the contractor is required to complete the works under the contract, including any extensions of time. This is quite distinct from ‘the date of practical completion’, which is the actual date on which the works are practically complete. If the date of practical completion is later than the date for practical completion, then that will be the extent of the delay for which the contractor is liable to the principal for delay damages.

[6.47]

In nearly all construction contracts the amount in damages for which the contractor is required to compensate the principal in the event of failure to meet the date for practical completion is pre-ascertained. This is normally in the form of a contract clause that provides that the contractor will allow the principal so much per day, or per week, to the extent that the contractor

is late. Where contracts provide a pre-ascertained amount for damages they are referred to as ‘liquidated damages’. [page 304] The use of the term in relation to dealing with a principal’s delay damages under construction contracts is such that the term ‘liquidated damages’ is often used as though synonymous with delay damages. That usage is incorrect. [6.48]

One of the fundamental doctrines of contract law is that preascertained, or liquidated, damages cannot be used as a penalty for non-performance.8 The amount allocated must represent a genuine pre-estimate of an amount that would be assessed as compensatory damages were the contract to be breached. In practice it appears difficult to persuade the courts that a liquidated sum is not a genuine pre-estimate of damages when it is an amount that the parties have agreed to as a term of the contract.

[6.49]

Where the date for practical completion has been extended under the contract, the contractor may also be entitled to recover prolongation costs from the principal. In much the same way that the contract identifies those causes of delay for which the contractor will be entitled to an extension of time, it should also identify those causes of delay for which the contractor is entitled to be compensated by the principal. For an example, see clause 36 of AS2124-1992. Sometimes the amount of those delay costs is pre-ascertained and contained in the contract as a liquidated amount; sometimes the actual costs of delay have to be calculated, substantiated and presented to the superintendent for assessment.

[6.50]

Many construction contracts provide the superintendent with the power to direct the contractor to accelerate the works so as to achieve a date earlier than the date for practical completion.

This may be done to mitigate delays which have already occurred, or because there are reasons why it has become so advantageous to the principal to achieve an earlier date for practical completion that it is worth paying the contractor the additional costs of acceleration. AS2124-1992 does not give the superintendent that power in direct terms; however, it is possible that the superintendent may be able to exercise a power under clause 33.1 to the same effect: The Superintendent may direct in what order and at what time the various stages or parts of the work under the Contract shall be performed. If the Contractor can reasonably comply with the direction, the Contractor shall do so. If the Contractor cannot reasonably comply, the Contractor shall notify the Superintendent in writing, giving reasons. …

The proviso that the contractor be reasonably able to reasonably comply with the direction, should of course apply equally to more overt powers to direct acceleration. Typical acceleration methods include measures such as working overtime, increasing manpower levels, employing more expensive construction methodologies, and deploying additional plant and equipment. [6.51]

Where a superintendent rejects extension of time claims, a contractor may decide to incur additional costs accelerating in an attempt to avoid liquidated damages. If dispute resolution procedures determine that those extension of time claims should [page 305] not have been rejected then the contractor should be able to recover the additional acceleration costs, as damages for a breach of contract by the principal for failing to ensure that the superintendent’s function was properly performed. This is often referred to as a ‘constructive acceleration claim’.

[6.52]

As noted at [6.42], not every delay to construction works will

necessarily result in a corresponding delay to the date for practical completion. It follows that there can be no prolongation costs in those cases. However, that is not to say that, where there are non-critical delays involving additional cost, the contractor must go uncompensated. Where such delays arise as a consequence of some act or omission by the principal or the superintendent, such as a variation, the contractor should be compensated. Clause 33.1 of AS2124-1992 envisages this happening in the context of a direction by the superintendent: If compliance with the direction causes the Contractor to incur more or less cost than otherwise would have been incurred had the Contractor not been given the direction, the difference shall be valued under Clause 40.5.

(Clause 40.5 is the clause applicable to the valuation of variations.)

Variations [6.53]

Contracts do not usually provide a party with a unilateral power to vary the contract. However, the nature of construction work means there must sometimes be changes to the work anticipated by the contract. Construction contracts accommodate this by providing the superintendent with limited powers to require the contractor to perform works which vary from the original contract works. Clause 40.1 of AS2124-1992 provides an example of the way in which the superintendent’s power to vary the contract is limited: The Superintendent may direct the Contractor to — (a) increase, decrease or omit any part of the work under the Contract; (b) change the character or quality of any material or work; (c) change the levels, lines, positions or dimensions of any part of the work under the Contract; (d) execute additional work; and/or (e) demolish or remove material or work no longer required by the Principal. …

The Contractor is bound only to execute a variation which is within the general scope of the Contract. The Contractor shall not be bound to execute a variation directed after Practical Completion unless the variation is in respect of rectification work referred to in Clause 37.

[page 306] [6.54]

Naturally, the contract should provide for the adjustment of the contract sum to compensate the contractor for the cost of any additional work, or provide a saving to the principal where there is a reduction in value of the work to be performed. AS2124-1992 does so in the following terms: Where the Contract provides that a valuation shall be made under Clause 40.5, the Principal shall pay or allow the Contractor or the Contractor shall pay or allow the Principal as the case may require, an amount ascertained by the Superintendent as follows — (a) if the Contract prescribes specific rates or prices to be applied in determining the value, those rates or prices shall be used; (b) if Clause 40.5(a) does not apply, the rates or prices in a Priced Bill of Quantities or Schedule of Rates shall be used to the extent that it is reasonable to use them; (c) to the extent that neither Clause 40.5(a) or 40.5(b) apply, reasonable rates or prices shall be used in any valuation made by the Superintendent; (d) in determining the deduction to be made for work which is taken out of the Contract, the deduction shall include a reasonable amount for profit and overheads; (e) if the valuation is of an increase or decrease in a fee or charge or is a new fee or charge under Clause 14.3, the value shall be the actual increase or decrease or the actual amount of the new fee or charge without regard to overheads or profit; (f) if the valuation relates to extra costs incurred by the Contractor for delay or disruption, the valuation shall include a reasonable amount for overheads but shall not include profit or loss of profit; (g) if Clause 11(b) applies, the percentage referred to in Clause 11(b) shall be used for valuing the Contractor’s profit and attendance; and (h) daywork shall be valued in accordance with Clause 41. (clause 40.5).

[6.55]

AS2124-1992 also provides for the superintendent to request the contractor to give an opinion as to the feasibility of a proposed variation together with an estimate of the time and

cost implications: Upon receipt of a notice in writing from the Superintendent advising the Contractor of a proposed variation under Clause 40, the Contractor shall advise the Superintendent whether the proposed variation can be effected. If the variation can be effected, the Contractor shall — (a) within seven (7) days of receiving the notice: advise the Superintendent of the effect which the Contractor anticipates that the variation will have on the construction program and time for Practical Completion; and (b) within fourteen (14) days of receiving the notice: provide an estimate of the cost (including delay costs, if any) of the proposed variation. The Principal shall reimburse the Contractor for the reasonable costs of complying with the requirements of Clause 40.2.

[page 307] Such a clause is not uncommon in construction contracts, and obviously this can facilitate an agreement prior to a direction to proceed with a variation, so the potential for dispute is greatly reduced. Note that in the example given, the contractor is entitled to be reimbursed for the reasonable cost of analysing the proposed variation and providing the estimates required. [6.56]

There is not always consensus as to whether a variation has been directed. Superintendents issue directions in a wide variety of circumstances under the contract, and may not always appreciate that the direction given constitutes a change to the works anticipated under the contract, or at least constitutes a change in the opinion of the contractor. Clause 23 of AS2124-1992 is typical in that it defines a wide variety of forms by which the superintendent may give a direction: … ‘direction’ includes agreement, approval, authorization, certificate, decision, demand, determination, explanation, instruction, notice, order, permission, rejection, request or requirement.

Such directions may or may not involve a variation to the

contract works. Most construction contracts will contain an express provision requiring the contractor to promptly, or within a prescribed time, notify the superintendent if the contractor believes a direction constitutes a variation for which the contractor intends to pursue a claim or claims. Clause 46.1 of AS2124-1992 deals with the matter in the following terms: If the Contractor believes that any direction given by the Superintendent is or requires a variation to the Work under the Contract, the Contractor must as soon as practicable and in any event within 14 days after receiving the direction, claim a variation by written notice to the Superintendent that identifies the direction and sets out the Contractor’s reasons for claiming a variation. Within 14 days of receipt of a claim for a variation from the Contractor the Superintendent shall decide whether or not the direction is or requires a variation and shall notify the parties in writing of the decision. If the Superintendent decides that the direction is or requires a variation, the Principal may within 7 days of the Superintendent’s decision: (a) require the Superintendent to withdraw the Superintendent’s direction that resulted in the claim; or (b) require the Superintendent to direct a variation. If the Superintendent is required to direct a variation by the Principal, Clause 40 shall apply to that variation.

Frequently, the reason for such a misunderstanding is a difference in interpretation of what was required, or deemed to be required, in relation to the original contract works. [page 308] [6.57]

Not all variations will have time and cost implications. The fact that such variations are unlikely to give rise to claims does not obviate the need to formally document and record them, in case the change to the original contract works becomes relevant to a consideration as to whether the completed works are defective or incomplete.

[6.58]

Contracts usually contain a clause providing that the

superintendent may direct a variation for the convenience of the contractor. This invariably arises at the request of the contractor, and the superintendent has a wide discretion as to whether to grant that request or not. Contractors are not normally entitled to make claims for compensation when a variation has been directed at the request of the contractor and for the contractor’s convenience. For an example, see clause 40.4 of AS2124-1992.

Contract completion [6.59]

Once the construction has reached a stage where it can satisfactorily be used or occupied, then the benefit of that to the principal will usually outweigh the benefit of delaying that use or occupation by requiring the strict completion of every minute aspect of the work. Conversely, the financial consequences can be wholly disproportionate for the contractor who has substantially completed the works, but is denied completion by matters which are of little account. In the interests of both parties, construction contracts reasonably resolve this by utilising the concept of practical completion, enabling the principal to have the benefit of the works constructed, while reducing the contractor’s potential risk of additional cost and liability.

[6.60]

Practical completion does not relieve the contractor from the obligation to complete everything required under the contract. But it does mean that those matters that require completion will be performed under different circumstances.

[6.61]

Practical completion is defined in a variety of ways under different construction contracts. It is one of the more important terms, and even nuanced differences deserve careful attention. However, clause 2 of AS2124-1992 provides a typical formulation: Practical Completion is that stage in the execution of the work under the contract

when — (a) the works are complete except for minor omissions and minor defects — (i)

which do not prevent the Works from being reasonably capable of being used for their intended purpose; and

(ii) which the Superintendent determines the contractor has reasonable grounds for not promptly rectifying; and (iii) rectification of which will not prejudice the convenient use of the Works; and (b) those tests that are required by the Contract to be carried out and passed before the Works reach Practical Completion have been carried out and passed; and (c) documents and other information required under the Contract which, in the opinion of the Superintendent, are essential for the use, operation and maintenance of the Works have been supplied.

[page 309] [6.62]

Normally, practical completion is given effect by the superintendent issuing a Practical Completion Certificate, certifying the ‘Date of Practical Completion’. That date of practical completion may differ from the date of the practical completion certificate. For example, see clause 2 of AS21241992.

[6.63]

Construction contracts usually provide for the following consequences upon practical completion: (a) The principal becomes entitled to possession of the site, and becomes legally responsible for the site. Insurance obligations need to be adjusted accordingly. (b) Any liability the contractor may have to delay damages (usually in the form of liquidated damages) is at an end, and any relevant delay can be calculated as the extent to which the date of practical completion is later than the date for practical completion. (c) The security provided by the contractor is usually reduced by half, the corresponding amount either returned or paid to the contractor by the principal.

Relevance of waiver and estoppel [6.64]

Where, by a consistent pattern of behaviour, the parties to a contract have conducted matters contrary to the terms of the contract, without objection by either party, it may subsequently be interpreted that the parties no longer have the right to the relevant terms. Even without an express agreement, it may be found that the legal position has changed in accordance with that consistent pattern of behaviour. The main legal terms given to such changes in contractual rights are ‘waiver’ and ‘estoppel’.

[6.65]

It is difficult to provide a comprehensive list of circumstances in which a court will find that a party has waived a right, or should be estopped from asserting a legal position based on previous conduct. Each case will turn on its own facts. Certainly, a key consideration is reliance: the extent to which a party has been led to assume, and rely upon, a certain state of affairs by the conduct of the other party. A full consideration of this aspect of the law is beyond the scope of this work.9 The important point for construction professionals to be aware of is that the right to rely on certain contract provisions may be lost or altered if there is a consistent departure from those contract provisions.

__________________________ 1

P Gerber & BJ Ong, Best Practice in Construction Disputes, LexisNexis Butterworths, Australia, 2013, 1.41.

2

D Cremean, M Whitten and M Sharkey, Brooking on Building Contracts, 5th ed, LexisNexis Butterworths, Sydney, 2014, at [8.1].

3

Cremean et al, note 2 above, at [8.5].

4

Cremean et al, note 2 above, at [6.1].

5

Cremean et al, note 2 above, at [6.8].

6

This approach is often said to derive from the ‘Abrahamson Principles’: see M Abrahamson, ‘Risk Management’ (1983) 1 International Construction L Rev 241.

7

Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322; [2002] NSWCA 211.

8

Cremean et al, note 2 above, at [6.3].

9

For a more detailed legal explanation, see Cremean et al, note 2 above, at [3.8]–[3.9].

[page 311]

CHAPTER 7

Claims and Disputes

Key Ideas This chapter discusses: claims for interim payments and payment of variations and extensions claims for the balance of the contract sum claims arising from termination of the contract claims for damages: wrongful termination, defective works, delay calculation of damages, set-off and abatement dispute resolution, tribunal and court processes

[page 312]

Introduction [7.1]

There are, of course, an unlimited range and variety of claims disputes that can arise from contracts to do construction work. This chapter first identifies and discusses some of the types of claim that most frequently and characteristically arise and then explores the manner in which such claims, if disputed, are frequently and characteristically resolved.

Claims [7.2]

It is useful to bear in mind a distinction between claims for payment under the contract, and claims for damages for breach of an obligation under the contract. The distinction is not entirely clear cut, because a claim for payment under the contract can be expressed as a claim for damages for breach of an obligation to make payment under the contract. A claim for payment, however, is usually for an identifiable sum, whereas damages are calculated to put the claimant in the position that it would have been in if the breach of obligation had not occurred.

Claims for the balance of the contract sum [7.3]

At its simplest, a construction contract is a contract to build something at a certain place, within a certain time and for a certain sum of money. A builder agrees to build a shed within one month for $1000, builds the shed, and then is paid $1000. If the owner only pays $900 even though the shed is built, the builder will be owed another $100. Four factors complicate this

otherwise simple scenario. [7.4]

First, most construction contracts make provision for interim payment on account, because the builder cannot or does not want to finance the construction as it proceeds.

[7.5]

Second, buildings are rarely in a state of final completion when the owner moves in. There is usually provision for the owner to move in when the building is complete apart from minor omissions and defects that do not stop the building being used for its intended purpose, and a corresponding right for the builder to rectify any such minor omissions or defects upon being notified of them. The period within which the builder has that right is usually called the defects liability period.

[7.6]

Third, contracts not infrequently make provision for an amount to be retained by the owner from amounts otherwise payable on an interim basis. The purpose of retention is to provide the owner with a fund to rectify defects that, for one reason or another, are not rectified by the builder. The retention is usually released at the expiration of the defects liability period.

[7.7]

Fourth, most building contracts make provision for the contract sum to be adjusted after building works commence. Set out below are some common reasons for contract sum adjustment. A builder does not want to commit itself to a fixed sum when there are significant unknown and unknowable factors. This is most commonly the case where the [page 313] builder suspects that it may have to conduct significant rock excavation. In these circumstances the builder will allow a provisional sum that will be deducted and replaced by an actual cost, usually calculated by reference to the volume of rock excavated.

The owner wishes to reserve to itself the right to make selections of various items but has not done so at the time the contract is signed. In those circumstances, the builder will allow a certain sum, to be deducted and replaced with actual cost when the owner makes its selections. These are commonly known as prime cost or pc items. The contract will usually make provision for variations: for work to be changed, by addition, omission or otherwise, and the contract price consequentially adjusted. [7.8]

Accordingly, when formulating a claim for payment of the contract sum, the following matters need to be considered: What is the contract price, as adjusted? When, under the contract, is the contract price payable? What is the outstanding balance of the contract sum, taking into account amounts paid on account?

[7.9]

Confusion may arise unless a clear distinction is made between a claim for payment of a variation and a claim for payment of the adjusted contract sum. Most contracts provide that the contract sum will only be adjusted where a variation is agreed in writing, both as to scope and cost, and the work is carried out. In those circumstances, there is rarely any dispute that the variation is or was payable and that the contract sum should be adjusted.

[7.10]

More frequently, variations are disputed because the contractual requirements for agreement in writing have not been observed. In those circumstances, it is likely that the contract sum will not have been adjusted because the provision for adjustment has not been enlivened. But there may still be an independent cause of action for the value of the variation work carried out.

Claims for interim payment on account

[7.11]

Section 8 of the Building and Construction Industry Security of Payment Act 1999 (NSW)1 gives a statutory right to payment on account. It says this: (1) On and from each reference date under a construction contract, a person: (a) who has undertaken to carry out construction work under the contract, or (b) who has undertaken to supply related goods and services under the contract, is entitled to a progress payment.

[page 314] (2) In this section, reference date, in relation to a construction contract, means: (a) a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract, or (b) if the contract makes no express provision with respect to 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 subsequent named month. [7.12]

There are certain contracts to which the Act does not apply. They include a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989 (NSW)2 on such part of any premises as the party for whom the work is carried out resides in or proposes to reside. This will not include a multi-dwelling development where the owner proposes to live in only of the many units or dwellings to be built.3 It is, however, possible for one person to have more than one residence.4

[7.13]

Where the Act does apply, an interim payment claim will be payable unless the owner responds to the claim with a payment schedule addressing the payment claim and setting out what, if anything, the owner thinks is due. The scheme of the Act is that if the builder wishes to dispute the schedule, it can apply to have the matter adjudicated. The appointed adjudicator will, within a relatively short space of time, determine the matter.

[7.14]

Section 34 of the Act says this: (1) Subject to section 34, nothing in this Part affects any right that a party to a construction contract: (a) may have under the contract, or (b) may have under Part 2 in respect of the contract, or (c) may have apart from this Act in respect of anything done or omitted to be done under the contract. (2) Nothing done under or for the purposes of this Part affects any civil proceedings arising under a construction contract, whether under this Part or otherwise, except as provided by subsection (3). (3) In any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal: (a) must allow for any amount paid to a party to the contract under or for the purposes of this Part in any order or award it makes in those proceedings, and (b) may make such orders as it considers appropriate for the restitution of any amount so paid, and such other orders as it considers appropriate, having regard to its decision in those proceedings.

[page 315] [7.15]

The Act does not apply only to interim payments. It applies to all claims for payment under construction contracts to which the Act applies. But, in accordance with s 34, the determination is an interim determination only. The adjudication does not finally determine the legal right of the builder to payment.

[7.16]

In contracts for residential building work to which the Act does not apply, the right to interim payment will be determined by the provisions of the contract.

Claims for payment of variations [7.17]

Claims for payment of additional amounts on account of extra work are not uncommon. As stated above, most contracts state that variations have to be agreed in writing, in both cost and

scope. Where such contractual provisions are observed, there is usually very little room for argument as to whether or not a variation is payable. Problems characteristically arise in two circumstances. The first is where the builder is pursuing the owner for variations that have not been documented or properly documented in accordance with the contract. The second is where the variations relate to omissions and have the effect of reducing the contract sum. [7.18]

Whether the variation is undocumented, improperly documented or fully documented, in order to succeed in making a claim for an unpaid variation, it will normally be necessary to establish four things: (1) that there has been a request made or permission given for the variation to proceed; (2) that the work requested or permitted is outside the original scope; (3) that the work has been carried out; and (4) how the work should be valued.

[7.19]

Where work is omitted by agreement or at least mutual understanding, although not strictly in accordance with the mechanism for variations in the contract, a builder will sometimes be heard to argue that just as the builder might not be entitled to additional payment in such circumstances, similarly the owner is not entitled to make a deduction from the contract sum.

[7.20]

In those circumstances, the owner can argue that either there was no contractual agreement to delete the works, in which case there is a breach of contract and an obligation to pay the contract price can be abated by the value of the work omitted, or, if there was an agreement, it was an express or implied term that the contract sum would be reduced by the value of the work omitted.

Claims for payment relating to extensions of time for delay [7.21]

As discussed above, at the simplest level a building contract is a contract to build an identified building at a place within a time for a price. From time to time, circumstances [page 316] arise which delay the work. In those circumstances, the builder has a choice. It can try and increase resources to bring the work to completion within the original time, or it can run the risk of not completing the work on time and find itself in breach of contract. If the cause of the delay was a failure on the part of the owner to observe some obligation, the builder would doubtless defend any claim for breach of contract on the basis that the delay was caused by the breach of the owner, relying on the so-called prevention principle, to the effect that a party cannot rely on a breach of contract which it has caused or induced. In addition, the builder could claim damages for any additional costs incurred by reason of the owner’s breach.

[7.22]

To avoid such complications, most building contracts contain a provision to the effect that the contractual date can be extended in certain circumstances. Often there is a list of circumstances that would justify the granting of an extension of time and a specified procedure whereby a claim for an extension of time can be applied for, considered and, depending upon the circumstances, granted.

[7.23]

The delay will normally only justify an extension of time if it would have delayed the completion of the works, rather than simply delaying an aspect of the works, where a delay to that part of the works does not necessarily delay the completion of the whole job. Such delays are sometimes said to be non-

critical delays. By contrast, a delay to an aspect of the work that does necessarily delay the overall completion of the work is called a critical delay. [7.24]

There is also, frequently, a further distinction in contracts between delays that justify additional payment and delays that do not. In broad terms, the thinking is that where the works are delayed due to circumstances, such as inclement weather, that are the fault of neither party, it is fair to extend time but not to allow additional payment. Where the delay is caused by some act or omission of the owner, it is often thought fair to allow additional payment to the builder, being additional costs associated with the time by which the date for completion has been extended.

[7.25]

Costs associated with extensions of time are distinct from costs incurred by reason of a change in the work that has to be carried out. Costs associated with extensions of time are timerelated costs. They are the difference in the costs that would be incurred by the builder if the work had remained the same but the job went on for, say, 12 months rather than six months, as originally budgeted.

[7.26]

Confusion can arise when an extension of time is granted because the work has been the subject of a variation increasing the scope of work. Costs associated with carrying out additional work are and should be kept distinct from costs associated with the increased time for carrying out the work.

[7.27]

When making a claim for payment under the contract arising from a delay, and an extension of time has been granted, the analysis would go something like this: Has the builder been delayed? If yes, has an extension of time been claimed? If yes, has the builder been granted an extension of time?

[page 317] If yes, has the builder been granted an extension of time that is associated with the right to additional payment? If yes, has the additional payment been claimed? If yes, and it has been refused, why has it been refused? [7.28]

If the builder has sought, but not been granted, an extension of time, then to make a claim for payment under the contract it will usually be necessary (depending, as always, on the precise wording of the contract) to establish a right to an extension of time. A dispute as to the right to be granted an extension of time, and the associated right to payment, will usually fall within the scope of an arbitration or other dispute resolution clause. It has also been held to be a ‘justiciable issue’ by the courts.5

Claims consequent upon termination [7.29]

There are a variety of ways in which contracts may come to an end. In most cases, of course, they are simply discharged by fulfilment of their terms. The building is built, payment is made, and the contract comes to an end.

[7.30]

But contracts can also come to an end before they are fully executed. They may come to an end in accordance with the terms of the contract. Or they may come to an end because one of the parties has breached the terms of the contract or said that it would breach the terms of the contract. More rarely, they may come to an end because the contract is frustrated or abandoned.

[7.31]

Discussed below are claims arising from termination under the contract and in accordance with the terms of the contract.

[7.32]

Contracts will typically contain termination clauses permitting

both the owner and the builder to terminate the contract in certain circumstances. The owner will typically be permitted to terminate the contract in the case of the builder’s insolvency, abandonment of the site, or other substantial breach. The builder will typically be permitted to terminate the contract in the case of the owner’s insolvency or failure to make payment, barring the builder from site, or other substantial breach. [7.33]

The contractual right to terminate should be distinguished from the right to suspend works. There is no right to suspend works under the general law of contract. There may be a right to suspend works under a particular contract, and there is a right to suspend works under certain circumstances provided by the Building and Construction Industry Security of Payment Act 1999 (NSW).

[7.34]

Contracts will usually set out a procedure for the termination of a contract. In most cases this will be a two-stage process. The aggrieved party will serve a notice under the contract setting out what it says the other party has done wrong. The other party is given a fixed period of time to either put things right, explain, or ‘show cause’ why the contract should not be terminated. [page 318]

[7.35]

The contract will usually set out the consequences of terminating the contract. If the owner terminates the contract, the contract will often say that the owner will be entitled to be paid the additional cost of completing the work, that is to say, the cost over and above that which would have had to have been paid to the builder. Many contracts also say that if it cost the owners less to complete the works than the owners would have had to pay the builder, then the builder is entitled to the difference.

[7.36]

The contract will usually stipulate that, if the builder terminates the contract, the builder is entitled to payment for work carried out, materials purchased and demobilisation from site.

[7.37]

A default that justifies termination of the contract in accordance with its express terms will not, of course, necessarily be a breach that would give the other party a right to consider the contract at an end.6 Accordingly, where the contract does not spell out the consequences of termination, or merely leaves the parties to their common law rights, termination of the contract will not necessarily have the consequence that the terminating party is entitled to compensation from the other party to put it in the position it would have been in if the termination had not occurred.

