Wright v Lend Lease Building Pty Ltd; Intercon Engineering Pty Ltd v Lend Lease Building Pty Ltd

Case •

[2014] NSWCA 463

•

23 December 2014

Court of Appeal


Supreme Court


New South Wales

Medium Neutral Citation: Wright v Lend Lease Building Pty Ltd; Intercon Engineering Pty Ltd v Lend Lease Building Pty Ltd [2014] NSWCA 463
Hearing dates:19 November 2014
Decision date: 23 December 2014
Before: Beazley P at [1]:
Macfarlan JA at [60];
Emmett JA at [61]
Decision:

(1) Leave for the appellants to amend their notices of appeal refused;

(2) Appeal dismissed with costs.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: CONTRACTS - construction and interpretation of contracts - construction of sub-contracts by reference to head contract - commercial purpose of head contract and sub-contracts - whether words of contract can be supplied, admitted or corrected to avoid commercial absurdity
Cases Cited: Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840
Bank of Queensland Ltd v Chartis Australia Insurance Ltd [2013] QCA 183
Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640
Mackay v Dick (1881) 6 App Cas 251
Mainteck Services Pty Limited v Stein Heurtney SA [2014] NSWCA 184; 310 ALR 113
National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600
Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418
Category:Principal judgment
Parties:

CA 145289/2014
Christopher John Wright and Cathy Maree Wright (Appellants)
Lend Lease Building Pty Ltd (Respondent)

CA 145296/2014
Intercon Engineering Pty Ltd (Appellant)
Lend Lease Building Pty Ltd (Respondent)
Representation: Counsel:
M Rudge SC; H Woods (Appellants)
S Robertson; R I Raffell (Respondent)
Solicitors:
Michael Flaherty (Appellants)
Blackstone Waterhouse (Respondent)
File Number(s):CA 145289/2014; CA 145296/2014
 Decision under appeal 
Jurisdiction:
9111
Citation:
Intercon Engineering Pty Ltd v Lend Lease Project Management & Construction (Australia) Pty Ltd; Christopher John Wright v Lend Lease Project Management & Construction (Australia) Pty Ltd [2014] NSWSC 441
Date of Decision:
2014-04-16 00:00:00
Before:
Ball J
File Number(s):
2013/347434; 2013/347418

HEADNOTE

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

Intercon Engineering Pty Ltd and Christopher and Cathy Wright (the appellants) entered into four subcontracts with Lend Lease Building Pty Ltd (Lend Lease) to perform building works in respect of the Mulwala Redevelopment Project. The terms of the subcontracts were relevantly identical. Lend Lease was the head contractor, having entered into a contract with the Commonwealth in respect of the project (the Head Contract).

The subcontracts provided for the retention of monies by Lend Lease. Pursuant to clause 10.10.1, the subcontractors were entitled to the release of the retention moneys upon the expiration of the "Defects Liability Period" and the provision of a written request to Lend Lease. The Defects Liability Period in turn was defined as commencing on the Date of Substantial Completion and expiring "24 months after the Date of Final Acceptance (as defined under the Head Contract)". The Date of Final Acceptance under the Head Contract was defined by reference to the completion of the works that Lend Lease had contracted to perform under the Head Contract.

The appellants completed the works they contracted to perform under the subcontracts and claimed to be entitled to the release of retention monies held by Lend Lease. Ball J dismissed the appellants' claims, holding that the time at which the appellants were entitled to the release of the retention monies had not arrived.

The appellants contended that the contract should be read such that the Defects Liability Period expired 24 months after the Date of Substantial Completion under the subcontracts, rather than the Date of Final Acceptance under the Head Contract. They submitted that this construction was consistent with the commercial purpose of allowing Lend Lease to withhold monies until the subcontractor had performed all obligations under the contract.

The Court dismissed the appeal:

1. In order to supply, omit, or correct the words in a contract, the literal meaning of the contractual words must be an absurdity and the objective intention of the parties' must be self-evident: [41].

Mainteck Services Pty Ltd v Stein Heurtney SA [2014] NSWCA 184; 310 ALR 113; National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600; Bank of Queensland Ltd v Chartis Australia Insurance Ltd [2013] QCA 183.

2. Parties could agree that a date in a contract, either for the accrual of a right or for a liability to end, be fixed by reference to a future event in respect of which a date is not known: [46].

Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840.

3. The literal meaning of the Defects Liability Period in the subcontract was not absurd, and the trial judge therefore did not err in giving effect to it: [45].

4. The subcontracts should be construed by reference to the Head Contract in its form as at the date of entry into the respective subcontracts: [55].

Judgment

  1. BEAZLEY P:

Introduction

  1. There are two appeals before the Court, brought by Intercon Engineering Pty Ltd (Intercon) and Christopher and Cathy Wright (the Wrights) respectively, against Lend Lease Building Pty Ltd (Lend Lease) in respect of four subcontracts, each in identical terms, entered into with Lend Lease in 2009 to perform building works in respect of a facility known as the Mulwala Redevelopment Project (the Project). Lend Lease was the head contractor, having entered into a contract with the Commonwealth for the design, construction, commissioning and qualification of the Project (the Head Contract).

