Major Projects & Construction 5 Minute Fix 131: liquidated damages, security of payment wrap-up, progress payments

When "nil" doesn’t mean zero… ACT Supreme Court rules on parties' contradictory contract understanding and the meaning of “nil” liquidated damages

In Jeffcott v Davesi Construction Group Pty Ltd [2024] ACTSC 366, the ACT Supreme Court determined that two related construction agreements – alleged to be inconsistent with one another – could be read together, and reminded that a contract providing for “nil” damages does not exclude a party’s right to common law damages unless expressly stated.

Mr Jeffcott engaged Davesi Construction Group to construct two duplexes for himself and another couple. By a separate project management agreement, Mr Jeffcott and the intended occupier of the second duplex engaged Davesi Construction Group as project manager of the construction. The parties’ relationship broke down and Mr Jeffcott commenced proceedings seeking damages for defects, delays in achieving practical completion, and losses flowing from late handover (eg. additional rent for the period Mr Jeffcott was unable to occupy the property). The Court ultimately found for Mr Jeffcott.

The parties led evidence of their "entirely different understandings" of the purpose and effect of the two contracts, including whether one of the contracts had been validly terminated. The ACT Supreme Court emphasised that the parties' actual interpretation is irrelevant, and rather the critical consideration is the intention of the parties as expressed in the agreement. The Court also found that the agreements must be construed so they can operate in tandem, in order to give effect to the parties’ intention by entering into both agreements.

The Court awarded damages for the failure to achieve practical completion by the required date. The building contract "struck through" that liquidated damages would be payable for delay, interpreted effectively as "nil" liquidated damages. The Court considered whether this precluded Mr Jeffcott's right to common law delay damages. Although the Court remarked that marking a horizontal line "-" is more equivocal than assigning a value of "nil" dollars, it ultimately agreed with the body of precedent which says such damages are only excluded if the contract is "expressed in clear and unambiguous terms".

Displace or dat-place? Confirmation that courts and arbitrators are empowered to determine Parliamentary privilege and public interest immunity claims in arbitral proceedings

In XY v UV [2024] QSC 262, the applicant (XY) claimed parliamentary privilege and public interest immunity over certain documents to be produced in a domestic arbitration. The arbitrator, a retired judge of the Western Australia Supreme Court, ordered XY to produce the documents to him to determine XY’s claims. XY subsequently sought declaratory relief from the Queensland Supreme Court to avoid production, on the grounds that the arbitrator did not have jurisdiction to determine the claims.

The respondent (UV) contended that the court's power to determine these claims was displaced by the operation of section 5 of the CAA, which provides that “[i]n matters governed by this Act, no court must intervene except where so provided by this Act”. The Queensland Supreme Court disagreed, finding that the court’s inherent jurisdiction was not displaced by section 5 because the determination of parliamentary privilege and public interest immunity in documents was not a “matter governed by the CAA”.

Despite this, and in line with overarching obligations under the CAA to conduct arbitral proceedings expeditiously, the Court declined to grant XY relief and determined that the arbitrator's decision stood, including because of:

• the proximity to the final hearing;
• the arbitrator’s professional background; and
• XY’s failure to seek relief through other avenues which were available to it, such as by bringing an application under section 16(9) of the CAA within 30 days of the arbitrator’s decision (ordering production of the documents for him to determine the PP and PII claims).

This decision was upheld on appeal (XY v UV [2024] QCA 244, 21 November 2024), with the Court of Appeal adding that it was not duty-bound to exercise its jurisdiction to determine XY’s claims of PP and PII.

Rights on termination: Redrouge Nominees Pty Ltd (t/as Think Garden) v Canberra Institute of Technology [2024] ACTSC 362

In Redrouge Nominees Pty Ltd (t/as Think Garden) v Canberra Institute of Technology [2024] ACTSC 362, Canberra Institute of Technology (CIT) engaged Redrouge Nominees Pty Ltd to provide 'thought leadership' training services to CIT's staff. CIT subsequently sought to pause the agreement temporarily during an internal review, but then indefinitely. Redrouge treated CIT's indefinite pause as a material breach and terminated their agreement on the basis of CIT's alleged repudiation, seeking the balance of the contract price.

The Court found CIT's conduct entitled Redrouge to terminate for breach under the contract, and also amounted to a repudiation for which Redrouge could terminate at common law. Although Redrouge's termination notice only exercised its contractual termination right, the Court found Redrouge by its notice had effectively accepted CIT's repudiation and treated the contract as at an end by claiming the balance of the contract price. As the contract did not contain clear words excluding either party from claiming common law damages flowing from repudiation, the Court held accordingly that Redrouge was entitled to loss of bargain damages for the remainder of the contract sum.

Contracting parties are reminded by this case to ensure their contracts expressly address rights on termination, including whether the terminating party may have recourse to common law remedies such as loss of bargain damages.

