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Wallera v CGM Investments & ANOR

WALLERA PTY LTD V CGM INVESTMENTS PTY LTD & ANOR [2001] NSWSC 96

Supreme Court of New South Wales – 1 March 2001

FACTS

Wallera had franchised a carpet dry-cleaning process from CGM and Whistle. The process of electromagnetically dry-cleaning carpets (“the process”) that was used by Wallera and the use of the name “Electrodry” (“the name”) was owned by Whistle but CGM had exclusive rights to use this process and the name pursuant to a Deed of Licence. Wallera was granted an exclusive license to use the process and a right to grant sub-franchises under a Franchise Agreement (“the contract”). Wallera purchased the chemicals (Electro 1 and 2) from Whistle for many years until the price offered by another supplier was more comparable and it ceased purchasing from Whistle.

In August 1999 a notice was issued under clause 8 of the contract where CGM claimed that Wallera was in breach for not using the appropriate level of chemicals for the process as specified in the contract. Clause 8 stated that if either party failed to remedy a breach within 1 month after a notice, the contract would be terminated.

ISSUES

Whether the notice of intention to terminate, if a breach of contract was not rectified, sufficiently described the relevant breach?

FINDINGS

The notice issued in 1999 was not valid because it failed to draw Wallera’s attention to what the breach was that should be remedied. The notice referred to the required levels of chemicals but did not specify what the levels were or where there may be found.

Clause 8 implied that the notice should provide adequate notification to the Wallera of what was required to be done if the contract was not to be terminated for breach. The automatic termination in the clause was an additional indication that it was appropriate to require that the notice should be made clear what the breach was which if not remedied would lead to termination. The Notice issued by CGM therefore could not be used by CGM as a basis for terminating the contract.

QUOTE

“In the context of the clause 8 a notice must bring to the attention of the recipient the fact that it is alleged that a breach has occurred and that the franchisor requires the breach to be remedied. It must be sufficiently explicit to make it clear to the franchisee what is the breach, which the franchisor requires to be remedied.”

“… I am satisfied that the notice issued in August 1999 was not a valid notice for the purpose of clause 8 of the contract. It did not draw Wallera’s attention to what was alleged to be the breach to be remedied.”

IMPACT

If a notice in a contract purports to include a provision for automatic termination upon failure of either party to remedy a breach then the notice should specify explicitly the cause of the breach which the recipient is required to remedy.

A general reference to a breach may not be sufficient to allow the automatic termination of the contract.

Vince Schokman & ANOR v Xception Construction & ANOR

VINCE SCHOKMAN & ANOR V XCEPTION CONSTRUCTION PTY LTD & ANOR

[2005] NSWSC 297

Supreme Court of New South Wales – 4 April 2005

FACTS

Xception Construction Pty Ltd (‘Xception’) entered into a construction contract with Vince Schokman (‘Schokman’) for the carrying out of construction work at Stotts Street, Bilambil Heights in New South Wales.

On 5 May 2004 Xception served on Schokman a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’). Schokman did not respond with a Payment Schedule and the Superintendent failed to provide a progress certificate. Schokman contended that the amount became due and payable on 19 May 2004. On 6 July 2004 Xception then provided a section 17(2) Notice of Intention to Apply for Adjudication and the matter was determined.

Section 17(2) allows the submission of an Adjudication Application where a Payment Schedule has not been received if the Claimant has notified the Respondent within 20 business days immediately following the due date for payment, of the Claimant’s intention to apply for adjudication of the Payment Claim and the Respondent has been given an opportunity to provide a payment schedule within 5 business days of receiving the notice.

Schokman then sought a declaration that the Adjudication Determination was void on the grounds that the payment claim, the section 17(2) notice was served outside the 20 business day period in breach of the Act and was otherwise not a proper and valid notice as it failed to make any reference to the Act.

Xception contended that the payment claim was due and payable on 9 June 2004, that is, 25 days after the progress claim, as expressly provided for in the Contract. Accordingly, the section 17(2) Notice was within the prescribed time.

ISSUE

Whether the section 17(2) Notice was sent outside the 20 statutory business days allowed.

FINDING

The Court found that Xception’s section 17(2) notice was out of time.

