Chengcheng (Aust) Enterprise Melbourne Pty Ltd v Mansfield Corporation Pty Ltd

[2018] NSWCA 244

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Chengcheng (Aust) Enterprise Melbourne Pty Ltd v Mansfield Corporation Pty Ltd [2018] NSWCA 244

Hearing dates:

12 September 2018

Date of orders:

26 October 2018

Decision date:

26 October 2018

Before:

Macfarlan JA at [1]; Ward JA at [2]; Sackville AJA at [87]

Decision:

1. Leave to file an amended defence in the District Court proceedings be refused and appeal be dismissed with costs.
2. Application for leave to cross-appeal be refused with costs.

Catchwords:

CONTRACTS – Interpretation – Design and construction contract – Where clause provided contractor entitled to reimbursement of loss or expense at specified daily rate if progress of works was delayed or disrupted by “a Variation” – Whether primary judge should have held clause not applicable because there was no actual delay to works where an extension of time had been approved or because there was already agreement as to the cost consequences of the variation – Held there was no error in primary judge’s interpretation – Appeal dismissed

 

CIVIL PROCEDURE – Originating process – Application for leave to amend defence – Leave refused – No question of principle

  CIVIL PROCEDURE – Court of Appeal – Application for leave to cross-appeal – Leave refused – No question of principle

Cases Cited:

Dutton v O’Shane (2003) 132 FCR 352; [2003] FCAFC 195
Mansfield Corporation Pty Ltd v Chengcheng (Aust) Enterprise Melbourne Pty Ltd [2018] NSWDC 12
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35

Texts Cited:

I N D Wallace, Hudson’s Building and Engineering Contracts (12th Ed, 2010, Thomson Reuters)

Category:

Principal judgment

Parties:

Chengcheng (Aust) Enterprise Melbourne Pty Ltd (Appellant)
Mansfield Corporation Pty Ltd (Respondent)

Representation:

Counsel:
JJ Loofs SC with K Young (Appellant)
T Lynch SC with I Leong (Respondent)

  Solicitors:
Jurisbridge Legal (Appellant)
Frank Law (Respondent)

File Number(s):

2018/73972

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

District Court of New South Wales

Jurisdiction:

Civil

Citation:

[2018] NSWDC 12

Date of Decision:

7 February 2018

Before:

Dicker SC DCJ

File Number(s):

2016/238217

Headnote

[This headnote is not to be read as part of the decision]

Mansfield Corporation Pty Ltd (the respondent) was engaged by Chengcheng (Aust) Enterprise Melbourne Pty Ltd (the appellant) under a Design and Construction Contract entered into on 20 July 2015 (the Contract) to refurbish restaurant premises in Melbourne.

The Contract required the respondent to complete the works by 27 November 2015. However, clause 6.6 of the Contract provided that the principal “may direct the Contractor in writing to carry out a Variation which is within the general scope of the Works”. Clause 9.4 of the Contract provided that, if the progress of the works was delayed by any matter, cause or thing beyond the control of the contractor, then the contractor was entitled to a reasonable extension of time for practical completion. Clause 10.4 of the Contract provided that, unless otherwise agreed by the parties, variations must be valued by the contractor on a fair and reasonable basis and must include the value of pricing work, time-related costs and expenses arising from the variation. Clause 10.6 provided that, if progress of the works was delayed or disrupted by (relevantly) “a Variation”, then the contractor was “entitled (in addition to the extension of time referred to in Clause 9.4) to reimbursement of loss or expense as a result of the delay or disruption” at a specified daily rate.

In November 2015 and December 2015, the appellant requested that the respondent carry out a number of additional works in the restaurant. An extension of time of 45 additional working days was approved and the appellant paid the respondent the agreed value of the additional works. Completion occurred on 5 February 2016.

In August 2016, the respondent commenced proceedings in the District Court seeking payment of a sum payable under cl 10.6 of the Contract as reimbursement of loss or expense in respect of a 45 day period. Judgment was given for the respondent on 7 February 2018.

The appellant appealed. The appellant also sought leave to file a further amended defence in the District Court. The respondent sought leave to file an amended statement of claim re-calculating the sum of the delay losses on the basis of 70 calendar days rather than 45 working days.

Held (Macfarlan JA, Ward JA and Sackville AJA), dismissing the appeal, refusing leave to file an amended defence and refusing leave to cross-appeal:

Per Macfarlan JA, Ward JA and Sackville AJA:

1.   Clause 10.6 referred simply to there being a “Variation”. There was nothing in the clause to indicate that the term “Variation” was intended to encompass only a Variation in respect of which there had been unforeseen consequences in terms of the cost of delay: Macfarlan JA at [1]; Ward JA at [73], [75]-[76]; Sackville AJA at [93]-[94].

Per Macfarlan JA and Ward JA:

2.   There was nothing to indicate that clause 10.6 would operate only if the contractual machinery for extension provided in clause 9.4 had been invoked. It was not necessary to decide whether the respondent’s communication in November 2015 amounted to notice under clause 9.4: Macfarlan JA at [1]; Ward JA at [72], [74].

3.   There was no commercial absurdity in there being a cost recoverable in accordance with clause 10.4 and also a liquidated sum recoverable under clause 10.6 to compensate for lost opportunity costs: Macfarlan JA at [1]; Ward JA at [77]-[78].

Per Sackville AJA:

4.   An objective observer would conclude that the respondent was attempting to invoke clause 9.4 to seek a reasonable extension of time in conformity with the contract. Therefore the submission that the progress of the works was not delayed by “a Variation” failed: Sackville AJA at [90]-[91].

5. The subject matter of clause 10.4.1, and the one hand, and that of clause 10.6, on the other, were different. Clause 10.4 was concerned with the value of variations, whereas clause 10.6 was concerned with reimbursement of losses or expenses as a result of delay: Sackville AJA at [96].

Per Macfarlan JA, Ward JA and Sackville AJA:

6. It was not in the interests of justice to grant leave to the appellant to amend its defence. A forensic decision was made at trial not to take the point. Leave was refused: Macfarlan JA at [1]; Ward JA at [80]-[84]; Sackville AJA at [97].

