Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : LANDTEC PROJECTS CORPORATION PTY LTD -v- SPIERS EARTHWORKS PTY LTD [2010] WADC 74

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : LANDTEC PROJECTS CORPORATION PTY LTD -v- SPIERS EARTHWORKS PTY LTD [2010] WADC 74 (S)

Contract - Penalty - Liquidated damages clause - Property development - Agreement to complete works by specified date - Work not completed by specified date - Whether liquidated damages clause a penalty or genuine pre­estimate of loss

Building contract - AS2124­1986 - Extension of time clause - Prevention principle - Whether time 'at large' - Estoppel - Waiver - Variations - Contract - Objective intention of parties - Interest on unpaid payment certificates

Town Planning & Development Act 1928 (WA) (repealed)

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

Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570

Ange v First East Auction Holdings Pty Ltd [2011] VSCA 335

Bridge Pump Co Pty Ltd v Myles Southwest Fuel Supplies Pty Ltd (Unreported, WASCA, Library No 970636, 22 October 1997)

Bysouth v Shire of Blackburn and Mitcham (No 2) [1928] VicLawRp 81; [1928] VLR 562

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1

Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1; [1915] AC 79

Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471

Esanda Finance Corporation Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131

Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89

Gaymark Investments Pty Ltd v Walter Construction Group Ltd [1999] NTSC 143

IAC (Leasing) Ltd v Humphrey [1972] HCA 1; (1972) 126 CLR 131

Kane Constructions Pty Ltd v Sopov [2005] VSC 237; (2006) 22 BCL 92

Landtec Projects Corporation Pty Ltd v Spiers Earthworks Pty Ltd [2010] WADC 74 (S)

Lax v Glenmore Pty Ltd (1969) 90 WN (NSW) 703

MacMahon Construction Pty Ltd v Crestwood Estates [1971] WAR 162

Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504

O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359

Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255

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

Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111

Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211; (2002) 18 BCL 322

Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 1297; (2003) 203 ALR 281

Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656

Robophone Facilities Ltd v Blank (1966) 1 WLR 1428

Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596

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

Turner Corporation Ltd (in liq) v Co-ordinated Industries Pty Ltd (1995) 11 BCL 202

Turner Corporation Ltd (Receiver & Manager Appointed) v Austotel Pty Ltd (1997) 13 BCL 378

Turner Corporation Ltd v Co-ordinated Industries Pty Ltd [1995] NSWCA 476

Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45

Williamson v Murdoch (1912) 14 WALR 54

Zachariadis v Allforks Australia Pty Ltd [2009] VSCA 258

1 McLURE P: I agree with Murphy JA on grounds 6, 7, 8, 9, 11, 12, 13, 14, 15 and 16 of the appeal and the cross-appeal, for the reasons he gives. I disagree with Murphy JA on grounds 1 and 2 of the appeal. I have concluded that the liquidated damages clause is a penalty. I also address grounds 3, 4 and 5 because my understanding of their intended scope differs from that of Murphy JA.

2 Significant time and effort was required by this court simply in order to identify and understand the real issues lurking in the grounds of appeal. That task was made infinitely harder because of the failure of counsel to make their submissions within an appropriate factual and analytical framework. It was left to the court to fill in the large gaps between the material relied on by counsel and that required to determine the issues in the appeal. Natural justice then required that the parties be given an opportunity to make submissions on relevant issues identified by the court (post hearing submissions). That has occurred.

Whether the liquidated damages clause is a penalty (grounds 1 and 2)

3 The respondent was the developer of a parcel of land known as lots 188, 189 and 222 Curtis Lane, Pinjarra (the Land). The Land is in the Shire of Murray (the Shire). The 1.2 km eastern boundary of the Land was an unsealed road called 'Curtis Lane'.

4 The respondent (the developer) had conditional approval from the Western Australian Planning Commission (the Commission) and the Shire in relation to the subdivision of the Land. The Commission gave its conditional approval in a letter dated 21 June 2004. The Shire gave its conditional approval in letters dated 3 and 24 December 2004.

5 By a contract in writing dated 21 February 2005 between the appellant (the contractor) and the developer, the appellant agreed to carry out works on the Land being earth works, drainage, road works and a bridle path (the Works) in accordance with contractual drawings, specifications and a bill of quantities (the first contract). The Works included the construction and sealing of 313 m of Curtis Lane at the southern end of the Land (adjacent to proposed lots 99 and 189 of the approved plan, exhibit 3).

6 Clause 35.2 of the General Conditions (AS 2124 - 1986) of the first contract imposed an obligation on the contractor to execute the work under the contract to practical completion by the date for practical completion specified in an annexure to the General Conditions. The time for practical completion was 10 weeks which, in the absence of extensions of time, expired on 10 May 2005. There is an unchallenged finding that practical completion was reached on 26 July 2005.

7 Clause 35.6 of the General Conditions of the first contract is headed 'Liquidated Damages for Delay in Reaching Practical Completion'. It relevantly provides:

If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor shall be indebted to the [developer] 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.

8 The Annexure specifies liquidated damages of '$13,846 per week or part thereof'. The developer claimed liquidated damages for the whole of the period from 10 May to 26 July 2005. The contractor claimed the liquidated damages clause imposed a penalty.

9 The relevant factual background is as follows. The subdivision of the Land was to take place in stages. The subdivision approved by the Commission related to at least 59 proposed lots. The trial was conducted by the developer on the unchallenged basis that the subdivision approved by the Shire related to 32 lots which were to be developed in the first stage (referred to as Stage 1A) of a two stage subdivision of the Land. The contractor in its post hearing submissions sought, for the first time, to contend that Stage 1A related to 24 lots. It is far too late for that. The 313 m of Curtis Lane the subject of first contract related to the 32 lots of stage 1A.

10 The construction and sealing of Curtis Lane was the subject of conditions imposed by both the Commission and the Shire. Conditions 4 and 6 imposed by the Commission provided:

1. Those lots not fronting an existing road being provided with frontage to a constructed subdivisional road connected by a constructed subdivisional road(s) to the local road system and such subdivisional road(s) being constructed and drained at the subdivider's cost. As an alternative, the Western Australian Planning Commission is prepared to accept the subdivider paying to the Local Government the cost of such works as estimated by the Local Government subject to the Local Government giving an assurance to the Commission that the works will be completed within a reasonable period acceptable to the Commission.

1. Satisfactory arrangements being made with the Western Australian Planning Commission for the upgrading of Curtis Lane.

11 It was common cause that Curtis Lane was to be a 'constructed subdivisional road' for the purposes of condition 4. Curtis Lane continued beyond, and to the north of, the Land where it was to be sealed pursuant to a subdivision of other land.

12 Of greater significance is condition 25 imposed by the Shire (condition 25). It was in the following terms:

1. The full construction of Curtis Lane is to be undertaken in the first stage of development being 'Stage 1A' to enable a sealed road to extend to the development.

13 It was common cause that condition 25 required the sealing of the whole length of Curtis Lane adjacent to the Land, a distance of 1.2km. This was confirmed in the Shire letter of 24 December 2004:

1. It is understood that the construction and sealing of Curtis Lane is required adjacent to the development. In addition should these works not link to an existing seal[ed] road then additional roadworks need to be undertaken. This condition can be assessed throughout the construction of the development should the status not change then extending the seal to an existing sealed road will be required.

14 As at the date of entry into the first contract, the developer had taken no steps for, or towards, securing the construction and sealing of the balance (887 m) of Curtis Lane by anyone.

15 In late June 2005, the respondent's agent Mr A Wilkie wrote to the Shire seeking the 'bonding' of Curtis Lane, a security mechanism whereby the performance of condition 25 would be deferred without delaying Shire clearance of Stage 1A of the subdivision. The author of the letters of approval from the Shire, its Manager of Designs and Asset Services, Mr A Smith, was called as a witness by the contractor. He had delegated authority from the Shire to make decisions on the issue of bonding the construction of the balance of Curtis Lane (ts 695). Because of its size, the Shire was reluctant to bond and did so only in extreme circumstances (ts 696). Mr Smith gave evidence that he was not aware of any request by the developer to modify condition 25 prior to late June 2005. It was not put to Mr Smith (or Mr Wilkie who was also called by the contractor) on behalf of the developer that bonding in relation to condition 25 had been discussed with the Shire before entry into the first contract.

16 During July and early August 2005, the Shire's position in relation to the June request was that it would not give the clearances required for the subdivision of the 32 lots to proceed until the condition relating to the sealing of the whole 1.2 km of Curtis Lane had been met. The developer then negotiated a compromise with the Shire whereby the Shire would 'clear [the] subdivision and issue certificates' provided the developer entered into a binding contract for the construction of Curtis Lane adjacent to the Land and gave a 'bond' as security for the cost of its construction. The unequivocal implication in the parties' conduct of, and the evidence at, the trial is that a Shire clearance certificate was required before settlement of the sales of the subdivided lots could occur.

17 Notwithstanding that practical completion of the first contract was agreed to have occurred on 26 July 2005, the sealing of the 313 m of Curtis Lane had not been done. The developer told the Shire that was due in part to rain in May and June 2005.

18 By contract dated 11 September 2005 between the contractor and the developer, the contractor agreed to construct and seal Curtis Lane (the second contract).

19 The appellant's primary claim was that the liquidated damages clause imposed a penalty because any delay in achieving practical completion of the first contract was incapable of having any relevant adverse financial consequences for the developer because of condition 25. It also relied on two other grounds, being the respondent's failure to make any allowance for the potential for delays in subdivision work being undertaken on the Land contemporaneously by another subcontractor and the fact that the calculation was based on gross rather than net receipts. Interest on gross receipts is appropriate if the subdivision was debt-funded. There is insufficient evidence to support a finding that cl 35.6 is a penalty on the latter two grounds. However, there is evidence relevant to the primary ground although no expert evidence. The absence of expert evidence is not determinative.

20 The relevant legal principles on contractual penalties are as follows. A contract can stipulate a sum payable by way of damages in the event of its breach provided it is a genuine pre-estimate of the damages to which the innocent party would be entitled under the general law: Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656 [9] - [12] citing with approval Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1; [1915] AC 79, 86 - 87.

21 The question whether a sum stipulated is a penalty or liquidated damages (that is, a genuine pre-estimate) is to be judged as at the time of the making of the contract. It will be a penalty if the sum stipulated for the breach is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach: Dunlop Pneumatic Tyre (87). It is not enough that it should be lacking in proportion; it must be 'out of all proportion': Ringrow [32]. The stipulation will not be a penalty just because it would result in recovery of a sum exceeding the actual loss suffered. The requirement that the stipulated sum be extravagant and unconscionable in amount (that is, out of all proportion) stems from a policy emphasis on freedom of contract: Ringrow [31] - [32].

22 The relevant backdrop to these propositions is that damages for breach of contract are assessed as at the date of the breach when regard can be had to what has actually occurred after the date of entry into the contract. As at the date of entry into the contract, matters relating to potential breach involve a prospective assessment necessarily speculative in nature.

23 The trial judge held that the appellant, as the party resisting the enforcement of the provision, had the onus of proving that cl 35.6 is a penalty, relying on Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504, 527. There is no challenge to the correctness of that proposition. Moreover, Cole J in Multiplex held that evidence of negotiations between contractual parties leading to the insertion of a 'liquidated damages' clause is relevant and admissible in the determination of whether it is a penalty (507 - 513).

24 If the question whether a contractual provision is a penalty is solely a matter of contractual construction, the law is that stated by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337. Mason J said in Codelfa that evidence of surrounding circumstances is not admissible to contradict the language of a contract when it has a plain meaning (352). The High Court has now said that no subsequent High Court decision provides any reasonable basis for concluding that it had shifted from that position: Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45.

25 The parties did not conduct the trial on the basis that the question whether a contractual provision is a penalty is solely a matter of contractual construction. That must be correct in principle. It is impossible to identify solely from the text of the first contract (1) the basis for the calculation of the stipulated weekly sum or (2) the relevant factual background required to make an objective and informed assessment of whether the stipulated sum is a genuine pre-estimate of the damage which could potentially flow to the developer from a delay in practical completion.

26 If, as I have concluded, the characterisation of a term as either a genuine pre-estimate of damage or a penalty is not solely a matter of construction, the construction rules relating to the admissibility of extrinsic evidence of surrounding circumstances (those within the actual or constructive knowledge of the parties) do not apply. There is support for that view in Zachariadis v Allforks Australia Pty Ltd [2009] VSCA 258 [146] - [150].

27 The next question is whether relevant matters relating to the nature or extent of the potential loss, including intention, have to be proven objectively. Where the intention of a party at the time of the contract is capable of affecting the nature or extent of its loss, I see no reason in principle why evidence to prove its subjective intention should be inadmissible. In particular, the developer's intentions as at the date of entry into the first contract on matters over which it had control in relation to the conduct of the proposed subdivision should be admissible. The objective potential for financial loss to the developer from delay depends on facts and matters peculiar to it, whether or not communicated to the other side in contractual negotiations.

28 I turn now to the trial judge's findings. Mr Anthony Palermo, a director of the developer, gave evidence as to the basis for the selection of $13,846 per week as the liquidated damages sum. It is implicit in the trial judge's reasons that she accepted his evidence. He was asked in examination-in-chief to explain the formula for the calculation. He said:

The formula was based on the sale of the 32 lots by the bank percentage rate that was being charged around that time. Multiplied - carried through to the 52 weeks, divided by 52 and brought back to weekly rate (ts 55).

All right. And how did you - or what sum did you allocate, or did you allocate a sum as the selling price of the lots---Yes, I did. Around 225, 250,000.

And where did you derive that figure from---That was based on market evidence at the time, and based on the fact that we were hoping to achieve much more than other lots were selling around us, because we were the only ones with reticulated water (ts 55).