QUOTE

At paragraph 12 and 14, Einstein J stated:

[12] “The Contract between the parties to these proceedings is silent as to when an amount under the payment claim is due and payable where no progress certificate is issued. Accordingly, the Act steps in to fill the gaps: Beckhaus Civil Pty Limited v Council of the Shire of Brewarrina [2002] NSWSC 960 at [60].

[14] The correct analysis of what occurred is as follows: the payment claim was made on 5 May 2004; 10 business days thereafter took the material date when the payment claim became due and payable to 19

May 2004;

[Xception] out of time in notification of intent to apply for adjudication application. pursuant to s 17(2)(a) the statutory 20 business days allowed for [Xception] to notify [Schokman] of its adjudication application should have been served on or before 16 June 2004 under the Act.”

IMPACT

The option to apply for Adjudication when a Payment Schedule is not given, must be strictly within the statutory timeframe.

Tryhaz v Fielder

TRYHAZ V FIELDER [2005] NSWSC 906

Supreme Court of New South Wales – 9 September 2005

FACTS

Multiplex Constructions Pty Ltd (“Multiplex”) was engaged to design and construct the marine and infrastructure works undertaken as part of the redevelopment of wharves 9 and 10, 7-11 Sussex Street, Sydney, known as the King Street Wharf works. Multiplex subcontracted the marine section to Tryhaz Pty Limited (“Tryhaz”). Tryhaz engaged Fielder Engineers Pty Ltd (“Fielder”) to provide engineering and project management services in connection with the marine works, including for the construction of the wash barrier element of the works. The wash wall was intended to prevent any disturbance of the berths from the wave wash generated by port activities, and in particular, by tug vessels. However, the wash barrier deteriorated after completion needed reconstruction.

Fielder commenced proceedings to recover unpaid fees. Tryhaz brought a cross-claim against Fielder arising out of the collapse of the wash barrier claiming damages for breach of contract, alleging deficiencies in design and project management. Multiplex also sought damages from Tryhaz and Fielder arising out of the defects in the wash barrier.

A Referee was appointed by the Supreme Court, delivering a verdict for Fielder for the unpaid fees in the sum of $216,863 andthat Multiplex was entitled to recover the cost of reconstructing the wash wall in the amount of $1,507,380 plus GST,  60% against Fielder and 40% against Tryhaz.

Fielder and Tryhaz challenged the Referee’s finding that Multiplex was entitled to GST on the rectification costs. Tryhaz submitted that the Referee’s Report was predicated on Multiplex having to acquire at some future stage, goods and services required to make good the wash wall. On that basis, if Multiplex acquired the goods and services to build the new wash wall it would be charged GST by the suppliers but would not be able to obtain a credit for the amount charged. Therefore, the damages should be GST neutral. The issue of GST was not raised before the Referee.

ISSUE

Whether the Referee’s report should be amended or remitted for further consideration.

FINDING

The Court held that as Fielder did not raise the issue of GST before the Referee it was not appropriate to remit the issue back to the Referee for further consideration. Further, the Court found that the GST component should not be rejected.

QUOTE

Associate Justice Macready commented at paragraphs 32 and 33:

[22] “… There is a strong reluctance referred to in the authorities to allow the parties to bring forward fresh evidence at the time of the adoption of the report which could have been brought forward before the Referee. The attitude on such occasions is well illustrated…”

[37] “… Fielder did not raise the GST point before the Referee and in the circumstances I do not think it appropriate to remit to the Referee a further consideration of this point. It should have been dealt with in the hearing before the Referee when all the facts were available to the Referee and the parties. Accordingly, I do not propose to reject or remit for further consideration that part of the report which made allowance for GST.”

IMPACT

This case confirms the proposition that the Court will not ordinarily interfere with the Referee’s Report and will not ordinarily allow fresh evidence or submissions which could have been made before the Referee.

TQM Design & Construct v Dasein Constructions

TQM DESIGN & CONSTRUCT PTY LTD V DASEIN CONSTRUCTIONS PTY LTD

Supreme Court of New South Wales – 3 December 2004

FACTS

TQM Design & Construct Pty Ltd (‘TQM’) and Dasein Constructions Pty Ltd (“Dasein’) entered into a construction contract.