  1. The appellants have completed the works they contracted to perform under subcontracts and now claim to be entitled to the release of retention monies held by Lend Lease, either in cash or by way of bank guarantees (the retention monies). Lend Lease has refused to release the retention monies. Ball J, at first instance, dismissed the appellants' claims, holding that, upon the proper construction of the subcontracts, the time at which the appellants were entitled to the release of the retention monies, namely, the Date of Final Acceptance under the Head Contract, had not arrived.

  1. The appellants have appealed against the dismissal of their claims on two essential bases. First, that his Honour erred in finding that, upon its proper construction, the Defects Liability Periods specified in cl 9.7 of the subcontracts was ascertained by reference to the Date of Final Acceptance under the Head Contract. Secondly, the appellants, by way of a proposed amendment of their notice of grounds of appeal, seek to put an alternative argument that if his Honour's construction of cl 9.7 is correct, the Date of Final Acceptance for the purpose of identifying the Defects Liability Periods under the subcontract must be the date by which Lend Lease must achieve Final Acceptance, being the Date for Final Acceptance as defined in the Head Contract.

  1. As this alternative basis for the appeal was not advanced in the court below, the appellants require leave to argue it in this Court. Lend Lease objects to leave being granted: see Suttor v Gundowda Pty Ltd [1950] HCA 35; 81 CLR 418.

  1. Notwithstanding its objection to leave being granted, Lend Lease did not object to oral argument in respect of the alternative basis being heard. The question as to whether leave would be granted was reserved on the basis that it would be determined by the Court in the course of giving its reasons in the matter. As I understand the appellants' position, they seek to advance the alternative basis as their primary argument on the appeal.

  1. As the issues raised on the appeal involve questions of the construction of the provisions of both the subcontracts and the Head Contract, it is necessary to set out the relevant provisions in detail. Before doing so, it is convenient to note that the following matters were agreed facts upon which the proceedings were conducted before the primary judge.

  1. First, the appellants did not see the terms of the Head Contract at the time the subcontracts were executed: judgment at [16]; secondly, "Substantial Completion" of the Works under the subcontracts had occurred and the appellants' request for the release of the retention monies was made more than two years after Substantial Completion of the Works: judgment at [12]; thirdly, there were no outstanding notices in respect of any defects or other matters not in accordance with the subcontracts: judgment at [15]; fourthly, "Final Acceptance" of the Works under the Head Contract had not been achieved: judgment at [9].

  1. In relation to the last matter, the primary judge observed, at [14], that the date for Final Acceptance of the stages of the work to which the parties had agreed in the fourth amending deed was 15 February 2015.

Contractual provisions

(a) The subcontracts

  1. The Wrights entered into three subcontracts with Lend Lease on 22 April 2009. Pursuant to cl A, they agreed to "diligently and expeditiously execute and complete the whole of the works namely construction and fitout" of a specified administration building. Intercon entered into its subcontract on 18 August 2009 and agreed to undertake "process mechanical works". These tasks were respectively defined as the "Works" in each subcontract. The work under each subcontract was not divided into stages.

  1. Except for the dates of the subcontracts, the difference in the work to be undertaken and the subcontract sum, the terms of the subcontracts were relevantly identical. The subcontract was defined in cl C to mean the subcontract document, together with various other documents, including the Appendix and the subcontract terms. Not all subcontract documents were in evidence, but nothing appears to turn on the documents that were not included.

  1. Part 9 of the subcontract was entitled "Time". Clause 9.1.1 provided that the subcontractor "must commence the Works on the Date of Commencement stated in the Appendix". Clause 9.1.2 provided that the subcontractor must bring the Works to "Substantial Completion on or before the Date for Substantial Completion". "Date for Substantial Completion" was defined in the Appendix to the Wrights' subcontracts to be 21 October 2009. The Date of Substantial Completion in the Intercon subcontract was not apparent, but having regard to the agreed matters, the date was not in issue. Substantial Completion had been achieved.

  1. Clause 9.7 was entitled "Defects Liability Periods". It provided, relevantly:

"9.7.1. The Defects Liability Period for the Works ... will commence on the Date of Substantial Completion.
9.7.2. Each of the Defects Liability Periods will expire at the end of the period stated in the Appendix."

(There was provision for a second defects liability period in cl 9.7.3 which is not presently relevant.)

  1. The period stated in the Appendix for the purposes of cl 9.7.2 was, relevantly:

"Defects Liability Periods will expire 24 months after the Date of Final Acceptance (as defined under the Head Contract)."

  1. Part 10 of the subcontract was entitled "Measurement, Payment and Adjustment of the Subcontract Sum". Clause 10.8 provided for the assessment of a claim and payment in the following terms:

"10.8.1.1. Within 10 Business Days of receipt of a claim for payment ... [Lend Lease] must assess the claim and must issue to the Subcontractor a payment schedule identifying the payment claim to which the payment schedule relates ..."

The clause then provided for the retention of monies at the rate and to the limit specified in the Schedule.

  1. Clause 10.9 was entitled "Security for Performance". It provided:

"In lieu of the retention referred to in Clause 10.8.1.1(1) the Subcontractor may at any time provide two unconditional and irrevocable banker's undertakings of equal value in form and substance ... for an amount equal to the limit of the retention referred to in the Appendix in total."