30 In cross-examination Mr Palermo confirmed the correctness of the formula pleaded by the developer (ts 107 - 108). In its Reply to the appellant's Defence to Setoff and Counterclaim, the developer pleaded:

1. ... [T]he plaintiff says the rate of $13,846 per week for liquidated damages was a genuine pre-estimate of loss based on calculations prepared by Wilkie, and Anthony Palermo on behalf of the plaintiff as follows:

6.1 32 lots at an average expected selling price of $225,000 per lot equals $7,200,000 (total expected revenue) x 10% interest ÷ 52 weeks = $13,846; or alternatively

6.2 32 lots at an average expected selling price of $250,000 per lot = $8 million x 9% interest ÷ 52 weeks = $13,846.

31 The trial judge found that the developer intended to, and did, sell some of the proposed 32 lots off the plan prior to the issue of certificates of title and that the bonding had no impact on the developer's ability to sell lots off the plan [110]. She observed that '[n]o evidence was led by the [contractor] that the liquidated damages sum was unreasonable or that it was not in accordance with the usual construction contractual practices' and that there was no evidence as to whether or not the contractor had 'factored the liquidated damages sum into its tender price' [114]. The trial judge made the following further findings:

I find that the evidence is consistent with the [developer] setting the liquidated damages sum at a percentage of 100% of the sale of lots because the [developer] intended to offer the lots for sale as soon as practicable. There is no evidence before me to indicate that a commitment for sale required the issuing of certificates of title. The [developer's] desire to complete the first contract was a decision made on economic grounds. The [contractor's] tender for the work to be performed was made by a man experienced in the tender process who should have factored the liquidated damages sum into the overall tender price.

Although the sum of $13,896.60 per week is a high sum it is not an extravagant nor an unconscionable amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach of the first contract being delayed sales on the lots that were valued at $225,000 or more each. I am not satisfied that the [contractor] has proved that the liquidated damages sum is a penalty clause [116] - [117].

32 The appellant's primary contention is that in the circumstances as they existed at the time of entry into the first contract, the formula bears no relationship to the relevant breach, being the failure to complete the first contract on time. The nominated weekly sum is intended to compensate the developer for the loss that would be suffered from delay in receipt of the sale proceeds at settlement of the sale of the proposed lots. The trial judge confined her attention to the entry into sale contracts. In the circumstances of this case where the timing of settlement is dependent on the issue of a Shire clearance certificate (and certificates of title) the focus should be on the receipt of the proceeds of sale.

33 The appellant contends that the delay in the performance of the first contract did not and could not affect the critical path in the timing of receipt of the proceeds of sale of the lots. I understand the argument to be that as at the date of entry into the first contract: (1) the critical path was determined by the timing of the respondent's compliance with the conditions of subdivision, in particular condition 25 which required the sealing of the full length of Curtis Lane; (2) the respondent had not taken the necessary steps towards achieving timely compliance with condition 25.

34 The conduct of the respondent before and after entry into the first contract detailed above ([9] - [18]) supports an inference that as at the date of the first contract, it had no intention of attempting to achieve compliance with or a deferral of condition 25 before the completion of Stage 1A under the first contract.

35 That inference from the objective circumstances is borne out by Mr Palermo's evidence on the subject. Mr Palermo was asked in examination-in-chief about the genesis of the second contract:

Now, just - Mr Palermo, as succinctly as you can put it, why was Curtis Lane extended, the constructed portion---You are referring to the Curtis Lane contract?

I am. How did that work come about---We were going to do stage 1 and stage 2, and stage 2 following stage 1, and we then decided to defer stage 2 until further lots were sold, and we were looking at the market conditions and the possible change in the market conditions. So we approached the Shire to say, 'Look, we will do the rest of Curtis Lane when we do stage 2'. Alan Smith, the Shire engineer, then conveyed back to us that, in fact, they wanted a sealed road to another sealed road. So basically, he said, 'If you don't do all of Curtis Lane, we will not give you clearances' (ts 61 - 62).

36 Referring to condition 25, Mr Palermo was asked in cross-examination:

And you were aware of that requirement right from the start of the development?---It was a condition from the Shire of Murray. But during that time, Mr Wilkie was negotiating to construct the Curtis Lane contract, which was the second contract, at a later stage when stage 2 was going to be constructed (ts 187).

37 The part of Curtis Lane the subject of the first contract was marked in blue on exhibit 3. The balance of Curtis Lane was marked in pink on exhibit 3. Mr Palermo gave the following evidence in re-examination:

Now, you were asked yesterday about the obligation to build Curtis Lane for the entire length of the plan, which has been tendered as exhibit 3. Do you remember those questions---Yes.

Do you remember what you said to the effect - my recollection is you said - your understanding was, you would have to build Curtis Lane from the commencement of the subdivision in the south, the blue portion and the pink---Yes.

Correct. Thank you. Can you tell her Honour what proposals, or if you had any plans for completion of those roadworks as at 21 February 2005, when the contract with Mr Spiers was made---No, there were no plans.

...

Did you have any intention of building the pink section of Curtis Lane as at 21 February 2005---It's not a question of intention, Mr Metaxas, it's a question that I had to build it at some stage.

Yes. And what was your understanding of the requirement in order to achieve the sale of lots within the subdivision. Was the completion of the entire construction of Curtis Lane necessary---My understanding at the time was that it wasn't, and we had intended to do the pink section of Curtis Lane with stage two.

Why did you think it was not necessary---In negotiations we were having with the Shire at the time.

From what was the - just can you expand that---Yes. My concern was that if we constructed all of Curtis Lane at that stage, that - and I'm not a road builder - my concern was that perhaps the road might get damaged and it wouldn't - it made more sense to me, as a non-road expert, to actually build that part in front of stage two, when we did stage two, which was only - it was a timing issue, because it would have been possibly four to five months difference in time between stage one and stage two (ts 301 - 302).

38 As at the date of entry into the first contract, the developer intended to construct the balance of Curtis Lane during Stage 2 which had been deferred. Mr Palermo does not identify the source or basis of his understanding on bonding. It is not supported by the evidence of Mr Smith. Any misunderstanding by Mr Palermo as at the date of entry into the contract as to the Shire's position on condition 25 cannot prevent a finding that cl 35.6 is a penalty.

39 The evidence established that at the time of entry into the first contract, the Shire required the full length of Curtis Lane adjacent to the Land to be constructed and sealed. The obligation was shown to be critical to the timing of the receipt of revenue from the sale of the 32 lots the subject of Stage 1A of the subdivision. Moreover, at the time of entry into the first contract, there were no contracts or arrangements in existence or contemplation to address or defer the satisfaction of condition 25, upon which the receipt of sale proceeds depended, prior to the date of practical completion of the first contract.

40 Against that background, the liquidated damages clause cannot be characterised as a genuine pre-estimate of the damages to which the developer would be entitled under the general law. Delay in performance of the first contract was incapable of causing any relevant financial loss to the developer until condition 25 was satisfied or its performance deferred (or waived) by the Shire. Thus, the sum stipulated is extravagant in amount in comparison with the greatest loss that could potentially be suffered by delay in practical completion under the first contract. I would uphold grounds 1 and 2.

Grounds 3, 4 and 5 - The prevention principle

41 In view of my conclusion on grounds 1 and 2, it is not strictly necessary to address these grounds. I do so because my understanding of their intended scope differs from that of Murphy JA.

42 The appellant's counsel informed the court at the hearing of the appeal that these grounds are all intended to activate what is known in construction law circles as 'the prevention principle'.

43 The appellant did not plead that it was entitled to an extension of time under cl 35.5 of the General Conditions (the terms of which are set out in the reasons of Murphy JA). The appellant pleaded that it was prevented from reaching practical completion within the 10 weeks for a variety of reasons, including (by implication) acts or omissions of the respondent for which it was contractually responsible (including failure to supply sufficient or suitable material; rectification of work undertaken with unsuitable material; additional works undertaken at the request, or on behalf, of the respondent; and design changes made by the respondent), inclement weather and latent conditions (unexpected clay). It appears to have been accepted by all parties that the extension of time clause potentially applied to all the categories of events relied on by the appellant as causing the delay in practical completion.

44 The respondent pleaded in response that the appellant was not entitled to an extension of time because it failed to give notice in breach of the requirements in cl 35.5. The appellant's rejoinder was that by reason of the respondent's requests to perform additional work and the failure of the superintendent and respondent to respond to the appellant's written requests for an extension of time, the respondent was estopped from relying on the notice requirement and from claiming liquidated damages.

45 The trial judge found at [95] that the respondent was estopped from relying on the notice requirements in cl 35.5 in relation to 42 days, being a combination of delays caused by additional work and rain, and that the date of completion of the first contract should be extended by 42 days to 17 June 2005. The appellant's position in the appeal was that the trial judge gave it something which it had not sought, namely an extension of time.

46 Little attention was given by either party at trial or in the appeal to the scope, effect and policy rationale of the prevention principle. There are three issues. They are first, whether the prevention principle applies to delays caused by: (1) breaches of contract by the principal, its servants, agents or other contractors (the principal); (2) acts or omissions of the principal that are not in breach of contract; and/or (3) other matters over which the principal (and contractor) have no control (including weather, latent conditions and even industrial action). Secondly, what is the consequence if only part of the delay in practical completion falls within the prevention principle. Thirdly, is the prevention principle excluded in whole or in part by cl 35.5 of the General Conditions.

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] HCA 51; (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.

50 The central issue in this case is whether cl 35.5 of the General Conditions is effective to exclude the application of the prevention principle and the consequential loss of the right to any liquidated damages. The appellant's argument is broadly foreshadowed in Hudson's Building and Engineering Contracts:

A quite new prevention argument ... is that while a sufficiently clear ground of extension standing by itself will defeat a prevention-based attack on the liquidated damages machinery, rejection of a contractor's claim for an extension on the ground of failure to give the required notice should in some way serve to resurrect the prevention principle. In other words, an argument that if the procedures constitute a condition precedent to an extension of time claim, failure to satisfy the condition would make it impossible for an extension of time to be granted, thereby re-engaging the prevention principle and jeopardising the liquidated damages provision. In the case of Australian standard forms, this argument has been refined still further as applying only to those forms where there is no express dispensing power conferred on the Contract Administrator [6-031].

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.

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.

53 There is a conflict of authority in Australia as to the consequence of a principal relying on a contractor's failure to comply with the notice requirements as a ground for rejecting the contractor's claim for an extension of time. In New South Wales it has been held that the prevention principle does not apply where the contractor failed to satisfy a condition enlivening its contractual right to an extension of time: Turner Corporation Ltd v (in liq) Co-ordinated Industries Pty Ltd (1995) 11 BCL 202 (Rolfe J), upheld on appeal (Turner Corporation Ltd v Co-ordinated Industries Pty Ltd [1995] NSWCA 476); Turner Corporation Ltd (Receiver & Manager Appointed) v Austotel Pty Ltd (1997) 13 BCL 378, 384 - 385 (Cole J).

54 A contrary conclusion was reached by Bailey J in Gaymark Investments Pty Ltd v Walter Construction Group Ltd [1999] NTSC 143. He concluded that the prevention principle applied in the event of a contractor's loss of entitlement to an extension of time because of a failure to give the required notice unless the liquidated damages clause gives the superintendent a discretionary power to extend time.

55 The New South Wales Court of Appeal in Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211 upheld the correctness of the Turner Corporation cases. In Peninsula Balmain, the contractor had not sought or been granted extensions of time for a period prior to the principal terminating the building contract. However, a referee appointed by a judge pursuant to the New South Wales Supreme Court rules exercised the discretionary power of the superintendent to grant an extension of time. The building contract included the General Conditions of Contract AS 2124 - 1992, cl 35.5 of which is in materially the same terms as its equivalent in the first contract. The New South Wales Court of Appeal held that, even without the superintendent having the power to extend time, a contractor's failure to make a claim within time precludes an extension of time and the contractor remains liable for liquidated damages, even if the delay had been caused by events otherwise falling within the prevention principle [78].

56 Further, the court concluded that the superintendent's power, and the power of the referee in his stead, to extend time in the absence of written notice is capable of being exercised in the interests of both the principal and the contractor, and the superintendent is obliged to act honestly and impartially in deciding whether to exercise that power [79]. I understand the proposition to be that, by reason of the superintendent's obligation to act fairly and impartially, he or she is under a duty to consider the exercise of the power to extend time (absent an entitlement), at least upon a request from the contractor to do so.

57 This court is obliged to follow Peninsula Balmain unless convinced it is clearly wrong: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [135]. Neither party expressly challenged the correctness of the decision. It has been followed in Victoria: 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2006] VSC 491. I have reservations as to the correctness of the conclusion that anyone other than the superintendent can grant an extension of time under cl 35.5 of the General Conditions. However, it is unnecessary to determine the question because there is another route which has the same practical effect.

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. 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;
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.

64 NEWNES JA: I agree with McLure P in relation to grounds 1 to 5 of the appeal. I agree with Murphy JA in relation to grounds 6, 7, 8, 9, 11, 12, 13, 14, 15 and 16 of the appeal and in relation to the cross-appeal.

65 By a written contract dated 21 February 2005, the respondent (the developer) engaged the appellant (the contractor) to carry out certain earthworks, drainage, road works and a bridle path for the purposes of a land subdivision in Pinjarra. The primary judge described this as the 'first contract'. The first contract incorporated the general conditions of Australian Standard 2124-1986, as amended by part B of the first contract. The first contract involved, amongst other things, the construction of certain roads including James Eden Drive, and the sealing of 313 m of a road called Curtis Lane (reasons [9]).

66 The contractor commenced work on site under the first contract on 24 February 2005, and reached practical completion on 26 July 2005.

67 By a second contract, dated 11 September 2005, the contractor agreed to complete the construction and sealing of Curtis Lane. The total length of Curtis Lane was 1,200 m (reasons [104], [180]).

