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  4. Midson Construction (Qld) Pty Ltd v The Haggarty Group Pty Ltd - [2021] QDC 280

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Midson Construction (Qld) Pty Ltd v The Haggarty Group Pty Ltd[2021] QDC 280

Midson Construction (Qld) Pty Ltd v The Haggarty Group Pty Ltd[2021] QDC 280

DISTRICT COURT OF QUEENSLAND

CITATION:

Midson Construction (Qld) Pty Ltd v The Haggarty Group Pty Ltd [2021] QDC 280

PARTIES:

MIDSON CONSTRUCTION (QLD) PTY LTD

ABN 28 135 951 549

(Plaintiff)

v

THE HAGGARTY GROUP PTY LTD

ABN 62 142 220 184

(Defendant)

FILE NO:

BD889/21

DIVISION:

Civil

PROCEEDING:

Application

ORIGINATING COURT:

District Court at Brisbane

DELIVERED ON:

10 December 2021

DELIVERED AT:

Brisbane

HEARING DATE:

20 August 2021

JUDGE:

Porter QC DCJ

ORDER:

  1. [1]
    As to the question whether clause 14(a) of the contract between the Plaintiff and the Defendant of 4 August 2020 (the Contract) is void for uncertainty, the answer is that the Contract is not void for uncertainty.
  2. [2]
    As to the question whether clause 14(a) of the Contract is void as a penalty, the answer is that the Contract is not void as a penalty.
  3. [3]
    As to the question whether, properly construed, the Plaintiff’s entitlement to recover liquidated damages for delay under the Contract was lost in circumstances where the following factual circumstances are assumed for the purposes of this application only:
    1. (a)
      The Plaintiff was the cause of the Defendant’s delay; or
    2. (b)
      The delay was caused by the Plaintiff’s breach of the Contract;

the answer is that the Plaintiff’s entitlement has not been lost in those circumstances.

CATCHWORDS:

CONTRACTS – REMEDIES – LIQUIDATED DAMAGES – PENALTY – where plaintiff claims liquidated damages from defendant under a subcontract – where defendant challenges liability for liquidated damages on three bases – where defendant contends that the liquidated damages clause in the subcontract is uncertain – where defendant contends that the liquidated damages clause is void as a penalty – where defendant contends that plaintiff is not entitled to liquidated damages because its acts prevented defendant from reaching Practical Completion and the so-called prevention principle is not excluded by the terms of the subcontract – whether the liquidated damages clause is void for uncertainty – whether the liquidated damages clause is void as a penalty – whether plaintiff’s entitlement to recover liquidated damages for delay under the subcontract was lost in circumstances where it is assumed that plaintiff was the cause of defendant’s delay or the delay was caused by plaintiff’s breach of the subcontract 

LEGISLATION:

Uniform Civil Procedure Rules 1999 (Qld), r. 483, Part 5 of Chapter 13

CASES:

Andrews v ANZ Banking Group Ltd (2012) 247 CLR 205

C B Darvall & Darvall v Moloney (2006) 236 ALR 796

Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79

Grocon Constructors (Qld) Pty Ltd v Juniper Developer (No 2) Pty Ltd [2015] QCA 291

Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58

Kane Constructions Pty Ltd v Sopov [2005] VSC 237

Law v Local Board of Redditch [1892] 1 QB 127

Paciocco v ANZ Banking Group Ltd (2016) 258 CLR 525

Peninsula Balmain Pty Limited v Abigroup Contractors Pty Limited [2002] NSWCA 211

Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82

Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656

Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360

620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2006] VSC 491

SECONDARY

SOURCES:

J D Heydon, Heydon on Contract (Lawbook Co., 2019)

COUNSEL:

C. Matthews for the Plaintiff

J. Hastie for the Defendant

SOLICITORS:

Axia Litigation Lawyers for the Plaintiff

Shand Taylor Lawyers for the Defendant

Contents

Summary3

Admitted and Uncontested Facts4

The pleaded cases8

The separate questions13

Assumed and admitted facts: uncertainty question15

Assumed and admitted facts: penalty question16

Assumed and admitted fact: prevention question16

Clause 14(a) is not uncertain17

Proper construction of the LD Item17

First limb of the LD Item18

Second limb of the LD item19

The LD Item is not a penalty20

Haggarty’s contentions20

Midson’s contentions21

Principles22

Analysis31

The prevention principle33

The issue33

General principles34

“Discretion” clauses in previous cases35

The parties’ contentions49

Analysis of the competing contentions49

An alternative argument51

Orders52

Summary

  1. [1]
    The plaintiff (Midson) claims liquidated damages from the defendant (Haggarty) under a subcontract between the parties. Haggarty pleads, relevantly, that it is not liable for liquidated damages because:
    1. (a)
      The liquidated damages clause in the subcontract is uncertain; or alternatively
    2. (b)
      The liquidated damages clause is void as a penalty; or alternatively
    3. (c)
      Midson is not entitled to liquidated damages because Midson’s acts prevented Haggarty from reaching Practical Completion, and the so-called “prevention principle” is not excluded by the terms of the subcontract. 
  2. [2]
    The parties proposed, and I ordered, that separate questions dealing with these three issues should be determined as preliminary points. For the reasons which follow, I have determined that the liquidated damages clause is neither uncertain nor a penalty and that, on the proper construction of the contract, the prevention principle does not prevent Midson from recovering liquidated damages.

Admitted and Uncontested Facts

  1. [3]
    Midson is a construction company holding a QBCC licence in the Builder – Open class.  Haggarty is the holder of a QBCC licence for roof and wall cladding.
  2. [4]
    On 21 January 2020, Midson entered into a written contract with a Catholic Church entity (the Principal) for the construction of stage 1 of a secondary college at Yarrabilba (the Head Contract).  The Head Contract was in the form of an amended AS2124-1992 building contract and relevantly provided:
    1. (a)
      By clause 2:

‘Date of Practical Completion’ means ---

  1. (a)
    the date certified by the Superintendent in a Certificate of Practical Completion issued pursuant to Clause 42.5, to be the date upon which Practical Completion was reached; or
  2. (b)
    where another date is determined in any arbitration or litigation as the date upon which Practical Completion was reached, that other date;

‘day’ means calendar day;

‘Drawings’ means the drawings referred to in the Contract and any modification of such drawings notified to the Contractor by the Superintendent and includes such other drawings as may from time to time be supplied to the Contractor by the Superintendent, or the use of which has been permitted by the Superintendent, for the purposes of the Contract;

‘month’ means calendar month;

‘person’ includes a firm or body corporate or unincorporate or an individual;

‘Practical Completion’ is that stage in the execution of the work under the Contract when ---

  1. (a)
    the Works are complete except for minor omissions and minor defects ---
    1. which do not prevent the Works from being reasonably capable of being used for their intended purpose; and
    2. which the Superintendent determines the Contractor has reasonable grounds for not promptly rectifying; and
    3. rectification of which will not prejudice the convenient use of the Works; and
  2. (b)
    those tests which are required by the Contract to be carried out and passed before the Works reach Practical Completion have been carried out and passed; and
  3. (c)
    documents and other information required under the Contract which, in the opinion of the Superintendent, are essential for the use, operation and maintenance of the Works have been supplied;
  1. (b)
    By clause 35.2:

35.2 Time for Practical Completion

The Contractor shall execute the work under the Contract to Practical Completion by the Date for Practical Completion.

Upon the Date of Practical Completion the Contractor shall give possession of the Site and the Works to the Principal.

  1. (c)
    By clause 35.5, the Head Contract contained a contractual regime providing for the extensions of time on the application of Midson for specified delays;
  2. (d)
    By clause 35.6:

35.6 Liquidated Damages for Delay in Reaching Practical Completion

If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor shall be indebted to the Principal for liquidated damages at the rate stated in the Annexure for every day after the Date for Practical Completion to and including the Date of Practical Completion or the date that the Contract is terminated under Clause 44, whichever first occurs.

  1. (e)
    By Annexure Part A:

…

# The Date for Practical Completion: Tender to nominate in their tender submission

(Clause 35.2)

# Liquidated Damages per day:    $1,000.00/day

(Clause 35.6)

  1. [5]
    On 7 August 2020, Midson and Haggarty entered into a subcontract in writing by which, on the terms contained in the subcontract, Haggarty undertook to carry out the roofing and cladding works which formed part of the Head Contract works (the Subcontract).
  2. [6]
    The Subcontract relevantly provided:
    1. (a)
      By Attachment 1: Subcontract Particulars:

Project

(clause 21)

Project Description: San Damiano Yarrabilba Secondary Catholic College Stage 1 (Q066)

Site

(clause 21)

980-1040 Yarrabilba drive Yarrabilba Qld

Commencement Date

(sub-clause 1.3)

Start date:           05 AUG 20

If nothing stated, the date notified by Midson Construction (QLD) Pty Ltd

Date for Completion

(sub-clauses 1.1, 11 and 21)

Finish date:            01 NOV 20

If nothing stated, the date notified by Midson Construction (QLD) Pty Ltd

     …

Liquidated damages

(clause 14a)

As per Head Contract @ $1000 per day

+ at Cost of Midson Construction (QLD) Pty Ltd @ $1000 per day.

  1. (b)
    By Attachment 2: Special Conditions of Contract:

6. For Practical Completion to be achieved, all warranties, certificates including Form 15 & 16, Maintenance schedules, As Builts (if Required), Deed of Release signed and returned unamended to Midson and all works (Including any Defects or incomplete works) and documents required and requested are issued & completed to the satisfaction of the Client, Superintendent and the Principal Contractor.

  1. (c)
    By Attachment 3: Subcontract General Conditions:
    1. By clause 1.1:

1.1 Subcontractor’s primary obligation

The Subcontractor must complete the work under the Subcontract by the Date for Completion, in accordance with the Subcontract and any applicable laws and standards.

  1. (ii)
    By clause 11:

11. COMPLETION

  1. (a)
    The Subcontractor must give Midson written notice five (5) Business Days before it anticipates achieving Completion.
  2. (b)
    When the Subcontractor is of the opinion that Completion has been achieved, the Subcontractor must make a written request to Midson to issue a certificate of Completion.
  3. (c)
    Upon receipt of a request under sub-clause 11(b) Midson will give to the Subcontractor:
    1. a notice certifying Completion has been achieved and the Date of Completion; or
    2. a notice setting out reasons for rejecting the Subcontractor’s request for a certificate of Completion (and the provisions of sub-clause 11(b) will reapply).
  1. (iii)
    By clause 13, relevantly:

13. DELAYS AND EOTS

13.1 Notifying Delays

  1. (a)
    Within two (2) Business Days of becoming aware of anything which will delay any party of the work under the Subcontract, the Subcontractor must notify Midson in writing of the nature of the delay. A notice under this sub-clause 13.1(a) is a condition precedent to the Subcontractor’s entitlement to an extension of time.
  2. (b)
    Within two (2) Business Days of the cause of the delay commencing (and weekly thereafter if the delay exceeds five (5) Business Days), the Subcontractor must provide Midson with details of the likely extent of the delay and its impact on the Date for Completion. A notice (or notices) under this sub-clause 13.1(b) must be in writing and is a condition precedent to the Subcontractor’s entitlement to an extension of time.

13.2 Entitlement to and Claims for an Extension of Time

The Subcontractor may be entitled to an extension of time for Completion if:

  1. (a)
    The Subcontractor is or will be delayed in reaching Completion by the Date for Completion by any of the following causes of delay:
    1. an act or omission of Midson (including an act of prevention), Separate Contractors, the Principal, the Principal’s employees, agents or contractors, or the Superintendent;
    2. a Variation;
    3. a delay in granting Site access in accordance with sub-clause 7.1 [Non-exclusive possession];
    4. a qualifying cause of delay stated in the Subcontract Particulars; or
    5. a cause of delay giving the Subcontractor an entitlement to an extension of time under another clause of the Subcontract,

and;

  1. (b)
    The Subcontractor:
    1. has provided the notices required under sub-clause 13.1 [Notifying Delays]; and
    2. used all reasonable endeavours to mitigate the effects of the delay (inclusive of re-sequencing the work under the Subcontract),
  2. (c)
    If the Subcontractor considers itself entitled to an extension of time for Completion it must within five (5) Business Days of the delay ceasing:
    1. give to Midson a written claim for an extension of time together with a statement of the facts upon which the claim is based; and
    2. supply to Midson an updated Subcontractor’s Program demonstrating the impact of the delay on the planned critical path network.
  3. (d)
    If the Subcontractor is entitled to an extension of time Midson will determine a reasonable extension of time following receipt of the Subcontractor’s claim under sub-clause 13.2(c)(i) and the updated Subcontractor’s Program under sub-clause 13.2(c)(ii).

13.3 Delay Costs

If the Subcontractor has been granted an extension of time for a delay caused by a breach of the Subcontract by Midson, Midson will pay the direct costs reasonably and necessarily incurred by the Subcontractor up to the maximum amount stated in the Subcontract Particulars. The Subcontractor agrees this is the only compensation it may recover from Midson for any delay or disruption, including any delay or disruption arising from a breach of contract by Midson.

13.4 Unilateral right to extend

Notwithstanding that the Subcontractor is not entitled to, or has not claimed, an extension of time, Midson may at any time and from time to time, award an extension of time for any reason. Midson is not required to exercise its discretion under this sub-clause for the benefit of the Subcontractor.

  1. (iv)
    By clause 14:

14. LIQUIDATED DAMAGES

  1. (a)
    If the Subcontractor fails to achieve Completion by the Date for Completion, the Subcontractor must pay to Midson the liquidated damages stated in the Subcontract Particulars for every day after the Date for Completion until the Date of Completion or termination (whichever occurs first).
  2. (b)
    The parties agree the amount for liquidated damages stated in the Subcontract Particulars is an agreed genuine pre-estimate of Midson’s loss and damages in the event Completion occurs after the Date for Completion.
  3. (c)
    If the Head Contract Works do not reach Practical Completion by the date for Practical Completion under the Head Contract due to:
    1. a failure of the Subcontractor to reach Completion by the Date for Completion; or
    2. a breach of any other obligation under the Subcontract by the Subcontractor,

the Subcontractor shall indemnify Midson against any liquidated damages under the Head Contract or any other damages that Midson becomes liable to pay under the Head Contract.

  1. (v)
    By clause 21, headed Definitions:

21.1 Definitions:

…

Completion means that stage in the execution of the work under the Subcontract when in Midson’s opinion, the Works are complete except for minor omissions and minor defects, and all requirements for completion set out in the Trade Package have been met (inclusive of delivery, to Midson’s satisfaction, of all as-built documentation and /or plans (if required)).

…

Date for Completion means the date (or period of time) stated in the Subcontract Particulars for Completion (if period of time the last day of that period).

Date of Completion means the date certified by Midson in a certificate of Completion pursuant to clause 11 [Completion] to be the date on which Completion was reached.

…

Head Contract means the contract between Midson and the Principal as amended at the date of execution of the Subcontract.

Head Contract Works means the whole of the work to be executed and completed in accordance with the Head Contract (including variations).

…

Practical Completion means practical completion of the Head Contract Works (as certified by the Principal or the Superintendent as the case may be).

…

Trade Package means the document entitled ‘Trade Package’ referred to in the Subcontract Agreement.

  1. [7]
    The work under the Head Contract reached Practical Completion on 25 January 2021. The Date for Practical Completion under the Head Contract was to be nominated in the tender submission.  It was not in evidence. However, (as will be seen) it is implicit in Midson’s pleadings that no Liquidated Damages were applied under the Head Contract. There is no evidence to the contrary.
  2. [8]
    The Date for Completion of the Subcontract was 1 November 2020. Haggarty did not reach Completion by that date. While not specifically admitted by Midson, it appears to be common ground that the site work component of the work required for Completion by Haggarty was completed by 18 December 2020. Further, while not specifically admitted by Haggarty, it appears to be common ground that Haggarty did not provide the last of the documentation contended by Midson to be a requirement for Completion until 5 August 2021, when Haggarty provided a warranty from Bluescope Steel.

