The Australian Government has at last released the Report of John Murray Review of Security of Payment Laws – Building Trust and Confidence.

It will take a while to digest this Report – at 407 pages there are inevitably recommendations which are welcome and others which will be less welcome.

An aspect of the Report that might come as a surprise to some is its treatment of Queen of Hearts clauses.  I posted about this issue last year in a post called Queen of Hearts in the Dock, and discussed it with John Murray. In short, I suggested that it would be a good idea to introduce a statutory benchmark, to more reliably separate reasonable time-barring notice clauses which should be allowed from unreasonable clauses which should not.

John Murray has agreed with me. His commentary in the Report is thus:

Unreasonably onerous time-barring provisions

When conducting a detailed interview with one of the leading lawyers specialising in this field, Mr Fenwick-Elliott, the issue of unreasonably onerous time-barring provision was discussed. Mr Fenwick-Elliott referred me to his website where, under the article Queen of Hearts in the Dock, he sets out the following synopsis of the range of ‘arsenals’ or principles that the courts have developed to relieve a contractor from the harsh consequences of failing to give a required notice:

• That the giving of notice is not a condition precedent, such that a failure to give notice does not deprive the contractor the right to the relief in question, but merely renders him liable for the damages (if any) which flow from lateness of the notice;
• That a requirement may not be a condition precedent, even if expressly stated to be so, if that result would be commercial nonsense;^[1]
• That the notice is to be read contra proferentem, or otherwise read down;⁷⁷⁰
• That the requirement for notice may not be relief on unless it has been expressly pleaded;^[2]
• That the requirement for notice may be loosely construed, such that even documents such as day work sheets may satisfy the notice requirements;^[3]
• That the notice requirement applies only to the contractual entitlement and not to any parallel entitlement by way of damages;^[4]
• The Doug Jones Principle applies;^[5]
• That the effect of absence of notice may be to set time at large;^[6]
• That the owner who has prevented compliant with the clause may not rely on it;^[7]
• That the requirement to give notice may have been waived, or negatived by estoppel

… In addition, it has been suggested that further avenues to the same effect might in some circumstances be available:

• That the notice provision is penal;
• That the notice provision might be construed as a forfeiture clause, such that the courts are empowered to grant relief from forfeiture;
• That reliance of the notice provision by the owner is unconscionable;
• That the notice provision forms part of a contractual mechanism that has broken down;
• That the contractual provision is insufficiently clear as to the nature of the notice that is required;
• That the notice provision offends against a statutory control of unfair contract clauses.^[8]

Mr Fenwick-Elliott advocates that the construction industry would benefit if a statutory benchmark were to be provided to guide the courts, arbitrators and adjudicators rather than allow them to continue to apply the above ‘weapons’ and presents a draft clause to address the issue.^[9]

 

And that has led to his recommendation:

 

I agree with the observations made by SoCLA that, to some degree, much of the ‘claims culture’ that has taken hold within the industry could be overcome by greater use of standard form contracts (particularly when prepared and published by an independent organisation like Standards Australia). Certainly, the use of various bespoke contracts that contain one-sided and aggressive time-bar clauses needs to be addressed and I believe that the most effective way of doing this is for the legislation to contain a provision along the lines of that presented by Mr Fenwick-Elliott in his article Queen of Hearts in the Dock, which reads as follows:

• A provision in a Construction Contract which purports to make a right to claim or receive payment, or a right to claim or receive an extension of time, conditional upon the provision of any notice shall be of no effect if and insofar as:
  • Compliance with the requirements of the provision would not be reasonably possible or would be unreasonable onerous, or
  • The requirements of the provision are not reasonably justifiable by any legitimate commercial purpose
• For the purpose, ‘notice’ includes any notice, claim for payment, narrative or calculation as to actual or estimated time or money.
• The failure of any provision or part of a provision to satisfy the requirement of reasonableness at subsection (1) (a) of this section in relation to a right or claim to money and/or time shall not of itself render that provision ineffective for the purpose of any right or claim to other time and /or money.^[10]

Insofar as there may be concerns that adjudicators could seek to interpret a particular contract provision in a more ‘liberal’ manner than an arbitrator or the courts (and thereby create further uncertainty), then I can only respond by suggesting that the recommendations contained elsewhere in this Report should result in a superior decision-making process than what is currently the case.

Recommendation 84:

The legislation should void a contractual term that purports to make a right to claim or receive payment, or a right to claim an extension of time, conditional upon giving notice where compliance with the notice requirements would:

a) not be reasonably possible; or

b) be unreasonably onerous; or

c) serve no commercial purpose.

 

It remains to be seen, of course, if my suggestion, as endorsed by John Murray, will make it onto the statute book.

 

 

[1] Koch Hightex GMBH v New Millennium Experience Company Ltd [1999] EWCA CiV 983. ⁷⁷⁰ Tersons Ltd v Stevenage Development Corporation [1962] 2 Lloyds Rep. 333.

[2] Blissgrange v John McGregor (Contractors) 1987 GWD 19–707.

[3] Mooney v Henry Boot Construction Ltd 80 BLR 66.

[4] Décor Ceilings Pty Ltd v Cox Construction Pty Ltd ([2006] SASC 85.

[5] A paper presented by Professor Doug Jones to the Society of Construction Law and Technology and Construction Bar Association in London on 17 September 2008. The relevant principle was stated as: ‘It is suggested that a proper approach to interpreting (time bar) provisions is that they are intended to only deal with delay risks for which the contractor is responsible. If those provisions are to go on and do the additional work of making the contractor liable for owners’ delays, absent requisite notice, and thus fundamentally alter the risk of the owner’s acts of prevention, they can and should expressly say so’.

[6] Gaymark Investments Pty Ltd v Walter Construction Group Ltd (1991) NTSC 143.

[7] Koch Hightex GMBH v New Millennium Experience Company Ltd [1999] EWCA CiV 983.

[8] Bremer Handolsgesellchaft mbtt v Vanden Avenne Izegam PVBA [1978] 2 Lloyd’s Rep 109 (House of Lords) at M13 and 130.

[9] Elliott, R. Fenwick (2017), Queens of Hearts in the Dock, online article 6/6/2017. Refer to

<https://feconslaw.com/2017/06/06/queens-of-hearts-in-the-dock/> 

[10] Elliott, R. Fenwick (2017), op cit