68 There were a number of disputes between the parties in relation to the performance of the first and second contracts. It appears from the pleadings in the court below, and from a consideration of the judge's reasons, that the issues were ill-defined and that the amorphous nature of the disputes, particularly in relation to the contractor's claims, made the judge's task a difficult one. There has been no appreciable advance in clarity in the formulation and presentation of this appeal.

70 The developer had filed a notice of contention, but this was abandoned at the hearing of the appeal.

71 In relation to the cross-appeal, the first two grounds were conceded by the contractor. Ground 3 was abandoned by the developer. Ground 4 depends upon, in effect, the flow of moneys which itself depends upon the resolution of all the other issues in the appeal.

72 All the grounds of appeal are lengthy and are accompanied by particulars which frequently have no clear connection with the ground. Where they are difficult meaningfully to paraphrase, I will set them out in terms and address each 'particular' separately.

Grounds 1 and 2 Background and grounds of appeal

73 Grounds 1 and 2 challenge the judge's finding that the liquidated damages clause was not a penalty.

74 The liquidated damages clause (cl 35.6) of the first contract provided, in effect, that if the contractor failed to reach practical completion by the contractually agreed date, 6 May 2005, it would pay to the developer by way of liquidated damages for the sum of $13,846 for each week of delay, or part thereof (reasons [10]).

1. The learned Judge erred in fact in finding that no evidence was led by the [contractor] that the liquidated damages sum claimed under the first contract was unreasonable or that it was not in accordance with usual construction contractual practices (paragraph 114) when the [contractor] led evidence that:

(a) it was a condition of subdivisional approval that the [developer] construct the full length of Curtis Lane;

(b) the [developer] did not enter into a contract to construct the full length of Curtis Lane until 11 September 2005, which was well after the parties entered into the first contract on 21 February 2005 and actual practical completion of the first contract on 26 July 2005;

(c) the Superintendent nominated an amount of $1,874.00 per week for liquidated damages, which was approximately 13.5% of the amount claimed;

(d) the Superintendent did not respond to the [contractor's] requests for extension of time and did not grant any extensions of time pursuant to the [contractor's] requests;

so that the [developer] did not suffer any loss of income on sales as at 26 July 2005, i.e. liquidated damages, and the amount claimed was unreasonable or not in accordance with usual construction contractual practices.

76 It is convenient, at this point, to outline the evidentiary context within which the contractor's arguments were framed.

77 The Western Australian Planning Commission (WAPC) had, by its letter dated 21 June 2004, granted conditional approval to the developer's plan for the subdivision of approximately 60 lots. The letter provided that all conditions were required to be complied with before submission of the survey documents for approval. In this context, it is to be noted that certificates of title could not be issued for the lots until the WAPC had, in effect, endorsed with its approval the relevant survey documents: s 20(2) of the Town Planning and Development Act 1928 (WA).

78 Condition 4 of the WAPC approval contained, in effect, two provisions. The first was that that the developer was required, relevantly, to construct the whole of the road in Curtis Lane. As an alternative to this, condition 4 also provided that 'the [WAPC] is prepared to accept the [developer] paying to the Local Government the cost of such works as estimated by the Local Government subject to the Local Government giving an assurance to the [WAPC] that the works will be completed within a reasonable time acceptable to the [WAPC]'. I will call this second part of condition 4 the 'alternative planning proviso'. The satisfaction of the alternative planning proviso was described in the trial and in the appeal as a process of the developer 'bonding' the construction of relevant roads such as Curtis Lane.

79 It follows from this that, insofar as the WAPC approval concerned the construction of the road at Curtis Lane, there would be no impediment to the approval of the survey documents if the work were bonded in accordance with the alternative planning proviso in condition 4, and hence there would be no impediment in that regard, to the issue of certificates of title.

80 By letter dated 3 December 2004, the Shire of Murray notified the developer that the developer's drawings and specifications for the work in part of the subdivision designated as 'stage 1A' had been accepted on certain conditions. Stage 1A related to an area covering 32 lots. (Although the contractor, in supplementary submissions, disputed the finding that 32 lots were involved, the grounds of appeal did not allege an error of fact in that regard and I am not persuaded that there is any error in any event.)

81 The shire's acceptance of the plans for the development of stage 1A included a condition (cl 25) that the full construction of Curtis Lane be undertaken in stage 1A. The shire, in effect, confirmed this condition by its letter to the developer dated 24 December 2004.

82 On 21 February 2005, the developer entered into the 'first contract' with the contractor. The contract was for the provision of earthworks, drainage, road works and a bridle path for the area within the proposed subdivision designated '1A', covering 32 lots. It included the construction of a portion of Curtis Lane covering a length of 313 sq m, adjacent to two lots, designated as lot 99 and lot 189. The first contract did not include the construction of the whole of Curtis Lane along the length of the subdivision. The first contract required the contractor to achieve practical completion by 6 May 2005. Practical completion was not achieved until 26 July 2005.

83 By mid-2005, as the delayed works under the first contract were drawing to a conclusion, the developer was anxious to obtain clearances of the conditions imposed by the WAPC in order to facilitate the issue of certificates of title and the settlement of the sale of lots in the subdivision. By 19 July 2005, a week before the eventual practical completion of the first contract, the shire had agreed in principle to the developer bonding the construction of Curtis Lane, subject to certain terms. The terms were settled by 5 August 2005 and the shire agreed, in effect, that it would treat condition 25 of its letter dated 3 December 2004 as satisfied if the developer entered into a contract to complete Curtis Lane and paid a bond. The evident purpose was to enable the developer to obtain clearance of the WAPC conditions and to facilitate the issue of certificates of title.

84 The developer, in accordance with the arrangement, subsequently entered into the second contract with the contractor and paid a bond to the shire.

85 For the purposes of this appeal, the contractor accepted that it is to be inferred that the contractor (and the developer) knew as at 21 February 2005 that the lots the subject of the proposed subdivision could not be sold until the conditions for subdivisional approval had been satisfied. Similarly, it is to be inferred that as at 21 February 2005, the contractor knew that the developer required the first contract to be completed on time to facilitate the sale of the lots.

86 The party who seeks to resist the enforcement of the liquidated damages clause has the onus of proving on the balance of probabilities that the clause is a penalty: Bridge Pump Co Pty Ltd v Myles Southwest Fuel Supplies Pty Ltd (Unreported, WASCA, Library No 970636, 22 October 1997); Ange v First East Auction Holdings Pty Ltd [2011] VSCA 335 [131]; Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504, 527; Robophone Facilities Ltd v Blank (1966) 1 WLR 1428, 1447.

87 In the relatively recent case of Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, the High Court proceeded on the basis that Lord Dunedin's classic formulation of the principles on penalties in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1914] UKHL 1; [1915] AC 79 continues to express the law applicable in Australia; Ringrow [11].

88 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: Ringrow [10]. Typically, it involves a comparison of what would be recoverable as unliquidated damages with the sum stipulated as payable on breach: Ringrow [21]. But a mere difference is not enough, let alone a suspicion of a difference. The comparison calls for a degree of disproportion sufficient to point to oppressiveness: Ringrow [21], [27].

89 The doctrine does not involve the notion of assessing whether the liquidated sum is disproportionate to what might be thought to be the innocent party's legitimate commercial interests: Ringrow [27]. The law on penalties is an exception to freedom of contract. That is why it is expressed in exceptional language and why the propounded penalty must be judged 'extravagant and unconscionable in amount': Ringrow [32].

90 The test of whether the sum is a penalty is an objective one: O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359, 400.

91 The issue is a matter of substance rather than of mere form, and depends upon all the surrounding circumstances existing at the time of making the contract, as well as the terms of the contract itself: IAC (Leasing) Ltd v Humphrey [1972] HCA 1; (1972) 126 CLR 131, 143; O'Dea v All States Leasing (373); Esanda Finance Corporation Ltd v Plessnig [1989] HCA 7; (1989) 166 CLR 131, 142; Ringrow Pty Ltd v BP Australia Ltd [2003] FCA 1297; (2003) 203 ALR 281 [99] (Hely J), whose judgment was approved by the High Court in Ringrow v BP Australia at [6] - [8].

92 Thus, the test must be applied in light of all the circumstances as they existed when the contract was made, and not when the breach occurred: Dunlop v New Garage (86 - 87); O'Dea v All States Leasing (368, 399); Lax v Glenmore Pty Ltd (1969) 90 WN (NSW) 703, 705 - 706.

93 In considering the question of whether a provision operates as a penalty, regard may be had to whether the provision stipulates for the payment of a rate over time, so that the total payment increases as the inconvenience caused to the innocent party by the defaulting party increases. In the absence of circumstances indicating to the contrary, a provision of that nature will ordinarily not, prima facie, be a penalty: Williamson v Murdoch (1912) 14 WALR 54, 58; Bysouth v Shire of Blackburn and Mitcham (No 2) [1928] VicLawRp 81; [1928] VLR 562, 575 - 576. For example, in Lax v Glenmore the developer of a subdivision required a road to be built in the subdivision within a stipulated time, and the contract for road works provided for payment of an amount by way of liquidated damages for each week that the contract remained uncompleted after the contractual date for completion. The court held that there was nothing on the face of the terms of the contract to indicate that it was a penalty and that there were no 'proved circumstances' which indicated that the clause operated as a penalty: Lax v Glenmore (706).

94 Evidence was given by the developer at the trial, without objection, as to the basis for the rate stipulated in the liquidated damages clause. The judge referred, with evident approval, to the evidence and, it is to be inferred, found that the sum for liquidated damages was calculated as follows (reasons [105]):

[The developer's] evidence in relation to the setting of the liquidated damages sum is that the sum was calculated on the sale of all 32 lots in the subdivision at $225,000 to $250,000 each being multiplied by the bank interest rate being charged at the time for monies borrowed and divided back to give a weekly rate. ... (emphasis added)

95 The construction that I would put on her Honour's reasons is that she accepted that the developer was incurring holding costs to a bank or financier pending the sale of the lots in the subdivision and that any delay in the receipt of income from the sale of the lots would be expected to correspondingly increase the developer's holding costs on its borrowings. The judge also referred, in her reasons, to the decision of Cole J in Multiplex Constructions Pty Ltd v Abgarus Pty Ltd, where his Honour held, in effect, that holding costs arising from delay could properly be the subject of a liquidated damages clause (517 - 525).

96 The judge also found, in effect (reasons [110], [112] - [114], [116] - [118]), that:

(a) at the time of drafting the liquidated damages clause, the developer intended to sell the lots (ie, enter into contracts for sale of the lots) off the plan, prior to the issue of certificates of title;

(b) the completion of the works on time was important, as it would assist the developer in entering into contracts for the sale of lots by showing prospective purchasers the full amenity of the lots within their surroundings;

(c) the developer intended to sell (ie, enter into contracts for sale and to complete the sale of) the lots as soon as practicable;

(d) the liquidated damages sum was not shown to be 'an extravagant or unconscionable amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach of the first contract being delayed sales of the lots that were valued at $225,000 or more each'; and

(e) the fact, as it transpired, that the property market grew stronger after entering into the first contract, so that ultimately the developer achieved better prices than it originally anticipated, is irrelevant.

97 As I understand it, the findings summarised in (a) to (c) of the preceding paragraph are not challenged in this appeal.

98 In grounds 1(a) and (b) the contractor contends that even with lots being sold off the plan by the developer, any delay in completion of the first contract could not cause any damage to the developer, because any contracts for sale could not have settled anyway until completion of Curtis Lane, and the first contract only involved the completion of a portion of Curtis Lane, namely the first 313 m.

99 Thus, in relation to subpars (a) and (b) of ground 1, the point sought to be made by the contractor is that any delay in the performance of the first contract by the contractor could not possibly have delayed the completion of any sales of the lots because regulatory approval was conditional upon, relevantly, the construction of the whole of Curtis Lane and the first contract only provided for the construction of the first 313 m of Curtis Lane. Counsel for the appellant summarised the argument as follows (appeal ts 40):

[I]t is vital to the appellant's case that the liquidated damages clause is unreasonable or out of all proportion because the argument is that at the time that the first contract was entered into, there could be no possible loss because there could be no possible subdivision approval until the whole of Curtis Lane had been constructed. The first contract only permitted a small portion of Curtis Lane to be constructed. Therefore, it was impossible that any loss would be suffered.

100 At the outset, it should be noted that it is not contended by the contractor that it was unreasonable or implausible to expect that the 32 lots in stage 1A of the proposed subdivision would be the subject of contracts for sale and ready for completion (subject to the issue of certificates of title) by 6 May 2005. Moreover, the submission ignores the existence of the alternative planning proviso. There was evidence from the developer to the effect that there were negotiations with the shire around the time of entry into the first contract, for obtaining approval for the stage 1A works without having to complete the whole of Curtis Lane at that time (ts 187, 301, 302). The contractor did not prove that the developer had no capacity to pay a bond. Nor did it prove that it was unlikely, or even that there was a serious risk, that the developer would not have reached an arrangement to complete the works within a reasonable period satisfactory to the WAPC, or that there were other circumstances which would have prevented the developer from utilising the alternative planning proviso, prior to the agreed date for completion of the works by the contractor under the first contract. Whilst it is true that, as events transpired, the developer did not make arrangements to bond Curtis Lane until mid-2005, as the first contract was drawing towards delayed completion, that fact does not seem to me to be probative of any assessment of the likely course of events judged as at 21 February 2005. Once the delays in the execution of the works under the first contract were apparent, it was presumably premature to attempt to reach a bonding agreement with the shire for the undertaking of the second tranche of work on Curtis Lane, at least until there could be some confidence in the date for the completion of the first tranche of works. Further, it is apparent that once the works under the first contract were actually at or near completion, bonding was readily arranged. The contractor led evidence from a representative of the shire that Curtis Lane was bonded because of the site conditions in winter (ts 697). It has not been shown that as at 21 February 2005, the same consideration would not be expected to have similar force in the event that bonding was sought by early May 2005 on the basis that the works under the first contract were duly completed.