7. It was not appropriate for leave to be granted to the respondent to amend its statement of claim or to file a cross-appeal. Leave was refused: Macfarlan JA at [1]; Ward JA at [85]; Sackville AJA at [97].

Judgment

1. MACFARLAN JA: I agree with Ward JA.

2. WARD JA: This appeal arises out of a dispute in relation to a claim by the respondent (Mansfield Corporation Pty Ltd) for amounts said to be due under a contract between the respondent, as contractor, and the appellant (Chengcheng (Aust) Enterprise Melbourne Pty Ltd), as principal, for the fitout of a restaurant in Melbourne.

3. In proceedings heard in the District Court, the respondent was successful in obtaining judgment in the sum of $134,136.99, comprising an amount of $123,750 by way of “Delay Losses” pursuant to cl 10.6 of the said contract and an amount of $10,386.99 for pre-judgment interest (see Mansfield Corporation Pty Ltd v Chengcheng (Aust) Enterprise Melbourne Pty Ltd [2018] NSWDC 12). The Delay Losses were calculated at the rate of $2,500 per day (exclusive of GST), by reference to Schedule 23 of the contract, for a period of 45 days. Costs were awarded in favour of the respondent on the ordinary basis to 22 September 2016 and on the indemnity basis thereafter.

4. The appellant, by notice of appeal filed on 7 May 2018, appeals from that part of the decision concerning the proper construction of cl 10.6 of the contract between the parties (contained in [108]-[138] of the primary judge’s judgment handed down on 7 February 2018).

5. The respondent, by notice of cross-appeal, for which it accepts leave is necessary, seeks to vary the calculation of the principal sum awarded by the primary judge from $123,750 to $192,500 on the basis (not pleaded or argued before the primary judge) that the principal sum should properly be calculated on 70 calendar days (from 28 February 2015 (an error in the notice of cross-appeal – should be “28 November 2015”) to 5 February 2016 inclusive) rather than, as it was, 45 “working days”. For that purpose, leave is sought to file an amended statement of claim in the District Court proceedings, the only relevant amendments being the specification of the claim for Delay Losses by reference to calendar days of delay (see [4]; [15]; [16A]; [24](a) of the proposed amended statement of claim).

6. The appellant in turn seeks leave to raise a ground of defence not raised by it in the District Court proceedings and for that purpose seeks leave to file a further amended defence in those proceedings, raising, as an alternative to its admission (at [6](a) of the amended defence) as to the issue to it of an invoice in relation to the claimed Delay Losses, a denial that the invoice in question was one issued in accordance with the requirement of cl 10.6 of the contract on the basis that it was not issued within a reasonable time of the delay contended for (see [6](aa) of the proposed further amended defence).

7. The judgment sum has been paid into court and execution of the judgment has been stayed.

8. For the reasons that follow, I am of the view that the appeal should be dismissed with costs and that leave should not be granted either for the cross-appeal to be filed or for the filing by the appellant of a further amended defence in the District Court proceedings.

Background

Contract

9. On 20 July 2015, the parties entered into a Design and Construct Contract – Lump Sum (the Contract) under which the respondent, as Contractor, was obliged to carry out and complete the Project, as defined, in accordance with the Contract (cl 1.2) and the appellant, as Principal, was obliged, inter alia, to pay to the respondent the Contract Sum, as defined, in accordance with the Contract (cl 1.3.1).

10. The definitions clause (cl 1.1.1), applicable except where the context required otherwise, contained the following relevant definitions: the “Project” was defined as “all of the work under this Agreement including Variations and the design and construction of the Works and temporary works”; “Works” was defined as “the works shown upon the Design Documents as they may be varied from time to time in accordance with this Agreement and briefly described in Schedule 1”; and “Contract Sum” was defined as “the sum stated in Schedule 6 as adjusted by the terms of this Agreement”; that being the sum of $2,478,333 (inclusive of GST) with express reference to a “Detailed Budget Attached”.

11. The term “Variation” was also defined in cl 1.1.1 and included (see (i)) “any … change in the Principal’s Project Requirements or the Project which makes necessary the alteration or modification of the design, quality or quantity of the Project as described by or referred to in the Principal’s Project Requirements or in the Design Documents”, including four specified matters (at (i)(a)-(d)).

12. Clause 5.2 of the Contract, headed “REJECTION OF DESIGN”, provided that:

If the Principal directs the Contractor to change any design provided by the Contractor that is in accordance with the Principal’s Project Requirements then any work carried out by the Contractor in connection with such direction must be valued as a Variation.

13. Clause 6.6 of the Contract provided that at any time prior to the date for Practical Completion (a term defined in cl 1.1.1) the Principal “may direct the Contractor in writing to carry out a Variation which is within the general scope of the Works”. (I note that that clause did not afford the Contractor a discretion in this regard.)

14. Clause 9.2 of the Contract made provision (by reference to Schedule 15) for the number of days within which the respondent was obliged to bring the Works to Practical Completion. However, pursuant to cl 18 of the Contract, which added as Special Conditions the conditions set out in Schedule 31, it was agreed that, notwithstanding cl 9.2, the Works were to be brought to Practical Completion in two stages: the first stage, for the completion of various areas on level 1, by 1 September 2015, and the second stage, being the completion of the balance of the Works (“all Works”), by 27 November 2015 (subject to cl 18.4(b) which dealt with the circumstance where approvals for certain specified works were obtained after 27 September 2015) (see cl 18.4).

15. Clause 9.4 of the Contract, headed “DELAYS”, provided, relevantly, as follows:

9.4.1   If the progress of the Works is delayed by any matter, cause or thing beyond the control of the Contractor then the Contractor is entitled to a reasonable extension of time for Practical Completion.

16. Clause 10.4 of the Contract, headed “VALUATION OF VARIATIONS” provided as follows:

10.4.1   Unless otherwise agreed by the parties in writing, Variations must be valued by the Contractor on a fair and reasonable basis and must include the value of pricing work, time-related costs and expenses arising from the Variation.

10.4.2   If any Variation results in increased cost then such cost together with the percentage stated in Schedule 20 must be added to the Contract Sum.

