Court of Appeal (WA)|2009-08-28|Before: Buss JA

J-CORP PTY LTD -v- MLADENIS [2009] WASCA 157 (28 August 2009)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : J-CORP PTY LTD -v- MLADENIS [2009] WASCA 157

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : MLADENIS & ANOR -v- J CORP PTY LTD [2008] WADC 174

Contract - Construction of building contract - Liquidated damages - Amount of liquidated damages for delay specified as 'nil' - Whether intended to exclude claim for unliquidated damages for delay - Turns on own facts

Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137

Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20

Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312

Décor Ceilings Pty Ltd v Cox Constructions Pty Ltd (No 2) [2005] SASC 483; (2007) 23 BCL 347

Diestal v Stevenson [1906] 2 KB 345

Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

Talley v Wolsley-Neech (1978) 38 P & CR 45

Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Waterways Authority of New South Wales v Coal And Allied (Operations) Pty Ltd [2007] NSWCA 276; (2008) Aust Contract R 90-278

1 BUSS JA: I agree with Newnes JA that leave to appeal should be granted but that the appeal should be dismissed. Subject to the following observations, I respectfully agree with his Honour's reasons.

2 The critical issue in the appeal is whether the parties, by specifying the rate of liquidated damages in cl 11.9 of the contract as 'NIL DOLLARS ($00.00) per day' intended that the respondents/proprietors should not be entitled to recover any damages (either liquidated damages at an agreed rate or unliquidated common law damages) for breach of the appellant's/builder's obligation under cl 11.1 to complete the works by a specified date.

3 It is well established that an intention to exclude the common law right to damages for breach of contract must be expressed in clear and unambiguous terms. See, for example, Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312 [23] (Gleeson CJ, Gaudron & Gummow JJ); Décor Ceilings Pty Ltd v Cox Constructions Pty Ltd (No 2) [2005] SASC 483; (2007) 23 BCL 347 [66] (Besanko J).

4 It is true that a claim by a proprietor against a builder for late completion under a building contract, whether for liquidated damages at an agreed rate or for unliquidated common law damages, involves a single cause of action for the same loss. See Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30, 33 (Nourse LJ). In other words, a claim for liquidated damages at an agreed rate and a claim for unliquidated common law damages in respect of the same loss are not separate heads of damage.

5 However, this point of principle does not preclude the parties to a building contract from agreeing that the proprietor will be confined to the common law right to damages for any breach by the builder of its obligation to complete the works by a specified date. The intention of the parties in this respect turns on the proper construction of the particular contract.

6 The construction of a written contract is concerned with ascertaining what a reasonable person would have understood the parties to mean. Consideration should ordinarily be given not only to the language of the document, but also to the surrounding circumstances known to the parties, and the apparent purpose and object of the transaction. See Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40] (Gleeson CJ, Gummow, Hayne, Callinan & Heydon JJ). Where the parties have entered into a building contract, the apparent purpose and object of the transaction may include the evident allocation between the

parties of the risk of loss or damage arising from a particular occurrence or contingency. The statutory context (if any) in which the parties contracted may also be relevant to issues of construction.

7 As Giles J noted in Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137, 140, a clause in a building contract providing for liquidated damages at an agreed rate in the event of the builder's failure to complete the works on time is normally included for the benefit of the proprietor. It relieves the proprietor from the difficulty and expense of proving that he or she has suffered actual damage as a result of the delay.

8 I agree with Newnes JA that on a proper construction of the contract between the appellant/builder and the respondents/proprietors, the parties did not express in clear and unambiguous terms an intention to exclude the common law right to damages for breach of the appellant's/builder's obligation to complete the works on time. Clause 11.9, in the context of the contract as a whole, manifests an intention that the standard form liquidated damages clause should, in substance, be excluded, but does not, in my view, manifest an intention that any and all remedies (whether under the contract or at common law) should be excluded.