101 Furthermore, even if, judged as at 21 February 2005, it was unlikely that the developer would have secured the bonding of Curtis Lane by 6 May 2005, that fact does not seem to me to conclude the inquiry in favour of the contractor. Even if there were no bonding, it is reasonable to infer that satisfaction of the requirement to complete the construction of the whole length of Curtis Lane would likely be impeded by delays in the completion of the first contract. Judged from the position of 21 February 2005, delays in the completion of the first contract, which included the first 313 m tranche of Curtis Lane, would, practically speaking, be likely to produce a 'knock on' delay in the completion of the balance of the work on Curtis Lane, and thereby result in delays in the settlement of contracts for the sale of proposed lots within the subdivision. The stipulated weekly sum has not been shown to be grossly disproportionate to the amount which was likely to be recoverable in damages by the developer by reason of such resultant delays.

102 For these reasons, in my view, grounds 1(a) and (b) have not been established.

103 As to subpar (c), the proposition that the superintendent 'nominated' an amount of $1,874 per week is not evidence that the liquidated damages sum is a penalty. In giving his evidence, the superintendent was not purporting to express an opinion on what was reasonable or what were usual construction contractual practices. Rather, the judge found his evidence was to the effect that he considered the liquidated damages clause should be 'restricted' because he considered that a high liquidated damages sum in an invitation to tender would only lead to an increase in the prices of the tenders submitted (reasons [105]).

104 As to subpar (d), the matters to which the contractor refers in relation to what subsequently occurred in the performance of the contract, do not assist in establishing that the liquidated damages sum was a penalty having regard to its terms and the circumstances existing at the time the first contract was entered into.

106 In its second ground of appeal, the contractor alleges:

1. The learned Judge erred in law in finding that the sum of $13,896.00 per week was not an extravagant or unconscionable amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach of the first contract, being a delay in completion.

(1) A delay in completion did not delay the receipt of sale proceeds as the [developer] was unable to settle the sales until it had constructed the full length of Curtis Lane as a condition of subdivisional approval, which it did not contract to construct until 11 September 2005 being well after the parties entered into the first contract on 21 February 2005 and actual practical completion on 26 July 2005.

(2) The learned Judge did not properly consider the effect of the requirement for the construction of the whole of Curtis Lane on the [developer's] claim for liquidated damages.

(3) No account was taken of possible delays by the services contractor, Unified Contracting.

(4) No allowance was made for the vagaries of the market at the contractual completion date when fixing the amount of liquidated damages. Although the learned Judge found that there was a rising market (at the time of the sales), this was, according to the learned Judge, an irrelevant issue.

(5) A delay in completion did not prevent sales, as the [developer] intended to sell lots off the plans and had sold more than half of the Lots before the end of 2005. The [developer] did not give discovery in relation to the sales of the Lots, as the calculation of the rate of liquidated damages in paragraph 6 of the Reply was not provided until the last business day before the trial.

(6) The amount claimed for liquidated damages was out of all proportion to the sum which ought to have been paid by reason of any delay.

(7) The Superintendent nominated an amount of $1,874.00 per week for liquidated damages, which was approximately 13.5% of the amount claimed.

(8) The sum of $13,896.00 was based on a loss of interest on the sale proceeds of all lots in the subdivision (i.e. total revenue as opposed to loss of profit) from the contractual date of completion, namely 6 May 2005 without any allowance or reduction for expenses incurred, including development costs and interest paid on monies expended in carrying out the works.

107 As to particulars (1) and (2) of ground 2, they appear, in substance, to be a repetition of ground 1(a) and (b), which I have dealt with above.

108 In relation to particular (3) of ground 2, there is no reason to approach the question of whether the liquidated damages clause is a penalty on the basis that it cannot be regarded as a genuine pre-estimate of loss because of a failure to factor in a possible delay by another contractor. There is nothing to suggest that the parties could not have proceeded on the assumption that other contractors would perform their contractual duties timeously.

109 In relation to particular (4) of ground 2, the relevant finding was expressed by her Honour in these terms (reasons [118]):

I also note that I do not consider the fact that the property market grew stronger so that ultimately better prices were achieved than those originally forecast is relevant to the issue of liquidated damages for late completion.

110 Her Honour's conclusion is correct. The position must be assessed as at the date the contract was entered into and, moreover, the purpose of a liquidated damage clause is to avoid litigation involving complex assessments of damages by agreeing to a pre-estimate. The contractor did not seek to establish the value of the lots as at 21 February 2005 or contend that the estimate of value used for the purpose of calculating liquidated damages was unreasonable. The fact that the developer achieved higher prices than those originally predicted does not itself establish that the clause is a penalty.

111 In relation to particular (5) of ground 2, the judge found that the developer intended to sell lots off the plan. That finding does not point to the liquidated damages clause being a penalty when viewed as at the date of entry into the first contract. Any complaint concerning discovery should have been made to the primary judge. There is no relevant interlocutory ruling on discovery which is the subject of an application for leave to appeal.

112 Particular (6) of ground 2 appears to be an assertion which, in substance, does no more than restate ground 2. No particular argument or explanation is offered.

113 In relation to particular (7) of ground 2, I have addressed earlier why the superintendent's evidence does not assist the contractor.

114 As to particular (8) of ground 2, as I have said the judge appears to have accepted that the rate was calculated by reference to holding charges on capital expenditure in the subdivision which would continue unabated unless and until cash flow from the sale of lots was generated. The judge also referred, in her reasons, to the decision of Cole J in Multiplex Constructions Pty Ltd v Abgarus Pty Ltd, where his Honour held, in effect, that holding costs arising from delay could properly be the subject of a liquidated damages clause (517 - 525). The contractor has not challenged the correctness of the decision in Multiplex Constructions Pty Ltd v Abgarus Pty Ltd nor did it point to any evidence before the judge to indicate that the rate in the liquidated damages clause, calculated by reference to holding costs, was a penalty. The onus was on the contractor to show why the clause was a penalty. It did not discharge the onus upon it.

Grounds 3, 4 and 5 Overview and the terms of the contract

116 Grounds 3, 4 and 5 overlap. They involve allegations that the judge erred in law in awarding liquidated damages in that she 'failed to take into account' that the superintendent had 'failed to respond' to certain 'requests for extension of time'; that the judge erred in finding that the developer had not waived the requirements of written notice under cl 35.5; and that the judge erred in 'failing to consider' whether the developer was estopped from relying on the written notice requirements under cl 35.5.

117 Before addressing grounds 3, 4 and 5, it will be necessary first to outline certain provisions of the first contract, the pleadings and the issues fought at trial, and then to record the approach taken by the judge to the issues, and the judge's findings.

118 Clause 2 of the general conditions of the contract contained a definition of 'Superintendent':

'Superintendent' means the person named in the Annexure as the Superintendent or other person from time to time appointed in writing by the Principal to be the Superintendent and notified as such in writing to the Contractor by the Principal.

119 The general conditions of AS2124-1986 included the following terms (which are principally taken from the judge's reasons):

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 -

(a) acts honestly and fairly;

(b) acts within the time prescribed under the Contract or where no time is prescribed, within a reasonable time;

(c) arrives at a reasonable measure or value of work, quantities or time.

...

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 -

(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;

(b) any of the following events whether occurring before, on or after the Date for Practical Completion -

- the Principal;

- the Superintendent;

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

(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 40.1);

(iii) latent conditions;

(iv) variations directed under Clause 40.1;

(v) repudiation or abandonment by a Designated or Nominated Subcontractor;

(vi) changes in the law;

(vii) directions by public authorities but not where the direction arose from the failure of the Contractor to comply with a requirement referred to in Clause 14.1;

(viii) delays by public authorities not caused by the Contractor;

(ix) claims referred to in Clause 17.1(e);

(x) any other cause which is expressly stated in the Contract to be a cause for extension of time for Practical Completion.

In determining whether the Contractor is or will be delayed in reaching Practical Completion regard shall not be had to:

- whether the Contractor can reach Practical Completion by the Date for Practical Completion without an extension of time;

- whether the Contractor can, by committing extra resources or incurring extra expenditure, make up the time lost.

If the Contractor desires an extension of time for Practical Completion, the Contractor shall within 28 days after a delay occurs give the Superintendent a written claim setting out the facts on which the claim is based.

With the claim, or as soon as practical after giving the claim, the Contractor shall give the Superintendent written notice of the number of days extension claimed.

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.

Notwithstanding that the Contractor is not entitled to an extension of time the Superintendent may at any time before the issue of the Final Payment 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.

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.

...

If the time for Practical Completion is extended by the Superintendent under Clause 35.5 on account of a cause of delay for which the Annexure provides compensation, the Principal shall pay the Contractor the compensation stated in the Annexure and that compensation shall be the limit of the Principal's liability in respect of the delay.

If the Principal is in breach of contract, nothing in Clause 36 shall limit the Principal's liability for damages for breach of contract.

120 For the purposes of cl 35.5(b)(iii), latent conditions are physical conditions which differ materially from the conditions which should reasonably have been anticipated by the contractor, and exclude weather conditions at the site: cl 12.1.

121 In relation to cl 36, the compensation stated in the annexure was 'nil'.

40.1 Variations to the Work.

The Contractor shall not vary the work under the Contract except as directed by the Superintendent under Clause 30.3, 30.4 or 40.1 or approved in writing by the Superintendent under Clause 40.1.

The Superintendent may direct the Contractor to-

(a) increase, decrease or omit any part of the work under the Contract;

(b) change the character or quality of any material or work;

(c) change the levels, lines, positions or dimensions or any part of the work under the Contract;

(d) execute additional work;

(e) demolish or remove material or work no longer required by the Principal.

The Superintendent may notify the Contractor in writing of any proposed direction under Clause 40.1. Upon receipt of the notice the Contractor shall advise the Superintendent in writing whether the proposed direction can be effected and, if so, the effect which the Contractor anticipates that the variation will have on the construction program, time for Practical Completion and costs.

123 Section 1 of the agreed specifications also included provisions to the effect that:

(a) tenderers shall satisfy themselves as to the condition and the requirements of the works (cl 1.38);

(b) all delays and stoppages in the progress of the work which arise from disputes as to the quality of material, insufficient supply of materials, plant, etcetera, shall be solely and entirely at the risk and cost of the contractor (cl 1.32);

(c) the contractor shall do all work necessary to drain and/or divert any water interfering with the progress of the work and the cost of such work shall be deemed to have been included in the contractor's tender price (cl 1.13).

124 By the statement of claim, the developer pleaded (pars 9 and 10) that the work commenced on 24 February 2005, practical completion was due under the first contract on 6 May 2005, and that practical completion was only achieved by 26 July 2005, as a result of which the developer was entitled to liquidated damages for 11 weeks and four days in the sum of $160,218 or such other amount as the court determined.

Contractor's defence, set-off and counterclaim

125 By its defence and counterclaim, the contractor pleaded that the contractor was prevented from reaching practical completion within the specified time by reason of 35 stipulated items of delay totalling 113 days (par 10).

126 The 35 items pleaded by the contractor were not pleaded as either breaches of contract by the developer, or acts done by the developer, or those for whom it was responsible: cf Turner Corporation Ltd (in liq) v Co-ordinated Industries Pty Ltd (1995) 11 BCL 202, 212 - 213; Turner Corporation Ltd (Receiver & Manager Appointed) v Austotel Pty Ltd (1997) 13 BCL 378, 384 - 385. Indeed, a number of the items pleaded in par 10 referred or related to rain, which could not be regarded as an act of the principal, or be characterised as a breach of contract by the principal.

127 Nor were the par 10 items pleaded as expressly falling within, or in a way which picked up the terminology used in, cl 35.5(a) and (b) to describe causes of delay which could give rise to an entitlement to an extension of time. Thus, for example, none of the items were expressed as 'variations directed under cl 40.1' (cl 35(b)(iv)) or 'delays caused by ... the Principal' (cl 35(b)(i)), or 'inclement weather' (cl 35.5(a)), or 'latent conditions' (cl 35.5(b)(iii)). Also, there was no identification of when these alleged delays to the works occurred.

128 Nor was there a plea, with respect to the 35 items or any number of them, that in accordance with cl 35.5, the contractor 'within 28 days after the delay' gave the superintendent 'a written claim for an extension of time for Practical Completion'.

129 The contractor did not plead that the developer had breached cl 23 by failing to ensure that the superintendent acted honestly and fairly. Nor was there a plea that the developer had positively 'prevented' the superintendent, in breach of cl 23 or any other term of the contract, from granting extensions of time. Any allegation that the developer deliberately prevented the superintendent from acting honestly in the discharge of his duties would have been tantamount to an allegation of dishonesty by the developer, and would have needed to have been distinctly pleaded: Oldfield Knott Architects Pty Ltd v Ortiz Investments Pty Ltd [2000] WASCA 255 [41].

Developer's reply and defence to set-off and counterclaim

130 In its reply and defence to set-off and counterclaim, the developer generally joined issue with the contractor's allegations, and pleaded that the contractor was not entitled to an extension of time in respect of the delays pleaded in par 10 of the defence and counterclaim, because the contractor had failed to give written notice to the superintendent in accordance with cl 35.5 of the general conditions (par 7).

Contractor's reply to developer's defence to set-off and counterclaim

131 In its reply to the defence to set-off and counterclaim, the contractor:

(a) pleaded (par 2(b)) that the developer had prevented timely performance by 'requesting further works as specified in the variation orders issued by the [developer]', giving rise to delays pleaded in par 10 of the defence and counterclaim; and

(b) pleaded (pars 3 and 4) that the developer had waived its right to the requirement of written notice, or was estopped from 'relying on the requirement to give written notice' under cl 35.5, and had waived or was estopped from asserting its right to insist upon performance in time and to claim liquidated damages by:

(i) having requested the contractor to perform additional work specified in the 'variation orders'; and

(ii) failing to respond, and by the superintendent failing to respond, to the contractor's 'written requests for extensions of time' dated or sent 29 March, 2, 4 and 19 May, 7, 10 and 24 June, 18 July and 2 August 2005.