  1. Clause 10.10.1 provided as follows:

"Upon the later of Substantial Completion and receipt by [Lend Lease] of a written request from the Subcontractor for release of either a banker's undertaking or money retained and subject to Clause 6.9.3, [Lend Lease] must release to the Subcontractor either one banker's undertaking or one half of the money retained under Clause 10.8.1.1(1) as applicable. Upon the later of the making good of defects and other matters not in accordance with the Subcontract, the expiration of the Defects Liability Periods (or Second Defects Liability Periods if applicable) and receipt by [Lend Lease] of a written request from the Subcontractor for release of either a banker's undertaking or money retained [Lend Lease] must release to the Subcontractor either the remaining banker's undertaking or the balance of the money retained." (emphasis added)

  1. The question in issue on the appeal is whether the appellants are entitled to the release of the balance of the retention monies in accordance with the emphasised portion of cl 10.10.1. That in turn depends upon the proper construction of cl 10.10.1, including the meaning of the expression in the Appendix, "Date of Final Acceptance (as defined in the Head Contract)".

(b) The Head Contract

  1. As I have indicated above, the Head Contract was entered into between Lend Lease and the Commonwealth. The appellants were not parties thereto. However, having regard to the terms of cl 9.7.2 and the Appendix of the subcontract, certain clauses of the Head Contract are relevant to the question whether the appellants are entitled to the release of the retention monies. Two matters are conveniently noted at this point. First, subsequent to entering into the Head Contract, Lend Lease and the Commonwealth entered into four Deeds whereby the Date for Final Acceptance was amended. Secondly, there were two expressions in the Head Contract which are central to the appellants' argument. The first is "Date for Final Acceptance" and the second is "Date of Final Acceptance" (my emphases).

  1. At the time the subcontracts were entered into, the terms of the Head Contract relevant to that question were as follows.

  1. The Commencement Date for the Head Contract was defined by reference to the later of two dates, including, relevantly, the "Signing Date": cl 1.1. The Signing Date was itself defined in cl 1.1 as "the date on which the [Head Contract] is executed by the last of the Commonwealth and [Lend Lease]". It was admitted on the pleadings that that date was 8 June 2007.

  1. "Final Acceptance" was defined in cl 1.1. It was a lengthy definition that provides a list of events that must have taken place before Final Acceptance is taken to have occurred. These events included practical completion, the completion of notified items, the successful completion and commissioning of works, performance testing, the provision of all documentation and approvals to the Contract Administrator and the supply of all subcontractor warranties required under the Contract.

  1. "Date for Final Acceptance" was defined in cl 1.1 as follows:

"Date for Final Acceptance
In respect of the Works ... the date, or period of time, specified as such in the Contract Particulars, being the date by which the Works ... are to achieve Final Acceptance and all other pre conditions to Final Acceptance are to be satisfied, as adjusted under the Contract."

  1. "Contract Particulars" for the purposes of this clause was also a defined term, meaning, "[t]he particulars at Schedule 1 to these conditions of contract and entitled 'Contract Particulars'". In Sch 1 of the Head Contract, which set out the Contract Particulars, the "Date for Final Acceptance" was defined as "48 months from the Commencement Date".

  1. "Date of Final Acceptance" was defined in cl 1.1 as follows:

"Date of Final Acceptance
The date of Final Acceptance of the Works ... set out in a Certificate of Final Acceptance, being the date by which the Works ... achieved Final Acceptance and all other pre conditions to Final Acceptance are satisfied."

  1. Clause 14 of the Head Contract made provision for time in respect of various aspects of the contract. Clause 14.1 provided, relevantly:

"Progress and Time for Final Acceptance
[Lend Lease] must:
...
(c) achieve Final Acceptance of the Works ... by the relevant Date for Final Acceptance."

  1. By reference back to the definition of Date for Final Acceptance in the Contract Particulars, this was 8 June 2011, being 48 months from the Commencement Date.

  1. Clause 14.5(f) provided that Lend Lease was entitled to claim for an extension of time should any of the matters identified in (i)-(xvii) occur, including industrial action: para (i); civil commotion: para (iii); any excepted risks: para (iv); and an emergency: para (x).

  1. To be entitled to an extension of time, cl 14.6 provided that Lend Lease was required to submit a written claim to the Contract Administrator for an extension of, inter alia, a Date for Final Acceptance within 10 working days of the date upon which a reasonably competent contractor should have been aware of the commencement of the delay.

