Mladenis v J Corp Pty Ltd
[2008] WADC 174
•28 NOVEMBER 2008
MLADENIS & ANOR -v- J CORP PTY LTD [2008] WADC 174
| Link to Appeal : | [2009] WASCA 157 |
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2008] WADC 174 | |
| Case No: | CIV:403/2007 | 17 NOVEMBER 2008 | |
| Coram: | SCHOOMBEE DCJ | 27/11/08 | |
| PERTH | |||
| 19 | Judgment Part: | 1 of 1 | |
| Result: | Preliminary question answered in favour of the plaintiffs | ||
| PDF Version |
| Parties: | MARK STEVEN MLADENIS GRAHAM ATHLETIC PTY LTD J CORP PTY LTD |
Catchwords: | Preliminary issue Interpretation of building and contract Delay in completion of dwelling Whether agreement that upon delay builder would be liable to pay liquidated damages at the rate of "nil dollars" excluded claim for unliquidated common law damages |
Legislation: | Rules of the Supreme Court 1971 |
Case References: | Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137 Bruno Zornow (Builders) Ltd v Beachcroft Developments Ltd (1989) 51 BLR 16 Concut Pty Ltd v Worrell (2000) 75 ALJR 312 CS Phillips Pty Ltd v Baulderstone Hornibrook Pty Ltd, unreported; SCt of NSW; Library No. BC9403175; 26 October 1994 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 John Dorahy's Fitness Centre Pty Ltd v Buchanan, unreported; SCt of NSW Court of Appeal; Library No. BC9606183; 18 December 1996 Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17 Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246 Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 Temloc v Errill Properties Ltd (1987) 39 BLR 30 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Turner Corp Pty Ltd (Receiver & Manager Appointed) v Austotel Pty Ltd (1994) 13 BCL 378 Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd (2005) 218 ALR 1 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- First Plaintiff
GRAHAM ATHLETIC PTY LTD
Second Plaintiff
AND
J CORP PTY LTD
Defendant
Catchwords:
Preliminary issue - Interpretation of building and contract - Delay in completion of dwelling - Whether agreement that upon delay builder would be liable to pay liquidated damages at the rate of "nil dollars" excluded claim for unliquidated common law damages
Legislation:
Rules of the Supreme Court 1971
(Page 2)
Result:
Preliminary question answered in favour of the plaintiffs
Representation:
Counsel:
First Plaintiff : Mr A Atkinson
Second Plaintiff : Mr A Atkinson
Defendant : Mr A D L Throssell
Solicitors:
First Plaintiff : Solomon Brothers
Second Plaintiff : Solomon Brothers
Defendant : Hotchin Hanly
Case(s) referred to in judgment(s):
Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137
Bruno Zornow (Builders) Ltd v Beachcroft Developments Ltd (1989) 51 BLR 16
Concut Pty Ltd v Worrell (2000) 75 ALJR 312
CS Phillips Pty Ltd v Baulderstone Hornibrook Pty Ltd, unreported; SCt of NSW; Library No. BC9403175; 26 October 1994
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689
John Dorahy's Fitness Centre Pty Ltd v Buchanan, unreported; SCt of NSW Court of Appeal; Library No. BC9606183; 18 December 1996
Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286
McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579
Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451
Progressive Mailing House Pty Ltd v Tabali Pty Ltd (1985) 157 CLR 17
Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246
Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574
Temloc v Errill Properties Ltd (1987) 39 BLR 30
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Turner Corp Pty Ltd (Receiver & Manager Appointed) v Austotel Pty Ltd (1994) 13 BCL 378
Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd (2005) 218 ALR 1
(Page 3)
1 SCHOOMBEE DCJ: This matter comes before me as a preliminary question of law to be decided pursuant to O 31 r 2 of the Rules of the Supreme Court 1971 on the basis of certain facts agreed to between the parties. The issue is essentially whether the plaintiffs who employed the defendant as builder of their dwelling are entitled to recover common law damages for delay in completing the building works even though the parties specified that the liquidated damages recoverable for delay would be "NIL DOLLARS".