Dasein served a Payment Claim pursuant to section 13 of the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’). TQM did not accept the claim. Accordingly, Dasein referred the matter to Adjudication.

Dasein said that an Adjudication Application was given to TQM by a courier who delivered a package to TQM’s principal place of business. The courier knocked on the front door and, having received no response, went to the rear of the house. The courier did not see anyone and then left the envelope at the rear door as he was told this would be all right. TQM tendered evidence stating that a member of the household was present all day who went out the back door several times on the  day in question and did not see a package. TQM says that the package was received the next day on the front porch.Dasein then put  submissions to the Adjudicator to the effect that he could not consider TQM’s adjudication response because it was out of time. These submissions were not copied to TQM or its solicitors.

When the Adjudicator came to consider the matter he referred to the problem that the Adjudication Response was out of time and found that the Adjudication Application had been served within time and noted that, accordingly, the Adjudication Response was out of time. Thus, the Adjudicator did not consider TQM’s Adjudication Response.

ISSUE

Whether the Adjudication Application was served on or received by TQM and whether the Adjudicator denied TQM natural justice by failing to consider its Adjudication Response.

FINDING

On the balance of probabilities, the Court found that the Adjudication Application was received by TQM on the later day.

Further, the Court found that there appeared to be a significant denial of natural justice on two counts. Firstly, that the Adjudicator was given material both fact and content of which were withheld from TQM. It is clear that the Adjudicator found that at least some of that material was of extreme significance on the question that he considered. Secondly, and accordingly, the Adjudicator did not consider the Adjudication Response provided by TQM. By doing so, the Adjudicator failed to have regard to a matter that, by section 22(2) of the Act, is one of the things to which he is required to have regard.

QUOTE

McDougall J at paragraph 5 stated:

“It was submitted that I should construe the word “receiving” in s 20(1)(a) as having its ordinary English meaning, namely, taking into one’s possession and not as equivalent to “being served” or “having been served”. On the view to which I have come it is not necessary to answer that question, but, in particular having regard to the consequences that follow if an adjudication response is not lodged within time, I incline to the view that the distinction between the concept of service and concept of receipt is deliberate and that in s 20(1) the word “receiving” should be given its ordinary English meaning.”

IMPACT

This case stands for the proposition that “receipt” is defined as “taking into one’s possession and is not the equivalent to “being served” or “having been served”” and care should be taken to ensure that the Adjudication Application is actually received.

Tolfab v Tie

TOLFAB V TIE [2005] NSWSC 326

Supreme Court of New South Wales – 5 July 2005

FACTS

Tolfab Engineering Pty Ltd (‘Tolfab’) entered into a sub-contract arrangement with Tie Fabrications Pty Ltd (‘Tie’) for metalwork for a residential development known as the “Oxford Square Project” located on the corner of Oxford Street and Pelican Street Oxford. Tie served a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) claiming $351,270.48 for work done under the Contract. Tolfab responded with a Payment Schedule under the Act. The Payment Schedule included a table which provided a description of the works, job value, claimed to date, claimed previous, approved this claim and outstanding claim. This was a formula the parties had used in previous progress claims.

Tie lodged an Adjudication Application addressing many of the claims in detail. In answer, Tolfab launched into a substantial amount of detail in its Adjudication Response. The Adjudicator determined the Adjudication in favour of Tie,  determining that the full amount of the Payment Claim should be paid. The Adjudicator in his Adjudication Determination referred to the fact that the matters of dispute in the Adjudication Response were not dealt with in the Payment Schedule and therefore he could not consider them in his Adjudication Determination under section 20(2B) of the Act.

Tolfab, in these proceedings, contended that the Adjudication Determination was void on the grounds that the Adjudicator failed to take into account the facts and submissions contained in its Adjudication Response which constitutes a breach of the rules of natural justice.

ISSUE

Was the formula used in the Payment Schedule sufficient to allow Tolfab to rely on further reasons in its Adjudication Response?

