Site icon Robert Fenwick Elliott

ECR for the Bar

phenell

Last week, I delivered a paper for the South Australian Bar Association on Extra-Contractual Recoveries. It was an adaption from the paper I delivered to the Society of Construction Law in London in December, put in context of South Australian law rather than English law.[1]

For technical reasons[2], the paper had to be delivered without the PowerPoint that I had prepared to go with it. In a sense, that was a challenge, because what I had prepared to say was built around that PowerPoint. But in another sense, it was rather refreshing to just talk to an audience any backdrop of charts, pictures, bullet lists or extracts from authorities.

One of the things that I address in the paper is what I see as the current obsession with the black letter of lengthy bespoke contracts, as though the express words contain a complete code on the legal relationship between the parties. The scenario that I present illustrates, I hope, that the express words of the contract are never more than a starting point; they are not holy writ, but are frequently  rendered irrelevant or inoperative by other aspects of the law.

Meanwhile, my book Extra-Contractual Recoveries for Construction & Engineering Work is continuing to sell around the world. It has got good reviews and those who use it say nice things about it. Hopefully, it will continue to sell for a while to come. I reckon it is little short of professional negligence for commercial litigators in the common law world not to have access to a copy.

This Australian version of the paper, as delivered last week, is as follows[3]:

 

 

 

 

EXTRA-CONTRACTUAL RECOVERIES

A paper presented to the South Australian Bar Association in Adelaide on 13th June 2024[1]

Robert Fenwick Elliott[2]

Introduction

Before turning to the subject matter of this topic, I would like to consider what we, as practising lawyers, are really doing, in the law? Let us leave front end lawyers aside for a moment, and focus on what is going on when clients come to us with a problem. It seems to me the skill is really twofold. On the one hand, it is all about prediction. Clients come to us and ask: what is my legal position? And that is really a prediction thing. What is a court, or other tribunal, likely to make of it all, if the case comes to trial? Being able to get that prediction right is of course a useful thing to offer to a client. It is often impossible in complex commercial cases for such predictions to be made with certainty. A key witness may be hopelessly unconvincing under cross-examination. There may be important facts that the client has not told us about. As the appeals process shows, different judges may reach different conclusions on any given case.

But the ability to make reasonably accurate predictions about legal outcomes is not what separates successful lawyers from less successful lawyers. The most useful thing is the other side of the skill: how to improve the client’s prospects. In other words, how to navigate within the probability to get a better outcome.

Some will say that this is all to do with advocacy skills. A razor-sharp ability to expose lies in cross-examination. A clear and logical exposition of the relevant legal principles. A terrier-like tenacity to the rules of evidence so as to exclude as much as possible of one’s opponent’s case.

In my experience, this difference between success and failure is not so much to do with advocacy. As lawyers, the most important thing we can do – to improve our client’s prospects – is to do with the formulation of the case. It is not so much to do with how we wield the sword; it is more to do with which weapons we choose to pick up and fight with. That is what makes the difference between lawyers who usually win cases, and lawyers who usually lose cases. And if you were to ask me what is the most significant difference between lawyers who usually win and lawyers who usually lose, I would say that the winners are those who more frequently pick up the weapons of extra-contractual recoveries. By which I mean legal causes of action that are not evident from the express words of the contract. As a rough shot, I would estimate that in about half the substantial construction cases I have been involved in over the years the result has been significantly determined by some extra-contractual entitlement.

The point may be illustrated in the following way. Suppose you are acting for a contractor who has a reasonable commercial expectation of being paid for his work, but who has not been reasonably paid. You can read the contract once, twice, or 20 times and find no contractual entitlement. What should you do? My suggestion is that you should run through a checklist of possible extra-contractual routes to recovery, and pursue one or more of those routes. Again as a broad rule of thumb, in most cases in which a contracting party has a reasonable commercial expectation of payment, at least one of these extra-contractual routes to recovery is likely to be available even if the express words of the contract offer no such route, or even look like a bar. All too often, however, such extra-contractual routes are neither properly explored nor pursued.