The pleaded cases

  1. [9]
    In the context of the above admitted and uncontentious facts, Midson pleads by its statement of claim, relevantly, that:
    1. (a)
      The Subcontract provides that liquidated damages comprise $1,000 plus an additional $1,000 if liquidated damages are applied under the Head Contract;
    2. (b)
      Haggarty did not reach Completion under the Subcontract on the Date for Completion;
    3. (c)
      As at the date of the statement of claim, liquidated damages of $162,000 had accrued and would continue to accrue at the rate of $1,000 per day until Completion is achieved; 
    4. (d)
      It is implicit in the particulars that only $1,000 has been sought for the period of the delay, consistent with the conclusion that no liquidated damages were applied under the Head Contract.
  2. [10]
    By its defence, Haggarty relevantly contends as follows.
  3. [11]
    Haggarty denies that it had not reached Completion (or that Midson cannot assert it did not) because it alleges: 
    1. (a)
      It reached Completion by 18 December 2020 because all the works under the Contract had been completed.
    2. (b)
      Midson by certain conduct induced Haggarty to adopt the assumption that Midson accepted Haggarty had reached Completion on 18 December (or would not require strict compliance with the whole of the obligations which comprised reaching Completion), and that in reliance on that assumption, Haggarty did not promptly obtain the documentation required to reach Completion. Midson is said thereby to be estopped from asserting that Completion was not reached by 18 December.
    3. (c)
      By conduct amounting to giving notice that the Defects Liability Period had commenced under the Subcontract, Midson had elected to rely on rights under those provisions and thereby lost its rights arising out of a failure to reach Completion.
    4. (d)
      It had provided all the documents required for Completion under the Subcontract by 1 June 2021 and thereby reached Completion by that date at the latest. 
  4. [12]
    Haggarty further denies that Midson is entitled to liquidated damages under the Subcontract for three reasons: because the liquidated damages item in the Subcontract is uncertain, because it is void as a penalty and because Midson lost the right to liquidated damages because of its acts of prevention.
  5. [13]
    These are the points raised by the separate questions to be determined in this application. However, to ensure precision in the scope of the issues determined by this judgment, it is convenient to set out how these three points are articulated in the defence.
  6. [14]
    As to uncertainty, Haggarty pleads:
  1.  As to paragraph 9 of the SOC, the Defendant:

 …

  1. (b)
    says that the Plaintiff has no entitlement to recover liquidated damages under the Contract because:
  1. (i)
    the Plaintiff’s right to obtain liquidated damages is contained in clause 14(a) of the Contract;
  2. (ii)
    clause 14(a) of the Contract refers to the rate of liquidated damages specified in the Subcontract Particulars;
  3. (iii)
    the applicable item in the Subcontract Particulars (LD Item) states that:

“As per Head Contract @ $1000 per day + at Cost of Midson Construction (QLD) Pty Ltd @ $1000 per day”;

  1. (iv)
    the LD Item:
    1. is incapable of being given any clear meaning or effect; and
    2. further or alternatively, is capable or susceptible of bearing more than one meaning;
  2. (v)
    in the premises of the matters pleaded in sub-paragraph (i) to (iv), clause 14(a) of the Contract and the LD Item are void for uncertainty…
  1. [15]
    As to penalty, Haggarty pleads:
  1.  As to paragraph 9 of the SOC, the Defendant:

 …

  1. (c)
    says, alternatively to sub-paragraph (b), that the Plaintiff has no entitlement to recover liquidated damages under the Contract because:
    1. the Plaintiff was engaged, pursuant to a contract with the Corporation of the Trustees of the Roman Catholic Archdiocese of Brisbane (ABN 499 910 068 57) (Head Contract), to perform work for the construction of the San Damiano Yarrabilba Secondary Catholic College (Overall Project);
    2. the works under the Contract were:
      1. required to be performed or carried out by the Plaintiff under the Head Contract;
      2. part of the Overall Project;
    3. the Plaintiff’s right to liquidated damages under clause 14(a) and the LD Item of the Contract arose, on a proper construction of those provisions:
      1. irrespective of whether completion had been achieved under the Head Contract;
      2. irrespective of whether the Plaintiff was exposed to pay delay costs, whether in the nature of liquidated damages or otherwise, under the Head Contract; and
      3. by reason of sub-paragraphs (A) and (B), irrespective of whether the Plaintiff was suffering any loss or, alternatively, exposed to the risk of suffering any loss;
    4. in the premises of the matters pleaded in sub-paragraphs (i) to (iii) herein, clause 14(a) and the LD Item constitute a penalty and, thereby, are unenforceable…
  1. [16]
    As to prevention, Haggarty pleads, relevantly, that:
    1. (a)
      Midson caused Haggarty to be delayed by 13 days because Midson failed to provide access to the site to commence work on the date for commencement under the Subcontract;
    2. (b)
      Midson cause Haggarty to be delayed by failing to provide access to Building C until 48 days after Haggarty ought to have been given access to that part of the site under the Subcontract;
    3. (c)
      Haggarty may be entitled to an extension of time under clause 13.2(a) of the Subcontract where delay is caused by an act or omission by Midson or by a failure to give access to the site in accordance with the Subcontract;
    4. (d)
      Haggarty was entitled to an extension of time under clause 13.2(a) for the each of the delays pleaded;
    5. (e)
      Haggarty pleaded clause 13.4 above and alleged that Midson was required to exercise its power under that clause in good faith, reasonably and fairly, to grant extensions for the two delays alleged.
  2. [17]
    Based on these matters, Haggarty contends Midson was in breach of the Subcontract in not exercising its discretion to extend time unilaterally under clause 13.4. The question whether, on the proper construction of the Subcontract, the power conferred by clause 13.4 was required to be exercised in good faith, was initially contemplated as a question to be determined on this application but was not pressed.
  3. [18]
    Relevant to this application, however, Haggarty also contends that by reason of Midson’s acts preventing Haggarty from reaching Completion, the Date for Completion was set at large, or alternatively, extended until at least 18 December 2020, and Midson thereby lost its right to liquidated damages.
  4. [19]
    Midson replied.
  5. [20]
    As to the matters going to whether Haggarty in fact failed to reach Completion by the due date, Midson pleaded as follows:
    1. (a)
      It denies that Haggarty reached Completion under the Subcontract on 18 December, because on the proper construction of the Subcontract, Completion required not only the completion of physical works, but also required the issue of all warranties and similar documents, and Haggarty did not provide all such documents until 5 August 2021;
    2. (b)
      It denies any estoppel arises from its conduct on various grounds unnecessary to particularise here;
    3. (c)
      It denies that it made an election in the manner alleged by Haggarty;
    4. (d)
      It repeats its allegation that provision of necessary documents for Completion occurred on 5 August 2021.
  6. [21]
    As to Haggarty’s further propositions as to the entitlement to liquidated damages, Midson responds as follows.
  7. [22]
    As to uncertainty, it alleges:
  1. The Plaintiff denies the allegation of law pleaded in subparagraph 9(b) of the Defence and believes the allegation to be untrue because:
  1. (a)
    of the matters pleaded in paragraphs 3(d), 7 and 8 of the amended statement of claim filed dated 25 May 2021 [the statement of claim];
  2. (b)
    on a proper construction of the Contract, liquidated damages were $1,000 per day, plus an additional $1,000 per day if liquidated damages were applied under the Head Contract;
  3. (c)
    the Plaintiff’s entitlement to liquidated damages and the Subcontract Particulars were capable of being given clear meaning or effect in accordance with those terms;
  4. (d)
    in the alternative:
    1. by clause 2.1 of the Contract, the Defendant was required to notify the Plaintiff within two business days of it become [sic] aware of any inconsistency or ambiguity in the Subcontract documents;
    2. the Defendant did not give notice to the Plaintiff of any inconsistency or ambiguity of the kind alleged in subparagraph 9(d) despite the Defendant being on notice of liquidated damages being levied from at the latest 3 November 2020;
  5. (e)
    in the premises, clause 14(a) of the Contract and the Subcontract Particulars are not void for uncertainty.
  1. [23]
    As to the allegation that the liquidated damages clause was void for uncertainty, it alleges:
  1. As to the allegations pleaded in subparagraph (c) of the Defence, the Plaintiff:
  1. (a)
    admits the allegations pleaded in subparagraph (i);
  2. (b)
    denies the allegations pleaded in subparagraph (ii) and believes the allegations to be untrue because:
    1. (i)the physical works under the Contract were required to be performed or carried out by the Plaintiff under the Head Contract and part of the Overall Contract;
    2. (ii)the Works under the Contract were identified by reference to the express terms of the Contract;

Particulars

  1. (1)
    Clauses 1.1, 1.9, 1.10, 2.3, 15, 20.10, 21.1, Attachment 4: Trade Package.
  1. (c)
    denies the allegations pleaded in subparagraph (iii) and believes the allegations to be untrue because on a proper construction of the Contract:
    1. (i)the Plaintiff’s right to liquidated damages under clause 14(a) of the Contract and the Subcontract Particulars arose upon the Defendant failing to achieve Completion by the Date for Completion under the Contract in accordance with its express terms;
    2. (ii)liquidated damages would not apply in part, to the extent of $1,000 per day, if liquidated damages were not levied against the Plaintiff under the Head Contract and the Defendant had failed to reach Completion by 1 November 2020;
    3. (iii)the $1,000 per day was a genuine pre-estimate of the loss the Plaintiff would suffer if the Defendant failed to achieve Completion by the Date for Completion under the Contract in circumstances where the Defendant’s estimated overhead costs were in the order of between $1,450 and $2,000 per day.

Particulars

  1. Schedule A to the reply.
  1. (iv)
    at the time of entry into the Contract:
    1. the parties agreed that the liquidated damages in the Subcontract Particulars represented a genuine pre-estimate of the loss the Plaintiff may suffer should the Defendant not achieve Completion under the Contract;
    2. the Plaintiff was at risk of suffering loss in the payment of its overheads should the Defendant fail to achieve Completion by the Date for Completion;
    3. the Plaintiff was at risk of suffering loss in the payment of liquidated damages under the Head Contract, should the Principal or Superintendent (as the case may be) levy the same against the Principal for the Plaintiff’s Failure to achieve Practical Completion on the Date for Practical Completion under the Head Contract;
  2. (v)
    the achieving of Practical Completion or some other matter in the Head Contract were irrelevant to the Plaintiff’s right to liquidated damages under clause 14(a) of the Contract and the Subcontract Particulars;
  3. (vi)
    as a matter of law, clause 14(a) and the Subcontract Particulars did not constitute a penalty.
  1. [24]
    Schedule A particularises estimated overhead costs largely by reference to the costs of having a Site Manager, Site Foreman and Project Manager on site.
  2. [25]
    Midson denies that time was set at large by acts of prevention. It does so on the bases that:
    1. (a)
      The program for the Subcontract works provided for 60 days for the completion of those works, giving Haggarty 29 days contingency;
    2. (b)
      Midson gave sufficient access to the Site in accordance with the Subcontract for Haggarty to carry out works from 7 August 2020 and Haggarty could have commenced mobilisation works before then. Accordingly, any delay in providing access to the Site did not cause any delay to Haggarty in performing the works and any delay in commencing was caused by Haggarty’s own acts;
    3. (c)
      Midson gave sufficient access to Building C to Haggarty in time for Haggarty to complete the Building C works, or alternatively, Haggarty could have dealt with any such delay by reprogramming its works. Accordingly, any delay in providing access to Building C did not cause any delay to Haggarty in performing the works and any delay in the Building C works was caused by Haggarty’s own acts.
  3. [26]
    Midson then turns to Haggarty’s allegation that it was “entitled to an extension of time under clause 13.2(a)” for the alleged delays. It denies that allegation by pleading the elements of an entitlement to an extension of time under clauses 13.1 and 13.2, and alleging that Haggarty did not take any of the steps required under those clauses to establish an entitlement to an extension of time. Although these allegations are technically subject to a deemed non-admission, it does not appear to be in dispute that Haggarty did not do so. Not only does Haggarty not plead any such entitlement, it relies on clause 13.4 to establish its defence.
  4. [27]
    Midson then responds to Haggarty’s reliance on clause 13.4. Midson denies any implied term that Midson’s discretion under clause 13.4 was required to be exercised in good faith, reasonably or fairly, for a number of reasons, but most relevantly to this application because:[1]
  1. (d)
    the power conferred by clause 13.4:
  1. (i)
    was to be exercised in the Plaintiff’s sole direction [sic]; and
  2. (ii)
    was not required to be exercised for the benefit of [Haggarty]

…

  1. [28]
    The balance of the pleadings is not relevant to this application.

The separate questions

  1. [29]
    On 23 and 29 July 2021, I made the orders by consent for the determination of the following questions pursuant to Rule 483(1) Uniform Civil Procedure Rules 1999 (Qld) (UCPR) (substituting terminology of this judgment):
    1. (a)
      Whether clause 14(a) of the Subcontract is void for uncertainty (the uncertainty question);
    2. (b)
      Whether clause 14(a) of the Subcontract is void as a penalty (the penalty question);
    3. (c)
      Whether, properly construed, Midson’s entitlement to recover liquidated damages for delay under the Subcontract was lost in circumstances where the following factual circumstances are assumed for the purposes of this hearing:
      1. Midson was the cause of Haggarty’s delay; or
      2. The delay was caused by Midson’s breach of the Subcontract (the prevention question).
  2. [30]
    Part 5 of Chapter 13 deals with Separate Questions. It provides:

Part 5 Separate decision on questions

482 Definition for pt 5

In this part—

question includes a question or issue in a proceeding, whether of fact or law or partly of fact and partly of law, and whether raised by pleadings, agreement of parties or otherwise.

483 Order for decision and statement of case for opinion

  1. (1)
    The court may make an order for the decision by the court of a question separately from another question, whether before, at, or after the trial or continuation of the trial of the proceeding.
  2. (2)
    ...

484 Orders, directions on decision

If a question is decided under this part, the court may, subject to rule 475, make the order, grant the relief and give the directions that the nature of the case requires.

485 Disposal of proceedings

The court may, in relation to a decision of a question under this part, as the nature of the case requires—

  1. (a)
    dismiss the proceeding or the whole or part of a claim for relief in the proceeding; or
  2. (b)
    give judgment, including a declaratory judgment; or
  3. (c)
    make another order.

486 Form and content of separate question

A separate question or questions must—

  1. (a)
    set out the question or questions to be decided; and
  2. (b)
    be divided into paragraphs numbered consecutively.
  1. [31]
    In C B Darvall & Darvall v Moloney (2006) 236 ALR 796, Wilson J observed:

[42] The Court has a wide discretion whether to order the separate determination of questions, and the contemporary approach is to do so where questions can conveniently be so decided, even though this may not necessarily resolve the whole dispute. In Reading Australia Pty Ltd v Australian Mutual Provident Society Branson J reviewed the principles relevant to the application of a cognate provision in the Federal Court Rules. Her Honour noted that –

“(d)  where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined.”

[43] Here the parties presented the Court with a list of separate questions in relation to the estoppel and indemnity questions. In relation to the former they said –

“The following are the facts agreed upon by the parties”

and then set out in separate paragraphs more than 4 pages of facts upon which the Court was asked to determine certain questions. By agreement, those facts were supplemented at the hearing by a number of affidavits and a further agreed fact. In relation to the indemnity questions they said –

“The Court is asked to assume the following facts and contentions”

and then set out in separate paragraphs more than a page of facts and contentions, before saying –

“In light of the assumed facts and contentions, the following questions are stated for determination by the Court.”

[44] At the hearing it became apparent that those representing Darvalls saw a significant difference between “facts agreed upon between the parties” and “assumed facts and contentions” – a difference not recognised by those representing the liquidators. Senior counsel for Darvalls was at pains to dispel any suggestion that his clients had sought some forensic advantage. He submitted that there was utility in proceeding on the basis that if the Court considered the assumed facts to be sufficient to arrive at conclusions on the indemnity issues, that would foreclose the issue on those questions, but if it considered them insufficient, that would not foreclose the issue. The essence of his submission seemed to be that if the Court took the view that because of the assumed facts, no matter what other facts might be proved, his clients could not succeed, then a long factual inquiry would be obviated.

[45] It is not the Court’s function to determine questions on a hypothetical basis. The questions in relation to legal expenses incurred from 17 December 1999 are of mixed fact and law. In Bass v Permanent Trustee Co Ltd the High Court said –

“Special problems can arise where the preliminary question is one of mixed fact and law. As Brooking J pointed out in Jacobson v Ross, it is necessary in that situation that there be precision both in formulating the question and in specifying the facts upon which it is to be decided. His Honour added:

‘Care must be taken to ensure that, in one way or another, all the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable ... as facts assumed to be correct for the purposes of the preliminary determination, or as facts which both sides accept as correct, or as facts which are to be judicially determined. Failure to do this, and in particular failure to perceive that the facts alleged in a pleading are some only of the facts relevant to the determination of the preliminary question, may make the order for preliminary determination unfruitful.’

Quite apart from rendering the ‘order for preliminary determination unfruitful’, the failure to identify the relevant facts or the means by which they are to be ascertained may result in procedures which do not conform to the judicial process. That is a matter to which it will be necessary to return.”

(footnotes omitted)

  1. [32]
    The above passage recognises that a question can include a matter of law or mixed law and fact, and that a question can properly be resolved on the basis of assumed, as well as admitted, facts. However, it also sounds the important warning that there be precision in the identification of the assumed, admitted or proved facts upon which a matter of law is to be determined. That is a salutary warning. For the determination of a preliminary question of law to be efficacious, the factual basis upon which it is to be determined (admitted or assumed) must be clear. Otherwise, the determination has the potential to provoke further disputation about what the judgment decides. 
  2. [33]
    Bearing those matters in mind, I now turn to expressly identifying the factual basis for the resolution of the three questions before the Court on this application.

Assumed and admitted facts: uncertainty question

  1. [34]
    As to the uncertainty question, the issues are joined by paragraph 9(b) of the defence and paragraph 6 of the reply. Those paragraphs, and the matters referred to in the reply which are incorporated from the statement of claim, are matters of construction only, rather than factual matters. The competing arguments otherwise turn on the construction of the Subcontract and the Head Contract, which were tendered.  
  2. [35]
    There is only one point to clarify in this respect. Paragraph 6(d)(ii) of the Reply (see paragraph [22] above) alleged that notice of any ambiguity was given by Haggarty under clause 2.1 of the Subcontract. That is the subject of a deemed non-admission.[2]  It was not dealt with in the evidence. It was not clear what the parties wished the Court to find or assume in this respect. However, the point is moot because, even if Midson’s allegation was correct, it would make no difference to my conclusion on the uncertainty question: if a Subcontract is demonstrably uncertain, I do not see how the failure of Haggarty to assert that can change an uncertain clause into a certain one.  It might be that a claim in damages might arise, but none is pleaded, and the issue is otherwise irrelevant to the construction process. 