FINDING

The Court found that the reasons were sufficient as the formula used provided a clear indication of the value of the work performed. The Court also found that the measure of natural justice that the Act requires to be given extends to a failure to consider submissions under section 22(2)(d) of the Act. However, in the circumstances, the Court found that the Adjudicator had considered the Adjudication Response in the alternative and thus there was no breach of natural justice.

QUOTE

Associate Justice Macready at paragraphs 25 to 27 held:

“[25] In the present case the heading in the payment schedule “Approved This Claim” and the use of a percentage figure in the context of the other headings was a clear indication of the value of the work performed to the date of the claim. It is plainly apparent that the defendant understood that this is what was meant by the payment schedule… There can thus be no question of ambush by the plaintiff as the defendant knew by the time it had to make its adjudication application the ambit of the dispute and could thus address it in its application for consideration by the Adjudicator.

[26] In my view the payment schedule indicated why the amount was less and to the extent that it may have been necessary to do so it gave reasons for withholding, being, inter alia, that the value of the work completed was less than claimed. This was a formula the parties had used in their documentation over the previous progress claims.

[27] It seems, therefore, that the Adjudicator was obliged to consider the matters in the response dealing with this area.”

IMPACT

A Payment Schedule which provides a clear indication of the value of the work in a wide variety of forms, may be sufficient to allow a Respondent to rely on reasons in its Adjudication Response if it puts the Claimant on proper notice of the ambit of the dispute. Further, an Adjudicator is wise to consider submissions in the alternative where practicable.

Minister for Commerce v Contrax Plumbing

THE MINISTER FOR COMMERCE (FORMERLY PUBLIC WORKS & SERVICES) V CONTRAX PLUMBING (NSW) PTY. LIMITED & ORS [2005] NSWCA 142

Supreme Court of New South Wales – 6 May 2005

FACTS

The Minister for Commerce (‘the Minister’) entered into a contract with Contrax Plumbing (NSW) Pty Limited (‘Contrax’) for certain works to be carried out by Contrax at Concord Repatriation General Hospital for $5,423,000.00. Contrax submitted a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) to the Minister seeking $2,622,645.00. The Minister issued a Payment Schedule under the Act, indicating a proposed payment of $NIL. The matter proceeded to Adjudication, Contrax asserting that it was entitled to the progress payment, notwithstanding the non-
fulfillment of certain conditions precedent to entitlement of payment because of section 34 of the Act rendered the applicable terms void. The Adjudicator determined that Contrax was entitled to $1,519,014.99, concluding that section 34 rendered void certain provisions of the Contract. The Minister filed a summons in the Supreme Court of NSW which was dismissed. The Court agreed with the Adjudicator and held that the provisions were rendered void by section 34 of the Act.

The Minister then appealed from those proceedings on the grounds that the primary judge erred in his construction and application of section 34. In particular, section 34 relevantly applied only if “the operation of the Act” is excluded, modified or restricted. Where the contract makes provision for the calculation of progress payments, the Act says that this is to have effect; so that effect is in accordance with the Act and not contrary to it. Contrax submitted that section 8 of the Act establishes an entitlement to progress payments as and from each reference date, and makes no distinction as to the type of construction work included in the original contract and construction work pursuant to a variation or Superintendent’s direction. The provisions of the Contract limited the effect of the Act, because they deprived the Contractor of a right to make a progress claim for such work and to obtain an interim determination in relation to such work.

ISSUE

What is the effect of section 34 of the Act?

FINDING

The Court found that even if section 34 does not invalidate the terms of the Contract, the Adjudicator’s Determination would not be invalid for the reasons set out in TransGrid v Siemens Limited [2004] NSWCA395. However, the Court was of the view that section 34 rendered the terms of the Contract void.

The Court held that the certification of a progress payment by a Superintendent which precludes payment fell foul of section34.

QUOTE

Hodgson JA stated at paragraph 54:

“…in my opinion a provision of a contract as to the determination of reference dates, or as to the calculation of the amount of progress payments, could be such as to restrict the operation of the Act within the meaning of s.34, even though the Act in s.8(2)(a) and s.9(a) expressly defers to such provisions.