9 It is of some significance, in the process of construction, that in cl 13, cl 14.1 and cl 15.2 of the contract the parties expressly contemplated that any contractual rights of termination should co-exist with any rights of termination at law. Also, the provision in cl 4.4 whereby the respondents/proprietors release and discharge the appellant/builder 'from any claims for loss or damage alleged to have been suffered by the Proprietor by reason of any delays in performance of the Works, howsoever caused, in respect of the imposition of any tax upon or relating to any stage of the Works or the supply of goods or services to the Builder forming part of or incidental to the Works' indicates the parties' contemplation that, but for the express release and discharge, the respondents/proprietors would or may have had such a claim at common law.

11 NEWNES JA: This is an appeal from a decision of Schoombee DCJ in the District Court on a preliminary question of law pursuant to O 31 r 2 of the Rules of the Supreme Court 1971 (WA). The appellant requires leave to appeal: District Court Act 1969 (WA), s 79(1)(b). On 12 January

2009 , Pullin JA ordered that the application for leave to appeal be heard together with the appeal.

12 The decision of the primary judge was made on the basis of agreed facts and concerned the proper construction of a building contract. The relevant facts are as follows.

13 The appellant, a builder, entered into a lump sum building contract (the Contract) with the respondents pursuant to which the appellant agreed to construct a three level brick house on the respondents' land for the sum of $311,484.12. The Contract was prepared by the appellant and, as appeared in argument on the appeal, is a standard form of contract used by the appellant.

14 Clause 11 of the Contract is (as far as relevant) in the following terms:

11.1 The [appellant] Builder shall commence the Works by the time specified in item 7a of the Schedule and shall complete the Works within the time specified in item 7b of the Schedule, provided that:

11.2 The Builder shall not be responsible for any delays in commencing the Works or completing the Works after commencement over which the Builder has no control including (without limiting the generality thereof):

11.2.1 any variation to the Works;

11.2.2 any delay by the [respondent] Proprietor in giving or agreeing to a variation in the Works;

11.2.3 inclement weather or act of God, including fire, flooding, earthquake or other unexpected naturally occurring event;

11.2.4 any theft, vandalism, civil commotion or other acts of third parties;

11.2.5 strikes, industrial action, lock-outs or holidays;

11.2.6 any delay in the supply of materials or shortage of labour;

11.2.7 any instruction or delay in giving an instruction or omission by the Proprietor, or any deliberate and substantial prevention of or interference with the Works or the performance of the Works caused by the Proprietor or his contractors or agents;

11.2.8 any disputes with neighbours concerning performance of the Works or anything in relation thereto;

11.2.9 any delay caused by or resulting from an order or direction of any statutory authority or person exercising powers pursuant to the provisions of a written law;

11.2.10 any suspension of the Works pursuant to clause 14.

11.3 The Builder shall be entitled to vary the Contract Price, and give the Proprietor a variation order in respect thereto, by adding to the Contract Price, payable at practical completion, the cost incurred by the Builder by reason of any delays caused by the Proprietor or his Contractors or agents, which cost shall include interest calculated at the rate specified in item 8 of the Schedule on the outstanding balance of the Contract Price for the duration of the delay.

11.4 Practical completion of the Works is deemed to have taken place when:

11.4.1 the Works are completed except for any omissions or defects which do not prevent the Works from being reasonably capable of being used for its intended purpose; or

11.4.2 the Proprietor has taken possession of the Works without the written consent of the Builder; or

11.4.3 the Builder has handed the keys of the Works to the Proprietor; whichever is the earlier.

...

11.9 If the Builder breaches sub-clause 11.1, it shall be liable to pay the Proprietor liquidated damages at the rate of NIL DOLLARS ($00.00) per day for each day beyond the due date for practical completion until practical completion is deemed to have taken place.

15 Clause 13 of the Contract provides (relevantly) as follows:

The Proprietor may, in addition to any other rights at law or under this Contract, terminate this Contract in any of the following events:

...

13.4 if the Builder shall substantially breach any provision of this Contract;

...

Termination of the Contract and Suspension of the Works by the Builder

14.1 In addition to any other rights at law or under this Contract, the Builder may elect, in its absolute discretion, by notice in writing to the Proprietor, to terminate this Contract or suspend the Works in any of the following events:

...