Assumed and admitted facts: penalty question

  1. [36]
    As to the penalty question, the issues are joined in paragraphs 9(c) of the defence and 7 of the reply set out above. Paragraph 9(c) refers only to matters of construction of the two contracts. Paragraph 7(c)(iii) of the reply alleges a fact, being Midson’s estimated overhead costs.  It is not alleged that this was the figure at the time of entry into the Subcontract, though that is implied.
  2. [37]
    An affidavit of Mr Matthew Glossop, General Manager of Midson, was tendered without objection at the trial of the separate questions.  He swore that at the time of entry into the Subcontract, average costs associated with the provision of staff and amenities on the project were $1,477.51 on a cost basis, and $1,918.80 on a charge out basis.  No objection was taken to this evidence, nor was it challenged. I find those matters proved (though their importance remains to be seen).

Assumed and admitted fact: prevention question

  1. [38]
    The situation requires more scrutiny for the prevention question. As summarised in paragraphs [16] to [18] and [25] to [27] above, there are extensive contested allegations in those parts of the defence and reply which are relevant to Haggarty’s delay claims. The scope of that contest is narrowed by the assumed fact identified in the prevention question: that Midson was the cause of Haggarty failing to reach Completion by the Date for Completion either directly or because of some breach of contract by Midson. 
  2. [39]
    There is, however, other fundamental assumptions implicit in the prevention question:
    1. (a)
      That Haggarty did not comply with the EOT claim process in clauses 13.1 and 13.2 in respect of any Midson-caused delay; and
    2. (b)
      The only basis upon which Haggarty could avoid liability for liquidated damages resulting from that delay is if Haggarty can rely on the prevention principle as setting time at large, despite the provision for extension of time in those clauses. 
  3. [40]
    Those propositions were adopted as the common basis for the argument of the prevention question. Further, as I observed in paragraph [26], it is implicit in the Haggarty defence that it did not seek an EOT under the mechanism in clauses 13.1 and 13.2.  Consistent with the position taken by the parties, I will decide the prevention question on the basis of those two additional assumptions.
  4. [41]
    Once those two assumptions are identified, the disputed allegations in paragraphs 9A to 9R in the defence and the reply (which are all expressly relied upon by Haggarty as sustaining its prevention contention: see paragraph 9(d)(i) of the defence) do not have to be resolved to determine the prevention question.

Clause 14(a) is not uncertain

  1. [42]
    The parties’ contentions focus on the LD Item in the particulars to the Subcontract set out in paragraph [6] above. The gravamen of Haggarty’s argument is that it is not possible to determine whether the LD Item requires payment of $1,000 per day or $2,000 per day.  Midson primarily contends that, on its proper construction, the LD Item requires payment of a base line sum of $1,000 plus another $1,000 in circumstances where liquidated damages are applied under the Head Contract. It contends, alternatively, that it requires payment of $2,000. It contends that one or the other construction must be correct and that the LD Item is therefore not uncertain.
  2. [43]
    Courts should be slow to conclude that a contract is uncertain on the grounds that the language chosen by the parties lacks any meaning at all, or alternatively, has so many meanings that it is uncertain which meaning is intended. The correct approach in that context has been articulated as follows:[3]

[3.330] Impossibility versus difficulty

Even if a contract seems to have more than one possible meaning or lead to more than one result or use very wide language or throw up difficulties in its interpretation, it is not necessarily void if the processes of construction lead to the choice of the meaning. It is only void “if the court is unable to put any definite meaning upon the contract”. “[C]ourts will not lightly accept defeat in the search for meaning”.

The court’s reluctance to nullify contracts by demanding unrealistically high standards of clarity is reflected in a willingness to face up to difficulty in construction. The court, said Lord Wright, will not uphold any purported contract which is “so obscure and so incapable of any definite or precise meaning that [it] is unable to attribute to the parties any particular contractual intention”. Impossibility of identifying meaning, in that sense, is one thing. Mere difficulty in doing so is another. In approving the words just quoted, Barwick CJ said in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd:

[A] contract of which there can be more than one possible meaning or which when construed can produce in its application more than one result is not therefore void for uncertainty. As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application. The question becomes one of construction, of ascertaining the intention of the parties, and of applying it… In the search for [contractual] intention, no narrow or pedantic approach is warranted, particularly in the case of contractual arrangements. Thus will uncertainty of meaning, as distinct from absence of meaning or of intention, be resolved.

(footnotes omitted)

  1. [44]
    Where there are only two meanings suggested, it would be a surprising result if the Court was incapable of construing the Contract to sustain either one of the potential constructions. Indeed, most disputes over contractual construction involve this precise situation. I reject the submission that the Subcontract is uncertain in that context if it is possible to determine the proper construction of the LD Item. As I explain next, it is possible.

Proper construction of the LD Item

  1. [45]
    The real issue is which of the two possible constructions is correct. In my view, Midson’s primary construction is correct: that the LD Item requires Haggarty to pay a baseline sum of $1,000 a day plus a further $1,000 per day if liquidated damages are imposed by the Principal under the Head Contract.
  2. [46]
    I consider that construction to be correct for the following reasons.
  3. [47]
    If the intention of the parties was that, in all circumstances of failure to reach Completion under the Subcontract, liquidated damages of $2,000 were to be paid, then other things being equal, the liquidated damages clause would be expected to have specified that single sum.  On the contrary, not only has the LD Item specified separate sums, but it has also attributed different descriptions to them. This is consistent with an intention that the sum to be paid is to be determined by reference to distinct considerations as between the two amounts identified. This is confirmed by the language used in the two limbs of the LD Item.

First limb of the LD Item

  1. [48]
    The first limb states “As per Head Contract @ $1000 per day” (the HC phrase).  The Head Contract is identified in the Subcontract in generic terms, but in terms plainly identifying the contract between Midson and the Principal identified in paragraph [4] above. The relevant terms of the Head Contract are not in dispute. Relevantly, the Head Contract contained a liquidated damages clause, imposing liquidated damages of $1,000 per day for Practical Completion reached after the Date for Practical Completion.
  2. [49]
    Haggarty submitted that I should find that knowledge of the terms of the Head Contract was impossible for Haggarty to acquire, because it did not receive a copy of the Head Contract until recently. There was no evidence to support, or refute, either proposition, nor was there any concession or agreement that I should assume this fact to be true.[4]  However, that creates no difficulty. In my view, it is irrelevant whether Haggarty actually knew of the liquidated damages provisions specifically, or the terms generally of the Head Contract, because in my view, a reasonable person in the position of Haggarty would be taken to have known or assumed that the Head Contract contained terms providing for liquidated damages. I form that view based on two matters:
    1. (a)
      First, liquidated damages clauses are ubiquitous in commercial construction contracts; and
    2. (b)
      Second, Haggarty, as a participant in the construction industry, would be taken to be aware that it was likely such terms existed, especially where there was a reference to the Head Contract in the LD Item in its own Subcontract. 
  3. [50]
    Further, the Subcontract identifies the Head Contract expressly and makes use of references to the Head Contract in the terms of the Subcontract. Where it was possible (as it is here) unequivocally to identify the document referred to in the Subcontract at the time of entry into the Subcontract, that document may be used to construe the Subcontract, particularly where there are references to the Head Contract in terms defining the obligations of the parties.  
  4. [51]
    Haggarty further submitted that, even if the HC phrase could be construed by reference to relevant terms of the Head Contract, the phrase is uncertain because it is unclear what is meant by “as per the Head Contract”.  I disagree.
  5. [52]
    The starting point is the phrase “as per”. That phrase means, in this context, through or by.[5]  So “as per Head Contract” means through or by the Head Contract. Recalling again that the HC phrase appears in an LD Item, the proper construction of the phrase, to my mind, is that liquidated damages of $1,000 per day will be payable under the Subcontract where liquidated damages are payable by Midson pursuant to the terms of the Head Contract. 
  6. [53]
    This construction makes sense commercially. The LD item is concerned with the consequences of Haggarty failing to complete the work under the Subcontract by the due date. If Haggarty failed to complete the work, but there was no exposure to liquidated damages under the Head Contract, then that source of damage to the interests of Midson from Haggarty’s failure to perform would not arise.  Alternatively, if Haggarty is late and Midson is in default of its own obligation to reach Practical Completion, then that creates damage to the interests of Midson flowing from the failure to reach Completion which it would rationally seek to recover from Haggarty.
  7. [54]
    In my view, the HC phrase properly construed means that the liquidated damages of $1,000 per day are to be paid by Haggarty if Haggarty fails to reach Completion by the due date, and for part or all of the time between the Date for Completion and Completion under the Subcontract, Midson is obliged to pay liquidated damages to the Principal under the terms of the Head Contract at $1,000 per day.  
  8. [55]
    It only remains to observe that the LD Item applies only to each day after the Date for Completion under the Subcontract that Haggarty fails to complete the works. Read with the construction of the HC phrase in the previous paragraph, the consequence is that Haggarty is exposed to a liability to pay $1,000 per day to Midson for each day in that period that Midson is obliged to pay liquidated damages to the Principal under the Head Contract.

Second limb of the LD item

  1. [56]
    I have so far construed the LD Item by reference just to the HC phrase.  Attention must now be turned to the second limb of the LD Item: “+ at Cost of [Midson] @ $1000 per day”.
  2. [57]
    In my view, this phrase objectively communicates that in addition to any amount of $1,000 per day payable under the Head Contract, there is an amount of $1,000 per day which is intended to represent an amount referable to the cost to Midson of failure by Haggarty to reach Completion by the due date.
  3. [58]
    Any ambiguity which might arise from the phrase, if read alone, disappears when one reads it in the context in which it appears. The phrase appears in an LD Item. Liquidated damages imposed for failure to complete a construction contract by a due date are self-evidently concerned with estimating loss arising from failure to fulfill the obligation to reach Practical Completion. Bearing that in mind, “cost to Midson” is plainly concerned with identifying the basis upon which the second sum of $1,000 arises: in relation to direct or internal costs to Midson of failure to reach Completion by the due date, contrasted with the separate external liability which might arise under the liquidated damages clause (which relates to damage to the Principal suffered because of Midson not reaching Practical Completion by the due date under the Head Contract).
  4. [59]
    I have considered all of Haggarty’s contentions not mentioned specifically above. I do not consider any of them justify a different construction of the LD Item, much less that the LD Item is incapable of a certain construction. There is only one further contention by Haggarty which requires explanation in these reasons.
  5. [60]
    Haggarty submitted that the construction contended for by Midson, and accepted in these reasons, would be unlikely given the terms of the indemnity in clause 14(c) of the General Conditions (see paragraph [6](c)(iv) above). Haggarty submits that it would be unusual for there to be two remedies for Midson in relation to exposure to liquidated damages under the Head Contract and that, looked at objectively, the parties would not intend that to occur. I disagree. There is nothing inherently unusual about the existence of two distinct contractual remedies for the same, or overlapping, liabilities (an indemnity clause included in the contract of guarantee springs to mind). 
  6. [61]
    Further:
    1. (a)
      The remedies are distinct. The LD Item creates an absolute obligation to pay liquidated damages under the Head Contract if they are payable by Midson. As is the way with such clauses, it makes it unnecessary to prove causation or quantum. The indemnity clause, on the other hand, requires proof of causation;
    2. (b)
      The remedies are likely to complement each other in their operation. If liquidated damages are paid under the LD Item for liquidated damages under the Head Contract, then there will be no loss to which the indemnity can apply.  If the liquidated damages clause is invalid, or not applied, then the indemnity will operate if Midson can prove causation.
  7. [62]
    For these reasons, I reject the contention that the LD Item is uncertain. Its proper construction is as contended for by Midson. That is, on its proper construction, the LD Item requires Haggarty to pay liquidated damages per day for each day after it fails to reach Completion by the Date for Completion as follows:
    1. (a)
      $1,000 per day plus;
    2. (b)
      A further $1,000 per day for each day Midson is obliged to pay liquidated damages to the Principal under the terms of the Head Contract in the period between the Date for Completion under the Subcontract and the date of Completion.

The LD Item is not a penalty

Haggarty’s contentions

  1. [63]
    Haggarty’s principal contention that the liquidated damages clause is void as a penalty is rather narrow. I will articulate it by reference to the way I have construed the LD Item. The contention ultimately developed was:
    1. (a)
      At the time of entry into the Subcontract, the principal interest which Midson could properly protect by its liquidated damages clause in the Subcontract was the costs of maintaining its establishment on site later than it otherwise would have (establishment costs);
    2. (b)
      This proposition is supported by the fact that Midson contends that its liquidated damages were a reasonable pre-estimate of loss by reference to establishment costs;
    3. (c)
      At the time of entry into the Subcontract, reasonable persons in the position of the parties would have understood that liquidated damages could by payable under the Subcontract after Practical Completion under the Head Contract;
    4. (d)
      It was inevitable that on reaching Practical Completion under the Head Contract, Midson would cease to maintain its establishment on site, and therefore would not be exposed to the risk of incurring establishment costs as a result of delay in Completion under the Subcontract;
    5. (e)
      Midson has no other interest in Haggarty reaching Completion by the due date which could sustain the liquidated damages at $1,000 per day, particularly where all substantive work is completed and the only part of the Completion obligation outstanding is the provision of warranties and the like. Not only would the damage resulting from such non-compliance be minimal, but it was not consequent on the failure to reach Completion, but rather on the failure to comply with the substantive obligation to provide the warranties;
    6. (f)
      The liquidated damages clause was a penalty because it could operate in a manner which required payment of $1,000 per day for late Completion, despite Practical Completion under the Head Contract, and despite the fact that Midson had no exposure to substantive loss in the form of establishment costs after that time. The operation of the clause in that way required payment of an exorbitant sum which constituted a punishment for the failure to reach Completion, rather than a genuine pre-estimate of loss.

Midson’s contentions

  1. [64]
    As I apprehended it, Midson did not cavil with Haggarty’s propositions in paragraphs (a) to (d), though it might resist the suggestion that the matter identified in paragraph (a) was its principal interest. Midson submits Haggarty’s contentions are wrong for the following reasons.
  2. [65]
    First, Midson contends that Haggarty’s approach to assessing the penal character of the clause wrongly focuses on just one possible scenario where the liquidated damages clause applies.  Midson contends that the correct approach is to consider the liquidated damages amount to the maximum potential damage which could flow for failure of Haggarty to fulfil the single obligation of reaching Completion by the due date. 
  3. [66]
    It points to the program incorporated into the Subcontract and correctly submits that it contemplates the Subcontract reaching Completion before the Head Contract. It submits that reasonable persons in the position of the parties would therefore have contemplated that the liquidated damages clause provided for costs of delay by Haggarty to Midson until Practical Completion, and additionally, both those costs and liquidated damages under the Head Contract, if such were applied under the Head Contract. Looked at in this way, the LD Item was a reasonable pre-estimate of the kind of damage which could result from delay under the Subcontract.  The fact that in one factual scenario, assessed with the benefit of hindsight, the particular kind of loss did not eventuate cannot sustain characterisation of the clause as a penalty.
  4. [67]
    Second, Midson contends that even if it is correct to analyse the validity of the clause by reference to the particular factual scenario identified by Haggarty, the clause remains valid for two reasons:
    1. (a)
      Midson relies on authorities which reject the proposition that the validity of Practical Completion clauses can be assessed by reference to the range of individual obligations which comprise Practical Completion.  Midson contends that Haggarty’s argument focuses on a particular incident of the single obligation (in this case, providing warranties), and is thereby inconsistent with those cases; and
    2. (b)
      Midson submits that even if the establishment costs come to an end, there would remain additional costs incurred by Midson in administering the process of pursuing Haggarty for incomplete work, including incomplete provision of warranties. These costs would be difficult to assess, but it cannot be said that the $1,000 per day amount is so exorbitant as to make it a penalty.

Principles

  1. [68]
    In Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656, the High Court held:

[10] The law of penalties, in its standard application, is attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach.

[11] The starting point for the appellant was the following passage in Lord Dunedin’s speech in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd:

“2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage …

3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach …

4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:

(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach …

(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid …

(c) There is a presumption (but no more) that it is penalty when ‘a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage’.”

[12] Neither side in the appeal contested the foregoing statement by Lord Dunedin of the principles governing the identification, proof and consequences of penalties in contractual stipulations. The formulation has endured for ninety years. It has been applied countless times in this and other courts. In these circumstances, the present appeal afforded no occasion for a general reconsideration of Lord Dunedin’s tests to determine whether any particular feature of Australian conditions, any change in the nature of penalties or any element in the contemporary market-place suggest the need for a new formulation. It is therefore proper to proceed on the basis that Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd continues to express the law applicable in this country, leaving any more substantial reconsideration than that advanced, to a future case where reconsideration or reformulation is in issue.

(footnotes omitted)

  1. [69]
    Considering the matter before it in that analytical context, the High Court observed:

[31] Thirdly, consideration of the purpose of the law of penalties shows why this must be so. The law of contract normally upholds the freedom of parties, with no relevant disability, to agree upon the terms of their future relationships. As Mason and Wilson JJ observed in AMEV-UDC Finance Ltd v Austin:

“[T]here is much to be said for the view that the courts should return to … allowing parties to a contract greater latitude in determining what their rights and liabilities will be, so that an agreed sum is only characterised as a penalty if it is out of all proportion to damage likely to be suffered as a result of breach.”

[32] Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed. That is why the law on penalties is, and is expressed to be, an exception from the general rule. It is why it is expressed in exceptional language. It explains why the propounded penalty must be judged “extravagant and unconscionable in amount”. It is not enough that it should be lacking in proportion. It must be “out of all proportion”. It would therefore be a reversal of longstanding authority to substitute a test expressed in terms of mere disproportionality. However helpful that concept may be in considering other legal questions, it sits uncomfortably in the present context.