A Scenario

In order to illustrate the breadth of extra-contractual opportunities, this paper takes a simple hypothetical example. An owner is building a research facility. She asks a trade contractor to supply and install the windows. She tells the contractor that she wants him to start at the beginning of June and finish by the end of that month. They agree a price of $100,000, and liquidated damages of $10,000 a day. The contract contains a date for completion of 30th June and provides for extension  of that time provided – as a condition precedent – that the contractor makes a written claim for extension of time containing a time impact analysis within 7 days of the commencement of any delay. There is a provision for loss and expense for the contractor in the event of owner delay, but only if the date for completion has been extended. There is no provision as to when the owner has to make the site available for the start of work. There is an entire agreement clause, and a clause that the owner is entitled to set off any of her claims against her liability to pay the contract sum.

When the contractor gets there at the beginning of June, the superstructure has not even been started. The owner tells the contractor not to worry. It is not until the beginning of July – a whole month late – that the contractor can start, and he finishes the installation at the end of July. The building then stands idle and unused for many months because of the hold up in the procurement of suitable heat pumps now mandated by Net Zero regulations.

The contractor claims his $100,000 for the work, and a further $50,000 in respect of the delay. The owner pays nothing, but instead counterclaims for $310,000 for liquidated damages.

So how might the contractor go about framing his case? There is nothing useful to be found in the express words of the contract.

A checklist of extra-contractual routes might include the following:

Taking a brief look at these possibilities:

Misrepresentation/misleading or deceptive conduct

The owner might well be liable for damages under section 7 of the Misrepresentation Act 1972 (SA) or section 18 of the Australian Consumer Law at Schedule 2 of the Competition and Consumer Act 2010 (Commonwealth). There are differences both as to liability, excludability and quantum between these parallel causes of action. As to liability:

As to excludability:

As to quantum:

The owner might say that she never represented that the building would be ready by 1st June. But such a representation may well have been made if she gave the contractor a programme showing the window work starting on 1st June.

She might say that any such representation was not a representation of fact, but merely an expression of opinion. But if she gave the contractor a programme which was already out of date – showing perhaps that the foundation work had been completed when in fact it had not – then she may well have made misrepresentations of fact. And, in any event, expressions of opinion frequently contain implied representations of fact.[6]

The contractor will have to show that he relied upon the representation in entering into the contract. It might be thought that reliance here is obvious: a contractor would have to be utterly foolish to enter into an arrangement like this, with substantial liquidated damages, if he knew that the project was already a month behind. But claimants in these circumstances do sometimes fail to prove reliance.

There have been a couple of cases in Australia which show the potential for such an action under the Australian Consumer Law. In each case the action failed, but for reasons which might well be fixable:

In practice in a ‘no transaction’ case,[7] the contractor is likely to be able to recover by way of damages the actual cost of the work he has done (regardless of the contractual price). He may also be able to recover loss of gross profit on a Hudson Formula basis.[8]

Implied terms and damages for breach of contract

There may be no express term as to timeous access, but there is likely to be an implied term to that effect,[9] breach of such an implied term sounding in damages.

Damages for breach of such terms often represent a parallel remedy to an express loss and expense provision in the contract, and may have a particular advantage in that a notice provision designed to stifle contractual claims may well be ineffective against breach of contract claims. That was the position in the South Australian case of Decor v Cox (No 2).[10] In that case the contract provided that the subcontractor had to give the head contractor a written claim for extension of time within 21 days in order to obtain an extension of time, and that the subcontractor was only entitled to extra costs caused by the delay if time had been extended. The subcontractor did not give that notice, but was nevertheless entitled to recover damages at common law caused by lack of access to the workface.

Prevention/time at large

The essential principles of prevention and time at large are well known: if an owner prevents the contractor from completing the work, then, in the absence of an applicable extension of time clause, both the date for completion and liquidated damages go, being replaced by a reasonable time for completion and damages at large.