Preliminary question and agreed documents and facts
2 The facts as agreed between the parties on the pleadings and for purposes of the hearing of the preliminary question are essentially that the plaintiffs as proprietors and the defendant as builder entered into a lump sum building contract ("the Building Contract") pursuant to which the defendant agreed to construct a three level brick house on the plaintiffs' land in consideration for the total sum of $311,484.12 and that the Building Contract was prepared by the defendant.
3 Clause 11 of the Building Contract dealt with the date for commencement and completion of the building work and with delays and provided, in so far as is relevant, as follows:
"11 Commencement, Completion and Delays
11.1 The Builder shall commence the Works by the time specified in item 7a of the Schedule and shall complete the Works within the time specified in item 7b of the Schedule, provided that:
…
11.2 The Builder shall not be responsible for any delays in commencing the Works or completing the Works after commencement over which the Builder has no control including (without limiting the generality thereof):
11.2.1 any variation to the Works;
11.2.2 any delay by the Proprietor in giving or agreeing to a variation in the Works;
11.2.3 inclement weather or act of God, including fire, flooding, earthquake or other unexpected naturally occurring event;
- 11.2.4 any theft, vandalism, civil commotion or other acts of third parties;
11.2.5 strikes, industrial action, lock-outs or holidays;
11.2.6 any delay in the supply of materials or shortage of labour;
11.2.7 any instruction or delay in giving an instruction or omission by the Proprietor, or any deliberate and substantial prevention of or interference with the Works or the performance of the Works caused by the Proprietor or his contractors or agents;
11.2.8 any disputes with neighbours concerning performance of the Works or anything in relation thereto;
11.2.9 any delay caused by or resulting from an order or direction of any statutory authority or person exercising powers pursuant to the provisions of a written law;
11.2.10 any suspension of the Works pursuant to clause 14.
- …
11.4 Practical completion of the Works is deemed to have taken place when:
11.4.1 the Works are completed except for any omissions or defects which do not prevent the Works from being reasonably capable of being used for its intended purposes; or
11.4.2 the Proprietor has taken possession of the Works without the written consent of the Builder; or
11.4.3 the Builder has handed the keys of the Works to the Proprietor; which is the earlier.
- 11.9 If the Builder breaches sub-clause 11.1, it shall be liable to pay the Proprietor liquidated damages at the rate of NIL DOLLARS ($00.00) per day for each day beyond the due date for practical completion until practical completion is deemed to have taken place.
4 Item 7a of the Schedule provided that the time to commence work was 21 days from the issue of all building licenses to lots 14-22 and made it clear that the defendant could not take possession of individual lots without all building licenses having been approved for lots 14-22. Item 7a of the Schedule further stated that the completion date would be 52 working weeks from the date on which work commenced or should have commenced.
5 Clause 26(10) of the Building Contract provided that the plaintiffs acknowledged that they were one of a number of proprietors for whom the defendant was constructing works as part of the "Pelican Walk" development and then set out special conditions (which are not relevant) which applied to all building contracts for lots 1-22 of the "Pelican Walk" development. The relevance of clause 26(10) is that it indicates that the defendant had entered into 22 building contracts in respect of the "Pelican Walk" development and that the plaintiffs' Building Contract was one of 22 others.
6 As part of the agreed facts the parties provided the Court with the following information, although it does not seem to be of any relevance to the interpretation of cl 1.9:
"The Contract was entered into in the following circumstances of which both parties were aware at the time:
(a) Lot 17 was part of the "Pelican Walk" sub-division development, which City and Suburban Group Pty Ltd was project managing.
(b) The Plaintiffs purchased Lot 17 on the condition that it entered into a building contract with City or Suburban Group Pty Ltd or its nominee builder for the construction of a dwelling on Lot 17.
(c) City and Suburban Group Pty Ltd nominated the Defendant as the builder with which the Plaintiffs
- were to contract for the construction of the dwelling on Lot 17.
- (d) City and Suburban Group Pty Ltd would receive a project management fee which was included as part of the Defendant's contract price.
7 The parties also agreed that the preliminary question should be decided on the understanding that the parties did not communicate or negotiate with each other with regard to cl 11.9 or the inclusion of the words "NIL DOLLARS ($00.00)" prior to entering into the Building Contract.