For example, if a contract provided for yearly reference dates, or provided that progress payments should be calculated on the basis of 1% of the value of work done, in my opinion such provisions could be so inimical to s.3(1), s.3(2) and s.8(1) as to be avoided by s.34. If, contrary to the first ground, cl.46 is a provision as to calculation, the relevant parts of cl.42 could still be seen as restricting the operation of the Act…”

However, Byrson JA disagreed with Hodgson JA’s decision as to section 34 invalidating clause 42 of the Contract and Brownie JA reserved his judgment on the effect of section 34.

IMPACT

A provision in a construction contract that diminishes, displaces or delays a contractor’s entitlement to work may be void (and if void presumably void for all purposes). Provisions subject to section 34 includes those relating to the determination of reference dates and the calculation of the amount of progress payments even though the Act expressly refers to such provisions.

Taylor Projects Group v Brick Dept & ORS

TAYLOR PROJECTS GROUP PTY LIMITED V BRICK DEPT. PTY LIMITED & ORS [2005] NSWSC 571

Supreme Court of New South Wales – 17 June 2005

FACTS

Taylor Project Group Pty Ltd (‘Taylor’) entered into a construction contract with Brick Dept. Pty Limited (‘Brick’) for the carrying out of brick and block laying work at a site in Holden Street, Ashfield. Brick made an Adjudication Application under the Building and Construction Security of Payment Act 1999 (NSW) (‘the Act’). The Adjudicator determined that Taylor was required to pay Brick the sum of $109,987.80.

Taylor and Brick subsequently entered into an agreement in which Taylor agreed to refrain from seeking an injunction preventing Brick from entering judgment for the adjudicated amount and would pay the adjudicated amount into Court on the basis that that the parties would obtain an early listing of the matter in the Supreme Court for determination and that the sum would be paid to Brick if it succeeded in those proceedings. Consent orders to that effect were made by the Court on 11 March2005.

Proceedings were subsequently brought by Taylor against Brick in the Supreme Court, seeking to impugn the adjudication determination. The matter was heard on 5 May 2005 and the Court held that the adjudication determination was valid. The proceedings were stood over for argument as to costs, orders and questions concerning a Stay of Orders.

At a further hearing, commencing on 15 June 2005, Taylor sought an Order from the Court restraining Brick from taking steps to enforce the judgment obtained on 5 May 2005, and a further Order restraining Brick from filing any adjudication certificate as a judgment in any court. Taylor in its submissions relied on the decision in Grosvenor Constructions (NSW) Pty Ltd v Musico [2004] NSWSC 344 in which it was held that where a claimant clearly being insolvent had obtained an adjudication certificate, it was appropriate to order a stay of the execution of the judgment debt. Taylor argued that it would otherwise suffer irreparable prejudice as payment pursuant to the judgment debt could never be recouped.

ISSUE

If a claimant is close to insolvency, can the Respondent obtain an order of stay of the execution of the judgment debt?

FINDING

The Court held that whilst the financial position of Brick over the past few years had “waxed and waned”, it was not proved to be under administration or being wound up in insolvency. The Court considered that if a claimant is close to insolvency, then non-payment of the debt would prevent cashflow and may drive the claimant into insolvency, which the Act was designed to prevent. Also the Court found that Taylor had not demonstrated that the principles in Grosvenor applied as there was neither certainty nor a very real risk that it would not be repaid should it succeed on the final determination. The Court ordered that upon Brick filing the adjudication certificate as a judgment, the sum paid into Court by Taylor be paid out to Brick.

QUOTE

Einstein J at paragraphs 52 and 60 held:

“[52] The principle to be derived from Grosvenor is that where there is certainty that the defendant’s rights will be otherwise rendered nugatory, and that it will suffer irreparable prejudice, because moneys paid would be irrecoverable as a result of the claimant’s insolvency or liquidation, then the proper and principled exercise of the

Court’s discretion…is to grant a stay… Such a stay is to “prevent injustice”. [60] As counsel for Brick case contended, to grant a stay in circumstances short of actual or imminent insolvency would be to turn the Act on its head. Rather than providing a statutory regime which ensures progress payments, and thus cashflow, to permit a person undertaking construction work to continue to do so, it may then operate to prevent cashflow and bring about the very result the Act is designed to prevent – persons not being paid promptly for the work which they have done.”