But there are at least a couple of uncertainties here:

In this hypothetical scenario, whether or not the contractor can successfully assert that time is at large might depend not only on the detailed facts, but also on what approach a court or arbitrator may take in these two areas of uncertainty. If the date for completion and liquidated damages are dispensed with, it is unlikely that the owner would be able to make out her cross claim, both because the contractor did complete the work within a reasonable time and because the owner did not in the event suffer any loss.

Estoppel

It is not the purpose of this paper to explore the delicate and sometimes nebulous distinctions between estoppel by representation, estoppel by convention, estoppel by acquiescence, equitable estoppel and waiver. Suffice to say that there have been a number of cases in which owners have been estopped from relying on the absence of notice as a reason to deny an extension of time which would otherwise be due.[15]

In this hypothetical case, the indications by the owner that the contractor should not worry about the delay in the start date might well found an estoppel, preventing her from later relying upon lack of notice.

Impossibility

The maxim lex non cogit ad impossibilia (law does not compel the impossible) does not feature very often in commercial cases. It is by no means unknown for contractors to contract to do what turns out to be impossible; the law of impossibility rarely if ever comes to a contractor’s aid in these circumstances.[16] But the doctrine does sometimes come into play when it comes to secondary obligations, and particularly machineries as to the giving of notice.

In recent times, bespoke contracts for substantial commercial projects have got longer and longer, and sometimes it is downright impossible for a contractor to comply with the strict letter of notice provisions. In the example we have here, it is likely to have been impossible for the contractor to have produced a time impact analysis within the 7 days stipulated, because he had no information as to when the building was going to be ready for the windows to be installed, and in any event, a time impact analysis is not something that can be rustled up in just a few days. And so an impossibility to comply with the Queen of Hearts clause[17] may well create a breakdown in contractual machinery or to set time at large,[18] or to dispense with the requirement to comply with the impossible provision,[19] or to persuade the court to depart from a black letter reading of the clause as a matter of construction.[20]

Penalty, Relief from forfeiture and Statutory Unconcionability

For some reason which is not entirely obvious, the distinction between liquidated damages clauses (which are enforceable) and penalty clauses (which are not) is a topic beloved of law students. The old test in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd[21] has been displaced, or at least modified, by the new formulation in Andrews v ANZ [2012] HCA:

10        In general terms, a stipulation prima facie imposes a penalty on a party (“the first party”) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party[22]. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation[23]. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation…

The provision for $10,000 per day might or might not pass the test in this hypothetical example. But it may well be unenforceable if relief from forfeiture be granted, a possible outcome to which this paper turns below.

Security of Payment

The owner might well opt to enforce her right to a progress payment under section 8 of the Building and Construction Industry Security of Payment Act 2009 (SA):

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.

This entitlement is an independent right, parallel to the contractual right to payment, and subject to slightly different rules. In particular:

While the contractual right is typically pursued in court or in arbitration, this statutory right to a progress payment is typically enforced by way of adjudication, the adjudicator’s determination being enforceable in much the same way as an arbitral award.[27]

A recovery pursuant to the security of payment legislation is of course “Pay now, argue later”. The payer has the right to try to recover such payment through litigation or arbitration. In practice, she does not usually do so.

Taking Stock

So let us take stock. Our hypothetical case here is one in which it would be unjust for our contractor to be deprived of payment for his work, let alone to have to pay liquidated damages for delay which was in no way his fault. How is justice to be obtained? It will not be obtained by sticking myopically to the express words of the contract. It might very well be obtained by pursuing one of the extra-contractual routes just sketched out.

The extra-contractual recoveries discussed above in relation to the scenario chosen are by no means the only ones available. There is much more to be said in relation to quantum meruit claims, pay when paid clauses, certification, breakdown of contractual machinery, negligence, and others.