8 The preliminary question of law to be determined by this Court was stated by the parties to be the following:
"Does clause 11.9 of the Contract on its proper construction have the effect of excluding the plaintiffs' right to claim damages at common law for losses suffered by the plaintiffs by reason of the defendant's breach of the Contract (assumed for the purpose of this question), namely the failure to reach practical completion of the Works by the Due Date for Practical Completion?"
9 The parties originally also asked that the Court determine a second preliminary question dealing with the issue whether the plaintiffs would be entitled to recover loss of rental income as part of a claim for damages at common law where the plaintiffs had not before entering into the Building Contract communicated to the defendant an intention to lease the dwelling after its completion. However, at the hearing of this matter the parties indicated that by consent they no longer wished this question to be determined on a preliminary basis but to leave it for determination at trial after the hearing of evidence in that regard.
Interpretation of cl 11.9
10 The essential question for determination is whether the parties intended by the reference to liquidated damages at the rate of "NIL DOLLARS" in cl 11.9 that an amount of liquidated damages for delay would not be agreed (but that this did not preclude the availability of unliquidated damages at common law) or whether the parties intended to exclude all rights by the plaintiffs to recover damages for delay.
(Page 7)
11 Counsel for the plaintiff submitted that the provision in cl 11.9 that liquidated damages would be paid at the rate of nil dollars per day could not be said to indicate an intention by the parties to abandon all rights by the plaintiffs to damages for delay as the defendant would then be at liberty to commence and complete the building works as it saw fit subject only to the plaintiffs' right to terminate the Building Contract by reason of the defendant's repudiation and to seek damages on that basis. Counsel for the defendant further submitted that specific performance would not be an available remedy for the plaintiffs as it would require continual co-operation between the parties and supervision by the court.
12 Counsel for the plaintiffs further submitted that the wording of cl 11.9 did not indicate that the parties intended that the plaintiff should have no right to common law damages arising from the defendant's delay as the words used in cl 11.9 were not sufficiently clear to exclude the plaintiffs' common law right to damages.
13 In Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd[1974] AC 689 at 717 Lord Diplock held the following in relation to the interpretation of a building sub-contract and common law remedies for breach of warranty:
"But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption."
14 This principle has been accepted by the High Court in Concut Pty Ltd v Worrell (2000) 75 ALJR 312 where Gleeson CJ, Gaudron and Gummow JJ in reliance on Stocznia Gdanska SA v Latvian Shipping Co [1998] 1 WLR 574 at 585, stated the following at [23] in the context of the interpretation of an employment contract and the question whether terms could be implied by law in the absence of an expression of a contrary intention by the parties:
"In discerning that intention, regard should be had to 'the familiar principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law'."
(Page 8)
15 This principle was again relied upon by the High Court in Wallace-Smith v Thiess Infraco (Swanston) Pty Ltd (2005) 218 ALR 1 at [62] in the context of interpreting a clause in an infrastructure maintenance agreement dealing with the parties' right of termination.
16 In Turner Corp Pty Ltd (Receiver & Manager Appointed) v Austotel Pty Ltd (1994) 13 BCL 378, Cole J noted at 395, in the context of interpreting a building contract and determining the proprietor's remedies for a failure to rectify defects, that:
"… if a party's common law right to damages for breach of contract is to be contractually removed, it must be done by clear words (footnote omitted). I do not doubt that concept; however, it does not mean that express words are required. If on the proper construction of the contract as a whole, it can be said that a party has surrendered its common law right to damages, that construction must be given effect to, notwithstanding absence of express words surrendering the common law right to damages".
17 Both parties accepted that in common law a proprietor has a right to damages by reason of the builder's delay in completing the building works, but did not agree as to whether cl 11.9 had excluded that right in clear terms. Counsel for the plaintiffs submitted that cl 11.9 indicated that the parties had only intended that the amount of damages payable for delay should not be pre-determined as a liquidated sum per day and that the parties had not excluded the plaintiffs' right to common law damages for delay. Counsel for the plaintiffs further submitted that at worst the words used in cl 11.9 were ambiguous and made it difficult to determine whether the parties had intended that no damages whatsoever be payable for the defendant's delay. In that case the plaintiffs' right to common law damages for delay had not been excluded in express or otherwise clear terms and the presumption that that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law should prevail.