  1. Clause 14.8 provided that an extension of time would be granted provided that the conditions precedent in cl 14.7 had been satisfied. Clause 14.7 provided 10 condition precedents to the entitlement to an extension of time. Those preconditions were as follows:

"(a) [Lend Lease] must give the written claims required by cl 14.6 as required by that clause;
(b) the cause of the delay was beyond the reasonable control of [Lend Lease];
(c) [Lend Lease] must have actually been, or be likely to be, delayed by a cause described in clause 14.5(f) in a manner which will delay it from achieving Practical Completion or Final Acceptance of the Works as may be relevant;
(d) the delay must impact on the critical path apparent from the Project Schedule;
(e) the cause of the delay could not have been reasonably contemplated or allowed for by [Lend Lease] before entering the Contract and cannot be reasonably accommodated or re-scheduled within [Lend Lease's] Activities under the Contract;
(f) [Lend Lease] must not have been given an instruction under clause 14.6;
(g) [Lend Lease] must have taken all reasonable action to minimise the effect of any of the causes described in clause 14.5(f);
(h) [Lend Lease] must have complied with clauses 14.5(a) to 14.5(b), to the extent required by those clauses;
(i) there must not have been a concurrent delay where the cause of that concurrent delay was an event other than an event referred to in clause 14.5(f) (as may be relevant depending on when the delay occurs); and
(j) no Variation has been directed by the Contract Administrator pursuant to clause 15.2 and no Variation has been approved by the Contract Administrator pursuant to clause 15.8 which, in either case, has put the Contractor in a position that is no better and no worse than if the cause of delay had not occurred."

Appellants' pleaded case

  1. The appellants pleaded that upon the proper construction of the subcontracts, Lend Lease was bound to release the retention monies by, at the latest, 8 June 2013. This allegation was advanced on a number of different bases, including that cl 9.7 was void for uncertainty. That argument was not pressed on the appeal. The only basis that appears to be consonant with the argument on the appeal was the claim pleaded in para 26(3A) of the appellants' amended statement of claim that it was an implied term of the subcontracts that the Defects Liability Periods expired 24 months after the Date of Substantial Completion, although, as I explain below, the proper construction of the contract was not advanced by way of the implication of a term.

Primary judge's reasons

  1. The primary judge observed, at [14], that at the time the Head Contract was entered into, the works were divided into two stages, but that pursuant to the amending deeds, the works had been divided into two additional stages. Pursuant to the last amending deed, the Date for Final Acceptance of those stages was 15 February 2015.

  1. His Honour, at [18], identified that part of the appellants' case which remains in issue on the appeal. The way that argument was put at trial was that the expression "Date of Final Acceptance" as used in the Head Contract was incorporated into the subcontract, but was void for uncertainty. The appellant's case was that the contract ought to be construed as providing that the retention money must be returned 24 months after Substantial Completion, being the only period stated in the relevant part of the Appendix. His Honour rejected this argument. His Honour's reasoning was as follows:

"19 [Clause] 9.7.2 and the Appendix of each subcontract do not seek to incorporate by reference terms from the Head Contract. Rather, their effect is to fix the date for the expiry of the Defects Liability Period by reference to a date determined in accordance with the Head Contract. What cl 9.7.2 and the Appendix require the parties to do is to ascertain the Date of Final Acceptance under the Head Contract. That date becomes the date by reference to which the Defects Liability Period under the subcontracts is to be calculated. Once that is appreciated, the uncertainty identified by the plaintiffs does not arise.
20 It is not unusual for parties to fix the time by when a right accrues, or some other event occurs, under a contract by reference to an external event. It is common, for example, for loan contracts to contain cross-default provisions. Clause 9.7.2 and the Appendix of each subcontract operates no differently from provisions of that type. They simply provide for the identification of the Defects Liability Period under the subcontracts by reference to the Date of Final Acceptance under the Head Contract, just as cross default provisions in loan contracts provide for default under one contract by reference to default under another. There is no question in that case of incorporating the terms of one contract into another and the various authorities referred to by the plaintiffs that deal with that question have no application.
21 The commercial purpose behind defining the Defects Liability Period under the subcontracts by reference to the Date of Final Acceptance under the Head Contract is clear. Under cl 13 of the Head Contract, the Defects Liability Period under that contract expires 24 months after the last Date of Final Acceptance. Lend Lease plainly did not want to be in a position where it had to release guarantees or retention amounts under its subcontracts before the Defects Liability Period under the Head Contract had expired ... The parties chose to deal with that possibility by tying the Defects Liability Period under the subcontracts to the Date of Final Acceptance under the Head Contract."

  1. His Honour, at [22], considered that the expression "Date of Final Acceptance" as used in the subcontracts was ambiguous, but that the ambiguity did not make cl 9.7.2 uncertain. Rather, the ambiguity had to be resolved in accordance with the usual principles of construction. His Honour noted that the parties did not lead any evidence of surrounding circumstances. Accordingly, the contract was to be construed having regard to the terms of the agreement, the objective intention of the parties as inferred from the contract itself and the commercial purpose of the relevant clauses: Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640 at [35].

  1. His Honour, at [28], returned to the commercial purpose behind the clause "Date of Final Acceptance", to which he had referred at [21]. His Honour further noted in that regard:

"If the operation of the Defects Liability Period under the Head Contract is tied to the completion of particular stages, it makes commercial sense to tie the operation of the Defects Liability Periods under the subcontracts to the same stages."

  1. His Honour accordingly dismissed the appellants' claims.

Issues on the appeal

  1. In their initial notices of appeal, the appellants contended, in essence:

(1) (a) That his Honour erred, at [21] and [28], in his statements as to the commercial purpose of defining the Defects Liability Periods in the subcontracts by reference to the Date of Final Acceptance in the Head Contract.