14.1.3 any substantial breach of this Contract by the Proprietor, including but without limiting in any way the generality thereof, a failure or refusal by the Proprietor to pay any progress payment or the amount of any variation or increased cost within TEN (10) days from such payment becoming due, the entry into possession of the Works without the Builder's consent, any deliberate prevention of or interference with the Works and a refusal to sign and return any variation order within the time specified in clause 6.3.

...

15.2 If either the Proprietor or the Builder terminates this Contract other than by reason of the events specified in clauses 13 and 14.1.1 respectively, the party so terminating shall be liable to the other for any damages, including loss of profits, incurred thereby. 'Loss of profits' means the Contract Price less the budgeted cost of construction of the Works, which cost excludes marketing costs, supervision and overheads, unless any such costs are a direct cost of the Works.

18 By cl 26.10 of annexure A to the Contract, the respondents acknowledge that they are one of a number of proprietors for whom the appellant was constructing works as part of the 'Pelican Walk' sub-division development. It appears from the annexure that the building contracts referred to concerned lots 1 to 22 Tidewater Way, 'Pelican Walk'. Clause 26.13 provides that the appellant cannot take possession of individual lots without all building licences being approved for lots 14 to 22.

19 Item 7a of the schedule provides that the building work is to commence within 21 working days from the issue of all building licences to lots 14 to 22 and that the completion date is 52 working weeks from the date on which work commences or should have commenced.

20 The parties agreed that the preliminary question before the primary judge should be determined on the basis that the parties did not communicate or negotiate with each other with regard to cl 11.9, or the inclusion in it of the words and symbol 'NIL DOLLARS ($00.00)', prior to entering into the Contract.

21 The preliminary question of law was in the following terms:

Does clause 11.9 of the Contract on its proper construction have the effect of excluding the [respondents'] right to claim damages at common law for losses suffered by the [respondents] by reason of the [appellant's] breach of the Contract (assumed for the purpose of this question), namely the failure to reach practical completion of the Works by the Due Date for Practical Completion?

22 The primary judge answered that question in the negative. Her Honour considered that the insertion of 'NIL DOLLARS ($00.00)' in cl 11.9 was only intended to exclude any claim by the respondents for liquidated damages. On the authorities, any intention to deprive the respondents of their common law right to unliquidated damages would have to be clearly expressed. The terms of cl 11.9 did not express such an intention. Moreover, it appeared from cl 11.2 that, except in respect of delay over which it had no control, it was intended the appellant would be liable for common law damages for delay. The primary judge also considered, 'as a rule of last resort', that cl 11.9 should be construed against the appellant on the basis of the contra proferentem rule.

23 Her Honour therefore concluded that cl 11.9 did not exclude the respondents' right to claim damages at common law for losses suffered by the respondents by reason of the appellant's failure to reach practical completion by the due date.

The learned trial judge erred in law in finding that clause 11.2 of the building contract between the parties would be superfluous and meaningless unless the parties intended that the respondents retained a common law right to recover damages for delay.
The learned trial judge erred in law in failing to find that clause 11.9 clearly excluded common law damages because:

(a) it was mandatory in application;

(b) to construe the clause as reserving a right to common law damages would render the provision devoid of operation;

(c) a reasonable person in the position of the parties would consider a provision providing for a liability to pay a nil amount in the event of delay as an inapt means of preserving a liability for common law damages for delay; and

(d) clause 15.2 was expressed in terms that were consistent with an intention to confine the rights of the parties in the event of default to the rights expressed in the contract.

The learned trial judge erred in law in construing the contract contra proferentem when, properly construed, there was no ambiguity because the common law right to damages clearly had been excluded by the terms of the contract.

24 It was submitted on behalf of the appellant that the conclusion of the primary judge as to the effect of cl 11.9 was mistaken. Clause 11.9 is mandatory in its terms and no purpose would be served by inserting the amount as 'NIL DOLLARS ($00.00)' unless it was to exclude damages for delay. If the intention was not to exclude common law damages then cl 11.9 could have been omitted or struck out. To construe it as reserving a right to common law damages was to render the provision devoid of operation.