[7.38]

In practice, claims arising from termination of a building contract according to its terms are mainly concerned with whether or not the contract was properly terminated.

Frustration and abandonment [7.39]

Frustration occurs whenever the law recognises that without default of either party a contractual obligation has become incapable of being performed. This is because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract. Frustration of construction contracts is rare. Where it does happen, parties are discharged from their obligations. The NSW Frustrated Contracts Act 1978 is applicable to determine the settling-up of outstanding obligations to make payment (or receive reimbursement for overpayment).7

[7.40]

Where it is plain from the conduct of parties to a contract that neither intends that the contract should be further performed, the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract.8 The inference of

abandonment will be drawn where: … an ‘inordinate’ length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them … What is really inferred in such a case is that the contract has been discharged by agreement,

[page 319] each party being entitled to assume from a long-continued ignoring of the contract on both sides that … ‘the matter is off altogether’.9 [7.41]

Whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from an objective assessment of the conduct of the parties.10

[7.42]

The underlying premise of the abandonment cases is that a period of time elapses during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned. It is clear that the question whether an ‘inordinate length of time has been allowed to elapse’ is relative. In DTR Nominees Pty Ltd v Mona Homes Pty Ltd, the High Court was prepared to infer abandonment after a period of less than five months had elapsed during which neither party took any steps to perform the contract. In Fitzgerald v Masters, it was held that a contract for the sale of land had not been abandoned even though proceedings for its specific performance were not commenced until 26 years after its execution.

[7.43]

The consequences of abandonment will depend on the circumstances and intentions of the parties inferred from the abandonment.

Claims for damages [7.44]

Damages are the measure at common law for breach of

contract. [7.45]

The rule of the common law is that where a party sustains loss because of a breach of contract, they are, so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.11

Claims for damages for failure to make payment [7.46]

Claims, such as the ones discussed for payment under the contract, can also be characterised as claims for damages for breach of contract: the obligation under the contract is to make payment, and the breach is the failure to make payment. In those circumstances, damages are the equivalent of the amount due.

Claims for damages for wrongful termination [7.47]

The effect of termination was stated by Dixon CJ as follows: When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further

[page 320] performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected. When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made. But when a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the

contract is determined so far as it is executory only and the party in default is liable for damages for its breach.12 [7.48]

Accordingly, where a contract comes to an end because it is wrongfully terminated by the builder, the owner will normally be entitled to damages flowing from the breach comprising the cost of completing the works and rectifying any defects in it, but taking into account the outstanding contract sum.

[7.49]

Where such a claim is made, the distinction between incomplete work and defective work is subsumed in the quantification of the cost to complete the work. The owner will not be able to claim for betterment, or additional unnecessary costs, but will not be held to a high or exacting standard of proof: the plaintiffs are not under any obligation to do anything other than what is required in the ordinary course of business, and the standard is not a high one, since the defendant is the wrongdoer.13

[7.50]

It will also be necessary to calculate the outstanding contract sum. This will normally have three components: the original contract sum; contract adjustments, usually in the form of prime cost or provisional sums; and variations carried out and claimed before the contract came to an end but not paid.

[7.51]

The situation is different where the contract is wrongfully terminated by the owner. In those circumstances, there is longstanding authority for the position that the builder can make an election between claiming damages for breach of contract, or it may put the contract to one side and sue on a quantum meruit.14

[7.52]

If the builder elects to claim damages, the claim will probably have at least three components. First, the builder will be entitled to claim on the basis of rights to payment that accrued before termination and were not paid. The second component will be costs incidental to the termination, such as materials left on site, and the costs of demobilising from site, to the

extent that they would be additional to the costs of demobilising at the end of the job. The third component will be loss of profits. This will be an amount representing the full extent of profits the builder would have made on the job, less profits already reimbursed. In practice, this will probably mean the profit component of the outstanding contract sum. [page 321] [7.53]

If, for one reason or another, but most probably because the builder underquoted the job, a claim for loss of profits may be unsustainable because the builder wouldn’t have made any. In these circumstances the builder will probably elect to claim on quantum meruit, because it is no answer to such a claim that full performance would not have been profitable,15 and the contract price will not operate as a ceiling on recovery.16 Moreover, the calculation of the quantum meruit will include a reasonable margin for overhead and profit.17

Claims for damages for defective works [7.54]

Defective works are works that are not carried out in accordance with the contract.

Relevant contractual provisions [7.55]

Where the work is carried out under a contract to do residential building work, the question of whether or not work is defective will normally be determined by reference to the statutory warranties that are implied into any such contract by s 18B of the Home Building Act 1989 (NSW).18

[7.56]

The warranties are: (a) a warranty that the work will be done with due care and skill and in accordance with the plans and specifications

set out in the contract; (b) a warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new; (c) a warranty that the work will be done in accordance with, and will comply with, this or any other law; (d) a warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time; (e) a warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling; (f) a warranty that the work and any materials used in doing the work will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent [page 322] authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder’s or person’s skill and judgment. [7.57]

A warranty that work will be carried out with due care and skill is similar to a warranty that would be implied at law into all building contracts.19

[7.58]

The warranty that work will be carried out in accordance with plans and specifications is the fundamental obligation of the builder in any construction contract. It is not an implied term, but an express term and the reason for the contract.

[7.59]

A warranty is also commonly implied that materials supplied by contractors will be of good quality and reasonably fit for the purpose for which they are used (unless the circumstances are such as to exclude such a warranty).20

[7.60]

There is potential for dispute where the materials in question have been nominated or specified by the owner and yet prove to be unfit for purpose. If the work has been carried out under a contract to do residential building work, the builder will have to rely on s 18F of the Home Building Act 1989 (NSW),21 which says this: (1) In proceedings for a breach of a statutory warranty, it is a defence for the defendant to prove that the deficiencies of which the plaintiff complains arise from: (a) instructions given by the person for whom the work was contracted to be done contrary to the advice of the defendant or person who did the work, being advice given in writing before the work was done, or (b) reasonable reliance by the defendant on instructions given by a person who is a relevant professional acting for the person for whom the work was contracted to be done and who is independent of the defendant, being instructions given in writing before the work was done or confirmed in writing after the work was done. (2) A relevant professional is independent of the defendant if the relevant professional was not engaged by the defendant to provide any service or do any work for the defendant in connection with the residential building work concerned. (3) A relevant professional is not independent of the defendant if it is established that the relevant professional: (a) was engaged on the basis of a recommendation or referral of the defendant to act for the person for whom the work was contracted to be done, or (b) is, or was within 3 years before the relevant instructions were given, a close associate of the defendant. (4) In this section, relevant professional means a person who:

[page 323] (a) represents himself or herself to be an architect, engineer or surveyor, or (b) represents himself or herself to have expert or specialised qualifications or knowledge in respect of residential building work or any particular aspect of residential building work, or (c) represents himself or herself to be engaged in a profession or to possess a qualification that is recognised by the regulations as qualifying a person as a relevant professional. [7.61]

Accordingly, a builder would have to show that it either advised in writing against using the work and materials or reasonably relied upon instructions given by a relevant professional. It is unclear whether those instructions can be the instructions, in effect, contained in a contractual specification, or whether the builder is obliged to seek and receive instructions from a relevant professional in order to take advantage of the defence.

[7.62]

The position may be different in relation to contracts to do non-residential work. Where a contract specifies materials that prove to be unfit for purpose, it is likely that the builder will have a defence, unless, perhaps, it can be shown that the builder should have been or was aware that the materials were unsatisfactory.

[7.63]

The common law has recognised that on occasion circumstances dictate that such a warranty should not be implied.22

[7.64]

A warranty to the effect that work will be done in accordance with the contract and will comply with relevant legislation as required by s 18B(c) is a provision that will commonly be seen in building contracts.23 Where, as is almost invariably the case, the work is done pursuant to a development application, it will usually be a term of the development application’s determination that the work be carried out in accordance with the law and applicable codes and standards.

[7.65]

The warranty that work will be completed within a reasonable time is one which may readily be implied at common law,24 but is not really relevant to the issue of defective workmanship.

[7.66]

The warranty as to fitness for occupation is also a term that would commonly be implied at law, at least in relation to residential building contracts.25

[7.67]

The critical distinction between the warranty that work will be carried out with due care and skill and the warranty as to fitness for purpose is that the latter warranty is a warranty as to a result, not a warranty that the builder will exercise care in seeking to achieve a result. [page 324]

Calculation of damages [7.68]

The measure of damages is the cost of rectification, subject to the proposed rectification being a reasonable course to adopt. Authority for this is to be found in the decision of the High Court of Australia in Bellgrove v Eldridge: Subject to a qualification to which we shall refer presently the rule is, we think, correctly stated in Hudson on Building Contracts, 7th ed. (1946), p. 343. ‘The measure of the damages recoverable by the building owner for the breach of a building contract is, it is submitted, the difference between the contract price of the work or building contracted for and the cost of making the work or building conform to the contract, with the addition, in most cases, of the amount of profits or earnings lost by the breach’. Ample support for this proposition is to be found in Thornton v Place [1832] EngR 767; (1832) 1 M & Rob 218 (174 ER 74); Chapel v Hickes (1833) 2 C & M 214 (149 ER 738) and H Dakin & Co Ltd v Lee (1916) 1 KB 566. (See also Pearson-Burleigh Ltd v Pioneer Grain Co (1933) 1 DLR 714 and cf. Forrest v Scottish County Investment Co Ltd (1915) SC 115 and Hardwick v Lincoln (1946) NZLR 309). But the work necessary to remedy defects in a building and so produce conformity with the plans and specifications may, and frequently will, require the removal or demolition of some part of the structure. And it is obvious that the necessary remedial work may call for the removal or demolition of a more or less substantial part of the building. Indeed — and such was held to be the position in the present case — there may well be cases where the only practicable method of producing conformity with plans and specifications is by demolishing the whole of the building and erecting another in its

place. In none of these cases is anything more done than that work which is required to achieve conformity and the cost of the work, whether it be necessary to replace only a small part, or a substantial part, or, indeed, the whole of the building is, subject to the qualification which we have already mentioned and to which we shall refer, together with any appropriate consequential damages, the extent of the building owner’s loss. The qualification, however, to which this rule is subject is that, not only must the work undertaken be necessary to produce conformity, but that also, it must be a reasonable course to adopt. No one would doubt that where pursuant to a building contract calling for the erection of a house with cement rendered external walls of secondhand bricks, the builder has constructed the walls of new bricks of first quality the owner would not be entitled to the cost of demolishing the walls and re-erecting them in second-hand bricks. In such circumstances the work of demolition and re-erection would be quite unreasonable or it would, to use a term current in the United States, constitute ‘economic waste’. (See Restatement of the Law of Contracts, (1932) par. 346). We prefer, however, to think that the building owner’s right to undertake remedial works at the expense of a builder is not subject to any limit other than is to be found in the expressions ‘necessary’ and ‘reasonable’, for the expression ‘economic waste’ appears to us to go too far and would deny to a building owner the right to demolish a structure which, though satisfactory as a structure of a particular type, is quite different in character from that called for by the contract. Many examples may, of course, be given of remedial work, which though necessary to produce conformity would not constitute a reasonable method of dealing with the situation and in such cases the true

[page 325] measure of the building owner’s loss will be the diminution in value, if any, produced by the departure from the plans and specifications or by the defective workmanship or materials. As to what remedial work is both ‘necessary’ and ‘reasonable’ in any particular case is a question of fact.26 [7.69]

The issue of what constitutes reasonableness in this context was further considered by the High Court in Tabcorp Holdings Ltd v Bowen Investments Pty Ltd. The case concerned the breach by a tenant of a covenant in a lease to the following effect: ‘Not without the written approval of the Landlord first obtained (which consent shall not be unreasonably withheld or delayed) to make or permit to be made any substantial alteration or addition to the Demised Premises.’

[7.70]

In breach of covenant, the tenant demolished the original foyer of the building and replaced it with a new one. The issue was how damages should be calculated. The tenant said that they should be calculated on the basis of the diminution of the value of the building, which was very little.

[7.71]

The landlord said that it should be entitled to the cost of reinstating the original foyer.

[7.72]

The landlord was successful. The High Court said this, in relation to the issue of reasonableness: … the test of ‘unreasonableness’ is only to be satisfied by fairly exceptional circumstances … that is, that the diminution in value measure of damages will only apply where the innocent party is ‘merely using a technical breach to secure an uncovenanted profit’.27

[7.73]

This decision can be contrasted with the decision of the House of Lords in Ruxley Electronics and Construction Ltd v Forsyth. The House of Lords there held in a building case that where the expenditure necessary to rectify the defect in the building was out of all proportion to the benefit to be obtained, the appropriate measure of damages was not the cost of reinstatement but the diminution in the value of the work occasioned by the breach, even if that would result in a nominal award. The House rejected a claim for £21,560 damages for reconstructing a swimming pool that was 1 foot 6 inches too shallow. The House saw the following matters as indicating that the cost of reconstruction was not recoverable: The trial judge made the following findings which are relevant to this appeal: (1) the pool as constructed was perfectly safe to dive into; (2) there was no evidence that the shortfall in depth had decreased the value of the pool; (3) the only practicable method of achieving a pool of the required depth would be to demolish the existing pool and reconstruct a new one at a cost of £21,560; (4) he was not satisfied that the respondent intended to build a new pool at such a cost; (5) in addition such cost would be wholly disproportionate to the disadvantage of having a pool of a depth of only 6 feet as opposed to 7 feet 6 inches and it would therefore be unreasonable to carry out the works; and (6) that the respondent was entitled to damages for loss of amenity in the sum of £2,500.28

[page 326] [7.74]

The reconciliation of these views may be that another aspect of unreasonableness, in addition to an uncovenanted benefit, is if the ‘proposed rectification is out of all proportion to the benefit to be obtained’.29

[7.75]

Where the work of rectification has been carried out, the calculation of damages will be the cost of carrying out that rectification work. The work must be necessary to put the owner in the position the owner would have been in if the contract had been properly performed and it must flow naturally from the breach. But it is no answer to the builder’s claim that the builder might have been able to rectify the defects more cheaply. Provided the owner’s actions were not so unreasonable as to break the chain of causation, the money expended should be recoverable.

[7.76]

The calculation is slightly different where the owner has not yet carried out the work. In those circumstances, the owner will have to lead evidence as to how much it will cost to rectify defective works. That cost can be established either by obtaining quotations from builders prepared to do the work, or by obtaining estimates from a suitably qualified person, such as a quantity surveyor or building consultant. If a quotation is obtained, then it will be necessary to reveal the instructions to the quoting builder, and the quotation should be itemised by reference to individual defect items. It may also be necessary to call the builder who provided the quotation to give evidence. If an estimate is obtained, it can legitimately be attacked for unreasonableness on the grounds that one could not reasonably expect a hypothetical remedial builder to charge as much as is estimated.

Defects liability periods [7.77]

Many building contracts contain what are commonly known as

‘defects liability periods’. The theory is that where the building is complete with the exception of minor errors and omissions that do not prevent the building from being used, the owner should be entitled to move in and the builder should be entitled to be paid the contract sum, subject to any outstanding adjustments. This is often referred to as practical completion. [7.78]

Practical completion is characteristically followed by what is known as a defects liability period, perhaps six months to a year, in which the builder will sometimes have the right, and sometimes the obligation, to return to site to rectify such defects as may be uncovered or discovered during that period. [page 327]

[7.79]

If the owner denies the builder a contractual right to rectify the defects during the defects liability period, damages for breach of contract may be limited so as not to exceed what would have been the cost to the contractor.30

Claims for damages and the theory of temporary disconformity [7.80]

From time to time, the argument is propounded that defects prior to practical completion do not constitute a breach of contract because the builder’s obligation is to provide a building free of defects or omissions other than minor ones at practical completion and not before that time. In the 1972 House of Lords decision P & M Kaye Ltd v Hosier & Dickinson Ltd, Lord Diplock suggested, in a dissenting speech, that: ‘Provided that the Contractor puts it right timeously I do not think that the parties intended that any temporary disconformity should of itself amount to a breach of contract by the Contractor’.31

[7.81]

This suggestion has not been embraced in the UK. In William

Thomkins & Sons v Parochial Church of Council of St Michael, it was held that an owner could claim for defects before practical completion subject to those costs not exceeding those that the contractor would have had to incur if it had remedied the defect itself.32 [7.82]

The learned author of Hudson’s Building Contracts says this: It is submitted that, on grounds of both principle and practicality, a contractor will be in immediate breach of contract whenever his work fails to comply with the contract descriptions or requirements although no doubt, as envisaged by Lord Diplock, the damages will be at best nominal in a case where he can show that he intends to rectify at some more convenient time before completion without affecting the quality of the remaining work.33

[7.83]

A more recent discussion of this issue is to be found in the judgment of Ipp JA in Brewarrina Shire Council v Beckhaus Civil Pty Ltd.34 His Honour addressed what he referred to as the ‘misconception’ that the council could claim damages from Beckhaus for defective and incomplete work while the work was still in Beckhaus’ possession and while Beckhaus was still obliged (and entitled) to execute the work to practical completion.

[7.84]

The relevant facts of the case were that the contractor, Beckhaus, claimed that it had brought certain works to practical completion. The council said that it had not and its superintendent refused to certify that practical completion had been achieved. At first instance, it was held that although practical completion had not been achieved, [page 328] substantial completion had been achieved, which meant that the contractor was entitled to its claimed payment.

[7.85]

The council had taken advantage of the finding that the contractor had failed to reach practical completion by making a

claim for liquidated damages. It also maintained a claim for damages for breach of contract arising from allegedly defective and incomplete work. Ipp JA said this: While, on this assumption (the Contract still being on foot), the Council may have been entitled to claim damages for delay arising out of Beckhaus’ failure to achieve practical completion by the date for practical completion, it could not sue Beckhaus for defective or incomplete work. As long as the Council maintained that the Contract was alive and had not been terminated, and held Beckhaus to its obligation to complete the work in accordance with the specification, on its contention the work remained lawfully in Beckhaus’ possession. In other words, it was an inevitable incident of the Council’s argument that the work had not been delivered to and accepted by the Council (Beckhaus — on the Council’s argument — being in possession of and obliged to complete the work). While the work was in Beckhaus’ possession, the Council suffered no loss by reason of defective or incomplete work; the work, not being in the Council’s possession, did not at that stage form part of its patrimony.35 [7.86]

The position may be different where it is clear on the facts that the owner is not holding the builder to its obligation to complete the works, whether or not the contract is still alive. Very frequently disputes arise where there is an allegation of defective workmanship, often in response to a builder stopping work because of failure to make payment, in circumstances where neither party has formally brought the contract to an end.

[7.87]

The issue was discussed by Tribunal Member Goldstein in Tapp, McFarlane v Clarke (Home Building) [2013] NSWCTTT 619 (6 December 2013). He said this: The case of Brewarrina Shire Council v Beckhaus Civil Pty Ltd & 1 Or [2005] NSWCA 248 is authority for the proposition that while work under a contract is in the contractor’s possession, the owner suffers no loss by reason of defective or incomplete work; because the work, not being in the owner’s possession, does ‘not at that stage form part of its patrimony’. However, if defective and uncompleted work is handed over to an owner through termination, it will be at that stage that an owner will suffer loss by being in possession of defective and incomplete work. In Brewarrina Shire Council v Beckhaus Civil Pty Ltd there was no formal termination of the contract. The same situation applies in this case. It was held in Brewarrina ‘that the parties agreed, by their conduct, to terminate the Contract’. This was described as a tacit agreement between the parties.

In this case neither party has taken action to bring the Contract to an end. In my view the parties have agreed by their conduct to terminate the Contract and this occurred when the

[page 329] builder stopped working at the premises after he had finished work on the porte cochere. There is no evidence that the builder was requesting access to site for the purposes of completing the work required under the Contract, or for rectifying defective work. Rather, the evidence indicates that the builder did not protest that the owner was proceeding with other contractors and insist on his right to complete the works.36 [7.88]

While the implication of a contractual termination by conduct is an eminently sensible way of achieving justice in individual cases, it might be more difficult to establish, as a matter of law, where the question of whether or not the contract had come to an end was the subject of contest. It is also difficult to reconcile with orthodox doctrines of contract law.

[7.89]

A party may communicate an intention, by words or conduct, no longer to be bound by the terms of the contract.37 In those circumstances, the other party is faced with a decision. It may accept that the contract is at an end or elect to treat the contract as remaining on foot. Until it is brought to an end, there can be no breach for loss of a bargain following repudiation.38 To imply from conduct an agreement to terminate the contract risks depriving one or other party of the right to make an election to treat the contract as being on foot.

[7.90]

An implied agreement to terminate the contract also sits uneasily with the conventional doctrine of abandonment. The applicable principle was stated by McColl JA in Ryder v Frohlich: Where it is plain from the conduct of parties to a contract that neither intends that the contract should be further performed the parties will be regarded as having so conducted themselves as to abandon or abrogate the contract: DTR Nominees Pty Limited v Mona Homes Pty Limited [1978] HCA 12; (1978) 138 CLR 423 at 434 (per Stephen, Mason and Jacobs JJ with whom Aickin J agreed); Summers v The

Commonwealth [1918] HCA 33; (1918) 25 CLR 144 at 151–152 per Isaacs J. The inference of abandonment will be drawn where ‘an “inordinate” length of time has been allowed to elapse, during which neither party has attempted to perform, or called upon the other to perform, a contract made between them … What is really inferred in such a case is that the contract has been discharged by agreement, each party being entitled to assume from a long-continued ignoring of the contract on both sides that … “the matter is off altogether”’: Fitzgerald v Masters (1956) 95 CLR 420 at 432; [1956] HCA 53 per Dixon CJ and Fullagar J. Whether there is abandonment or abrogation of a contract is a matter of fact to be inferred from an objective assessment of the conduct of the parties: see CIC Insurance Limited v Bankstown Football Club Limited (1995) 8 ANZ Ins Cas 61–232 per Kirby P; Wallera Pty Limited v CGM Investments Pty Limited [2003] FCAFC 279 at [2] per Ryan J, at [30]–[32] per Kiefel J; at [57] per Gyles J; Marminta Pty Limited v French [2003] QCA 541 at [22] per Jerrard JA, Williams JA and Philippides J agreeing.

[page 330] The underlying premise of the abandonment cases is that a period of time elapses during which neither party to the contract manifests any intention to perform the contract, leading to the inference that the contract has been abandoned. It is clear that the question whether an ‘inordinate length of time has been allowed to elapse’ is relative. In DTR Nominees Pty Limited v Mona Homes Pty Limited the High Court was prepared to infer abandonment after a period of less than five months had elapsed during which neither party took any steps to perform the contract. In Fitzgerald v Masters it was held that a contract for the sale of land had not been abandoned even though proceedings for its specific performance were not commenced until 26 years after its execution.39 [7.91]

Where there is no inordinate, or even significant, period of time during which the parties have ignored the contract, it would appear the conventional doctrine of abandonment is not being applied. Moreover, where the contract is abandoned, the terms of the contract cease to operate to regulate the rights and obligations of the parties: ‘the thing is off altogether’.

[7.92]

The precise significance of Brewarrina and whether or not it has revived the theory of temporary disconformity in Australia are issues which are yet to be authoritatively resolved.

Claims for damages for delay [7.93]

Failure on the part of a builder to complete the works by the agreed time is a breach of contract for which an owner has a prima facie entitlement to damages. If the owner does something to prevent the builder from fulfilling its contractual obligation to complete the works on time, that will also be a breach of contract.

[7.94]

Contracts often contain provisions for liquidated damages for delay if the builder fails to reach practical completion by the date for practical completion (as extended pursuant to the terms of the contract).

[7.95]

The inclusion of such provisions has two functions. First, it saves the owner the trouble and expense of proving damages it may have suffered by reason of any delay. Second, it enables the builder, if it is delayed, to make a financially informed decision as to whether to apply additional resources to finish the work on time.

[7.96]

Where a builder is delayed, the builder’s usual remedy will be to claim an extension of time. Usually, the contract will identify those delays which also give rise to a right to additional compensation and those which do not. For example, inclement weather may give rise to a right to an extension of time but not additional compensation, but the failure on the part of an owner to give necessary instructions would probably give rise to a right to an extension of time and additional compensation. [page 331]

[7.97]

In those circumstances, the additional compensation is a contractual right, rather than constituting a right to damages for breach of contract.

[7.98]

It has been held that where the contractual remedy for delay provided by a contract is to apply for an extension of time, a builder who fails to take advantage of that remedy is precluded from claiming damages for the same delay for which it failed to seek an extension of time.40 Accordingly, it will only be on comparatively rare occasions that a builder will be able to claim damages against an owner arising from delays caused by the owner.

[7.99]

Where an owner claims damages for delay against a builder, the damages are likely to include such items as liability for additional interest, and other holding costs applicable to the undeveloped land upon which the building is being built. There may also be other losses arising from the owner’s inability to comply with its obligations to other parties, such as purchasers or potential lessors.

Set-off and abatement [7.100]

The common law right of abatement is a defence which is generally limited to contracts for sale of goods or for work or labour. It can be invoked by a defendant to reduce the value of goods and services supplied by the plaintiff where, for some reason, the goods and services in fact supplied did not justify the payment of the full agreed price by the defendant. This is sometimes referred to as ‘the rule in Mondel v Steel’.

[7.101]

Where a builder claims payment for money due under a building contract, the owner may, unless the right is expressly excluded by the contract, set off or deduct damages for delay or defective work.