IMPACT

When a claimant is not insolvent, but may become insolvent due to non payment of an adjudicated amount, the Respondent will not be permitted an order of stay of execution of a judgment debt.

Taylor Projects Group v Brick Dept & ORS

TAYLOR PROJECTS GROUP PTY LIMITED V BRICK DEPT. PTY LIMITED & ORS

Supreme Court of New South Wales – 5 May 2005

FACTS

Taylor Project Group Pty Ltd (‘Taylor’) entered into a construction contract with Brick Dept. Pty Limited (‘Brick’) for the carrying out of brick and block laying work at a site in Holden Street, Ashfield. Brick faxed a Payment Claim under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) on 5 January 2005 at 10:41pm for $158,490.82. However, Taylor did not receive the Payment Claim until 10 January 2005 when the office re-opened after the Christmas vacation.

Taylor delivered a Payment Schedule under the Act stating the amount payable as $NIL on 20 January 2005, that is, 10 business days from 6 January 2005. The matter proceeded to Adjudication, the Adjudicator determining that Taylor should pay$101,459.31 and that the Payment Schedule was out of time.

Taylor says that the earliest that time under section 14 of the Act could have begun to run was 6 January 2005, or alternatively, on 10 January when the Payment Claim came to its attention. In particular, Taylor submitted that service under section 13(1) of the Act should be construed to mean “brought to the attention of the person served”. Accordingly, Taylor submitted that the Adjudicator had failed to satisfy an essential requirement of the Act and the determination should be declared void.

ISSUE

What is the meaning of “serve” within section 13(1) of the Act?

FINDING

The Court referred to Mohamed v Farrah [2004] NSWSC 482 at 52-53 as authority for the proposition that in the absence of a specific limitation in the service provision relied upon, service which takes place at any time of the day, whether within or without business hours, is regarded as service on that day. Consequently, the Court found that Taylor’s Payment Schedule was required to be provided by 19 January 2005.

QUOTE

[18] “The legislature was careful to distinguish between the concepts when it wished to do so. Sections 17(2)(b),20(1) and s31(2) depend upon “receipt”. Each is instructive. The first two relate to the entitlement of a respondent to provide an answer to a claimant’s claim – a payment schedule and an adjudication response respectively – for the purpose of foreshadowed or actual adjudication. In contradistinction to s13(1), the legislature has been careful to ensure that a respondent is not shut out from providing those responses until a particular time has expired after receipt of the triggering document. In that sense, receipt gives the respondent a greater level of protection than “mere” service under s13(1). Similarly, s31(2), which deals with service by post or facsimile addressed to the person’s ordinary place of business under s31(1)(c), provides that “service” is taken to have been effected when the notice is “received” at that place.”

[19] “Hence the legislature plainly considered “service” under the provisions of s31(1) did not incorporate “receipt” as the critical element, absent an express statement to that effect.”

[20] “… service outside business hours does not turn the 10 business day limit … into a 9 business day limit. The day of service is not counted so that the respondent has 10 full days thereafter to provide a payment schedule [to be precise the respondent has 10 business days, plus the number of hours left in the day of service after being served, plus any non business days during the 10 business day period].”

IMPACT

A payment claim sent by facsimile, whether within or outside normal office hours on a business day, is regarded as being served on that day.

Tan Hung Nguyen & ANOR v Luxury Design Homes

TAN HUNG NGUYEN & ANOR V LUXURY DESIGN HOMES PTY LTD & 2 ORS [2004] NSWCA 178

Supreme Court of New South Wales – 11 June 2004

FACTS

Tan Hung Nguyen (‘Tan’), a registered proprietor of land in Burraneer, and Luxury Design Homes Pty Ltd (‘Luxury’), a licensed builder, entered into a building contract for the design and construction of a house. The building contract was a standard form Department of Fair Trading home building agreement which provided for payment by progress instalments at the completion of specified stages of work. At the expected date for practical completion the work was only 45% completed.

A dispute arose as to defective and unfinished work and Tan refused to pay a progress claim. The building contract contained two relevant clauses. Clause 11 of the building contract provided for the payment of a progress claim to be “…merely a payment on account”. Clause 24 of the building contract expressly dealt with the circumstances in which the contract might be ended by the owner due to identified default of the contractor.