10.4.3   If a Variation results in decreased cost then such cost is to be deducted from the Contract Sum.

17. The critical clause, for present purposes, is cl 10.6, headed “COSTS OF DELAYS”, which provided as follows:

If the progress of the Works is delayed or disrupted by:

.1   a Variation; or

.2    a Latent Condition; or

.3   a dispute with an adjoining or neighbouring owner or resident; or

.4   compliance with any changed or unforeseen requirement, condition, notice or order of any Authority; or

.5   delay in the issue of any necessary Approval by an Authority; or

.6   a breach by or act of prevention on the part of the Principal; and/or

.7   delay caused by the Principal,

then the Contractor will be entitled (in addition to the extension of time referred to in Clause 9.4) to reimbursement of loss or expense as a result of the delay or disruption at the daily rate set out at Schedule 23 or if nothing is set out there, in an amount ascertained in accordance with common law principles. Within a reasonable time of the delay the Contractor must give written notice to the Principal of the amounts and items of loss or expense and, should the Principal not disagree with the amounts by written notice within 10 days of receipt of the notice, the Contract Sum is to be adjusted accordingly. [my emphasis]

18. As noted earlier, Schedule 23 specified a daily rate for the purposes of cl 10.6, this making it unnecessary for the respondent to establish its loss or expense as a result of the delay by reference to common law principles. Relevantly for the purposes of the proposed cross-appeal, cl 1.1.2 provided that, for the purposes of cl 10 of the Contract, “days are calendar days”.

19. Clause 10.7 of the Contract provided for Liquidated Damages to which the appellant might be entitled if Practical Completion were not achieved by the due date:

10.7.1   If the Works do not reach Practical Completion by the date for Practical Completion as extended in accordance with this Agreement then the Contractor must pay or allow to the Principal by way of liquidated and ascertained damages a sum calculated at the rate stated in Schedule 23 from that time until the date of Practical Completion.

10.7.2   Liquidated damages payable under clause 10.7.1 are a cap on the liability of the Contractor in respect of delay. The Principal is not entitled to recover any other monies from the Contractor arising from delay other than as stated in this clause.

Completion of the Works

20. The primary judge noted (and it is not here disputed) that a number of matters were not disputed by the parties (see [14] of the primary judgment). Those matters included that Variations were requested on a number of occasions on behalf of the appellant for additional works ([14](b)) and that various documents had been provided to the appellant referring to additional works requested by the appellant and the total number of days required to complete those works ([14](c)). The documents to which the primary judge there referred were documents dated 5 November 2015, 10 November 2015 (which replaced the earlier document), 25 November 2015 and 8 December 2015, respectively. The number of additional days required for completion of those additional works was said to be 44.

21. The primary judge also noted (at [14](e)-(f)) that on 17 December 2015 an application was submitted by the respondent to the firm of architects acting on the project (who had authority on behalf of the appellant to approve Variations) for an extension of time (claiming approval of 45 additional working days with a revised contract completion date of 8 February 2016) and that this was approved that same day, following a discussion between a Mr Yee (from the architects’ firm dealing with the project) and a Mr Xiao (on behalf of the appellant).

22. The value of the Variations was agreed at $183,353.07 (including an 8% margin and GST), which was paid by the appellant. There is no challenge to the claimed Variations.

23. By email dated 23 December 2015, the respondent’s principal, Mr Bruce Mansfield, advised Mr Yee that his price for the works had already been reduced and did not include “our expenses for remaining on site for the additional time to complete these works”, which he said was costing the company $15,000 per week.

24. Practical Completion was achieved on 5 February 2016, 3 calendardays earlier than the date of Practical Completion as extended.

25. On 28 March 2016, the respondent issued an invoice to the appellant, claiming Delay Losses in the sum of $123,750 (that being calculated at $2,500 plus $250 (GST) x 45 days). (The respondent now says that this claim understated the number of days for which it was entitled to Delay Losses by 25 calendar days (resulting in an under-calculation of $68,750 – see [24](a) of the proposed amended statement of claim).)

26. The appellant did not pay the invoiced amount, following which the respondent commenced proceedings by way of statement of claim filed in the District Court on 8 August 2016. The appellant raised various defences to the claim, including that cl 10.6 was unenforceable as a penalty clause and a defence based on estoppel. The penalty and estoppel defences were unsuccessful (and the appellant does not here seek to challenge the decision in that respect). In issue in the present appeal is solely the proper construction of cl 10.6 of the Contract.

Primary judgment

27. On the issue as to the proper construction of cl 10.6, the primary judge, having earlier summarised the applicable principles of contractual construction (at [6]-[13]), about which there is again no dispute in the present appeal, concluded that: the words “arising from the Variation” in cl 10.4.1 qualified each of the items appearing before them – i.e., the value of pricing work, time-related costs and expenses ([124]); the expression “time-related costs … arising from the Variation” referred to the “actual labour costs and materials’ costs arising from the Variation” (not to any costs arising from the delay in the progress of the Works, which costs were dealt with by cl 10.6) ([126]); cl 10.6 contemplated a delay in the progress of the Works by the respondent due to a Variation and costs which are incurred as a result of that ([130]); an extension of the date of Practical Completion under the machinery provisions in cl 9.4 of the Contract did not of itself involve a variation to the Contract ([131]); and, on the proper construction of the clause, cl 10.6 was not limited to actual proved loss or expense but, rather, constituted the parties’ contractual assessment of what the loss or expense would be to the respondent as a result of a delay due to the Variation (that amount having been assessed by the parties at the time of the Contract at the daily rate of $2,500 per day) ([135]).

27. In so concluding, the primary judge considered that, as cl 6.6 provided that the respondent was obliged to undertake any Variation which the appellant might direct in writing, provided it was generally within the scope of works ([115]), any such Variation was, for the purposes of cl 9.4.1, a “matter, cause or thing beyond the control” of the respondent ([118]); that, as a consequence, should any Variation cause delay in Practical Completion, the respondent was entitled to an extension of time pursuant to cl 9.4.1 ([119]); and that while the consequences of the delay of works in relation to time were dealt with in cl 9.4, the consequence of the delay of works in relation to cost were dealt with in cl 10.6 ([119]).