18 Both parties accepted that the Court's approach to the interpretation of commercial contracts had shifted from literal interpretation which concentrated on the plain or ordinary meaning of particular words to purposive interpretation which focused on how a reasonable person would have interpreted the document in the light of its commercial purpose and surrounding circumstances.
(Page 9)
19 In McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 Gleeson CJ referred to the purposive approach as follows at 589:
"Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure."
20 In Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ came to the conclusion that letters of indemnity had to be interpreted on the basis of what a reasonable person would have understood them to mean. Their Honours said that this required consideration not only of the text of the documents, but also the surrounding circumstances known to both parties, as well as the purpose and object of the transaction.
21 In Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ referred to their decision in Pacific Carriers Ltd (supra) and confirmed that the common intention of the parties to a contract was to be determined by adopting the approach set out in Pacific Carriers Ltd.
22 Counsel for the defendant relied on the commercial purpose of the Building Contract and the surrounding circumstances known to both parties, namely that the plaintiffs' contract was one of 22 building contracts which the builder had entered into in respect of the development at "Pelican Walk". However, no evidence was placed before me to the effect that each of the building contracts with the other 21 proprietors was in the same terms as the Building Contract. As I understood counsel for the defendant, the submission was that it was unlikely that the defendant would have agreed to be responsible for common law damages in respect of delay where it was constructing 22 houses at the same time. Counsel for the defendant submitted that the Court could take judicial notice that if there was an unforeseen delay with regard to the construction of one dwelling this was likely to cause a ripple effect with regard to the timely completion of the other buildings.
23 In the absence of any evidence as to whether the building contract with each of the other 21 proprietors was in the same terms, whether all 22 dwellings were constructed at the same time and what effect an unforeseen delay with regard to the construction of one dwelling would have upon the others, I am not able to obtain any guidance with regard to
(Page 10)
- the interpretation of cl 11.9 from the mere fact that the defendant had entered into 21 other building contracts.
24 If all 22 building contracts had been in the same terms and the progress of the construction of the dwellings could have been influenced by unforeseen delay to any particular dwelling, there is some force in the argument that the defendant was unlikely to have agreed to an exposure for common law damages in respect of delay by 22 proprietors. However, this is not necessarily so, as the defendant may only have intended to exclude any agreement to pre-determined, liquidated damages and may have been agreeable to allowing a proprietor who had suffered loss as the result of delays to prove his or her damages in court. It would be obvious to a builder that an agreement to pre-determined liquidated damages would lead more readily to a claim by a proprietor for those damages, whereas a proprietor might be much more reluctant to claim damages if this involved litigation and the requirement of proof of the actual loss.
25 It could also be said, although this was not specifically argued by counsel for the defendant, that the fact that the subject of the Building Contract was a dwelling and the consideration was for a reasonably small amount, namely $311,484.12, indicated that the parties intended that cl 11.9 exclude all liability for damages arising from delay. However, as I have noted earlier, this could also indicate that the defendant did not want to agree to a pre-determined amount of damages per day, but was not adverse to allowing the plaintiffs a right to a substantiated claim for damages in court.
26 I have referred to the intention of the defendant in the context that it was one of the surrounding circumstances that the defendant drafted the Building Contract and that there was no communication between the parties prior to entering into the Building Contract with regard to cl 11.9. This does not mean that the intention of both parties, determined on an objective basis, is not at the core of the enquiry into the interpretation of cl 11.9. However, in determining the joint intention of both parties it is realistic to first ask what each party may have intended (compare the remarks by Mahoney P in John Dorahy's Fitness Centre Pty Ltd v Buchanan, unreported; SCt of NSW Court of Appeal; Library No. BC9606183; 18 December 1996 at p 4).
27 In this case the consideration of the surrounding circumstances and the commercial purpose of the Building Contract does not seem to make it any clearer what the intention of the parties was with regard to cl 11.9.