(b) That his Honour ought to have approached the matter, not on the terms found it the Head Contract, but having regard to the agreed facts that the parties did not see the Head Contract; that the Defects Liability Period under the subcontracts had commenced more than two years earlier; and that the Date of Final Acceptance under the Head Contract had not occurred and may never occur: ground 1.

(2) (a) That his Honour erred in his findings at [19]-[20].

(b) That his Honour ought to have found that, on a proper construction of the contract, the Defects Liability Period under the subcontract commenced on the Date of Substantial Completion of work under the subcontract and expired at the end of the only period stated in the Appendix, being 24 months: grounds 2 and 3.

  1. By their amended notice of appeal, the appellants seek to raise the further issue:

(1) Having found, at [19], that what cl 9.7.2 and the Appendix required the parties to do is to ascertain the Date of Final Acceptance under the Head Contract, the Court should have found:

(a) that the definition of the Date of Final Acceptance under the Head Contract does not enable the date of Final Acceptance to be ascertained or identified; and

(b) that, having regard to cl 14.1 of the Head Contract, the Date of Final Acceptance for the purpose of identifying the Defects Liability Period under the subcontracts must be the date by which Lend Lease must achieve Final Acceptance, being the Date for Final Acceptance, which was 48 months after the Commencement of the Head Contract: ground 4.

Grounds 1-3

  1. The appellants contended that in circumstances where the Date of Final Acceptance under the Head Contract was not known and, as Lend Lease had conceded in argument at first instance, may never occur, the words "after the Date of Final Acceptance (as defined under the Head Contract)" did not give effect to the requirements of cls 9.7.1 and 9.7.2 of the subcontract. The appellants submitted that those clauses called for a finite defects liability period following substantial completion being achieved. The appellants contended, therefore, that it was necessary to omit the words "after the Date of Final Acceptance (as defined under the Head Contract)" from the Appendix so as to avoid commercial absurdity and inconsistency with the subcontracts. This in turn required that the clause in the Appendix, for the purposes of cl 9.7.2, should only make reference to a period of 24 months. According to the appellants' argument, after the excision of the words "Date of Final Acceptance (as defined under the Head Contract)" from the Appendix, the effect of cls 9.7.1 and 9.7.2 and the remaining words in the Appendix would be that the Defects Liability Period would expire 24 months after its commencement, that is, 24 months after the Date of Substantial Completion.

  1. The appellants submitted that this approach was authorised by the principle stated in Bank of Queensland Ltd v Chartis Australia Insurance Ltd [2013] QCA 183 at [36]:

"If the words used are unambiguous, the court must give effect to them, notwithstanding the result may appear unreasonable, unless the literal meaning would lead to an absurd result. As was stated by Dixon CJ and Fullagar J in Fitzgerald v Masters '[w]ords may generally be supplied, omitted or corrected, in an instrument, where it is clearly necessary in order to avoid absurdity or inconsistency'. This principle is not limited to the correction of obvious and minor errors. It extends to a case in which absurd consequences follow from the application of the literal meaning. The process of supplying words may bring a marked divergence from the text. But it is a consequence of 'the rule that the intention of the parties is to be ascertained from the instrument as a whole and that this intention when ascertained will govern its construction.'" (citation omitted)

  1. The appellants also referred to the decision of this Court in MainteckServices Pty Limited v Stein Heurtney SA [2014] NSWCA 184; 310 ALR 113 where Leeming JA (Ward and Emmett JJA agreeing) stated that two conditions must be satisfied in order to supply, omit, or correct the words in a contract. First, that the literal meaning of the contractual words is an absurdity and, secondly, that it is self-evident what the objective intention is to be taken to have been: see at [117], approving this Court's decision in National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600, where this Court stated, at [34]:

"Where both those elements are present ... ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning."

  1. The appellants submitted that in order to identify the absurdity of the clause in the Appendix, it was necessary to have regard to how the Appendix provision operated at the commencement of the subcontracts. They pointed out that the Head Contract was for the design and construction of the project for a fixed sum in the order of $187 million. Under the subcontracts, the subcontractors were required to perform discrete portions of the construction work. The subcontractors were to be paid the subcontract sum and the work was to be to the satisfaction of Lend Lease, in accordance with the terms of subcontract.

  1. The appellants acknowledged that, under the terms of the subcontracts, Lend Lease was entitled to retain certain monies and those monies were to be released in two tranches. As I have already pointed out, it is the release of the second tranche of the retention monies that is in issue. The appellants submitted that the clear objective intention of cl 9.7, "Defects Liability Periods", was to provide a definite period during which they were to rectify defective works during which Lend Lease would retain the retention monies as security for those obligations. Once those obligations had been satisfied, the retention monies were to be released to the subcontractor. To achieve that commercial purpose it was necessary that the words "After the Date of Final Acceptance (as defined in the Head Contract)" be excised.

  1. The appellants submitted that this construction of cl 9.7 was consistent with the commercial purpose of the provision for retention of monies owing to the subcontractors, namely, that Lend Lease was entitled to withhold monies until the subcontractor had performed all obligations under the contract, including the performance of any works required by the issue of a notice to rectify defects or works not in accordance with the subcontract. In other words, the provision for retention was the means by which a subcontractor guaranteed due performance of its work in accordance with the terms of the subcontract. It was not a means whereby the subcontractor was either required to guarantee the performance of work by another subcontractor, nor was there any commercial purpose in requiring a subcontractor who had fulfilled all its obligations to wait until all other subcontractors had satisfied their respective subcontractual obligations.