[7.102]

In D Galambos & Son Pty Ltd v McIntyre, Woodward J identified the principles to be extracted from the authorities as follows: (i)

Failure in part to perform a contract, or defective performance of a contract

requiring work to be done again or directly reducing the value of work done or goods supplied, may be raised as a defence to an action for money due under that contract: … Mondel v Steel. (ii) Claims for money due under a contract and for damages for breach of the same contract (arising, for example, from delay) may be set-off against each other where the equity of the case requires that it should be so. This will depend upon how closely the respective claims are related, particularly as to time and subjectmatter. The general conduct of the respective parties will, as always, be relevant to the granting of such equitable relief … (iii) Even where one of the claims is not in terms based upon the contract, but it flows out of and is directly connected with it, a court may be prepared to recognize an equitable set-off …41

[page 332]

What is a dispute? [7.103]

Before there can be a dispute, there must be a claim of some kind. Those claims are discussed above and, for convenience, repeated below.

[7.104]

Claims under the terms of the contract will commonly include claims for the balance of the contract sum, claims for interim payment on account, claims for payment for additional work or variations, claims for payment relating to extensions of time or delay, and claims consequent upon termination.

[7.105]

There can be claims arising from frustration and abandonment of the contract, but more frequently there can be claims for damages for breach of contract. These will commonly include claims for failure to make payment, claims for wrongful termination, claims for defective works and claims for delay.

[7.106]

Once the claim has been formulated and communicated to the other party, there must be a disagreement about it, either by communicating that disagreement, or by conduct: for example, by failing or neglecting to make payment.

Payment provisions, certification and adjudication [7.107]

Probably the most common type of dispute relates to claims for interim payment. As discussed above, many construction contracts contain provisions for interim payment claims to be submitted to a superintendent, architect or engineer, for assessment. The obligation of the principal will then be to pay the amount certified as payable by the superintendent, architect or engineer.

[7.108]

Where such a claim is disputed, it can be resolved through submission of the claim for payment to an adjudicator under the procedures set out under payment legislation such as the Building and Construction Industry Security of Payment Act 1999 (NSW).42

[7.109]

Typically, this type of payment legislation does not apply to domestic building work and the adjudication does not finally determine the legal rights and obligations of the parties. The final determination of the amount due under the contract is not determined by the adjudication. What is determined is who gets to keep the money until that issue is finally resolved.

Contractual dispute resolution clauses [7.110]

It is common for building and construction contracts to contain what are often called dispute resolution clauses. When a dispute arises, the first step is to determine whether or not the resolution of the dispute should be governed by such a clause. [page 333]

[7.111]

There are many different types of dispute resolution clause. Necessarily they will require the claimant to notify the other

party of the nature of the dispute, and the matter will then go forward to negotiation, mediation or expert determination. [7.112]

Where the contract contains provisions for dispute resolution then the courts will normally enforce such provisions by staying proceedings that have commenced before the dispute resolution provisions have been observed.43

[7.113]

The granting of such a stay will, of course, depend upon the circumstances and the precise wording of the dispute resolution clause in question. If the procedure to be followed is uncertain, or the party seeking the stay has itself not observed the dispute resolution clause, this will make the granting of a stay less likely.

[7.114]

There are many dispute resolution techniques. The first is simple negotiation. Characteristically, a dispute resolution clause will seek to elevate the dispute, taking it out of the hands of the individuals originally concerned with the matters in issue.

[7.115]

Another technique is mediation. This is a form of assisted negotiation. The parties will pay a mediator to assist the negotiation with a view to resolving the dispute.

[7.116]

Negotiation and mediation are, of course, procedures that are not binding upon the parties. A different category of procedures are those that impose a resolution on the parties. In an expert determination, an expert appointed by the parties will determine matters remitted to the chosen expert by the parties. So, for example, where there is a dispute as to the reasonable valuation of some variation work, the parties might jointly appoint a quantity surveyor, acting as an expert and not an arbitrator, to determine a reasonable value for the variation work.

[7.117]

The job of an expert is not to resolve a dispute, but to resolve an issue. The issue may comprise the entirety of the dispute or

a part of it. There is, characteristically, no hearing, and no formal calling of evidence. The determination will take place on the basis of documents jointly submitted by the parties. [7.118]

Whether an expert’s determination is reviewable depends on whether the determination was made in accordance with the contract, that is to say, whether or not the expert carried out the task which he or she was contractually required to undertake. If the expert in fact carried out that task, the fact that he or she made errors or took irrelevant matters into account would not render the determination challengeable. If the expert did not perform the task, but rather performed some different task, or carried out the task in a way not within the contractual contemplation of the parties, objectively ascertained, then the determination would be liable to be set aside.44

[7.119]

A different, and more formal, method of dispute resolution is arbitration. Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final [page 334] and binding. There are limited rights of review and appeal of arbitration awards. In Australia, arbitrations are governed by uniform legislation in all states. In New South Wales, the applicable Act is the Commercial Arbitration Act 2010 (the Arbitration Act).

[7.120]

An arbitration requires an arbitration agreement, which is defined in s 7 of the Arbitration Act as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The agreement must be in writing. An oral agreement would,

presumably, still be an agreement for arbitration but would not be an arbitration agreement governed by the Act. [7.121]

Under the Arbitration Act, an arbitral tribunal can rule on its own jurisdiction, grant certain interim relief and require the provision of oral evidence on oath. An arbitral tribunal may require the production of documents. An arbitral award must be in writing and signed by the arbitrator. It is enforceable on application in writing to the court.

[7.122]

There are only very limited provisions for seeking recourse against an arbitral award. Recourse to the court against an arbitral award may be made only by an application for setting aside in accordance with ss 34(2) and (3) or by an appeal under s 34A of the Arbitration Act.

[7.123]

An arbitral award may be set aside by the court only if it is proved that: (i)

a party to the arbitration agreement referred to in section 7 was under some incapacity, or the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication in it, under the law of this State, or

(ii) the party making the application was not given proper notice of the appointment of an arbitral tribunal or of the arbitral proceedings or was otherwise unable to present the party’s case, or (iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside, or (iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act,45

or the court finds that: (i)

the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State, or

(ii) the award is in conflict with the public policy of this State.46

[page 335] [7.124]

Setting aside an award is distinct from appealing it. An appeal lies to the court on a question of law arising out of an award under s 34A of the Arbitration Act if the parties agree that an appeal may be made under this section, and the court grants leave.

[7.125]

Pausing there, the prospect that a successful party would agree to an appeal would appear to be unlikely. But even if such an agreement is reached, the court’s power to grant such leave is still significantly limited. Under s 34A, the court must not grant leave unless it is satisfied: (a) that the determination of the question will substantially affect the rights of one or more of the parties, and (b) that the question is one which the arbitral tribunal was asked to determine, and (c) that, on the basis of the findings of fact in the award: (i)

the decision of the tribunal on the question is obviously wrong, or

(ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and (d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the Court to determine the question. [7.126]

In New South Wales, and under cognate provisions in other state jurisdictions, a provision in a contract or other agreement that requires a dispute under the contract to be referred to arbitration is void (see, for example, s 7C of the Home Building Act 1989 (NSW)). The Home Building Act applies to contracts to do residential building work. The majority of disputes that arise from residential building contracts are dealt with by tribunals.

Tribunals [7.127]

In New South Wales, the New South Wales Civil and

Administrative Tribunal is responsible for determining building claims arising from residential building contracts. Jurisdiction is conferred upon the tribunal by Pt 3A of the Home Building Act 1989. There is similar legislation in other states.47 At the time of writing, the tribunal’s jurisdiction extends to claims up to $500,000. [7.128]

The conferral of jurisdiction by the Home Building Act does not have the effect of depriving the courts of jurisdiction, but if the dispute is one falling within the jurisdiction of the tribunal, and a party requests that it be transferred to the tribunal, then it must be heard in the tribunal.

[7.129]

Such matters are heard within the Home Building List of the Consumer and Commercial Division of the tribunal. The tribunal also has jurisdiction over claims made under the compulsory insurance required under Pt 6 of the Home Building Act 1989. [page 336]

[7.130]

In New South Wales, the tribunal will usually award costs to the successful party to a residential building dispute where the claim is above $30,000. There are provisions for appeals to an internal appeal panel on questions of law or, with leave, where there appears to have been a substantial miscarriage of justice.

[7.131]

A decision of the tribunal can be enforced as an order of the court after provision of a certificate by the tribunal to the court.

Courts [7.132]

The Supreme Courts of each state have a general jurisdiction over all civil disputes, but, depending upon the amount claimed, the appropriate courts in which to commence

proceedings may be the lower courts, whose jurisdiction is determined by statute. Many courts have specialist lists dealing with building or construction disputes. [7.133]

Proceedings in court will normally be governed by formal rules of evidence, and evidence must be prepared in the light of those rules.

[7.134]

The federal courts, which have jurisdiction to determine issues arising from Commonwealth legislation, are not ordinarily the appropriate forum for determining building disputes, and in particular modest ones.48

[7.135]

In court proceedings it is usual for the successful party to pay the costs of the unsuccessful party.

Offers of compromise and Calderbank letters [7.136]

As a matter of policy, parties are encouraged to make realistic offers to compromise their claims and parties are encouraged to accept those offers where it is not unreasonable to do so.

[7.137]

The rationale was explained by Fox LJ in Cutts v Head: If a party is exposed to a risk as to costs if a reasonable offer is refused, he is more rather than less likely to accept the terms and put an end to the litigation. On the other hand, if he can refuse reasonable offers with no additional risk as to costs, it is more rather than less likely to encourage mere stubborn resistance.49

[7.138]

Offers of compromise are formal offers made pursuant to the rules of court. In broad terms, where a plaintiff makes an offer to compromise a claim in accordance with the rules, then if the amount recovered is the same or greater than that offered, the defendant will normally be required to pay the plaintiff’s costs on an indemnity basis, from the date the offer was made. [page 337]

[7.139]

On the other hand, if the defendant makes an offer of compromise, and the plaintiff recovers the same or less than offered, the plaintiff will pay the defendant’s costs on an indemnity basis from the date the offer was made.

[7.140]

Calderbank letters are informal offers of compromise. The principles are similar. The difference is that where there is an offer of compromise, the court is obliged to make an order for costs in accordance with the rules unless there is some compelling reason not to. Where a Calderbank offer is made, the equivalent order for costs will be made if it can be shown that failure to accept the offer was unreasonable.

[7.141]

In almost all cases where a matter goes to a contested hearing, consideration should be given to making an offer or compromise of a Calderbank offer.

Preparation and presentation of claims [7.142]

Whether claims are to be negotiated or presented in court, preparation of a claim requires certain steps to be taken if it is to be successfully resolved. First, the basis of the claim, or the bases of claims, must be identified. Second, the amount claimed must be identified. Third, the factual evidence necessary to support the claim must be identified and marshalled. This evidence may be in the form of documents, or it may be in the form of statements of evidence or reports from experts. Fourth, any legal issues must be identified and researched.

[7.143]

Unless the basis of the claim is identified together with the amount claimed, the dispute will not be susceptible of resolution. A party cannot be expected to be in a position to address a claim unless it knows what the claim against it is. The basis or bases of claims are likely to be similar to those

identified and summarised above at [7.103]–[7.106]. [7.144]

The amounts claimed must be calculated by reference to each head.

[7.145]

Where the matter is to be negotiated or mediated, it may not be necessary to have actually prepared witness statements or obtained experts’ reports, although they will often be of assistance.

[7.146]

In arbitration, tribunal or court proceedings, it is necessary to identify factual issues in contest. It is always important to bear in mind that the only contested issues that matter are the issues that are material to the claim (or the defence to the claim). It is a waste of time and money to argue about unnecessary issues.

Scott Schedules [7.147]

The idea of a Scott Schedule is to identify precisely the questions that the court or tribunal has to decide. They are commonly used when the claims are comprised of [page 338] numerous distinct items, such as items of defective work, or individual variation claims.

[7.148]

A Scott Schedule is a table. In the first column after the item number, the plaintiff sets out each item. In the next column the amount claimed in respect of that item is identified. At a trial, the plaintiff will be expected to back up these figures with evidence.

[7.149]

In the next two columns, the defendant sets out their response to each individual item. Even if they deny that they are liable at

all, they are expected to give their figure in relation to the amount claimed. [7.150]

The last column is reserved for use by the court or tribunal.

[7.151]

Schedules are usually set out on A4 paper in landscape (‘sideways’) format.

[7.152]

Brevity is necessary in a Scott Schedule. Usually, the complaints and the responses involve quite detailed explanation, but in the schedule there should be the shortest possible summary. Detailed explanations are given in statements and in evidence in court.

The role of expert evidence [7.153]

Most building disputes involve expert evidence.

[7.154]

Expert evidence is appropriate where it is thought that the court or tribunal may need assistance in understanding the factual evidence and the conclusions that should be drawn from that evidence. Expert evidence takes the form of opinion evidence. Opinion evidence is not normally admissible, unless it is given by a suitably qualified expert.

[7.155]

Lord President Cooper in Davie v The Lord Provost, Magistrates and Councillors of the City of Edinburgh stated that the role of the expert was: … to furnish the Judge or jury with the necessary scientific criteria for testing the accuracy of their conclusions, so as to enable the Judge or jury to form their own independent judgment by the application of these criteria to the facts proved in evidence. The scientific opinion evidence, if intelligible, convincing and tested, becomes a factor (and often an important factor) for consideration along with the whole other evidence in the case, but the decision is for the Judge or jury. In particular the bare ipse dixit of a scientist, however eminent, upon the issue in controversy, will normally carry little weight, for it cannot be tested by crossexamination nor independently appraised, and the parties have invoked the decision of a judicial tribunal and not an oracular pronouncement by an expert.50

[7.156]

What an expert gives is an opinion based on facts. Accordingly, the expert must either prove the admissible evidence, the facts on which the opinion is based, or state [page 339] explicitly the assumptions as to fact on which the opinion is based. In the latter case, the facts sufficiently alike to the assumptions made must be proved.

[7.157]

In HG v R, Gleeson CJ said this: … An expert whose opinion is sought to be tendered should differentiate between the assumed facts upon which the opinion is based, and the opinion in question (Ramsay v Watson [1961] HCA 65; (1961) 108 CLR 642; Arnotts Ltd v Trade Practices Commission [1990] FCA 473; (1990) 24 FCR 313 at 347–348). Argument in this Court proceeded upon the basis that it was possible to identify from Mr McCombie’s written report some facts which he either observed or accepted, and which could be distinguished from his expressions of expert opinion. Even so, the provisions of s 79 will often have the practical effect of emphasising the need for attention to requirements of form. By directing attention to whether an opinion is wholly or substantially based on specialised knowledge based on training, study or experience, the section requires that the opinion is presented in a form which makes it possible to answer that question.51

Gleeson CJ went on to consider the kind of evidence that the expert called in that case could give, and said (at [41]): … It would have required identification of the facts he was assuming to be true, so that they could be measured against the evidence, and it would have required or invited demonstration or examination of the scientific basis of the conclusion. [Emphasis added.] [7.158]

Accordingly, the following matters need to be considered when expert evidence is adduced: Is the expert appropriately qualified? Has the expert identified the facts and matters upon which their opinion is based? Is the expert’s reasoning process sufficiently exposed such

that it can be seen that in reaching their opinion, the expert has relied upon their training, study or experience? Is there evidence to support the facts and matters upon which the opinion is based? [7.159]

Experts who give evidence will normally be required to acknowledge that they have read and complied with a code of conduct. The precise words of the code vary slightly from jurisdiction to jurisdiction, but the code applicable in the New South Wales Supreme Court is set out in Sch 7 to the Court Rules: SCHEDULE 7 — Expert witness code of conduct (Rule 31.23) (cf SCR Schedule K)

[page 340] 1 Application of code This code of conduct applies to any expert witness engaged or appointed: (a) to provide an expert’s report for use as evidence in proceedings or proposed proceedings, or (b) to give opinion evidence in proceedings or proposed proceedings. 2 General duty to the court (1) An expert witness has an overriding duty to assist the court impartially on matters relevant to the expert witness’s area of expertise. (2) An expert witness’s paramount duty is to the court and not to any party to the proceedings (including the person retaining the expert witness). (3) An expert witness is not an advocate for a party. 3 Duty to comply with court’s directions An expert witness must abide by any direction of the court. 4 Duty to work co-operatively with other expert witnesses An expert witness, when complying with any direction of the court to confer with

another expert witness or to prepare a parties’ expert’s report with another expert witness in relation to any issue: (a) must exercise his or her independent, professional judgment in relation to that issue, and (b) must endeavour to reach agreement with the other expert witness on that issue, and (c) must not act on any instruction or request to withhold or avoid agreement with the other expert witness. 5 Experts’ reports (1) An expert’s report must (in the body of the report or in an annexure to it) include the following: (a) the expert’s qualifications as an expert on the issue the subject of the report, (b) the facts, and assumptions of fact, on which the opinions in the report are based (a letter of instructions may be annexed), (c) the expert’s reasons for each opinion expressed, (d) if applicable, that a particular issue falls outside the expert’s field of expertise, (e) any literature or other materials utilised in support of the opinions, (f) any examinations, tests or other investigations on which the expert has relied, including details of the qualifications of the person who carried them out, (g) in the case of a report that is lengthy or complex, a brief summary of the report (to be located at the beginning of the report).

[page 341] (2) If an expert witness who prepares an expert’s report believes that it may be incomplete or inaccurate without some qualification, the qualification must be stated in the report. (3) If an expert witness considers that his or her opinion is not a concluded opinion because of insufficient research or insufficient data or for any other reason, this must be stated when the opinion is expressed. (4) If an expert witness changes his or her opinion on a material matter after providing an expert’s report to the party engaging him or her (or that party’s legal representative), the expert witness must forthwith provide the engaging party (or that party’s legal representative) with a supplementary report to that effect containing such of the information referred to in subclause (1) as is appropriate. 6 Experts’ conference

(1) Without limiting clause 3, an expert witness must abide by any direction of the court: (a) to confer with any other expert witness, or (b) to endeavour to reach agreement on any matters in issue, or (c) to prepare a joint report, specifying matters agreed and matters not agreed and reasons for any disagreement, or (d) to base any joint report on specified facts or assumptions of fact. (2) An expert witness must exercise his or her independent, professional judgment in relation to such a conference and joint report, and must not act on any instruction or request to withhold or avoid agreement. [7.160]

A common practice is for the parties’ respective experts to attend what are usually referred to as ‘conclaves’ in advance of the hearing. The parties’ experts are directed to meet and confer, and then produce a joint report stating where they agree, where they disagree, and where they disagree, why they disagree. Although the joint report will not be binding on the court or tribunal, following the principles in Davie v The Lord Provost, Magistrates and Councillors of the City of Edinburgh stated above, it will not normally be possible for a party to adduce evidence contrary to what has been agreed.

[7.161]

In Lucantonio v Kleinert, Brereton J said this: It would entirely defeat the purpose of the expert conclave process, including the production of a joint report, to permit one of the parties now to adduce the evidence of a further expert witness, after the conclave has taken place and after the joint report has been prepared, to give an opinion contrary to at least some of those agreed to by some of the experts in the course of the conclave and joint report. The court manages closely the use of expert evidence. In this case, the purpose of the course of management adopted would be entirely frustrated if the plaintiff were now permitted to call a further expert witness who had not been involved in the conclave and the preparation of the joint report.52

__________________________ 1

For equivalent legislation in other states, see Table 2.4.

2

For equivalent legislation in other states, see Table 2.3.

3

Shorten v David Hurst Constructions Pty Ltd (2008) 72 NSWLR 211; (2009) 25 BCL 399; [2008] NSWCA 134.

4

Cardiacos v Cooper Consulting & Construction Services (Aust) Pty Ltd [2009] NSWSC 938.

5

KBH Developments Pty Ltd v PSD Development Corporation Pty Ltd (1990) 21 NSWLR 348.

6

Shevill v Builder’s Licensing Board (1982) 149 CLR 620; 42 ALR 305; [1982] HCA 47.

7

Davis Contractors v Fareham UDC [1956] AC 696 at 729 per Lord Radcliffe.

8

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 434; 19 ALR 223 at 232; [1978] HCA 12 per Stephen, Mason and Jacobs JJ (with whom Aickin J agreed); Summers v Commonwealth (1918) 25 CLR 144 at 151–2; 25 ALR 141; [1918] HCA 33 per Isaacs J.

9

Fitzgerald v Masters (1956) 95 CLR 420 at 432 per Dixon CJ and Fullagar J.

10

CIC Insurance Ltd v Bankstown Football Club Ltd (1995) 8 ANZ Ins Cas 61—232 per Kirby P; Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279 at [2] per Ryan J; at [30]–[32] per Kiefel J; at [57] per Gyles J; Marminta Pty Ltd v French [2003] QCA 541 at [22] per Jerrard JA (Williams JA and Philippides J agreeing).

11

Robinson v Harman (1848) 1 Exch 850 per Parke B.

12

McDonald v Denny Lascelles Ltd (1933) 48 CLR 457 at 476–7; [1933] ALR 381.

13

Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5. Also see Banco de Portugal v Waterlow & Sons Ltd [1932] AC 452 at 506.

14

Sopov v Kane Constructions Pty Ltd (No 2) [2009] VSCA 141 (15 June 2009).

15

Brooks Robinson Pty Ltd v Rothfield [1951] VLR 405; ALR 909.

16

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; 9 BCL 40.

17

Sopov v Kane Constructions Pty Ltd (No 2) (2009) 24 VR 510; 257 ALR 182; [2009] VSCA 141.

18

For equivalent legislation in other states, see Table 2.3.

19

Riverside Motors v Abrahams [1945] VLR 45; ALR 45; Foster v AT Brine & Sons Pty Ltd [1972] WAR 157; Cassidy v Engwirda Construction Co (No 2) [1968] Qd R 159 at 161.

20

See, for example, G H Myers v Brent Cross Service Co [1934] 1 KB 46 at 55.

21

For equivalent legislation in other states, see Table 2.3.

22

See, for example, Helicopter Sales (Aust) Pty Ltd v Rotor-Work Pty Ltd (1974) 132 CLR 1; 4 ALR 77.

23

See, for example, Foster v A T Brine & Sons Pty Ltd [1972] WAR 157.

24

See, for example Charnock v Liverpool Corporation (1968) 3 All ER 473; 1 WLR 1498.

25

Sterling Estates Development Corporation Pty Ltd v Malouf (2003) 58 NSWLR 685; [2003] NSWCA 278.

26

Bellgrove v Eldridge (1954) 90 CLR 613; [1954] ALR 929 at [7].

27

Tabcorp Holdings Ltd v Bowen Investments Pty Ltd (2009) 236 CLR 272; 253 ALR 1; 25 BCL 256; [2009] HCA 8 at [17].

28

Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344 at 272.

29

Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2006] NSWCA 361 at [82]–[88] citing South Parklands Hockey & Tennis Centre Inc v Brown Falconer Group Pty Ltd (2004) 88 SASR 65; [2004] SASC 81 at [90]; see also Westpoint Management Ltd v Chocolate Factory Apartments Ltd [2007] NSWCA 253; Kirkby v Coote [2006] QCA 61; Gagner Pty Ltd v Canturi Corporation Pty Ltd (2009) 262 ALR 691; [2009] NSWCA 413; Building Insurers’ Guarantee Corp v Owners — Strata Plan No 57504 [2010] NSWCA 23.

30

Pearce & High Ltd v Baxter [1999] BLR 101.

31

P and M Kaye Ltd v Hosier & Dickinson Ltd [1972] 1 All ER 121 at 139; 1 WLR 146.

32

William Tomkinson & Sons v Parochial Church of Council of St Michael (1990) 6 ConstLJ 319.

33

N Dennys, M Raeside and R Clay, Hudson’s Building Contracts, 12th ed, Sweet & Maxwell, UK, 2010, at [5.027].

34

Brewarrina Shire Council v Beckhaus Civil Pty Ltd [2005] NSWCA 248.

35

Brewarrina Shire Council v Beckhaus Civil Pty Ltd & 1 Or [2005] NSWCA 248 at [68].

36

Tapp, McFarlane v Clarke (Home Building) [2013] NSWCTTT 619 at 156–9.

37

See, for example, Kennedy v Collings Construction Co Pty Ltd (1989) 7 BCL 25.

38

Ronnoc Finance Ltd v Spectrum Network Systems Ltd (1997) 45 NSWLR 624.

39

Ryder v Frohlich [2004] NSWCA 472 at 135–7.

40

Turner Corporation Ltd in liq v Co-Ordinated Industries Pty Ltd (1994) 11 BCL 202.

41

D Galambos & Son Pty Ltd v McIntyre (1974) 5 ACTR 10 at 15–25.

42

See Table 2.4 for equivalent legislation in other states.

43

See, for example, Aiton Australia Pty Ltd v Transfield Pty Ltd (1999) 153 FLR 236; (2000) 16 BCL 70; [1999] NSWSC 996 (1 October 1999) and Hooper Bailie Associated Ltd v Natcon Group Pty Ltd (1992) 28 NSWLR 194; 10 BCL 199.

44

See, for example, Australian Vintage Ltd v Belvino Investments No 2 Pty Ltd [2015] NSWCA 275.

45

Arbitration Act 2010 (NSW) 34(2)(a).

46

Arbitration Act 2010 (NSW) 34(2)(b).

47

See table of legislation at Table 2.3 above.

48

See, for example, Radic v Henley Properties (NSW) Pty Ltd [2000] FCA 1416.

49

Cutts v Head [1984] 1 All ER 597 at 612.

50

Davie v The Lord Provost, Magistrates and Councillors of the City of Edinburgh (1953) SC 34.

51

HG v R (1999) 197 CLR 414; 160 ALR 554; [1999] HCA 2 at [39].

52

Lucantonio v Kleinert [2009] NSWSC 929.

