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Fri October 23 2020

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Lack of contractor's notice does not defeat "prevention principle"

20 Aug 10 The parties entered into a cost plus contract for the construction of houses on land owned by Gold City. The contract was the standard form cost plus contract issued by the Housing Industry Association Ltd. in June 2000 (AB 75 82).

The contract provided that the builder would be paid the actual cost of the works, plus a fee of $125,000 plus GST. The works were to be completed by 4 September 2006, but were delayed until 31 August 2007. The parties agreed that their disputes should be resolved at arbitration. 

Before the arbitrator, Gold City argued that the contractor had been in breach of contract by failing to complete the works on time. As a consequence, Gold City maintained it had incurred loss of income from renting the properties of $405,600, calculated at a loss of rent of $31,200 per month for 13 months. The contractor admitted that the project had been delayed, but submitted that it had been due to factors outside its control, and also challenged Gold City’s entitlement to the sum claimed on the basis that the sum had not reasonably and properly been incurred. 

The arbitrator concluded that Gold City had caused 9 months of the delay because it had failed to build the retaining wall and earthworks, failed to pay for the structural steel to be used in building the houses, failed to install Gyprock insulation and accessories, kitchen cupboards and vanities, and had failed to pay for the installation of tiles. In the arbitrator’s view, Gold City had been well aware of the delays it had caused. 

However, the contractor had not given notice of the delays or sought an extension of time under clause 11(c) of the contract. Because Gold City had been aware of the delays it had caused, this failure by the contractor to give notice had not caused Gold City’s loss. Gold City had known of the delays and could have remedied them. The contractor had, however, been responsible for three months’ delay due to lack of accommodation for its workers. Having decided all this, the arbitrator awarded Gold City $93,600, being three months’ loss of rent at $31,200 per month with no interest. He awarded the contractor all its disputed costs of $202,465.57 apart from just $117, plus interest. Gold City appealed. 

Gold City argued that the arbitrator had erred in granting the contractor an extension of time when, contrary to clause 11(c) of the contract, the contractor had failed to notify or claim any extensions of time. Gold City argued that there was no evidence that any of its acts had impacted on the critical path so as to cause or contribute to the contractor’s failure to complete on time. Gold City also contended that the arbitrator had erred in law in extending the time for the contractor to achieve practical completion. His task had been to determine who had been responsible for the delay and what the consequences of that finding were; further, the arbitrator had erred in finding that the contractor’s costs had been reasonably and properly incurred. 

The court found that the first two grounds of appeal were misconceived because the arbitrator had not purported to extend time to bring the works to practical completion. His task had been to determine who had been responsible for the delays and what the consequences of that were.

The court considered Gold City’s right to appeal under Commercial Arbitration Act 1985 (WA) s.38. There was an error of law where:

a) There was an error in the construction of the contract, or:

(b) A finding of fact was made in the absence of any evidence at all. However, where there was some evidence upon which a fact could be found, there would be no error of law even if the finding is perverse or against the weight of the evidence.

ARBITRATOR’S MANIFEST ERROR OF LAW

The requirement that the amount in question was sufficient to affect the parties’ interests was satisfied. It was not possible to understand the award without reference to the contract, and, therefore, the contract formed part of the award. The decisive issue was whether the arbitrator had made a manifest error of law. This turned on the construction of clause 11 of the contract. This provided at clause 11(b) that the contractor would not be responsible for any delays “caused by any matter or thing over which the Builder shall have no control”. There followed a list of items, which included:

“(iii) Any instruction or delay of instruction by or any omission of the Owner;

“(iv) Any deliberate and substantial prevention of or interference with the Works or the progress thereof caused by the Owner;

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Gold City submitted that clause 11(a) provided for when the works are to commence and be completed. Clauses 11(b) and (c), it argued, provided a mandatory ‘regime’ to deal with delay in the progress of the works. Specifically it was submitted that if there were any delay, including delays caused by the proprietor, the builder was obliged to notify the proprietor in writing of the delaying event. If notice were given, the contractor was entitled to an extension of time, unless the claim was disputed by the proprietor. However, if no notice were given, the contractor might be liable for damages. Because the contractor gave no notice, Gold City argued that it was prevented from relying upon Gold City’s own delays to defend those it had caused. Thus, clause 11 overcame the principle of contractual construction, known as the prevention principle. Gold City’s argument was that the arbitrator had made a manifest error in not construing the clause in the way it argued for.

The arbitrator had been entitled to construe the clause as he had. In the court’s opinion, he had been correct. no manifest error had been demonstrated.

THE PREVENTION PRINCIPLE

The phrase in clause 11(b): ‘[N]otwithstanding provisions to the contrary contained in this Contract the Builder shall not be responsible for any delays caused by any matter or thing over which the Builder shall have no control’ was a clear and overriding statement which meant that none of the other provisions in the contract, including clause 11(c), could have an effect which resulted in the contractor having responsibility for any delaying event over which it had no control. The delays for which the arbitrator found Gold City to be responsible came within the phrase ‘any omission of the owner’. The contract’s provisions did not clearly exclude the prevention principle.

The burden was on Gold City to show that there was no evidence to show that none of its acts or omissions had caused any delay. From the award, it was clear that the arbitrator had had evidence of causation.

Gold City Developments Pty. Ltd. v Portpride Pty. Ltd.

[2010] WASC 148

Also in this week’s subscription bulletin:

  • Court rejects the incorporation of an arbitration clause into a subcontract by reference;
  • Articles on DABs under the FIDIC Conditions;
  • Articles on arbitration and adjudication;
  • Department for Business, Innovation and Skills (BIS) Publishes Standard Terms and Conditions of Contract for the Purchase of Services.

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