(footnotes omitted)

  1. [70]
    The statement in paragraph 12 was overtaken by Andrews v ANZ Banking Group Ltd (2012) 247 CLR 205 and Paciocco v ANZ Banking Group Ltd (2016) 258 CLR 525. 
  2. [71]
    Andrews concerned what might be characterised as a non-standard application of the law of penalties, where the alleged penalty is not payable on a breach of contract. In that case, the central question for determination by the Court was whether there was scope for the application of the penalty doctrine where the alleged penal sum was payable neither on a breach of contract, nor on the occurrence of an event which it was the obligation or responsibility on the paying party to avoid. The High Court concluded that the equitable doctrine of penalties could respond to that circumstance.  In that context, the Court made the following observation (footnotes omitted):

The penalty doctrine

[9] Mason and Deane JJ observed in Legione v Hateley that, as the term suggests, a penalty is in the nature of a punishment for non-observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability.

[10] In general terms, a stipulation prima facie imposes a penalty on a party (the first party) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation.

  1. [72]
    The analysis in Andrews does not figure significantly in the resolution of the so-called standard application of the penalty doctrine, where a sum is payable on breach of contract. In that scenario, Paciocco is the leading case.  It concerned whether the amounts charged by the ANZ on late payment of sums due on credit cards were void as a penalty. It was accepted in Paciocco that the failure to pay sums due comprised a breach of contract. The Court, by majority (French CJ, Kiefel, Gageler and Keane, Nettle J dissenting), concluded that the sum payable on the breach was not a penalty.
  2. [73]
    A key issue considered by the Court in Paciocco was the scope of the interests which could be considered in determining whether an amount payable on breach could be characterised as exorbitant or out of all proportion.  That question fell to be determined in circumstances where the evidence demonstrated that the direct cost of the failure of Mr Paciocco to pay his required payment on any given occasion was about $3.00, but also demonstrated that late payment by credit card holders could expose the Bank to substantial operational costs, loss provisioning and increases in regulatory capital costs. Further, it was accepted that the latter costs were not costs which could be recovered as damages for breach of Mr Paciocco’s obligation to repay in accordance with his contract with the Bank.
  3. [74]
    The majority found, in separate reasons, that the damage against which a contractual liquidated damages sum should be assessed, in considering whether it was exorbitant (and the concomitant interest which could be considered in assessing that damage), was not limited to the quantum of damages that could be recovered for breach of the primary contractual stipulation. 
  4. [75]
    While each of the majority judgments confirmed the acceptance in Ringrow of the relevance of the judgment in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79 to the assessment of whether a payment of money on breach of contract comprised a penalty, each of their Honours warned against treating Lord Dunedin’s “tests” as amounting to a judicial statute and put those “tests” into context (footnotes are omitted from the following passages).
  5. [76]
    Kiefel J (with whom French CJ agreed), after analysing the “tests” propounded by Lord Dunedin in Dunlop, held:

A sum out of all proportion to the interests protected

[51] Lord Dunedin said in Dunlop that there may be no reason to suspect that the figure agreed by the parties, in the case where loss is difficult to estimate, is “a penalty to be held in terrorem”, “provided that figure is not extravagant”. Lord Atkinson and Lord Parmoor also held that the figure in question was not extravagant, unconscionable or extortionate.

[52] The process to be undertaken in order to determine whether an amount is unconscionable or extravagant was not further explained in Dunlop and Clydebank. The figure agreed to be paid cannot be compared with a sum certain, as is the case with Lord Dunedin’s first “test”. It can only be gauged against the identified interests of the party in whose favour the stipulation is made. It may be inferred from Dunlop and Clydebank that the interests in question were regarded as substantial and the possibility of damage to them real. The sum agreed to be paid in those cases was not incommensurate with the relevant interests.

[53] In Clydebank, the Earl of Halsbury LC did not consider that a rule could be laid down as to when a stipulation could be said to be extravagant or unconscionable and that much would depend upon the circumstances of each case. However, it is to be inferred from the adjectives chosen that not every sum in excess of what might be strictly compensatory will amount to a penalty. This is confirmed by the example, admittedly extreme, which his Lordship then gave of an agreement to build a house for £50 but “to pay a million of money as a penalty” if the house was not built. This suggests that a person contending that a sum is a penalty will be facing a high hurdle. Lord Hodge was later to observe in Cavendish that the criterion of exorbitant or unconscionable should prevent the enforcement of only egregious contractual provisions.

[54] In Ringrow, it was held that a sum which was merely disproportionate to the loss suffered would not qualify as penal. It was explained that exceptions from freedom of contract “require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed”, which is why the law on penalties is expressed as an exceptional rule and in exceptional language. The Court went on:

“It explains why the propounded penalty must be judged ‘extravagant and unconscionable in amount’. It is not enough that it should be lacking in proportion. It must be ‘out of all proportion’.”

In Cavendish, Lord Neuberger and Lord Sumption said that the true test is whether the provision is a secondary obligation which imposes a detriment on the party in breach “out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation”.

[55] Australian and United Kingdom law are not alone in maintaining a standard to be applied to a requirement to pay money, or some other detriment, which is imposed in the event of default. In many other western legal systems something like the penalty doctrine exists. In Andrews, reference was made to s 343 of the German Civil Code, which provides that a “disproportionately high” penalty may be reduced by a court after taking into account “every legitimate interest” of the party for whose benefit the stipulated sum is made. Such interests are not limited to that party’s economic interests. In Cavendish, Lord Hodge referred to provisions in other modern civil codes and international instruments which use tests such as whether the sum stipulated is “manifestly excessive” or “substantially disproportionate” in order to modify or restrict contractual penalties.

[56] It has earlier been observed that the nature of an interest and of the injury to it may make for difficulties of proof that the sum stipulated is a penalty. In Clydebank, Lord Robertson acknowledged that the problem was not one for the Spanish government:

“But, in truth, the only apparent difficulty in the present case arises from the magnitude and complexity of the interests involved and of the vicissitudes affecting them, and as the question is whether this stipulation of £500 a week is unconscionable or exorbitant, these considerations can hardly be considered a formidable difficulty in the way of the respondents.”

[underlining added]

  1. [77]
    Her Honour then went on to analyse the interests in avoiding late payment which had been articulated by the Bank (and listed above), and concluded:

[65] It was her Honour’s view that loss provisions and regulatory capital costs are part of the costs of running a bank in Australia. Banks may, and do, seek damages for default, but they are limited to the sums outstanding, enforcement costs and interest. However, as has been explained, the question is not what the ANZ could recover in an action for breach of contract, but rather whether the costs to it and the effects upon its financial interests by default may be taken into account in assessing whether the Late Payment Fees are penalties.

[66] The primary judge accepted and applied Mr Regan’s evidence. Her Honour considered that the main difficulty with Mr Inglis’ evidence was that he did not calculate actual loss or damage, but rather engaged in a broad-ranging exercise of identifying “costs” that might be affected by late payment, in a more theoretical, accounting, sense. In her Honour’s view this did not assist in answering the question which she had earlier identified: to what extent (if any) did the amount stipulated to be paid exceed the quantum of the relevant loss or damage which can be proved to have been sustained by the breach. But of course framing the question in this way takes no account of the ANZ’s other interests which were said to be addressed by the Late Payment Fees and which extend beyond the recovery of compensation for loss.

[67] The primary judge accepted that whilst the actual losses suffered by the ANZ by reason of the late payments could not be precisely determined, they were probably no more than $3 for each event of late payment (based on Mr Regan’s evidence) and in any event much less than the $20 or $35 charged as a Late Payment Fee. They were therefore extravagant and unconscionable.

[68] Mr Inglis’ evidence identified the costs to which the ANZ would be subject in the event of a late payment as a range which exceeded the amounts of the Late Payment Fee. His calculations were criticised as overly generous. It is not necessary to resolve any such controversy. The effect of Mr Inglis’ evidence was to identify potential costs to the ANZ, from late payments, which reflect injuries to its financial position. They were real because they had to be taken into account by the ANZ. The evidence called for the appellants did not address damage of this kind. It cannot therefore be concluded that the sums of $20 and $35 were out of all proportion to the interests so identified.

Conclusion and orders

[69] It may be accepted that it is difficult to measure the loss to the ANZ as a result of a late payment. Consistently with Clydebank, Dunlop, Ringrow and Andrews, the relevant question in this case is whether the Late Payment Fee is out of all proportion to the ANZ’s interest in receiving timeous payment of the minimum Monthly Payment. Applying this test, the appellants did not establish that the Late Payment Fee was a penalty. The appeal should be dismissed with costs.

[underlining added]

  1. [78]
    Gageler J also analysed Lord Dunedin’s “tests” (called propositions by his Honour) and continued as follows:

Framing the inquiry

[157] In O'Dea v Allstates Leasing System (WA) Pty Ltd, Wilson J asked of the stipulation in issue in that case whether it “can be considered to be a ‘genuine pre-estimate of the creditor’s … probable or possible interest in the due performance of the principal obligation’” (citing Hills) or “whether it is a penalty inserted ‘merely to secure the enjoyment of a collateral object’” (citing Sloman v Walter). That succinct framing of the inquiry is consistent with Andrews and Dunlop. It is also very useful.

[158] The ultimate question of whether a stipulation imposing a detriment on a contracting party in the event of non-observance of another stipulation is a penalty is reflected in the formulation Wilson J drew from Sloman v Walter. To ask whether a stipulation serves merely to secure the enjoyment of a collateral object is to ask whether the conclusion objectively to be drawn from the totality of the circumstances is that the only purpose of the stipulation was to punish: to impose a detriment on a contracting party in the event that a principal contractual stipulation is not observed, in order to deter non-observance of that principal stipulation. To ask that question in the context of a stipulation for the payment of money on breach of contract accords with the statement of Lord Dunedin in Dunlop that “[t]he essence of a penalty is a payment of money stipulated as in terrorem of the offending party”.

[159] The formulation Wilson J drew from Hills does not indicate some separate or different inquiry but rather indicates the nature of the inquiry involved in considering whether a stipulation has some purpose other than to punish. The formulation captures in positive and more elaborate terms what Lord Dunedin reflected in negative and cryptic terms when he added, as a reflex of the essence of a penalty, that “the essence” of a payment of money on breach of contract that is not a penalty is that the amount of the payment “is a genuine covenanted pre-estimate of damage”. To ask whether a stipulated payment is a genuine pre-estimate of the innocent party’s probable or possible interest in the due observance of the principal contractual stipulation is to ask whether an interest which the innocent party has in the observance of that principal stipulation explains the stipulation for payment as having a purpose other than to punish the offending party. Such an interest of the innocent party in the observance of a principal contractual stipulation need not be an interest in respect of which the offending party would otherwise be compelled to compensate the innocent party at law (or in equity) in the event of non-observance.

[160] Where the stipulated detriment is in the form of an obligation to pay a specified sum of money in the event of a breach of contract, a comparison of the specified sum with the amount of the unliquidated damages which might be expected to be recovered by the innocent party in an action for breach of contract will often be probative of whether the only purpose of the stipulation is to punish. Such a comparison might sometimes be decisive. Not always.

[161] The facts in Clydebank and Dunlop both sufficiently illustrate that interests of the innocent party beyond the protection of an award of unliquidated damages in the event of a breach of contract can justify a different conclusion. The protection afforded by the stipulation of an obligation to pay a specified sum of money in the event of a breach of contract might be to interests that the innocent party has in contractual performance which are intangible and unquantifiable. A party seeking contractually to protect its interests by insisting on a stipulation that another party pay a specified sum of money in the event of breach cannot be limited by considerations of common law causation of damage to protecting only against incremental loss that the party would sustain as the direct result of that breach.

[162] Nor can a party seeking contractually to protect that party’s interests by insisting on such a stipulation be compelled by considerations of common law remoteness of damage to absorb actual damage to those interests consequential on breach merely because the nature and extent of that damage might not be apparent to the other party at the time of entering into the contract. The English Law Commission correctly observed in 1975 that “[t]here would seem to be no reason why the parties in Hadley v Baxendale could not have contracted for liquidated damages assessed on the footing that the mill would continue to be at a standstill”.

…

[164] And as the facts in Clydebank and Dunlop again both sufficiently illustrate, the fact that the amount of a payment stipulated to be made on breach of contract is set at a level which provides a negative incentive – even a very strong negative incentive – to perform the contract is not enough to justify the conclusion that the stipulation served only to punish. The prospect of paying compensatory damages to be assessed by a court in the event of breach itself provides a negative incentive to perform a contract. The relevant indicator of punishment lies in the negative incentive to perform being so far out of proportion with the positive interest in performance that the negative incentive amounts to deterrence by threat of punishment.

[underlining added]

  1. [79]
    His Honour concluded:

[176] Each category of costs identified by Mr Inglis represented a commercial interest of ANZ in ensuring observance by its consumer credit card customers of the principal stipulation in each of their contracts for payment of the minimum monthly payment by the due date. The customers’ grounds of appeal to this Court do not encompass any challenge to Mr Inglis’ evidence of their quantification. In light of those interests, it cannot be concluded that the inclusion in the credit card contracts of the stipulation for charging and payment of the late payment fee properly had no purpose other than to punish the account holder in the event of late payment. The stipulation was not merely in terrorem; the late payment fee was not just a punishment.

  1. [80]
    Keane J also analysed Lord Dunedin’s propositions[6] and then observed:

[268] Fourthly, Lord Dunedin’s summary was meant as a guide to the application of the rule. His Lordship’s propositions were not intended to be applied as if they were the provisions of a statute. The terms “extravagant” and “unconscionable” in Lord Dunedin’s proposition 4(a) are not used in contradistinction to reasonable, much less as free-standing criteria of invalidity. In proposition 4(a), the terms “extravagant” and “unconscionable” function as pointers towards the punitive purpose which imbues the challenged provision with the character of a punishment. And as Lord Neuberger and Lord Sumption said in Cavendish Square, “the real question” is whether the impugned provision “is penal, not whether it is a pre-estimate of loss”.

[269] In Cavendish Square (344), Lord Neuberger and Lord Sumption accepted that, although there was “a case” for judicial abrogation of the penalty rule on the ground that it is “antiquated, anomalous and unnecessary, especially in the light of the growing importance of statutory regulation”, the penalty rule should be retained because it serves the useful purpose of preventing a party from exercising a remedy where “the adverse impact of [the remedy] on the defaulter significantly exceeds any legitimate interest of the innocent party”. Lord Neuberger and Lord Sumption considered that the courts can avoid inappropriate application of the penalty rule:

“(i) by [proceeding upon] a realistic appraisal of the substance of contractual provisions operating on breach, and (ii) by taking a more principled approach to the interests that may properly be protected by the terms of the parties’ agreement.”

[270] In Andrews, this Court summarised the “critical issue” as being “whether the sum agreed was commensurate with the interest protected by the bargain”. This Court’s discussion in Andrews of the decision in Dunlop focused upon the reasons of Lord Atkinson, who accepted that an agreed payment upon breach should not be unenforceable where, though it “appeared imprecise as a pre-estimate of damage, it protected the [seller’s] interest in preventing undercutting, which would disorganise its trading system”. Accordingly, the question to be addressed in order to distinguish a penalty from a provision protective of a legitimate interest is:

“whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract.”

  1. [81]
    His Honour concluded:

Pre-estimate of damage or recoverable damages

[280] The appellants argued that the Full Court misapplied Lord Dunedin’s proposition 4(a). They noted that the expression used in Dunlop – “the greatest loss that could conceivably be proved to have followed from the breach” – speaks only of damages recoverable by action in consequence of a breach of contract and not of loss which is too remote to be compensated by an award of damages. The appellants’ submission was that it is not the case that any set of circumstances resulting in loss that might be hypothesised can be taken into account in assessing whether a clause is penal.

[281] The appellants submitted that the primary judge was correct to reject ANZ’s submission that “increase in loss provisions” and “increase in the cost of regulatory capital” were losses incurred as a result of late payment and to conclude that these matters were too remote to form part of compensable damage. The appellants also argued that, to the extent that the Full Court held that collection costs exceeding the amount of the late payment fee could be taken into account, that finding should be set aside.

[282] It is not the case that authoritative formulations of the test of punitive extravagance are invariably stated in terms of a comparison between the impugned payment and what might be recovered by litigation. This Court said in Ringrow:

“The law of penalties, in its standard application, is attracted where a contract stipulates that on breach the contract-breaker will pay an agreed sum which exceeds what can be regarded as a genuine pre-estimate of the damage likely to be caused by the breach.”

[283] It will be noted that this formulation of the rule does not depend upon a demonstration of the quantum of damages which would be recovered in an action. To speak of damage, as opposed to damages, is to speak of the loss caused by the breach, not the remedy which might be awarded by a court. To speak of a “genuine pre-estimate of the damage” is to speak of the damage liable to be suffered by those parts of the bank’s legitimate business interest that it is trying to protect. A genuine pre-estimate of that damage may encompass items of loss actually suffered, albeit too remote to be compensable by way of damages by virtue of the rules in Hadley v Baxendale. An agreement for the recovery of such loss is consistent with the absence of a punitive purpose. For a party to stipulate for a more ample remedy than is available at law is not to visit a punishment on the other party.

[284] An agreed provision avoids the uncertainty and expense of litigation. The benefit of such a provision to both parties and to the legal system is obvious. Even in medieval times, the authority we know as Bracton considered that a clause providing for the payment of an agreed sum upon a breach of contract served the legitimate purpose of removing the uncertainty and expense of litigation involved in establishing the quantum of damages recoverable for a breach of contract.