Index References are to paragraph numbers

A Abandonment or abrogation of contract assessment of parties’ conduct …. 7.41 consequences …. 7.43 damages for defective work and …. 7.90, 7.91 implied agreement to terminate contract …. 7.90 inference of …. 7.40, 7.42 inordinate length of time elapsed …. 7.40, 7.42 payment claim …. 7.40–7.43

Abatement common law right of …. 7.100 principles …. 7.102 rule in Mondel v Steel …. 7.100

Abrogation see Abandonment or abrogation of contract Acceptance of offer absolute and unqualified …. 3.45 agreement formed on …. 3.45 communication of …. 3.45 electronic …. 3.53–3.57 exceptions to rule …. 3.47–3.57 postal rule …. 3.49–3.52 conduct, by …. 3.58–3.59 definition …. 3.45 electronic communications …. 3.53–3.57 delay between sending and receiving …. 3.55 electronic address designated …. 3.57 legislation dealing with …. 3.57 place of forming contract …. 3.54 postal rule not applicable …. 3.53 sent outside normal business hours …. 3.55 time of receipt …. 3.57 last conditions agreed on apply …. 3.40

method specified in offer …. 3.45 postal rule …. 3.49–3.52 delivery delayed or not occurring …. 3.49 electronic communications excluded …. 3.53–3.57 exception to communication rule …. 3.47 intention of parties to apply …. 3.52 logic behind …. 3.50 negated by offeror …. 3.51 reliance on offer …. 3.45 repudiation …. 3.59 revocation not possible …. 3.59 revocation of offer prior to …. 3.35 rules for …. 3.45 silence not constituting …. 3.45, 3.46 unilateral contract …. 3.48 written or verbal …. 3.45

Acts of parliament amendment …. 1.45–1.48 bills …. 1.40–1.44 discussion paper …. 1.47 diverse state legislation …. 1.49–1.54 harmonisation …. 1.53, 1.54 productive inefficiency resulting …. 1.52 security of payment legislation …. 1.51 undesirability …. 1.53 enactment …. 1.44 initiation …. 1.40 legislative review …. 1.46, 1.47 making of …. 1.40–1.44 primary legislation …. 1.37, 1.39–1.54 request for review …. 1.48 royal assent …. 1.44 source of written law …. 1.37 updating …. 1.45–1.48

Adjudication: East Coast model adjudicated amount …. 2.91 failure to pay …. 2.97 time for payment of …. 2.95 adjudication application …. 2.71, 2.81–2.84

authorised nominating authority (ANA), to …. 2.81, 2.82 determination of …. 2.58, 2.91–2.96 failure to pay scheduled amount by due date …. 2.83, 2.84 identifying payment claim and payment schedule …. 2.81 notification to respondent before …. 2.84 opportunity for respondent to pay before …. 2.84 prerequisites …. 2.84 scheduled amount less than payment claim …. 2.81, 2.83 time limit to determine …. 2.88 time limit to lodge …. 2.83 adjudication certificate affidavit accompanying …. 2.97 filing as judgment debt …. 2.97 request for …. 2.97 Adjudication Registrar (Qld) …. 2.82 adjudication response …. 2.85–2.87 content …. 2.86 failure to lodge payment schedule, disallowed where …. 2.87 new reasons raised in (Qld, Vic) …. 2.87 time for lodging …. 2.85 written …. 2.86 adjudicators ANA panel of …. 2.82 appointment of (Qld) …. 2.82 powers of …. 2.89 referral of application to …. 2.82 register of (Qld) …. 2.82 authorised nominating authority (ANA) …. 2.82 application to …. 2.81 panel of adjudicators …. 2.82 certificate of value not binding on adjudicator …. 2.93 conference of parties adjudicator may call …. 2.89 legal representation, no entitlement to …. 2.90 determination …. 2.58, 2.91–2.96 adjudicated amount …. 2.91 binding on parties to contract …. 2.96 considerations …. 2.87, 2.92 correction of errors …. 2.94 powers of adjudicator …. 2.89

reasons for …. 2.94 time limit …. 2.88 valuation of construction works, involving …. 2.91 written …. 2.94 further written submissions adjudicator may request …. 2.89 opportunity to comment on …. 2.90 inspection by adjudicator …. 2.89 interim payments, claim for …. 7.13, 7.108 payment withholding request (NSW) …. 2.85 procedure …. 2.61, 2.88–2.97 subcontractors’ charges and …. 2.126 time for application …. 2.83

Adjudication: West Coast model adjudication application dismissal of …. 2.112 failure to pay amount claimed in payment claim …. 2.104 prescribed appointor, service on …. 2.106, 2.107 rejection of payment claim, where …. 2.104 time limit …. 2.103 adjudication response …. 2.105 new reasons raised in …. 2.105 adjudicator appointment by prescribed appointor …. 2.106, 2.107 parties agreeing on …. 2.106 powers of …. 2.109 registration …. 2.106 rules of evidence, not bound by …. 2.111 conference of parties adjudicator may call …. 2.109 legal representation …. 2.110 determination …. 2.111 binding on parties to contract …. 2.114 correction of errors …. 2.113 enforcement …. 2.115 non-compliance with …. 2.115 powers of adjudicator …. 2.109 time for …. 2.108 written …. 2.113

dismissal of application …. 2.112 further written submissions, request for …. 2.109 inspection by adjudicator …. 2.109 legal representation, no restrictions on …. 2.110 non-compliance with determination contractor’s notice of intention to suspend performance …. 2.115 enforcement by other party …. 2.115 notice of dispute …. 2.102 prescribed appointors …. 2.106 appointment of adjudicator by …. 2.106, 2.107 service of application on …. 2.106, 2.107 time for application …. 2.103

Administrative law definition …. 1.16

Advertisements advertiser’s puffs …. 3.182, 3.242 false advertising …. 3.242 false or misleading representations …. 3.246, 3.249 invitations to treat …. 3.26–3.28 offer, whether …. 3.26–3.28 unilateral contract …. 3.27, 3.28

Agreement content …. 5.61

Agreement to agree enforceability …. 3.69 preliminary agreement, in …. 3.70–3.75 severance …. 3.74 uncertainty …. 3.70–3.75

Agreement to negotiate/deal in good faith certainty …. 3.76–3.78 enforceability …. 3.76 objective yardstick …. 3.76, 3.77 obligation of utmost good faith …. 3.78

Appeals arbitral award …. 7.124, 7.125 court procedure …. 1.92 District/County Court, from …. 1.97 error of law …. 1.92

High Court, to …. 1.94, 1.95 leave required …. 1.95 Magistrates/Local Court, from …. 1.97 Supreme Court, to …. 1.96, 1.97 tribunal decision, to internal panel …. 7.130

Arbitration see also Dispute resolution agreement …. 7.120 appeal …. 7.124, 7.125 leave of court …. 7.125 parties agreeing to …. 7.124, 7.125 setting aside distinguished …. 7.124 award …. 7.121 appeal …. 7.124, 7.125 enforceable by court …. 7.121 recourse against …. 7.122 setting aside …. 7.122, 7.123 clause requiring referral of dispute to residential building work …. 7.126 void …. 7.126 decision final and binding …. 7.119 dispute resolution by …. 7.119 facts in dispute, identification of …. 7.146 Scott Schedules …. 7.147–7.152 nature of …. 7.119 setting aside award …. 7.123 appeal distinguished …. 7.124 application for …. 7.122 grounds …. 7.123 tribunal production of documents, requiring …. 7.121 ruling on own jurisdiction …. 7.121 uniform legislation …. 7.119

Architects coordination of consultants …. 6.11, 6.12 registration/accreditation …. 2.45 superintendent, as …. 6.12 role see Superintendent

Artificial persons

company as …. 2.4 law recognising …. 1.1

Assignment benefit of contract …. 3.209 construction contract terms …. 5.160 intention of all parties …. 3.209

Auctions advertised ‘without reserve’ …. 3.14, 3.15 refusal to accept highest bid …. 3.14, 3.15 invitation to treat …. 3.13–3.16 call for bids by auctioneer …. 3.13 refusal to accept highest bid …. 3.14 breach of collateral contract …. 3.14, 3.15 unilateral contract …. 3.14

Australian Building Codes Board (ABCB) Building Code of Australia (BCA) produced by …. 1.60, 2.34

Australian Building Industry Contracts (ABIC) latent conditions clause …. 5.257

Australian Constitution bicameral parliaments …. 1.28 states …. 1.33 commencement …. 1.25 conflict of laws …. 1.31 division of powers …. 1.28, 1.49 executive …. 1.34 federal system under …. 1.28, 1.49 governance roles …. 1.34 High Court established by …. 1.28 interpretation by High Court …. 1.28 judiciary …. 1.34 legal framework under …. 1.27–1.36 legislature …. 1.34 power to make and apply laws …. 1.27 delegation of …. 1.55–1.57 federal parliament …. 1.29 inconsistent federal and state laws …. 1.31 state parliaments …. 1.30 territories, in respect of …. 1.32

separation of powers …. 1.34 source of written law …. 1.37

Australian Consumer Law misleading or deceptive conduct see Misleading or deceptive conduct price fixing …. 5.50–5.53, 5.56 unconscionable conduct see Unconscionable conduct

Australian courts and tribunals administrative tribunals …. 1.99 Commonwealth courts …. 1.93–1.95 District/County Court …. 1.97 geographical jurisdiction …. 1.93 hierarchy …. 1.64, 1.93, 1.94 precedent and …. 1.64 High Court see High Court of Australia jurisdiction …. 1.93 Magistrates/Local Court …. 1.97 original jurisdiction …. 1.93 specialist courts and tribunals …. 1.98, 1.99 state/territory courts …. 1.93, 1.96–1.97 Supreme Court …. 1.96

Australian Institute of Building Surveyors code of conduct …. 1.61

Australian law Acts see Acts of parliament British law end of power of …. 1.25 reception of …. 1.24 colonies …. 1.24 common law see Common law Constitution see Australian Constitution constitutional framework …. 1.27–1.36 consumer law see Australian Consumer Law court procedure see Court procedure equity see Equity law federal system …. 1.28, 1.49 landmark events …. 1.24–1.27 law reform commissions …. 1.48 legislation

primary see Acts of parliament subordinate see Subordinate legislation native title …. 1.26 sources of …. 1.37–1.74 terra nullius …. 1.24 overturning doctrine of …. 1.26 unwritten law …. 1.37, 1.38 written law …. 1.37

Australian Law Reform Commission …. 1.48 Australian Standards BCA provisions referring to …. 2.36 definition …. 2.36

B Back-to-back contracts certainty …. 3.91–3.93 construction industry, use in …. 3.91 enforceability of terms …. 3.92 special subcontract conditions …. 3.92

Bankruptcy annulment …. 2.24 creditor’s application …. 2.24 enforcement of judgment debt by …. 1.81 judgment debtor …. 1.81 National Personal Insolvency Index …. 2.24 non-corporation business …. 2.24 period of …. 2.24 trustee in …. 2.24 voluntary …. 2.24

Bill of quantities (BOQ) clause stating whether forms part of contract …. 5.145 construction contract term …. 5.68, 5.142–5.145 definition …. 5.68, 5.142 determining contractual status …. 5.144 errors in …. 5.145

Bills amendments …. 1.43

first reading …. 1.40 initiation of …. 1.40 passing …. 1.42–1.44 preparation of …. 1.40 second reading debate …. 1.42 second reading speech …. 1.40 transcripts of debates and speeches …. 1.41 transmission to upper house …. 1.43 voting on …. 1.42

Breach of contract affirming contract following …. 3.292, 3.293 collateral contracts …. 3.14, 3.15 condition, breach of …. 3.291 damages see Damages for breach of contract default or insolvency clause …. 5.230, 5.231 substantial breaches …. 5.231 unlawful termination …. 5.230 duress and …. 3.221 effect of …. 3.294 liability for …. 3.257 partial performance …. 3.270 remedies for …. 3.178, 3.302 damages see Damages for breach of contract debt, pleading for …. 3.337 enforcement of contract …. 3.300, 3.301 injunction …. 3.348, 3.349 specific performance …. 3.348, 3.349 right to terminate …. 3.292, 3.293, 3.299, 7.32 termination clauses …. 3.299, 7.32 rights and obligations prior to …. 3.294 terms, breach of essential term/condition …. 3.291 innominate term …. 3.291 time for performance …. 3.295, 6.34 voidable contract …. 3.294

Builder licensing/registration classes of licence …. 2.42 general …. 2.42 requirements …. 2.43

specialist trade work …. 2.42 state-to-state differences …. 2.43 supervision …. 2.44 trade work …. 2.42 unlicensed work, penalty …. 1.20

Building and Construction Industry (Fair and Lawful Building Sites) Code 2014 clauses and practices not permitted under …. 2.171 commencement stalled …. 2.171 enterprise agreements, application to …. 2.172 intended replacement of Building Code 2013 with …. 2.171

Building and construction industry security of payment legislation see Security of payment (SoP) legislation Building certifier certificate of occupation …. 2.39 delegation of duties …. 2.40, 2.41 duties …. 2.40, 2.41 inspections …. 2.37 non-compliance notice …. 2.38 notice for …. 2.38 registered building inspector, by …. 2.40 liability for mistakes …. 2.40, 2.41 liability …. 2.40, 2.41 role of …. 2.37

Building Code 2013 aim …. 2.166 application …. 2.167 Building Code of Australia distinguished …. 2.166 Code Monitoring Group …. 2.170 Commonwealth-funded construction projects application where EOI or tender for …. 2.167 disqualification from work on …. 2.166 contractor to ensure compliance with …. 2.168 Fair Work Act and …. 2.169 Fair Work Building and Construction (FWBC) monitoring compliance …. 2.170 website listing key requirements of Code …. 2.169 industrial relations governed by …. 2.141 intended replacement with 2014 Code …. 2.171

key requirements of …. 2.169 legal force …. 2.166 national building code …. 2.166

Building Code of Australia (BCA) acceptable construction practices …. 2.35 Australian Building Codes Board, produced by …. 1.60, 2.34 Australian Standards, reference to …. 2.36 Building Code 2013 distinguished …. 2.166 ‘deemed to satisfy’ provisions …. 2.35, 2.36 development application meeting requirements of …. 2.33 enforcement …. 2.38 legislation, adoption by …. 1.60, 2.34 methods for developing building solutions …. 2.35 minimum performance criteria …. 2.35 non-compliance notice …. 2.38 performance-based document …. 2.35 uniform across states …. 1.60, 2.34 variations, allowance for …. 2.34

Building Codes of states NSW …. 2.173 Qld …. 2.173 SA …. 2.174

Building control building certifier see Building certifier building permit …. 2.32, 2.33 certificate of occupation …. 2.39 development application …. 2.33 compliance with BCA …. 2.33–2.36 inspections see Inspections non-compliance notice …. 2.38

Building indemnity insurance home/residential building …. 2.49, 2.51 privity of contract exception …. 5.103

Building inspectors clause in construction contract …. 5.185 inspection by …. 2.40 certifier’s liability for mistakes …. 2.40, 2.41 registration/accreditation …. 2.45

Building permit requirement to obtain …. 2.32, 2.33

Building surveyors registration/accreditation …. 2.45 surveying clause …. 5.195

Building work supervisor registration as …. 2.44 supervision by …. 2.44

Burden of proof balance of probabilities …. 1.23 beyond reasonable doubt …. 1.23 civil trial …. 1.23 criminal trial …. 1.23

Business structures companies …. 2.4–2.7 construction industry …. 2.3–2.9 incorporated …. 2.3–2.7 partnerships …. 2.8, 2.9 sole traders …. 2.8 unincorporated …. 2.3, 2.8, 2.9

C Calderbank letters contested hearing, consideration in …. 7.141 costs where unreasonable rejection of …. 7.140 informal offer of compromise …. 7.140

Care of the work clause in construction contract …. 5.177

Certainty/uncertainty agreement to agree …. 3.70–3.75 agreement to negotiate in good faith …. 3.76–3.78 back-to-back contracts …. 3.91–3.93 objective interpretation creating …. 3.65 offer …. 3.10 vague or uncertain terms …. 3.60–3.69 agreement rendered void …. 3.60, 3.64

agreement to agree …. 3.70–3.75 ambiguous or confusing wording …. 3.62 court’s duty to construe fairly …. 5.85, 5.86 court’s options where …. 3.64 implying terms to give effect …. 3.64 interpretation of contract …. 5.85, 5.86 lack of common terms …. 3.63 making certain …. 3.65, 3.68 objective interpretation …. 3.61, 3.65 severance or striking out …. 3.64, 3.74 unenforceable contract …. 3.64, 3.65

Certificates clause in construction contract …. 5.225–5.227, 6.4–6.7 AS2124-1992 clause 7 …. 6.4 reference to …. 6.5 standard form contracts …. 6.10 typical terms …. 5.227 contract administration …. 6.3 final certificates …. 5.227 information required …. 6.5 occupation/classification certificate …. 2.39 parties to contract bound by certification …. 6.3 payment certificates …. 5.226, 5.227, 6.31 practical completion …. 5.227, 6.62 time of receipt …. 6.6 time periods for issue …. 6.7 time requirements …. 5.226, 6.6, 6.7 failure to comply …. 5.226, 6.7 issue of notice …. 6.7 receipt of notice …. 6.6

Charges debtor’s assets, over …. 2.13 fixed charges …. 2.14 floating charges …. 2.14 secured creditors …. 2.13 security interest …. 2.13, 2.118 subcontractors see Subcontractors’ charges

Civil law compensation under …. 1.20

criminal law compared …. 1.18–1.23 objective of …. 1.18 overlap with criminal law …. 1.19 remedies under …. 1.20 sub-branches …. 1.15, 1.16

Civil proceedings burden of proof …. 1.23 defence …. 1.75 defendant …. 1.22 initiating …. 1.75 plaintiff …. 1.22 procedural rules …. 1.75 statement of claim …. 1.75

Claims abatement …. 7.100–7.102 contract administration steps …. 6.9 damages breach of contract see Damages for breach of contract defective work see Damages for defective work delay see Damages for delay dispute regarding …. 7.103–7.109 causes of …. 5.121 resolution see Dispute resolution formal initiation of …. 6.3 information required …. 6.5 late, extinguished of entitlement …. 6.8 notification of see Notification of claims payment, for see Payment claims preparation of …. 7.142–7.146 set-off …. 7.100–7.102 standard form contracts …. 6.10 time requirements …. 6.6, 6.7 timebars …. 6.8 types …. 7.104, 7.105

Cleaning up clause in construction contract …. 5.218

Clerk of works construction contract terms regarding …. 5.185

AS2124-1992 clause 22 …. 5.185

Codes of conduct or practice Australian Institute of Building Surveyors …. 1.61 Building and Construction Industry (Fair and Lawful Building Sites) Code 2014 …. 2.171, 2.172 Building Code 2013 see Building Code 2013 Building Code of Australia see Building Code of Australia (BCA) construction industry …. 1.10, 1.60, 1.61 failure to comply …. 1.61 nature of …. 1.60, 1.61 Safe Work Australia codes …. 1.60, 2.189 state building codes …. 2.173, 2.174 work health and safety …. 2.189

Codes of ethics construction industry …. 1.10

Collateral warranties construction industry …. 3.180–3.181

Common law Court of Common Pleas …. 1.62 duty of care …. 4.10–4.18 equity and …. 1.71, 1.72 judicial binding precedent …. 1.63–1.68 court hierarchy …. 1.64 doctrine of …. 1.63 law reports and …. 1.68 other jurisdictions, decisions from …. 1.65 ratio decidendi …. 1.67 law reports …. 1.68 authorised reports …. 1.68 citation of …. 1.69, 1.70 generalist reports …. 1.68 origins …. 1.62 source of Australian law …. 1.38, 1.62–1.70 stare decisis …. 1.62 unwritten law …. 1.38

Common mistake see Mistake Companies artificial person …. 2.4 contracts by …. 2.4

directors …. 2.4 insolvency see Insolvency nature of …. 2.4 proprietary companies …. 2.6, 2.7 large …. 2.7 small …. 2.7 public companies …. 2.6 shareholder liability …. 2.4 taxation of …. 2.5

Compensation civil law, under …. 1.20

Completion see Practical completion Concurrent wrongdoers actions against …. 1.83–1.91 apportionment of liability …. 1.88 indemnity clauses …. 1.91 joint and several liability …. 1.83, 1.86, 1.87 common law position …. 1.87 disadvantage of …. 1.87, 1.88 standard form construction contract specifying …. 1.90 joint liability …. 1.83, 1.84 proportionate liability …. 1.83, 1.85, 1.88 contracting out of …. 1.89, 1.90 indemnity clauses and …. 1.91 legislation …. 1.88

Consideration accord and satisfaction …. 3.129 act of forbearance already used …. 3.120 adequate, need not be …. 3.106–3.109 agreements under deed …. 3.97–3.103 benefit moving from promisee to promisor …. 3.108 bilateral contracts …. 3.95 deeds not requiring …. 3.97, 3.100 definition …. 3.94, 3.96 element of contract …. 3.7 executed/present …. 3.111 executory/future …. 3.110 legality …. 3.105

moving from promisee …. 3.95, 3.115, 3.116 privity of contract and …. 3.205 part payment of debt …. 3.125–3.129 accord and satisfaction …. 3.129 insufficient funds to settle whole debt …. 3.126, 3.128 interest, repayment of …. 3.127 not satisfying whole debt …. 3.125, 3.128 rule in Pinnel’s case …. 3.125 two agreements made …. 3.126 past consideration not permitted …. 3.112–3.114 performance of existing duty not …. 3.117–3.124 act of forbearance already used …. 3.120 contractual duty …. 3.117 exception where riskier circumstances …. 3.121, 3.122 practical benefit test …. 3.123, 3.124 public duty …. 3.117–3.119 principles of …. 3.104–3.124 promise to perform act …. 3.96 promise to refrain from performing act …. 3.96 act of forbearance already used …. 3.120 promissory estoppel …. 3.130–3.137 real, must be …. 3.106 simple contracts requiring …. 3.97 third party beneficiary …. 3.115, 3.206

Constitution Australian see Australian Constitution states …. 1.35

Constitutional law definition …. 1.16

Construction businesses companies …. 2.4–2.7 incorporated …. 2.3–2.7 insolvency see Insolvency partnerships …. 2.8, 2.9 proprietary companies …. 2.6, 2.7 sizes …. 2.2 small businesses …. 2.2, 2.11 sole traders …. 2.8 structures …. 2.3–2.9

unincorporated …. 2.3, 2.8, 2.9

Construction contract administration see Contract administration annexures …. 5.123–5.128 Annexure Part A …. 5.124–5.126, 5.137 Annexure Part B …. 5.128 approved form of conditional undertaking …. 5.127 inferences where entries missing …. 5.125, 5.126 listing all variables relative to contract …. 5.123 attestation …. 5.111 balancing complex issues …. 5.98 careful drafting, need for …. 5.96, 5.247, 6.9 claims under see Claims; Payment claims clarity, need for …. 5.96, 6.9 clauses in see Construction contract terms complexity …. 5.99 Construction General Conditions of Contract (GCOC) annexures …. 5.123–5.128 AS2124-1992 …. 5.112, 5.122, 5.137, 5.169, 5.185 formal instrument of agreement …. 5.135, 5.136 typical terms …. 5.122 contract administration …. 6.3–6.10 contract sum …. 5.106, 7.3 date …. 5.102 debt under …. 3.338 quantum meruit claim see Quantum meruit recovery of …. 3.337 deed …. 3.102 definition …. 5.97 definitions section …. 5.104 disputes in relation to causal factors …. 5.121 claims …. 7.103–7.109 non-residential construction industry …. 5.120 resolution see Dispute resolution WA Auditor General’s report …. 5.119 domestic construction see Domestic building contracts essential features …. 5.100 form …. 5.101

formal instrument of agreement …. 5.135, 5.136, 5.154 issues requiring definition …. 5.99 lump sum contract …. 5.106 parties …. 5.103 payment claims under see Payment claims precommencement matters …. 6.18–6.26 privity of contract …. 5.103 simple contract …. 3.102 standard form contracts …. 5.112–5.116 advantages …. 5.113, 5.248 amendments to …. 5.128 annexures …. 5.123–5.128 AS2124-1992 …. 5.112, 5.122, 5.137, 5.169, 5.185, 6.10 AS4000-1997 …. 5.112 clauses in see Construction contract terms conditions of tendering …. 5.131–5.134 construction of contract …. 5.137 contract administration requirements …. 6.10 express payment terms …. 2.75 form of tender …. 5.131–5.134 formal instrument of agreement …. 5.135, 5.136 housing sector …. 5.115 interpretation …. 5.138–5.140 main contracts …. 5.112 non-housing sector …. 5.116 selecting …. 5.114–5.116 special conditions …. 5.129, 5.130 typical terms …. 5.122 terms see Construction contract terms waiver of terms …. 5.110, 5.245, 6.64 circumstances constituting …. 6.65 express or implied …. 5.245

