Contractual Issues that covers everything under the Sun-Kane v Sopov

This is a decision held by Supreme Court of Victoria, Building Cases Lists under the Commercial and Equity Division on 26^th July 2005. The dispute was being brought forth before Warren CJ.

Factual Background

Sopov is the owner of the project known as “the boiler house, where Kane entered the tender to the construction works of the project and succeeded. They gain the possession of site and started the works on 31^st May 1999. It was only 3months later, on 20^th August 1999 the parties enter into a written building contract (the Contract).

The works under the contract were to be completed in 130days. However the works suffered series of delays and on 18^th September 2000 Kane suspended the works because Sopov had failed to make two progress payments on the progress claims.

Following the event, Sopov had responded with a show cause notice stating that Kane had no right to suspend the works and it is improper of Kane to delay the works. On 2^nd October 2000, Sopov had threatened Kane by wanting to call up the bank guarantee.

Kane complained of a number of matters and submitted that Sopov was in fundamental breach of its obligations, which was regarded as repudiation and the Contract is then terminated.

Sopov found that the progress of works were only at 70 percent complete, while Kane did previously claimed that it was at 90 percent complete. Sopov resumed the progress of the works for the project by appointing another contractor. In addition to that, some rectification works were required to be carried out to some of the works which was earlier completed by Kane.

Kane made a veriaty of claims against Sopov that have resulted to this legal proceedings.

Salient Issues

From Kane’s claims and general observation made, four salient issues have been identified. They are as listed below:

· Issues related to the duty and independency of the Superintendent

Kane contended that the Superintendent had breached the requirement under clause 23 of the contract by the failure to resolves discrepancies in the contract drawings, refused to grant Extension of Time (EOT), did not respond within the prescribed time, impede Kane’s progress of works and was not independent. Kane claimed that the Superintendent did not act “fair and just”.

· Kane’s rights to claims for Quantum Meruit

Kane claimed on the basis of quantum meruit for all expenditure incurred inclusive of 10 percent margin with the less of the amount already paid by Sopov . This claim is due to the termination of the project.

· EOT entitlement claims

Kane made eighteen EOT claims totalling to approximately of 180days of EOT. The basis of the claims was due to various events and Kane warrant that the date for practical completion is entitled to EOT.

· Application of the Domestic Contracts Building Act 1995

Sopov attempt to apply to some provisions under the Act in order to put forth his rights during the trial.

Findings

· The Superintendent

Warren CJ considered the provision of the contract on the expression “honestly and fairly” and followed the principles in the judgement of Perini Corporation v Commonwealth of Australia [1969] 2 NSWLR 530 where in the case of superintendent is acting “honestly and fairly” is when the named person is honest, just, competent and conduct himself in a reasonable manner.

The court accepted Kane’s argument for the following reasons:

- The “undesirably close” relationship of the Superintendent and Sopov.

- There was evidence that the Superintendent was prepared to discuss with Sopov for omission of Kane’s scope of work under the Contract.

- The Superintendent failure to determine the EOT application within the time provided under the Contract.

- The Superintendent admitted that he was avoiding making decisions.

- The Superintendent dual duty as the superintendent of the project and also the certifier for the financier of the project.

The court considered that the Superintendent had breached his duty under the contract to act competently, independently and fairly, due to its relationship with Sopov. The Superintendent may also have been interrupted in performing its duty due to Sopov’s interference.

· The Quantum Meruit

Warren CJ refered to the cases of Brooks Robinson Pty Ltd v Rothfield [1951] VLR 405 and Pavey & Matthews Pty Ltd v Paul [1987] 162 CLR 221 where the courts held that an innocent party of a repudiated contract may elect for restitutionary remedies.

Kane’s quantum meruit claim was successful, but the amount was to be only of the works actually done. Kane’s claim for the 10 percent margin was rejected because it differs from the quantum meruit principles, where the innocent party can only recover the fair and reasonable value of the works completed.

· EOT entitlement claims

Warren CJ adopted the approach take by a UK Court of Appeal case of McAlpine Humberoak Ltd v McDermott International Inc (No 1) [1992] 58 BLR 1, where the court considered a general rule in accessing delay and EOT would require an actual analysis of facts.

The court found that the resolution to this dispute would require the claiming party to provide a complex and factual substantiation to the claim. Kane carries the burden of proof in establishing the cause and effect of the delay events to the project.