28. The primary judge had regard to the similarity between the opening words of cll 9.4.1 and 10.6 respectively, noted that in cl 10.6 a Variation was specifically referred to as an event or thing “which may cause a delay or disruption in the progress of works” ([120]). The primary judge considered that cl 10.4.1, which provided that valuation of Variations by the contractor must be fair and reasonable and must include “the value of pricing work, time-related costs and expenses arising from the Variation”, was not the entirety of costs chargeable with respect to a Variation, as a distinction existed between specific costs referable to a Variation (included by cl 10.4.1) and non-specific costs referable to a Variation (which were not included by cl 10.4.1 – see [126]).

Grounds of appeal

30. The grounds of appeal as set out in the notice of appeal are as follows:

5. The Trial Judge erred in construing clause 10.4.1 of the contract (concerning the costing of Variations) so as to not require the entirety of the plaintiff’s additional time related costs and expenses arising from a Variation to be claimed [126].

6. The Trial Judge erred in construing clause 10.6 of the contract (concerning Costs of Delay) to be available with respect to any time related costs and expenses arising from a Variation which on the proper construction of the contract ought to have been claimed pursuant to clause 10.4.1 [130].

7.   The Trial Judge erred in construing clause 10.6 of the contract to provide that the Respondent was entitled to be compensated for any delay caused by a Variation [135], including any time related costs and expenses arising from a Variation.

8.   Having concluded that the parties extended the date of practical completion pursuant to the ‘machinery provisions’ in clause 9.4 of the contract [131], his Honour erred in concluding that such extension did not result in the date for Practical Completion being extended for all purposes under the contract, including whether there had been a delay for the purposes of clause 10.6 [130, 131 and 132].

9.   His Honour erred in ordering judgment for the Plaintiff.

31. As adverted to above, the appellant also now seeks to raise a ground of defence not raised below; and for that purpose seeks leave to file a further amended defence. The proposed amendment is to [6] of the amended defence filed 13 October 2017 in order to add a new sub-paragraph (aa) in the following terms:

6.    In answer to Paragraph 20 of the amended statement of claim, the defendant:

(a)    admits that on or about 28 March 2016 the plaintiff issued invoice no. 20160161 dated 28 March 2016 to the defendant;

(aa)    alternatively denies that such notice was one issued in accordance with the requirement of clause 10.6 of the Contract, in that it was not issued within a reasonable time of the delay contended for, as:

i.    The Notice identified “Extension of Time of 45 Days Approved under the Contract” as the Delay;

ii.    If, as contended for by the Plaintiff, such Extension of Time occurred in consequence of the request made by the Plaintiff by email to the Defendant sent at 12:36 pm on 17 December 2015, and granted by the Defendant by email to the plaintiff sent at 12:37pm 17 December 2015, (the legal effect of which is denied by the Defendant) then such delay occurred on 17 December 2015;

iii.    a reasonable time was either as at 17 December 2015, or some days subsequent to that date, but in any event not the date of issue on 28 March 2016;

in consequence of which such claim for Delay Loss pursuant to clause 10.6 of the Contract is unenforceable.

…

32. The appellant’s appeal raises three essential arguments: first, it is contended that the primary judge erred (at [131]-[132]) in concluding that the parties did not (as indicated by their conduct objectively interpreted) effect an adjustment to the date for practical completion (the appellant maintaining that there was a contractual extension of time that adjusted that date from 27 November 2015 to 8 February 2016); second, that the primary judge erred (at [126], [128]-[130]) in the construction of cl 10.6, in that, properly construed, it applies only to unforeseen consequences arising from a Variation not to Variations per se; and, third (the point that it accepts was not taken at trial) that there was a condition of payment in respect of any claim under cl 10.6 that reasonable written notice of the amounts claimed be given and that this was not done in the present case.

Appellant’s submissions as to the proper construction of cl 10.6 (grounds 5-8)

33. The appellant accepts that the primary judge adopted the correct principles of construction of cl 10.6 having regard to the Contract as a whole and the consideration of specific related provisions (namely, cll 6.6, 9.3, 9.4, 10.4 and 10.7). However, the appellant contends that the primary judge erred in the application of those principles.

34. Specifically, the appellant contends that: once the parties had agreed as to the time consequences of the Variations, there was no delay for the purposes of cl 10.6; once the parties had agreed as to the cost of the Variations, there was no further expense to which the respondent was entitled arising from a Variation; and, on its proper construction, cl 10.6 (as concerned a Variation) applies where there is no agreement as to time and the machinery provisions extending time pursuant to cl 9.4 have been enlivened. It is submitted that there was no enlivening of cl 9.4 where (as here) there was an agreed extension of time.

35. The appellant argues that, in construing cl 10.6, the primary judge had too little regard for the agreement made between the parties as to the Variations and too much regard to the “machinery provisions” of the Contract which operated in the event of dispute or disagreement and where a consensual regime had not been agreed.

36. The appellant submits that the opening terms of cl 10.6 (“If the progress of the Works is delayed or disrupted by …”) are central to the triggering of the obligation to pay agreed Delay Losses in cl 10.6, and that the seven circumstances that are there specified are matters seemingly outside the control of the contractor. The appellant says that good reason exists for the inclusion of the word “Variation” as a circumstance in cl 10.6 once this construction is accepted. It argues that the delays the subject of sub-cll .2 through to .7 all appear to be unexpected and submits that “[i]t may have been too difficult to identify the circumstances of unforeseen delay with respect to a Variation, and the simpler course was to identify the circumstance of Variation as the cause of unforeseen delay”.

37. The appellant contends that in having regard to cl 6.6, the primary judge failed to distinguish between Variations with respect to which the parties are agreed as to time and cost consequences, and those in respect of which the parties are not agreed. It is said that where a Variation is the subject of negotiated agreement between the parties it is difficult to conclude that such Variation could be a “matter, cause or thing beyond the control of” the contractor for the purposes of cl 9.4.1. The appellant argues that impact of the Variation upon the primary contractual obligation to build the Works to Practical Completion by the due date is controlled by the agreed time extension mechanism (under cl 9.4.1) and the impact of the Variation upon the sum the Principal is obliged to pay is controlled by the agreed additional price (cl 10.4.1).