Security of payment wrap-up

You’ve got mail! When an email bounce-back might not invalidate valid service…

In Re Oakey Pty Ltd v Canadian Solar Construction (Australia) Pty Ltd; Canadian Solar Construction (Australia) Pty Ltd v Re Oakey Pty Ltd [2024] QCA 202, the Queensland Court of Appeal considered the impact of an email bounce-back on valid service of a payment claim.

The parties entered into a contract for the design and construction of a solar farm project. On 26 June 2023, the contractor submitted a payment claim to the Principal. The Contractor’s Representative emailed the payment claim to the Principal’s Representative. This email was copied to six other people, three of whom were the Project Manager’s Representatives (and agents of the Principal). The email bounced back from the Principal’s Representative’s email account however all other recipients received the email. The Principal’s Representative did not see the email until 14 July 2023. Consequently, the Principal’s Representative did not respond to the payment claim in time.

The Principal argued that the payment claim was not delivered to the Principal’s Representative, since the payment claim was sent to an invalid email and bounced back. The Contractor argued that it was sufficient that the other representatives received the payment claim, such that the Principal was on notice of the claim and required to respond within the required time.

Affirming the first instance decision, the Court of Appeal found that the payment claim was "given" to the Principal’s Representative, even though the email bounced back from their address. This is because the contract:

1. did not require an express manner of service for payment claims (ie. the contract did not specify that only the Principal’s Representative was authorised to deal with payment claims); and
2. enabled the Project Manager’s Representatives to receive or accept payment claims as agents of the Principal. As such, the payment claim had been "delivered" to multiple other recipients who were able to accept or reject the payment claim on the Principal’s behalf.

Accordingly, the payment claim was validly served for the purposes of the contract and the Queensland security of payment legislation.

Fair enough: Adjudicator afforded procedural fairness as parties were sufficiently on notice of issues surrounding supplementary oral contract

In Rogers Construction Group Pty Ltd v Mirage Interiors [2024] NSWSC 1344, Rogers Construction Group Pty Ltd (the Builder) unsuccessfully challenged an adjudication determination made under the Building and Construction Industry Security of Payment Act 1999 (NSW) on procedural fairness grounds.

The adjudicator's determination was predicated on the finding that two agreements existed between the Builder and Mirage Interiors & Construction Pty Ltd: a written contract and a subsequent oral agreement which varied the terms of the written contract.

The Builder had not led evidence regarding the impact of the oral agreement on the parties' arrangements. Before the NSW Supreme Court, the Builder submitted that it was not afforded procedural fairness because it was not aware that the adjudicator was determining the matter by reference to the second oral agreement. The Builder argued that it would have adduced evidence of amounts paid under the written agreement that ought to have been credited against claims made under the subsequent oral agreement.

The Court rejected this submission, finding that the Builder was not deprived of its opportunity to be heard, and that the Builder had in fact made submissions that implicitly contemplated this issue. This case is a reminder of the high bar for quashing an adjudication determination for want of procedural fairness.

Gimme gimme gimme… a contractual due date at midnight? WA Supreme Court confirms that when no time is specified, performance is ordinarily due by midnight

Property Developments (WA) Pty Ltd v Lord Forrest Nominees Pty Ltd [2024] WASC 388 concerned a contract of sale for a hotel business. The purchase of the business was subject to a condition that the vendor's liquor licence could be transferred to the purchaser by the "Conditions Completion Date". When the transfer did not occur by 5:18 pm on the Conditions Completion Date, the vendor terminated the contract. The purchaser argued that the termination was invalid as it had until midnight to fulfil the condition.

The WA Supreme Court agreed with the purchaser, following Victorian and Queensland authorities which provide that ordinarily, where a date but not a time is specified for fulfilment of an obligation, the obligation must be fulfilled by midnight on that date.

SA District Court reminds parties that contract terms must be read harmoniously

In Cirocco Construction Pty Ltd v Clarke [2024] SADC 150, the District Court of South Australia considered standard form contract timing requirements for issuing a notice of Practical Completion, reminding parties that a contract must be read harmoniously even where relevant clauses are found disparately throughout the agreement.

Clarke engaged Cirocco Constructions to construct a newly designed house and renovate an old church hall under an ABIC SW-2008 standard form contract. Clarke's architect administered the Contract, including by certifying progress payments and practical completion. On 31 July 2014, Mrs Clarke took possession of the building while Cirocco finished some remaining construction work.

Most of the dispute related to whether Cirocco was entitled to two progress payments. One of those payments (PPC 11) included the return of 50% of the retention moneys paid as contract security. The contract permitted Cirocco to release 50% of the retention moneys when the architect issued the notice of Practical Completion, however Cirocco submitted PPC-11 before the notice was issued. Justice Thomas held that PPC 11 was invalid because, when read harmoniously, the contract required that a notice of practical completion be issued either at the same time as, or before, issue of the notice of Practical Completion.

Justice Thomas also considered that Clarke taking possession should not be treated as achievement of practical completion, which turned on the issue of the notice by the architect.