A number of observations may be made about the contractor's reply.

132 First, there was no pleading identifying the 'variation orders' referred to or which, if any, of the delays pleaded in par 10, arose from 'variation orders'. As noted above, a number of the items pleaded in par 10 referred to or related to rain.

133 Secondly, in relation to the pleaded 'requests for extensions of time', the one dated 10 June 2005 appears to be a summary of delays alleged up to that point in time, thereby encompassing the preceding requests. The 10 June 2005 document alleges a total of 42 days of delay resulting from causes which would entitle the contractor to an extension of time under cl 35.5, ie, 35 days for latent conditions or rainfall (inclement weather), and seven days for variations to culverts. The 10 June document also referred to 'unsuitable material ... (2 days)', but there was no allegation that this was a cause under cl 35.5 which would entitle the grant of an extension of time. The next document pleaded by the contractor, dated 24 June 2005, referred to an electrical trench that had 'sunk', and requested that it be fixed before completing 'Road 2'. It does not itself record whether and to what extent any delay eventuated as a result of the sunk trench, and nor were we taken to any other communications dealing with that topic. The letter of 24 June 2005 also referred to an absence of work on site on 23 June 2005 due to rain, but did not allege that as a result, the contractor is or would be delayed in reaching practical completion. The document dated 18 July 2005 outlined 'a list of days which rained on site'. It did not state whether and to what extent delays in the performance of the works occurred as a result of the rain. The days mentioned included 1 - 10 June (to which the 10 June 2005 document apparently related) and 23 June (presumably the subject of the 24 June notice). The last document pleaded is dated 2 August 2005. It referred to 13 items, without dates and without indicating whether notice was given within 28 days of the delays mentioned, and without indicating to what extent the alleged items would delay the reaching of practical completion. At least one of the items, item 10, appears to relate to the variations for culverts claimed in the 10 June 2005 document.

134 Thirdly, there was no plea by the contractor that the parties had varied the contract by deleting cl 35.5.

135 Fourthly, the nature of the pleaded 'waiver' was not identified by the contractor. No facts were pleaded which could identify it as an election, or a forbearance, or as an abandonment or renunciation of a right by the developer: cf Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57; (2008) 238 CLR 570 [52] - [55], [88] - [93]. It was not pleaded that the developer had 'waived' cl 35.5 in its entirety and not just the written notice requirements of it. Moreover, it is to be noted that in this appeal, the contractor relied upon and accepted the correctness of Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211; (2002) 18 BCL 322 [78] - [81]. There the court held that the penultimate paragraph of cl 35.5 confers a power which is capable of being exercised in the interests of both the principal and the contractor. On that basis, cl 35.5 could not, in any event, be characterised as a provision solely for the benefit of the developer.

136 Fifthly, in relation to the estoppel claim, there were no facts pleaded alleging representation, reliance or assumption, and detriment. The contractor, in its written closing submissions to the judge, described the nature of the claimed estoppel in these terms:

1. In the circumstances, the [developer] is estopped from asserting that the [contractor] is not entitled to an extension of time for practical completion as it failed to give written notice as required by Clause 35.5 of the General Conditions of the First Contract (see paragraph 7 of the [developer's] Reply). See Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387.
2. The [contractor] also relies upon estoppel by convention, in that the parties proceeded upon an informal basis, not in accordance with the terms of the General Conditions. See Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119; (2008) 66 ACSR 594 at 629 (paragraph 164) per Buss JA and (2008) WASCA 119 (6 June 2008) and Cheshire & Fifoot's Law of Contract 9th Australian Edition paragraphs 2.3 page 64 last paragraph ('Cheshire & Fifoot').
3. Further, by reason of the above circumstances, the [developer] is estopped from enforcing a claim for liquidated damages for late completion. This is a classic case of the [developer] attempting to blow hot and cold. See Cheshire & Fifoot paragraph 2.2. Although the [developer] relies upon the wet weather to obtain early clearances from the Shire of Murray for its own advantage (see Ex 2.74) it maintains that the [contractor] is not entitled to rely upon the wet weather when it is not to the advantage of the [developer].

Contractor's proposed amendments in course of trial

137 On the eighth day of the trial, counsel for the contractor applied to amend par 3 of its reply to allege, in effect, that the contractor acted on the basis that the superintendent had advised that extensions of time would be dealt with at the end of the job. That amendment was opposed on grounds, amongst others, that the developer had hitherto conducted its case on the basis that there was no issue in that regard, and that the developer had resolved its own disputes with the superintendent in circumstances where no such allegation had previously been made by the contractor in relation to the superintendent's conduct. The judge disallowed the amendment. Her Honour said (ts 685):

The defendant has sought to amend the pleadings by inserting in paragraph 3 the words: And the superintendent's advice that extensions of time ought be dealt with at the end of the job. The reason why that amendment is sought is because the defendant seeks, by way of re-examination, to ask Mr Spiers what, if anything, was said, or what representations were made by Mr Wilkie [the superintendent] to him in relation to any requests in writing for additional time in relation to the contract. The request for amendment came about because Mr Wheatley acknowledges that that is not the case that was originally pleaded. We are now in day 8 of a trial, and probably in everyone's view it's gone way too long, but certainly that isn't - it isn't the time for new pleadings to arise on material that was known to all of the parties. I agree with [Mr] Metaxas. Fortunately, given my role, I have no knowledge at all of what may have happened in other matters, but the fact is that other matters have occurred, that there are, clearly, a lot of documents that arose in relation to those other matters, and that another party in another matter was Mr Wilkie [the superintendent], so it can hardly be said that this material has come to the defendant at a late stage or is new material, or anything of that type. I do think that it changes the complexity of the case in such a way that the plaintiff would be prejudiced, and I don't allow the amendment.

138 There was no application during the course of the trial to amend to plead that the developer had failed to ensure, in breach of cl 23, that the superintendent had acted honestly and fairly, or that the developer had positively prevented the superintendent from granting extensions of time in breach of cl 23, or in breach of any other term of the contract.

139 Nevertheless, in written closing submissions in relation to the estoppel claim, the contractor added the complaint that the developer had 'prevented' the superintendent from responding and that it would thereby be 'unconscionable' for the developer to rely on a lack of written notice under cl 35.5 (written submissions par 29(d)).

The approach of the primary judge and the judge's findings

140 Her Honour evidently understood that she was being invited by the contractor to find that the contractor was entitled to an extension of time for the whole 113 days pleaded in par 10 of the defence and counterclaim, in response to the developer's liquidated damages claim. Her understanding no doubt derived from the pleadings and the contractor's closing written submissions, referred to earlier. That understanding was certainly open to her Honour. The contractor's primary contention was that the developer was estopped from contending that the contractor's failure to comply with the written notice requirements in cl 35.5 disentitled it to extensions in respect of the delays pleaded in par 10. It also contended, in closing, that there was an estoppel by convention which precluded any reliance on cl 35.5, and an estoppel from the developer 'blowing hot and cold'.

141 The judge found against the contractor in relation to the latter two alleged estoppels (reasons [101] - [102], and, as best I understand it, there is no challenge to those findings.

142 As to the contractor's primary estoppel claim, the judge found (reasons [92] - [95]), in effect, that the contractor was delayed by 42 days in respect of variations for culverts, and inclement weather; that these were causes of delay for which, under cl 35.5, the contractor was entitled to claim an extension of time; that although proper written notice had not been given, the contractor had been led to assume, and did rely, on the assumption 'that the extension was allowed' in respect of the 42 days claimed in the 10 June 2005 document; and that an estoppel arose in favour of the contractor in that regard. Her Honour said that in consequence 'the date of completion of the first contract should be extended by 42 days to 17 June 2005'.

143 The true nature and scope of the estoppel found by the judge is, with respect, not entirely clear from the judge's reasons. Reading the reasons as a whole, and in light of the contractor's pleadings, on balance it seems to me that her Honour found that in its claim for liquidated damages, the developer was estopped from contending that an extension of time had not been granted to 17 June 2005. In this appeal, the question was raised as to whether her Honour may have not so much found an estoppel to that effect, but rather had made an order herself extending time, perhaps in purported reliance on the penultimate paragraph of cl 35.5 and the principles outlined by Hodgson JA (Mason P and Stein JA agreeing) in Peninsula v Abigroup [79] - [81]. For my part, I doubt whether her Honour did purport to apply that decision, as it does not appear from the pleadings or submissions that it was part of the contractor's case that she should utilise the penultimate paragraph of cl 35.5 to award an extension of time, and in this appeal the contractor said that it had not sought an extension from the judge. Also, whilst her Honour did refer (reasons [100]) to the Peninsula v Abigroup case, it was in relation to the estoppel point raised in that case. In any event, both parties to this appeal accepted that if her Honour had adopted such a course, it was open to her on the authorities to do so. Accordingly, it is unnecessary in this appeal to examine the reasoning of Hodgson JA in Peninsula v Abigroup [79] - [81] or the cases which have followed it: Kane Constructions Pty Ltd v Sopov [2005] VSC 237; (2006) 22 BCL 92 [660], and 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) [2006] VSC 491 [26] - [34].

144 In this appeal the contractor itself originally challenged, on the grounds of procedural fairness (ground 3 particular (5), ground 5 particular (1)), the finding that the contractor had or should have a 42-day extension of time. Those challenges were, however, withdrawn at the hearing of the appeal. In any event, there was no suggestion that, prior to the grant of final orders by the judge, the contractor had resisted, in the fashioning of relief, any account being taken of the 42-day extension allowed to the contractor by the judge in her reasons.

145 Accordingly, the contractor has accepted the findings of the primary judge to the effect that it was entitled to a 42-day extension of time for inclement weather and variations to culverts, and that the application of the liquidated damages clause has been qualified accordingly.

146 The judge also rejected the additional complaint made by the contractor in closing, that the developer had 'prevented' the superintendent from approving requests for extensions of time (reasons [103]).

1. The learned Judge erred in law in awarding the [developer] liquidated damages for delay in the amount claimed as this failed to take into account that the Superintendent failed to respond to the [contractor's] requests for extensions of time requested by the [developer] [sic - contractor].

(1) The [contractor] repeatedly applied to the Superintendent for extensions of time but did not receive any response (paragraph 3 of the [contractor's] Reply to Defence to Counterclaim dated 16 March 2009 and T466B, T582E, T629E and T658A).

(2) The Superintendent's evidence was that the [contractor's] requests for extension of time were justified (Ex 2.59.2 and T758D and T769C), which was confirmed by evidence led by the [developer] (paragraph 167).

(3) The [developer] prevented the Superintendent from approving extensions of time (see paragraph 4(3) below).

(4) No extensions of time were granted by the Superintendent or the [developer] (T133D and T757B) so that there was no right to liquidated damages in the amount claimed.

(5) The learned Judge erred in law in granting an extension of time based on estoppel that was not pleaded or litigated at trial (paragraphs 93 to 95). [This ground was not pressed.]

(6) The learned Judge erred in law in finding that the [contractor] was not entitled to an extension of time because of a failure to lead evidence as to workmen, equipment, manpower hours, etc. (paragraphs 96 and 98) when such a finding was contrary to the express requirements of Clause 35.5 of the General Conditions which formed part of the first contract, the Superintendent's evidence referred to in (2) above and was not in any event an application by the [contractor] to the learned Judge for an extension of time.

148 As to particular (1) of ground 3, the judge found that the requests made by the contractor for extensions of time did not comply with the written requirements of cl 35.5 (reasons [93], [97]). Absent any successful challenge to that finding, a failure to respond to requests for extensions of time not in conformity with the contract does not, in itself, demonstrate that the judge erred in awarding liquidated damages.

149 Particular (2) contends, in effect, that the contractor's requests for extensions of time were 'justified'. No error is established. The judge found, in effect, that extensions sought in respect of 42 days were 'justified', and the contractor obtained the benefit of an extension accordingly. In relation to the period beyond 42 days, the evidence referred to by the contractor in its submissions is equivocal on the proposition for which it is advanced, in that it is consistent with an entitlement to the 42 days allowed, rather than evidence of an entitlement beyond the 42-day period allowed by the judge. The contractor has not established in this appeal that the facts 'justified' an extension beyond 42 days.

150 By particular (3), the contractor alleges that the developer 'prevented' the superintendent from granting extensions of time. Reference is made to particular (3) of ground 4, which contains an allegation that the developer breached cl 23 of the general conditions.

151 There was no pleaded case at trial to the effect that the developer had prevented the superintendent from acting honestly and fairly in breach of cl 23 in relation to whether any extensions should be granted in respect of the items pleaded in par 10 of the defence. Indeed, the contractor had not pleaded at all that the developer had positively prevented the superintendent from granting extensions of time. The allegation in the reply was simply that the superintendent had 'failed to respond' to requested extensions of time.

152 Certainly, it was not put to the developer's principal witness in cross-examination that the developer had prevented the superintendent from acting honestly and fairly.

153 By not squarely raising that allegation as an issue to be fought at trial, the developer was denied the opportunity of giving evidence which could possibly have rebutted the allegation, and the contractor ought not be allowed to raise the point on appeal: Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1, 7.

154 Accordingly, I would dismiss ground 3 insofar as it raises an allegation that the developer breached cl 23 by preventing the superintendent from acting fairly or honestly.

155 Further, it is implicit in the complaint in particular (2) that the developer prevented the superintendent from approving validly claimed extensions of time, or at least extensions for which the developer was estopped from denying that the contractor had valid claims. The judge found that the only claims of that character were the claims for 42 days. The contractor has not established in this appeal that it had valid claims for an extension (or claims which the developer was estopped from contending were valid) beyond the 42-day period.