25 The operation of cl 11.2, which excluded the appellant from responsibility for delays in certain circumstances, was not in any sense inconsistent with the exclusion of common law damages for delay by cl 11.9. The effect of cl 11.2 was that the delay to which it referred could not give grounds for termination of the contract by the respondents.

26 Senior counsel for the appellant argued that in the event of a substantial breach of contract by the appellant (including its obligation to complete the work on time) the respondents had the right under cl 13.4 to terminate the Contract. However, if the respondents terminated in a manner not permitted by the Contract then the respondents would be liable in damages to the appellant under cl 15.2.

27 Accordingly, in that context, cl 11.2 performed two functions. First, it specified the circumstances in which the appellant would not be responsible for delay and therefore the circumstances in which the Contract could not be terminated by the respondents for delay even though the completion date may have passed. Secondly, it specified the circumstances in which the appellant would be entitled to claim damages from the respondents in the event of termination by the respondents for delay - namely, when there had been no serious delay, taking account of any delay for which the appellant was not responsible by reason of cl 11.2. The primary judge was therefore in error in concluding that cl 11.2 would serve no function if common law damages for delay were excluded by cl 11.9.

28 It was further submitted that there was no room for the contra proferentem rule to be applied.

29 It was submitted that the construction found by the primary judge gave effect to the ordinary meaning of cl 11.9 and was consistent with the other terms of the Contract. Counsel argued that if the respondents had no right to claim damages for late completion then cl 11.2 would have no practical application, except in the most rare and unusual circumstances.

30 The primary judge had correctly followed a long line of established authority to the effect that a right to common law damages was not excluded unless there were clear words to that effect. There were no such clear words in the Contract.

31 It was submitted that the primary judge was correct to apply the contra proferentem rule. There was an ambiguity as to whether the notation 'NIL DOLLARS ($00.00)' meant the parties intended to exclude only liquidated damages or whether they also intended to exclude unliquidated damages at common law.

32 The essential question to be determined on this appeal is whether the primary judge erred in finding that, on its proper construction, the Contract did not exclude any entitlement of the respondents to claim unliquidated damages for a breach by the appellant of its obligation to complete the work by the time specified in the Contract.

33 The principles to be applied in the construction of a contract are well-known. The court is required to ascertain the common intention of the parties, by reference to what a reasonable person would understand the contract to mean having regard not only to the text but also the surrounding circumstances known to the parties and the purpose and object of the transaction: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461 - 462; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165.

34 The approach to be taken in construing the language of a written contract was discussed by Gibbs J in the following, oft-cited passage, in Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99:

It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v Dunlop (1888) 39 Ch D 387 at 393, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case (1880) 16 Ch D 681 at 686. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2; (1932) 147 LT 503 at 514, that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429 at 437) (109 - 110).

35 It is clear that the parties to an agreement may, as part of their agreement, fix an amount that is to be payable by way of damages in the event of a breach of the agreement. Provided the amount so fixed is a genuine pre-estimate of the damage that would arise from the breach, and not so out of all proportion as to be by way of a penalty, that amount is recoverable without proof of the actual loss caused by the breach. It is immaterial that the amount of the actual loss turns out to be less than the amount specified. Equally, if the actual loss turns out to be greater than the amount of the liquidated damages, the claimant cannot ignore the liquidated damages clause and sue for unliquidated damages: Diestal v Stevenson [1906] 2 KB 345; Talley v Wolsley-Neech (1978) 38 P & CR 45 (CA). That is, ordinarily a valid liquidated damages clause fixes the amount that is recoverable in the event of a breach, regardless of whether the claimant's actual loss is greater or less than the amount specified.

36 The position would appear to be the same where the amount specified is, not so disproportionately large as to be a penalty, but on the contrary so small that it cannot be regarded as a genuine pre-estimate of the probable loss. In such a case, the clause has been regarded as akin to a clause limiting the extent in damages of a party's liability: McGregor on Damages (17th ed, 2003) 13-071.