Construction contract terms addresses for service …. 5.155 agreement in writing …. 5.153 assignment …. 5.160 bill of quantities (BOQ) …. 5.142–5.145 care of the work …. 5.177 certificates and payments …. 5.225–5.227, 6.4–6.10

change of address notification …. 5.155 cleaning up …. 5.218 clerk of works …. 5.185 conditions of tendering …. 5.131–5.134 Construction General Conditions of Contract (GCOC) …. 5.122 construction program …. 5.205, 5.206 contingency sums …. 5.166, 5.273–5.274 contract documents …. 5.156–5.159 Annexure stating number of copies required …. 5.158 copying …. 5.158 discrepancies between …. 5.156, 5.157 property of principal …. 5.158 supply to superintendent …. 5.159 contractor’s employees control of …. 5.192 insurance …. 5.183 contractor’s representative …. 5.191 copyright …. 5.171–5.174 damage to persons or property …. 5.178 date for commencement …. 5.208 date for completion …. 5.210–5.212, 6.34 delaying events …. 5.211–5.215 extension of time …. 5.213–5.215 practical completion …. 5.208, 5.209 suspension of works and …. 5.207 day work …. 5.223–5.224 default or insolvency …. 5.230, 5.231 defects liability …. 5.216–5.217 remedies under …. 5.217 definition of responsibilities …. 5.139 dispute resolution see Dispute resolution clause employees control of …. 5.192 insurance …. 5.183 payment of …. 5.228 essential feature of contract …. 5.100, 5.105 evidence of contract …. 5.152–5.154 examination and testing …. 5.202 express or implied …. 5.105 extensions of time (EOT) …. 5.213–5.215

latent conditions …. 5.256, 5.261 force majeure …. 5.235 form of tender …. 5.131–5.134 formal instrument of agreement …. 5.135, 5.136, 5.154 execution by tenderer …. 5.154 forwarding to tenderer …. 5.154 frustration …. 5.232–5.236 general catch-all provision …. 5.176 general indemnity …. 5.178 heart of contract …. 5.105 implied …. 5.246 insolvency …. 5.230, 5.231 inspectors …. 5.185 insurance employees …. 5.183 inspection and provision of policies …. 5.184 public liability …. 5.182 works, of …. 5.179–5.181 intellectual property rights …. 5.171–5.174 remedies for breach …. 5.172, 5.174 warrant against breach …. 5.173 interpretation …. 5.138–5.140 uniformity and consistency …. 5.140 latent conditions see Latent conditions definition …. 5.254, 5.255 materials and work …. 5.198–5.201 materials, plant and labour …. 5.196–5.197 nature of contract …. 5.141 notification of claims …. 5.237–5.240, 6.4–6.10 nuisance, preventing …. 5.176 patents …. 5.171–5.173 payment certificates and payments clause …. 5.225–5.227 implied terms …. 5.246 workers and subcontractors …. 5.228–5.229 practical completion …. 5.208, 5.209 date for …. 5.210–5.212 delaying events …. 5.211–5.215 extensions of time …. 5.213–5.215 preventative acts …. 5.212, 6.34

progress of the works …. 5.204–5.206 construction program …. 5.205, 5.206 protection of people and property …. 5.176 provisional sums …. 5.165, 5.166, 5.268–5.281 public liability insurance …. 5.182 relevant law clause …. 5.137 retention monies …. 5.146–5.149, 6.26, 7.6 certificates and payments clause …. 5.227 security …. 5.146–5.151, 6.26 service of notices …. 5.155 setting out works …. 5.195 site …. 5.193, 5.194 definition of …. 5.194 standard form contracts …. 5.117, 5.122, 5.248 standard of workmanship …. 5.198–5.201 subcontractors …. 5.160 approval of appointment …. 5.160 control of …. 5.192 payment of …. 5.228, 5.229 selected/nominated subcontractors …. 5.161–5.164 superintendent …. 5.186–5.189 superintendent’s representative …. 5.190 surveying clause …. 5.195 suspension of works …. 5.207 time for commencement …. 5.208 time for completion …. 5.108, 5.208, 6.34 time for notification of claims …. 5.237–5.240 timing of works …. 5.204–5.206 construction program …. 5.205, 5.206 typical terms …. 5.122 unnecessary interference …. 5.176 variations …. 5.219–5.222 waiver of …. 5.110, 5.245, 6.64 circumstances constituting …. 6.65 express or implied …. 5.245 working hours …. 5.203

Construction industry business environment …. 2.1 business sizes …. 2.2

business structures …. 2.3–2.9 codes of conduct …. 1.10, 1.60, 1.61 codes of ethics …. 1.10 contribution to Australian economy …. 5.95 ethics of …. 1.9, 1.10 government bodies regulating …. 2.30 insolvency in see Insolvency law and …. 1.11–1.13 legislation affecting …. 2.28–2.30 professional bodies …. 1.10 professional ethics …. 1.10 regulatory authorities …. 2.30 subcontracting …. 2.10, 2.11

Construction professionals basic knowledge of law …. 1.12 ethics …. 1.9, 1.10 registration/accreditation …. 2.45

Construction program construction contract providing for …. 5.205 contractor’s obligations and …. 5.206 effect on parties’ rights and obligations …. 5.205

Contingency sum definition …. 5.166, 5.273 percentage of overall contract price …. 5.274 provisional sum distinguished …. 5.166, 5.273 provisional sum including …. 5.273

Contract acceptance see Acceptance of offer administration see Contract administration agreement to agree …. 3.70–3.75 agreement to negotiate/deal in good faith …. 3.76–3.78 back-to-back contracts …. 3.91–3.93 breach of see Breach of contract certainty agreement to agree …. 3.70–3.75 agreement to negotiate in good faith …. 3.76–3.78 back-to-back contracts …. 3.91–3.93 lack of …. 3.60–3.69

objective interpretation creating …. 3.65 offer …. 3.10 company, by …. 2.4 complex contracts …. 5.93, 5.94, 5.97 consideration see Consideration construction contract see Construction contract contents of …. 3.138–3.142 terms see Contractual terms damages for breach see Damages for breach of contract deed, under see Deeds definition …. 3.1 discharge of see Discharge of contract dispute as to terms …. 3.60–3.69 divisible contracts …. 3.261–3.264 documents see Contract documents domestic building work see Domestic building contracts duress, made under see Duress elements of …. 3.7 acceptance see Acceptance of offer consideration see Consideration offer see Offer exemption clauses see Exemption clauses fundamental nature, same understanding of …. 3.7 implied terms see Implied terms interpretation see Interpretation of contract letters of intent see Letters of intent limitation of actions to enforce see Limitation of actions meaningless terms …. 3.66, 3.67 meeting of the minds …. 3.7 lack of objective meaning preventing …. 3.62 past consideration not allowing …. 3.112 unilateral mistake preventing …. 3.233 misleading or deceptive conduct see Misleading or deceptive conduct mistake see Mistake objective interpretation …. 3.61, 3.65 offer see Offer oral …. 5.58, 5.59 precontractual negotiations …. 3.141 privity of see Privity of contract representations distinguishing from terms …. 3.143–3.152

form of statement …. 3.145–3.149 importance of statement …. 3.150 objective test of intention …. 3.143 precontractual negotiations, statements during …. 3.141 specialist skill or knowledge …. 3.151 timing of statement …. 3.144 repudiation see Repudiation of contract rights and obligations of parties …. 3.1 statements rights and obligations …. 3.139 simple contracts …. 3.97, 3.102 specific performance …. 3.348, 3.349 standard form …. 5.57, 5.59 tenders see Tenders terms see Contractual terms unconscionable conduct see Unconscionable conduct vague or uncertain terms see Interpretation of contract vitiation of see Vitiation of contracts void see Void contract voidable see Voidable contract written …. 5.57–5.59

Contract administration certificates …. 6.3–6.10 claims …. 6.3–6.10 documents, through …. 6.3 meaning …. 6.2 mechanisms …. 6.1 notices …. 6.3–6.10 precommencement matters …. 6.18–6.26 fund available on default …. 6.26 insurance …. 6.21–6.25 possession of site …. 6.18–6.21 superintendent see Superintendent

Contract documents agreement …. 5.61 bill of quantities (BOQ) …. 5.68 drawings …. 5.63, 5.64 general conditions of contract …. 5.62 interpretation see Interpretation of contract precedence of …. 5.62, 5.70

schedule of rates …. 5.67 special conditions of contract (SCOC) …. 5.69–5.71 specifications …. 5.65, 5.66 standard form contracts …. 5.70, .71 amending …. 5.72–5.74

Contract law definition …. 1.17

Contract sum adjustment claim for …. 7.9 contract providing for …. 7.7 defects accepted with …. 5.201 reasons for …. 7.7 variations, for …. 6.54 wrongful termination …. 7.50 claim for balance of …. 7.3–7.10 considerations …. 7.8 reasons for complications …. 7.3–7.7 variation claim distinguished …. 7.9, 7.10 construction contract term …. 5.106 defects accepted with alteration of …. 5.201 definition …. 5.106 interim payments on account …. 7.4 claim for …. 7.11–7.16, 7.107–7.109 variations, adjustment for …. 6.54 wrongful termination, outstanding sum on …. 7.50

Contractual terms advertiser’s puffs distinguished …. 3.182 alteration …. 3.175 mutual agreement, by …. 3.175 provisions allowing for …. 3.175 binding …. 3.139 classification …. 3.176–3.179 conditions …. 3.176–3.179 definition …. 3.176, 3.177 general conditions of contract …. 5.62 precedence of …. 5.70 remedies for breach …. 3.178 special conditions of contract (SCOC) …. 5.69–5.71

standard form contracts …. 5.70–5.73 warranties distinguished …. 3.176–3.179 construction contract see Construction contract terms documents see Contract documents exemption clauses see Exemption clauses express …. 3.140 implied …. 3.140, 3.152–3.174 Australian Consumer Law, under …. 3.168–3.173 business efficacy, to give …. 3.158–3.161 circumstances permitting …. 3.152 custom or trade usage …. 3.155–3.157 duty to act in good faith …. 3.162, 3.164 duty to cooperate …. 3.162, 3.163 duty to exercise reasonable care and skill …. 3.162, 3.165–3.167 fact, in …. 3.158–3.161 freedom of contract and …. 3.153 intention of parties to include …. 3.153 law, by …. 3.162–3.167 past dealings …. 3.154 Sale of Goods Acts, under …. 3.168, 3.171–3.172 statute, by …. 3.168–3.174 innominate terms …. 3.179 interpretation see Interpretation of contract parole evidence rule …. 3.146, 3.147 precontractual negotiations, statements during …. 3.141 representations, distinguishing from …. 3.143–3.152 form of statement …. 3.145–3.149 importance of statement …. 3.150 objective test of intention …. 3.143 oral contract …. 3.145 oral statement …. 3.144, 3.147 precontractual negotiations, statements during …. 3.141 specialist skill or knowledge …. 3.151 standard form contract …. 3.149 timing of statement …. 3.144 writing …. 3.145, 3.146, 3.147 standard form contracts …. 5.70, 5.71 amending …. 5.72–5.74 statements of rights and obligations …. 3.139 unfair …. 5.87–5.89

vague or uncertain see Interpretation of contract warranties see also Warranties collateral …. 3.180–3.181 conditions distinguished …. 3.176–3.179 definition …. 3.176 limitation periods and …. 3.4–3.6 remedies for breach …. 3.178

Cooling-off period home building contract, in …. 2.52

Copyright breach …. 5.174 clause in construction contract …. 5.171–5.174 remedies for breach …. 5.172, 5.174 warrant against breach …. 5.173

Costs appeal …. 1.92 follow the event …. 1.82 order for …. 1.82

Council of Australian Governments (COAG) harmonisation of laws …. 1.53, 2.175 inter-government agreements …. 1.53, 2.175 members …. 1.53

Counterclaim court procedure …. 1.75 set-off compared …. 1.80 summary judgment …. 1.80

Court proceedings appeals …. 1.92 concurrent wrongdoers …. 1.83–1.91 constitution of court …. 1.76 costs, order for …. 1.82, 7.135 counterclaim …. 1.75, 1.80 cross-examination …. 1.76 dispute resolution by …. 5.109, 7.132–7.135 amount in dispute determining jurisdiction …. 5.109 costliness of …. 5.109, 5.241 enforcement of tribunal decisions …. 7.131 Federal Court jurisdiction …. 7.134

indirect costs …. 5.241 rules of evidence …. 7.133 specialist lists …. 7.132 Supreme Court jurisdiction …. 7.132 defence …. 1.75 disclosure …. 1.75 ex tempore decision …. 1.76 examination-in-chief …. 1.76 facts in dispute, identification of …. 7.146 Scott Schedules …. 7.147–7.152 initiating action …. 1.75 joinder of parties …. 1.83 judgment debt …. 1.81 enforcement of …. 1.81 interest on …. 1.81 multiple parties, actions against …. 1.83–1.91 procedural rules …. 1.75 re-examination …. 1.76 reply to defence …. 1.75 reserved decision …. 1.76 statement of claim …. 1.75 summary judgment …. 1.77–1.80 trial procedure …. 1.76 witnesses …. 1.76

Courts see Australian courts and tribunals Creditors composition or arrangement …. 2.24 insolvency, effect on …. 2.12 liquidation application for …. 2.18, 2.19 priority of debts in …. 2.21 secured creditors …. 2.13 charge over property of business …. 2.13 fixed charges …. 2.14 floating charges …. 2.14 payment in liquidation …. 2.20 unsecured creditors …. 2.15 building contractors as …. 2.15 payment in liquidation …. 2.21

Criminal law burden of proof …. 1.23 civil law compared …. 1.18–1.23 definition …. 1.16 expiable offences …. 1.21 expiation notices …. 1.21 indictable offences …. 1.21 jurisdiction of courts …. 1.21 legislation setting out offences …. 1.20 minor offences …. 1.21 objective of …. 1.18 overlap with civil law …. 1.19 prosecutions by DPP …. 1.22 punishments under …. 1.20 summary offences …. 1.21 torts distinguished …. 4.2 trial of offences see Criminal trials unlicensed work, penalty …. 1.20

Criminal trials burden of proof …. 1.23 defendant …. 1.22 jurisdiction of courts …. 1.21 prosecutions by DPP …. 1.22 verdict …. 1.23

D Damage to person or property indemnity clause in construction contract …. 5.178

Damages for breach of contract calculating …. 3.305, 3.309 claim for, distinguished from payment claim …. 7.2 common law measure …. 7.44, 7.45 defective work see Damages for defective work delay …. 7.93–7.99 diminution in value …. 3.310–3.313, 3.319 expectation damages …. 3.305–3.308, 3.344 failure to make payment …. 7.46

injunction in lieu of …. 3.348, 3.349 late completion …. 5.208, 6.47, 6.48 limitations …. 3.329 mitigation of loss …. 3.330 remoteness of damage …. 3.331–3.336 liquidated and ascertained damages …. 3.320–3.328 late completion …. 5.208, 6.47, 6.48 less than actual loss …. 3.327, 3.328 penalty doctrine …. 3.324–3.326, 6.48 mitigation of loss …. 3.330 notification of claims …. 5.237–5.240 onus of proof …. 3.337 payment claims distinguished …. 7.2 placing party in same position …. 7.45 quantum meruit debt distinguished …. 3.337, 3.343 recovery of debts see Recovery of debts reliance damages …. 3.306–3.308, 3.344 remoteness of damage …. 3.331–3.336 test in Hadley v Baxendale …. 3.332–3.334 restitution …. 3.310, 3.313–3.316, 3.318 right to …. 3.303 specific performance in lieu of …. 3.348, 3.349 time for notification of claims …. 5.237–5.240 unliquidated …. 3.304–3.309 effect of liquidated on …. 3.327, 3.328 wrongful termination …. 7.47–7.53 builder, by …. 7.48–7.51 cost of completion and rectifying defects …. 7.48, 7.49 election to claim damages …. 7.52 outstanding contract sum …. 7.50 owner, by …. 7.51, 7.52 quantum meruit claim …. 7.53

Damages for defective work abandonment of contract …. 7.90, 7.91 assessment of …. 3.310–3.319, 7.68–7.76 cost of rectification …. 3.310, 7.68–7.75 diminution in value …. 3.310, 3.314, 7.70, 7.73 work not yet carried out …. 7.76 Bellgrove principles …. 3.310–3.314, 3.316, 7.68

breach of contract, as …. 3.310–3.319 general principles see Damages for breach of contract claims for …. 7.54–7.92 contract not terminated …. 7.86–7.89 cost of rectification …. 3.310, 7.68–7.73 conformity with plans, producing …. 3.310, 3.312 necessary and reasonable costs …. 3.310, 7.68, 7.75 reasonableness …. 3.310–3.319, 7.68–7.74 remedial work …. 3.310 defective foundations …. 3.310, 3.311 defects liability period …. 7.5, 7.77–7.79 denial of right to rectify defects during …. 7.79 determining defective work see Defective building work implied agreement to terminate contract …. 7.89, 7.90 inferior materials used …. 3.316 intention not to spend damages on rectification …. 3.310, 3.313 non-conformity with plans and specifications …. 3.312 cost of producing conformity …. 3.310, 3.312 practical completion claim for defects before …. 7.81–7.85 defects liability period after …. 7.77–7.79 defects prior to …. 7.80 failure to reach …. 7.85 intention to rectify defects before …. 7.82 reasonableness …. 3.310–3.319, 7.68–7.74 swimming pool …. 3.317, 3.319, 7.73 temporary disconformity, theory of …. 7.80–7.92 claim before practical completion …. 7.81–7.85 contract not terminated …. 7.86–7.89 implied agreement to terminate contract …. 7.89, 7.90 intention to rectify defects before completion …. 7.82 unapproved renovation by tenant …. 3.314, 7.69–7.72

Damages for delay builder failing to complete works by agreed time …. 7.93 costs included in damages …. 7.99 liquidated damages, contract providing for …. 7.94, 7.95 claim for …. 7.93–7.99 construction contract providing for …. 6.35–6.39 forfeiture of right for non-compliance …. 6.40

owner, delay caused by …. 7.93, 7.96–7.99 extension of time, right to …. 7.96 failure to obtain extension …. 6.41, 7.98 justifying additional compensation …. 7.23, 7.96 right to additional compensation …. 7.97 risk allocation …. 6.35–6.38 time-critical administration of claim …. 6.40

Damages for late completion avoiding …. 5.209 calculation of …. 5.209 liquidated damages …. 5.208, 6.47, 6.48

Date for commencement of works clause in construction contract …. 5.208 date for possession of site …. 6.20

Date for completion see Practical completion Day work clause in construction contract …. 5.223–5.224 definition …. 5.223 valuation …. 6.54

Debt construction contract, under …. 3.338 judgment debt …. 1.81 enforcement of …. 1.81 interest on …. 1.81 separate order for costs …. 1.82 pleading for damages for breach distinguished …. 3.337, 3.343 onus of proof …. 3.337 recovery of …. 3.337 construction contract, under …. 3.338 quantum meruit see Quantum meruit subcontractor see Subcontractors: recovery of payments

Deed of company arrangement (DOCA) breach, liquidation where …. 2.22 nature of …. 2.22 termination, liquidation on …. 2.18

Deeds

bank guarantees …. 3.100, 3.101 consideration not given …. 3.97, 3.100 construction contracts …. 3.102 contracts under …. 3.97–3.103 delivery …. 3.98, 3.99 distinguished from other contracts …. 3.98 limitation of actions …. 3.3, 3.102 performance bonds …. 3.100 signed and delivered …. 3.98

Default or insolvency clause construction contract …. 5.230, 5.231 substantial breaches …. 5.231 unlawful termination …. 5.230

Defective building work acceptance with alteration of contract sum …. 5.201 contractor’s duty to rectify …. 5.216 damages see Damages for defective work defects liability clause in contract …. 5.216 remedies under …. 5.217 defects liability period …. 7.5, 7.77–7.79 denial of right to rectify defects during …. 7.79 practical completion, after …. 7.78 definition …. 7.54 latent defects …. 4.47, 4.56 definition …. 5.250 latent conditions distinguished …. 5.250 limitation of actions …. 3.3–3.6, 3.103, 4.4, 4.55 contractual warranties given …. 3.4–3.6 deeds …. 3.3, 3.102 negligence claims by subsequent owners …. 4.47–4.57 order for variation …. 5.201 practical completion in spite of …. 5.209 pure economic loss …. 4.48, 4.49, 4.52 rectification …. 5.201, 5.216 relevant contractual provisions …. 7.55–7.67 remedies …. 5.217 damages see Damages for defective work residential building work …. 7.55–7.67 statutory warranties, reference to …. 7.55–7.67

superintendent determining compliance with standard …. 5.200 options where defective work …. 5.201 temporary disconformity, theory of …. 7.80–7.91 warranties, reference to …. 7.55–7.67 accordance with contract …. 7.56, 7.64 accordance with plans and specifications …. 7.58 completion in reasonable time …. 7.56, 7.65 compliance with law …. 7.56, 7.64 due care and skill …. 7.56, 7.57 due diligence …. 7.56 fitness for occupation …. 7.56, 7.66 implied at common law …. 7.63, 7.65 materials fit for purpose …. 7.56, 7.59–7.62, 7.67 defence of reliance on advice of relevant professional …. 7.60, 7.61 materials of good quality …. 7.59 residential building work …. 7.55–7.67

Defence counterclaim …. 1.75 court procedure …. 1.75 reply to …. 1.75

Delay acceleration of works to mitigate …. 6.50 contractor incurring costs of …. 6.51 direction by superintendent …. 6.50 additional compensation for contractual right …. 7.97 delays justifying …. 7.23, 7.96 entitlement to …. 6.52 builder’s options on …. 7.21 concurrent delays …. 6.43 critical path analysis of effect …. 6.42, 6.43 damages for see Damages for delay date for completion, whether affects …. 6.42, 6.52 compensation, entitlement to …. 6.52 critical path analysis of effect …. 6.42, 6.43 delaying events …. 5.211–5.213, 6.36 beyond reasonable control of contractor …. 5.215 justifying extension …. 5.215, 7.23

list in contract …. 5.215, 6.35 not fault of any party …. 5.212, 6.35 preventative acts …. 5.212, 5.215 principal responsible for …. 6.34, 6.35 extension of time see Extensions of time (EOT) justifying additional payment …. 7.23, 7.96 justifying extension …. 5.215, 7.23 non-critical …. 6.52, 7.23 notifying superintendent …. 6.41 practical completion, calculation on …. 6.63 principal responsible for …. 6.34 risk allocation …. 6.35–6.38 financial considerations …. 6.37, 6.38 negotiating fair contract …. 6.36

Design intellectual property rights clause …. 5.171 novation of design contract …. 3.210 specialist subcontractors …. 5.284 WHS duties …. 2.183

Development application Building Code of Australia (BCA) compliance with …. 2.33 methods for developing building solutions …. 2.35 minimum performance criteria …. 2.35 variations, allowance for …. 2.34

Discharge of contract agreement, by …. 3.275–3.277 bilateral discharge …. 3.275, 3.276 breach see Breach of contract definition …. 3.256 frustration, by see Frustration of contract performance, by …. 7.29 construction contracts …. 3.260, 3.261 divisible contract …. 3.261–3.264 entire contract principle …. 3.257–3.260 partial …. 3.269–3.271 prevention of performance …. 3.273, 3.274 quantum meruit for work done …. 3.272, 3.274 refusal to accept …. 3.272

stage/progress payments …. 3.260–3.263 substantial …. 3.265–3.268 tender of …. 3.272 repudiation see Repudiation of contract unilateral discharge …. 3.275, 3.276

Dispute resolution adjudication of payment disputes …. 7.108 East Coast model see Adjudication: East Coast model West Coast model see Adjudication: West Coast model amounts claimed, calculation of …. 7.144 arbitration see Arbitration basis of claim, identifying …. 7.143 Calderbank letters …. 7.140, 7.141 claim in dispute …. 7.103–7.109 basis of, identifying …. 7.143 interim payments …. 7.107–7.109 preparation of …. 7.142–7.146 clause see Dispute resolution clause construction contracts …. 5.109, 5.118 alternative forms …. 5.109 causes of disputes …. 5.121 clause in see Dispute resolution clause lack of effective mechanisms …. 5.119 non-residential construction industry …. 5.120 WA Auditor General’s report …. 5.119 court proceedings …. 5.109, 7.132–7.135 amount in dispute determining jurisdiction …. 5.109 costliness of …. 5.109, 5.241 costs, who pays …. 7.135 enforcement of tribunal decisions …. 7.131 facts in dispute, identification of …. 7.146 Federal Court jurisdiction …. 7.134 indirect costs …. 5.241 rules of evidence …. 7.133 specialist lists …. 7.132 Supreme Court jurisdiction …. 7.132 expert determination …. 7.116–7.118 reviewable, whether …. 7.118 role of expert …. 7.117

valuation of variation …. 7.116 expert evidence see Expert evidence facts in dispute, identification of …. 7.146 Scott Schedules …. 7.147–7.152 mediation …. 7.115, 7.116 negotiation …. 7.114, 7.116 offers of compromise …. 7.136–7.141 amount recovered greater than …. 7.138 amount recovered less than …. 7.139 Calderbank letters …. 7.140, 7.141 encouragement to make and accept reasonable …. 7.136, 7.137 formal offers …. 7.138 preparation of claim …. 7.142–7.146 residential building disputes …. 7.127–7.131 arbitration clause void …. 7.126 Home Building Act conferring jurisdiction …. 7.128 NSW Civil and Administrative Tribunal …. 7.127–7.131 Scott Schedules …. 7.147–7.152 techniques …. 7.114 tribunals …. 7.127–7.131 appeal to internal panel …. 7.130 enforcement of decisions by court …. 7.131 facts in dispute, identification of …. 7.146 Home Building Act conferring jurisdiction …. 7.128 NSW Civil and Administrative Tribunal …. 7.127–7.131 residential building disputes …. 7.127–7.131 witness statements …. 7.145

Dispute resolution clause breach, surviving …. 5.243 construction contracts …. 5.96, 5.99, 5.109, 5.118, 5.241–5.244, 7.110 continuum or staged approach …. 5.244 definition of dispute …. 5.242 determining application of …. 7.110 different types …. 7.111 enforcement by courts …. 5.109, 7.112 stay of proceedings …. 7.112, 7.113 importance of having …. 5.96, 5.99, 5.118 lack of effective …. 5.119 requirements …. 7.111

single mode or method, specifying …. 5.244 stay of proceedings commenced before observation of …. 7.112 wording of clause, dependent on …. 7.113 typical clauses …. 5.244

District/County Court court hierarchy …. 1.93, 1.96 jurisdiction …. 1.97

Documentation certificates see Certificates claims …. 6.3–6.10 contract administration through …. 6.3–6.10 contract documents see Contract documents notices …. 6.3–6.10 variations …. 6.57