156 Further, although not in response to a pleaded allegation, the judge said [103] that 'I do not accept that [the developer] prevented the superintendent from approving extensions of time for inclement weather and contract variations'. The contractor, by reference to certain evidence in ground 4 particular (3), contends that the judge ought to have found as a fact that the developer positively prevented the superintendent from granting extensions of time for inclement weather and contract variations. In the absence of a pleaded issue to that effect, that submission is not well-founded. Nor, in any event, is the evidence referred to by the contractor of sufficient weight to establish that the judge's observation was in error.

157 The contractor in this regard relied upon, in particular, an email from the developer dated 6 June 2005 in which, with reference to the then existing fine weather, the developer's principal said that 'not too much [was] happening on site'. He informed the superintendent that he would not 'accept' subsequent delays attributed to rain if the contractor did not work in the fine weather and that he would thereby 'instruct' the superintendent not to 'accept' such subsequent claims for delay. The contractor also referred to selected parts of the oral evidence and to a facsimile dated 18 July 2005 from the superintendent to the developer's lawyers in which the superintendent said he was instructed to pass on to the developer variations prior to issue. These pieces of evidence cannot be read in isolation, and are to be considered in light of the developer's evidence to the effect that its concern was not to be the instigator of additional work, beyond the agreed scope of works, which could result in delay and extra cost to the developer (see ts 130 - 135, 173, 773). With respect to the 6 June 2005 email, it is not clear whether any failure to work in good weather did lead to delays in the progress of the works which may have affected subsequent progress in times of wet weather and, if so, whether the contractor made claims for extensions in these circumstances which were rejected because of the developer's email of 6 June 2005. In the absence of any framework at trial within which the issue was joined, I am not satisfied that it is possible fairly to characterise the oral and written evidence relied upon by the contractor in this appeal as establishing that the developer in fact prevented the superintendent from approving extensions of time for inclement weather and contract variations.

158 Particular (5) was not pressed at the hearing of the appeal.

159 In relation to particular (6), the contractor also alleges that the judge erred in finding that the contractor had not established its entitlement to an extension of time 'because of a failure to lead evidence as to workmen, equipment, manpower hours etc (pars 96 and 98) when such a finding was contrary to the express requirements of cl 35.5'. In this regard, the contractor refers to the fourth paragraph of cl 35.5, which provides, in effect, that in determining whether the contractor is or will be delayed in reaching practical completion, regard shall not be had to whether the contractor can reach practical completion without an extension of time and regard shall not be had to whether the contractor can, by committing extra resources or incurring extra expenditure, make up for the time lost. These provisions would need to be read and understood in the light of cl 33, which deals with a 'construction program' for the performance of the work under the contract, and with the need for the contractor to act 'with due expedition and without delay', and on restrictions for suspensions of work other than authorised suspensions.

160 It does not appear from the judge's reasons, and the contractor in this appeal does not suggest, that the construction and operation of the fourth paragraph of cl 35.5 was an issue that was fought before the judge. Further, in dealing with the contractor's items pleaded in par 10 of the defence, and the nature of the contractor's evidence in that regard (see reasons [35] - [88]) her Honour frequently noted the absence of any contemporaneous or other evidence, beyond Mr Spiers' estimates, which would support the delays claimed. (Mr Spiers' evidence (ts 588 - 589, 600 - 601, 611) was, in effect, that he had first estimated delays for at least a number of items pleaded in par 10 at the time of responding to the developer's statement of claim.) In this context, I would not impute error to her Honour on the basis that she misunderstood or misapplied the fourth paragraph of cl 35.5. Properly construed, in my view, her reasons indicate that she found no more than that the contractor had failed to establish, on the evidence led, that it was entitled to extensions beyond the 42 days that had been allowed.

161 In its submissions, although without any link to any of the particulars to ground 3, the contractor also stated (par 34):

Irrespective of a lack of written notice for an extension of time, the Superintendent had the power to grant the [contractor] an extension of time (see the penultimate paragraph of condition 35.5 of the first contract) ... See Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd [2002] NSWCA 211; (2002) 18 BCL 322 [80].

162 As indicated earlier, it does not appear to me that the contractor had asked the judge to grant an extension of time in accordance with this authority and by reference to the penultimate paragraph of cl 35.5. In any event, to the extent that she did so, the extension was granted for 42 days. It has not been demonstrated in this appeal why an extension beyond 42 days was warranted. For these reasons, I do not see how the reference to Peninsula v Abigroup in this appeal assists the contractor.

163 The contractor also referred to MacMahon Construction Pty Ltd v Crestwood Estates [1971] WAR 162. In that case, the builder had submitted claims for extensions of time on account of established variations causing delay (165). The engineer had accepted that the builder had justified various claims for an extension of time, but the engineer had failed to grant any extensions until well after the date fixed for practical completion (167). The court held, in effect, that the 'prevention principle' applied because the extension of time clause, properly construed, did not cover acts by the principal by way of variations (167). The court also said that even if the extension of time clause were sufficiently wide in its scope to apply to acts of the principal, the clause, on its proper construction, required the engineer to exercise the power conferred on him within a reasonable time, and because he had failed to do so there had been no valid extension of time (167 - 168). The latter observation was made in the context of the engineer having previously accepted that variations had prevented the builder from completing the work in time, and that extensions of time were justified.

164 In my view, the decision in MacMahon v Crestwood is distinguishable and does not assist the contractor. In this case, unlike in MacMahon v Crestwood, the contractor obtained a valid extension of time of 42 days for the purposes of cl 35.5. No additional extension has been shown to be warranted. Also, in this case cl 35.5 expressly provided, in effect, that any delay by the principal, or any failure by the superintendent to grant a reasonable extension of time or to grant an extension within 28 days, 'shall not cause the Date for Practical Completion to be set at large', but without prejudice to the contractor's right to claim damages. The contractor's submission that the failure to grant an extension of time to which the contractor was entitled had the effect of setting the time for practical completion 'at large' is inconsistent with the express terms of cl 35.5.

1. The learned Judge erred in law in finding that the [developer] did not waive the requirements for written notice for an extension of time under clause 35.5 of the General Conditions (paragraphs 91 and 103) and its right to claim liquidated damages (paragraph 97).

(1) The [developer] pleaded that the [contractor] failed to give written notice to the Superintendent as required by clause 35.5 of the General Conditions (paragraph 7 of the [developer's] Reply).

(2) Although the Superintendent was under a duty to either extend time or provide written reasons for not doing so, he continued to receive claims for extension of time but did not advise the [contractor] that its claims for extension of time would be rejected as they failed to give written notice in breach of Clause 35.5 of the General Conditions.

(3) The learned Judge erred in law in finding that there was no evidence that the Superintendent of the first contract (Mr Wilkie) could not have extended time as requested by the [contractor] (paragraph 90), that there was no evidence from Mr Wilkie that the [developer] had instructed him not to comply with the conditions of the first contract (paragraph 91), and that Mr Palermo (on behalf of the [developer]) did not prevent the Superintendent (Mr Wilkie) from approving extensions of time for inclement weather and contract variations (paragraph 103), as such findings failed to take into account [various evidence] that:

...

(g) The [developer's] conduct was in breach of its duties under clause 23 of the contract to ensure that the Superintendent acted honestly and fairly and within the time prescribed under the contract (paragraph 10).

(4) The learned Judge erred in law in finding that the [contractor's] correspondence failed to properly address the information required for an application for an extension of time to be considered pursuant to Clause 35 (paragraph 97), when this was not pleaded or litigated at trial.

167 In relation to particular (1), I have outlined earlier the developer's pleading. It provides context to the contractor's allegation of waiver, the character and elements of which were not elucidated in the contractor's pleading. The reference to the developer's pleading does not assist in the establishment of this ground.

168 In relation to particular (2), it appears, from the contractor's submissions in this appeal, that the contention is that the developer made an election between inconsistent rights when the superintendent failed to advise the contractor that it would not accept extensions of time which were not in accordance with cl 35.5. The proposition has only to be stated to be rejected. No inconsistent rights of the developer are identified which called for the developer to make an election between them.

169 In relation to particular (3), these matters are in substance the same as those relied upon in ground 3, particular (3), which I have dealt with under that ground earlier in these reasons.

170 In relation to particular (4), in my view, the judge's finding was directed to the developer's plea that the contractor had failed to give written notice in accordance with the provisions of cl 35.5. This was a pleaded issue at trial.

1. The learned Judge erred in law in failing to consider whether the [developer] was estopped from relying on the requirements for the [contractor] to give written notice as required by Clause 35.5 of the General Conditions and from claiming liquidated damages as pleaded in paragraph 4 of the [contractor's] Reply to Defence to Counterclaim.

(1) The learned Judge failed to consider the pleaded issues (paragraph 4 of the Reply to Defence to Counterclaim) and instead extended time for completion by 42 days without application or argument from the [contractor] on the grounds that the [developer] was estopped from relying on Clause 35.5 of the General Conditions based upon a single request from the [contractor] to the [developer] by letter dated 10 June 2005 (paragraph 95) (Ex 2.40).

(2) The learned Judge failed to consider that the Superintendent had an independent discretion to grant an extension of time irrespective of written notice pursuant to the penultimate paragraph of clause 35.5 of the General Conditions (Ex 1.27).

(3) The [contractor] applied for extensions of time from the Superintendent, in reliance upon the terms of the first contract and became liable to the detriment of late completion and liquidated damages as found by the learned Judge (paragraph 94).

(4) The evidence established that the [developer] prevented the Superintendent from approving extensions of time (paragraph 33 and paragraph 4(3) above) in breach of its duty under Clause 23 of the General Conditions (paragraph 10), so that it would be unconscionable for the [developer] to rely on Clause 35.5 of the General Conditions as to the lack of written notice and claim liquidated damages.

(5) The learned Judge erred in law by disregarding the [contractor's] pleaded case and finding that the [contractor] failed to lead evidence (paragraph 96), when the [contractor's] application for an extension of time was made to the Superintendent (who was fully aware of the facts) and not to the Court.

173 In my view, it is clear that the judge did consider whether the contractor was estopped from relying on the requirements to give written notice as required by cl 35.5 and from claiming liquidated damages (reasons [89] - [103]). The contention that the judge failed to consider the claim is plainly incorrect.

174 The particulars to ground 5 are, in substance, a repetition, in one way or another, of the matters which have been covered by grounds 3 and 4. As I have dealt with the substance of those matters under grounds 3 and 4, it is unnecessary to repeat them here.

176 Ground 6 alleges that the judge 'erred in law in finding that the defects to James Eden Drive occurred in breach of the [contractor's] obligation to use the materials and the standard of workmanship required by the first contract ... or in breach of its duty to perform its contract with reasonable care'.

177 It is to be noted that it is not alleged that the judge erred in fact, but, rather, that an error of law was made on the basis that the judge acted in the absence of evidence.

178 It was common ground at trial that a road involves natural ground, on top of which sits a sub-base of limestone, on top of which is a base of gravel, on top of which is a two-coat sealed layer (reasons [134]). It was also common ground that cl 30.1 of the general conditions required the contractor to use the materials and standards of workmanship required by the contract and that the specifications (cl 9.4) required that the gravel for the base, and the crushed limestone for the sub-base, have certain dimensions and meet certain criteria.

179 In finding a breach of contract by the contractor, the judge relied on the evidence of Dr Emery, an engineering expert whose evidence she accepted.

180 Dr Emery had prepared a report in which he stated that there was a weakness in the area of chainages 120 to 270 in James Eden Drive, which he attributed to the compaction carried out by the contractor, and, or alternatively, to the contractor's use of poor quality materials in the sub-base (GB 289 - 290, 297 - 298, 299).

181 In his oral evidence, Dr Emery was shown certain test certificates which had been produced by the contractor one week before trial (reasons [136]). Based on these certificates, he considered that the compaction of James Eden Drive had been done reasonably well (reasons [137]) and concluded, in effect, that the weakness in James Eden Drive was due to a weakness in the limestone sub-base and a weakness in the gravel base, and that the certificates indicated that the materials used were not in conformity with cl 9.4 of the specifications (reasons [138] - [143]).

182 The judge accepted Dr Emery's evidence, having noted that Dr Emery's evidence was 'essentially unchallenged' and that the contractor had not called expert evidence on this topic.

183 In substance, the contractor in this appeal alleges that the certificates on which Dr Emery based his views did not apply to testing carried out at chainages 120 to 270 of James Eden Drive. That proposition was not put to Dr Emery in cross-examination.

184 In my view, there was plainly evidence upon which the judge could find the alleged breach of contract and that it caused the defects alleged in James Eden Drive. No error of law is disclosed in that regard.

185 The judge did err, however, insofar as she found that the contractor had carried out the work negligently, in light of the developer's express disavowal at trial of a claim in negligence. Notwithstanding this error, the judge's ultimate finding of breach of contract is sustained.

187 By ground 7, the contractor alleges that the judge erred in law in allowing the developer the sum of $33,678 for rectification costs in respect of the failure to use materials for the sub-base in accordance with the contract.

188 The judge found, in effect, that the developer had engaged a subsequent contractor, Downer, to lay asphalt over the whole of James Eden Drive, over chainages 00 to 800, with a view to rectifying the defects. The judge allowed the developer to recover costs associated with 150 m of the resurfacing (ie, chainages 120 to 270) which she said was 20% of the total cost. By this method, the judge allowed the developer $30,616 plus GST, equalling $33,678 (reasons [150] - [162]).

189 Ground 7 points to a mathematical error in the judge's calculation of the relevant percentage. 150 m over 800 m, expressed as a percentage, is 18.75% and not 20%.

190 The judge made an error (albeit a minor mathematical one) and the ground should be upheld to that extent.

191 By ground 8, the contractor alleges that the judge erred in law in allowing $10,551.75 for contract administration fees for the rectification work on James Eden Drive.