[underlining added]

  1. [82]
    The third case which requires consideration is Grocon Constructions (Qld) Pty Ltd v Juniper Developer (No 2) Pty Ltd [2015] QCA 291. That case was also concerned with the validity of a liquidated damages clause in a construction contract. There, the Contractor had failed to reach Practical Completion by the due date and was exposed to liquidated damages. The issue in dispute arose out of the definition of Practical Completion, which required both (in effect) substantial completion of the works and also performance of a series of other specified obligations, such as supplying warranties and the like, provision of keys and replacement of defective light globes, which were not required for the works to be able to be used.
  2. [83]
    Grocon argued that, on the proper construction of the definition of Practical Completion, the liquidated damages clause made the same amount payable on trivial events (such as failing to provide keys and replace light bulbs) and on substantial failures to complete the works. As McMeekin J (with whom Holmes CJ and Atkinson J agreed) observed:

[4] The critical issue is whether the definition of “Practical Completion” set out in the contract had the effect of attracting the operation of proposition 4(c) articulated by Lord Dunedin in Dunlop Pneumatic Tyre Company Limited v New Garage & Motor Company Limited:

“(c) There is a presumption (but no more) that it is penalty when ‘a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage’.”

  1. [84]
    His Honour conveniently summarised some general principles as follows:

Relevant Principles

[20] It is not in issue here that the penalties doctrine applies. A necessary element at law, but not in equity, is that the stipulation is payable on breach of a term of the contract. For present purposes there is no relevant distinction between equity and contract. The agreed premise here is that Grocon breached the contract triggering the liquidated damages clause.

[21] The onus is on the party alleging that the penalties doctrine is applicable.

[22] Whether a provision is a penalty at law is a question of construction that must be determined as a matter of substance viewing the contract as a whole. That question of construction however “is one of construction in a wide sense, falling to be decided by the meaning and content of the words and on the inherent circumstances of each particular contract, judged at the time of its making”: Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50 per Allsop CJ at [95].[5]

[23] The provision will not be a penalty unless it is “extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved.” This is the “essential element (at law or in equity)” that the sum be “extravagant, exorbitant and unconscionable”: Dunlop Pneumatic Tyre Company Ltd v New Garage & Motor Co Ltd [1914] UKHL 1; [1915] AC 79 at 86-87; Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; 224 CLR 656 at 669 [31]-[32]; Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6 at 10 and 17; AMEV-UDC Finance Ltd v Austin [1986] HCA 63 ; 162 CLR 170 at 197 and 201.[6]

[24] The question is to be assessed as at the time of entry into the contract. It is not a mechanical task.

  1. [85]
    His Honour then reviewed the authorities dealing with the characterisation of Practical Completion clauses in the context of the penalty doctrine. His Honour concluded that they supported the proposition that Practical Completion clauses that required completion of numerous different tasks, some material to the substantial completion of the work and some immaterial or even trivial, did not attract the proposition in paragraph 4(c) of Dunlop in respect of the trivial aspects of the definition of Practical Completion, because the substantial and trivial aspects comprised a single obligation: to reach Practical Completion by a particular date. It is sufficient to quote his Honour’s summary of Law v Local Board of Redditch [1892] 1 QB 127 at [47]:

[47] The obligation in Law was that “the works shall be completed in all respects, and cleared of all implements, tackle, impediments, and rubbish, on or before April 30, 1889” and in default stated damages to be paid. Like here, the argument was put that trifling failures involving no conceivable loss of significance to the Board – one example given being the leaving of a wheelbarrow on site – would trigger the payment. To this Kay LJ said:

“I cannot agree with the ingenious argument that, because there may be many matters, some very small, which would constitute non-completion, these sums may be regarded as payable on several events. According to that argument, it must be considered to be several different non-completions of the works. There may be different causes of non-completion; but non-completion is only one single event.”

  1. [86]
    His Honour then turned to Grocon’s contention that the trivial obligations, which had been included as obligations to be met for Practical Completion to be reached, had the consequence that, as a matter of substance, proposition 4(c) from Dunlop applied despite the authorities. His Honour rejected that argument because, on the proper construction of the definition of Practical Completion, failures to complete trivial obligations would not result in the proper refusal of certification of Practical Completion by the Independent Certifier.
  2. [87]
    In the course of reaching that conclusion, his Honour stated a principle which Midson invoked in this case:

[72] Generally speaking there is no reason to think that the various matters that the parties considered essential to Practical Completion as contemplated in the Deed were not of importance. They were very likely to be of importance to someone buying a residential unit. The particularity suggests that Juniper expected close attention to detail. However most of Grocon’s allegedly “minor breaches” find no place in these “conditions precedent” that were plainly intended to guide the Certifier. Indeed the only minor breach left from the list in Grocon’s Outline that I can see is the complaint that a failure to provide a single manual may result in a refusal to achieve Practical Completion (see (i) above). I am not prepared to hold that any different effect is brought about by that one example. As Lord Woolf said in Philips “the use in argument of unlikely illustrations should therefore not assist a party to defeat a provision as to liquidated damages.” As well, the point made by Clarke LJ in Makdessi is relevant: “…the fact that a breach may give rise to trifling … damage may not be determinative if the parties can be regarded as having regarded the trifling as unlikely.” I think it highly unlikely that the parties considered that a failure to attend to a trivial matter would lead to any delay.

(footnotes omitted)

Analysis

  1. [88]
    Haggarty’s principal contention does not invoke the argument which the builder advanced in Grocon, at least not directly.  Rather, Haggarty contends that Midson was exposed to no damage from late completion of the Subcontract after Practical Completion under the Head Contract, and accordingly, the daily sum was necessarily exorbitant, because it provided for recovery of $1,000 where there was no damage at all.
  2. [89]
    This proposition has some force because of the circumstances of a subcontract. In cases involving a contractor and a principal, delay by the builder impacts directly on the principal obtaining the benefit of the contract. In Grocon itself, the following was common ground:[7]

It was Juniper’s intention to sell the retail part of the project and the residential units. Juniper had entered into finance agreements with external creditors, to carry out the project. Juniper contemplated that it would generate revenue from the project, to repay the external creditors, through the sale of the retail part of the project, and the sale of residential units. Thus Juniper would suffer financial loss if the contemplated revenue stream was postponed by any delay in completion of the contract.

  1. [90]
    It is this interest in obtaining a completed building which primarily informs the damages which sustained the liquidated damages claim.
  2. [91]
    The interest of a contractor in the completion by the due date by a subcontractor is different. The head contractor is not concerned with being unable to use the completed building.  That is not an interest the head contractor has to protect.  As Haggarty contended, the head contractor’s interest in reaching completion of the Head Contract by the due date (or at least one of those interests) is to avoid liquidated damages under the Head Contract and demobilise from the site.
  3. [92]
    I do not accept Midson’s contention that focusing on this kind of analysis involves an improper hindsight analysis, which picks just one of a range of factual outcomes and which ignores the character of the interest which the liquidated damages clause seeks to protect. As is recognised in Paciocco, it is the scope of the interest sought to be protected (and the damage to be addressed by the liquidated sum) in performance of the contractual obligation which is fundamental to assessing whether the liquidated damages clause is properly characterised as being punishment for non-observance of the contractual obligation to reach Completion by the due date. Haggarty’s analysis focuses on the scope of a key interest of Midson in performance on time by Haggarty. 
  4. [93]
    If that interest were the only interest which Midson could properly seek to protect by the liquidated damages clause in the Subcontract, there might be a strong argument that the clause was penal to the extent it requires payment of liquidated damages after Practical Completion under the Head Contract. 
  5. [94]
    However, in my opinion, it is not the only interest in avoiding damage from late Completion to be considered.  As Midson contended, even after Practical Completion, failure by Haggarty to complete all the work on time could require Midson to continue with contract administration for the Subcontract to ensure that all the work is completed after the time at which it would otherwise have ended.[8]  The index example is the failure to provide warranties, which was the outstanding obligation alleged in this case. That being so, Midson credibly contended that it would have to continue expending time and money pursuing Haggarty for the completion of those obligations.  If they were completed on time, no such continuing administration would have been required. 
  6. [95]
    Midson conceded that the damage involved in that example might be small.  However, Midson submitted that it had not been established that the damage involved, compared to the $1,000 per day which applied after Practical Completion under the Head Contract, was so exorbitant as to demonstrate that, objectively, the liquidated damages clause operated as a punishment. I think there is merit in that proposition.
  7. [96]
    First, it is undoubtedly correct that there are costs of ongoing contract administration required when obligations under the Subcontract are not met at the time required for their completion. Those costs will likely be difficult to keep track of and assess.  However, difficulty of assessment is one of the reasons why a liquidated sum is justified and creates an evidential difficulty in demonstrating that a liquidated sum is exorbitant (as occurred in Clydebank Engineering and Shipbuilding Company v Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6). 
  8. [97]
    Second, it is necessary to show that the liquidated sum is exorbitant in the sense explained in Ringrow. There was no basis advanced on the application to sustain the conclusion that it was exorbitant compared to the damage which might flow from the failure to provide the warranties on this occasion.  
  9. [98]
    Third, I do not think it would be sufficient, in any event, for Haggarty to demonstrate that the liquidated daily sum was exorbitant as it came to be applied on this occasion.  It is at this point that the characterisation of the obligation to reach Completion as a single obligation has relevance to this application. The obligation to reach Completion could be breached in many ways, some more serious and some less serious, some of which would extend the period of active administration of the Subcontract for longer and require more work to be done in that time, and some less so. 
  10. [99]
    Applying the analysis in Law v Local Board of Redditch, and cases which have followed it, the question is not the damage which could flow from any particular failure to reach Completion, but the damage which could flow from failure to reach Completion by the due date. To my mind, depending on the character of the breach, damage in the form of the costs of continuing contract administration after the demobilisation from site, and after Practical Completion under the Head Contract, could be quite significant. Again, there was no basis to conclude to the contrary. In those circumstances, I am not persuaded that the liquidated sum was penal in character.
  11. [100]
    Fourth, it is no answer to Midson’s second argument that damage of this kind was not articulated at the time of entry into the contract, nor that Midson did not demonstrate that reasonable commercial parties would have contemplated that kind of damage from late completion at that time. So much is clear from Paciocco itself, where the Bank did not suggest that the interests articulated at trial to sustain the late payment fees would have been known to a reasonable person in the position of Mr Paciocco. The way the Court has articulated the sui generis construction task, which the penalty doctrine engages, supports this conclusion.
  12. [101]
    Fifth, Haggarty might contend that the damage flowing from continued contract administration in respect of obligations which were wrongly not performed by the due date is damage which does not flow from the failure to complete those obligations on the due date, but damage which flows from the failure to complete the obligations at all. That is, the damage identified is not time-dependent. It can be difficult to draw the line between loss which is time-dependant and loss which is not. I am not persuaded that damage which results from ongoing obligations to administer the Subcontract is not, at least in part, damage caused by the delay.
  13. [102]
    In my opinion, the answer to the second question is no.

The prevention principle

The issue

  1. [103]
    The pleadings on this issue are summarised in paragraphs [16] to [18] and [25] to [26] above. This question is, however, to be determined on the assumptions identified in paragraph [29](c) above.  Accordingly, for present purposes, it is Haggarty’s position that:
    1. (a)
      The delay in reaching Completion under the Subcontract was caused by Midson’s conduct in failing, in breach of its obligations under the Subcontract, to give Haggarty access to the Site and to one of the buildings on the Site; and
    2. (b)
      That conduct prevented Haggarty from reaching Completion by the due date, and consequently, time under the Subcontract was set at large and Midson lost the right to claim liquidated damages.
  2. [104]
    Haggarty’s position assumes the application of the so-called prevention principle.
  3. [105]
    Midson says that the prevention principle does not arise because:
    1. (a)
      By clauses 13.1 and 13.2, the Subcontract had a suite of provisions which entitled Haggarty to seek an extension of time and provided a remedy for principal-caused delay pursuant to the contract; and
    2. (b)
      Haggarty failed to seek an extension of time in respect of those delays in accordance with the contract.
  4. [106]
    Haggarty does not dispute these points but contends that clause 13.4 of the General Conditions supports the conclusion that, on the proper construction of the Contract, the prevention principle was not excluded. Haggarty accepts that unless clause 13.4, on its proper construction, allows for the operation of the prevention principle, it is excluded by reason of the provision in clauses 13.1 and 13.2 of an express right to seek an extension of time. The issue to be determined, therefore, is whether clause 13.4 has the effect contended for by Haggarty. Needless to say, Midson contends it does not.

General principles

  1. [107]
    The prevention principle has been recognised and applied by intermediate Courts of Appeal in Australia on several occasions,[9] and regularly at trial level.[10] It is explained by McLure P (with whom Newnes and Murphy JJA agreed) in Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360:

47 Against that background, I turn to the law on the subject.  The most comprehensive and comprehensible discussion of the topic is in Hudson's Building and Engineering Contracts (12th ed, 2010) [6-025] - [6-035].  I rely on that source, which in my assessment reflects the law in Australia.  The essence of the prevention principle is that a party cannot insist on the performance of a contractual obligation by the other party if it itself is the cause of the other party's non-performance.  This may be regarded as a particular manifestation of the obligation to cooperate implied as a matter of law in all contracts:  Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607 (Mason J).

48 The prevention principle clearly applies to delays in practical completion caused by a breach of contract by the principal.  In a construction law context, it also applies to other acts (or omissions) of the principal within the scope of the contract that prevent practical completion within the fixed period.  Variations are an obvious example.  However, the prevention principle has no application to delays that are not caused by the act or default of the principal.

49 If as a result of the prevention principle the contractual date for practical completion has ceased to be the proper date for the completion of the works and there is no contractual mechanism for the substitution of a new date in the events which have occurred, then there is no date from which liquidated damages can run and the right to liquidated damages will be lost:  Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111; MacMahon Construction Pty Ltd v Crestwood Estates [1971] WAR 162, 167 (Burt J).  The nominated time fixed for practical completion is replaced by an obligation to complete within a reasonable time.

  1. [108]
    As McLure P observed, the prevention principle is characterised as a specific example of the term implied at law to cooperate. Heydon on Contract draws a distinction between the duty to take positive steps in cooperation, which are necessary to make the contract workable,[11] and the duty not to prevent, hamper or delay performance.[12]  It might well be the case that different acts of prevention could fall within the scope of either one of those implied duties.  The implied term to cooperate can be varied or excluded by contract. In analysing whether the prevention principle has been varied or excluded, one is engaged in a process of construction.  This calls for identification of the particular obligation said to arise from the implied term, and then an analysis of whether, on the proper construction of the contract, that manifestation of the obligation is excluded.[13]
  2. [109]
    Principals have endeavoured to exclude the prevention principle by relying on provisions which create a contractual mechanism for awarding extensions of time for, inter alia, principal-caused delays. Those mechanisms usually require the contractor to comply with certain preconditions to an entitlement to an extension of time arising, such as notice and information provisions. Clauses 13.1 and 13.2 are examples of such a contractual mechanism.
  3. [110]
    Such mechanisms have been held to be effective to exclude the operation of the prevention principle (or perhaps more correctly, the implication of an implied term that the principal will not do acts or omit to do acts which cause prevention), even where the contractor did not properly comply with the preconditions or did not seek an extension under that mechanism at all. Arguments that such mechanisms are ineffective to exclude the prevention principle, where the extension was not granted because of the contractor’s failure to invoke or properly comply with the contractual mechanism, have not been met with success.[14]
  4. [111]
    Given that conclusion, it might be wondered how Haggarty has any basis at all to contend for the implication of the prevention principle in respect of acts of delay caused by Midson under the Subcontract. The answer lies in clause 13.4. The authorities have recognised that terms permitting unilateral discretionary extensions of time by the principal or the superintendent might, depending on the language used, support the conclusion that acts of prevention will still set time at large, despite the existence of an extension of time mechanism in a contract, and despite the failure of the contractor to take advantage of it properly, or at all.  Both parties agree that the resolution of this question turns on whether, on its proper construction, clause 13.4 is such a term. 

“Discretion” clauses in previous cases

  1. [112]
    No previous authority deals with the same language in clause 13.4.  However, each party contends that clause 13.4 is analogous to language construed favourably to their position in other cases. It is convenient to review the previous authorities to provide a foundation for considering the specific contentions of the parties.
  2. [113]
    The starting point is Peninsula Balmain.[15] That case, like a number others, involved the General Conditions contained in AS2124.[16] Because of the centrality of the provisions of that form of contract to the cases, it is convenient to set them out:
    1. (a)
      Clause 23 of AS2124 relevantly provides:[17]

23 SUPERINTENDENT

The Principal shall ensure that at all times there is a Superintendent and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent-

  1. (a)
    acts honestly and fairly;
  2. (b)
    acts within the time prescribed under the Contract or where no time is prescribed, within a reasonable time; and
  3. (c)
    arrives at a reasonable measure or value of work, quantities or time.
  1. (b)
    Clause 35 of AS2124 relevantly provides:[18]

35 TIMES FOR COMMENCEMENT AND PRACTICAL COMPLETION

…

35.2 Time for Practical Completion

The Contractor shall execute the work under the Contract to Practical Completion by the Date for Practical Completion.

Upon the Date of Practical Completion the Contractor shall give possession of the Site and the Works to the Principal.

…

35.5 Extension of Time for Practical Completion

When it becomes evident to the Contractor that anything including an act or omission of the Principal, the Superintendent or the Principal's employees, consultants, other contractors or agents, may delay the work under the Contract, the Contractor shall promptly notify the Superintendent in writing with details of the possible delay and the cause.

When it becomes evident to the Principal that anything which the Principal is obliged to do or provide under the Contract may be delayed, the Principal shall give notice to the Superintendent who shall notify the Contractor in writing of the extent of the likely delay.

