Introduction

To the relief of all involved in the construction industry, the Victorian Court of Appeal (court) has recently adopted a commonsense approach, guided by the legitimate expectations of ordinary business people in a recent construction dispute.

On 7 October 2009, the Victorian Court of Appeal delivered its judgment in BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2009] VSCA 221.

Issues

The case dealt with issues concerning latent conditions and notice requirements under a lump sum construction contract.

Latent condition – low quarry floor

Under the contract, BMD Major Projects Pty Ltd (BMD), was obliged to excavate, fill and rehabilitate a former quarry so that development could proceed on the reclaimed land.

BMD claimed an additional payment because the quarry floor was lower than that shown on reports provided to it by the Victorian Urban Development Authority (Vic Urban).

The court found that the low level of the quarry floor could not ‘reasonably have been anticipated’ by BMD at the time of its tender. Accordingly, it was a latent condition under the contract.

Vic Urban argued that, had BMD carefully examined documents in a file containing material additional to general material provided to all tenderers, it would have been aware that the true level of the quarry floor was lower than that shown in plans provided by Vic Urban.

The court was alert to the dangers of applying hindsight and failing to take account of the context in which the documents were received. It is one thing to agree that information can be seen in a pile of documents once you know what you are looking for, but quite another to concede that it would have been obvious to an unqualified reader coming to the documents ‘cold’.

The court also found that the other material provided by Vic Urban to BMD gave BMD reason to be ‘moderately confident that any apparent anomalies that might have appeared from the drawings had been taken into account in the construction of Vic Urban’s documents’. Even though Vic Urban made it clear to BMD that the documents that it provided should not be relied upon by BMD, the court held that the provision of those documents by Vic Urban should still be taken into account in determining what should ‘reasonably have been anticipated’.

Notice requirements

A four day delay in notifying Vic Urban of the low level of the quarry floor was held by the court to be notification sent ‘forthwith’, as required by the contract.

The relevant notice provision was construed with business commonsense. This, the court held would encourage contractors to explore the underlying needs and circumstances of the situation, rather than being concerned with anxiously satisfying a formal temporal requirement.

The Court of Appeal also rejected an argument from Vic Urban that the notices did not comply with the contract because they did not set out the facts on which the claim was based. This, the court held, would defy commonsense and fly in the face of the legitimate expectations of ordinary business people.

How does this affect you?

The Court of Appeal’s approach was focussed less on form, but more on the practical reasons for including the contractual provisions when seeking to determine the parties’ intentions. Principals need to think carefully about adopting an overly technical or legalistic approach to construction law disputes.