  1. In my opinion, the appellants' proposed construction fails at the first hurdle. The literal meaning of the expression in the Appendix, "Defects Liability Periods will expire 24 months after the Date of Final Acceptance (as defined under the Head Contract)", is not absurd. The expiry of the Defects Liability Periods could be determined by reference to the Head Contract according to its terms. This is so notwithstanding that it might not have been possible to specify the date that the Defects Liability Period expired until relevant events under the Head Contract had played themselves out, including by reference to whether any extensions of time had been granted under cl 14 of the Head Contract. Although the appellants might not have foreseen this consequence at the time of entering into the contract, that is not the relevant test to apply. Rather, as all parties accepted, it is the objective intention of the parties that is relevant in determining the proper construction of a contract: see Electricity Generation Corporation v Woodside Energy Ltd.

  1. I also agree with Lend Lease's submission that parties have the contractual freedom to agree to a date in a contract, either for the accrual of a right or for a liability to end, by reference to a future event in respect of which a date is not known: see Austra Tanks Pty Ltd v Running [1982] 2 NSWLR 840 at 843 where Wootton J said:

"A matter may be left for determination by some nominated authority, even by one the parties themselves; or for calculation by reference to future events or information not presently available; or for determination by reference to some standard. In all these cases the fundamental approach is id certum est quod certum redid potest - the contract is good if the inquiry for which the words call is one which will lead to a sufficiently certain result."

  1. Finally, I do not agree that the commercial purpose of the retention monies provisions and the definition of the Defects Liability Periods in the subcontract was as the appellants assert. Rather, I consider that his Honour correctly identified the commercial purpose at [21] of his judgment.

  1. Accordingly, grounds 1 to 3 of the appeal are rejected. Having regard to this conclusion, I consider it unnecessary to address Lend Lease's argument that the way in which these grounds were argued was different from the way the issue was put before the trial judge.

Ground 4

  1. The appellants submitted that, even if the Court rejected the submission that the words "after the Date of Final Acceptance (as defined under the Head Contract)" must be ignored for the purposes of determining whether they were entitled to the release of the retention monies, it was still necessary to ascertain the Date of Final Acceptance. They submitted that that task was to be undertaken by reference to the terms of the Head Contract as at the date the subcontracts were entered into. This was central to the appellants' argument, because after the appellants had entered into their subcontracts, Lend Lease and the Commonwealth, without the appellants' knowledge, had agreed to an extension of the Date of Final Acceptance on four separate occasions by entering into deeds of agreement which were not in conformity with the provisions of cl 14 of the Head Contract relating to extension of time under the Head Contract.

  1. The appellants submitted that upon the proper construction of the Head Contract, unaltered by the amending deeds, the Date for Final Acceptance and for the expiration of the Defects Liability Period were objectively ascertainable and in fact had passed.

  1. The process of construction on this argument was as follows. First, under the Head Contract, the defined Date for Final Acceptance was 48 months from the Commencement Date, which was admitted to be 8 June 2007. Accordingly, the Date for Final Acceptance was 8 June 2011. Secondly, by reference to the provisions of the subcontract, the Defects Liability Period expired 24 months after the Date of Final Acceptance. The appellants contended, therefore, that they were entitled to the release of the retention monies as and from 8 June 2013 and they had given notice claiming those monies as required by the terms of the subcontract. The appellants submitted that this construction was supported by the commercial purpose of these clauses in the subcontract.

  1. Lend Lease submitted that this was an incorrect construction of the Head Contract with no basis in principle. Lend Lease pointed out that, on the terms set out in the Head Contract prior to its amendment by the four amending deeds, it was not necessarily required to achieve Final Acceptance 48 months after the commencement of the Head Contract. Rather, cl 14.1 of the Head Contract provided that Lend Lease must "achieve Final Acceptance of the Works ... by the relevant Date for Final Acceptance".

  1. Lend Lease submitted that the Date for Final Acceptance was not a set date. Rather, it was a date which was to be determined having regard to the manner in which the contract worked itself out. There may be an acceleration of the works or there may be delays. In either case, the contract made provision for the consequences thereof which may affect the Date for Final Acceptance.

  1. It followed, on Lend Lease's submission, that the construction that the appellants seek to advance required that the words of the subcontract be "notionally replaced" or read as "Defects Liability Period will expire 24 months after the Date for Final Acceptance", not "Date of Final Acceptance", being the expression used in the Appendix of the subcontracts (emphases added). Senior Counsel for the appellants frankly admitted that this was the consequence of his submission.

  1. In my opinion, there is merit in the appellants' argument that their subcontracts should be construed by reference to the Head Contract in its form as at the date of entry into the appellants' respective subcontracts. However, accepting that to be so, I consider that the appellants' construction of the Defects Liability Period should be rejected. Senior Counsel for the appellants accepted that on the appellants' construction, it was necessary to draw an inference that in the absence of evidence of extensions of time, the Date of Final Acceptance was the same as the Date for Final Acceptance. He submitted that that followed from the provisions of cl 14(1)(c) of the Head Contract, namely, that Lend Lease must "achieve Final Acceptance of the Works ... by the relevant Date for Final Acceptance".

