Grocon Constructors (Qld) Pty Ltd v Juniper Developer No. 2 Pty Ltd

Case [2015] QSC 102

SUPREME COURT OF QUEENSLAND

CITATION:

Grocon Constructors (Qld) Pty Ltd v Juniper Developer No. 2 Pty Ltd & Anor [2015] QSC 102

PARTIES:

GROCON CONSTRUCTORS (QLD) PTY LTD
ACN 120 476 495

(plaintiff)

v
JUNIPER DEVELOPERS NO. 2 PTY LTD (RECEIVERS AND MANAGERS APPOINTED)
ACN 123 200 699

(first defendant)

RIDER LEVETT BUCKNALL (QLD) PTY LTD
ACN 055 768 655
(second defendant)

JUNIPER DEVELOPER NO. 2 PTY LTD
(RECEIVERS AND MANAGERS APPOINTED)
ACN 123 200 699
(plaintiff)
v
NORTON ROSE (A FIRM)
(defendant)

FILE NO/S:

BS No 9291 of 2011
BS No 2106 of 2013

DIVISION:

Trial

PROCEEDING:

Hearing

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

23 April 2015

DELIVERED AT:

Brisbane

HEARING DATE:

10, 11, and 12 September 2014

JUDGE:

Peter Lyons J

ORDER:

1.   The following question is answered ‘no’:

Is clause 35.7 of the original contract pleaded in paragraph 4 of the statement of claim in proceeding BS9291 of 2011 void on the grounds that it imposes a penalty?

2.   It is declared that clause 35.7 of the building contract between the plaintiff and the first defendant in proceeding BS9291 of 2011 is neither void nor wholly or partly unenforceable.

CATCHWORDS:

CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – PERFORMANCE OF WORK – REMEDIES FOR BREACH OF CONTRACT – DISTINCTION BETWEEN PENALTY AND LIQUIDATED DAMAGES – where the first defendant contracted the plaintiff to design and construct a development – where the contract defined Practical Completion so that it might not be achieved if minor contractual obligations were not complied with – where a liquidated damages clause made liquidated damages payable if the plaintiff failed to achieve Practical Completion by the Date for Practical Completion – where the contract contemplated the first defendant’s sale of residential units – whether delay of Practical Completion by reason of minor matters would prevent completion of sale of residential units – whether the liquidated damages clause was subject to the penalty doctrine and unenforceable – whether the liquidated damages clause stipulated a single sum for several events – whether the liquidated damages clause stipulated a sum that was extravagant and unconscionable in comparison with the greatest loss that could flow from a failure to achieve Practical Completion

INTERPRETATION – ADMISSIBILITY OF EXTRINSIC EVIDENCE IN RELATION TO INSTRUMENTS – WHEN EVIDENCE IS ADMISSIBLE – TO PROVE INTENTION OF PARTIES – OTHER CASES – where the parties led evidence regarding the negotiation of the liquidated damages clause including how the liquidated damages were to be calculated – whether extrinsic evidence is admissible in determining whether a liquidated damages clause is subject to the penalty doctrine

Acron Pacific Ltd v Offshore Oil NL [1985] HCA 63; (1985) 157 CLR 514, cited

Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] EWHC 281 (TCC); (2005) 21 Const. L.J. 539, cited

AMEV-UDC Finance Ltd v Austin [1986] HCA 63; (1986) 162 CLR 170, cited

Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR 205

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Details
AGLC
Grocon Constructors (Qld) Pty Ltd v Juniper Developer No. 2 Pty Ltd [2015] QSC 102
Case
[2015] QSC 102
Decision Date

CaseChat Overview and Summary

Grocon Constructors (Qld) Pty Ltd, the plaintiff, has brought a case against Juniper Developer No. 2 Pty Ltd, the first defendant, seeking a declaration that the liquidated damages clause in their contract is void on the grounds that it imposes a penalty. This case has been heard in the Supreme Court of Queensland. The contract between the parties involves the design and construction of the Soul Project, a development comprising underground car parking, retail outlets, and residential apartments in Surfers Paradise. The dispute revolves around the interpretation and enforceability of the liquidated damages clause in the contract.

The primary legal issues the court had to address were whether the liquidated damages clause was subject to the penalty doctrine and, if so, whether it would render the clause unenforceable. Additionally, the court examined whether the liquidated damages clause stipulated a single sum for several events or if it was extravagant and unconscionable. The court also considered the admissibility of extrinsic evidence in relation to the negotiation of the liquidated damages clause to determine its intention.

The court found that Grocon had not demonstrated that the liquidated damages clause was affected by the penalty doctrine. The evidence presented indicated that the clause was the result of lengthy negotiations between sophisticated parties, aimed at pre-estimating the loss associated with delay. The court held that the clause should be regarded as a genuine pre-estimate by the parties of the damages likely to be suffered by Juniper should there be a delay in Practical Completion. The court concluded that the clause was neither void nor wholly or partly unenforceable.

The court declared that the liquidated damages clause in the building contract between Grocon and Juniper is valid and enforceable. The court answered 'no' to the question of whether the clause is void on the grounds that it imposes a penalty. The court will hear further submissions from the parties regarding any orders to be made as a consequence of these reasons.

Orders

Orders of the court

1. The following question is answered ‘no’:

Is clause 35.7 of the original contract pleaded in paragraph 4 of the statement of claim in proceeding BS9291 of 2011 void on the grounds that it imposes a penalty?

2. It is declared that clause 35.7 of the building contract between the plaintiff and the first defendant in proceeding BS9291 of 2011 is neither void nor wholly or partly unenforceable.