Compared with a civil law approach, these extra-contractual remedies do not get the attention that they deserve. I would like to illustrate this by looking at the availability of relief from forfeiture. For this we need to look at the other case decided with Cavendish v El Makdessi in the UK in 2015: ParkingEye v Beavis. Mr Beavis parked his car in a car park to a retail park where there were notices that the maximum free stay was two hours, and that there was a charge of £85 payable for overstaying. Mr Beavis left his car there for nearly 3 hours. Mr Beavis refused to pay the £85 demanded of him. ParkingEye sued. Mr Beavis accepted that the arrangement was contractual, but said that the £85 charge was a penalty. For present purposes, the interest in the judgment is not on that issue (the £85 charge was found to be not penal), but what the court said about relief from forfeiture as a second stage in the relevant test.[28] This second stage in the proper legal analysis is to look, not merely at the circumstances prevailing at the time the contract was made, but at the consequences of the breach: did the innocent party suffer any and if so what loss? If the consequence of allowing enforcement of the liquidated damages provision would be out of all proportion to any legitimate interest of the innocent party, then principles of contractual autonomy should not prevent the court from denying enforcement. Whilst obiter, this was no casual throwaway suggestion: it is worth setting out the relevant extracts in what each of the judges had to say:

Lord Mance

‘…

The relationship between the penalty doctrine and relief against forfeiture

160.           Jobson v Johnson proceeds on the basis that a case may raise for consideration both the penalty doctrine and the power of the court to relieve against forfeiture. In my opinion, that is both logical and correct in principle under the current law. A penalty clause imposes a sanction for breach which is extravagant to the point where the court will in no circumstances enforce it according to its terms. The power to relieve against forfeiture relates to clauses which do not have that character, but which nonetheless operate on breach to deprive a party of an interest in a manner which would not be penal… The two doctrines, both originating in equity, therefore operate at different points and with different effects. Consideration whether a clause is penal occurs necessarily as a preliminary to considering whether it should be enforced, or whether relief should be granted against forfeiture.

161.           This same inter-relationship between the penalty doctrine and relief against forfeiture was also assumed in BICC plc v Burndy Corpn [1985] Ch 232, where Dillon LJ, with whom Ackner LJ agreed, considered first whether the clause was a penalty, before moving to the issue of relief against forfeiture. …’

Lord Hodge

‘…

227.           There is no reason in principle why a contractual provision, which involves forfeiture of sums otherwise due, should not be subjected to the rule against penalties, if the forfeiture is wholly disproportionate either to the loss suffered by the innocent party or to another justifiable commercial interest which that party has sought to protect by the clause. If the forfeiture is not so exorbitant and therefore is enforceable under the rule against penalties, the court can then consider whether under English law it should grant equitable relief from forfeiture, looking at the position of the parties after the breach and the circumstances in which the contract was broken.

…’

Lord Clarke

‘…

291.           …As to the relationship between penalties and forfeiture, my present inclination is to agree with Lord Hodge (in para 227) and with Lord Mance (in paras 160 and 161) that in an appropriate case the court should ask first whether, as a matter of construction, the clause is a penalty and, if it answers that question in the negative, it should ask (where relevant) whether relief against forfeiture should be granted in equity having regard to the position of each of the parties after the breach.’

Lord Toulson

‘…

294.           On the inter-relationship between the law relating to penalties and forfeiture clauses, I agree specifically with paras 160–161 of Lord Mance’s judgment and paras 227–230 of Lord Mance’s judgment… I agree with them that the proper approach is to consider first whether the clause was an exorbitant provision to have included in the contract at the time when it was made; and, if not, to consider next whether any relief should properly be granted under the equitable doctrine of relief against forfeiture in the circumstances at and after the time of the breach. As Lord Mance and Lord Hodge have noted, this approach was followed by the Court of Appeal (Ackner, Kerr and Dillon LJJ) in BICC plc v Bundy Corpn [1985] Ch 232. It is logical and just.’