38. The appellant maintains that not all Variations enliven cl 9.4.1 and says that no entitlement to a reasonable extension of the time for Practical Completion pursuant to cl 9.4.1 is available where there is agreement as to the time consequence of a Variation “precisely because there is such agreement”.

39. It is argued that the words in cl 10.6 as to the contractor’s entitlement “(in addition to the extension of time referred to in Clause 9.4) to reimbursement of loss or expense as a result of the delay or disruption...” point to the consequences of non-consensual conduct with respect to a Variation, not consensual conduct.

40. As to the distinction, adopted by the primary judge, between specific and non-specific costs arising from a Variation, the appellant argues that this is a strained construction of cl 10.4.1. It submitted that there would be significant commercial utility in a construction of the clause which permitted a contractor to claim all referrable value, cost or expense, provided it was fair and reasonable. Insofar as the primary judge held (at [126]) that the requirement under cl 10.4.1 to value Variations on a fair and reasonable basis, if applied to non-specific costs, might lead to “further delays and complexities in pricing Variations which could lead to greater extension claims”, it is said that this ignores the commercial utility in certainty; and that a commercially oriented builder would know holding costs, be adept at pricing, and would in any event need only demonstrate that such costs were fair and reasonable, not the exact cost.

41. One of the difficulties in concluding that cl 10.6 “Costs of Delays” applies to all Variations is said to be that the clause requires notification of such a claim not at the time the Variation is priced (in contra-distinction to cl 10.4), but at some later time, the clause requiring that “[w]ithin a reasonable time of the delay the Contractor must give written notice to the Principal of the amounts and items of loss or expense…”. It is submitted that the notice requirement exists so that a Principal is able to make a commercial judgment as to whether a Contractor might proceed with Variations increasing the Works, or in a “worst-case” scenario elect to engage in Variations which might decrease them.

42. It is submitted that a commercial reading of the Contract should permit a Principal to know the full cost of a Variation at the time a determination is made to proceed with it. It is submitted that if every Variation increased the time required for the Contractor to perform the Contract, but notification was only after the delay caused, a Principal could have no certainty as to the cost of a Variation at the time a direction pursuant to cl 6.6 was given.

43. In response to the respondent’s submission that “time related costs and expenses” under cl 10.4 and “Delay Losses” under cl 10.6 are not the same thing (see [63] below), the appellant says this is not an answer to its complaint that the mandatory costing of time related costs and expenses pursuant to cl 10.4 included Delay Losses. In the appellant’s submission the difficulties created by the overlap of cl 10.4 costs with cl 10.6 Delay Losses are avoided if the application of cl 10.6 is not to a Variation itself but, rather, for unforeseen delays arising from a Variation. Its argument is that on the proper construction of cl 10.6, the delay which needs to be demonstrated is a delay beyond the anticipated allowance for a Variation.

44. The appellant argues that by agreeing to 45 additional days in consequence of the Variations, the parties could only have been agreeing that the date for Practical Completion was moved from 27 November 2015 to 8 February 2016 and that this consensual adjustment of time effected a Variation of the Contract. In those circumstances, it is submitted that it is difficult to see how there could be “delay”.

45. The appellant argues that there is no basis in the Contract for (and no meaningful) distinction between a primary (contractual) and secondary (machinery) adjustment of the date for Practical Completion.

46. The appellant postulated various examples as illustrative of its submission that the conclusion of the primary judge that all Variations causing delay, including those agreed to as to time and cost, trigger an obligation to pay further reimbursement costs is unwarranted, including: first, an example where the parties had just signed the contract and the contractor advised that a mistake had been made as to the duration of a prior job and wanted to adjust the date of Practical Completion by a month, the Principal wanted to retain that contractor and agreed to the adjustment, and this was recorded as a Variation to the contract; second, where a contractor was running “overlapping” projects, there was a delay in one which affected the other and the parties wished for the same consensual adjustment of time; third, that the contract was not one which was on a “construction continuum”, in that there were two critical time paths in the contract which had a measure of independence (say, a design phase and then a construction phase, or discrete construction phases).

47. The appellant says its chief complaint against the construction adopted by the primary judge is that it is uncommercial; that it introduces an arbitrary and inflexible obligation to compensate for delay costs when they may not exist at all, and says that this “can only devalue consensual dealings between the parties, which is at the core of any commercially realistic interpretation”.

48. The submission put for the appellant as to the role of cl 10.6 is that it is intended to deal with circumstances where the parties have been unable to agree on time extensions (in which case cl 10.6 contains their agreement as to a method to value the cost of delay). It is submitted that cl 10.6 should be regarded as applying to “genuinely unforeseen events”; not to “consensual adjustments as to scope of works and the time required to undertake them”.

49. It is the appellant’s submission that a more commercial construction of cl 10.6 is needed than that given by the primary judge and that any construction of the clause should recognise “the value in parties managing the frequently changing circumstance of construction”, something that it is said is not achieved by assuming delay costs in all circumstances and “devaluing the effect of consensual dealings”.

Appellant’s submissions as to the new defence sought to be raised

50. As to the application for leave to raise the point not previously raised before the primary judge (that being as to whether the notice required under cl 10.6 was issued within a reasonable time and the consequences if it was not), the appellant argues that the requirement for the notice is expressed in mandatory terms. It submits that the purpose of this requirement is “presumably” to permit the Principal to make a judgment as to the whether the commerciality of the project requires revision (such as whether to proceed with a Variation increasing the Works or to engage in Variations which might decrease them).

51. The appellant argues that where delays are said to have been occasioned by a Variation it is difficult to see why a notice might not be required to be issued immediately, especially where (as contended for by the respondent) an application for extension of time was capable of being made. It is submitted that in the present case the fact that the notice (i.e., the invoice) was issued nearly two months after Practical Completion meant that that opportunity was lost to the appellant.