Domestic building contracts cooling-off period …. 2.52 deposit, limit on amount of …. 2.52 dispute resolution …. 7.127–7.131 domestic building work contract …. 2.46 formalities …. 2.52 latent conditions clause …. 5.260 legislation …. 2.46, 5.278 progress payments, regulation of …. 2.52 provisional sums …. 5.271 legislation …. 5.278, 5.279 prime cost items …. 5.276, 5.278, 5.279 ‘risk and fall’ clauses, restrictions on …. 2.52 warranties implied into …. 2.49, 2.50 limitation of actions for breach …. 2.50 transferable to purchaser …. 2.50

Donoghue v Stevenson …. 4.10–4.18, 4.48 Drawings contract documents …. 5.63, 5.64 discrepancies …. 5.64

Duress actual physical violence …. 3.217 contract made under …. 3.216 degree of coercion …. 3.216

economic duress …. 3.218 exclusion clause and claim for …. 3.192, 3.193 illegitimate pressure …. 3.219, 3.220, 3.222 test for actionable …. 3.219 unjust enrichment claim …. 3.192, 3.193, 3.222 threat of breach of contract …. 3.221 threat of physical violence …. 3.217 vitiation of contract …. 3.213, 3.216–3.222 voidable contract …. 3.216, 3.299

Duty of care assumption of responsibility …. 4.27 breach of …. 4.33–4.35 common law …. 4.10–4.18, 4.32 employer …. 4.102–4.111 foreseeability …. 4.6, 4.11, 4.12, 4.32 legislation, by reference to …. 4.19, 4.20 negligence …. 4.6, 4.7 negligent misstatement …. 4.28 neighbour test …. 4.11–4.13, 4.16 non-delegable …. 4.111 professional practice …. 4.35 proximity …. 4.12, 4.13, 4.32, 4.51–4.53, 4.57 pure economic loss …. 4.15, 4.21–4.32 privity of contract and …. 4.24 reasonable …. 4.6, 4.12, 4.13, 4.18, 4.26, 4.27, 4.32 special relationship …. 4.26, 4.27 vicarious liability …. 4.100–4.111 vulnerability …. 4.54–4.57

E Electronic communications acceptance communicated by …. 3.53–3.57 delay between sending and receiving …. 3.55 fax …. 3.56 place of forming contract …. 3.54 postal rule not applicable …. 3.53 sent outside normal business hours …. 3.55 telex …. 3.53, 3.54

time of receipt …. 3.57 legislation dealing with …. 3.57

Employee entitlements enterprise agreements …. 2.147–2.151 Fair Work Act 2009 …. 2.145–2.150 minimum terms and conditions …. 2.145 modern awards …. 2.146 National Employment Standards (NES) …. 2.145

Employee protections adverse action, against …. 2.156 Fair Work Act 2009 …. 2.155–2.159 freedom of association …. 2.155, 2.156 general protections …. 2.155 industrial action …. 2.153 refusal to work where safety risk …. 2.154 sham contracting …. 2.157 trade union officials’ right of entry …. 2.159 unfair dismissal, against …. 2.158

Employees construction contract terms regarding control of …. 5.192 insurance …. 5.183 payment of …. 5.228 working hours …. 5.203 entitlements see Employee entitlements health and safety see Work health and safety (WHS) industrial action see Industrial action industrial relations see Industrial relations insurance for …. 5.183, 6.24 protections see Employee protections subcontractor distinguished …. 5.288

Engineer coordination of consultants …. 6.11, 6.12 superintendent, as …. 6.12 role see Superintendent

Enterprise agreements approval by FWC …. 2.148 bargaining representative …. 2.147

genuinely trying to reach agreement …. 2.152 dispute resolution by FWC …. 2.147 Fair Work Act providing for …. 2.147–2.150 greenfields agreements …. 2.149 industrial action relating to …. 2.151–2.154 NES entitlements and …. 2.147 new enterprises …. 2.149 pattern bargaining …. 2.150 registration …. 2.148

Entire agreement clauses construction contracts …. 5.83 misleading conduct, not to exclude liability for …. 5.84 purpose …. 5.83

Equitable estoppel see Promissory estoppel Equity law ‘clean hands’ maxim …. 1.73 common law and …. 1.71, 1.72 discretion to apply …. 1.72 High Court of Chancery …. 1.71 maxims …. 1.73 origins …. 1.71 prevailing over common law …. 1.72 promissory estoppel …. 3.130–3.137 providing remedy where common law fails …. 1.71, 1.74 restitution where unjust enrichment …. 1.74 separation from common law historically …. 1.71, 1.72 source of Australian law …. 1.38, 1.71–1.74 unwritten law …. 1.38

Estimate definition …. 3.30 good faith calculation of cost …. 3.30 offer, whether …. 3.30–3.33 reasonable belief as to intention …. 3.31, 3.32 traditional common law position …. 3.33

Estoppel circumstances constituting …. 6.65 conduct, by …. 5.245, 6.64 promissory see Promissory estoppel

Ethics construction professionals, of …. 1.9 interrelationship with law …. 1.6, 1.8 law distinguished …. 1.5–1.10 nature of …. 1.5 professional ethics …. 1.10 unethical behaviour and law …. 1.6, 1.7

Evidence contract, of agreement in writing …. 5.153 clause in construction contract …. 5.152–5.154 formal instrument of agreement …. 5.154 expert see Expert evidence parol evidence rule …. 5.82 payment claim, amount due …. 6.31 rules of …. 7.133 adjudicator not bound by …. 2.111 court proceedings …. 7.133

Examination and testing clause in construction contract …. 5.202

Exemption clauses allocation of risk …. 3.184 consequential loss, for …. 3.194–3.199 ambiguity of common law approach …. 3.199 direct loss distinguished …. 3.196 individual circumstances of case …. 3.198 loss of profits and extra costs …. 3.195 construction industry, use in …. 3.184 constructive notice of …. 3.188 contract, in …. 3.183–3.199 document not regarded as contractual …. 3.187 economic duress claim, whether excluded …. 3.192, 3.193 effective …. 3.185 excluding right …. 3.183, 3.185 ineffective …. 3.185–3.187 interpretation …. 3.190 contra proferentem …. 3.190, 3.191 natural and ordinary meaning …. 3.190

legitimacy in commercial contracts …. 3.184 limiting liability …. 3.183 limiting right …. 3.183 misleading or deceptive conduct and …. 3.243, 3.244, 5.170, 5.266 misrepresentation as to …. 3.186 notice of …. 3.185 constructive notice …. 3.188 sufficiency …. 3.189 purpose of …. 3.183 signed contractual document …. 3.185, 3.186 unsigned contractual document …. 3.188

Expert determination dispute resolution by …. 7.116–7.118 reviewable, whether …. 7.118 role of expert …. 7.117 valuation of variation …. 7.116

Expert evidence building disputes, in …. 7.153 code of conduct …. 7.159 acknowledgement of compliance with …. 7.159 conclaves …. 7.160, 7.161 considerations when adduced …. 7.158 duties of experts …. 7.159 experts’ conference …. 7.159 conclaves …. 7.160, 7.161 experts’ reports …. 7.159 joint reports …. 7.161 mediation or negotiation, in …. 7.145 opinion …. 7.155, 7.156 based on facts …. 7.156 statement of assumptions on which based …. 7.156, 7.157 role of …. 7.153–7.161

Expiable offences …. 1.21 Expiation notices …. 1.21 Extensions of time (EOT) automatic grant …. 6.45 builder’s options on delay …. 7.21, 7.96 certification of number of days …. 6.44

claims for …. 6.34–6.52 administration of …. 6.40 AS2124-1992 requirements …. 6.41 key requirements …. 6.41 procedure …. 6.41–6.52 time for lodging …. 6.41 time for response …. 6.44 clause in construction contract …. 5.213–5.215, 6.35–6.40, 7.22 AS2124-1992 clause 35.5 …. 6.41 considerations …. 6.36–6.39 prolongation costs …. 6.49 variations in …. 6.40 contractual remedy for delay …. 7.98 costs associated with …. 7.25, 7.26 critical path analysis of effects of delay …. 6.42, 6.43 damages for delay see also Damages for delay failure to request extension …. 7.98 late application for extension …. 6.41 delaying events …. 5.211–5.213, 6.36 beyond reasonable control of contractor …. 5.215 justifying extension …. 5.215, 6.35, 7.23 list in contract …. 5.215, 6.35 not fault of any party …. 5.212, 6.35 notifying superintendent of …. 6.41 preventative acts …. 5.212, 5.215 principal responsible for …. 6.34, 6.35 entitlement, negotiating …. 6.35–6.39 estimate of delay …. 6.41 forfeiture of right for non-compliance …. 6.40 latent conditions, delay caused by …. 5.256 claim …. 5.261, 6.41 length of extension …. 5.214 notification requirement …. 6.41 payment claims relating to …. 7.21–7.28 analysis of claim …. 7.27 delay justifying additional payment …. 7.23, 7.96 delay justifying extension …. 5.215, 7.23 extension not granted …. 7.28 principal responsible for delay …. 6.34, 6.35 procedure for claims …. 6.41–6.52

prolongation costs from principal …. 6.49 reasonable steps to minimise consequences of delay …. 6.45 rejection of claim …. 6.51 risk allocation …. 6.35–6.38 superintendent’s power …. 6.13, 6.50 superintendent’s response …. 6.44 certification of number of days …. 6.44 direction to accelerate works …. 6.50 matters to be considered …. 6.45 rejection of claim …. 6.51 time for …. 6.44 time-critical administration of claim …. 6.40 time for lodging claim …. 6.41 time for response to claim …. 6.44

F Fair Work Act 2009 (Cth) Building Code 2013 and …. 2.169 employee entitlements …. 2.145–2.150 employee protections …. 2.155–2.159 employer–employee relationship application to …. 2.143, 2.144 determining …. 2.143 enterprise agreements …. 2.147–2.150 independent contractors, application to …. 2.143 industrial action …. 2.151–2.154 industrial relations governed by …. 2.141–2.161 non-incorporated private entities, application to …. 2.142 regulatory bodies …. 2.142, 2.160–2.161

Fair Work Building and Construction (FWBC) Australian Building and Construction Commissioner replaced by …. 2.162 Building Code 2013 monitoring compliance with …. 2.170 website listing key requirements of …. 2.169 Code Monitoring Group …. 2.170 establishment …. 2.162 role of …. 2.165

Fair Work (Building Industry) Act 2012 (Cth)

application …. 2.162 BCI Bill to reform …. 2.163, 2.164 effect of enactment …. 2.163 exclusions …. 2.162 Fair Work Building and Construction (FWBC) established by …. 2.162 industrial relations governed by …. 2.141, 2.162–2.165

Fair Work Commission dispute resolution …. 2.147, 2.160 enterprise agreements approval and registration of …. 2.148 dispute resolution …. 2.147 entry permits …. 2.159 establishment …. 2.142, 2.160 protected action ballot order …. 2.152 review of modern awards …. 2.146 role of …. 2.160

Fair Work Ombudsman ensuring compliance with law …. 2.161 establishment …. 2.142, 2.160 role of …. 2.161

Family law definition …. 1.17

Force majeure clause …. 5.235 Frustration of contract automatic termination …. 3.280 clause in construction contract …. 5.232–5.236 Codelfa Construction, principle in …. 3.283, 5.233 common law approach …. 5.236 date of termination …. 3.280 definition …. 3.278, 7.39 doctrine of …. 3.278, 5.232 force majeure clause …. 5.235 incapable of being performed …. 3.278, 5.232, 7.39 limitations on …. 3.285–2.90 events expressly provided for …. 3.290 foreseeable risk …. 3.287 performance becomes more difficult …. 3.286, 2.287 self-induced event …. 3.288, 3.289

no performance at time of …. 5.234 obligations performed before frustration …. 3.281 payment claim …. 7.39 quantum meruit for work done …. 3.283 radical difference …. 3.282, 3.283 subject matter destroyed …. 3.279 supervening illegality …. 3.282, 3.284 unjust enrichment claim …. 5.234

G Garnishee order enforcement of judgment debt by …. 1.81

Goods displayed in shops invitation to treat …. 3.12

Government bodies administering building legislation …. 2.30 regulating building industry …. 2.30

H Harmonisation of laws COAG agenda …. 1.53, 2.175 construction industry laws …. 2.29 inter-government agreements …. 1.53, 2.175 reasons for …. 1.53 surrender of power to Commonwealth, 1.54 work health and safety …. 1.53, 2.175–2.178

High Court of Australia appeals to …. 1.94, 1.95 Constitution establishing …. 1.28 court hierarchy …. 1.64, 1.93, 1.94 decisions binding on other courts …. 1.94 full court …. 1.95 interpretation of Constitution …. 1.28 justices …. 1.94, 1.95 leave to appeal to …. 1.95 original jurisdiction …. 1.94

Home building contracts see Domestic building contracts Home/residential building building indemnity insurance …. 2.49, 2.51 consumer protection …. 2.47, 2.52 contracts see Domestic building contracts dispute resolution …. 7.127–7.131 enforcement of decisions by court …. 7.131 Home Building Act conferring jurisdiction …. 7.128 NSW Civil and Administrative Tribunal …. 7.127–7.131 interim payments on account claim for …. 7.12, 7.109 right to …. 7.16 SoP legislation not applicable …. 7.12, 7.109 legislation …. 2.46, 2.47 consumer protection provisions …. 2.47, 2.52 differences between states …. 2.48 key provisions …. 2.48, 2.52 scope of …. 2.46 variations, regulation of …. 2.52 warranties …. 2.49, 2.50

I Illegality consideration …. 3.105 frustration of contract …. 3.282, 3.284 insolvent trading …. 2.17

Implied terms Australian Consumer Law, under …. 3.168–3.173 acceptable quality …. 3.172 business-to-business contracts …. 3.169 business-to-consumer contracts …. 3.169 contracts over $40,000 …. 3.170 correspondence with description …. 3.172 correspondence with sample …. 3.172 fitness for purpose …. 3.172 merchantable quality …. 3.172 seller’s right to sell …. 3.172

services, relating to …. 3.173 supply of goods and services …. 3.170 business efficacy, to give …. 3.158–3.161 circumstances permitting …. 3.152 construction contracts …. 5.246 custom or trade usage …. 3.155–3.157 definition …. 3.140 duty to act in good faith …. 3.162, 3.164 duty to cooperate …. 3.162, 3.163 duty to exercise reasonable care and skill …. 3.162, 3.165–3.167 express terms distinguished …. 3.140 fact, in …. 3.158–3.161 freedom of contract and …. 3.153 intention of parties to include …. 3.153 law, by …. 3.140, 3.162–3.167 materials …. 5.197 fitness for purpose …. 3.172, 5.197 merchantable quality …. 3.172, 5.197 past dealings …. 3.154 payment terms …. 5.246 Sale of Goods Acts …. 3.168, 3.171–3.173 acceptable quality …. 3.172 business-to-business contracts …. 3.171 business-to-consumer contracts …. 3.171 correspondence with description …. 3.172 correspondence with sample …. 3.172 fitness for purpose …. 3.172 merchantable quality …. 3.172 seller’s right to sell …. 3.172 services excluded …. 3.171 statute, by …. 3.168–3.174

Indemnity clauses commercial contracts …. 1.91 construction contracts …. 5.178 damage to persons or property …. 5.178 proportionate liability and …. 1.91

Indictable offences …. 1.21 Industrial action circumstances where lawful …. 2.151

civil action in relation to …. 2.153 employee protection …. 2.153 enterprise agreement, when bargaining for …. 2.151 Fair Work Act providing for …. 2.151–2.154 order to stop or prevent …. 2.153 protected action ballot order …. 2.152 protected industrial action …. 2.153 refusal to work where safety risk, not constituting …. 2.154 secret ballot …. 2.152 unprotected industrial action …. 2.153

Industrial relations Building Code 2013 see Building Code 2013 employee entitlements see Employee entitlements employee protections see Employee protections Fair Work Act see Fair Work Act 2009 (Cth) Fair Work (Building Industry) Act 2012 (Cth) …. 2.141, 2.162–2.165 industrial action …. 2.151–2.154 Industrial Relations Act 1979 (WA) …. 2.142 national Building Code see Building Code 2013 national workplace relations system …. 2.142 regulatory bodies …. 2.142, 2.160–2.161 regulatory framework …. 2.140 state building codes …. 2.173–2.174 tiers of laws …. 2.141

Injunction breach of contract remedy …. 3.348, 3.349 equitable nature …. 3.349 prohibitory …. 3.348 trespass, restraining …. 4.63, 4.68, 4.69, 4.77–4.79, 4.83 working hours, in relation to …. 5.203

Insolvency building indemnity insurance and …. 2.51 construction industry, in …. 2.12 consequences for subcontractors and suppliers …. 2.27 contracting chains and …. 2.25 high rate of …. 2.25, 2.26 default or insolvency clause …. 5.230, 5.231 definition …. 2.12 external administration …. 2.17

illegal to continue trading …. 2.17 individual see Bankruptcy insurance liability in event of …. 6.24 lack of cashflow causing …. 6.30 liquidation see Liquidation (winding up) nominated subcontractor …. 5.299 non-corporation business …. 2.24 principal contractor …. 2.25 procedures …. 2.17 pyramidal contracting chains and …. 2.25 receivership …. 2.23 retention of title clauses …. 2.16 secured creditors …. 2.13, 2.14 subcontractors’ charges where contractor insolvent …. 2.123, 2.124 unsecured creditors …. 2.15 voluntary administration see Voluntary administration when occurs …. 2.12

Inspections building certifier, by …. 2.37 certificate of occupation/classification …. 2.39 final …. 2.39 mandatory …. 2.37 non-compliance notice …. 2.38 notice for …. 2.38 purpose …. 2.37 registered building inspector, by …. 2.40 certifier’s liability for mistakes …. 2.40, 2.41 scheduled …. 2.37 stages …. 2.37

Insurance building indemnity insurance …. 2.49, 2.51, 5.103 commencement of work before contract settled …. 6.27 construction contract terms employees …. 5.183 inspection and provision of policies …. 5.184 public liability …. 5.182 works, of …. 5.179–5.181 damage to works, against …. 6.24 injury to employees, against …. 6.24

premiums, inclusion in tender price …. 6.25 principal taking responsibility for …. 6.25 privity of contract exception …. 5.103 public liability …. 5.182, 6.21–6.23

Intellectual property rights clause in construction contract …. 5.171–5.174 copyright …. 5.171–5.174 monopoly rights …. 5.172 patents …. 5.171 remedies for breach …. 5.172, 5.174 trademarks …. 5.171 warrant against breach …. 5.173

Interest judgment debt, on …. 1.81 overdue payments, on …. 5.227 retention monies, on …. 5.149 security, on …. 5.149

Inter-government agreements harmonisation of laws …. 1.53, 2.175

Interim payments on account claim for …. 7.11–7.16, 7.107–7.109 adjudication …. 7.13, 7.108 payment schedule addressing …. 7.13 residential building work …. 7.12, 7.109 reasons for …. 7.4 reference date …. 7.11 residential building work …. 7.12 right to interim payment …. 7.16 SoP legislation not applicable …. 7.12, 7.109 security of payments legislation …. 7.11, 7.108 adjudication under …. 7.13, 7.108 residential building work, not applicable to …. 7.12, 7.109 right under …. 7.11, 7.14

Interpretation of contract ambiguity …. 5.78–5.81, 5.85, 5.86 consistency …. 5.78 contemporaneous documents …. 5.79 entire agreement clauses …. 5.83, 5.84

exemption clauses …. 3.190 contra proferentem …. 3.190, 3.191 natural and ordinary meaning …. 3.190 inconsistency between documents …. 5.75, 5.76, 5.78 incorrect, repudiation of contract for …. 3.298 later additions …. 5.81 objective interpretation …. 3.61, 3.65 parol evidence rule …. 5.82 rules of …. 5.77 unfair terms …. 5.87–5.89 vague or uncertain terms …. 3.60–3.69 agreement rendered void …. 3.60, 3.64 agreement to agree …. 3.70–3.75 ambiguous or confusing wording …. 3.62 court’s duty to construe fairly …. 5.85, 5.86 court’s options where …. 3.64 implying terms to give effect …. 3.64 lack of common terms …. 3.63 making certain …. 3.65, 3.68 objective interpretation …. 3.61, 3.65 severance or striking out …. 3.64, 3.74 unenforceable contract …. 3.64, 3.65

Invitation to treat advertisements …. 3.26–3.28 auctions …. 3.13–3.16 goods displayed in shops …. 3.12 offer distinguished …. 3.11–3.28 requests for tenders …. 3.17–3.25

J Judgment debt defendant, against …. 1.81 enforcement of …. 1.81 interest on …. 1.81 options for judgment debtor …. 1.81 separate order for costs …. 1.82

Judicial binding precedent Australian states, between …. 1.63

court hierarchy …. 1.64 doctrine of …. 1.63 English decisions …. 1.65 law reports, importance of …. 1.68 obiter dicta …. 1.67 other jurisdictions, decisions from …. 1.65 ratio decidendi …. 1.67 reasons for decisions only …. 1.67 stare decisis …. 1.62

L Late completion delaying events see Delay extension of time see Extension of time (EOT) liquidated damages for …. 5.208, 6.47 avoiding …. 5.209 calculation of …. 5.209 contract clause providing for …. 6.47

Latent conditions additional costs caused by …. 5.251 alleviating risk …. 5.267 allocation of risk …. 5.258–5.259 Australian Building Industry Contracts (ABIC) …. 5.257 Australian Standard contracts …. 5.254–5.259 AS2124-1992 …. 5.169, 5.254, 5.255 AS4000-1997 …. 5.254 AS4300-1995 …. 5.254, 5.256 claims …. 5.170, 5.261–5.266 consumer protection law …. 5.264–5.266 contractor’s liability …. 5.253 latent condition clause …. 5.261 misleading or deceptive conduct …. 5.170, 5.264–5.266 misrepresentation …. 5.262 outside of contract …. 5.263–5.266 security of payment legislation …. 5.263 tort …. 5.170 under contract …. 5.261–5.262 clause in construction contract …. 5.167–5.170, 5.254–2.58

absence of …. 5.168, 5.170 claims under …. 5.261 PC-1 2000 contract …. 5.258 standard form contracts …. 5.169, 5.254–5.259 consequences …. 5.256–5.257 contractor’s liability …. 5.253 definition …. 5.167, 5.249, 5.255 delays caused by …. 5.251, 6.41 domestic building contracts …. 5.260 exclusions …. 5.169, 5.249 extension of time …. 5.256 claim for …. 5.261, 6.41 latent defects distinguished …. 5.250 misleading or deceptive conduct …. 5.170, 5.264–5.266 damages for extra costs …. 5.265 strict liability …. 5.266 misrepresentation claims …. 5.262 not reasonable to anticipate …. 5.250, 5.261 party contracting, duty of …. 5.252 physical conditions …. 5.169, 5.249, 5.255 rights and obligations of parties …. 5.251–5.254 subsoil condition …. 5.167, 5.249 variations due to …. 5.253

Latent defects definition …. 5.250 latent conditions distinguished …. 5.250 negligence claims by subsequent owners …. 4.47, 4.56

Law administrative law …. 1.16 Australian see Australian law civil see Civil law classifications …. 1.14–1.17 constitutional law …. 1.16 construction industry and …. 1.11–1.13 construction professionals’ knowledge of …. 1.12 contract law …. 1.17 criminal see Criminal law ethics distinguished …. 1.5–1.10 natural and artificial persons under …. 1.1

public vs private law …. 1.14, 1.16 rule of law …. 1.2–1.4 society’s need for …. 1.1, 1.2 sub-branches …. 1.15, 1.16 tort law see Torts unethical behaviour and …. 1.6, 1.7

Law reports authorised reports …. 1.68 citation of …. 1.69 round/square brackets …. 1.70 generalist reports …. 1.68 list of …. 1.68 name of case …. 1.69 precedent and …. 1.68

Legislation Acts see Acts of parliament affecting construction industry …. 2.28–2.30 authorities administering …. 2.30 key areas of law …. 2.29 state-based legislation …. 2.28 duty of care and …. 4.19, 4.20 harmonisation …. 1.53 construction industry laws …. 2.29 inter-government agreements …. 1.53, 2.175 surrender of power to Commonwealth, 1.54 work health and safety …. 1.53, 2.175–2.178 primary see Acts of parliament subordinate see Subordinate legislation

Letters of intent ancillary ‘stand-alone’ contract …. 3.84 binding, whether …. 3.84, 3.88, 5.36 circumstances of issue …. 3.88 subsequent conduct …. 3.88 textual considerations …. 3.88 commencement of work before contract settled …. 6.27 conditional acceptance of tender …. 3.87 construction industry, use in …. 3.79–3.81 court’s position with respect to …. 3.84 definition …. 3.79

heads of agreement …. 5.37 initiating construction works …. 3.83, 6.27 intended contract not eventuating …. 3.83, 3.85 agreement on outstanding matters not reached …. 3.88 quantum meruit for work done …. 3.85, 3.88, 3.90 limiting authority of terms in …. 3.89, 3.90 principal contractor issuing …. 3.81 tenders and …. 5.34–5.40 terms of building contract superseding …. 3.82 typical wording …. 3.79 work carried out on basis of formation of contract, whether …. 3.86 quantum meruit for …. 3.85, 3.88, 3.90 retrospective application of contract terms …. 3.82

