General Construction Law Flashcards
A Principal can demand the contractor perform all work “indispensably necessary” to the completion of the work, even if not specifically referred to in the contract.
Walker v Council of the Municipality of Randwick (1929) NSWSC
Retaining wall - ‘whole of the works’ - sand bank actually 12ft, not 6ft.
The scope of the contract can be a itterative process.
Multiplex Constructions v Epworth Hospital (unreported) (1996) VSCA.
Hospital construction - no design fixed at the date of tender - design evolving, though right to develop not open ended.
Absent a specific contractual term the Principal is powerless to order variations.
Ettridge v The Vermin Board of the District of Murat Bay [1928] SASR 124.
Construction of vermin fence - during construction Principal instructed contractor to deviate from the original line - Contractor refused.
A variation or omission power cannot be used to cancel “substantially all the works” under the contract.
Chadmax Plastics Pty Limited v Hansen and Yuncken (SA) Pty Ltd (1984) SASC.
Principal ordered variation which resulted in Head Contractor deleting 98% of Subcontractor’s work - “virtual cancellation” and repudiation.
Variation or omission power cannot be used to delete work and award it to another unless very clear words allow.
Carr v JA Berriman Pty Ltd (1953) HCA
Principal deleted steelworks from Head Contractor’s scope and made arrangements with a third party to fabricate and supply steel - repudiatory conduct.
How is the risk of Inconsistencies between the different parts of the relevant contract providing details of the work to be performed can provide the basis for a variation claim reduced?.
Most standard and non standard forms of contract contain provisions for resolving inconsistences and ambiguities in a contract, usually by giving the Superintendent notice who will issue a direction as to how to proceed.
Should a Principal’s power of variation be limited in a Design and Construct contract?
Yes.
As the Contractor is responsible for the design (and therefore liable if the design is not in accordance with the Contractor’s contractual obligations), the Contractor should have the ability to unilaterally vary the design. However, the Principal’s power to vary the design should be limited.
Variations must be reasonable, that is, on the objective assessment by an independent by-stander.
Wegan Constructions Pty Ltd v Wodonga Sewerage Authority [1978] VR 67
Increasing the excavation required by 60%, sewer length from 840 to 1181 metres (40%), increasing the manholes from 19 to 27 requiring 90% more concrete.
Amounted to a repudiation.
Generally, when does the right of the Principal to order a variation cease?
Once the after the certificate of practical completion had been issued: Jamieson Constructions Ltd v Christchurch City (1984) NZ per Cook J:
“When that point is reached (certificate of practical completion has been issued), with all the consequences that result and with the acknowledgment that is to be inferred from the certificate, I am unable to see that it can remain open for the Architect to direct something which would require a change in the work by way of addition, reduction or substitution.”
Modern case that contractual bars are prima facie enforcable.
Wormald Engineering Pty Ltd v Resources Conservation Co International (1988) 8 BCL 158 per Rogers J
Subject to the ACL, an owner makes no implied warranty as to “buildability” and need not issue a variation to overcome an impossible design.
Alexander Thorn v London Corporation [1870]
Blackfriars Bridge - ‘caissons’ kept drifting away - impossible design.
If a Superintendant mistakenly orders a variation, which is actually within the scope of work, can the contractor sue to recover the price?
Unlikely.
Existing legal duty - no consideration - Superintendent is not authorised to amend the contract on behalf of the Principal.
What is the old case that makes a contractual bar prima facie enforcable?
Tharsis Sulphur and Copper Company v McElroy & Sons [1878] 3 A.C. 1040 Lord Blackburn said:
“It is common enough to have provisions, as are here, more or less stringent, saying that no extra work shall be paid for unless it is ordered in writing by the Engineer; and if such conditions are properly made, and there is nothing fraudulent or iniquitous in the way they are carried out, those conditions would be quite sufficient and effectual.”
What are the three main issues with variations?
- Scope (was it a variation or was the contractor bound to do it anyway?);
- Non-compliance with procedural requirements; and
- Valuing the variations.