If the Contractor is or will be delayed in reaching Practical Completion by a cause described in the next paragraph and within 28 days after the delay occurs the Contractor gives the Superintendent a written claim for an extension of time for Practical Completion setting out the facts on which the claim is based, the Contractor shall be entitled to an extension of time for Practical Completion.

The causes are -

  1. (a)
    events occurring on or before the Date for Practical Completion which are beyond the reasonable control of the Contractor including but not limited to -

industrial conditions;

inclement weather;

  1. (b)
    any of the following events whether occurring before, on or after the Date for Practical Completion –
    1. delays caused by-

- the Principal;

- the Superintendent;

- the Principal's employees, consultants, other contractors or agents;

  1. (ii)
    actual quantities of work being greater than the quantities in the Bill of Quantities or the quantities determined by reference to the upper limit of accuracy stated in the Annexure (otherwise than by reason of a variation directed under Clause 40);
  2. (iii)
    latent conditions;
  3. (iv)
    variations directed under Clause 40;
  4. (v)
    repudiation or abandonment by a Nominated Subcontractor;
  5. (vi)
    changes in the law;
  6. (vii)
    directions by municipal, public or statutory authorities but not where the direction arose from the failure of the Contractor to comply with a requirement referred to in Clause 14.1;
  7. (viii)
    delays by municipal, public or statutory authorities not caused by the Contractor;
  8. (ix)
    claims referred to in Clause 17.1(v);
  9. (x)
    any breach of the Contract by the Principal;
  10. (xi)
    any other cause which is expressly stated in the Contract to be a cause for extension of time for Practical Completion.

…

If the Contractor is entitled to an extension of time for Practical Completion the Superintendent shall, within 28 days after receipt of the notice of the number of days extension claimed, grant a reasonable extension of time. If within the 28 days the Superintendent does not grant the full extension of time claimed, the Superintendent shall before the expiration of the 28 days give the Contractor notice in writing of the reason.

In determining a reasonable extension of time for an event causing delay, the Superintendent shall have regard to whether the Contractor has taken all reasonable steps to preclude the occurrence of the cause and minimise the consequences of the delay.

Notwithstanding that the Contractor is not entitled to an extension of time the Superintendent may at any time and from time to time before the issue of the Final Certificate by notice in writing to the Contractor extend the time for Practical Completion for any reason.

A delay by the Principal or the failure of the Superintendent to grant a reasonable extension of time or to grant an extension of time within 28 days shall not cause the Date for Practical Completion to be set at large but nothing in this paragraph shall prejudice any right of the Contractor to damages.

[underlining added]

  1. [114]
    In Peninsula Balmain, the Superintendent had extended the date for Practical Completion to a certain date and no other extension had been sought by Abigroup.  In proceedings brought by Abigroup dealing with all issues arising out of the works, the whole dispute was sent to a referee.
  2. [115]
    Liquidated damages were in issue. The referee found that the Principal was entitled to liquidated damages, not from the date to which the Superintendent had extended the date for Practical Completion, but from a later date. The referee found that, despite the lack of any application under the contractual mechanism from Abigroup for certain principal-caused delays, the Superintendent should have granted extensions to the Date for Practical Completion, exercising the discretion conferred by clause 35.5 to grant an extension to a Contractor not entitled to it. The referee’s report came before the Supreme Court of New South Wales for adoption, variation or rejection, and at first instance, Barrett J confirmed those conclusions. The Principal’s appeal in relation to liquidated damages was dismissed. The leading judgment was given by Hodgson JA, with whom Mason P and Stein JA agreed. The whole of his Honour’s reasoning is important. He held, relevantly:

78 I accept that, in the absence of the Superintendent’s power to extend time even if a claim had not been made within time, Abigroup would be precluded from the benefit of an extension of time and liable for liquidated damages, even if delay had been caused by variations required by Peninsula and thus within the so-called “prevention principle”.  I think this does follow from the two Turner cases and the article by Mr. Wallace referred to by Mr. Rudge. 

79 In my opinion, no error is shown regarding the primary judge’s acceptance of the referee’s conclusion based on the Superintendent’s power.  In my opinion, this power is one capable of being exercised in the interests both of the owner and the builder, and in my opinion the Superintendent is obliged to act honestly and impartially in deciding whether to exercise this power.  Of course, if a timely claim has not been made, and the ground on which an extension is claimed is one which is difficult to decide because of the time that has elapsed since the time when the claim should have been made, that may be a ground on which the Superintendent can fairly refuse the extension; but there is no suggestion that that is the case here. 

80 In my opinion also, the power to extend time, including the power to do so even if no claim has been made within time, does not automatically come to an end with the termination of the contract for the builder’s breach.  Clause 35.6, providing for liquidated damages, expressly operates after the contract has been terminated under cl.44; and in order for it to so operate there must be a date for practical completion on which the clause can operate after termination of the contract.  If an application had been made within time before termination and not yet determined by the Superintendent at the time of termination, it is plain in my opinion that the Superintendent would have power to determine that claim after termination.  If a claim had been made before termination but outside the time provided by cl.35, and the Superintendent had not made a decision in exercise of the Superintendent’s power to extend time notwithstanding non-compliance, in my opinion the Superintendent could still do so after termination.  In those circumstances, I do not think the Superintendent’s power is lost on termination, even if the claim for exercise of the power to extend notwithstanding non-compliance had not been made until after termination. 

81 For those reasons, it was in my opinion open to the referee to do what he considered the Superintendent should have done in response to the claims made to the referee; and it was open to the referee to conclude that the Superintendent, acting fairly, would have granted the extensions which the referee found to be justified.  This view may have some further support from the referee’s finding that Peninsula was itself in breach of cl.23 in failing to ensure that the Superintendent arrive at a reasonable measure of time in respect of delays caused by Peninsula and the Superintendent. 

[underlining added]

  1. [116]
    The ratio of the decision is encapsulated in the propositions in paragraph 79 that:
    1. (a)
      The Superintendent’s power is one capable of being exercised in the interests of both the owner and the builder; and
    2. (b)
      The Superintendent is obliged to act honestly and impartially in deciding whether to exercise it.
  2. [117]
    Paragraph 79 does not refer to the prevention principle, though one can infer from paragraph 78 that his Honour considered that the effect of the contractual extension of time mechanism to exclude the prevention principle was neutralised by the considerations in paragraph 79. 
  3. [118]
    Although not articulated in this manner, the effect of paragraph 79, articulated by reference to the implied term theory, might be stated as this: on the proper construction of clause 35, read with clause 23, there was an implied term in the contract that the Contractor would be entitled to a reasonable extension of time from the Superintendent, despite failure to apply under the contractual mechanism, where the Principal, by its acts or breaches of contract, had prevented the Contractor from reaching Practical Completion and it was otherwise fair and reasonable to grant an extension of time. 
  4. [119]
    The next decision to which the parties refer is 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2006] VSC 491. That case concerned an application for leave to appeal against the decision of an Arbitrator on the basis, inter alia, that the Arbitrator erred in following Peninsula Balmain. As to the relevant terms, the Arbitrator observed:[19]
  1. 155.It is relevant that Clauses 23 and 35.5 in AS 2125-1992 are virtually the same as Cls 23 and 35.5 in the subject Contract.  The first lines of the tenth paragraph of Cl 35.5 are:

'Notwithstanding that the Contractor is not entitled to or has not claimed an extension of time, the Superintendent may …' [emphasis added].

  1. 156.The words 'or has not claimed' incorporated in AS 4300 and this Contract were not included in the AS 2124 clause considered in Peninsula Balmain by the Court of Appeal.  In my view, this incorporation somewhat strengthens the application to this Contract of the finding in Peninsula Balmain.
  1. [120]
    Both the Arbitrator and Osborn J directly addressed the construction of the contract. After referring to the Arbitrator’s reference to the articles critical of Peninsula Balmain (also mentioned by McLure P), his Honour held:

[24] These articles advance the view that the reserve power given to the Superintendent under the penultimate provision of cl.35.5 (in its standard form) is only to be exercised for the benefit of the Principal.  Unless the power is so construed, it is contended the power has the capacity to destroy the prescribed time limits forming the agreed framework for the performance of the contract.

[25] The Arbitrator then summarised the contentions of the parties (award [162]-[163]) and concluded:

  1. 164.It seems to me that (having regard to Peninsula Balmain), if the Superintendent's discretionary power contained in the penultimate clause can be exercised in the interest of the Contractor, one must ask how can this situation sit comfortably with the mandatory steps precedent to an EOT entitlement as set out earlier in Cl 35.5?
  2. 165. In my view, the answer to the above question lies within the penultimate paragraph itself.  If the Contractor fails to comply with the mandatory notice provision for an EOT, the Contractor is not entitled to an EOT as the claim is time barred.  Such circumstances are expressly considered ('is not entitled to … an extension of time') in the penultimate paragraph of Cl 35.5 and do not fetter the wide discretion of the Superintendent who (under Cl 23) is required to act 'honestly and fairly'.  A similar situation applies to circumstances where the Contractor has not claimed an EOT.  In applying Peninsula Balmain, the more difficult question to consider is what is fair in the circumstances.
  3. 166.Peninsula Balmain represents a change in direction of the law in respect of standard forms of the AS 2124/AS 4300 type which clothe the Superintendent with the independent discretion to extend time.  The articles by Messrs Bellemore and Baron particularly defend the traditional view.  However, I think there is force in Mr Jones' commentary which the Court of Appeal appears to have accepted.  It is also clear that the Court of Appeal considered the commentary of Professor I.N.D. Wallace QC (Prevention and Liquidated Damages:  A Theory Too Far? [2002] 18 BCL 82-86) which, in effect, respectfully disagreed with the decision on this point at first instance.
  4. 167.In my respectful opinion, in relation to the application of the penultimate paragraph of Cl 35.5, it seems that Peninsula Balmain was decided correctly both at first instance and on appeal.
  5. 167.Because of the Australia-wide use of contracts such as AS 2124/AS 4300, it also seems to me that it is appropriate to apply Peninsula Balmain in Victoria in the circumstances where there is no inconsistent decision of the Victorian Supreme Court."

[26] In my view the Arbitrator was correct in his decision:

  1. (a)
    The primary mechanism of cl.35.5 gives the contractor an entitlement to an extension of time, subject to compliance with special conditions;
  2. (b)
    The penultimate paragraph reserves a discretionary power to grant an EOT in other circumstances effectively where it is just and equitable to do so;
  3. (c)
    Such power is expressly directed to situations where "the contractor is not entitled to or has not claimed an extension of time …";
  4. (d)
    It is expressed to arise on a separate and distinct basis from the provision for the extension of time pursuant to the primary mechanism;
  5. (e)
    The grounds for exercise of the reserve power are expressed in the broadest possible terms as "for any reason".
  6. (f)
    The potential prejudice to the principal flowing from a failure by the contractor to comply with s. 35.5 is a matter going squarely to the equitable exercise of the Arbitrator’s discretion.

[27] There is no basis in the objective language of the contract read as a whole to read down these last words by reference to one party alone.

[28] The words are as the Arbitrator observed subject to the obligation of the Superintendent to act "honestly and fairly".

[29] It was open to the parties to modify the contract to give effect to the limitation for which 620 contends, by the use of relatively simple language.  They did not do so.

[30] To the contrary, as the Arbitrator observed, the parties adopted a form of condition which emphasised the independence of the Superintendent's discretion, by use of the words "or has not claimed an extension of time".

[underlining added]

  1. [121]
    It is to be noted that this reasoning also does not refer expressly to prevention.  However, the prevention principle underlies the reasoning. It provides the circumstance which calls for the Superintendent to exercise the discretion in favour of the Contractor.  The underlined observations reflect the centrality to the decision of the conclusion that the discretionary power was, on its proper construction, capable of being exercised for the benefit of both parties.
  2. [122]
    620 Collins Street, like Peninsula Balmain, involved an appeal from a decision by an alternative dispute resolution process. Peninsula Balmain was a referee’s report and 620 Collins Street involved an arbitral award.  In both cases, not only did the decision-maker accept that the discretionary power was open to be exercised in favour of the Contractor, but the decision-maker also went on to exercise the discretion in place of the Superintendent. In so doing, both decision-makers decided that, on the facts before them, the discretion should be exercised in favour of the Contractor.  In both decisions, the Court rejected separate arguments that the discretion was wrongly exercised.[20] The question of the remedy for the Contractor in proceedings in other circumstances is not dealt with in either case.
  3. [123]
    The next case in time is McMurdo J’s decision while in the trial division in Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58. That case concerned a challenge to the validity of an adjudication decision in respect of a progress claim under the then-applicable statute. The issue was whether the Contractor was entitled to delay costs. The contract adopted AS2124, including clauses 23 and 35.5 set out in paragraph [113](a) above, but with two alterations:
    1. (a)
      Clause 23 was followed by a new clause 23A:

23A Principal’s and Superintendent’s discretion

The Contractor agrees that except to the extent expressly provided in the Contract:

  1. (a)
    the Principal and Superintendent may exercise those discretions and rights given to them under the Contract in whatever way the Principal or Superintendent decide in their absolute discretion; and
  2. (b)
    the Principal or Superintendent may grant, refuse or grant subject to reasonable conditions any consent required from the Principal or Superintendent in their absolute discretion.

[underlining added]

  1. (b)
    The Superintendent’s discretion in clause 35.5 of AS2124 was omitted and the following included:

35.5A Other Extension by Superintendent

Notwithstanding that the Contractor is not entitled to or has not claimed an extension of time, the Superintendent may at any time and from time to time before the issue of the Final Certificate by notice in writing to the Contractor extend the time for Practical Completion for any reason in the Superintendent’s absolute discretion and without being under any obligation to do so.

…

[underlining added]

  1. [124]
    The Contractor sought delay costs, but the right to delay costs under the contract was conditional on the Contractor being entitled to an extension of time.  The Contractor relied on Peninsula Balmain to contend it was so entitled, despite not having obtained an extension of time under the contractual mechanism in clause 35.5. His Honour disagreed. After referring to Peninsula Balmain, his Honour resolved the issue in this manner:

[39] So in the present case, in applying the reasoning from Peninsula Balmain, the adjudicator construed this contract as imposing an obligation upon the Superintendent under cl 35.5A. The Principal argues that this was in error because it is contrary to the words of the clause. In particular it is inconsistent with the express provision in this clause that the Superintendent is under no obligation. Further, it is inconsistent with the express provision here that the Superintendent’s discretion is “absolute”.

[40]  That submission of the Principal should be upheld. Accepting the correctness of Peninsula Balmain and the cases which have followed it, in this contract however the parties have substituted different terms and the expressed intention was to confer a power on the Superintendent without imposing any obligation as to the exercise of that power. Indeed the deletion of the relevant paragraph in cl 35.5 and the addition of cl 35.5A and cl 35.5B appear to have been drafted with Peninsula Balmain in mind. In my view there is no tenable construction of cl 35.5A by which the Superintendent could be said to be under any obligation and in particular an obligation to extend time if it would be fair to do so. Absent such an obligation there was no entitlement in any sense to an extension of time, if there had not been compliance with cl 35.5. So in the adjudicator’s calculation, he was wrong to have included delay costs for which extensions of time have not been granted and for which there was no entitlement to an extension under cl 35.5 or cl 35.5A. This error resulted in the adjudicated amount being excessive by about $740,000.

  1. [125]
    The case thus turned on the form of the alterations to the standard conditions in AS2124.
  2. [126]
    The next case to consider is Spiers, referred to in paragraph [107] above. That case also appears to have involved AS2124. The relevant provisions were summarised by McLure P as follows:

51 The scheme of cl 35.5 of the first contract is as follows:

- When it becomes evident to the contractor that anything may delay the contract works, the contractor shall promptly notify the superintendent in writing with details of the possible delay and cause;

- If the contractor is or will be delayed in reaching practical completion by one or more of the specified causes, and within 28 days after the delay occurs the contractor gives the superintendent a written claim for an extension of time for practical completion, the contractor shall be entitled to an extension of time;

- If the contractor is entitled to an extension of time, the superintendent shall, within 28 days after receipt of the notice of the number of days for which extension is claimed, grant a reasonable extension of time;

- Notwithstanding that the contractor is not entitled to an extension of time (because, for example, of the failure to lodge a written claim), the superintendent has the power at any time before the issue of the final payment certificate to extend the time for practical completion.

[underlining added]

  1. [127]
    In that case, the Contractor had not reached Practical Completion by the due date and did not seek an extension of time under the contractual mechanism. The developer sued to recover liquidated damages. The Contractor defended on the basis of alleged estoppel or that the clause was a penalty. Those grounds were unsuccessful.  However, the trial Judge nonetheless extended the date for Practical Completion, relying on the prevention principle. 
  2. [128]
    On appeal, the penalty argument succeeded.  However, the Court went on to consider the prevention principle aspect. After reviewing Peninsula Balmain, and stating an intention to follow it, her Honour resolved the appeal as follows:

58 Under cl 23 of the General Conditions of the first contract, the principal is under a duty to ensure that the superintendent acts honestly and fairly (cl 23(a)).  The appellant seems to rely on the following matters in support of the claim that the prevention principle is enlivened in this case:

  1. 1.the respondent had breached its duty to ensure the superintendent acted honestly and fairly as a result of the superintendent's breach of his duty to consider and, if appropriate, grant the appellant's requests for an extension of time regardless of the absence of any relevant notice;
  1. 2.in the alternative, by reason of waiver and/or estoppel of the requirement for notice, the superintendent was in breach of his obligation to consider and, if appropriate, grant an extension of time.