52. The appellant accepts that there are well-recognised difficulties in raising a new matter after trial (referring to Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35) but argues that the question posed by the proposed amendment is whether there could ever be a justification for the respondent notifying the appellant of the intention to claim Delay Losses nearly two months after Practical Completion was reached. It is submitted that it is in the interests of justice for this point now to be raised, since if correct the respondent would have been entitled to no Delay Losses and the judgment in its favour amounts to a windfall gain.

53. The appellant made three points in support of its application for leave to amend its defence.

54. First (though it says its application does not depend on the outcome of the respondent’s application for leave to file the proposed amended statement of claim), that if the respondent is given leave to amend its statement of claim to claim an increased amount by reference to 70 calendar days, then it should be permitted to file an amended defence: arguing that on no view of the matter could notice for the 70 days then claimed have been given as required by cl 10.6.

55. Second, that it is in the interests of justice that such a defence be able to be raised as it provides a complete defence to the claim (citing Dutton v O’Shane (2003) 132 FCR 352 at 361; [2003] FCAFC 195 for the proposition that the importance of the point is of significance in determining whether leave should be granted).

56. Third, that this is not a “wholly new point”, since it arises “perhaps tangentially” on the question of the proper construction of cl 10.6.

57. Counsel for the appellant nevertheless conceded that there had been a forensic decision taken by Counsel appearing for the appellant in the District Court not to run the very same argument now sought to be raised (T 9.25).

Respondent’s submissions as to construction of cl 10.6

58. The respondent maintains that the contentions by the appellant that time-related costs and expenses arising from Variations are not recoverable under cl 10.6 and that there was no delay or disruption within the meaning of cl 10.6 once an extension of time under cl 9.4.1 was obtained for the doing of the work entailed in the Variations are inconsistent with the express text of, and the context provided by, the Contract.

59. As to the first, the respondent emphasises that, under the Contract, a Variation is, by definition, a consequence of a direction by the Principal for a change in the Work to be done under the Contract; and that a direction for the doing of additional work that gives rise to an entitlement of the Contractor to a reasonable extension of time is necessarily one that is likely to delay or disrupt what otherwise have been the progress of the Works and the giving of which, as an act of the Principal, is a matter beyond the control of the Contractor.

60. It submits (but I note that the appellant does not accept) that it was common ground in the present case that the Variations did delay the progress of the Works to 5 February 2016. (In that regard, the appellant contends that “delay” should be contrasted with “extension”; the distinction being as to the consensual expansion of the time in which performance is required. Further, insofar as the respondent asserts that, in respect of Variations, there was no other period by which a Contractor could, for reasons beyond its control, be thereby delayed or disrupted, the appellant says this ignores the possibility of consensual adjustment.)

61. The respondent emphasises that the entitlement to Delay Losses conferred by cl 10.6 is expressed as being in addition to any entitlement to an extension of time; which it maintains is inconsistent with the appellant’s submission that there was no entitlement to the Delay Losses because an extension of time was consensually agreed. The respondent argues that appellant’s submission in that regard involves a misapprehension of the effect of what occurred and/or a misconstruction of cll 9.4.3 and 9.4.4.

62. As to the perceived misapprehension, the respondent argues that the correspondence issued to the appellant on 17 December 2015 was, for the purpose of cl 9.4.2, written notice specifying the cause and the likely period of delay; and that the reply by which there was agreement to the extension sought amounted to a direction for an extension of time. If, however, that response was not a direction for the purposes of cl 9.4.3, then the respondent nevertheless argues that the date for Practical Completion was deemed to be extended by the period claimed in the 17 December 2015 email by operation of cl 9.4.4 of the Contract. Thus it argues that, on either basis, the date for Practical Completion was extended pursuant to cl 9.4 (and says that any suggestion to the contrary would be an absurdity – since the parties clearly proceeded on the basis thereafter that the date for Practical Completion was 8 February 2016).

58. As to the perceived misconstruction, the respondent says that the essence of the appellant’s submission is that in respect of Variations there is no Delay Loss (because the matters thereby to be the subject of compensation were all time-related costs and ought to have been claimed in the valuation of the Variations). The respondent maintains that there is a distinction between time-related costs (dealt with under cl 10.4) and Delay Losses (dealt with under cl 10.6).

59. In particular, the respondent argues that a Variation may involve time-related cost and expenses arising from its performance but that performance may not necessarily delay or disrupt the progress of the Works (giving examples, which need not here be considered, of situations in which additional work required by a Variation may give rise to time-related costs and expenses but not affect the progress of the Works towards Practical Completion).

60. The respondent points to the text of cl 10.6 in support of that conclusion in two respects.

61. First, the respondent argues that the clause assumes that there has been a Variation and provides that “in addition to” the extension of time referred to in cl 9.4 (which of itself would give rise to an entitlement to a reasonable extension of time for Practical Completion and hence to the potential for payment of time-related costs), the Contractor “will be entitled” to reimbursement of loss or expense as a result of the delay or disruption (i.e., the Delay Losses). Hence it is argued that the clause itself suggests that cl 9.4 is to be construed as comprehending time-related costs directly arising from a Variation and cl 10.6 is to be construed as comprehending the indirect costs to a contractor of being delayed in the progress of the Works (i.e., kept on site) beyond the original date for Practical Completion.

62. Second, the respondent points to the fact that the clause makes provision, if the parties did not agree for the quantification of Delay Losses to be made by reference to a liquidated sum (by inserting a figure in Schedule 23), for the reimbursement of such loss or expense in an amount an amount ascertained in accordance with common law principles. In that regard, the respondent notes that the heads of damage that may be recoverable under common law principles for delay include amounts not necessarily capable of quantification before the period of delay is known. Hence, it is submitted that cl 10.6 operates in respect of actual rather than projected delay.

63. On that second point, the appellant’s response was to submit that it is clear that the sums said to be Delay Loss were capable of discrete ascertainment (and that the respondent’s appeal to I N D Wallace, Hudson’s Building and Engineering Contracts (12th Ed, 2010, Thomson Reuters) at [6-072] (in relation to the heads of damage for delay) does not assist in the present case as the Contract calls for its specific construction). (Nevertheless Counsel for the appellant accepted in the course of oral submissions that at the time a Variation is valued the cost to the Contractor of the delay in progress of the Works to Practical Completion will not necessarily be known (see T 8.33) – say, for example, where the Contractor by reason of the delay is not able to take up an opportunity that becomes available to it after the valuation of the Variation.)