(Page 11)
28 What is much more helpful in the interpretation of cl 11.9 is the context in which it appears in the Building Contract. I have referred earlier to cl 11.2 of the Building Contract which provides a number of examples of factors which could cause delay in commencing the building works or completing the works after commencement over which the builder has no control and provides that where the builder had no control over any particular delay the builder "shall not be responsible for any delays in commencing the Works or completing the Works". If cl 11.9 had been intended to exclude all claims for damages for delay by the plaintiffs, there would have been no purpose in inserting cl 11.2.
29 Counsel for the defendant submitted that cl 11.2 still had some relevance because damages for delay could be recoverable in the event of the plaintiffs having terminated the Building Contract. Counsel for the defendant referred to cl 13 of the Building Contract which clause relevantly provides as follows:
"13 Termination of the Contract by Proprietor
The Proprietor may, in addition to any other rights at law or under this Contract terminate this Contract in any of the following events:
…
13.4 if the Builder shall substantially breach any provision of this Contract;
…"
(Page 12)
31 There is also no specific provision in the Building Contract dealing with the damages payable by the defendant to the plaintiffs in the event of the plaintiffs terminating the contract pursuant to cl 13. Clause 15.2 deals with damages where the proprietor terminates the Building Contract other than by reason of the events specified in, inter alia, cl 13. It must therefore be assumed that cl 11 was intended to deal with damages for delay whether they were claimed with or without termination of the Building Contract. This means that in deciding the issue of what damages the parties intended to be payable pursuant to cl 11.9, it is irrelevant whether the plaintiffs terminated the contract or not.
32 This takes us back to the issue that cl 11.2 would be superfluous and meaningless unless the parties intended that despite cl 11.9 the plaintiffs retained a common law right to recover damages for delay. Clause 11.2 specifically addresses the issue of responsibility for delays in completing the building works. Clause 11.1, dealing with the builder's obligation to complete the building works by a certain time, cl 11.2 and cl 11.9 all appear under the heading "Commencement, Completion and Delays". This indicates that these clauses are intended to deal with all aspects of delays and cl 11.9 has to be read in the context of the builder still having some responsibility for delay in spite of the provisions of cl 11.9.
33 There is also no indication in cl 11 or the remainder of the Building Contract that cl 11.2 should only be applicable in determining the plaintiff's right to terminate the Building Contract for delay and be of no relevance in considering the plaintiff's right to damages for delay. As indicated earlier, cl 11 deals with all aspects of delay and there is no reason why cl 11.2 should be read down so that it is only applicable to the plaintiffs' right of termination. Clause 11.2 therefore serves the purpose of limiting the plaintiffs' right to common law damages for delay in a situation where the defendant's delay was brought about by factors outside its control.
34 Accordingly, the context in which cl 11.9 appears in the Building Contract makes it clear that the intention of the parties was not to exclude all rights to claim common law damages for delay but only to record that no pre-determined liquidated damages had been agreed upon.
35 Even if I am wrong in saying that the context in which cl 11.9 appears is determinative of the issue under consideration, I am further of the view that neither the words used in cl 11.9 nor any other words or contextual material in the Building Contract is sufficiently clear to show that the parties intended that the plaintiffs abandon their common law
(Page 13)
- right to damages for delay. The plaintiffs' have a right to damages for delay by operation of law and any intention to exclude or limit this right needs to be expressed clearly.
36 Further, although counsel for the plaintiffs did not rely on this principle, it is well-established that where other rules of construction fail to resolve an ambiguity in a contract the contra proferentem principle is applied as a last resort: McCann v Switzerland Insurance Australia Ltd (supra) at 602. The principle essentially means that where a term of a contract is ambiguous it should be construed against the party by whom, or in whose interest it was formulated or included. The contra proferentem principle has often been applied in the interpretation of terms excluding or limiting the liability of the party who inserted the term.
37 In Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510 Mason, Wilson, Brennan, Deane and Dawson JJ said the following with regard to exclusion or limitation clauses and the contra proferentem principle:
"These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its nature and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Notwithstanding the comments of Lord Fraser in Ailsa Craig (footnote omitted), the same principle applies to the construction of limitation clauses."