Lords Neuberger and Sumption (Lord Carnwath agreeing)

‘18.            What is less clear is whether a provision is capable of being both a penalty clause and a forfeiture clause. It is inappropriate to consider that issue in any detail in this judgment, as we have heard very little argument on forfeitures – unsurprisingly because in neither appeal has it been alleged that any provision in issue is a forfeiture from which relief could be granted. But it is right to mention the possibility that, in some circumstances, a provision could, at least potentially, be a penalty clause as well as a forfeiture clause. We see the force of the arguments to that effect advanced by Lord Mance and Lord Hodge in their judgments.’

The Cavendish/Beavis decision has not been followed in Australia in Andrews on the question of what a penalty clause is, but the principles of relief from forfeiture are essentially the same, save that in Australia there is more focus on the concept of unconscionability, both in equity and in statute. The two-stage test might well be applicable in Australia, particularly since in Australia, the whole of the law of penalties is now treated as a matter of equity, and not law.

Returning to our hypothetical example, the owner suffered no loss from the window delay, because it was overreached by the heat pump delay, and in any event, it would hardly be conscionable to allow the liquidated damages to be enforced given that the delay was not the contractor’s fault. A court might well find that such enforcement falls foul of sections 20 or 21 of the Australian Consumer Law.[29]  Such a state of affairs is by no means unusual in real life. And yet, as far as I am aware there has in the 9 years which have passed since the Cavendish decision – or the 15 years since the enactment of the Australian Consumer Law – been no reported construction case in which relief has been claimed from the forfeiture of liquidated damages in equity or by way of the extensive powers of the court pursuant to the Act, which include not only the payment of money, but making contractual provisions void, or varying them, or refusing to enforce them.

Why not? One answer to that question might be that too much attention is paid to the black letter of commercial contracts, and not enough attention is paid to extra-contractual opportunities. In the construction sphere, we have long been steered in that direction by the very titles of the traditional authorities: Hudson’s Building and Engineering Contracts, Keating on Construction Contracts and Brooking on Building Contracts.[30] But the lack of attention that has been paid to extra-contractual recoveries is more likely to be due to the wide diversity of the sources of the relevant law, scattered as it is across a very broad range of topics, including a number of equitable principles, statute, tort, the implication of terms, and some general principles of law.[31]

Indeed, it might be thought that commercial lawyers have become unduly fixated on the express words of the contract, in a way which is not seen in other areas of the law. Of course we can find contracts in pretty much everything we do. When we get married. When we go into a shop to buy something. The way we interact with our employers or employees and the way they interact with us. We have legitimate expectations about how these things will work out, but not many of those expectations are to be found in the terms of the contracts which we make. In these areas, the legal position is by no means dominated by what has been spelled out in the form of agreement.

The courts often talk about ‘party autonomy’ as a justification for applying the black letter of a lengthy contract over a commercially reasonable expectation of what the legal position should be. That whole concept is based on a fiction: that the true nature of their bargain is to be found in the written words of the contract they have signed. It is a convenient fiction of course. You may say indeed that it is a necessary fiction, at least to some degree. But of this you may be sure: if you were to test the decision-makers who had just signed a 500-page contract, you would find that most of them have a very imperfect understanding of what they have just signed up to.

The sensible way for the commercial law to operate is, it seems to me, clear. The law should, as far as possible, align itself with the reasonable commercial expectations of people who do business. Traditionally, that is what the law has done, and the common law, equity and the Australian Consumer Law have powerful weapons to achieve that objective. And hence my rule of thumb: that if the black letter of the contract leads to a commercially absurd result, there is likely to be an extra-contractual route somewhere capable of fixing that absurdity. And hence, going back to the point made at the outset of this paper: a key to successful prosecution of commercial claims is often to identify and pursue available extra-contractual remedies.

If we fail to look beyond the black letter of a commercial contract, we are not only getting the law wrong, we are doing a bad job for our clients. And for the industry. And for society at large.