37 In Cellulose Acetate Silk Co Ltd v Widnes Foundry (1925) Ltd [1933] AC 20, the parties agreed after lengthy negotiations that the defendants would deliver and erect an acetone recovery plant for the claimants in 18 weeks and agreed to pay £20 for each week of delay. The defendant took 30 weeks beyond the agreed completion date to complete the work. The damage that the claimants were likely to, and did, suffer as a result of the defendants' delay was far greater than the sum stipulated. The claimants argued that the agreed sum was so paltry as to be a penalty which they were entitled to ignore and that they were entitled to sue for their actual loss of £5,850. That was rejected by the House of Lords. Lord Atkin (with whom the other members of the House agreed) said it was clear that the parties had agreed that in the event of delay the damages payable by the defendant was £20 per week. His Lordship accepted that it was not a pre-estimate of actual damage, it being obvious to the parties that the actual damage would be much more, but it was intended to go towards the damage and it was all that the defendants were prepared to pay.

38 In the present case, of course, cl 11.9 provides that no amount is payable by way of liquidated damages in the event of delay. In the context, the purpose of cl 11.9 can only be either to limit any liability of the appellant for damages for delay to unliquidated damages (the respondents' case) or to exclude entirely any liability of the appellant for damages for delay (the appellant's case).

39 While various authorities dealing with similar provisions were referred to by the parties, in the end I do not consider that any general principle can be drawn from them. The effect of such a provision cannot be determined apart from a consideration of the terms of the particular contract. Whether the effect is to exclude any damages from being payable in the event of a breach or simply to exclude liquidated damages must depend upon the proper construction of the contract as a whole. And it is trite law that great caution must be exercised in seeking to apply the meaning given to a word or words in one contract to the same word or words in a different contract. That is obviously because commonly the meaning of words is affected by the particular context in which they are used. Accordingly, even the same words may give rise to different meanings in different contractual contexts.

40 Thus, in Temloc Ltd v Errill Properties Ltd (1987) 39 BLR 30, the contract for the construction of a large shopping development contained a provision, cl 24, headed 'Damages for non-completion'. Clause 24.2.1 provided for the payment by the builder of 'liquidated and ascertained damages' for delay in completing the work. Against the 'rate' of such damages had been inserted '£ Nil'. The principal argued that that simply meant there were to be no liquidated damages, leaving it with a claim for unliquidated damages. The builder argued that it meant that no damages were payable for delay. The Court of Appeal held that cl 24 constituted an agreement that there should be no damages payable for delayed completion by the builder. Nourse LJ said that damages for late completion are one head of the general damages which may be recoverable for the builder's breach of the contract. Their character was not altered by whether the amount payable was agreed by the parties in advance (as liquidated damages) or determined by the court after breach (as unliquidated damages). They remained damages for late completion. The parties having agreed by cl 24 that no amount was payable for late completion by way of liquidated damages, it could not have been intended that the principal would have the option of claiming damages of the same character but by way of an unliquidated amount.

41 On the other hand, in Baese Pty Ltd v RA Bracken Building Pty Ltd (1990) 6 BCL 137, in respect of a contract in different terms, it was held that the insertion of 'nil' as the rate of liquidated damages was not an exhaustive statement of the owner's rights in the event of a failure to complete on time. In that case, the contract provided, in effect, that if the builder failed to complete the work by the due date the architect may issue a certificate of non-completion and, in that event, the builder was required to pay liquidated damages to the owner at the specified rate. Giles J distinguished Temloc on the basis of the different wording of the contract, pointing out that, unlike Temloc, the clause was not mandatory and self-executing (in that it depended upon the issue of a certificate which the architect 'may' issue) and also unlike Temloc, it was not contained under a heading 'Damages for non-completion'.

42 It is therefore necessary to turn to the particular provisions of the Contract.

43 As I earlier noted, the Contract is to be construed on the basis that the parties did not communicate with each other with regard to cl 11.9 or the inclusion in it of the words and symbol 'NIL DOLLARS ($00.00)'. In argument on the appeal, senior counsel for the appellant acknowledged that the Contract was (as its appearance suggested) a standard form of contract used by the appellant.