38 InJohn Dorahy's Fitness Centre Pty Ltd v Buchanan (supra) at p 6 Mahoney P applied the contra proferentem rule in the interpretation of a clause in a gymnasium membership agreement excluding the liability of the operators for "any claim for personal injury" caused to users of the gymnasium. Mahoney P found that the words were ambiguous and should be read contra proferentem so that a claim in contract was not excluded.
39 In this case the defendant prepared the Building Contract and had the opportunity to make it clear that no damages whatsoever should be recoverable by the proprietor by reason of the builder's delay. It was put to counsel for the defendant that instead of inserting into the pre-printed
(Page 14)
- standard body of the Building Contract the obligation by the builder to pay "liquidated damages at the rate of NIL DOLARS ($00.00) per day", it would have been open to the defendant to either exclude the word "liquidated" or to specify that no damages would be payable. However, counsel for the defendant pointed out that the words "NIL DOLLARS ($00.00)" may not have been part of a pre-printed standard document, but may have been inserted by the defendant on a case by case basis into a template document available on a word processor. Counsel for the defendant pointed out that the names of the parties were inserted in the same print setting on the second page of the Building Contract.
40 Nevertheless, even though the reference in cl 11.9 to "NIL DOLLARS ($00.00)" may not have been part of a standard pre-printed document used by the defendant, but part of an adjustable template document, the Building Contract was prepared by the defendant and the defendant had the opportunity to spell out in clear terms that no damages for delay were recoverable by, for example, deleting the word "liquidated".
41 Accordingly, as a measure of last resort, the contra proferentem rule should be applied and cl 11.9 should be construed against the defendant who drafted the Building Contract.
42 Counsel for the defendant also relied on the English Court of Appeal decision in Temloc v Errill Properties Ltd (1987) 39 BLR 30. The issue in that case also concerned the interpretation of a liquidated damages clause and the wording of the clause in that case was very similar to the wording of cl 11.9. The relevant clause provided as follows:
"Subject to the issue of a certificate under clause 24.1 the Contractor shall, as the Employer may require in writing not later than the date of the Final Certificate, pay or allow to the Employer the whole or such part as may be specified in writing by the Employer of a sum calculated at the rate stated in the Appendix as liquidated and ascertained damages for the period between the Completion Date and the date of Practical Completion …"
43 The Appendix had been completed by the parties by inserting the words "₤ nil" next to the item marked "liquidated and ascertained damages".
44 The Court of Appeal came to the conclusion that by completing the Appendix and stating a rate at which the sum should be calculated, the
(Page 15)
- parties intended to enter into an exhaustive agreement as to the damages that were payable upon delay. Nourse LJ came to the conclusion that damages payable for delay were one head of general damages recoverable for breach of contract and their character was not altered according to whether the rate at which they were payable was agreed by the parties in advance or not. Nourse LJ also referred to the heading to the relevant clause which was "Damages for non-completion" and pointed out that the heading did not refer to "Liquidated damages for non-completion". Croom-Johnson LJ agreed with Nourse LJ and further referred to the fact that the trial Judge had relied on the evidence of one of the parties to the effect that it had been the parties' intention that no damages should be payable for delay as the contractor would also not receive a bonus for finishing early. However, Croom-Johnson LJ indicated that even without reliance on the evidence of one of the parties he would have construed the clause in the same way as Nourse LJ. Croom-Johnson LJ further came to the conclusion that if the parties had intended that liquidated damages would not be agreed upon, but that general damages for delay would still be available, they could have simply struck out the clause dealing with liquidated damages in the same way as the parties had dealt with other clauses which they did not wish to have incorporated into the contract.