Robert Fenwick Elliott is a Barrister of the Supreme Court of South Australia, Lawyer of the Supreme Court of New South Wales, Solicitor and Barrister of the Federal Court of Australia and formerly a Solicitor of the Supreme Court of Judicature of England & Wales.

©    Robert Fenwick Elliott 2023 and 2024

 

[1] A previous version of this paper entitled Claims Outside the Contract from a Common Law Perspective was presented to the Society of Construction Law in London on 5th December 2023. That earlier version concerned the law of England & Wales. The context of this paper is the law of South Australia.

[2] Barrister of the Supreme Court of South Australia, Lawyer of the Supreme Court of New South Wales, Solicitor and Barrister of the Federal Court of Australia and formerly a Solicitor of the Supreme Court of Judicature of England & Wales. Author of Extra-Contractual Recoveries for Construction & Engineering Work London Publishing Partnership 2022, The Worker’s Liens Casebook FEG Services 2010, Building Contract Disputes: Practice and Precedents Sweet & Maxwell Continuing Looseleaf and Building Contract Litigation Sweet & Maxwell First to Fourth Editions 1981 – 1993. http://www.feconslaw.com

[3] In Burke v LFOT [2020] HCA 17 at [143], Callinan J said: “A person may not contract out of the Act”.

[4] The House of Lords decision in Smith New Court Securities v Scrimgeour Vickers [1997] AC 254 has been followed many times in Australia

[5] Viterra Malt Pty Ltd v Cargill Australia Limited [2023] VSCA 157 at [1078].

[6] Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15 at [51]. See also Esso Petroleum Co Ltd v Mardon [1976] EWCA Civ 4, [1976] QB 801, [1976] 2 All ER 5.

[7] i.e. a case in which, but for the misrepresentation, the contractor would not have entered into the contract at all.

[8] See eg Extra-Contractual Recoveries for Construction and Engineering Work Fenwick Elliott Vol 1 page 227.

[9] Roberts v Bury Improvement Commissioners (1890) LR 5 CP 310.

[10] Decor Ceilings Pty Ltd v Cox Constructions Pty Ltd (No 2) [2005] SASC 483.

[11] Gaymark Investments Pty Ltd v Walter Construction Group Ltd (1999) NTSC 143.

[12] For a lengthy and persuasive argument that Gaymark was correctly decided, see Tony Marshall, The Prevention Principle and Making the Contractor pay for Employer Delay: is English Law departing from its Roots? [2020] ICLR 325 and [2021] ICLR 88. That pair of articles is also to be found at feconslaw.com/2021/10/04/prevention-and-all-that.

[13] See eg Peak Construction Ltd v McKinney Foundations Ltd [1970] 1 BLR 111 per Lord Salmon:

‘I cannot see how, in the ordinary course, the employer can insist on compliance with a condition if it is partly his own fault that it cannot be fulfilled: Wells v Army & Navy Co-operative Society Limited; Amalgamated Building Contractors v Waltham Urban District Council; and Holme v Guppy… if the extension of time clause provided for a postponement of the completion date on account of delay caused by some breach or fault on the part of the employer, the position would be different‘

[14] The implied term approach was adopted Coulson LJ in North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744, and by the Supreme Court of Victoria Hera Project Pty Ltd v Bisognin (No 3) [2017] VSC 268 and then again in Bensons Pty Ltd v Key Infrastructure Australia Pty Ltd [2021] VSCA 69. But again there is a powerful note by Tony Marshall to the effect that that approach was not open to those courts, it being firmly established by high authority that the principle is indeed one of law. That further note can be found at feconslaw.com/2021/10/11/more-on-prevention-as-a-a-rule-of-law.

[15] See for example BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2009] VSCA 221 and Rees & Kirby Ltd v Swansea City Council (1985) 30 BLR 1 for appeal court authorities.

[16] A rare exception might be a supervening external event, such as the total destruction of the site.

[17] A Queen of Hearts clause is a notice provision or time bar designed, not for any legitimate commercial purpose, but to be difficult or impossible to comply with.