44 It was common ground that clear words are needed to rebut the presumption that a contracting party does not intend to abandon any remedies for breach of contract arising by operation of law: Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, 717 - 718; Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 75 ALJR 312, 317; Waterways Authority of New South Wales v Coal And Allied (Operations) Pty Ltd [2007] NSWCA 276; (2008) Aust Contract R 90-278 [217] - [238].

45 In Gilbert-Ash, the question arose whether a clause specifying the manner in which sub-contractors should be paid excluded the contractor's right to a set-off at common law in respect of breaches of contract by the sub-contractors. The clause relevantly provided:

If the Sub-contractor fails to comply with any of the conditions of this Sub-contract, the Contractor reserves the right to suspend or withhold payment of any monies due or becoming due to the Sub-contract[or]. The Contractor also reserves the right to deduct from any payments certified as due to the Sub-contractor and/or otherwise to recover the amount of any bona fide contra accounts and/or other claims which he, the Contractor, may have against the Sub-contractor in connection with this or any other contract.

46 The Court of Appeal held that the clause confined the contractor to deducting amounts which had been determined and embodied in a judgment of a court of law or an arbitrator. That decision was overturned by the House of Lords. Lord Diplock referred (717) to the principle of law applicable to building contracts, as well as contracts for the sale of goods, that when the buyer of goods or the person for whom work has been done is sued by the seller or contractor for the price, it is competent for the defendant to defend the proceedings by showing how much less the subject-matter of the action was worth, by reason of the breach of contract. His Lordship went on:

It is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law or such remedy may be excluded by usage binding on the parties (cf Sale of Goods Act 1893, s 55). But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption. In the case of building contracts no question of usage arises to rebut the presumption ...

So when one is concerned with a building contract one starts with the presumption that each party is to be entitled to all those remedies for its breach as would arise by operation of law, including the remedy of setting up a breach of warranty in diminution or extinction of the price of material supplied or work executed under the contract. To rebut that presumption one must be able to find in the contract clear unequivocal words in which the parties have expressed their agreement that this remedy shall not be available in respect of breaches of that particular contract (717 - 718).

47 In the present case, I am unable to find in the Contract any clear words expressing an intention that the respondents are not to be entitled to claim unliquidated damages for delay. I do not regard cl 11.9 as constituting clear words to that effect. Clause 11.9 in its terms simply provides that no amount shall be payable by the appellant by way of liquidated damages.

48 I do not accept the appellant's argument that no purpose would be served by cl 11.9 if it was not intended to exclude any right in the respondents to unliquidated damages. While it is the case that liquidated damages and unliquidated damages for delay are simply different forms of the same head of damage - the former, a binding pre-estimate of the damage and the latter, the actual damages that are proved - there is an important and clear distinction between the two forms in which the damages may be recovered.

49 A liquidated damages provision in a contract relieves the owner of the obligation of proving actual damage caused by the delay and permits a relatively simple claim for the agreed amount. In the absence of such a provision, in the event of delay the owner will be left with a potentially costly and time-consuming remedy in unliquidated damages, a remedy that in many circumstances, particularly in respect of a contract for the construction of a house, it may not be practical or worthwhile to pursue.

50 The insertion of 'NIL DOLLARS ($00.00)' in cl 11.9 in the Contract does not, therefore, necessarily evince an intention that the respondents are to have no remedy in damages in the event of delay. It is consistent with an intention to make it clear that the provision in the standard form contract allowing for liquidated damages is to have no effect and that the respondents are to be left with the burden of proving such damage as they may be able to establish.

51 I do not consider there is any inconsistency between the terms of cl 11.9 and a right in the respondents to claim unliquidated damages for delay. The position may well be different where a contract provides for the liability of the builder for liquidated damages in a positive amount, it being unlikely that the parties would have intended that the proprietor should have the benefit of both liquidated and unliquidated damages for the same delay. But that is not this case. In this case, the effect of cl 11.9 is that the appellant is not liable to pay any amount by way of liquidated damages.