Background

Background to the litigation

The relief which the plaintiff (Grocon) has sought in Action No 9291 of 2011 includes a claim for a declaration that clause 35.7 (liquidated damages clause) of its contract with the first defendant (Juniper) was void on the ground that it imposes a penalty. These proceedings are to determine that question, in advance of the trial of the action.Background Juniper undertook the development of land located at the beach-side end of Cavill Mall in Surfers Paradise (site). The development is referred to as the Soul Project. It comprised underground car parking, some 40 retail outlets, and residential apartments or units. The material referred to a retail south tower; and to a 77 storey tower, principally to accommodate residential development. Under the contract, Grocon undertook the design and construction for the project. The General Conditions of Contract (GCC) were based on the standard form AS4300-1995, with modifications. Legal advice relating to the preparation of the contract was provided to Juniper by Deacons (now Norton Rose). Grocon has sued Juniper for an amount in excess of $10 million, generally for unpaid money for work under the contract, prolongation costs, variations and interest. Juniper has counterclaimed for liquidated damages in a sum of $33.6 million, or alternatively for $28.5 million for damages for delay; and has also made other claims. These parties sought the early determination of the question about cl 35.7, because it was anticipated that that might significantly reduce the length of the trial, with additional substantial savings relating to the costs of preparation for trial. In a separate action, Juniper has sued Norton Rose in relation to its role in the preparation of the contract. It is common ground that in that action, a question will arise as to whether the liquidated damages clause is in fact a penalty. Hence the participation of Norton Rose in the present proceedings. There was a contest about the admissibility of some evidence of events leading up to the formation of the contract. Consistent with the approach of the parties, I propose to deal with the question raised in these proceedings, without reference to that evidence; and then to consider its admissibility, and, if appropriate, its effect on the determination of the question. Before doing that, it is convenient to note some provisions of the contract.Contract Under the contract, the work was divided into four Separable Portions (SPs). SP1 was the retail south tower and associated car parking; SP2 was residential development to Level 39 and associated car spaces (excluding some work below this level); SP3 dealt with what were described as the “Remaining Works” in the contract; and SP4, with what were described as the “Gold Coast Council Works”. By GCC cl 3.1, Grocon was obliged to “bring the Works to the stage of Practical Completion.” Clause 35.2 was as follows:“35.2 Time for Practical CompletionThe Contractor must execute the Work under the Contract so as to achieve Practical Completion by the Date for Practical Completion.On the Date of Practical Completion the Contractor must give possession of the Site and the Works to the Principal.”

Evidence

Evidence Before The Court

In my view, therefore, on the question whether a clause, whose meaning has been determined, nevertheless is penal, extrinsic evidence may be used, even where the evidence would not be admissible for determining the meaning of the clause.Effect of evidence The general nature of the evidence has been referred to previously. It demonstrates that the liquidated damages clause was the result of lengthy negotiations by sophisticated parties, with some reduction for initial periods, of what was ultimately agreed to be the loss associated with delay. It is clear that, in those negotiations, Grocon was provided with information about the finance and other costs to which Juniper would be subject if completion of the project, and the settlement of sales, were delayed[111].[111] See 1 Grocon at [83]. In my view, the evidence supports the conclusion that the liquidated damages clause was the result of a genuine attempt by the parties to pre-estimate the loss which Juniper might suffer if Practical Completion were delayed. In its reply, Grocon pleaded that the negotiations proceeded, not on the basis of the (expansive) definition of Practical Completion found in the contract, but on the basis of a delay in Practical Completion where Practical Completion simply meant completion of such matters as would permit Juniper to generate revenue, no doubt from the sale of units within the Soul Development[112]. [112] See Reply para 12. Grocon submitted that it was a compelling inference that the pre-estimations focused entirely on delay in completion which might cause a delay in Juniper’s ability to generate revenue from sales[113]. The extrinsic evidence does not suggest that the calculations were prepared on the basis of a failure to achieve Practical Completion by reason of one of the minor failures relied upon by Grocon, previously referred to[114]. Consequently, the clause should be construed as a penalty.[113] 1 Grocon at [84].[114] 1 Grocon at [85]. Grocon’s submissions depend upon a conclusion about the effect of delay in Practical Completion which differs from that set out earlier in these reasons. Accordingly, I do not accept Grocon’s submissions. In any event, the parties had agreed on the definition of Practical Completion before they negotiated the schedule which sets out the rates of liquidated damages[115]. There is no reason to conclude the negotiations proceeded without an awareness by both parties of the effect of the definition of Practical Completion which ultimately appeared in the contract; and accordingly without an appreciation of the range of defects or omissions which might delay Practical Completion.[115] 1 Grocon at [81].Conclusion In my view, Grocon has not demonstrated the liquidated damages clause in its contract with Juniper is affected by the penalty doctrine. Moreover, it should be regarded as a genuine pre-estimate by the parties to that contract of the damages likely to be suffered by Juniper should there be a delay in Practical Completion.

Decision

Reasons for decision

Grocon’s submissions depend upon a conclusion about the effect of delay in Practical Completion which differs from that set out earlier in these reasons. Accordingly, I do not accept Grocon’s submissions. In any event, the parties had agreed on the definition of Practical Completion before they negotiated the schedule which sets out the rates of liquidated damages[115]. There is no reason to conclude the negotiations proceeded without an awareness by both parties of the effect of the definition of Practical Completion which ultimately appeared in the contract; and accordingly without an appreciation of the range of defects or omissions which might delay Practical Completion.[115] 1 Grocon at [81].Conclusion In my view, Grocon has not demonstrated the liquidated damages clause in its contract with Juniper is affected by the penalty doctrine. Moreover, it should be regarded as a genuine pre-estimate by the parties to that contract of the damages likely to be suffered by Juniper should there be a delay in Practical Completion. I propose to hear submissions from the parties about any order to be made as a consequence of these reasons.

Ratio Decidendi

Legal Principle Established

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