45 Temloc (supra) has not always been followed and at times been distinguished in Australian authorities. In Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246 Jenkins J upheld a decision by Mr M W Odes QC delivered as arbitrator in an arbitration. That case also concerned the interpretation of a liquidated damages clause and the clause was again in very similar terms to cl 11.9. It also provided that where the builder failed to reach practical completion by the relevant date the builder "shall be indebted to the Principal for liquidated damages at the rate stated in the Annexure for every day after the Date of Practical Completion …". The parties had completed the relevant item in the Annexure with the words "N/A". The learned Arbitrator came to the conclusion that the notation "N/A" read together with the relevant clause meant that the parties intended that the whole clause dealing with liquidated damages was not applicable and that the principal was still entitled to claim common law damages for delay. In upholding the learned Arbitrator's decision Jenkins J referred, at [64]-[65], to the comment in Hudson's Building and Engineering Contracts (11th ed, 1995) at [10.023] that:
(Page 16)
- "It seems doubtful if [Temloc] should be treated as definite authority where similar wording is used. The wording at best seems ambiguous, given the position of parties faced with a complicated standard form and desiring merely to avoid a fixed liability in all situations."
46 Jenkins J noted at [50]-[51] that the learned Arbitrator had distinguished Temloc from the case under consideration on the basis that in Temloc the Court of Appeal had been induced by the heading to find that the relevant clause covered both liquidated and unliquidated damages and also by the discussion between the parties during negotiations. Her Honour seems to have endorsed this distinction by stating at [80] that Temloc turned on the particular contractual terms under consideration and that each case must be decided on the words used in the particular contract.
47 I respectfully adopt the conclusion arrived at by Jenkins J in Silent Vector Pty Ltd (supra) that each case needs to be decided on the particular wording of the relevant contract. The most important distinction between the contract in Temloc and the Building Contract is that the contract in Temloc did not include a clause similar to cl 11.2. Further, as counsel for the plaintiffs pointed out there is no reference in Temloc to the well established principle of construction that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law. On the contrary, Croom-Johnson LJ stated at 38 that any claim for damages at large would have to be based on an implied term in the contract. That observation is not in accordance with the High Court authorities in Australia such as Concut Pty Ltd v Worrell (supra).
48 Temloc was also distinguished by Giles J in Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137. In Baese the relevant clause provided that where the builder had failed to complete the works by the due date the architect "may give notice in writing to the builder" of the late completion and in such a case the builder "shall pay or allow to the Proprietor a sum calculated and certified by the Architect at the rate stated in Item M of the Appendix to this Agreement as liquidated and ascertained Damages". In the Annexure Item M was completed by the parties by adding the word "nil".
49 Giles J came to the conclusion that the relevant clause was not an exhaustive statement of the proprietor's entitlement to damages for delay. Giles J distinguished Temloc on the basis that in Baese it was open to the
(Page 17)
- architect to give or not to give the requisite notice claiming liquidated damages and that in such a situation it was most unlikely that the parties had agreed that if the proprietor did not cause the architect to give such a notice the proprietor should lose all entitlement to damages for delay. Giles J distinguished Temloc on the basis that in that case the Court of Appeal had relied on the heading which indicated that the relevant clause dealt generally with damages for non-completion and that the words "shall pay" had been used in contrast to the words "may give notice" inBaese.
50 As regards the distinction between a clause being mandatory or discretionary, Jenkins J in Silent Vector Pty Ltd came to the conclusion at [41] that this was not determinative of the question of whether a clause dealing with liquidated damages excluded all rights to damages for delay or was only intended to deal with the matter of agreeing liquidated damages in advance. I respectfully agree with that conclusion. Nothing much seems to turn on whether the proprietor or its agent, the architect, may or shall issue a certificate. It is always open to a proprietor not to make a claim for liquidated damages to which he or she may be entitled.
51 Counsel for the defendant also relied on the decision in CS Phillips Pty Ltd v Baulderstone Hornibrook Pty Ltd, unreported; SCt of NSW; Library No. BC9403175; 26 October 1994 which followed Temloc. In CS Phillips Pty Ltd the relevant contract was between a sub-contractor and the builder. The relevant clause provided that "the Sub-Contractor shall pay or allow to the Builder by way of Liquidated and Ascertained Damages a sum calculated at the rate stated in Item J.2 of the Appendix to this Agreement …". The parties had originally typed in a dollar amount in the Appendix next to Item J.2, but subsequently all type script relating to Item J.2 had been deleted and the notation "N/A" appeared next to it. Giles J held at p 6 that because there was no suggestion of an election by the builder to take liquidated damages in place of general damages or that the calculated sum was an alternative to damages at large, the notation "N/A" in the Appendix meant that any claim for damages in respect of delay had been excluded by the parties. Giles J also came to the conclusion that the notation "N/A" equalled the insertion of the word "nil" and if the parties had intended to write the relevant clause out of the contract, they would have done so by deleting it in the same manner as they had done in respect of other clauses.