Complete this diagram:
Answer:
What is the measured mile method of quantiying loss?
Comparing the cost of “impacted” work withthe same or similar “unimpacted” work.
What is critical path method? (CPM)
A common method of analysisng delay by identifying activities on the critical path.
Requires expert evidence and complex computer programs.
A binding expert determination is only reviewable if the determination was not made in accordance with the contract.
Australian Vintage Limited v Belvino Investments No 2 P/L [2015] NSWCA
Vineyard lease - FM if production down 50% - severe frost - ED decided.
What are the two purposes of a bank guarantee identified in Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd [2015] VSCA?
They were:
- Security for damages - i.e. in liquidation;
- Who is out of pocket pending a dispute?
Clear words are needed to establish a party has abandoned common law remedies.
Concut Pty Ltd v Worrell [2000] HCA
Concrete salesman - misconduct - 3 month notice augments CL rights.
What is the most common form of security on large projects?
An unconditional undertaking issued as either a bank guarantee or insurance bond.
What is the most common form of security on smaller projects?
Retention monies.
‘The description “guarantee” commercially applied to the bank documents in this case is, in my opinion, a complete misnomer.’
Wood Hall Ltd v Pipeline Authority [1979] HCA per Barwick CJ
To introduce a qualification on the entitlement of the owner to call upon guarantees would be to deprive them of the quality which gives them commercial currency.
The commercial effectiveness of unconditional undertakings would be destroyed “if all the legal and factual complexities of a building dispute were injected” into what should otherwise be a relatively straightforward analysis.
Wood Hall v The Pipeline Authority [1979] HCA
Construction of pipeline - call on security - “as good as cash” necessary.
A clause may allow a Principal to draw on the security for a ‘claim’ with the contractor out of pocket pending final resolution of the dispute.
FMT v Sydney Ports Corporation [2010] NSWSC
OPT, Circular Quay - gangway - alleged defective workmanship.
Principal can call security after an adjudication determination in favour of the builder before a final determination of the parties’ contractual entitlements, if there is a “genuine dispute as to the merits of the adjudicator’s determination”.
Patterson Building Group v Holroyd Council [2013] NSWSC
Certificate to repay adjudiction - not in reality payable - ‘antidote’ to adjudication.
What are the three exceptions to the general unconditionality of bank guarantees, discussed in Clough Engineering Ltdv Oil & Natural Gas Corporation Ltd [2008] FCAFC (Clough)?
They are:
- Fraud or bad faith
- Unconsciousable
- Contractual pre-conditions unfulfilled.
In absence of an express clause, how is decided whether contractual rights (i.e. right to call on security) survive termination?
It will depend on whether the right has ‘accrued’ - termination discharges parties from future obligations, but ‘accrued’ rights are preserved.
What are five practical issues must be borne in mind when accepting a bank guarantee?
You should consider:
- Do you have the correct legal parties? Is the correct contract referenced?
- Is the guarantee properly executed? Enforcable in the jurisdiction?
- Is there a local branch to enforce?
- Is there an expiry date?
- Do you have the original? The orginal is cash - unreplacable.
How far back may a liquidator go to recover voidable transactions?
Depends:
- six months for unrelated parties
- four years for related parties and
- ten years when purpose to defeat creditors.
A liquidator may recover “unfair preferences”.
s 588FA Corporations Act 2001 (Cth)
A deed of company arrangement, normally extinguishing debts, does not extinguish rights under a guarantee.
s 444J Corporations Act 2001 (Cth)
‘Section 444H does not affect a creditor’s rights under a guarantee or indemnity.’
Who is the number one subject of liquidator unfair preference claims?
The ATO.
Well resourced, insured and subject to model litigant guidelines.
What is the “autonomy principle” in relation to performance security?
The bank must pay. Any dispute between the parties is irrelevant.
While an unconditional bank guarantee should be paid on its face, what often occurs?
The bank, keen to protect its relationship with its account client, advises client and delays paying.