  1. The difficulty in drawing that inference, however, is that there was no evidence to support it. There was a complete absence of evidence as to whether the Date for Final Acceptance had been achieved by reference to the terms of the Head Contract in its unamended form. At the most, the appellants were able to assert that, if all had remained constant in the performance of the contract so that there had been no basis upon which an extension of time might have been granted, the Date for Final Acceptance was 8 June 2011 and, it would follow, on the appellants' argument, that the Date of Final Acceptance would have been the same.

  1. It is readily apparent that the appellants cannot succeed on an argument that required evidence for its success. They had the legal onus of adducing at least some evidence to establish that nothing had occurred in the performance of the contract by Lend Lease such as to entitle it to an extension of time. Indeed, it is highly unlikely that that would have been the case and the amending deeds, although not providing for extensions in accordance with cl 14 of the Head Contract, would tend to indicate that that was not likely.

  1. I should also add that the appellants pointed out that that it was possible, at least theoretically, that Final Acceptance under the Head Contract may never be achieved, so that they could be kept out of the retention monies permanently. However, this last submission failed to take into account the availability of other legal principles, including principles relating to the frustration of contract and those which require parties to do all such things as are necessary to enable the other party to have the benefit of the contract: see Mackay v Dick (1881) 6 App Cas 251.

  1. Having regard to this conclusion, leave should not be granted to the appellants to put to the Court this alternative argument, which was not advanced in the court below. Accordingly, I propose the following orders:

(1) Leave for the appellants to amend their notices of appeal refused;

(2) Appeal dismissed with costs.

  1. MACFARLAN JA: I agree with Beazley P.

  1. EMMETT JA: These appeals are concerned with the proper construction of subcontracts entered into between the appellants, on the one hand, and the respondent, Lend Lease Building Pty Ltd (LLB), on the other. Three subcontracts were entered into by Christopher and Cathy Wright (the Wrights) and a fourth subcontract was entered into by Intercon Engineering Pty Ltd (Intercon). The four subcontracts are relevantly in identical terms and the same question arises in each appeal.

  1. On 8 June 2007, LLB entered into a deed of agreement with the Commonwealth of Australia (the Head Contract) for the design, construction, commissioning and qualification of the modernised Mulwala facility. By cl 3.1(a), LLB undertook an obligation to design, construct, complete, commission and qualify the Works, in return for which the Commonwealth was obliged to pay to LLB the Contract Price. The Contract Price consisted of a lump sum in Australian dollars, US dollars and Great Britain pounds. The Head Contract expressly contemplated that there would be subcontractors in respect of the activities of LLB under the Head Contract. Neither the Wrights, nor Intercon, were parties to the Head Contract. Indeed, it was common ground that when the subcontracts were entered into, they did not have access to the Head Contract.

  1. By the subcontracts, the subcontractors agreed to execute and complete, diligently and expeditiously, the whole of the Works as defined in the relevant subcontract. LLB was obliged to pay each subcontractor a lump sum in Australian dollars. The subcontracts referred to the Head Contract as the agreement, arrangement or understanding with the Commonwealth under which LLB was to execute certain work, of which the Works described in the subcontracts formed part.

  1. Part 10 of the subcontracts dealt with measurement, payment and adjustment to the subcontract sum. Under cl 10.5.1, the subcontractor was required to deliver to LLB claims for payment at the times specified. The prerequisites for a payment claim were set out in cl 10.5.1. Clause 10.7 specified certain conditions precedent to payment.

  1. Under cl 10.8.1.1, LLB was required, within ten business days of receipt of a claim for payment, to assess the claim and to issue a payment schedule setting out the retention to be deducted (at the rate and to the limit specified) and setting out amounts otherwise due under the subcontract from LLB to the subcontractor and from the subcontractor to LLB. The payment schedule was also required to set out any amount that LLB is entitled to retain under the subcontract. Clause 10.9 provided that, in lieu of the retention referred to in cl 10.8.1.1, the subcontractor may provide irrevocable banker's undertakings for the amount equal to the limit of the retention specified in the subcontract.

  1. The critical clause for present purposes is cl 10.10.1. Clause 10.10.1 contemplated release in two tranches of the retention, whether in the form of money or in the form of a banker's undertaking. One half of the banker's undertaking or money retained was to be released on the later of Substantial Completion and receipt by LLB of a written request from the subcontractor for release. There is no dispute concerning the release of the first tranche of the retention.

  1. The dispute concerns the provisions of cl 10.10.1 relating to the release of the remainder of the retention by the banker's undertaking or money. LLB is required to release the remaining banker's undertaking or the balance of the money retained upon the later of:

(1)   the making good of defects and other matters not in accordance with the subcontract;

(2)   the expiration of the Defects Liability Periods; and

(3)   receipt by LLB of a written request from the subcontractor for release.