192 In this regard, her Honour found that 'assessment of the problem and the supervision of the repairs required more than 20% of the sum claimed' (reasons [163]). Her Honour evidently found, by implication, that it was in the order of 75%.

193 It is not apparent what evidence, if any, her Honour took into account to estimate the figure to be 75%. The developer, in its submissions, could not point to any evidence in that regard.

194 In these circumstances, I would allow the ground to the extent that the amount allowed in respect of the administration fee figure should be reduced from 75% to 18.75%, in accordance with the percentage allowed with respect to ground 7.

195 By ground 9, the contractor alleges, in effect, that the judge erred in law in finding that the contractor damaged the Telstra conduits, on the basis that the finding was made in the absence of evidence.

196 The judge referred to the evidence and the competing submissions at trial (reasons [169] - [173]) and concluded, by way of inference, that the contractor caused the damage in question (reasons [176]).

197 That inference was clearly open and there is no error of law established. I would dismiss ground 9.

199 By ground 11, the contractor alleges that the judge erred in law in finding (reasons [211]) that the contractor had not established, on its counterclaim, that it was entitled to the sum of $8,267.05 claimed as a variation by invoice 1023.

200 The judge found that she was not satisfied that the invoice had been posted and, moreover, that the contractor had led no evidence as to the work done, or the reasonableness of the amounts charged. In the latter regard, her Honour said (reasons [199] - [201]):

The obligation is on the party bringing the claim to prove that the sum outstanding is not just a sum recorded as due, but is, legally, a sum that the plaintiff is required to pay. The parties burden to prove a sum claimed was discussed by Kennedy J in the decision of Michael Kelloway International Pty Ltd v Shark Bay Airport Pty Ltd, unreported; SCt of WA; Library No 970604; 13 November 1997. In that case at p 12, his Honour said:

'In Bonham-Carter v Hyde Park Hotel Limited (1948) 64 TLR 177, at 178, Lord Goddard CJ said:

"Plaintiffs must understand the fact that if they bring actions for damages it is for them to prove their damage; it is not enough to write down the particulars, and, so to speak, throw them at the head of the Court saying: 'This is what I have lost; I ask you to give me these damages'. They have to prove it. The evidence in this case with regard to damages is extremely unsatisfactory.

Unfortunately, the present case is, in my opinion, just such a case ... The evidence is not such as to prove the respondent's damage. There is no evidence as to any verification of invoices, as to the verification of quantities, or as to the reasonableness of the charges".'

The plaintiff submits in this case that the defendant's evidence in relation to the sums alleged as due and owing falls into a similar category and submits that the evidence led has failed to prove the sums claimed.

In the case of West Boat Builders Pty Ltd v Cull Holdings Pty Ltd [1999] WASCA 72, the respondent at trial at first instance had led no evidence to support invoices claimed as due and owing by the respondent. In that case the issue of reasonableness of the sums claimed had been a contested pleading. On appeal Ipp J with whom Malcolm CJ and Steytler J agreed, said at [15]:

'In my opinion, however, in the absence of other evidence tending to prove the hours worked, the rate charged for the work, the materials provided, the cost of the materials and the overall reasonableness of the work done, the qualified promise to pay made by the respondent falls a long way short of establishing that [the amount claimed] ... represented the reasonable cost of the work.'

201 The judge, in not accepting the evidence of Mrs Spiers in relation to posting of the invoice, observed that Mrs Spiers had made errors in calculating the amounts claimed with reference to the pleadings in this action and that the contractor did not have a system for 'mail in and mail out' (reasons [208]).

202 The judge was entitled to find that there was no reliable evidence on the question of posting. Also, the contractor has not shown in this appeal that the judge erred in finding that no evidence was led as to the additional work allegedly done, or the reasonableness of the charges referred to in the invoice.

203 The contractor in this appeal had initially suggested that a reconciliation of claims document prepared by the developer's solicitors for the purposes of the litigation contained an admission of the sum in question. The document clearly did not contain an admission and the point was not pressed (ts 101 - 102).

204 No error of law has been established as alleged. I would dismiss ground 11.

205 By ground 12, the contractor alleges that the judge erred in law in finding (reasons [212]) that the contractor had not proved that $16,593.41 from invoice V612 dated 28 February 2006 was outstanding as a debt to the contractor.

206 By invoice V612, the contractor had originally claimed the sum of $84,929.39 for extras. The superintendent had certified, under cl 42.1, payment of $68,335.98, leaving the uncertified balance of $16,593.41. As explained by counsel for the contractor, the point sought to be made was that the mere issue of the invoice rendered the uncertified balance as a debt due and owing by the developer to the contractor. No evidence was led by the contractor to prove the work allegedly done, or the reasonableness of the amount claimed. Clause 42.1 provides that within 28 days after receipt by the superintendent of a claim for payment, or within 14 days of the issue by the superintendent of a payment certificate, whichever is the earlier, the principal shall pay to the contractor 'the amount due to the contractor and shall with the payment provide written particulars of how the payment was calculated'. There is no allegation that the superintendent did not provide written particulars for the payment which was allowed under invoice V612.

207 In these circumstances, the judge was correct to conclude that the contractor had not proved that the sum of $16,593.41 was a debt due to the contractor. No error of law is shown. I would dismiss ground 12.

208 By ground 13, the contractor alleges that the judge erred in law in finding that the contractor did not prove that it was owed $33,000 for traffic control and for road closure works.

209 The judge's reasons are, relevantly, at [180], [184] and [208(3)]. The judge found that the work was done, but 'there was no evidence that the [developer] ever approved the invoices for the work performed' (reasons [208(3)]). Her Honour's reference to approval is presumably a reference to cl 42.1, which provided for the certification of payment claims by the superintendent.

210 It is not in dispute that the traffic control work and the road closure works were carried out pursuant to the second contract.

211 Both parties pleaded that the second contract was made on about 11 August 2005 (the judge found that it was made on 11 September 2005 (reasons [180]), but the reference to September seems to be a typographical error). The terms of the contract were recorded in a fax dated 11 August 2005 from the developer to the contractor, which had been signed by both parties.

212 The fax of 11 August 2005 referred to the construction and sealing of Curtis Lane and, in particular, to the part which was already the subject of the first contract, and to the balance of the construction work which was required to complete Curtis Lane. It recorded, relevantly:

1. Spiers Earthworks Pty Ltd be granted the contract to construct that part of the works described above. In accordance with Council requirements, Engineers' plans and specifications already submitted and generally in accordance with the specifications as specified and stipulated on contractual arrangements and agreements that apply to that part of Curtis Lane that is part of the existing contract, namely the 313 m of Curtis Lane fronting the entry to the Southern Road (James Eden Drive).
2. Spiers to construct the 313 m fronting the existing subdivision at a cost as per and as part of the existing [first] Contract.

1. The balance of Curtis Lane as described at item 1 above will be constructed at a rate of $179.16/m.

1. Spiers will allow Landtec a period of 1 to 3 weeks to see if Landtec can achieve the road closure which would then not require payment of the additional cost of road closure costs of $15,750 and traffic management people costs of $14,250 which are included in the $179.16/m rate.

213 It was common ground, and the judge found (reasons [180]) that the prices under the second contract were exclusive of GST and that GST was payable on sums under the second contract.

214 Clause 8 of the fax of 11 August 2005 required, in effect, the payment for road closure and traffic control, unless the work was not done. If the work was not done, the parties agreed that on the basis of the contractual rate of $179.16 per metre, the total contract price should be reduced by the sums stipulated. Once the work was done, those amounts (totalling $33,000 excluding GST) were payable as part of the total contract price under the second contract. The absence of a certified payment claim under cl 42.1 did not of itself preclude recovery of those amounts and there was no allegation that cl 42.7, concerning final payment claims, operated to preclude recovery.

216 By ground 14, the contractor alleges that the judge erred in law in finding (reasons [213]) that the sealing of Curtis Lane was performed pursuant to the first contract and not the second contract, and that the judge thereby erred in finding that the contractor was not entitled to GST of $3,787.08 on the second contract.

217 The judge found that the first contract price was expressly inclusive of GST, and that the first contract provided for the construction of 313 m. Clause 2 of the second contract provided, in effect, that the construction of the 313 m of Curtis Lane was to be done at 'a cost as per and part of' the first contract.

218 Accordingly, all work in connection with the 313 m length of Curtis Lane was to be inclusive of GST in accordance with the terms of the first contract.

219 No error is shown unless the judge erred in finding that GST was not separately payable under the first contract. For the reasons given in relation to ground 15, the judge did not err in that regard.

221 By ground 15, the contractor alleges that the judge erred in finding (reasons [124], [214]), in effect, that the first contract price was inclusive of GST.

222 Clause 1.9 of section 1 of the first contract (GB 67) provided that the contract sum should include GST. The judge addressed the execution of the contract with that provision in it in her reasons at [120] and dealt with the contractor's alleged estoppel plea in that regard at [121] - [124].

223 In support of this ground, the contractor alleges that the GST provision was not drawn to its attention when it signed the first contract; that it subjectively understood that the price for the first contract was exclusive of GST and that the developer would pay GST on the contract sum; and that the contractor had issued some invoices which added GST and the superintendent had approved some of those invoices.

224 Each of these contentions is fundamentally misconceived. Having executed the document, the contractor is bound by its terms absent a claim for rectification, some other claim entitling it to set aside the agreement, or a defence of non est factum: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 [33], [35]. The purpose of construing contracts is to ascertain the intentions of the parties in an objective sense; it is not to determine the subjective intentions of the parties: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40]; Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 [22]. The issue of invoices contrary to the terms of the contract cannot alter the terms of the contract, and the contractor did not allege a variation.

227 By ground 16, it is alleged that the judge erred in her supplemental reasons in awarding interest on $120,842.85 of the contractor's counterclaim from the completion of rectification work on 31 March 2008, instead of within 28 days of the last invoice of 28 February 2006 (Landtec Projects Corporation Pty Ltd v Spiers Earthworks Pty Ltd [2010] WADC 74 (S) [6]).

228 By way of background, in the principal reasons for judgment, the judge found, in effect, that the contractor was owed $120,842.85, pursuant to unpaid payment certificates approved by the superintendant or someone acting in the role of superintendant (reasons [210]).

229 The judge found, in effect, that under cl 42.9, read in accordance with the annexure to the contract, the contractor was entitled to interest on amounts outstanding at the rate of 10% per annum. Although cl 42.9 provided, in effect, that interest was payable from the date upon which a sum had fallen due under the contract, the judge appears to have considered that cl 44.6 applied, in conjunction with cl 42.10, to defer the payment of interest on the sums due to the contractor comprising $120,842.85.

230 Clause 44.6 of the general conditions provides:

44.6 Adjustment on Completion of the Work Taken Out of the Hands of the Contractor.

When work taken out of the hands of the Contractor under Clause 44.4(a) is completed the Superintendent shall ascertain the cost incurred by the Principal in completing the work and shall issue a certificate certifying the amount.

If the cost incurred by the Principal is greater than the amount which would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due from the Contractor to the Principal. If the cost incurred by the Principal is less than the amount that would have been paid to the Contractor if the work had been completed by the Contractor, the difference shall be a debt due to the Contractor from the Principal.

If the Contractor is indebted to the Principal, the Principal may retain Constructional Plant or other things taken under Clause 44.5 until the debt is met. If after reasonable notice, the Contractor fails to pay the debt, the Principal may sell the Constructional Plant or other things and apply the proceeds to satisfaction of the debt and the costs of sale. Any excess shall be paid to the Contractor.

231 Work is taken out of the hands of the contractor under cl 44.4(a) upon written notice where the time specified in a notice under cl 44.2 has expired and the contractor has failed to show reasonable cause.

232 In this case, the judge had found that, with respect to the rectification works carried out in relation to James Eden Drive, cl 44 had no application (principal reasons [151] - [152]). The judge found that although cl 44 had no application, the developer had a right to recover unliquidated damages against the contractor in respect of the rectification work undertaken in relation to James Eden Drive (reasons [153]).

233 However, in deferring interest which would otherwise have been payable to the contractor under cl 42.9, the judge seems to have concluded that had cl 44 applied to the rectification work at James Eden Drive, the superintendent could have issued a certificate under cl 44.6 thereby creating a debt owing by the contractor to the principal, and that such a debt could have been set-off by the developer against the contractor under cl 42.10. Clause 42.10 provides, relevantly, 'The Principal may deduct from moneys otherwise due to the Contractor any money due from the Contractor to the Principal ... '.

234 In my view, the judge erred. As her Honour found, cl 44 had no application. There was never any certificate under cl 44.6 certifying any amount due by the contractor to the principal in respect of the cost of rectifying James Eden Drive. Moreover, any subsequent certification could not have prevented the accrual of interest on payments due under cl 42.1 in the meantime.

236 By ground 17, the contractor alleges that the judge erred in ordering that the contractor pay the developer the costs of the claim and that there be no order for costs in the counterclaim.

237 Both parties contended that the final flow of moneys (amongst other things) was relevant to the disposition of this ground.

238 In my view, the costs in the court below (and of this appeal) should be dealt with on the papers, by reference to written submissions, once the parties have had the opportunity to consider the reasons of the court on the substantive claims and once the precise flow of moneys has been determined.

239 The notice of contention was abandoned at the hearing of the appeal.

240 Grounds 1 and 2 of the developer's cross-appeal contend that the judge erred in fact in relation to certain calculations made with respect to amounts owing to the contractor on the counterclaim. The contractor in this appeal, in effect, concedes that the developer's calculations appear to be correct.

242 Ground 3 alleges that the judge erred in law in finding that the developer was only entitled to interest at the rate of 6% in respect of the costs of the rectification work for James Eden Drive and with respect to the Telstra conduits, when the first contract, by cl 42.9, provided that interest would accrue on unpaid moneys at the rate of 10% per annum.