This allows an injunction to be issued.
What are the criterion for seeking an injunction (often overlapping)?
They are:
- Serious question to be tried
-
Balance of convenience
- i) whether damages will be an adequate remedy;
- ii) delay;
- iii) risk of reputational harm.
- Whichever course carries the lower risk of injustice;
To call on security in Queensland, notice must be given within 28 days of the right to call security arising.
s 67J Queensland Building and Construction Commission Act 1991
‘The notice must be given within 28 days after the contracting party becomes aware, or ought reasonably to have become aware…’
What are preliiminaries?
The costs of setting up on site for the specific project.
What are prolongation costs?
Costs resulting from delayed demobilization
i.e. fixed staff costs, finance.
What are disruption costs?
Disturbance, hindrance or interruption to a Contractor’s normal working methods, resulting in lower efficiency.
What is a GMP contract?
Why might selecting an arbitrator from a foreign jurisdiction be advantageous?
When Australian law is against you.
What is the Notice of Dispute’s ultimately use?
Sets the jurisdiction for the arbitration. Draft broadly for flexibility.
What is this contract?
Design and Construct.
What is this contract?
Construct Only.
What is this contract?
Project Construction Management.
Why will a Principal carefully scrutinise costs under a GMP?
Ensure no overpayment and loss of bonus.
General power will not be read as to impinge on specific power, as to do so would render specific otiose.
Kirby J (diss) in Work Choices [2006] HCA
General corporations power - specific arbitration power - apply specific.
A failure to comply with requrements will render invalid if ‘it was a purpose of the legislation that an act done in breach of the provision should be invalid.’
Project Blue Sky [1998] HCA
ABC delaged power - restriction - must comply with treaties.
Consequential loss should be given the meaning the parties intended.
Regional Power [2013] WASC per Martin J
Exclusion clause - “some fettering predisposition” - avoid.
Why is no more than 10% of contract price in liquidated damages necessary?
If contractor is that late, would have terminated.
What are ‘as built’ drawings?
Contractor’s drawings showing, in red ink, on-site changes to the original construction documents.
What is administrative completion?
After practical completion, when all administrative paperwork handed over.
When is a contractor entitled to prolongation costs?
No general entitlement - specific contractual right or damages only.
What is a helpful way to conceptualise variations?
Must be an increase - must take you outside scope.
Should providing for “$Nil”, “NA” or “Not applicable” liquidated damages e interpreted to exclude right to common law damages?
Unlikely. Clear words necessary to abandon common law remedies.
In reviewing a variation claim, what must you review?
Which recent High Court case emphasised the primacy of expectation damages?
Tabcorp [2009] HCA
Refresh foyer - no permission - ‘contumelious disregard’.
Unless an amendment to the contrary has been initialled, security in excess of 5% is unenforcable in Queensland.
s 67K QBCC Act 1991 (Qld)
any time before practical completion of building work is reached, the total value of the following is to be not more than 5% of the contract price…
Which state requires for large contracts (>$20 million), head contractors place retention monies into a trust account?
New South Wales.
(Contracts after 15 May 2015 only)
When receiving Bellgrove v Eldridge / rectification damages, what is a betterment discount?
Deduction for fact that new, better building constructed.
(“New for old”).
What is the key difference between common mistake and frustration?
Mistake concerns the situation at formation, frustration concerns events after formation.
They can co-exist (Codelfa).
Where parties to a contract foresee or ought to have foreseen the risk that circumstances may change, the usual inference will be that the party who is adversely affected has agreed to bear that risk.
Scanlans New Neon v Tooheys [1943] HCA
Neon advertising - national security prohibition - rent still payable.
How does the “legitimate interest test” potentially allow a broader scope of recover under a liquidated damages clause than that which would be permitted at common law?
Legitimate interest may include costs that are too remote to be damages at law.
Why should extrinsic evidence not be allowed to correct the incorrect naming of a party on a bank guarantee?