52 It does not seem to me that any significant weight can be placed on what were described by senior counsel for the appellant in argument as the 'mandatory terms' of cl 11.9. In the present case, to say that the appellant 'shall be liable to pay ... liquidated damages at the rate of NIL DOLLARS ($00.00)' is to say no more than that the appellant shall not be liable to pay any amount by way of liquidated damages, albeit to say it in a somewhat clumsy fashion. Indeed, there is, with respect, an artificiality about talking of a mandatory liability to pay nothing.

53 In addition, cl 11.9 must be considered in the light of cl 11.3, which provides, in effect, that where the appellant has incurred any cost by reason of delays caused by the respondents, the appellant is entitled to vary the contract price by adding that cost to the contract price payable at practical completion. That is, on the appellant's case, while the appellant is entitled to recover any extra costs it incurs by reason of the respondents' delay, the respondents are precluded by cl 11.9 from claiming any loss they incur by reason of the appellant's delay. On the appellant's case, the only remedy available to the respondents in the event of delay by the appellant is the right to terminate the Contract under cl 13.4 and then only if the delay reaches the point where it causes the appellant to substantially breach the Contract.

54 While the parties to a contract are, of course, free to agree that one party is entitled to recover damage resulting from delay caused by the other party, but that the latter is not entitled to recover damage resulting from delay caused by the former, in the present case it is not evident why the respondents should be taken to have agreed to such an unequal arrangement.

55 There is also some force in the respondents' submission that the interpretation of cl 11.9 contended for by the appellant is not easy to reconcile with a fair reading of cl 11.2. The appellant contends that the object of excluding the appellant from any responsibility for delays outside its control, pursuant to cl 11.2, is simply to define the circumstances in which the respondents would be entitled to terminate the Contract under cl 13.4 for a substantial breach of the Contract by the appellant constituted by delay.

56 But it is the case, as submitted by the respondents, that if cl 11.2 is directed simply to the circumstances in which the respondents may terminate the Contract for delay by the appellant under cl 13.4 then the provisions of cl 11.2 would not have a great deal of work to do. When read in its context, cl 11.2 is more consistent with a recognition of the existence of a right in the respondents to claim unliquidated damages for delay.

57 Similarly, cl 4.4 - which expressly releases the appellant from any liability for loss or damage suffered by the respondents in respect of the imposition of tax as a result of delay in the performance of the work - appears to be consistent with the existence of a right in the respondents to claim damages for delay in the absence of such an express exclusion.

58 I do not accept the contention contained in ground 2(d) of the grounds of appeal that cl 15.2 of the Contract is consistent with an intention to confine the rights of the parties in the event of default to the rights expressed in the Contract. Clause 15.2 is concerned simply with the liability of a party who terminates the Contract on grounds other than certain grounds permitted under the Contract. It does not in its terms extend beyond the issue of termination and I am unable to see any basis upon which it could reasonably be read as reflecting the intention for which the appellant contends.

59 It is unnecessary to consider the issue of the application of the contra proferentem rule. As I read her Honour's reasons it was not essential to her decision, and it has no part to play in the conclusion which I have reached.

60 In my view, on the proper construction of the Contract, cl 11.9 does not exclude the respondents' right to claim unliquidated damages by reason of a breach of the Contract by the appellant in failing to reach practical completion by the due date. I do not consider that the primary judge was in error in so concluding.

61 The effect of inserting 'nil' or words to similar effect in a liquidated damages clause has been the subject of differing opinions in previous cases and the preliminary question was one of importance to the parties. I would therefore grant leave to appeal, but I would dismiss the appeal.

Sale of Goods Act 1893

Australian Broadcasting Commission v Australasian Performing Right Association Ltd

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (97 paragraphs)

J-CORP PTY LTD -v- MLADENIS [2009] WASCA 157 (28 August 2009)

Parties

Legislation Cited (2)

Cases Cited (5)