Estoppel: When will it trump a contractual time bar?

Strict notice requirements and attendant time bars are ubiquitous in Australian construction contracts. While enforcing time bars can have harsh outcomes in certain circumstances, properly drafted time bars are enforced by courts, absent a valid excuse for non-compliance with contractual notice requirements. A party (usually the principal or head contractor) may be estopped from relying on contractual time bars if they engage in conduct that gives rise to an assumption that compliance with contractual notice requirements is not necessary, or if they direct additional work that they know to be outside of scope without reference to contractual notice requirements and time bars.

The recent decision of the New South Wales Court of Appeal in Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 2) [2021] NSWCA 93 demonstrates this risk and serves as a reminder to contracting parties that Courts may not enforce time bars in circumstances where it would be unconscionable to do so.

The construction contract in the Valmont case

Valmont and Armani were parties to a contract by which Valmont agreed to provide construction and fit-out works for a retail store at Sydney Airport. As part of the contract, Valmont was to install joinery that Armani was to supply – the cost of that joinery was not included in the contract sum. Armani indicated that it would engage a Chinese firm (Sun Bright) to supply the joinery.

When Sun Bright advised that it could not meet the timeframe for the provision of all the necessary joinery, Armani directed Valmont to supply those items which Sun Bright was unable to supply. Valmont supplied the balance of the joinery but Armani refused to pay for it, asserting that Valmont had failed to comply with the variation procedure specified in clause 15 of the contract, as a result of which Valmont was taken to have released or waived any claim.

Valmont contended that Armani was estopped from relying on the time bar in clause 15.

The primary judge noted that:

• on several occasions throughout the project, variations were agreed to, and paid, without insistence on compliance with the notice requirements in clause 15; and
• in various correspondence, Armani had encouraged Valmont to proceed with additional work, and had said that additional payments would be made, without reference to clause 15.

On that basis, his Honour found that, prior to 11 April 2016, Valmont carried out work on the basis of an assumption that it would be paid without fulfilling the contractual notice requirements in clause 15, and that it would be unjust for Armani to now rely on Valmont's non-compliance with those requirements to bar Valmont's claim. Armani was estopped from doing so.

However, the primary judge found that the estoppel came to an “abrupt halt” on 11 April 2016 as a result of an email exchange in which, according to him, Armani had made it clear that it would rely on the clause 15 procedure, thereby displacing the assumption Valmont had been operating under. As the joinery work had been undertaken (in the primary judge’s view) almost exclusively after 11 April 2016, Valmont’s claim in respect of the joinery was rejected.

Valmont appealed; the Court of Appeal agreed with the primary judge that an estoppel had arisen, but found that the estoppel continued to operate, at least as far as the joinery was concerned, after 11 April 2016.

The Court of Appeal noted that the joinery in question was joinery that Armani had insisted on supplying itself (and then promised to do so) but which it ultimately could not supply. The Court said, having been directed to supply the balance of the joinery by Armani, Valmont was entitled to expect to be paid for that work unless and until it was disabused of that reasonable understanding in clear terms. Armani had not done so, by its 11 April email or otherwise.

The Court also emphasised the need for notice of an intended departure from an assumption as to a state of affairs to be itself given within reasonable time. They said that notice of an intended departure is not effective (and therefore the estoppel cannot be displaced) if it is given after the time by which the relevant party would have been required to give the requisite notice under the contract. That is because, by that time, the party would have suffered irreversible detriment as it would no longer be in a position to comply with the contractual provisions. On this reasoning, even if the 11 April email had been sufficiently clear, Armani would still have been estopped from relying on clause 15.