Respondent’s submissions on the proposed new point of defence

69. In short, the respondent argued against the construction for which the appellant now contends on proposed new point of defence; but maintained that leave should not be granted because of the nature of the requirement for an evaluation to be made as to when was reasonable time as one that would require an examination of all of the evidence at the applicable time. It is submitted that the Court could not be satisfied that if the point had been taken at first instance the evidence, and the outcome, would have been the same.

Application for leave to amend the statement of claim

70. Lastly, as noted above at [5]-[6], in its cross summons, the respondent seeks leave to file an amended statement of claim re-calculating the “Delay Losses” claimed on the basis of 70 calendar days, not 45 working days. The respondent’s proposed amendment to its claim was put as one that would involve no unfairness to the appellant (and would not turn on different evidence) but was simply to correct a misapprehension in that the respondent had failed to appreciate that cl 1.1.2 of the Contract provided that for the purposes of cl 10 the “day” was a calendar day not a working day. The appellant did not consent to the expansion of the claim in this regard. Its position was that an increase in the claim would have caused Counsel at first instance to review some of the forensic decisions made and that evidence might have been called on the penalty issue or on the question of reliance as to whether the Variations would have been proceeded with in light of the increased sum.

Determination

71. As noted earlier, there was no dispute as to the applicable principles of contractual construction and it is not necessary here to repeat them.

72. In my opinion, the appellant’s submission that there is no “actual” delay (for the purposes of cl 10.6) if there has been a consensual extension of the time for Practical Completion and that cl 10.6 only applies if the contractual machinery for an extension under cl 9.4 has been enlivened finds no textual support in cl 10.6.

73. Clause 10.6.1 refers simply to a “Variation” (that being a defined term). The definition of “Variation” (part of which has been extracted earlier) is one that focusses on there having been a change in the Principal’s Project Requirements or the Project. There is nothing in cl 10.6.1 to suggest that, where there used, the term “Variation” is intended to encompass only a Variation in respect of which there have been unforeseen consequences in terms of the cost of delay. If the suggestion is that there is no delay or disruption, for the purposes of cl 10.6, because “Works” is defined to include all Variations, then this would give cl 10.6.1 no meaningful work to do.

74. True it is that cl 10.6 refers to (and assumes that there will be) an entitlement to the extension of time referred to in cl 9.4, but nothing in the clause indicates that there was to be no entitlement to reimbursement of Delay Losses unless the procedure in cl 9.4 had formally or otherwise been invoked. (In this regard, it is not necessary in my opinion to reach any conclusion as to whether the communication on behalf of the respondent in November 2015 amounted to notice under cl 9.4.) Nothing in cl 10.6 supports the view that there is to be a different outcome (i.e., no entitlement to Delay Losses is to arise) if there has been a consensual arrangement reached in relation to the extension of the time for practical completion.

75. As to the submission that the costs of a Variation (other than unforeseen consequences) are recoverable under the machinery for valuation of Variations, cl 10.6 itself contemplates that it will operate in circumstances where there has been an extension of time for Practical Completion (referring to “the extension of time referred to in cl 9.4”) and hence contemplates the potential for time-related costs under cl 9.4; and in those circumstances it provides expressly for “reimbursement of loss or expense” as a result of the delay or disruption caused by the Variation.

76. The contention that cl 10.6 only applies to “unforeseen” circumstances arising as a consequence of a particular Variation involves in my opinion an impermissible reading of words into cl 10.6 – it effectively requires cl 10.6.1 to read “an unforeseen Variation” or “a Variation that gives rise to consequences unforeseen at the time of the valuation of the Variation”.

77. As to the submission that, if the primary judge’s construction be correct, it would never be possible to know in advance the actual costs of a Variation (and hence that the primary judge’s construction lacks commercial utility), apart from the fact that in the present case there is no commercial uncertainty (because the Delay Losses were to be calculated at a specified daily rate), the submission about certainty assumes that the cost to the Contractor of the impact of delay will necessarily be known at the time an extension of time is sought or a Variation is valued – yet it is accepted by the appellant that this will not necessarily be the case (see T 8.33). I do not consider it commercially obvious that the parties would have intended the Contractor to be obliged to value all the costs of a Variation (including lost opportunity costs) at the time the direction is given in relation to a Variation.

78. There is no commercial absurdity in there being, as the respondent contends, a cost recoverable by the Contractor reflecting the value of the “pricing work, time-related costs and expenses” arising from a Variation (cl 10.4.1) and a requirement, in addition, for reimbursement of a liquidated sum to compensate for the lost opportunity costs inherent in delay in the progress of completion of the Works by reason of a Variation.

79. In my respectful opinion, the primary judge did not err in his construction of cl 10.6. That disposes of the grounds of appeal as framed in the notice of appeal.

80. Turning then to the third (and new) point sought to be raised as to the reasonableness of the time in which notice was given in relation to the claimed Delay Losses (that being a delay of around two months from the date of Practical Completion), I would not grant the leave sought.

81. The first of the arguments relied upon by the appellant (that is, denial of fairness if the respondent is permitted to amend its statement of claim) does not arise because I would not grant leave for the respondent now to amend its statement of claim for reasons I give below.

82. As to the second of the arguments (the interests of justice having regard to the importance of the point), it is by no means self-evident on the terms of cl 10.6 that the requirement to give notice is a condition precedent to any entitlement to Delay Losses; nor that it operates as a disentitling factor. Another available construction is that the failure to give the requisite notice within a reasonable time would preclude reliance by the Contractor on the automatic adjustment of the Contract Sum should the Principal not disagree with the amounts claimed (assuming for the sake of argument that this part of the clause has any operation at all where the Delay Losses are to be calculated by reference to the Schedule 23 daily rates).