Liens charge over debtor’s assets …. 2.13 enforcement by writ or warrant for sale …. 2.137 lender’s right on default …. 2.13 litigation required to enforce …. 2.117 registration …. 2.135, 2.136 detrimental to owner not at fault …. 2.139 registered lien deemed caveat …. 2.136 secured creditors …. 2.13 subcontractors …. 2.116, 2.133–2.139 legislation providing for …. 2.116 limitations …. 2.117 registration of lien …. 2.135, 2.136 unpaid amounts, over SA …. 2.135–2.139 Tas and Vic …. 2.78 Worker’s Liens Act 1893 (SA) …. 2.133–2.139 criticism of …. 2.138, 2.139 entitlement under …. 2.116 lien over unpaid portion …. 2.135–2.139 owner paying amount into court …. 2.137 registration of lien …. 2.135, 2.136 Workmen’s Liens Act (NT) …. 2.138

Limitation of actions breach of warranty, commencing on …. 3.5

contract law …. 3.2–3.6 contractual warranties …. 3.4–3.6 deed …. 3.3, 3.102 defective building works …. 3.3, 3.103 contractual warranties given …. 3.4 legislation imposing …. 3.2 personal injury claims …. 3.2 running of time …. 3.3, 3.5 simple contracts …. 3.102 statutory warranties …. 2.50

Liquidated damages breach of contract …. 3.320–3.328, 6.48 genuine pre-estimate of amount …. 3.325, 6.48 late completion …. 5.208, 6.47 avoiding …. 5.209 calculation of …. 5.209 contract clause providing for …. 6.47 less than actual loss …. 3.327, 3.328 penalty doctrine …. 3.324–3.326, 6.48

Liquidation (winding up) appointment of liquidator …. 2.20 court, by …. 2.18 creditors’ application for …. 2.18, 2.19 deed of company arrangement breach of …. 2.22 termination of …. 2.18 enforcement of judgment debt by …. 1.81 insolvent company …. 2.17 judgment debtor …. 1.81 liquidator’s role …. 2.20 payments to creditors …. 2.20 unsecured creditors …. 2.21 priority of debts …. 2.21 receivership at same time …. 2.23 statutory demand for payment …. 2.19 voluntary …. 2.18 voluntary administration, following …. 2.18, 2.22

Local councils by-laws …. 1.58, 1.59

functions and powers determined by states …. 1.36

Lump sum contract …. 5.106

M Magistrates/Local Court appeals from …. 1.97 court hierarchy …. 1.93, 1.96 jurisdiction …. 1.97

Materials construction contract terms cleaning up …. 5.218 implied term …. 5.197 materials and workmanship …. 5.198–5.201 materials, plant and labour …. 5.196–5.197 source and performance characteristics …. 5.196 implied terms …. 5.197 fitness for purpose …. 3.172, 5.197 merchantable quality …. 3.172, 5.197 payment claim for materials on/off site …. 6.31 not yet incorporated into work …. 6.31 subcontractor, supplied by …. 5.321–5.324 fixtures …. 5.322 ownership of …. 5.324 recovery of …. 5.321 retention of title clause …. 5.321, 5.323

Mediation see also Dispute resolution dispute resolution by …. 7.115 expert reports …. 7.145 not binding on parties …. 7.116 witness statements …. 7.145

Misleading or deceptive conduct application …. 3.240, 3.245 burden of proof …. 3.240 conduct likely to deceive or mislead …. 3.241 contributory fault …. 3.243, 3.244

entire agreement clauses not to exclude liability …. 3.244, 5.84 exclusion clauses ineffective …. 3.243, 3.244, 5.170, 5.266 false advertising …. 3.242 false or misleading representations …. 3.246, 3.249 latent conditions …. 5.170, 5.264–5.266 misleading conduct definition …. 3.240 pecuniary penalties …. 3.247 remedies …. 3.247 strict liability …. 3.243, 5.266 substantiation notices …. 3.248 tender documentation …. 5.43, 5.44 trade or commerce …. 3.245 vitiation of contract …. 3.213, 3.239–3.249

Misrepresentation exemption clauses, as to …. 3.186 latent conditions …. 5.262

Mistake common mistake …. 3.225–3.228, 3.278 contract incapable of being performed …. 3.278 existence of subject matter, as to …. 3.225, 3.226 fundamental aspect of contract, about …. 3.228 perished goods …. 3.226, 3.227 void contract …. 3.225, 3.299, 3.278 contract formed on basis of …. 3.223 fundamental mistake …. 3.223 mutual mistake …. 3.229–3.230 fundamental terms, about …. 3.229 uncertainty, related to …. 3.229 void contract …. 3.230, 3.299 rectification …. 3.234, 3.235 original common intention, reflecting …. 3.234 pricing error …. 3.235 types of …. 3.224 unilateral mistake …. 3.231–3.238 construction contract …. 3.233–3.235 fundamental aspect of contract, about …. 3.231 incorrect meaning given to term …. 3.231 party not to snap at obviously mistaken offer …. 3.233 pricing error …. 3.235

rectification …. 3.234, 3.235 tender, uncertainty of …. 3.236–3.238 valuation of post-contract variation …. 3.235 voidable contract …. 3.231, 3.232, 3.233, 3.299 vitiation of contract …. 3.213, 3.223–3.238 void contract …. 3.223, 3.225, 3.230, 3.278, 3.299

Modern awards employee entitlements provided by …. 2.146 relevant to construction industry …. 2.146 review by Fair Work Commission …. 2.146

Mortgage charge over debtor’s assets …. 2.13 lender’s right on default …. 2.13 secured creditors …. 2.13

Mutual mistake see Mistake

N National Employment Standards (NES) …. 2.145 Native title Mabo decision …. 1.26 mining leases and …. 1.26 pastoral leases and …. 1.26 right to …. 1.26 terra nullius …. 1.24 overturning doctrine of …. 1.26 Wik decision …. 1.26

Natural persons law recognising …. 1.1

Negligence assumption of responsibility …. 4.27 breach of duty of care …. 4.33–4.35 building defects claims by subsequent owners …. 4.47–4.57 causation …. 4.36 ‘but for’ test …. 4.38–4.41 factual …. 4.37–4.41 legal …. 4.42–4.46

contract, under …. 4.7, 4.8, 4.24, 4.31 contributory …. 4.58, 4.60 definition …. 4.34 Donoghue v Stevenson …. 4.10–4.18, 4.48 duty of care see Duty of care exclusionary rule …. 4.15, 4.25 foreseeability …. 4.42–4.46 insurance and …. 4.59, 4.60 law, at …. 4.6 liability …. 4.7, 4.8, 4.31, 4.32, 4.50 concurrent …. 4.8 indeterminate …. 4.32, 4.52 proportionate …. 4.60 scope of …. 4.42, 4.43 negligent misstatement …. 4.28 pure economic loss …. 4.48, 4.49, 4.52 remoteness of damage …. 4.42–4.46 tort of …. 1.19, 4.1, 4.9

Negotiation see also Dispute resolution dispute resolution by …. 7.114 expert reports …. 7.145 not binding on parties …. 7.116 witness statements …. 7.145

New South Wales Civil and Administrative Tribunal appeal to internal panel …. 7.130 costs, award of …. 7.130 enforcement of decisions by court …. 7.131 Home Building Act conferring jurisdiction …. 7.128 Home Building List of Consumer and Commercial Division …. 7.129 residential building disputes …. 7.127–7.131

Notices contract administration …. 6.3–6.10 delay, notifying superintendent …. 6.41 late, extinguished of entitlement …. 6.8 prerequisite to entitlement …. 6.3 time requirements …. 6.6, 6.7

Notification of claims

clause in construction contract …. 5.237–5.240, 6.4–6.10 AS2124-1992 …. 5.237, 6.10 reference to …. 6.5 standard form contracts …. 6.10 condition precedent for recovery …. 5.237, 6.3 contract administration …. 6.3–6.10 form …. 5.240, 6.4 information required …. 6.5 late, extinguished of entitlement …. 6.8 prerequisite to entitlement …. 6.3 refusal to respond …. 5.240 standard form contracts …. 5.237, 6.10 superintendent’s duty …. 5.240 time requirements …. 5.237–5.240, 6.6 failure to comply …. 6.7 issue of notice …. 5.237, 6.7 receipt of notice …. 6.6 timebars …. 6.8

Novation definition …. 3.210 design contract …. 3.210 tripartite agreement …. 3.210

Nuisance clause in construction contract preventing …. 5.176 construction sites and …. 4.97–4.99 definition …. 4.89 encroachments …. 4.95 environmental protection legislation …. 4.98, 4.99 local council by-laws …. 4.98, 4.99 noise …. 4.92, 4.95, 4.97, 4.99 private …. 4.90–4.96 unreasonable interference …. 4.94, 4.95 public …. 4.90–4.92 remedies …. 4.91 special damages …. 4.91 smell …. 4.92, 4.95, 4.97, 4.99 vibration …. 4.95, 4.97, 4.99

O Occupation certificate purpose …. 2.39

Occupational health and safety see Work health and safety (WHS) Offer acceptance see Acceptance of offer ‘battle of the forms’ …. 3.40 clear and certain …. 3.10 commercial transaction, in …. 3.8 communication of …. 3.10 conditions …. 3.44 failure of condition …. 3.44 last conditions before acceptance apply …. 3.40 variation of …. 3.40, 3.41 definition …. 3.8 element of contract …. 3.7 estimate, whether …. 3.30–3.33 forbearance, based on …. 3.8, 3.9 invitation to treat distinguished …. 3.11–3.28 advertisements …. 3.26–3.28 auctions …. 3.13–3.16 goods displayed in shops …. 3.12 requests for tenders …. 3.17–3.25 lapse …. 3.42–3.43 reasonable amount of time …. 3.42 rejection …. 3.39–3.41 ‘battle of the forms’ …. 3.40 communication of …. 3.39 express or implied …. 3.39 response to request for information not …. 3.29 revocation …. 3.35–3.38 communication of …. 3.35, 3.36 contradictory action, by …. 3.37 deadline given for acceptance, before …. 3.38 option purchased by offeree, where …. 3.38 prior to acceptance …. 3.35 termination of …. 3.34–3.44 failure of condition …. 3.44

lapse …. 3.42–3.43 rejection …. 3.39–3.41 revocation …. 3.35–3.38

Offers of compromise amount recovered greater than …. 7.138 amount recovered less than …. 7.139 Calderbank letters …. 7.140 contested hearing, consideration in …. 7.141 costs where unreasonable rejection of …. 7.140 formal offers …. 7.138 parties encouraged to make and accept reasonable matter of policy …. 7.136 rationale …. 7.137 rules of court …. 7.138

P Parliament Acts of see Acts of parliament bicameral parliaments …. 1.28 states …. 1.33 double dissolution …. 1.43 Hansard …. 1.41 power to make and apply laws …. 1.27 federal parliament …. 1.29 state parliaments …. 1.30 territories, in respect of …. 1.32 separation of powers …. 1.34 transcripts of debates and speeches …. 1.41 unicameral parliaments …. 1.33

Parol evidence rule …. 5.82 Partnerships insolvency …. 2.24 nature of …. 2.9 unincorporated business …. 2.8

Patents clause in construction contract …. 5.171–5.173 remedies for breach …. 5.172

warrant against breach …. 5.173

Payment see also Progress payments certificate …. 5.226, 5.227, 6.31 claim for see Payment claims construction contract terms …. 6.31 certificates and payments clause …. 5.225–5.227 implied terms …. 5.246 workers and subcontractors …. 5.228–5.229 interim payments on account …. 7.4 claim for …. 7.11–7.16, 7.107–7.109 ‘pay when paid’ clauses SoP legislation prohibiting …. 2.57, 5.315 subcontractors …. 5.314, 5.315 principal, by …. 6.31 nominated subcontractor …. 5.164, 5.291 subcontractors see Subcontractors workers …. 5.228

Payment certificate construction contract terms …. 5.226, 5.227, 6.31 correction of errors …. 6.31 superintendent issuing …. 6.31

Payment claims abandonment of contract …. 7.40–7.43 abatement …. 7.100–7.102 AS2124-1992 clause 42.1 …. 6.31 balance of contract sum …. 7.3–7.10 construction contract providing for …. 6.31 contract administration steps …. 6.9 contractor …. 5.226 damages claims defective work see Damages for defective work delay see Damages for delay distinguished …. 7.2 dispute …. 7.103–7.106 interim payments …. 7.107–7.109 resolution see Dispute resolution evidence of amount due …. 6.31 extension of time, relating to …. 7.21–7.28

formal initiation of …. 6.3 frustration of contract …. 7.39 information required …. 6.31 interim payment on account …. 7.11–7.16, 7.107–7.109 late, extinguished of entitlement …. 6.8 lodged with superintendent …. 5.226 materials not yet incorporated into work …. 6.31 materials on/off site …. 6.31 notification of see Notification of claims process …. 6.31 set-off …. 7.100–7.102 SoP legislation, under East Coast model see Payment claims: East Coast model interim payment on account …. 7.11–7.15, 7.108 reducing need for contractual claims …. 6.28 West Coast model …. 2.102 standard form contracts …. 6.10, 6.31 termination, consequent on …. 7.29–7.38 time requirements …. 6.6, 6.7 timebars …. 6.8 types …. 7.104, 7.105 variations …. 7.17–7.20 adjustment of contract sum distinguished …. 7.9, 7.10 entitlement to claim for …. 6.31

Payment claims: East Coast model adjudication see Adjudication: East Coast model complex payment claim (Qld) …. 2.80 time to serve payment schedule …. 2.80 liens over unpaid amounts (Tas and Vic) …. 2.78 notice of dispute …. 2.102 NSW SoP Act …. 2.60 endorsement, claim not requiring …. 2.71 head contractor to provide supporting statement …. 2.74 options for respondent on receipt of …. 2.79 payment schedule see Payment schedule payment withholding request (NSW) …. 2.85 Qld dual scheme …. 2.80 reference dates …. 2.73 resolution prior to SoP legislation …. 2.56

SoP legislation …. 2.70–2.77 see also Security of payments (SoP) legislation NSW …. 2.60 statutory payment claim …. 2.70–2.77 adjudication application requiring …. 2.71 amount, valuation of …. 2.75 contractual payment claim at same time …. 2.72 endorsement …. 2.71 NSW not requiring …. 2.71 express payment terms in contract …. 2.75 no express payment terms in contract …. 2.76 Qld …. 2.80 time for service …. 2.74 time to serve payment schedule …. 2.80 summary judgment, seeking …. 2.83 anti-suit provisions …. 2.83 valuation …. 2.75–2.77 contractual terms …. 2.75 excluded amounts (Vic) …. 2.77 no express contractual terms …. 2.76, 2.77 variations claimable (Vic) …. 2.77 excluded amounts (Vic) …. 2.77 regard to …. 2.76

Payment claims: West Coast model calculation of amount …. 2.102 notice of dispute …. 2.102 time for making …. 2.102 undisputed claim, time for payment …. 2.103

Payment schedule contents …. 2.80 East Coast model …. 2.79–2.84 failure to pay scheduled amount by due date …. 2.79 adjudication application …. 2.83, 2.84 claimant’s options where …. 2.83 notice of intention to suspend work …. 2.84 summary judgment, application for …. 2.83 failure to serve …. 2.79 adjudication response disallowed …. 2.87

liability to pay amount on due date …. 2.84 non-payment of amount on due date …. 2.84 interim payments on account …. 7.13 Qld dual scheme …. 2.80 scheduled amount less than payment claim …. 2.81 adjudication application …. 2.81, 2.83 claimant’s options where …. 2.81 service on receipt of payment claim …. 2.79 time for service …. 2.80

Performance undertaking see also Security clause in construction contract …. 5.146

Personal Property Securities Register (PPSR) retention of title clause, registration on …. 2.16

Planning approval …. 2.31 assessment …. 2.31 development plan …. 2.31 objection to decision …. 2.32 permit …. 2.31, 2.32 scheme …. 2.31

Practical completion certificate of …. 5.227, 6.62 claim for defects before …. 7.81–7.85 contract not terminated …. 7.86–7.89 implied agreement to terminate contract …. 7.89, 7.90 intention to rectify defects before completion …. 7.82 temporary disconformity, theory of …. 7.80–7.92 clause in construction contract …. 5.208–5.212, 6.61 AS2124-1992 clause 2 …. 6.61 definition in …. 6.61 concept of …. 5.209, 6.59 consequences …. 6.63 date for …. 5.210–5.212, 6.46 contract specifying …. 5.210 date of, distinguished …. 6.46 delay, whether affects …. 6.42, 6.43 extension see Extension of time (EOT)

missing, inference of ‘reasonable time’ …. 5.126, 6.34 suspension of works and …. 5.207 date of …. 6.46, 6.62 defects and omissions, in spite of …. 5.209 defects liability period …. 7.5, 7.77–7.79 definition in contract …. 6.61 delay see Delay effect of …. 6.60, 6.63 extension of time see Extension of time (EOT) late completion, damages for …. 5.208, 6.47 avoiding …. 5.209 calculation of …. 5.209 contract clause providing for …. 6.47 obligation to complete works not relieved …. 6.60 possession of site by principal …. 6.63 preventative acts …. 5.212, 5.215 reasonable time, in …. 6.34 warranty under home building legislation …. 7.56, 7.65 security, effect on …. 6.63 superintendent determining …. 6.13 use or occupation possible …. 6.59 variation directed after …. 6.53 what constitutes …. 5.209, 6.59, 6.61

Precedent see Judicial binding precedent Precommencement matters fund available on default …. 6.26 insurance …. 6.21–6.25 possession of site …. 6.18–6.21

Price fixing collusive tendering …. 5.50–5.53, 5.56 contracts, arrangements or understandings between competitors …. 5.51

Primary legislation see Acts of parliament Prime cost items construction contracts …. 5.275, 5.276 definition …. 5.300 domestic building contracts …. 5.276, 5.278, 5.279 exclusions …. 5.277 subcontracts, under …. 5.300, 5.301

Private law definition …. 1.14 public law distinguished …. 1.14 sub-branches …. 1.15, 1.16

Privity of contract consideration moving from promisee and …. 3.205 doctrine of …. 3.203–3.207, 5.103 insurance contract exception …. 5.103 leading case …. 3.204 subcontracting and …. 3.211, 3.212 nomination of subcontractor …. 5.292 third party beneficiary …. 3.115, 3.206 acquiring right to enforce contract …. 3.208 transfer of rights and obligations …. 3.208–3.210 assignment …. 3.209 novation …. 3.210

Progress of works clause in construction contract …. 5.204–5.206 construction program …. 5.205 contractor’s obligations and …. 5.206 effect on parties’ rights and obligations …. 5.205 with due expedition and without delay …. 5.204

Progress payments approximation …. 6.30 cash flow, providing …. 6.29 certificate …. 5.226, 5.227, 6.31 claims for see Payment claims construction contract providing for …. 6.31 statutory power to override …. 6.33 due dates under SoP legislation East Coast model …. 2.78 liability to pay on …. 2.84 West Coast model …. 2.102 milestones, on achieving certain …. 6.32 necessity for …. 6.29 ‘on account’ …. 6.30 payment schedule see Payment schedule payments clause in construction contract …. 5.225–5.227

performance of contract and …. 3.260–3.264 premise on which based …. 6.30 principal, payment by …. 6.31 scheduled payments …. 6.32 SoP legislation see also Security of payment (SoP) legislation claims under see Payment claims due dates …. 2.78, 2.102 liability to pay on due date …. 2.84 liens over unpaid amounts (Tas and Vic) …. 2.78 overriding contract …. 6.32 prompt payment provisions (NSW) …. 2.78 reference dates …. 2.73 right to …. 2.57, 2.73 time for, West Coast model …. 2.101 superintendent determining …. 6.13, 6.31 issue of certificate …. 6.31 valuation of works, based on …. 6.32

Promissory estoppel application in Australia …. 3.134 detrimental reliance on promise …. 3.130 doctrine of …. 3.130–3.137 gratuitous promise …. 3.131, 3.132 objective of …. 3.130 origins of doctrine …. 3.132 traditional application …. 3.133 unconscionable conduct …. 3.130, 3.135

Property law definition …. 1.17

Proportionate liability concurrent wrongdoers …. 1.83, 1.85, 1.88 contracting out of …. 1.89, 1.90 indemnity clauses and …. 1.91 legislation …. 1.88

Provisional sums adjustment of contract when amount known …. 5.269 implied term …. 5.272 avoiding issues …. 5.281 clause in construction contract …. 5.165, 5.166

contingency sum distinguished …. 5.166, 5.273–5.274 including …. 5.273 definition …. 5.165, 5.268, 5.271 Australian Standard contracts …. 5.272 domestic building …. 5.271 legislation …. 5.278, 5.279 prime cost items …. 5.276, 5.278, 5.279 excavation or site works …. 5.269 exclusions …. 5.277 foreseeable expenses …. 5.166 legislation, effect of …. 5.278–5.280 nominated subcontractors, work by …. 5.270 overheads and profit …. 5.277 payment of …. 5.272 prime cost items …. 5.275, 5.276 domestic building …. 5.276, 5.278, 5.279 exclusions …. 5.277 subcontracts, under …. 5.300, 5.301 security of payment legislation …. 5.280 subcontracts, under …. 5.300, 5.301 unable to be priced at time of contract …. 5.268 well settled law …. 5.281

Public law definition …. 1.14 private law distinguished …. 1.14 sub-branches …. 1.15, 1.16

Public liability insurance construction contract terms …. 5.182 injury to third party, against …. 6.22 principal indemnified by …. 6.22 principal’s right to proof of …. 6.23 site, in relation to …. 6.21–6.23

Q Quantum meruit amount recoverable …. 3.343, 3.345 assessment …. 3.340

categories …. 3.341 damages distinguished …. 3.337, 3.343 definition …. 3.339 repudiation of contract, for …. 3.343–3.345 restitution and …. 1.74, 3.339 subcontractor …. 5.316 within contract …. 3.342 work carried out, for contract rendered unenforceable …. 3.346, 3.347 discharges contract …. 3.272, 3.274 frustrated contract …. 3.283, 3.346, 3.347 intended contract not eventuating …. 3.85, 3.88, 3.90 letters of intent, on basis of …. 3.85, 3.88, 3.90, 3.346, 3.347 variations …. 3.347 void contract …. 3.346, 3.347 wrongful termination of contract …. 7.53

R Receivership administration at same time …. 2.23 insolvent company …. 2.17 liquidation at same time …. 2.23 nature of …. 2.23 receiver’s role …. 2.23

Recovery of payments payment claims under SoP legislation East Coast model see Payment claims: East Coast model West Coast model …. 2.102 subcontractors see Subcontractors: recovery of payments

Repudiation of contract bilateral discharge proposal construed as …. 3.276 definition …. 3.296 effect of …. 3.294 examples of …. 3.297 incorrect interpretation of contract …. 3.298 nominated subcontractor …. 5.299 quantum meruit for …. 3.343–3.345 refusal to accept performance …. 3.272

right to terminate …. 3.291, 3.292, 3.293, 3.296, 3.299 termination clauses …. 3.299 rights and obligations prior to …. 3.294 test for …. 3.296

Request for tenders bids as legal offers …. 3.17 conditions creating preliminary contract …. 3.19 conditions indicating creation of contractual obligation …. 3.18, 5.13, 5.15 cost of tendering …. 5.28–5.33 counteroffers …. 5.14 evaluation …. 5.17, 5.18 invitation to treat …. 3.17–3.25, 5.7, 5.10, 5.16, 5.55 IPEX case …. 3.22–3.24 offer, whether constitutes …. 3.17–3.25 pre-contract or preliminary contract …. 3.18, 5.20 preliminary ‘tender process contract’ …. 3.19 attempts to prevent …. 3.20, 3.21, 3.25 conditions creating …. 3.19 existence of …. 3.22–3.24 scope of the work …. 5.3, 5.8 tender caller attempt to prevent preliminary contract …. 3.20, 3.21, 3.25 not obliged to accept bids …. 3.17

Restitution equitable remedy …. 1.74 quantum meruit …. 1.74, 3.339 unjust enrichment …. 1.74 voidable contract …. 3.215, 3.299

Retention monies see also Security certificates and payments clause …. 5.227 clause in construction contract …. 5.146–5.149, 6.26, 7.6 deduction from progress payments …. 5.148 interest on …. 5.149 percentage of payments …. 6.26 purpose …. 7.6 subcontractors …. 5.318–5.320

Retention of title clauses

registration on PPSR …. 2.16 security interest created by …. 2.16 subcontracts …. 5.321, 5.323 suppliers …. 2.16

Risk allocation delays …. 6.35–6.38 financial considerations …. 6.37, 6.38 negotiating fair contract …. 6.36 site, on taking possession of …. 6.21 liability for harm or damage …. 6.21, 6.22 possession before contract settled …. 6.27 public liability insurance …. 6.21–6.23

Rule of law Attorney-General’s Department enforcing …. 1.4 essence of …. 1.3 government promoting …. 1.2

S Schedule of rates …. 5.67 Scott Schedule brevity …. 7.152 defective work claims …. 7.147 facts in dispute, identification of …. 7.147 format …. 7.151 table, columns in …. 7.148–7.140 variation claims …. 7.147

Security construction contract term …. 5.146–5.151, 6.26 Annexure naming providers and amounts …. 5.146 purpose of clause …. 5.146 duration of works, required for …. 5.150 form of …. 5.147 interest on …. 5.149 party claiming access to default by other party …. 5.150 lawful reason …. 5.151 notice of intention …. 5.151

substantial failure to perform …. 5.151 percentage of payments …. 5.147, 6.26 performance undertaking …. 5.146 practical completion, effect …. 6.63 principal and/or contractor, by …. 5.147 retention monies see Retention monies retention of agreed percentage …. 5.147 subcontractors …. 5.318–5.320 time for lodging …. 5.148, 6.26 upfront payment …. 5.147, 5.148

Security interests charge see Charges lien see Liens mortgage …. 2.13 retention of title clause creating …. 2.16 secured creditors …. 2.13