[18] As was the case in Alstom Ltd v Yokogawa Australia Pty Ltd (No 7) [2012] SASC 49 at [1530].

[19] As was suggested but not firmly concluded in the South African case in Barkhuizen v Napier [2007] ZACC 5, 2007 (5) SA 323 (CC), 2007 (7) BCLR 691 (CC) at [83].

[20] As was the case BMD v Victorian UDA [2009] VSCA 221.

[21] Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79.

[22] Waterside Workers’ Federation of Australia v Stewart (1919) 27 CLR 119 at 128‑129, 131; [1919] HCA 63; Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 at 520; [1985] HCA 63.

[23] Rolfe v Peterson (1772) 2 Bro PC 436 at 442 [1 ER 1048 at 1052]; Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 at 86; cf, as to irrevocable letters of credit and “performance bonds”, the proceeds of which are in substitution for performance by a contractor, Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd [1998] 3 VR 812; Mason, “‘I’ll have my bond; speak not against my bond’:  Constructive trusts and surplus proceeds from performance bonds”, (2012) 6 Journal of Equity 74 at 81‑83.

[24] In John Holland Pty Limited v Road and Traffic Authority of New South Wales [2007]NSWCA 19 at [38], Hodgson JA said:

38 I note that in Transgrid v. Siemens Limited [2004] NSWCA 395, (2004) 61 NSWLR 521 at [35], I expressed the view (obiter) to the effect that “calculated in accordance with the terms of the contract” meant calculated on the criteria established by the contract, and did not mean reached according to mechanisms provided by the contract; and I adhere to that view…

“Mechanisms” certainly includes mechanisms for certification, and may extend to other provisions such as notice provisions.

[25] In Brodyn v Davenport [2004] NSWCA 394 at [74], Hodgson J said that the adjudicator was right to disregard the respondent’s cross claim for damages for delay, and in Perform v Mev-Aus [2009] NSWCA 157, Young JA said, albeit obiter, non-definitive and minority, that equitable set-offs should not be considered by adjudicators. In practice, many adjudicators do disregard cross-claims even if it be thought wrong to do so, that is likely to constitute a mere error of law which does not invalidate his decision

[26] Thus for example in Grocon v Construction Profile [2020] NSWSC 409 Ball J suggested that a contractual set-off provision might be void under the anti-avoidance provisions.

[27] Although the statutory right is frequently enforceable in court if the paymaster fails to timeously provide a payment schedule in response to a payment claim – effectively a default judgment on stilts.

[28] There are a number of cases in which both liquidated damages provisions and notice provisions have been described in terms of forfeiture; see Extra-Contractual Recoveries for Construction and Engineering Work (supra) Volume I at paragraphs 4.307 to 4.310. See also Cavendish v El Makdessi per Lord Hodge:

‘There is no reason in principle why a contractual provision, which involves forfeiture of sums otherwise due…[court can] consider whether under English law it should grant equitable relief from forfeiture‘ (emphasis added).

[29] Section 22 makes a number of matters relevant, including the relative strength of the bargaining positions, whether the provision under consideration is reasonably necessary for the protection of the legitimate interests of the other party, and whether the contract was a contrat d’adhesion.

[30] In fairness, it should be noted that the third and most recent magnus opus is different; Julian Bailey’s very thorough book is simply called Construction Law.

[31] I have attempted to bring them together in my book Extra-Contractual Recoveries for Construction and Engineering Work (London Publishing Partnership 2022).

 

 

[1] The only thing that made it South Australian, rather than Australian, was the reference to the South Australian Misrepresentation Act. Which is rather underrated in my humble opinion. Because there is no direct equivalent in New South Wales or Victoria, whence most Australian law books originate, it does not feature in the textbooks, and hence many practitioners (including those in South Australia) are unaware of it.

[2] Not my fault, I hasten to say.

[3] It is also going to be published in Australian Construction Law Newsletter.

Exit mobile version