Additional inquiry required would slow the speed guarantee could be cashed and undermine the “autonomy” principal.
Courts should interpret contracts in a “businesslike way” to avoid commercial “nonsense or inconvenience”.
Electricity Generation Corporation v Woodside Energy [2014] HCA
Gas supply - “reasonable endevours” - price increase post-explosion permitted.
Why will a Principal generally wish to rely on a liquidated damages clause?
Proving loss is difficult
(expert witnesses etc).
How did Andrews v ANZ update the penalty doctrine? What are the pros and cons of this approach?
Breach no longer required for equitable relief.
Prevents creative drafting, but potentially opens all clauses to review.
How did Cavendish update the law of penalties? What are the pros and cons of this approach?
Does clause secure a “legitimate interest”?
More flexible (esp. for unquantifiable loses), but higher uncertainty (how to calculate in advance?)
How does the common law differ from the civil law in relation to adjustments of liquidated damages clauses? Which is preferable? Why?
Civil law allows adjustment, common law is all or nothing.
Unjustment undesirable. - must adjust to “reasonable” level - have to prove loss anyway.
Which new contract is intended to merge and replace the suites of contracts related to AS2124:1992 and AS4000:1997?
AS11000.
Overriding obligations of good faith - security of payment agency - mandated subcontract.
What is “impact as planned” delay analysis?
Simple comparison - duration of delaying event added to plan - actual and future progress not considered.
What is “time impact” delay analysis?
Duration of delaying event added to actual progress - future progress not considered.
What is “collapsed as built” delay analysis?
As-built schedule less identified activities representing delays.
What is “as planned v as built” delay analysis?
Comparison of as planned versus as built schedule, then find the cause of the delay.
(Effect, then cause).
A wide range of matters can be considered part of the “genuine pre-estimate of loss”, including items too remote at law.
Paciocco v ANZ [2016] HCA
Late payment fee - $35 or $20 - collection fees and regulatory capital.
Subject to clear words to the contrary, a superintendant’s decision is binding in the interim, but is subject to the court’s retrosepctive review as to whether it was correct.
Beaufort Developments (NI) Limited [1998] UKHL per Lord Hoffman
Need interim certainty - but could cause injustice - knowledge incomplete.
Though the High Court described the practice as rare, is it open to the parties to contractually apportion responsibility for delay?
Yes - Astley v Austrust [1999] HCA at [85].
“Rarely do contracts apportion responsibility for damage on the basis of the respective fault of the parties…”
(Default is no apportionment available).
The:
- superintendent must act honestly, fairly, impartially and without bias when certifying any claims; and
- the Principal must ensure he does so.
Perini Corporation v Commonwealth [1969] NSWSC
Extension of time - decision based on Principal’s policies - invalid.
What is the difficulty with disruption claims?
Difficult to prove.
However, if court satisfied some loss has occured lack of precision will not prevent court awarding damages (i.e. Chaplin v Hicks).
What is a greenfield project?
A project that lacks constraints imposed by prior work.
What is a brownfields land?
An area of land that has been previously used.
What is bid shopping?
Revealing lowest tender to drive down prices.
VCAT may make any order it considers fair to resolve a domestic building dispute.
s 53 Domestic Building Contracts Act 1995 (Vic)
Who said “a typical construction project is made up of an outward branching tree of relationships”?
Teena Zhang (2009)
“Why national legislation is required for the effective operation of the security of payment scheme”
What is the purpose of pay when paid provisions?
Transfer the risk of principal not paying to the subcontractor.
There is no abuse of process to initiate simultaneous litigation and arbitration against different but related entities for similar but unrelated claims.
Michael Wilson & Partners v Nicholls [2011] HCA
Common law likely merger - but cannot join parties to arbitration - overarching equity to prevent double recovery.
In Australia, there is no “apportionment” available for a global claim (cf UK).
Mainteck Services v Stein Heurtey [2014] NSWCA
Furnace at Port Kembla - mixed delays - contributory negligence not analogous as statute.