42.9 Interest on Overdue Payments.

If any moneys due to either party remain unpaid after the date upon which or the expiration of the period within which they should have been paid then interest shall be payable thereon from but excluding the date upon which or the expiration of the period within which they should have been paid to and including the date upon which the moneys are paid. The rate of interest shall be the rate prescribed in the Annexure and if no rate is prescribed the rate shall be 18 percent per annum. Interest shall be compounded at six monthly intervals.

244 In my view, cl 42.9 applies to liquidated sums in that it is dealing with 'moneys due' which 'remain unpaid after the date upon which ... they should have been paid'.

245 The clause is inapt, in my view, to apply to claims for unliquidated damages for breach of contract.

247 Ground 4 alleges that the judge erred in fact in finding, in the supplementary reasons, that the total sum flowing to the developer was $24,219.18, rather than $24,721.15 or, if the cross-appeal succeeds, in failing to find that the total sum to flow to the developer was $35,754.73. The disposition of this ground depends upon the ultimate flow of moneys in light of the court's reasons.

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : SPIERS EARTHWORKS PTY LTD -v- LANDTEC PROJECTS CORPORATION PTY LTD [No 2] [2012] WASCA 53 (S)

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : LANDTEC PROJECTS CORPORATION PTY LTD -v- SPIERS EARTHWORKS PTY LTD [2010] WADC 74

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Citation : LANDTEC PROJECTS CORPORATION PTY LTD -v- SPIERS EARTHWORKS PTY LTD [2010] WADC 74 (S)

Costs - Building dispute - Net flow of money - Misconduct

Rules of the Supreme Court 1971 (WA), O 24A, O 66 r 1

Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6

BMD Major Projects Pty Ltd v Victorian Urban Development Authority (No 2) [2007] VSC 441

Capolingua v Phylum Pty Ltd (1991) 5 WAR 137

CMA Assets Pty Ltd v John Holland Pty Ltd [No 2] [2012] WASC 126

Kane Constructions Pty Ltd v Sopov (No 2) [2005] VSC 492

Keywest Construction Group Pty Ltd v Footscray Holdings Pty Ltd (Unreported, WASC, Library No 930078, 23 February 1993)

LNC Harper Davidson Pty Ltd v Keywest Building Co Pty Ltd (Unreported, WASC, Library No 7192, 13 July 1988)

Love v Roads Corporation [2011] VSCA 434

Miles v Palm Bridge Pty Ltd [2001] WASC 42

Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11

Permanent Building Society v Wheeler [No 2] (1993) 10 WAR 569

Rush & Tompkins Ltd v Greater London Council [1988] 3 WLR 939

Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd [2010] WASCA 43

Trade Practices Commission v Arnotts Ltd [1989] FCA 283; (1989) 88 ALR 69

Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] VicRp 12; [1991] 1 VR 129

1 JUDGMENT OF THE COURT: These supplementary reasons deal with the costs of the appeal in this matter and the order for costs made by the trial judge with respect to the proceedings at first instance. We will adopt, in these reasons, the abbreviations used in this court's principal reasons for judgment.

2 The underlying dispute was in the nature of a building/construction dispute.

3 At first instance, the developer, who was the plaintiff (the respondent in the appeal), claimed certain moneys from the contractor, who was the defendant (the appellant in the appeal). The contractor counterclaimed. The judge, in effect, allowed part of the developer's claim and allowed part of the contractor's counterclaim. The net 'flow of money' between the two parties, on the trial judge's findings, was approximately $24,000 in favour of the developer. As to costs, the judge ordered the contractor to pay the developer's costs of the developer's claim, and ordered that there be no order for costs in respect of the contractor's counterclaim.

4 As a result of this appeal, there is a net flow of money the other way. Excluding interest, there is now a net flow of money from the developer to the contractor of approximately $123,000. The contractor (appellant) contends, without objection from the developer (respondent), that as a consequence, the contractor is to be regarded as the successful party at first instance, and in the appeal, within the meaning of O 66 r 1 of the Rules of the Supreme Court 1971 (WA). In that regard, the parties referred to Badge Constructions Pty Ltd v Penbury Coast Pty Ltd [1999] SASC 6 [12]; Keywest Construction Group Pty Ltd v Footscray Holdings Pty Ltd (Unreported, WASC, Library No 930078, 23 February 1993) (Anderson J); BMD Major Projects Pty Ltd v Victorian Urban Development Authority (No 2) [2007] VSC 441 [8] - [10]. See also Miles v Palm Bridge Pty Ltd [2001] WASC 42 [51]; LNC Harper Davidson Pty Ltd v Keywest Building Co Pty Ltd (Unreported, WASC, Library No 7192, 13 July 1988) (Kennedy J); Kane Constructions Pty Ltd v Sopov (No 2) [2005] VSC 492 [64] - [66] (Warren CJ).

5 The developer contends, however, that even though the contractor is to be regarded as the successful party, there exist grounds upon which it is appropriate, in the particular circumstances of this case, to deprive the contractor of its costs. In substance, two grounds are alleged. One is that the contractor had misconducted the proceedings at trial and in the appeal. The other is that the contractor had unreasonably rejected a settlement offer on the morning of the first day of the trial.

6 With respect to the alleged misconduct, the developer relies upon two authorities - Capolingua v Phylum Pty Ltd (1991) 5 WAR 137 and Verna Trading Pty Ltd v New India Assurance Co Ltd [1991] VicRp 12; [1991] 1 VR 129 at 156. In Capolingua v Phylum, the successful defendants were deprived of their costs and it was held that justice required that there be no order as to costs. In that case, there were deficiencies in the defendants' pleading. Those deficiencies, combined with the conduct of the defendants' solicitors at a mediation conference, and the defendants' failure to comply with pre-trial orders, served to obscure the real issues at trial. This caused unnecessary evidence to be led, and caused the opportunity to dispose of the matter expeditiously by way of a preliminary issue to be lost. In Verna Trading v New India Assurance Co the successful defendant, an insurer, was ordered to pay the plaintiff's (the insured's) costs on a solicitor/client basis up to the first day of the trial. The defendant insurer had, following receipt of the plaintiff's claim under the policy, given no indication as to why it denied liability; it had failed in its pleadings to admit facts which were within its knowledge; it had asserted defences which were later abandoned at trial; and in the early part of the trial it raised for the first time defences upon which it ultimately succeeded.

7 In the present case, the alleged misconduct referred to by the developer in and in relation to the trial is said to be constituted or evidenced by the following:

(a) the late discovery of certain documents, the failure to produce papers for the judge as directed, and the late production of documents on the first day of the trial, resulting in the developer not opening its case until late on the first day of the trial;

(b) delays caused on the second day of the trial by the contractor seeking to amend its reply to the defence to counterclaim and in not consenting to the tender of the developer's trial bundle;

(c) the contractor's application to amend its pleadings on days four and five of the trial, with consequent delays;

(d) the contractor's abandonment of its original formulation of its counterclaim, and the reformulation of its counterclaim in the course of evidence given on the last day of the eight-day trial; and

(e) the contractor's application, after the close of its case, to amend its counterclaim to accord with the evidence led on the last day of the trial, the subsequent appeal to this court of the judge's decision to refuse that application, and the delays associated with the contractor's application to amend and for leave to appeal.

8 These last two matters require some explanation. The contractor had pleaded and opened its case on the counterclaim on the basis that the contractor was owed by the developer $284,088.24 in respect of certain invoices. The claim included amounts allegedly due under the following invoices:

9 On the last day of the trial, the contractor, through its principal witness on this issue, in effect, abandoned that formulation of its counterclaim and contended that it was owed $260,137.65, as formulated in a document tendered through the contractor's witness and marked exhibit 4.1.

10 The first item in exhibit 4.1 was for $120,842.85. This item, in effect, adopted a figure from a spreadsheet which had been prepared by the developer, recording amounts claimed by the contractor, certified by the superintendent, and paid by the developer, leaving a balance of $120,842.85. The contractor's evidence was to the effect that the sum of $120,842.85 was due and, in addition, that seven other items totalling $139,294.80 were outstanding, yielding the total claim of $260,137.65.

11 After the contractor had closed its case, and in the course of final submissions, the contractor applied to the judge to amend its pleading to make it accord with the counterclaim as formulated in exhibit 4.1. The contractor's application (heard on 9 July 2009) was dismissed, with costs. The contractor then sought leave to appeal that interlocutory decision. This court dismissed the contractor's application for leave, with costs: Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd [2010] WASCA 43. The contractor's application to amend after the close of its case, and the unsuccessful application for leave to appeal to this court, resulted in considerable delay in the determination of the case at first instance by the trial judge.

12 Although her Honour had dismissed the application to amend, she nevertheless, in her reasons, regarded the contractor's evidence, and the formulation of the counterclaim in exhibit 4.1, as a proper basis upon which to determine the counterclaim, having regard to the conduct of the trial and notwithstanding the absence of a formal amendment to the pleadings. (It is not clear why the amendment was refused if the course of the trial would in any event, sustain findings based on a reformulation of the counterclaim in exhibit 4.1).

13 In her reasons for judgment, the judge allowed the claim for $120,842.85, based on the developer's spreadsheet as, in effect, certified but unpaid sums due to the contractor. She also allowed one of the seven other items - a claim for $10,862 - but dismissed the remaining six items (reasons [210] - [216]). In the appeal to this court, the contractor challenged five of these six items which the judge had disallowed. One challenge (ground 13) succeeded in the sum of $36,300. The other challenges (grounds 11, 12, 14 and 15) were dismissed.

14 With that background in mind, we turn to the alleged misconduct relied upon by the developer, referred to in [7] above. The matters referred to in subpar (a) of [7] above were productive of considerable delay. Those matters, together with the amendment applications referred to in subpar (c) of [7] above, effectively resulted in the loss of a period of time equivalent to one day of the eight day trial. In relation to the matters referred to in subpar (b) of [7] above, both parties applied to amend on the second day of the trial, not just the contractor. Also, the dispute as to the tender bundle cannot be characterised as misconduct. The matters referred to in subpar (b) of [7] above do not influence the question of costs.

15 In relation to the matters referred to in subpars (d) and (e) of [7] above, the following observations are relevant. Had the reformulated counterclaim been the subject of a formal amendment to the pleading, leave to amend would almost certainly have been on terms that the contractor pay the costs of the application and costs thrown away by the amendment. The judge, in dismissing the application for leave to amend, awarded the costs of the application against the contractor. In substantive terms, however, effect was given to the reformulated counterclaim in the judge's final reasons, but without the contractor having been required to pay costs thrown away. The contractor ought not, in these circumstances, be in a better position on costs for having failed in its application to amend.

16 The effective waste of a day of the trial referred to earlier, and the costs unnecessarily incurred in relation to the counterclaim as originally formulated, should both be taken into account in an assessment of a just award of costs. They are not sufficient, however, to warrant denying the contractor all, or even substantially all, of its costs in the proceedings below. The contractor was, fundamentally, the successful party and any costs order must give proper recognition to that consideration. The delay resulting from the failed application to amend and for leave to appeal has not resulted in any relevant prejudice because each party has been awarded interest from the inception of its causes of action. Taking a broad view, and subject to the question referred to below, an appropriate order would be that the contractor be paid 85% of its costs of the proceedings at first instance.

17 There remains for consideration the question of whether the contractor should be deprived of its costs on account of its failure to accept an offer of settlement on the first day of the trial. In relation to that matter, the developer relies upon an affidavit of Mr A Palermo, sworn 27 May 2010. The affidavit contains evidence of settlement discussions which, although not expressly made without prejudice, were evidently of that character and should be treated as without prejudice: Old Papa's Franchise Systems Pty Ltd v Camisa Nominees Pty Ltd [2003] WASCA 11 [91]; Trade Practices Commission v Arnotts Ltd [1989] FCA 283; (1989) 88 ALR 69; Rush & Tompkins Ltd v Greater London Council [1988] 3 WLR 939, 942 - 943. The affidavit does not purport to provide evidence of a Calderbank offer - ie an offer which is expressed to be without prejudice save as to costs and which indicates that the offer will be adduced in evidence on the question of costs: see Love v Roads Corporation [2011] VSCA 434 [183]. Nor was any offer of compromise made in accordance with O 24A of the Rules of the Supreme Court. Mr Palermo's affidavit is inadmissible in these circumstances and cannot be used on the question of costs: Permanent Building Society v Wheeler [No 2] (1993) 10 WAR 569, 576 - 577; CMA Assets Pty Ltd v John Holland Pty Ltd [No 2] [2012] WASC 126 [15].

18 For the foregoing reasons, there should be an order that the developer pay 85% of the contractor's costs of the action before Wager DCJ (including the developer's claim and the contractor's counterclaim).

20 The developer contends that the appeal was marked by a failure by the contractor properly to elucidate and address the real issues in the appeal and that, as a result, further written submissions were required of the parties before the court could proceed to a determination of the appeal. There is some force in this contention, although the failure was not confined to the contractor - see this court's principal reasons for judgment at [2]. To the extent that the contractor contributed to this failure, it is insufficient to deprive it of all, or substantially all, of its costs. Again, taking a broad view, an appropriate order would be that the contractor be paid 85% of the costs of the appeal (including the cross-appeal and the notice of contention).

(1) Ground 17 of the appeal be and is hereby allowed.

(2) Paragraphs 8 and 9 of the orders of Wager DCJ dated 9 June 2010 be set aside and in lieu thereof it be and is hereby ordered that the plaintiff pay the defendant 85% of the defendant's costs of the action (including in relation to the plaintiff's claim and the defendant's counterclaim), including any reserved costs, to be taxed.

(3) The respondent pay the appellant 85% of the appellant's costs of the appeal (including the notice of contention and the cross-appeal), including any reserved costs, to be taxed.