Enforcement of ‘no damages for delay’ clause in construction contracts

Typically, when a party breaches a construction contract to the extent that it causes delay, the non-breaching party is able to claim damages for loss, this was affirmed in the recent case of Lucas Earthmovers Pty Limited v Anglogold Ashanti Australia Limited [2019] FCA 1049. The Court considered how a ‘no damages for delay’ clause must be constructed in order to be valid in the circumstances where a contractor claims damages for delay or disruption where an employer is culpable. The case involved Lucas Earthmovers (‘the Contractor’) and AGA (‘the Owners’) who were involved in a construction project that was delayed, with the Contractor incurring additional costs for completion. In bringing an action against the Owner, the Contractor claimed damages for: time related costs for additional work, variations under the contract and consequences of the additional time and additional work completed. The Federal court held that the ‘no damages for delay’ clause (clause 18.8) that stipulated that the Contractor will not be entitled to claim any Liabilities resulting from any delay or disruption (even if caused by an act, default or omission of the Company or the Company’s Personnel (not being employed by the Contractor)” prevented the Contractor from claiming costs for prolongation. This indicates that although there is uncertainty as to whether the Courts would enforce such clauses due to their exclusionary nature, it is also equally possible that the Court will accept their enforceability.

How can false or misleading conduct affect a deed of surrender?

In the case of Kids Club Rozelle Pty Ltd v European Hire Cars Pty Ltd [2018] NSWSC 1115 the Supreme Court had to determine the validity of a Deed of Surrender and Release where the tenant had made deceptive and misleading statements in the lead up to its creation. In this case, the parties entered into a lease with the intention of the tenant building a childcare centre on the land. When the funding for the childcare centre fell through, the tenant made false and misleading statements to the land owners, saying that they had impending offers to assign the lease, while in fact no such offers existed. The land owner’s did not want the lease to be assigned, and claimed that the misleading conduct induced them into entering the deed of surrender to terminate the lease early.

The court accepted that the conduct of the tenant in claiming there were offers to take an assignment of the lease was misleading and in breach of the Australian Consumer Law, but ultimately they found that it was not the only factor that induced the defendants to sign the deed of surrender. The court found that there were other factors in the defendant’s decision, as they believed the rent being paid was below market value, they didn’t want the lease to be assigned, and wanted to end their association with the plaintiff. Therefore while the conduct was misleading, the deed of surrender was still valid.

Option for landlords where tenant fails to pay rent

The case of Charlie Bridge Street Pty Ltd v Petrazzuolo [2019] NSWCACTD 1 demonstrates the options of a landlord in circumstances where a tenant fails to pay rent. The case involved a tenant and landlord who had entered into a commercial lease. The tenant failed to pay rent per the terms of the lease, with the landlord subsequently emailing the tenant informing them that they had breached the contract. Four days after the occurrence of the breach, the landlord took re-possession of the premises. The tenant made an application to the court, claiming wrongful termination based on the failure of the landlord to provide 14 days’ notice before taking re-possession of the premises per clause 12.2.4 of the lease. In its consideration, the Court determined whether clause 12.2.4 was able to circumvent s129 of the Conveyancing Act (‘the Act’). S129 (1) of the Act stipulates “a landlord can re-take possession only if it services notice of the breach, allowing reasonable time to remedy that breach”, however s129 (8) provides “the section has no effect relating to re-entry in the case of non-payment of rent.” In relying on the above clauses, since the situation involved non-payment of rent, the Court held that the landlord was entitled to take re-possession of the premises, despite not providing 14 days’ notice.

Sale of property without a signed contract?

The recent case of Phung v Phung [2019] NSWSC illustrates the Courts’ position with regards to the doctrine of part performance in relation to the sale of property through oral contracts. The plaintiff sought to enforce an oral contract for the sale of an $180,000 unit that was made with his brother (the defendant).  In determining whether the oral contract was valid, the Court had regard to the test from Maddison v Alderson that necessitates that part-performance must be ‘unequivocally referable’ to the oral contract. The Court formed the view that the plaintiff’s payment of $180,000 was not in itself sufficient enough to constitute part performance. However, the court held that due to the fact that the plaintiff had taken possession of the unit, had carried out the renovations on the unit and had paid all outgoing expenses for the property, that the property had been valid transferred to the plaintiff. Although this case demonstrates that an oral contract for the sale of property can be enforced due to part-performance, which was established on the unique facts of the case, it is always recommended that written contacts be prepared and signed by both parties.

Amendments to NSW’s security of payment legislation commencing 21 October 2019

Following on from our Security of Payments article published in May, the NSW government have now confirmed that the amendments to the Building and Construction Industry Security of Payments Act 2018 and the Building and Construction Industry Security of Payments Regulation 2018 will commence on 21 October 2019. Please click here if you would like to find out more about the amendments.