59 That is, the appellant relies on the breach of cl 35.5 to re-activate the prevention principle.  I infer it does so in order to set the time for practical completion at large so the liquidated damages clause ceases to apply to all of the delay, howsoever caused.

60 The appellant's propositions ignore the last paragraph of cl 35.5 which provides that the failure by the superintendent to grant an extension of time does not cause the date for practical completion to be set at large or prejudice the contractor's right to damages.

61 Whether and to what extent cl 35.5 is intended to exclude the application of the prevention principle is a matter of contractual construction.  The objectively determined purpose of cl 35.5 is at least twofold.  The first is to provide contractual machinery to prevent the time for practical completion being set at large as a result of the application of the prevention principle.  The second is to place on the principal the risk of delay caused loss not attributable to any contractual party.  However, it would appear its purpose is not to exclude the prevention principle itself insofar as it applies to delay caused by the principal's breach of the building contract.  In the absence of an extension of time under cl 35.5, the contractor would be entitled to damages against the principal for its breach of contract, including any damages (liquidated or otherwise) it suffered as a result of principal-caused delays in practical completion.  Whether or not that could be relied on as a defence (such as equitable set-off) does not have to be decided.  In the result, cl 35.5 brings the prevention principle back into line with the general contractual principles relating to the implied duty to cooperate.  Accordingly, it is unnecessary to determine whether contractual parties are free to exclude the implied duty to cooperate, which is a term implied by law.

62 The same analysis would apply to a (derivative) breach by the principal arising from a superintendent's breach of the duty to consider the exercise of the power in cl 35.5.  Moreover, it is arguable that the prevention principle is a relevant consideration in the exercise of the superintendent's discretion to extend time in relation to the 'non-breach' causes of delay specified in cl 35.5.  If a court or another decision-maker concludes that the superintendent should have exercised the power and granted an extension of time, the principal will be prevented from claiming liquidated damages for the relevant (proven) delay.  In summary, the relevant purpose of cl 35.5 is to prevent the prevention principle having the effect of setting time at large. 

63 On this analysis, the respondent would not be entitled to liquidated damages for the period (42 days) for which the appellant should have been given an extension of time under cl 35.5.  As the practical outcome is the same as that reached by the trial judge, grounds 3, 4 and 5 should be dismissed.

  1. [129]
    Her Honour’s analysis focuses attention specifically on the character of the prevention principle as an implied term, breach of which leads to a remedy in damages. Her Honour also expressed reservations about the correctness of the position articulated in Peninsula Balmain that it was open to a third party to exercise the discretion under discretionary extension clauses, where it was wrongly not exercised by the Superintendent or Principal.  However, she followed Peninsula Balmain, unpersuaded that it was clearly wrong.[21]
  2. [130]
    The next case to consider is Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82. Probuild was the Head Contractor in the renovation of a hotel. It subcontracted part of that work with DDI. The subcontract work was completed some 144 days after the Date for Practical Completion under the subcontract. Clause 41 contained a mechanism of the usual kind providing for DDI to seek extensions of time for, inter alia, principal-caused delay:

[27] Clause 41.5 (Notice of Delays) provided a mechanism for DDI to give Probuild notice of any delay in the progress of the Subcontract works and to claim an extension of time to the Date for Practical Completion. Clause 41.5(b) – (i) set out a list of the matters DDI was required to set out in a Delay Notice.

…

[29] Clause 41.6(b) described the “only” circumstances in which DDI was entitled to an extension of time. Pursuant to the clause, such an entitlement only arose where, among other matters, a delay was directly caused by a Delaying Event, DDI was or would be delayed in progressing the Subcontract Works such that they would not reach Practical Completion by the Date for Practical Completion, DDI had not caused or contributed to the delay and had complied strictly with all obligations imposed on it by cl 41 (including giving Probuild notice of the delay). Clause 41.6(c) provided that the Head Contractor would not be liable on any Claim (including for an extension of time) which had not been made strictly in accordance with cl 41 and any such Claim was barred.

  1. [131]
    Clauses 41.8 to 41.10 further provided:

41.8 Extension of Time Sole Remedy

  1. (a)
    The right of the Subcontractor to make a Claim for an extension of time pursuant to this clause is the Subcontractor's sole remedy under this Subcontract in respect of any delay or delays. The Subcontractor is not entitled to any increase or adjustment to the Subcontract Sum or any other monetary compensation or damages (including damages for breach of contract in respect of any such delay).

41.9 Extension of Time Otherwise

  1. (a)
    Notwithstanding that the Subcontractor is not entitled to or has not claimed an extension of time, the Head Contractor may at any time and from time to time before the issue of the Final Certificate under this Subcontract by notice in writing to the Subcontractor extend the time for Practical Completion for any reason.

41.10 Time Not Set at Large

  1. (a)
    A delay or failure by the Head Contractor to grant a reasonable, or any, extension of time shall not cause the Date for Practical Completion to be set at large.

[underlining added]

  1. [132]
    DDI delivered a payment claim and Probuild delivered a payment schedule which, relevantly, claimed liquidated damages for the delay in reaching Practical Completion.  It was uncontentious that DDI had not sought an extension of time for various significant variations directed by Probuild. The adjudicator rejected Probuild’s liquidated damages claim by applying Peninsula Balmain. Probuild’s primary contention was that, in applying the principle in that case, the adjudicator had breached the rules of natural justice because neither party had raised that principle.
  2. [133]
    The trial Judge rejected that contention, and it was rejected again on appeal.  Much of the case was concerned with the natural justice issue, and in particular, where the onus lay to raise issues of construction relating to prevention. However, having reviewed the authorities, McColl JA held:

114 In Spiers Earthworks Pty Ltd v Landtec Projects Corp Pty Ltd (No 2), McLure P (with whom Newnes JA agreed), by reference to Hudson’s Building and Engineering Contracts, observed that “[t]he essence of the prevention principle is that a party cannot insist on the performance of a contractual obligation by the other party if it itself is the cause of the other party’s non-performance”. As frequently observed, there is debate about the juridical basis for the principle.  In Spiers Earthworks, McLure P observed that it “may be regarded as a particular manifestation of the obligation to cooperate implied as a matter of law in all contracts”, referring to Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd.

115 The prevention principle applies to delays in practical completion caused by variations resulting from the act or default of the principal.  Ordering variations after the due date which must substantially delay completion will, unless the contract provides otherwise, and in the absence of an applicable extension of time clause, disable the proprietor from recovering or retaining liquidated damages which might otherwise have accrued after the giving of the order.  In the context of delaying variations, whether ordered before or after the due date for completion, the prevention principle “is grounded upon considerations of fairness and reasonableness”.

116 The prevention principle may preclude an owner recovering liquidated damages for delay in the completion of works by the contractor where that delay has been caused by an act or omission of the owner in breach of the contract.  This is because, if it applies, the contractual date for practical completion ceases to be the proper date for the completion of the works and, if there is no contractual mechanism for the substitution of a new date in the events which have occurred, then there is no date from which liquidated damages can run and the right to liquidated damages will be lost.  In other words, the time for performance is “at large”, although it should be undertaken within a reasonable time.

117 The operation of the prevention principle can be modified or excluded by contract.  The manner in which this can be done, as relevant to the present case, is by extension of time provisions such as cll 41.5 – 41.6. Those clauses established a procedure by which, in the event of an actual or likely delay caused as provided in cl 41.6(b)(i), DDI could advise Probuild of the matters set out in cl 41.5, including whether it sought an extension of time to the Date for Practical Completion.

118 In the event, which Probuild contends occurred, that DDI failed to seek an extension of time pursuant to that provision, it is arguable (depending upon the proper construction of the Subcontract) that the prevention principle did not operate. This is, in essence because, as Cole J explained in Turner (No 1), DDI failed to exercise a contractual right which would have negated the effect of the preventing conduct.

119 Probuild submitted such extension of time provisions were inserted for the benefit of the principal to a building contract. That is only true in part. Clearly they are capable of having that effect to the extent they preclude the operation of the prevention principle. But they are also capable of operating for the contractor’s benefit, by enabling an extension of time to be granted and thus meaning the contractor is not exposed to a liquidated damages claim.

  1. [134]
    After referring to the above discussion in Spiers set out in paragraph [107] above, her Honour concluded:

126 In Spiers Earthworks, McLure P thought it “arguable that the prevention principle is a relevant consideration in the exercise of the superintendent’s discretion to extend time in relation to the ‘non-breach’ causes of delay specified in cl 35.5” and that “[i]f a court or another decision-maker concludes that the superintendent should have exercised the power and granted an extension of time, the principal will be prevented from claiming liquidated damages for the relevant (proven) delay”.

127 Osborn J followed Peninsula Balmain in 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) in relation to a provision almost identical to cl 41.9 save that, as in Peninsula Balmain, the reserve power was vested in the Superintendent. In his Honour’s view, the reserve power was to be exercised “effectively where it [was] just and equitable to do so, … [was] expressly directed to situations where ‘the contractor is not entitled to or has not claimed an extension of time …’, is expressed to arise on a separate and distinct basis from the provision for the extension of time pursuant to the primary mechanism [and] [t]he grounds for exercise of the reserve power [were] expressed in the broadest possible terms”.

128 In my view, and contrary to Probuild’s submissions, Probuild was obliged to exercise the reserve power to grant extensions conferred by cl 41.9 honestly and fairly having regard to the underlying rationale of the prevention principle to which I have earlier referred or, if necessary, because there is an implied duty of good faith in exercising the discretion cl 41.9 conferred.

129 It needs hardly be said that whether there have been relevant acts of prevention, and whether, in all the circumstances Probuild was entitled to liquidated damages, or DDI was entitled to an extension of time for the entire period encompassed by Probuild’s liquidated damages, turned on the terms of the Subcontract in the events which had happened.  However, as a matter of general principle, both the liquidated damages and extension of time clauses in printed forms of contract must be construed strictly contra proferentem.

  1. [135]
    The clauses under consideration in Probuild, and the clauses under consideration in Peninsula Balmain and 620 Collins Street, were alike in one important respect: in each case, the extension of time provision was cast in terms of conferring an entitlement to an extension of time, and the residual discretion arose, notwithstanding that the claimant was not entitled to (or had not claimed) an extension of time.
  2. [136]
    There is an important difference between Probuild and the other clauses, however.  Nowhere in the Probuild subcontract was there any express provision analogous to clause 23 of AS2124. McColl JA filled in that omission, in effect, by implying an equivalent term by reference to the underlying rationale of the prevention principle, or by implying a term of good faith in exercising the discretion. Both approaches necessarily depend on construing the power conferred by clause 41.9 as one which is intended to benefit both parties, not just Probuild. Looked at in that way, the reasoning is consistent with the reasoning in 620 Collins Street.
  3. [137]
    The final case to consider is Growthbuilt Pty Ltd v Modern Touch Marble & Granite Pty Ltd [2021] NSWC 290. In that case, a Contractor sued a Subcontractor, relevantly, for liquidated damages for delay in reaching Practical Completion. The Subcontractor defended, relevantly, on the basis that the Contractor could not enforce the liquidated damages clause because the delay in reaching completion was caused by acts of prevention by the Contractor. As in this case, the parties invited the Court to determine the prevention issue as a preliminary point. 
  4. [138]
    Her Honour concluded that no implication of a term providing for the prevention principle was allowed because such was inconsistent with the express words of the contract. The clause in question in that case contained an extension of time mechanism but was materially different from clauses 23 and 35.5 of AS2124. It provided, relevantly:

11.   Extensions of Time

Subject to the Subcontractor having submitted a claim for an extension to the Date for Completion in writing to Growthbuilt within 5 days of the commencement of an Act of Prevention, including details on the nature, cause, effect and duration of the delay, the Subcontractor will be entitled to a reasonable EOT to the Date for Completion in respect of a delay caused by an Act of Prevention. The Subcontractor will not be entitled to any EOT to the Date for Completion for any other reason, event or circumstance. The Subcontractor will have no Claim for any additional or increased costs whatsoever including any delay and/or disruption costs.

Failure by the Subcontractor to give notice to Growthbuilt strictly in accordance with the preceding paragraph within the stated period of 5 days for any delay to the Date for Completion caused by an Act of Prevention will disentitle the Subcontractor from making a claim (including for additional payment or time) against Growthbuilt and the Subcontractor will have no Claim arising out of or in any way connected with any delay to the Works caused by an Act of Prevention.

It is an essential and fundamental term of this Subcontract that, notwithstanding anything to the contrary in this Subcontract, an EOT granted under this Subcontract only entitles the Subcontractor to an EOT to the Date for Completion and not to any delay, disruption costs and/or any other costs. For the avoidance of doubt, the Subcontractor agrees that it has no Claim relating to or in connection with any EOT claim and/or alleged delay including without limitation delay or disruption caused by Growthbuilt or its employees, subcontractors, consultants or other agents.

Growthbuilt may in its absolute discretion at any time and for any reason, without prejudice to its rights or the Subcontractor’s obligations under this Subcontract, extend the Date for Completion, but Growthbuilt is under no obligation to extend, or to consider whether it should extend, the Date for Completion.

In this clause 11, “Act of Prevention” means an event or circumstance which results in actual delay to the Works and which is one of the following causes:

  1. (a)
    an act or omission of Growthbuilt or its employees, other contractors or agents, except for an act or omission authorised or permitted by this Subcontract, or which arises as part of proper exercise of any rights of Growthbuilt, or its consultants, agents or other contractors (not being employed by the Subcontractor under this Subcontract);
  2. (b)
    a breach of this Subcontract by Growthbuilt; or
  3. (c)
    a variation direction issued under clause 3.1.

[underlining added]

  1. [139]
    I note the following:
    1. (a)
      First, neither in clause 11 (nor in any other provision) was there a term like clause 23 AS2124;
    2. (b)
      Second, although the principal part of the clause uses the language of entitlement to an extension of time, the discretionary clause does not say “notwithstanding that the subcontractor is not entitled to an extension of time” or any similar language which would permit the inference that the discretionary clause is premised on the contractual mechanism not having been complied with;
    3. (c)
      Third, the Contractor’s discretion is in terms of an “absolute discretion” which the Contractor was under no obligation to exercise.
  2. [140]
    Her Honour referred to Peninsula Balmain and Probuild. She also reviewed cases on implied obligations of reasonableness and good faith, self-evidently to address the omission in the contract of any equivalent clause to clause 23 AS2124. She then recited the Subcontractor’s contention which mirrors, to a considerable degree, the argument of the Subcontractor in this case:

67 Modern submitted that in view of Probuild and the other authorities to which I was referred, even though Modern had failed to seek EOTs under the subcontracts, Growthbuilt was obliged to act reasonably and in good faith in exercising its discretion under cl 11 having regard to the prevention principle if delays were solely due to Growthbuilt. It submitted that the implied terms obliged Growthbuilt to act reasonably and in good faith in terms of the way cl 11 operated as a whole, both in the exercise of its absolute discretion to extend the Dates for Completion under the subcontract and also in its consideration of whether it should extend those Dates. In other words, Modern contended that Growthbuilt was also obliged to act reasonably and in good faith in deciding whether to rely on that part of cl 11 that stated that Growthbuilt was under no obligation to extend the Dates for Completion or to consider whether it should extend them.

  1. [141]
    Her Honour rejected that submission primarily because unlike the discretionary power in Peninsula Balmain and Probuild, the power of the Contractor was to be exercised in its absolute discretion. She considered this excluded any implied obligation to exercise the power reasonably. She went on:

71 However, in this case, the discretionary power to extend the Dates for Completion that is described as “absolute” is contained in a clause that also expressly excludes any obligation on Growthbuilt to exercise the power to extend or to consider whether to do so. In other words, the express terms of the subcontracts make clear that, despite having the discretionary power to do so, Growthbuilt has no obligation to extend or make any decision whether or not to extend time under the subcontracts at all. Unlike the reserve power clauses in Probuild and Peninsula Balmain, cl 11 also states that Growthbuilt’s discretion may be exercised without prejudice to Modern’s obligations under the subcontracts and the power to do so does not arise solely because Modern is not entitled to or has not claimed an EOT.

72 An obligation of reasonableness and good faith in the exercise of a unilateral contractual power may be implied as a matter of law as an incident of a particular type of commercial contract. However, the implication of such terms cannot extend to imposing obligations on parties that are, in effect, inconsistent with the terms of the relevant agreement itself: Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [146], citing Vodafone at [194] and [208].

73 I was of the view that there was no room to impose an obligation on Growthbuilt to exercise the power to extend the Dates for Completion, whether reasonably or fairly in the interests of Modern having regard to the prevention principle or not, in circumstances where the express terms of cl 11 provided for no such obligation. On this point, I note that none of the cases to which I was referred by Modern’s counsel contained a contractual provision which stated that the relevant decision maker had no obligation to exercise the discretionary power conferred onto them.

74 I was also of the view that there was no room for a reasonableness or good faith obligation to be imposed on Growthbuilt in deciding whether to rely on the last part of the clause that provides for no obligation on Growthbuilt to extend time or consider whether to extend time. As Growthbuilt submitted, and I accepted, it made little sense and seemed circular to contend for an implied term that obliged Growthbuilt not to rely on an express exclusion of the obligation to exercise that discretion (or consider doing so).

75 To have construed cl 11 in the way contended for by Modern would, in my view, not have been consistent with the well-known principles of construction of commercial contracts in cases such as Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35] and Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [47]. The language of “absolute discretion” and “no obligation” reflected a clear intention to confer a discretionary power to extend without any obligation being imposed on Growthbuilt to exercise or to consider whether to exercise that power.