Tan submitted that the building contract was an “entire contract” notwithstanding the fact that the contract provides for progress payments. An “entire contract” is one in which the consideration for the payment of money or for the rendering of some other counter-performance is entire and indivisible. The result being, that Luxury would not be able to recover anything because the work was not completed according to its terms.

ISSUE

Was the building contract an “entire contract”?

FINDING

Hodgson JA and Einstein J held that the correct conclusion is that the contract was not an entire contract because, by its very terms, it contemplated an entitlement on the builder’s part to receive payment despite failure to substantially complete the works. Clause 24 made express provision for the rights of the parties in the event that the contract was determined prior to completion. The inclusion of Clause 24 in the Contract meant that the parties did not intend it to be an entire contract.

McColl JA restated the general principles holding that if a contract or obligation is to be found to be entire notwithstanding that the contract or obligation provides for payment by instalments, the contract on its proper construction must indicate that the instalments are nonetheless conditional upon complete performance of the contract or obligation.

QUOTE

Einstein J at paragraph 75 and 76 stated:

“There are no words in the building contract expressly making entire performance a condition precedent.

In Hoenig v Isaacs [1952] 2 All ER 176, Lord Denning made the point that it was always open to the parties by express words to make entire performance a condition precedent.”

IMPACT

This case stands for the proposition that a contract will only constitute an “entire contract” if payment is made conditional upon complete performance of the contract.

In that case, the contractor will be entitled to payment only if the work is completed according to the terms of the contract.

Stockland Constructors & ANOR v Darryl I Coombs

STOCKLAND (CONSTRUCTORS) PTY LIMITED & ANOR V DARRYL I COOMBS PTY LIMITED & ORS [2005] NSWSC 157

Supreme Court of New South Wales – 9 March 2005

FACTS

Stockland (Constructors) Pty Limited (‘Stockland’) issued an invitation for tenders for the steel fabrication sub-contract. The invitation was based upon a “trade package” comprising architectural and engineering drawings depicting the structural steel, a bill of quantities and sub-contract documents containing proposed terms.

Darryl I Coombs Pty Ltd (‘Coombs’) and others were responsible, under their retainer, for ensuring that the totality of drawings in this package sufficiently depicted the work to be carried out by a tenderer.

Stockland claimed, at first instance, costs for additional works as the architectural drawings contained omissions and inaccuracies, which resulted in conflicts between the architectural and engineering documents. There were inconsistencies between the bill of quantities and the drawings and Coombs failed to warn the Stockland about these deficiencies and errors in the tender package at any material time.

Coombs counter-claimed for additional fees arising from changes in the scope of works and subsequent variations.

The Court appointed Referee in his report, dealt with the cost consequences of substantial alteration to the design or scope of works Coombs submitted that any changes to design work were to be remunerated. The Referee found that changes would not be remunerable unless it was clear as to what additional work Coombs were required to undertake and that it was outside the scope of its percentage fee. Stockland then sought to adopt the Referees Report.

ISSUE

Whether the Report should be adopted.

FINDING

The Supreme Court held that the challenge was unsuccessful as the Referee had made no demonstrated error in his finding that the terms of the agreement included changes in scope within the percentage fee.

QUOTE

Einstein J at paragraphs 27, 29 and 30 stated:

“[27] I would add to this reasoning the proposition that a change in the scope of work could not logically entitle the architects to some specific remuneration unless and until it would be clear as to what additional work they were required to undertake apropos that change.”

“[29] It should also be observed that the referee was entitled to bring his own knowledge on practices of the industry

to bear in construing the exchange of correspondence in terms of the proper approach to construction where one looks to discover the objective intention of parties operating in a particular highly specialized field.

[30] It was accepted by the referee that the cost of re-design and re-documentation could not be accurately reflected in a percentage of the construction cost. On the other hand he also focused on the fact that there simply was no specific provision or protocol in the contract to deal with that varied work.

IMPACT

In the circumstances, where an professional may be required to undertake additional work a percentage fee may result in a substantial under-recovery of his additional time and cost. Clear terms and conditions are required by every consultant.