Top Five Cases for 2009: 1. J-Corp Pty Ltd v Mladenis [2009] WASCA 157

Does a contract that specifies a rate of “NIL DOLLARS ($00.00) per day” for liquidated damages exclude the principal’s right to claim from the contractor both liquidated and unliquidated damages?

Facts

The parties to a conventional construction contract completed the annexure to the contract and inserted the words “NIL DOLLARS ($00.00) per day” in specifying the rate for liquidated damages.

The project was delayed and the principal sought to recover unliquidated damages for the contractor’s delay. The contractor contended that the contract operated to exclude entirely any liability of the contractor for damages for delay.

Finding

The court held that on the proper construction of the contract the provision did not exclude the principal’s right to claim from the contractor unliquidated damages for failing to complete the works by the Date for Practical Completion.

Application

The earlier case of Silent Vector Pty Ltd t/as Sizer Builders v Squarcini [2008] WASC 246 considered the effect of “N/A” being inserted into an annexure of a contract beside the item titled “Liquidated Damages per day”. It was held that the principal was entitled to unliquidated damages for delay on the basis that there was nothing in the parties’ contractual arrangements to indicate that they intended no damages to be recoverable for delay.

It therefore appears that an annexure completed with either “N/A” or “Nil Dollars” as the rate for liquidated damages will, of itself, be insufficient to operate as a limitation on liability for unliquidated damages for delay.

Practically, if the intention is to exclude liability for both liquidated and unliquidated damages, the best solution may be to have the contract provide for a liability to pay liquidated damages in a nominal positive amount, for example $10 per week, bearing in mind that by definition liquidated damages will operate as a limitation on liability for damages for delay. Alternatively, the contract could include an express and clear statement that no damages whatsoever are payable by the contractor for delay.

Top Five Cases for 2009: 2. Metrolink Victoria Pty Ltd v Inglis [2009] VSCA 227

Are performance penalties payable by a tram operator due to significant delays to the tram network a reasonably foreseeable loss arising from a motor vehicle collision with a tram?

Facts

This case will shape the future application of the test of reasonable foreseeability as it has redefined the range of losses recoverable from wrongdoers.

Metrolink owned trams on the Melbourne network. Inglis was the driver of a motor vehicle that collided with one of Metrolink’s trams.

The collision resulted in damage to a tram and significant delays to the tram network. Prior to the commencement of proceedings, Inglis admitted negligence and paid for the costs of repairing the damaged tram. Inglis denied liability and refused to pay for the contractual losses sustained by Metrolink on the basis that they were not reasonably foreseeable and therefore too remote at law. Metrolink commenced proceedings to recover these losses.

Metrolink operated its services pursuant to a franchise agreement with the State Government. The agreement contained an incentive scheme whereby Metrolink was penalised for deviations from the master timetable. Inglis contended that the performance penalties were too remote – it was not reasonably foreseeable that a collision with the tram would trigger performance penalties under a contract that Metrolink had entered into with, in this case, the State.

Finding

In allowing Metrolink’s claim, the Court of Appeal held that “there is nothing unusual about the expectation that M would receive remuneration for the operation of its part of the tram network or that it would lose revenue in the event that it could not operate a part of its service.” Loss arising by operation of the franchise agreement was a particular form of loss of revenue, it was not too remote and consequently was recoverable by Metrolink as damages.

Application

Whilst the Metrolink case was an action in tort and it was not possible for Inglis to exclude liability, this case serves to highlight that plainly indirect or consequential loss of the kind suffered by Metrolink may be recoverable. Liability for indirect or consequential loss can be avoided by a contracting party by sufficiently clear language in the contract. In the absence of a provision in the contract excluding recovery for consequential loss, a party may find itself met by claims for indirect loss of the kind that Inglis was found liable for in the Metrolink case.

An application by Inglis to the High Court for special leave to appeal the decision of the Court of Appeal has been refused.

