I have mentioned on these pages before the decision of the UK Supreme Court in Cavendish v El Makdessi, Beavis v ParkingEye. It seems to me that the more interesting aspect of the decision is not so much in relation to liquidated damages, but rather what the court had to say about the doctrine of relief from forfeiture. Many (including me) had assumed that the doctrine had been essentially subsumed into legislative provisions dealing with mortgages and leases, but the court breathed new life into the doctrine, suggesting that – although very largely unused – it is applicable in a wide variety of situations.
In some respects, of course, black letter law has been in the ascendancy in recent years, the courts apparently being willing to accept the fiction that the terms of lengthy commercial contracts reflect what has freely been agreed. In many cases, this concept of “party autonomy” rides roughshod over the reality. In particular, few if any contractors or subcontractors have any real understanding of the full legal effect of an entire agreement clause, and even if they inwardly shudder a little when they read a Queen of Hearts clause in tender documentation, they are unlikely to have any real choice but to sign if they are to continue to do business.
The point about what the court said in Cavendish is that the application of the doctrine of relief from forfeiture does not involve rewriting contracts. Parties remain free to sign up to contracts containing onerous, even absurdly onerous, conditions. What the court can do is to restrain the unconscionable use of those conditions. This approach – splitting the concept of the enforceability of a right from the right itself – is not new in English law. It is inherent in the concept of laches and its statutory successor, limitation of actions. It is a concept widely applied in civil law.
As yet, litigants have not been pleading relief from forfeiture in English construction cases, and I am one of the few to plead it in Australian cases (none of which have yet reached trial). It may be that in Australia there is a more potent weapon: section 21 of the Australian Consumer Law, which is a “beefed up” re-enactment of section 51AC of the Trade Practices Act.
Sometimes, it takes a surprisingly long time for the blindingly obvious to take root. Aircraft carriers were around for the best part of the century before they put a ramp at the end of the deck, to help the aircraft into the air. Doctors continued to apply leeches to sick patients for centuries, oblivious to the fact that sucking blood out of people who are ill is hardly a good idea. Other examples abound, in all sorts of fields.
Section 21 of the Australian Consumer Law prohibits unconscionable conduct in the acquisition of goods and services. It is clearly unconscionable to implement “I Delay, You Pay” arrangements, whereby head contractors charge subcontractors liquidated damages for periods of delay caused by those head contractors themselves. One of the factors to be taken into account in determining whether an acquirer has breached section 21 is whether the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer (section 22(2)(b)). It has been observed numerous times that conditions are regularly seen in construction contracts and subcontracts which go far beyond what is reasonably necessary for the protection of commercial interests; see for example the Report of John Murray Review of Security of Payment Laws – Building Trust and Confidence and my note on that at Queen of Hearts – A Good Idea Endorsed.
In that report, Mr Murray endorsed my suggestion that any federal overhaul of the disparate State and Territory legislation on security of payment should address this issue, but there is a respectable argument that the necessary legislation is already there in section 21 of the ACL. And that it is been there in substance since 1998, when the forerunner of the section came into force. My attention last week was been drawn to Peter Merity’s article back in 1999 – The Return Of Conscience: Section 51AC of the Trade Practices Act 1974. When, eventually, this issue comes full square before the courts, it may well be that Mr Merrity’s article will be seen as remarkably prescient. Before and after the relevant detailed analysis, the article contained the following in its introduction and its conclusion:
The intention of Parliament in enacting s 51 AC was to prevent dominant parties in commercial transactions, that is, parties with, as against other parties, a greater financial strength or more advantageous bargaining position, taking unfair advantage of that imbalance to the disadvantage of the weaker parties. It would therefore appear to have immediate application in certain areas of the building industry to protect weaker parties such as subcontractors. It does not however appear to have yet been used in a building and construction matter.
A more satisfactory regime for liquidated damages
In the case of Peak Construction (Liverpool) Ltd v McKinney Foundation Ltd (1970) 1 BLR 111 it was held that the principal’s right to claim liquidated damages for delay is lost where some of the delay is caused by a default of the principal and the contract does not provide for extensions of time to be given for the preventive acts of the principal. This total loss of the right to liquidated damages for delay can be, in certain circumstances, an undeserved windfall to the builder and has been criticised by the courts. The courts now have, under s 51AC, the clear power to tailor-make a solution whereby the principal loses only those liquidated damages which are ascribable to the default of the principal and the builder remains otherwise liable for delays for which it is responsible.
Even where an appropriate provision for extension of time does exist and the contractor, for whatever reason, fails to apply, if the delay is the fault of the principal, s 51AC provides strong ground upon which to argue that any principal claiming liquidated damages in respect of that delay is acting unconscionably.
A further situation is where a contractor has obtained an extension of time in respect of a delay from the principal for itself but claims liquidated damages from a subcontractor where the subcontractor, for whatever reason, has failed to apply for an extension of time for that delay.
It is anticipated that s 51AC will result in the courts no longer having to look for a separate contract, an estoppel or other such device in their search for justice, or, on the other hand, feel constrained from interfering in unfair conduct by the wording of a tightly drafted contract, but can simply look at the conduct of the parties to ascertain whether it would be unconscionable for parties to insist on their contractual rights. In time, s 51 AC is likely, through decided cases, to grow to cover a field as broad as s 52, the general provision of the Trade Practices Act dealing with misleading and deceptive practices. It is the author’s, perhaps bold, prediction that just as s 52 has become the most frequently used remedy in matters involving deceptive practices, s 51 AC will eventually become the remedy of choice in commercial matters involving mistake, duress, undue influence, forfeiture, penalty, unjust enrichment and estoppel in a commercial context.
Section 51AC of the TPA never did become the weapon of choice for contractors or subcontractors unconscionably saddled with liquidated damages for delays caused by others. Neither, so far, has section 21 of the ACL which – like Excalibur – has yet to be drawn from the stone, its potency as yet untapped.
But there might yet come a time, I suspect, when Mr Merity surveys the scene, and muses, “What took you so long?”
engage in conduct that is, in all the circumstances, unconscionable.
(3) For the purpose of determining whether a person has contravened subsection (1):
(a) the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b) the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a) this section is not limited by the unwritten law relating to unconscionable conduct; and
(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c) in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i) the terms of the contract; and
(ii) the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
 Section 22 Matters the court may have regard to for the purposes of section 21
(2) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer ) has contravened section 21 in connection with the acquisition or possible acquisition of goods or services from a person (the supplier ), the court may have regard to:
(a) the relative strengths of the bargaining positions of the acquirer and the supplier; and
(b) whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and
(i) the extent to which the acquirer unreasonably failed to disclose to the supplier:
(i) any intended conduct of the acquirer that might affect the interests of the supplier; and
(i) the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and
(ii) the terms and conditions of the contract; and
(iii) the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and
(iv) any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k) without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the goods or services; and
(l) the extent to which the acquirer and the supplier acted in good faith.
 (1999) 15 BLC 304.
 Notwithstanding that Mr Merity’s article was picked up by Brian Clayton in his Can a Contractor recover when Time-Barred?  ICLR 341.
 I am currently drafting a rather more detailed analysis of the use of section 21 of the ACL by contractors and subcontractors faced with unmeritorious liquidated damages claims and onerous notice provisions in my book on Extra-Contractual Recoveries For the Construction and Engineering Work which is, as usual, nearing completion.