  1. Clause 9.7 of the subcontracts deals with Defects Liability Periods. Under cl 9.7.1, the Defects Liability Period for the Works was to commence on the Date of Substantial Completion. Date of Substantial Completion is the date on which the Works are brought to Substantial Completion. Substantial Completion is when the Works are complete except for minor omissions and minor defects. There is no dispute that the Date of Substantial Completion has occurred.

  1. Clause 9.7.2 of the subcontracts provides that each of the Defects Liability Periods will expire at the end of the period stated in the Appendix to the subcontracts. The Appendix provides that the Defects Liability Periods will expire 24 months after the Date of Final Acceptance, as defined under the Head Contract. Thus, it is necessary to have regard to the Head Contract to determine when the Defects Liability Period expires for the purposes of determining whether LLB is under an obligation to release the remaining retention to the subcontractors.

  1. Clause 14.1 of the Head Contract provided that LLB must regularly and diligently progress the Activities (as defined), achieve Practical Completion (as defined) of the Works by the relevant date for Practical Completion and must achieve Final Acceptance of the Works by the relevant Date for Final Acceptance. Thus, the Head Contract draws an obvious distinction between achieving Final Acceptance of the Works, on the one hand, and the date by which LLB was contractually bound to achieve Final Acceptance, on the other. The Head Contract provides in Schedule 1 that the Date for Final Acceptance for the Works was 48 months from the Commencement Date. Relevantly, the Commencement Date was 8 June 2007, the date of signing the Head Contract.

  1. Under the Head Contract, Final Acceptance is when:

  • Practical Completion of the Works has occurred;
  • LLB has completed all items of minor defects that do not prevent the Works from being reasonably capable of being used for their intended purpose;
  • The Works have successfully been commissioned and tested;
  • LLB has carried out and passed certain performance tests;
  • All documents and other information required for the use, operation and maintenance of the Works have been supplied;
  • All subcontractor warranties required under the Head Contract have been supplied; and
  • LLB has done everything that the Head Contract requires it to do as a condition precedent to Final Acceptance of the Works.

Thus, Final Acceptance describes the final completion of the Works to be performed by LLB under the Head Contract. The Date of Final Acceptance is then defined as the date by which the Works achieve Final Acceptance and all other pre-conditions to Final Acceptance are satisfied. Clearly enough, one could not know in advance what the Date of Final Acceptance might be. That is to say, the time when the Works achieve Final Acceptance will depend upon the vagaries of performance and the like. On the other hand, the Date for Final Acceptance was fixed in advance and was known to the parties to the Head Contract.

  1. Final Acceptance of the Works under the Head Contract has not yet been achieved. However, there was no evidence that the subcontractors had failed to make good defects or other matters not in accordance with the subcontracts.

  1. Clause 6.9.1 of the subcontracts provides that, at any time prior to the expiry of a Defects Liability Period, LLB may, by notice, instruct the subcontractor to make good a defect or other matter not in accordance with the subcontracts. Under cl 6.9.3, if the subcontractor fails to comply promptly with an instruction or make good a defect by the date stipulated, LLB may carry out or complete the instruction and the subcontractor will be liable for losses suffered by LLB. It was common ground that there was no written notice under cl 6.9.1 that had not been complied with.

  1. LLB contends that the time for release of the remaining retention has not yet arrived because the Defects Liability Period has not expired. It relies on the fact that there has not yet been Final Acceptance of the Works by the Commonwealth under the Head Contract and therefore the date of Final Acceptance has not yet arrived.

  1. It might have been open to the subcontractors to adduce evidence to the effect that the failure to achieve Final Acceptance was the result of some default on the part of LLB. No suggestion to that effect was made. Further, it may have been possible for the subcontractors to adduce evidence to show that, while Final Acceptance of the Works under the Head Contract had not yet been achieved, Final Acceptance of the Works under each of the subcontracts had been achieved. Once again, there was no evidence to that effect.

  1. The contentions advanced on the appeal by the subcontractors come down to the construction of cl 10.10.1. First, they contend that, because the Date of Final Acceptance could not be ascertained at the date of the subcontracts and may never occur, the Defects Liability Period should be understood as expiring at the end of the only period stated in the Appendix, being 24 months. Alternatively, they contend that the Date of Final Acceptance should be understood as referring to the Date for Final Acceptance. The Date for Final Acceptance was 48 months after the commencement of the Head Contract. That period has now expired.

  1. In fact, the Date for Final Acceptance was varied by the Commonwealth and LLB on 9 February 2011 to provide that the Date for Final Acceptance was to be 24 February 2013. However, there was no evidence as to the circumstances in which that variation occurred. In particular, there was no evidence to indicate that there was any lack of good faith or that there was default on the part of LLB.

  1. There is no ambiguity in the language of cl 10.10.1 or in the definition of the terms that are employed for the purposes of determining the expiration of the Defects Liability Period. The primary judge concluded that the Defects Liability Period, for the purpose of the subcontracts, has not yet expired and that, accordingly, the subcontractors are not yet entitled to the release of the remaining retention.

  1. I have had the advantage of reading in draft form the proposed reasons of the President. I agree with her Honour, for the reasons proposed by her, that leave to amend the notice of appeal should be refused and that the appeal should be dismissed with costs.

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Decision last updated: 23 December 2014

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