Top Five Cases for 2009: 3. Houlahan v Pitchen [2009] WASCA 104

Does an owner engaging a third party to carry out part of the contractor’s original scope of works relieve the contractor from its duty to ensure that the works are carried out in a proper and workmanlike manner?

Facts

During the construction of a house, the owner decided to engage a third party to construct a balustrade that originally formed part of the contractor’s scope of works. After the house was completed, the owner was seriously injured when the balustrade collapsed in the first week of occupation.

The owner sued the contractor in contract for failing to carry out the balustrade work in a proper and workmanlike manner, in that, amongst other things, the contractor failed to properly supervise the installation of the balustrade and failed to ensure that the balustrade was installed in accordance with the relevant Australian standard.

The contractor contended that the balustrade was omitted as a provisional sum item and ceased to form part of the work to be completed by the contractor under the building contract.

Finding

The Court of Appeal held that the third party contract that the owner had entered for the balustrade works was not necessarily inconsistent with a continuing liability of the contractor under the building contract for the installation of the balustrade stating:

“The effect of the building contract was that the (contractor) was responsible for ensuring that all work which fell within it (whether or not the work in question was carried out by the (contractor) personally or by some other party such as a subcontractor) was carried out in a proper and workmanlike manner.”

It was held that nothing in the conduct of the parties revealed an intention to omit the balustrade works from the building contract. The fact that the owner forwarded invoices received from the third party to the contractor, who told the owner and the third party that he would arrange payment of the invoices, was consistent with an intention that the contractor remained responsible for supervising the balustrade installation work and ensuring that it was carried out in a proper and workmanlike manner.

Application

The giving of the work to a third party without the contractor’s consent is ordinarily a breach of the building contract. It was therefore open to the contractor to refuse to consent to the proposal or to impose its own terms on that consent. The contractor would not have been liable had it demanded a release from liability as the price of giving its consent to transfer the balustrade work to the third party.

Top Five Cases for 2009: 4. Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552

What happens if the nominated team leader for a project leaves during the course of the project?

Facts

In this UK case, a firm of architects nominated a project leader who then did not lead the project in question. The owner sought to refurbish a private members' club in London and entered into discussions with the architects, Fitzroy Robinson. The architects represented both orally and in bid documents that Mr Blake, who was a director of the company, would be the team leader for the project.

Mr Blake tendered his resignation to the company in March 2006, at about the time when Fitzroy Robinson was to commence works and before contracts had been finalised. Mr Blake’s contract of employment required him to stay on for a further 12 months after tendering his resignation.

The contract between the owner and Fitzroy Robinson for the provision of professional services was signed in May 2006. Fitzroy Robinson did not inform the owners until November 2006 that Mr Blake had resigned. Mr Blake continued employment with Fitzroy Robinson until March 2007, but at this time the project had at least two years left to run.

Disputes arose between the parties, partly due to the significant delay that had occurred in procuring the planning approval for the project. Fitzroy Robinson brought an action to recover its fees. The owner counterclaimed in the action for, amongst other things, fraudulent misrepresentation in connection with Mr Blake’s resignation, stating that Fitzroy Robinson “knew when it signed the contract that Blake had resigned but decided not to tell us until six months after the contract had been entered into.”

Findings

It was held that in the time prior to the execution of the contracts, Fitzroy Robinson knowingly and dishonestly failed to correct the false representation that was made that Mr Blake was going to remain as team leader throughout the course of the project. In the view of the court, there was a false representation that was deliberate, and made for the specific purpose of ensuring that Fitzroy Robinson was awarded the work. On this basis, the test for fraudulent misrepresentation was satisfied.

Application

Any commitment to involve certain personnel in a project will be binding and the significance of providing assurances in relation to the involvement of key personnel is highlighted by this case. Where an individual is identified as taking a central role in a project team, it is preferable that it be made clear that members within the team may change from time to time.