83. In any event, an argument based on whether the requisite notice was given within a reasonable time of the delay would require a factual determination as to the circumstances in which the invoice was raised in the present case. It appears that this issue was not explored in the evidence at trial (perhaps beyond a question in cross-examination as to whether there had been discussion of the claimed Delay Losses in the period after Practical Completion – presumably referable to the estoppel claim, which the primary judge dismissed; see trial transcript T 88.16).

84. As to the third of the reasons put forward (that this was not a “wholly new point”), an argument only faintly pressed, it suffices to note that there was a forensic decision made at trial not to raise this defence. I do not accept that it can now be raised simply because it also involves a question of construction in relation to cl 10.6.

85. Finally, as to the respondent’s application for leave to amend its claim, it may be accepted for present purposes that the calculation of the claim by reference to working, not calendar, days was the result of an error or misapprehension in the construction of the Contract at the time the claim was pleaded. However, the case was run on that basis and it cannot be said that there would necessarily have been the same outcome had it been raised at the trial – not least because it may have been relevant to the arguments raised as to whether the clause operated as a penalty. Counsel for the respondent conceded that, but for the fact that an appeal was brought, the respondent would not have had the opportunity now to seek to change the basis on which the Delay Losses were to be calculated. I am not persuaded that leave should now be given for that to occur.

Conclusion

86. For the above reasons, I am of the view that the appeal should be dismissed with costs; that leave to file an amended defence should be refused; and that leave should not be granted for the cross-appeal. I propose the following orders:

1. Leave to file an amended defence in the District Court proceedings be refused and appeal be dismissed with costs.

2. Application for leave to cross-appeal be refused with costs.

87. SACKVILLE AJA: I am grateful to Ward JA for setting out the facts and issues arising in this appeal. I agree with the orders proposed by her Honour.

88. The appellant’s first submission, as I understand it, is that cl 10.6 of the Contract was not enlivened because the progress of the Works was not delayed by Variations. Mr Loofs SC, who appeared with Ms Young for the appellant, accepted that the appellant requested changes to the Principal Project Requirements and that the requests, if accepted, were capable of constituting “Variations” for the purposes of the Contract. He contended, however, that the dealings between the parties constituted an agreement to extend the date for Practical Completion under the Contract from 27 November 2015 to 8 February 2016. The parties should be taken to have amended the Contract to substitute a new date for Practical Completion of the works and, accordingly, there was no relevant delay in the progress of the Works.

89. Mr Lynch, who appeared with Mr Leung for the respondent, pointed out that the appellant’s amended defence admitted that the respondent had given written notice of the likely delay caused by the requested Variations and that in response the appellant directed an extension of time to 6 February 2016 (the correct date appears to be 8 February 2016). In view of these admissions, it is difficult to see how it is open to the appellant to contend that the parties had done anything other than rely on the provisions in the Contract to determine the effect of the appellant’s request for changes to the Principal Project Requirements.

90. In any event there is nothing in the dealings between the parties, objectively assessed, manifesting a mutual intention to amend the Contract in the manner suggested by the appellant. The respondent submitted an “Extension of Time Claim” on 17 December 2015 on the ground that the Variations required an extension of time for Practical Completion by 45 days. The appellant approved the Extension of Time Claim on the day it was made.

91. Even though the Extension of Time Claim did not expressly refer to cl 9.4, I would infer that the respondent was attempting to invoke cl 9.4.1 to seek a reasonable extension of time for Practical Completion by reason of matters beyond its control. The Claim identified those matters as the Variations directed by the appellant. In effect, the respondent claimed that the Variations would delay progress of the Works by 45 days and relied on the delay to found an entitlement to a reasonable extension of time for Practical Completion. The appellant accepted that the respondent was entitled to the extension of time claimed. An objective observer would conclude that the parties were intending to act in conformity with the terms of the Contract and were not seeking to vary the terms of the Contract.

92. The appellant’s second argument is that the respondent is not entitled to rely on cl 10.6 to claim reimbursement for loss or expense by reason of delay where the progress of the Works was delayed by a Variation simpliciter. According to Mr Loofs, “Works” in cl 10.6 refers to the Works as varied and thus cl 10.6 is only enlivened if the Variation occasions unforseen delays beyond those inherent in the Variation.

93. I agree with Ward JA that this submission cannot prevail in view of the clear language of cl 10.6. That provision explicitly recognises that the progress of Works may be delayed by a Variation “simpliciter”. It is true that “Works” is defined to mean the “works shown upon the Design Documents as they may be varied from time to time in accordance with the Agreement”. But the definition does not apply where the context requires otherwise. The plain language of cl 10.6 requires otherwise.

94. I also agree with Ward JA that it is not necessary for the loss or expense attributable to a Variation to be known in advance and that, in any event, this Contract quantifies the loss or expense to which the respondent is entitled by specifying a daily rate in Schedule 23.

95. The appellant’s third argument (again as I understand it) is that cl 10.6 only entitles the respondent to reimbursement of losses or expenses incurred as a result of non-consensual conduct. Losses or costs attributable to consensual conduct such as agreed Variations are recoverable (if at all), so Mr Loofs argued, pursuant to cl 10.4.1. Since the respondent has been paid its claim for the value of the Variations pursuant to cl 10.4.1, no further claim is available to it pursuant to cl 10.6.

96. There is nothing in the language of cll 10.4.1 and 10.6 to support the distinction drawn by the appellant. A Variation does not cease to be a Variation because the Contractor agrees to carry out the additional works directed by the Principal. In any event, the subject matter of each provision is different. Clause 10.4.1 is concerned with the Contractor’s entitlement to be paid the value of the Variations determined on a fair and reasonable basis, including the value of “pricing work” (an undefined term), time-related costs and expenses arising from the Variations. Clause 10.6, on the other hand, is concerned with the Contractor’s entitlement to reimbursement of losses or expenses as a result of the delay such as a lost opportunity to undertake other construction contracts. This is a quite different concept than extra costs attributable to additional works. The two provisions can operate together harmoniously.

97. I agree with the reasons given by Ward JA for concluding that neither the appellant nor the respondent should be granted the leave to amend sought by each of them.

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Decision last updated: 26 October 2018