NSW Government’s plan to ‘Build Stronger Foundations’

The NSW Government’s proposed reforms in the ‘Building Stronger Foundations’ discussion paper, if implemented, will have extensive impacts on the building and construction industry. The discussion paper delves into the response from the NSW Government to the Shergold-Weir Reportconfirming that it will support the majority of the 24 recommendations to improve building regulations and the National Construction Code (NCC). The Discussion paper sets out four key proposals to deliver more robust regulatory and enforcement requirements. The four key reforms include:

  1. A requirement for buildings to be designed and constructed in compliance with the Building Code of Australia (BCA). This will involve the introduction of ‘building designers’ into NSW legislation and a number of legislative obligations to be placed on these designers.
  2. A requirement for building practitioners to be registered as a ‘building designer’ to sign off plans and ensure BCA compliance. In order to register as a designer, practitioners will be required to complete an application form and pay a fee, as well as meeting certain conditions.
  3. The introduction of duty-of-care principles, which will allow home owners to claim compensation if a building designer is negligent, reversing the Landmark High Court decisions in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 and Woolcock Street Investments Pty Ltd v CDG Pty Ltd. These decisions are regarded by the NSW Government as eroding the rights of consumers, as it was held that the practitioners did not owe a duty of care where protection is provided for in a contract.
  4. The appointment of a building commissioner who will be tasked with regulating the NSW building industry, in particular, compliance with the proposed reforms.

NSW Fair Trading has invited individuals and organisations interested in the proposal to provide submissions in relation to the reforms outlined in the discussion paper. Any person involved in the building and construction industry should consider making a submission before the closing date 24 July 2019, as these reforms are likely to have a significant and long-lasting impact. The legislation is expected to be introduced into State Parliament at the end of 2019.

Major Changes to the National Construction Code

The National Construction Code 2019 (NCC) became effective on the 1 May 2019, repealing the National Construction Code 2016. The NCC is a code that regulates performance of all those involved in the construction of buildings, across all states and territories in the country. The NCC sets out guides and compliance requirements that must be followed. The new code contains three volumes which addresses the minimum level of performance requirements in relation to:

  1. Volume One: requirements for multi-residential, commercial, industrial and public buildings and structures
  2. Volume Two: requirements for residential and non-habitable buildings and structures
  3. Volume Three: requirements for plumbing and drainage

The key changes in the NCC 2019 involved: readability, performance requirements, fire safety, energy consumption, condensation management, roof-top space and plumbing. If you are involved in the construction industry, ensure that these new compliance requirements are being met.

The danger of elapsed deferred commencement consents

The decision in Dennes v Port Macquarie-Hastings Council [2018] NSWLEC 95 highlights the importance of satisfying deferred commencement conditions before the specified period elapses, or else development consent may lapse. In this case, development consent for a flood-prone property in Beechwood was subject to a deferred commencement condition that required Mr Dennes to submit a Flood Emergency Response Plan (FERP) within 12 months. Mr Dennes submitted such a plan within that time frame, but it was rejected by the Council as it was ‘not capable of being supported in its current form.’ Mr Dennes then failed to take any action until four months after the time period of the deferred commencement condition had elapsed, at which time he appealed to the Land and Environment Court.

The court ultimately held that the presentation of the FERP to the Council was not enough to satisfy the deferred commencement condition, as it expressly required the council to find the FERP to be satisfactory. As this did not happened within the specified period, the court held that the development consent had elapsed with the deferred commencement condition. This decision is an important reminder that any appeals must be brought before the specified time period for the satisfaction of a condition elapses.

Limitations of enforcing by-laws against tenants in a strata scheme

The case of Feletti v Eales [2019] NSWNCATAP 100 highlights the limitations of enforcing by-laws against tenants in a strata scheme. The case involved Ms Feletti, an owner and occupier of a unit in a strata scheme, and Mr Eales, an owner and landlord of the unit located above Ms Feletti. The By-laws for the strata scheme included a provision that required an owner or occupier of a lot to abstain from creating noise that was ‘likely to interfere with the peaceful enjoyment of the owner or occupier of another lot or any person lawfully using the common property.’ Ms Feletti claimed the Mr Eales’ tenants were making excessive noise, and therefore in breach of the by-laws, and subsequently sought an order in the NSWNCAT pursuant to s232 and 241 of the Strata Management Act (SSMA). The orders sought to restrict Mr Eales and his tenants from making noise between 10pm and 10.30am. On appeal the NSWCATAP affirmed the decision made at the initial hearing, paying close attention to the wording of s135 of the SSMA which states that by-laws for strata schemes binds “owners” of units but not “occupiers”. The Appeal Panel ruled that their powers did not extend to make orders against the tenants due to s135. This case illustrates that the tribunal does not have sufficient power to regulate the behaviour of a tenant.

Risks of a tenant moving into possession of premises without a binding lease

The recent case of Darzi Group Pty Ltd v Nolde Pty Ltd in the NSWSC demonstrates the risks of a tenant moving into possession of premises without a binding lease. The involved parties signed a Heads of Agreement (HOA) to lease a commercial premises, the tenant took possession and commenced a fit out of the premises. The tenant expected that the imminent formal lease would reflect the terms of the HOA, however the terms of the lease provided by the landlord varied considerably. Consequently, the parties embarked on 2 years of negotiations through their legal representatives, seemingly resulting in the execution of the lease by the tenant before it being returned to the landlord. Despite the passing of a further 2 years (4 years since moving in), the landlord never executed the lease and continued to attempt to renegotiate terms. The tenant commenced proceedings, seeking to enforce the lease that they had signed. The Court held that the parties did not intend to be bound by the lease as it was reasonable to presume that where parties are acting through legal advice, no binding agreement arises until formal execution and exchange.