However, this may be unacceptable to a client who seeks greater certainty that a key individual will remain involved in the project. In these circumstances, it is advisable to seek a commitment from key personnel that they will remain employed throughout the duration of the project.

Further, an unavoidable loss of a key member of the project team should be immediately communicated to the principal, especially if the contract has yet to be concluded. A failure to notify of the resignation of a key team member may give rise to a damages claim for fraud, based on this authority from the English High Court.

Top Five Cases for 2009: 5. Leighton Contractors Pty Ltd v Fox, Calliden Insurance Limited v Fox [2009] HCA 35

Does a principal / head contractor have a general common law duty in relation to safety to train and supervise the employees of independent contractors in undertaking specialist work?

Facts

Leighton Contractors Pty Ltd was appointed as the head contractor for the Hilton Hotel refurbishment project in Sydney. Leighton Contractors subcontracted the concreting works to Downview Pty Ltd. Downview then subcontracted the concrete pumping to Quentin Still and Jason Cook, who in turn engaged Brian Fox along with Warren Stewart to assist with the works. During the process of cleaning the pipes of the concrete pumping equipment used for the works, Mr Fox was injured.

Leighton had provided occupational health and safety inductions that all workers were required to attend before commencing work. Leighton also required Downview to provide work method statements that addressed potential hazards associated with concrete pumping and the control measures that would be adopted to address those hazards. However, neither Leighton nor Downview provided specific training in safe methods of cleaning concrete pumping lines.

At the first instance, the New South Wales District Court found that the accident was caused by the negligent conduct of Warren Stewart Pty Ltd, the company that supplied the services of Mr Stewart. Claims against Leighton and Downview were dismissed on the basis that there was no relevant breach of duty by either party. Fox appealed against the dismissal of his claims against Leighton and Downview.

Court of Appeal decision

The Court of Appeal allowed Fox’s appeal and held that Leighton and Downview owed a common law duty of care to Fox and each was in breach of that duty. In short, it found that Leighton, as the head contractor, had breached its duty by failing to provide the required safety induction training to its subcontractors.

The Court of Appeal also found that the training ought to have extended to cover activity based training relating to each subcontractor’s specific work, which in the case would include training regarding the safe operation and cleaning of concrete pumping equipment.

The High Court decision

Leighton and Downview appealed by special leave from the orders of the Court of Appeal and contended that the imposition of a common law duty of care owed to Fox, an independent contractor, involved an unwarranted extension of the liability of principals for the negligent acts of other independent contractors engaged by them.

The High Court determined that the Court of Appeal should not have found an obligation upon Leighton to ensure that Fox was properly trained and supervised in the tasks he was performing on the building site. The High Court noted that if Leighton was found to owe a duty to Mr Fox and Mr Stewart to provide induction training in the safe method of line cleaning, it would owe a duty to provide training in the safe method of carrying on every trade and conducting every specialised activity on the site to every worker, where it was unlikely to have detailed knowledge of safe work methods across the spectrum of trades involved in the project.

The High Court also found that Downview ought not to be held responsible for ensuring the proper training of staff employed by a qualified independent contractor, stating:

“…provided that the contractor was competent, and provided that the activity of concrete pumping was placed in the contractor's hands, Downview was not subject to an ongoing general law obligation with respect to the safety of the work methods employed by the contractor or those with whom the contractor subcontracted. “

The High Court noted that had Downview failed to engage a competent contractor, it may not have avoided liability for the negligent failure of the contractor to take reasonable care to adopt a safe system of work.

Application

If it can be demonstrated that a subcontractor was reputable and possessed a specialised knowledge or skill for which it was engaged, no duty arises for a principal / head contractor to provide specific training to and/or supervision of the employees of specialist independent subcontractors. It is thus vital that the principal / head contractor ensures that independent contractors are both reputable and properly qualified to carry out the specialised tasks for which they are engaged.