Australia – Construction Law Update – No Notice, No Relief CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC217.

21 October, 2015

 

Contractors need to comply strictly with both content and timing requirements for notices and claims under contracts. 

 

What you need to know

 

• The Western Australian Supreme Court has upheld the requirement for strict compliance with detailed notice provisions as a condition precedent to an entitlement to an extension of time.
• While the Court accepted the subcontractor was delayed by acts of the contractor that were within the contractor's knowledge and control, the subcontractor's claims were denied for a failure to comply with the notice provisions.

 

What you need to do

 

• Contractors need to comply strictly with both content and timing requirements for notices and claims under the contract. 

 

Despite longstanding authority that time bars should be enforced in accordance with their terms, it would nonetheless come as a surprise to many that an otherwise meritorious claim regarding facts within the respondent's knowledge would be rejected by a court solely because of a failure to comply with a notice provision. That is exactly what happened in the recent case of CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217.

 

Purpose of time bars

 

It is commonplace for contracts on major projects to include detailed notice provisions that require a fully documented and supported claim to be submitted within a tight timeframe after an issue arises, failing which any claim is barred. While sometimes perceived by contractors as unnecessarily harsh and unfair, such provisions can perform an important role in ensuring information vital to a successful project outcome is shared up the contracting chain.

 

The provision of prompt and comprehensive notice of issues as they arise serves a number of important functions. First, it provides the

recipient of the notice the opportunity to promptly investigate the substance of the claim.1 This is essential in a construction project where work may be re-built or covered up and temporary obstacles may be removed without a trace.

 

Secondly, it enables the recipient to monitor its position in relation to its contractual counterparties.2 This is particularly important for a head contractor, who needs to monitor its exposure to its subcontractors while assessing and passing claims up to the principal within the time required under the head contract.

 

Finally, it provides the recipient with information not only about the occurrence of an event, but the likely impact of that event on the project. Armed with that information, a principal can make its own assessment of whether to:

 

• direct the contractor to accelerate or re- sequence the work to recover the schedule;
• take some mitigating measure itself (such as issuing a variation or withdrawing instructions); or 

• take steps with third parties with whom it has a contractual relationship (eg customers) to mitigate the effects of the delay and to avoid contractual issues with those third parties.

   

Approaches to enforcement

 

There is little doubt that where a notice provision is a condition precedent to an entitlement arising, failure to give proper notice can defeat a contractor's claim. Nevertheless, there are several instances where Australian courts have found a way to uphold an otherwise meritorious claim notwithstanding a failure to comply strictly with contractual notice provisions.

 

Absurdity

 

One often cited qualification to the validity of a time bar is Barwick CJ's observation that time bars "are of course enforceable according to their terms unless their application according to those terms should lead to an absurdity."3

 

In reliance on this qualification, it has been successfully argued that it would be absurd to deny a claim arising out of a principal's instruction solely because of a failure of the contractor to give notice. This is because the purpose of notice provisions is to ensure the principal receives timely notification of relevant events and it would be hard for a principal to argue it was not aware of the situation and the consequence of its own instructions.4

 

Gaymark and the prevention principle

 

In Gaymark Investments v Walter Construction Group Ltd,5 Bailey J upheld an arbitrator's decision that the prevention principle applied to set time at large in circumstances where the contract made no provision for the contractor to be granted an extension of time unless it submitted timely notice of its claim. The arbitrator also made passing reference to the concept of absurdity, noting that to allow the principal to be paid for its own delays (by recovering liquidated damages) would be an absurd result.

 

Question marks have been raised over the correctness of the decision by academics6 and an English judge.7 Further, as the reasoning in the case relied upon the absence of the residual discretion of the superintendent to extend time that is standard in most construction contracts, the case is of limited application.8 Nevertheless, it provides a further example of a decision maker finding a remedy for a contractor who failed to give notice as required by the contract.

 

Commercially reasonable construction

 

In other cases, the courts have found effective notice in correspondence that, on its face, does not give notice at all. For example, in Etlis v New Age Constructions (NSW) Pty Ltd,9 the NSW Court of Appeal accepted that:

 

• a quotation for additional work associated with a latent condition; and
• a letter proposing that the lump sum price be converted to a cost plus arrangement for the work impacted by the latent condition, met the contractual notice requirements.

 

This is an interesting result given neither communication expressly stated that the work would be delayed. However, the Court took into account the surrounding circumstances, including that the principal in fact knew the work methods referred to in the correspondence from the contractor would cause delay.

 

Pagone J adopted a similar approach in BMD Major Projects Pty Ltd v Victorian Urban Development Authority.10 Again, the case concerned a requirement to give notice of a latent condition. Pagone J found that the notice given in that case, when properly construed:

 

• gave notification not only of the latent condition in the area of the site specified in the notice, but that the same condition existed in the areas proximate to that location (which included the area the subject of the contractor's subsequent claim);
• was a claim for an extension of time, despite not expressly claiming any extension.