52 In Silent Vector Pty Ltd Jenkins J held at [74] - [79] that the decision by Giles J regarding the interpretation of the sub-contract was not binding on her as the views expressed by Giles J were obiter because the parties had agreed to call evidence of the surrounding circumstances before a
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- decision was made on the interpretation of the relevant clause. However, Jenkins J stated that the views expressed by Giles J in CS Phillips Pty Ltd would have been persuasive if the case was concerned with the construction of the same or a similar contract. A Judge of a District Court is also not bound by an obiter decision of a single Judge of the Supreme Court of another jurisdiction and CS Phillips Pty Ltd is in any event distinguishable on its facts.
53 The context in which cl 11.9 appears in the Building Contract, particularly in light of cl 11.2, is a strong indication that the parties did not intend to exclude the plaintiffs' right to common law damages for delay. No such clause seems to have been included in the sub-contract in CS Phillips Pty Ltd. Further, Giles J did not refer to the well-established principle that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of the contract arising by operation of law.
54 Accordingly, I am of the view that both Temloc and CS Phillips Pty Ltd are distinguishable on their facts and that in both cases the court does not seem to have paid any heed to the well-established principle that clear words are required before it will be accepted that the parties intended to deny one party a common law remedy for breach of contract.
55 Counsel for the defendant further submitted that it was established law that where a liquidated damages clause in a building contract stipulated a positive amount of liquidated damages for a failure to reach practical completion by the due date, this was clear evidence of an intention by the parties to exclude liability for unliquidated damages in common law. I accept this contention (at least in so far as it relates to any amount above $1.00, as the latter may raise similar issues to an agreement of $0.00) and note that it was also approved by Jenkins J in Silent Vector Pty Ltd at [62] in reliance upon Bruno Zornow (Builders) Ltd v Beachcroft Developments Ltd (1989) 51 BLR 16 and Turner Corporation Pty Ltd v Austotel Pty Ltd (supra). Counsel for the defendant argued that the stipulation of an amount of "$00.00" should be treated in the same manner, namely as an agreed amount, albeit the lowest possible amount. However, that contention was clearly not regarded as valid in either Temloc or Baese as in both instances the Court still grappled with the question whether the notation "nil" in the Annexure meant that the parties had intended to merely exclude the application of liquidated damages or also the right to claim unliquidated damages at common law.
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56 In my view the insertion of the amount of "nil dollars" in a liquidated damages clause indicates that the parties did not wish liquidated damages to be agreed upon and that it cannot necessarily be assumed that the parties therefore also intended that any claim for unliquidated damages in common law should be excluded. Whether the latter is the case or not depends on the wording of the relevant clause, the context in which it appears in the contract as well as the object of the contract and the surrounding circumstances.
Conclusion
57 I have come to the conclusion that cl 11.9 should be interpreted in the manner contended for by the plaintiffs, namely as not excluding any right of the plaintiffs to claim common law damages for the defendant's breach of contract arising from delay. In my view by inserting the amount of "NIL DOLLARS" into cl 11.9 the parties only intended to not agree a pre-determined amount of liquidated damages. The wording of cl 11.9 read in the context of the remainder of the Building Contract does not indicate in clear terms any intention that the plaintiffs should be deprived of their common law right to damages for delay. On the contrary cl 11.2 indicates that the defendant will remain liable for common law damages for delay, but that this liability may be excluded if the delay was occasioned by factors out of the defendant's control. Lastly, and as a rule of last resort, cl 11.9 should be interpreted against the defendant on the basis of the contra proferentem rule.
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