Security of payment (SoP) legislation adjudication of disputes East Coast model see Adjudication: East Coast model West Coast model see Adjudication: West Coast model application …. 2.55 commencement dates …. 2.54 common objective of all …. 2.57 construction work, definition …. 2.55 contracts governed by law of another jurisdiction covered by …. 2.55 core provisions …. 2.57 Crown bound by …. 2.55 dates for progress payments see Progress payments default right to progress payments …. 2.57 differences between states …. 1.51 dispute resolution prior to …. 2.56 dispute resolution under …. 2.57, 5.151 East Coast model …. 2.62, 2.64–2.97 adjudication see Adjudication: East Coast model common features …. 2.69 difference between states …. 2.68 difference from West Coast model …. 2.63 due dates for payment …. 2.78 payment claims see Payment claims: East Coast model

payment schedules …. 2.79–2.84 reference dates …. 2.73 residential building work excluded …. 2.66 liens over unpaid amounts (Tas and Vic) …. 2.78 mineral extraction not covered …. 2.55 mines, preparation of …. 2.56 NSW Act …. 2.59, 2.65 adjudication see Adjudication: East Coast model commencement …. 2.54, 2.59 East Coast model based on …. 2.68 payment claim procedure …. 2.60, 2.70–2.77 prompt payment provisions …. 2.78 second reading speech …. 1.40, 2.64 statutory payment system …. 2.60 UK Act, based on …. 2.59 overview …. 2.54 ‘pay when paid’ clauses prohibited …. 2.57, 5.315 payment claims definition …. 2.102 East Coast model see Payment claims: East Coast model interim payment on account …. 7.11–7.15, 7.108 West Coast model …. 2.102 payment schedule see Payment schedule progress payments under due dates …. 2.78, 2.102 legislation overriding contract …. 6.32 liability to pay on due date …. 2.84 prompt payment provisions (NSW) …. 2.78 reference dates …. 2.73 right to …. 2.57, 2.73 time for, West Coast model …. 2.101 progressive enactment …. 2.62 protection of smaller contractors …. 2.64 provisional sums …. 5.280 purpose …. 2.57 Qld Act adjudication see Adjudication: East Coast model amendments to …. 1.47, 2.80 commencement …. 2.54 dual scheme …. 2.80

reducing need for contractual claims …. 6.28 subcontractors …. 5.229, 5.298, 5.312, 5.313, 5.315, 5.325 Tas Act adjudication see Adjudication: East Coast model commencement …. 2.54 liens over unpaid amounts …. 2.78 residential building work included …. 2.67 UK Act adjudication procedure …. 2.61 NSW Act based on …. 2.59 WA and NT Acts based on …. 2.62 Vic Act adjudication see Adjudication: East Coast model liens over unpaid amounts …. 2.78 payment claim valuation …. 2.77 West Coast model …. 2.62, 2.98–2.115 adjudication see Adjudication: West Coast model default payment provisions …. 2.99, 2.100, 2.102 difference from East Coast model …. 2.63 implied payment provisions …. 2.99, 2.100, 2.102 payment claim …. 2.102 time for payments …. 2.101

Service of notices construction contract term …. 5.155

Set-off claim for payment under building contract …. 7.101 counterclaim compared …. 1.80 equitable set-off …. 7.102 principles …. 7.102 summary judgment …. 1.80

Sham contracting employee protections against …. 2.157

Site allocation of risk …. 6.21 possession of site before contract settled …. 6.27 clause in construction contract …. 5.193–5.194 cleaning up …. 5.218 contractor taking possession of …. 6.20

date for possession of …. 6.20 definition of …. 5.194, 6.19 liability for harm or damage …. 6.21, 6.22 practical completion, possession by principal on …. 6.63 precommencement matters …. 6.18–6.23 public liability insurance …. 6.21–6.23 transfer of possession of …. 6.21

Sole traders insolvency …. 2.24 insolvency of principal contractor, effect on …. 2.27 nature of …. 2.8 unincorporated business …. 2.8

Specific performance breach of contract remedy …. 3.348, 3.349 equitable nature …. 3.349

Specifications Contract documents …. 5.65, 5.66

Standard of workmanship clause construction contract …. 5.198–5.201 question of fact and degree …. 5.199 superintendent determining compliance …. 5.200 options where defective work …. 5.201

Stare decisis …. 1.62 States building codes …. 2.173, 2.174 constitutions …. 1.35 courts …. 1.93, 1.96–1.97 diverse legislation …. 1.49–1.54 federal legislation uniform in …. 1.49 formation of colonies …. 1.24 harmonisation of laws …. 1.53, 1.54 inconsistent federal and state laws …. 1.31 law-making power …. 1.30 delegation of …. 1.55–1.57 division of …. 1.28, 1.30, 1.49 surrender to Commonwealth …. 1.54 parliaments …. 1.33

councils’ functions and powers determined by …. 1.36 law-making power …. 1.30

Statutory warranties see Warranties Subcontracting see also Subcontractors back-to-back contracts …. 3.91–3.93 construction contract terms …. 5.160 control of subcontractors …. 5.192 nominated subcontractors see Subcontractors payment of subcontractors …. 5.228 provisional sums …. 5.300, 5.301 standard form GCOC …. 5.293–5.296 construction industry, in …. 2.10, 5.282 contractor’s liability …. 5.285 contractual payment terms …. 2.15 head contract …. 5.287 incorporated terms of …. 5.302–5.306 head/principal contractors …. 2.10 insolvency and consequences for subcontractors …. 2.27 contracting chains …. 2.25 high rate of …. 2.25, 2.26 principal contractor …. 2.25 issues arising in the performance of …. 5.286 nature of …. 2.10 prime cost items …. 5.300, 5.301 privity of contract …. 3.211, 3.212, 5.292, 5.311 provisional sums …. 5.300, 5.301 pyramidal contracting chains …. 2.11 charges and …. 2.118 insolvency and …. 2.25 right to subcontract …. 5.325 specialist contractors …. 5.283 standard form GCOC …. 5.293–5.295, 5.325 subcontract AS2124-1992 …. 5.305 head contract terms incorporated …. 5.302–5.306 ownership of goods …. 5.324 provisions to be severally set out …. 5.305

retention of title clause …. 5.323 standard form …. 5.307–5.310, 5.325 subcontractor’s awareness of terms …. 5.302, 5.306 unfair terms …. 5.325

Subcontractors see also Subcontracting charges see Subcontractors’ charges construction contract terms approval of appointment …. 5.160 control of …. 5.192 payment of …. 5.228 selected/nominated subcontractors …. 5.161–5.164 standard form GCOC …. 5.293–5.296 contractor’s liability acts/omissions of subcontractor …. 5.285 work unfinished by subcontractor …. 5.299 definition …. 5.287, 5.288 employee distinguished …. 5.288 head contract, terms of awareness of …. 5.302, 5.306 incorporation in subcontract …. 5.302–5.306 whether bound by …. 5.303 indemnity clause …. 5.285 insolvency of principal, consequences …. 2.27 liens see Liens materials supplied by …. 5.321–5.324 fixtures …. 5.322 ownership of …. 5.324 recovery of …. 5.321 retention of title clause …. 5.321, 5.323 nominated subcontractor acceptance by contractor …. 5.293 conditions for appointment and use …. 5.296 damages for non-performance by …. 5.296 head contractor not to object …. 5.296 indemnifying contractor …. 5.296 insolvency …. 5.299 payment …. 5.164, 5.291, 5.297 privileges …. 5.164, 5.291

privity of contract …. 5.292 repudiation of contract …. 5.299 willingness to work for contractor …. 5.296 work unfinished by …. 5.299 nomination of …. 5.161–5.164, 5.289–5.298 clause in contract …. 5.161–5.164 conditions …. 5.296 privity of contract, whether creates …. 5.292 process …. 5.163, 5.290 purpose …. 5.162, 5.289 standard form GCOC …. 5.293–5.296 payments to …. 5.311–5.313 construction contract terms …. 5.228 directly by principal …. 5.164, 5.291, 5.316 nominated subcontractor …. 5.297 principal, by …. 5.164, 5.291 progress certificate stating sum …. 5.297 outside contract …. 5.316, 5.317 ‘pay when paid’ clauses …. 5.314–5.315 privity of contract …. 5.311 quantum meruit …. 5.316 retention monies …. 5.318–5.320 security …. 5.318–5.320 security of payment legislation, 5.229, 5.298, 5.312, 5.313, 5.315, 5.325 unjust enrichment claim …. 5.316, 5.317 recovery of payments see Subcontractors: recovery of payments retention monies …. 5.318 specialist subcontractors …. 5.283, 5.284 unsecured creditors …. 2.15, 2.124

Subcontractors’ charges adjudication precluded …. 2.126 contractor’s notice to employer …. 2.121 accepting liability …. 2.121, 2.122 disputing claim …. 2.121, 2.122 contractual chain …. 2.118 deed of company arrangement proof of debt lodged under, forfeiture of right where …. 2.124 subcontractor voting in favour of …. 2.124 entitlement to …. 2.116

insolvent contractor …. 2.123, 2.124 legislation providing for …. 2.116 limitations …. 2.117 monies payable to contractor, over …. 2.118 notice of claim of charge …. 2.120 defective …. 2.123 more than one subcontractor, by …. 2.123 statutory declaration supporting …. 2.120 potential complications …. 2.123–2.125 proceedings to enforce …. 2.117, 2.122 employer defending …. 2.123 extinguishment of claim where not commenced in time …. 2.122 time for commencement …. 2.122 security interest …. 2.118 Subcontractors’ Charges Act 1974 (Qld) …. 2.118–2.126 criticism of …. 2.125 entitlement under …. 2.116 objects of …. 2.119 Worker’s Liens Act 1893 (SA) …. 2.134

Subcontractors: recovery of payments assignment of principal’s payment obligation …. 2.127 debt certificate, service of copy of …. 2.130 failure to pay assigned debt …. 2.131 notice of claim …. 2.130 attachment order against defaulting contractor’s principal application for …. 2.128 effect of …. 2.129 entitlement to seek …. 2.127 grant of …. 2.128 charges see Subcontractors’ charges Contractors Debts Act 1997 (NSW), under …. 2.127–2.132 assignment of payment obligation …. 2.127, 2.130 attachment order …. 2.127–2.129 defence by principle, recovery subject to …. 2.132 direct recovery from defaulting contractor’s principal …. 2.127 disadvantages of action under …. 2.132 Subcontractors’ Charges Act 1974 (Qld) compared …. 2.127 debt certificate issue of …. 2.131

request for …. 2.130 service of copy of …. 2.130 defaulting contractor recovery from principal of …. 2.127–2.131 supplying names of persons from whom recovery possible …. 2.131 liens see Liens security of payment legislation, 5.229, 5.298, 5.312, 5.313 Subcontractors’ Charges Act, under see Subcontractors’ charges Worker’s Liens Act 1893 (SA), under …. 2.133–2.139 charge …. 2.134 criticism of …. 2.138, 2.139 lien …. 2.135–2.139 owner paying amount into court …. 2.137 two paths for recovering debts …. 2.133 Workmen’s Liens Act (NT) …. 2.138

Subordinate legislation by-laws …. 1.58, 1.59 codes of conduct or practice …. 1.60, 1.61 delegation of power to make …. 1.55–1.57 benefits of …. 1.56 empowering Acts …. 1.55 parliamentary review …. 1.59 public notification of …. 1.59 regulations …. 1.57, 1.59 statutory instruments …. 1.55, 1.59

Summary judgment caution of courts in awarding …. 1.78 civil proceedings …. 1.77 common law test for attaining …. 1.79 counterclaim …. 1.80 court procedure …. 1.77–1.80 cross-claim …. 1.80 nature of …. 1.77 no reasonable cause of action …. 1.79 payment claim …. 2.83 set-off …. 1.80

Summary offences …. 1.21 Superintendent

agent of principal …. 5.187, 6.14, 6.15 architect as …. 6.11, 6.12 challenging actions and determinations of …. 6.14 construction contract not providing for …. 6.17 construction contract terms regarding …. 5.186–5.189, 6.13 AS2124-1992 clause 22 …. 5.185 AS2124-1992 clause 23 …. 5.187, 6.16 AS4000-1997 clause 20 …. 5.187 superintendent’s representative …. 5.190 contract administration …. 6.2, 6.11–6.17 contract documents, supply to …. 5.159 contractor’s payment claim lodged with …. 5.226 duty in relation to …. 5.238, 5.239 time for notification …. 5.237 coordination of consultants …. 6.11, 6.12 dual roles …. 5.187, 6.15 duties …. 5.187–5.189, 6.14 act honestly and fairly …. 5.187, 5.188, 5.238, 6.14, 6.31 act in good faith …. 5.187, 5.238, 6.16, 6.31 act in principal’s interests …. 5.187, 6.14, 6.15 act independently …. 5.189, 6.14, 6.15 duty of care to contractor …. 6.16 engineer as …. 6.11, 6.12 extension of time claims certification …. 6.44 direction to accelerate works …. 6.50 power in relation to …. 6.13, 6.50 rejection …. 6.51 response to …. 6.13 time for response …. 6.44 independent certifier and assessor …. 5.187, 5.189 information to contractor, providing …. 6.13 integrity, need for …. 6.15 monitoring quality of work …. 6.13 notifying contractor of appointments …. 5.185 progress payments certificates …. 6.31 determining …. 6.13, 6.31 role …. 5.187, 5.188, 6.12, 6.13 standard of workmanship

determining compliance …. 5.200 options where defective work …. 5.201 survey marks, providing …. 6.13 variations direction for …. 6.53, 6.56 discretion to grant …. 6.58 powers in relation to …. 5.220, 6.13 waiver of conditions …. 5.245

Suppliers of goods and materials insolvency of principal contractor …. 2.25 retention of title clauses …. 2.16

Supreme Court appeals to …. 1.96 court hierarchy …. 1.93, 1.96 jurisdiction …. 1.96

Surveying clause …. 5.195 Suspension of works construction contract providing for …. 5.207 date for practical completion and …. 5.207 right to suspend works …. 7.33 right to terminate distinguished …. 7.33

T Tenders bids as legal offers …. 3.17, 5.15–5.21 codes …. 5.22–5.24 collusive tendering …. 5.50–5.53 components to …. 5.4 conforming tenders …. 5.26 construction contract terms conditions of tendering …. 5.131–5.134 form of tender …. 5.131–5.134 contract not issued …. 5.12, 5.41 cost of tendering …. 5.28–5.33 documentation …. 5.7, 5.8, 5.54 disclaimers …. 5.42–5.44 misleading or deceptive information …. 5.43, 5.44

evaluation of …. 5.17, 5.18, 5.55 expression of interest …. 5.3 heads of agreement …. 5.37 insurance premiums, inclusion in price …. 6.25 invitation to tender see Request for tenders letters of intent …. 5.34–5.40 nonconforming tenders …. 5.26, 5.27 object …. 5.2 pre-qualification …. 5.3 price fixing …. 5.51 principal definition …. 5.6 probity rules …. 5.2, 5.21 process …. 5.1, 5.7 recalling …. 5.45, 5.46 request for see Request for tenders request for proposal …. 5.3 resubmitting …. 5.46 standing offers …. 5.47–5.49 tender definition …. 5.7, 5.9 tenderer definition …. 5.6 unilateral mistake causing uncertainty …. 3.236–3.238 impossible to identify total price …. 3.236 possible to identify total price …. 3.237 pricing error …. 3.235 void contract …. 3.236 unjust enrichment …. 5.33 withdrawal of tender …. 5.41

Termination of contract see also Discharge of contract before fully executed …. 7.30 breach see Breach of contract consequences …. 7.47 contract not setting out …. 7.37 contract setting out …. 7.35, 7.36 insolvency of owner …. 7.32 notice by aggrieved party …. 7.34 payment claim consequent on …. 7.29–7.38 contract not stipulating consequences …. 7.37 contract stipulating consequences …. 7.35, 7.36

termination clause …. 7.32 terms of contract, in accordance with …. 7.31 whether contract properly terminated …. 7.38 procedure …. 7.34 repudiation …. 3.291, 3.292, 3.293, 3.296, 3.299 right to terminate breach, for …. 3.292, 3.293, 3.299, 7.32 contractual …. 7.33 right to suspend works distinguished …. 7.33 show cause notice …. 7.34 termination clauses …. 3.299, 7.32, 7.34 wrongful see Wrongful termination

Terms of contract see Contractual terms Territories power to make laws for …. 1.32 self-government …. 1.32

Torts categories …. 4.1 crimes distinguished …. 4.2 damages …. 4.21 definition …. 4.1 duty of care see Duty of care law of …. 1.17 limitation period …. 4.3, 4.4 negligence see Negligence nuisance see Nuisance pure economic loss …. 4.21, 4.48, 4.49 privity of contract and …. 4.24 trespass to land see Trespass to land vicarious liability …. 4.100–4.111 contractors …. 4.102–4.105 employees …. 4.100–4.105 employer/employee relationship …. 4.102–4.105 head contractor …. 4.106–4.111 subcontractors …. 4.106–4.111

Trade unions entry permits …. 2.159 freedom of association …. 2.155, 2.156

officials’ right of entry …. 2.159

Trespass to land access to neighbouring land …. 4.67–4.71 airspace …. 4.66, 4.73–4.81 building encroachment …. 4.81–4.88 legislation …. 4.85, 4.86 relief, granting …. 4.85–4.88 consent …. 4.67, 4.68 definition …. 4.61, 4.65, 4.66 good working rule …. 4.83, 4.84 justification of interference …. 4.62 land definition …. 4.61, 4.66 neighbouring land access order (NSW) …. 4.70, 4.71 remedies …. 4.63 damages …. 4.63, 4.64, 4.69, 4.83 injunction …. 4.63, 4.68, 4.69, 4.77–4.79, 4.83 statutory right of user (Qld) …. 4.70, 4.71 subsoil …. 4.66, 4.72, 4.81

Tribunals administrative tribunals …. 1.99 appeal to internal panel …. 7.130 dispute resolution by …. 7.127–7.131 enforcement of decisions by court …. 7.131 facts in dispute, identification of …. 7.146 Scott Schedules …. 7.147–7.152 NSW Civil and Administrative Tribunal …. 7.127–7.131 residential building disputes …. 7.127–7.131 specialist courts and tribunals …. 1.98, 1.99

U Uncertainty see Certainty/uncertainty Unconscionable conduct application …. 3.250 contract terms …. 3.253, 3.254 listed public companies …. 3.251 meaning …. 3.252 remedies …. 3.255

special disability …. 3.252–3.254 trade or commerce …. 3.251 unequal bargaining power …. 3.252–3.254 voidable contract …. 3.213, 3.255, 3.299

Unfair dismissal employee protection against …. 2.158

Unfair terms application to remove or set aside …. 5.87 common law approach …. 5.87 Competition and Consumer Act reforms …. 5.88 small businesses, reforms to protect …. 5.88, 5.89 subcontracts …. 5.325

Unincorporated businesses Fair Work Act 2009, application to …. 2.142 insolvency …. 2.24 partnerships …. 2.8, 2.9 sole traders …. 2.8

Unilateral contract acceptance …. 3.48 advertisement …. 3.27, 3.28 auction …. 3.14

Unilateral mistake see Mistake Unjust enrichment economic duress claim …. 3.222 exclusion clause and …. 3.192, 3.193 frustration of contract …. 5.234 restitution …. 1.74 subcontractor claim …. 5.316, 5.317 tenders and …. 5.33

V Variations adjustment of contract sum …. 6.54 BCA allowing for …. 2.34 claim for payment under contract …. 7.17–7.20 adjustment of contract sum distinguished …. 7.9, 7.10

disputed claim …. 7.10 entitlement to claim for …. 6.31 improperly documented …. 7.10, 7.17 matters to be established …. 7.18 no agreement to omit works …. 7.20 undocumented …. 7.10, 7.17 work omitted by agreement or mutual understanding …. 7.19 clause in construction contract …. 5.219–5.222, 6.53 AS2124-1992 …. 5.220, 6.53–6.56 power provided by …. 6.53 typical clause …. 5.222 contractor going beyond scope of contract …. 5.220 limits …. 5.221 superintendent’s powers …. 5.220 contractor’s opinion as to feasibility …. 6.55 convenience of contractor, for …. 6.58 defective work, order where …. 5.201 definition …. 5.219 direction by superintendent …. 6.53 after practical completion …. 6.53 convenience of contractor, for …. 6.58 forms …. 6.56 lack of consensus about …. 6.56 documentation …. 6.57 general scope of contract, within …. 6.54 home building legislation regulating …. 2.52 increase in value of work …. 6.54 latent conditions, due to …. 5.253 payment claim valuation claimable variations (Vic) …. 2.77 excluded amounts (Vic) …. 2.77 regard to …. 2.76 power to vary …. 6.53 pricing details …. 5.222 quantum meruit for work carried out …. 3.347 reduction in value of work …. 6.54 superintendent direction by …. 6.53, 6.56 discretion to grant …. 6.58 powers …. 5.220, 6.13

valuation …. 6.54 expert determination …. 7.116 writing requirement …. 5.222 disputed claim where not observed …. 7.10

Vitiation of contracts duress …. 3.213, 3.216–3.222 election to avoid contract …. 3.215 legal validity destroyed …. 3.213 misleading or deceptive conduct see Misleading or deceptive conduct mistake see Mistake remedies …. 3.299 unconscionable conduct …. 3.213, 3.255 void contract …. 3.214, 3.299 voidable contract …. 3.214, 3.215, 3.299 election to avoid …. 3.215 restitution claim …. 3.215 window of opportunity to avoid …. 3.215

Void contract definition …. 3.214, 3.299 mistake …. 3.223, 3.225, 3.230, 3.299 common mistake …. 3.225, 3.299 mutual mistake …. 3.230, 3.299 tenders …. 3.236 quantum meruit for work carried out …. 3.346, 3.347 vitiation of contract …. 3.214, 3.299 voidable contract distinguished …. 3.299

Voidable contract breach of contract …. 3.294 duress …. 3.216, 3.299 effect …. 3.214, 3.299 election to avoid …. 3.215 restitution claim …. 3.215 unconscionable conduct …. 3.213, 3.255, 3.299 unilateral mistake …. 3.231, 3.232, 3.233, 3.299 vitiation of contract …. 3.215, 3.299 void contract distinguished …. 3.299 window of opportunity to avoid …. 3.215

Voluntary administration

administrator’s role …. 2.22 deed of company arrangement …. 2.22 breach, liquidation where …. 2.22 termination, liquidation on …. 2.18 insolvent company …. 2.17 liquidation following …. 2.18, 2.22 receivership at same time …. 2.23

Voluntary liquidation see Liquidation (winding up)

W Waiver circumstances constituting …. 6.65 construction contract terms …. 5.110, 5.245, 6.64 estoppel from asserting rights …. 5.245, 6.64 express or implied …. 5.245

Warranties see also Contractual terms collateral warranties …. 3.180–3.181 conditions distinguished …. 3.176–3.179 defective work determined by reference to …. 7.55–7.67 definition …. 3.176 home building legislation, under …. 2.49, 2.50, 7.56 accordance with contract …. 7.56, 7.64 accordance with plans and specifications …. 7.58 completion in reasonable time …. 7.56, 7.65 compliance with law …. 7.56, 7.64 defective work determined by reference to …. 7.55–7.67 due care and skill …. 7.56, 7.57 due diligence …. 7.56 fitness for occupation …. 7.56, 7.66 implied at common law …. 7.63, 7.65 limitation of actions for breach …. 2.50 materials fit for purpose …. 7.56, 7.59–7.62, 7.67 defence of reliance on advice of relevant professional …. 7.60, 7.61 materials of good quality …. 7.59 transferable to purchaser …. 2.50 limitation periods and …. 3.4–3.6 remedies for breach …. 3.178

defective work see Damages for defective work

Winding up see Liquidation (winding up) Witnesses court procedure …. 1.76 statements …. 7.145

Work health and safety (WHS) codes of practice …. 1.60, 2.189 construction projects …. 2.179 categories of persons involved …. 2.180 codes of practice …. 2.189 construction stage …. 2.184 design stage …. 2.183 model law …. 2.179–2.185 PCBU and principal contractor …. 2.180, 2.181 Vic legislation …. 2.186, 2.188 WA legislation …. 2.187, 2.188 designer’s duties …. 2.183 duties and responsibilities construction stage …. 2.184 design stage …. 2.183 general construction (white card) induction training for employees …. 2.185 harmonisation of laws …. 1.53, 2.175–2.178 inter-government agreement …. 2.175 legislation …. 2.177 main contractor (WA) …. 2.187, 2.188 model legislation …. 2.176, 2.179 adoption of …. 2.176 construction work covered by …. 2.179–2.185 states not having adopted …. 2.178 person conducting a business or undertaking (PCBU) …. 2.180 construction project, for …. 2.181 duties at design stage …. 2.183 ensuring induction training of employees …. 2.185 information to principal contractor …. 2.182 principal contractor duties at construction stage …. 2.184 PCBU and …. 2.180, 2.181 Vic legislation …. 2.186, 2.188 regulators …. 2.177

removal of health and safety risk …. 2.184 risk management …. 2.184 Safe Work Australia …. 2.175 codes of practice …. 1.60, 2.189 safe work method statement …. 2.184 Vic legislation …. 2.186, 2.188 WA legislation …. 2.187, 2.188 WHS management plan …. 2.184

Working hours clause in construction contract …. 5.203 injunction in relation to …. 5.203

Workplace relations see Industrial relations Workplace Relations Management Plan Qld building code requiring …. 2.173

Workplace safety see Work health and safety Writ for levy of property enforcement of judgment debt by …. 1.81

Wrongful termination damages claim …. 7.47–7.53 builder, termination by …. 7.48–7.51 cost of completion and rectifying defects …. 7.48, 7.49 election to claim damages …. 7.52 outstanding contract sum …. 7.50 owner, termination by …. 7.51, 7.52 quantum meruit claim …. 7.53