 

Notice provisions as a penalty

 

The High Court's decision in Andrews v Australia and New Zealand Banking Group Ltd11 sparked a flurry of analysis seeking to test the limits of the penalty doctrine as articulated in that case. Relevantly, this included academic debate as to whether time bars may be an unenforceable penalty.12

 

While not yet the subject of a binding judicial decision, the better view appears to be that the penalty doctrine would not apply to a time bar provision.13 In short, this is because compliance with a notice provision is a pre-condition to a right accruing. Accordingly, the effect of the time bar is not to penalise the contractor by extinguishing a right to compensation, but to prevent that right from accruing in the first place. 

 

CMA v John Holland

 

CMA was subcontracted by John Holland to demolish and remove several structures that formed part of a wharf at Finucane Island on the western side of the Port Hedland harbour.

 

CMA's work was delayed and was the subject of numerous claims and counterclaims, including claims by CMA that it had been delayed by:

 

• John Holland's failure to relocate a shiploader in time to allow CMA's work to proceed; and
• the extent of reinforcing encountered in the berthing dolphins.

 

Allanson J accepted that these events caused a delay to CMA. Accordingly, the major question was whether CMA had complied with its obligations to notify and claim extensions of time.

 

The notice requirements

 

Under the subcontract, CMA was required to:

 

• notify John Holland in writing of:
• the likelihood of delay as soon as becoming aware of the likelihood of delay;
• its intention to claim an extension of time within 7 days after the occurrence of the cause of the delay; and
• give a written claim for an extension of time within 14 days after the commencement of the delay.

 

The subcontract included detailed provisions for the content of the notice of intention to claim and the claim.

 

Strict application of time bars

 

From the judgment, it appears that CMA first became aware that the relocation of the shiploader would be delayed in about
October 2006, when it received a programme from John Holland showing a delay to that activity from 29 January 2007 to 22 February 2007. CMA appears to have first given notice to John Holland in relation to this delay on 21 February 2007.

 

CMA subsequently gave further notices to John Holland, including five day updates of its notice of an ongoing delay event and progress claims that included claims for delay costs.

 

CMA appears to have conceded that these notices were given out of time, but argued that, on its proper construction, the condition precedent to an extension of time required only that John Holland was aware of the likelihood of delay. Given the delay was wholly within John

 

Holland's knowledge and control, there was no need for further notice from CMA.

 

This argument was rejected by Allanson J. While John Holland may be expected to be aware of the existence of the cause of delay and its likely effects, the detailed notice provisions in the contract required CMA to provide other specific information to John Holland. CMA failed to do so within the time required. Accordingly, John Holland was entitled to reject the claim.

 

Commercially reasonable approach?

 

CMA's subcontractor discovered the issue with reinforcing in the berthing dolphins on 12 September 2006 and advised CMA on the same day. On 28 September, the subcontractor indicated that this would cause a delay to the demolition of the dolphins.

 

CMA gave a notice to John Holland on 29 September 2006 in respect of one of the affected berthing dolphins, noting that the issue was affecting efficient deployment of resources, but that CMA would provide a recovery programme. In subsequent notices, CMA claimed a variation for the new demolition methodology necessitated by the reinforcing it had encountered in the berthing dolphins. None of those subsequent notices appear to have included an express notification of delay or a claim for an extension of time.

 

Again, Allanson J held that CMA's notices failed to comply with the conditions precedent set out in the contract and John Holland was entitled to reject the otherwise valid delay claim on that basis.

 

On one view, the approach taken by Allanson J appears inconsistent with some of the earlier decisions referred to above. There are, however, some key differences in the contractual provisions that support the different result.

 

It has been suggested, for example, that the results in Etlis and BMD Major Projects were possible because the contractual notice provisions did not prescribe the form and content of notice required.14 In contrast, the contract in the CMA case contained very detailed notice provisions, that stipulated both the timing and the content of the relevant notices. As a consequence, Allanson J held CMA was obliged to comply strictly with these requirements.

 

Impact of the CMA decision

 

It has been said that a strict interpretation of notice provisions "would encourage, if not compel, contractors to be more concerned with anxiously satisfying a formal temporal requirement of notification rather than to explore the underlying needs and circumstances of the situation".15

 

The detailed notice provisions commonly found in Australian contracts require the contractor to do both. For example, the notice provisions under consideration in the CMA case required CMA to not only give notice of the cause of the delay and its impact, but also the steps CMA will take to minimise the delay.

 

This no doubt places a significant administrative burden on contractors. However, given the important purpose served by notification of delay, it is unlikely that principals will stop asking for detailed and timely notice in their contracts.

 

Having asked for such notice, the CMA decision may lead principals to be more confident in taking a hard line on contractual time bars.

"Given the important purpose served by notification of delay, it is unlikely that principals will stop asking for detailed and timely notice in their contacts." 

 

 

For further information, please contact:

 

Georgia Quick, Partner, Ashurst 

georgia.quick@ashurst.com