  1. [142]
    Having reached that construction of the discretion conferred in clause 11, her Honour applied an orthodox analysis of the effect of the contractual extension of time mechanism to exclude any implied term that the Contractor must not do acts which prevented the Subcontractor from reaching Practical Completion.  Time was not at large even if such acts could be proven, if no claim under the mechanism under the contract had been made and granted. 

The parties’ contentions

  1. [143]
    Haggarty contends that, properly construed, Midson’s entitlement to recover liquidated damages for delay under the Subcontract was lost. 
  2. [144]
    Haggarty contends that follows because, on the proper construction of clause 13.4, Midson was obliged to grant an extension of time to Haggarty for Midson-caused delay, even if Haggarty did not seek an extension of time under the mechanism in clauses 13.1 and 13.2.  The factors favouring the construction that Haggarty relies on are:
    1. (a)
      The discretion conferred is not described as an absolute discretion, which distinguishes the clause from those considered in Hervey Bay and Growthbuilt; and
    2. (b)
      Notwithstanding the lack of any express requirement that the discretion be exercised reasonably and in good faith, analogous to clause 23 AS2124, such an obligation would be implied in clause 13.4.
  3. [145]
    The implication is said to arise because:
    1. (a)
      The mere conferral of discretion of itself invokes the obligation to exercise it reasonably and fairly; and/or
    2. (b)
      The underlying rationale of the prevention principle or an implied term of good faith compels that conclusion.
  4. [146]
    Midson contends that it has no obligation under clause 13.4 to exercise the discretion conferred favourably to Haggarty where there is Midson-caused delay, because the clause expressly excludes any requirement to do so. 

Analysis of the competing contentions

  1. [147]
    In my view, Midson’s contention is correct. 
  2. [148]
    The starting point is to articulate some general propositions:
    1. (a)
      The prevention principle is a specific example of the general implied term requiring cooperation, and as such, it can be modified or excluded by agreement;
    2. (b)
      Extension of time mechanisms of the kind set out in clauses 13.1 and 13.2 have been accepted as being effective to exclude the implication of a term giving effect to the prevention principle;
    3. (c)
      Terms which confer a discretion on a contract administrator or principal to extend time, despite failure of the builder to seek or obtain an extension of time under a contractual extension mechanism, have been construed in some cases as giving rise to an obligation to consider extending time for principal-caused delay; and
    4. (d)
      Whether a clause conferring such a discretion gives rise to such an obligation depends on the proper construction of the clause.    
  3. [149]
    In my view, where a clause like clause 13.4 is construed as giving rise to an obligation to consider granting an extension of time, I do not consider that the Court is recognising an implied term of cooperation. The existence of the express extension of time mechanism excludes that implied term. Rather, the Court is recognising an express term which, properly construed, also provides for accommodation of principal-caused delay.  It is only on breach of that clause that time will be set at large on the basis that the principal cannot take advantage of its breach (where the discretion is conferred on the principal) or where the principal warrants that the superintendent will exercise his/her discretions reasonably and fairly, on the basis that the principal has breached that warranty.
  4. [150]
    Importantly, discretionary extension clauses work differently from extension of time mechanisms.  Such extension of time mechanisms generally confer an entitlement on the builder to an extension of time where the preconditions for that entitlement are made out. Discretionary extension clauses, on the other hand, are exactly that – discretionary. As recognised in Peninsula Balmain and 620 Collins Street, the obligation to exercise the discretion reasonably and fairly does not mean that, on proof of principal-caused delay, an extension of time must be granted. It must be established that considering all the circumstances, including the failure to take advantage of the extension of time mechanism, the discretion should properly have been exercised so as to grant an extension: see [79] of Peninsula Balmain. 
  5. [151]
    Bearing in mind those broad propositions, I now turn to clause 13.4 specifically. The following considerations should be noted.
  6. [152]
    First, like the clauses in all the above cases except Growthbuilt, clause 13.4 is premised on the lack of entitlement to an extension of time under the express provision and confers in that context a discretion on Midson to award an extension of time for any reason. That language has been recognised in other cases as being consistent with the conclusion that the discretion to grant an extension for the benefit of the contractor arises, despite the failure to take advantage of the extension mechanism.
  7. [153]
    Second, clause 13.4 does not contain any express provision like clause 23 AS2124.  By itself, however, I do not think that means that the clause, on its proper construction, does not require Midson to exercise the discretion to extend time for the benefit of the Contractor in proper circumstances.  To my mind, the proper circumstances are to be determined, however, not by broad implications of duties of good faith and reasonableness, but by identifying the nature and scope of the discretion by construing the word where it appears in the contract. 
  8. [154]
    In that regard, looking just at the first sentence of clause 13.4, the discretion arises where there is no entitlement to an extension under clauses 13.1 and 13.2, but there is a reason (i.e. any reason) to award an extension. Principal-caused delay is clearly something which would provide a reason for considering granting an extension where no entitlement has arisen under clauses 13.1 and 13.2, whether by oversight or for some other reason.  To my mind, on its proper construction (and, importantly, ignoring the second sentence), the purpose of the discretion includes addressing principal-caused delay, which was not addressed under the extension mechanism. 
  9. [155]
    However, the nature of the obligations arising in the exercise of discretion must also consider the existence of the extension mechanism which provides the context for clause 13.4. In my view, where the principal-caused delay could not properly be assessed because of delay in advancing the claim for an extension by the builder or had been properly considered and rejected under clause 13.2, or for some other reason, the conduct of the Contractor in relation to the delay was such that the Principal was compromised in its ability properly to assess the effect of the delay, then there would be no obligation to exercise the discretion in favour of the builder.
  10. [156]
    That leaves the second sentence of clause 13.4 to be considered. In my view, that sentence very significantly alters the proper construction of the scope and nature of the discretion conferred in the first sentence where issues of prevention arise. If Midson is expressly “not required to exercise its discretion…for the benefit of” Haggarty, then I can see no scope of construing the discretion conferred in the first sentence as one which gives rise to any obligation to extend time for principal-caused delay for Haggarty’s benefit.  The words could not be clearer.
  11. [157]
    Haggarty urged to the contrary, because the discretion in the first sentence was not “absolute”, in contrast to the form of language in Hervey Bay and Growthbuilt.   However, that submission focuses on the words used and their consequence in each case. In both cases, the Court concluded that the effect of conferral of an absolute discretion was to exclude an obligation under the contract to extend time. Although neither Judge expressly referred to an obligation to extend time for the benefit of the contractor, it was not necessary to say so. The only relevance of the clause in each case for the resolution of the proceedings was if it conferred an obligation for the benefit of the contractor.[22] The second sentence of clause 13.4 has the same effect.  Indeed, the construction is more compelling in clause 13.4 because it is the express words of the clause which state the position. As her Honour concluded in Growthbuilt, there is no place for implications in the face of the express words in the contract to the contrary.
  12. [158]
    The significance of the second sentence is also seen when it is recalled that in Peninsula Balmain and 620 Collins Street, it was recognised that it was central to the recognition of the scope of operation of the prevention principle that the respective clauses could be construed as being for the benefit of the contractor.[23]
  13. [159]
    For that reason, the answer to the third question is no.

An alternative argument

  1. [160]
    There is a further reason why the answer to the third question should be no, even if clause 13.4, on its proper construction, required Midson to consider exercising its discretion to extend time to respond to acts or omissions of prevention by it.  The fact that acts of prevention by Midson might have engaged an obligation to consider exercising the discretion does not mean that, on the facts, exercising the discretion properly, Midson necessarily had to exercise the discretion to extend time.
  2. [161]
    In each of Peninsula Balmain, 620 Collins Street and Speirs, it had been established that, on the facts, an extension should have been granted and, in the former two cases at least, had been granted. Peninsula Balmain expressly recognised, however, that the circumstances might be such that a proper exercise of the discretion would be not to grant an extension, even where acts of prevention are alleged if, for example, the delay in seeking the extension meant that it was not possible properly and fairly to determine it.
  3. [162]
    Here, the Court assumes, for the purposes of the preliminary question, that there were acts of prevention by Midson. However, in my view, even that assumption is not sufficient to establish that the proper exercise of a discretion to extend time for the benefit of Haggarty necessarily requires an extension to be granted. There might, for example, be difficulty in identifying the causal link between the acts of prevention and the delay alleged. There might be prejudice flowing from the failure to claim the extension in a timely manner, which impacts on the exercise of the discretion.
  4. [163]
    It is unclear on the pleadings exactly how Haggarty articulates the consequence of success on its construction argument by way of defence.  Paragraph 9R merely asserts that in breach of clause 13.4, Midson failed to extend time as Haggarty seeks.  However, there is no pleading of a counterclaim for relief by which this Court would extend time in place of Midson (as seems to have occurred in Spiers), nor is there a claim for damages for breach of clause 13.4 which would possibly give rise to an equitable set-off. Although those observations go beyond the scope of the defined preliminary question, they do highlight the ambiguity surrounding how established acts of prevention lead to a remedy of any kind under clause 13.4.
  5. [164]
    In my opinion, on the assumed and admitted facts identified as informing the determination of the third preliminary question, the position is that Haggarty does not establish that Midson breached clause 13.4 by not granting the extensions of time which it seeks, even if the discretion, on its proper construction, to consider extending time for the benefit of Haggarty arose. 
  6. [165]
    Notwithstanding this analysis, neither party raised this issue at the hearing.  For that reason, I found my decision on my conclusion on the proper construction of clause 13.4.

Orders

  1. [166]
    As to the question whether clause 14(a) of the contract between the Plaintiff and the Defendant of 4 August 2020 (the Contract) is void for uncertainty, the answer is that the Contract is not void for uncertainty.
  2. [167]
    As to the question whether clause 14(a) of the Contract is void as a penalty, the answer is that the Contract is not void as a penalty.
  3. [168]
    As to the question whether, properly construed, the Plaintiff’s entitlement to recover liquidated damages for delay under the Contract was lost in circumstances where the following factual circumstances are assumed for the purposes of this application only:
    1. (a)
      The Plaintiff was the cause of the Defendant’s delay; or
    2. (b)
      The delay was caused by the Plaintiff’s breach of the Contract;

the answer is that the Plaintiff’s entitlement has not been lost in those circumstances.

Footnotes

[1] Paragraph 24(d) of the Reply filed 17 August 2021.

[2] Rule 166(5) UCPR.

[3] J D Heydon, Heydon on Contract (Lawbook Co., 2019) at [3.320].

[4] See paragraph 38 of Haggarty’s submissions and footnote 14 which is an Affidavit of Alexander Paul Tuhtan filed 6 August 2021 at paragraph [14].

[5] Macquarie Dictionary (5th ed).

[6] Paciocco v ANZ Banking Group Ltd (2016) 258 CLR 525 at [261] to [267].

[7] [2015] QCA 291 at [11].

[8] TS1-108.40.

[9] Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360; Peninsula Balmain Pty Limited v Abigroup Contractors Pty Limited [2002] NSWCA 211; Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82. So far as I could determine, the prevention principle has not been the subject of specific analysis in the Queensland Court of Appeal.

[10] In recent times, for example: Kane Constructions Pty Ltd v Sopov [2005] VSC 237; 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2006] VSC 491; Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58 especially at [33] to [40]. See also Growthbuilt Pty Ltd v Modern Touch Marble & Granite Pty Ltd [2021] NSWSC 290.

[11] J D Heydon, Heydon on Contract (Lawbook Co., 2019) at [21-370].

[12] Ibid at [21-410] - [21420].

[13] Ibid at [21-370] especially at page 847; and in the context of the prevention principle specifically: Peninsula Balmain Pty Limited v Abigroup Contractors Pty Limited [2002] NSWCA 211; Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82 at [117].

[14] Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360 at [50] to [55] and the cases cited there; Probuild Constructions Aust Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82 at [114] to [121]. 

[15] [2002] NSWCA 211.

[16] There have been successive versions of AS2124, but it does not appear that there were material differences in the form of the General Conditions relevant here in any of the cases under consideration.

[17] [2002] NSWCA 211 at [8].

[18] Ibid at [9].

[19] [2006] VSC 491 at [22].

[20] For 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2006] VSC 491, see [35] to [37].

[21] See Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360 at [57].

[22] See Growthbuilt at [70] and Hervey Bay at [4].

[23] Peninsula Balmain: see first underlined statement in paragraph [115] above; 620 Collins Street: see paragraph 27 of the judgment set out in paragraph [121] above.

Close

Editorial Notes

  • Published Case Name:

    Midson Construction (Qld) Pty Ltd v The Haggarty Group Pty Ltd

  • Shortened Case Name:

    Midson Construction (Qld) Pty Ltd v The Haggarty Group Pty Ltd

  • MNC:

    [2021] QDC 280

  • Court:

    QDC

  • Judge(s):

    Porter QC DCJ

  • Date:

    10 Dec 2021

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
AMEV-UDC Finance Ltd v Austin [1986] HCA 63
1 citation
Jump To
Cite 1 - [1986] HCA 63
Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205
2 citations
Jump To
Cite 1 - (2012) 247 CLR 205
Cite 2 - (2012) 247 CLR 205
cKinney Foundations Ltd (1970) 1 BLR 111
1 citation
Jump To
Cite 1 - (1970) 1 BLR 111
Clydebank Engineering and Shipbuilding Co. v Don Jose Ramos Yzquierdo Y Castaneda [1905] AC 6
3 citations
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Cite 1 - [1905] AC 6
Cite 2 - [1905] AC 6
Cite 3 - [1905] AC 6
Collins Street v Abigroup Contractors Pty Ltd (No 2) [2006] VSC 491
5 citations
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Cite 1 - [2006] VSC 491
Cite 2 - [2006] VSC 491
Cite 3 - [2006] VSC 491
Cite 4 - [2006] VSC 491
Cite 5 - [2006] VSC 491
Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184
1 citation
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Cite 1 - [2012] NSWCA 184
Darvall & Darvall v Malone (2006) 236 ALR 796
2 citations
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Cite 1 - (2006) 236 ALR 796
Cite 2 - (2006) 236 ALR 796
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd (1915) AC 79
3 citations
Jump To
Cite 1 - (1915) AC 79
Cite 2 - (1915) AC 79
Cite 3 - (1915) AC 79
Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1
1 citation
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Cite 1 - [1914] UKHL 1
Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd and Ors [2014] HCA 7
1 citation
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Cite 1 - [2014] HCA 7
Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd and Ors (2014) 251 CLR 640
1 citation
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Cite 1 - (2014) 251 CLR 640
Grocon Constructors (Qld) Pty Ltd v Juniper Developer No 2 Pty Ltd [2015] QCA 291
3 citations
Jump To
Cite 1 - [2015] QCA 291
Cite 2 - [2015] QCA 291
Cite 3 - [2015] QCA 291
Growthbuilt Pty Ltd v Modern Touch Marble & Granite Pty Ltd [2021] NSWC 290
1 citation
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Cite 1 - [2021] NSWC 290
Growthbuilt Pty Ltd v Modern Touch Marble & Granite Pty Ltd [2021] NSWSC 290
1 citation
Jump To
Cite 1 - [2021] NSWSC 290
Hervey Bay (JV) Pty Ltd v Civil Mining and Construction Pty Ltd [2008] QSC 58
3 citations
Jump To
Cite 1 - [2008] QSC 58
Cite 2 - [2008] QSC 58
Cite 3 - [2008] QSC 58
Kane Constructions Pty Ltd v Sopov [2005] VSC 237
2 citations
Jump To
Cite 1 - [2005] VSC 237
Cite 2 - [2005] VSC 237
Law v Local Board of Redditch [1892] 1 QB 127
2 citations
Jump To
Cite 1 - [1892] 1 QB 127
Cite 2 - [1892] 1 QB 127
MacMahon Construction Pty. Ltd. -v- Crestwood Estates (1971) WAR 162
1 citation
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Cite 1 - (1971) WAR 162
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37
1 citation
Jump To
Cite 1 - [2015] HCA 37
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104
1 citation
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Cite 1 - (2015) 256 CLR 104
Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50
1 citation
Jump To
Cite 1 - [2015] FCAFC 50
Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525
3 citations
Jump To
Cite 1 - (2016) 258 CLR 525
Cite 2 - (2016) 258 CLR 525
Cite 3 - (2016) 258 CLR 525
Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] 18 BCL 82
1 citation
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Cite 1 - [2002] 18 BCL 82
Peninsula Balmain v Abigroup Contractors Pty Ltd [2002] NSWCA 211
5 citations
Jump To
Cite 1 - [2002] NSWCA 211
Cite 2 - [2002] NSWCA 211
Cite 3 - [2002] NSWCA 211
Cite 4 - [2002] NSWCA 211
Cite 5 - [2002] NSWCA 211
Probuild Constructions (Aust) Pty Ltd v DDI Group Pty Ltd (2017) 95 NSWLR 82
5 citations
Jump To
Cite 1 - (2017) 95 NSWLR 82
Cite 2 - (2017) 95 NSWLR 82
Cite 3 - (2017) 95 NSWLR 82
Cite 4 - (2017) 95 NSWLR 82
Cite 5 - (2017) 95 NSWLR 82
Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71
1 citation
Jump To
Cite 1 - [2005] HCA 71
Ringrow v BP (Aust) (2005) 224 CLR 656
2 citations
Jump To
Cite 1 - (2005) 224 CLR 656
Cite 2 - (2005) 224 CLR 656
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596
1 citation
Jump To
Cite 1 - (1979) 144 CLR 596
Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360
5 citations
Jump To
Cite 1 - (2012) 287 ALR 360
Cite 2 - (2012) 287 ALR 360
Cite 3 - (2012) 287 ALR 360
Cite 4 - (2012) 287 ALR 360
Cite 5 - (2012) 287 ALR 360

Cases Citing

No judgments on Queensland Judgments cite this judgment.

1

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