It was also (and here we get onto the subject matter of this post) me who suggested to John Murray when he was preparing The Murray Report that there should be a statutory benchmark as to which time bars should be enforceable, and which not. It was not exactly suggested as a codification of the existing law, but I pointed out that there are several ways in which a time bar might be challenged, and a single test might be more satisfactory that the existing pot-pourri, referring him to my post ion the topic.
John Murray did pick up that suggestion in his report[5], referring to what I had suggested[6]. The substance of the indicative provision was thus:
(1) 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
(a) Compliance with the requirements of the provision would not be reasonably possible or would be unreasonably onerous, or
(b) The requirements of the provision are not reasonably justifiable by any legitimate commercial purpose
(2) For the purpose, “notice” includes any notice, claim for payment, narrative or calculation as to actual or estimated time or money.[7]
The idea, of course, was for this provision to apply for all purposes – not just to the statutory entitlement to a progress payment. In that sense, similar to the ban on pay-when-paid clauses in the Security of Payment legislation.
By his Recommendation 84 Mr Murray slightly reformulated the principle thus:
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:
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- not be reasonably possible; or
- be unreasonably onerous; or
- serve no commercial purpose.
In Western Australia, the Murray Report was considered in the report in Western Australia of John Fiocco Security of Payment Reform in the WA Building and Construction Industry in October 2018. That report endorsed the Murray recommendation with a small variation:
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- The Government should adopt recommendation 84 in the Murray Report, with element (c) amended to ‘non-compliance would result in prejudice to the other party’.
And that recommendation has been adopted, after a fashion, at section 16 of the Building and Construction Industry (Security of Payment) Act 2021(WA). That section is much more cumbersome that the model proposed, and omitted the factor of commercial purpose. Which is perhaps a shame: a particular feature of a Queen of Hearts clause is that it serves no legitimate commercial purpose. Instead its purpose is to deprive the party performing the work from its entitlements to time and/or money. The text of the section is as follows:
BUILDING AND CONSTRUCTION INDUSTRY (SECURITY OF PAYMENT) ACT 2021 – SECT 16
16 . Notice-based time bar has no effect if declared unfair in particular case
(1) In this section —
notice includes notice of the actual or estimated time or cost for doing a thing, notice of intention to do a thing, notice of the description of a thing or notice of any other kind;
notice-based time bar provision , of a construction contract, means a provision of the contract that makes any of the following contingent on the provision of notice by a party to the contract —
(a) an entitlement to payment for construction work carried out or undertaken to be carried out, or for related goods and services supplied or undertaken to be supplied, under the contract;
(b) an extension of time for doing a thing that affects an entitlement referred to in paragraph (a).
(2) A notice-based time bar provision of a construction contract may be declared under this section to be unfair in the case of a particular entitlement under the contract if compliance with the provision in that case —
(a) is not reasonably possible; or
(b) would be unreasonably onerous.
(3) A notice-based time bar provision of a construction contract may be declared to be unfair by —
(a) an adjudicator or review adjudicator for the purposes of adjudication proceedings under this Act in relation to the contract; or
(b) a court for the purposes of proceedings for the recovery of money or enforcing other rights under the contract; or
(c) an arbitrator for the purposes of arbitration proceedings under the contract or under any separate agreement between the parties; or
(d) an expert appointed by the parties for the purposes of proceedings to determine a matter under the contract.
(4) A notice-based time bar provision of a construction contract that is declared to be unfair has no effect in the case of the particular entitlement that is the subject of the proceedings in which it was declared unfair, but continues to have effect in other circumstances or challenges arising under the same or a related contract.
(5) The party in any proceedings who alleges that a notice-based time bar provision is unfair bears the onus of establishing that it is unfair.
(6) In determining whether a notice-based time bar provision is unfair, the adjudicator, review adjudicator, court, arbitrator or expert must take the following into account —
(a) when the party required to give notice would reasonably have become aware of the relevant event or circumstance, having regard to the last day on which notice could have been given;
(b) when and how notice was required to be given;
(c) the relative bargaining power of each party in entering into the construction contract;
(d) the irrebuttable presumption that the parties have read and understood the terms of the construction contract;
(e) the rebuttable presumption that the party required to give notice possesses the commercial and technical competence of a reasonably competent contractor;
(f) if compliance with the provision is alleged to be unreasonably onerous — whether the matters set out in the notice are final and binding;
(g) any matter prescribed by the regulations for the purposes of this paragraph.
(7) In determining whether a notice-based time bar provision is unfair, the adjudicator, review adjudicator, court, arbitrator or expert must not take into account the provisions of any related contract or the things that happened under any related contract.
It is not entirely happily drafted. So example, there is no reliable indicator of what a “related contract” is. The phrase is used as a category in AUSTLII, as in “BUILDING, ENGINEERING AND RELATED CONTRACTS” In that context, a “related contract” is apparently a contract which is ejusdem generis with a building contract or an engineering contract. But here, the draftsman presumably has in mind something else? And heaven only knows what degree of understanding is irrebuttably to be presumed by subsection 6(d)?
Unhappily, the Murray Report itself – which contains some good stuff – has not yet obtained any traction from the Federal Government of Australia. And so we have to focus on this Western Australian provision.
But here is the thing. After some 18 months, I can see no reports of decided cases on how the section is working in practice in Western Australia. Are there declarations of unfairness being made by adjudicators, experts or arbitrators out of the public gaze? I would welcome hearing from anyone able to provide some feedback on this.
In the meantime, and in other jurisdictions, I see that Queens of Hearts clauses are still running amok, and it is by no means clear that available attacks on them are always being pressed home when they could be. The immediate remedy for that, I would say, is fairly simple: lawyers for parties who are suffering from these clauses should buy my book Extra-Contractual Recoveries for Construction and Engineering Work. Start at page 112 of volume I, and make sure to get to page 116 for the checklist of available approaches. Well, actually, try to get to page 180. It is really quite readable.
[3] The original English model has been picked up in South Australia.
[4] Largely single-handed, although the Adelaide Magistrates Court are now on board, at least to the extent of telling litigants about it.
[5] Review of Security of Payment Laws: Building Trust and Harmony J Murray AM December 2017.
[6] Mr Murray said:
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:
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- 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;[6]
- That the notice is to be read contra proferentem, or otherwise read down;[6]
- That the requirement for notice may not be relief on unless it has been expressly pleaded;[6]
- That the requirement for notice may be loosely construed, such that even documents such as day work sheets may satisfy the notice requirements;[6]
- That the notice requirement applies only to the contractual entitlement and not to any parallel entitlement by way of damages;[6]
- The Doug Jones Principle applies;[6]
- 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;[6]
- 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:
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- 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.[6]
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.[6]
[7] See https://feconslaw.com/2017/06/06/queens-of-hearts-in-the-dock/. That formulation was substantially mine.