From the court’s analysis, Kane was allowed to a total of 56days only of EOT.

· Domestic Contracts Building Act 1995

The court held that the provisions under the Act were not applicable to Sopov because the Act was not intended to be applied for project of such nature.

-this is my version of the case summary. do add a comment if you have additional perspective.

Construction Law-EOT & Peak Principle?

The Prevention principles was first derived from the case Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111 (“Peak case”) based on the law maxim that no man shall take advantage of his own wrong. As it being applied to issues regarding time in a contract, it can be understood that a principal who have caused delay to the contractor’s progress of work can no longer expects that the contractor will comply with the contractual date for completion.

Furthermore the principal has also lost the rights in recovering liquidated damages (“LD”), if the contractor fails to complete the work within the contract period. However, since the contractor is not bound to complete the works by the contractual date for completion, it would also mean time is set ‘at large’. Since LD is no longer applicable, this will only leave the principal with the right to claim for general damages at law for any unreasonable delay as considered by court. This is only a simple logical law to ensure fairness in the principal’s and contractor’s relationship.

However not all preventions by the principal will automatically cause time ‘at large’. After the prevention principle have been widely known by the people in the industry, most construction contracts have been drafted to allow for provisions that deals with delay caused by the principal. In addition to that, the contractor has been provided with a remedy in the case of principal’s delay. Usually the contract provides that the contractor may apply for extension of time (“EOT”) when a delay has happened that has been caused by the principal. The contract administrator shall then evaluate the application and then grant reasonable EOT within the limit of his/her duty. In addition to the provision, some contracts have been drafted to have a condition precedent to the entitlement of EOT evaluation. The provisions are protecting the principal against sudden claim of time being set ‘at large’. So if the contractor fails to apply for EOT, such act could imply that there is no requirement for EOT and the works can be completed on time.

The judicial backing to this opinion have been dealt with in two cases; Turner Corporation Ltd v Coordinated Industries Pty Ltd (1994) 11 BCL 202 and Turner Corporation Ltd v Austotel Pty Ltd (1994) 13 BCL 378 (“Turner Corp. Cases”), where the court ruled that in the presence of EOT provisions in the contract its has already cover the act of prevention along with the mechanism for determining the EOT. With that, a party to the contract cannot rely upon the prevention principle since there is a contractual rights already provided under the contract.

Therefore, the prevention principle is logical, but contracts should be drafted based on this principle and not against it. As an example, in the case of Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2000) 18 BCL 322 (“Peninsula Balmain”), the project adopted the Australian Standard form of contract named AS 2124-1992 with amendments. The contract provided that when it becomes evident that the completion date will be delayed due to the principal’s prevention , the contractor may submit an EOT claim within 28days from the day of the delay event. However, the contract did also provide that the superintendent have the right to extend time with or without the contractor’s entitlement to EOT. With such power, the contract also requires for the superintendent to act honestly and fairly to respond to the EOT claim. In Peninsula Balmain, the superintendent had breached his duty where he has failed to measure the reasonable EOT to the contractor under his obligation to act honestly and fairly, even though the contractor did not comply with the condition precedent. The duty for the superintendent to act honestly and fairly, should comply with the prevention principle, if required. If the superintendent has been made to have known that there is a delay due to the act of prevention by the principal, he should grant an EOT for the contractor to complete the works within the specified reasonable time.

The case of Hervey Bay (JV) Pty Ltd v Civil Mining and Constructions Pty Ltd [2008] QSC 058 (“Hervey Bay”) agrees with the rule set out in Peninsula Balmain. Such rule gives a new breath to the old prevention principle. According to the old principle, if it is a condition precedent and the contractor have failed to submit a delay notice and claim for EOT, it can be implied that it is the contractor’s own failure to avail itself of the remedy. However the new additional rule to the prevention principle as set out in Peninsula Balmain and Hervey Bay, confirms that in the absence of certain amendments to the standard form of AS2124, the superintendent is required to implement his power to grant an extension of time, honestly and impartially and for the benefit of either the contractor or the principal. For this reason, Peninsula Balmain remains as a good law even though it has been heavily criticize.
It is agreeable that the prevention principle represents a logical and suitable body of law to regulate delay events and rights of parties. However, the contract should be made to compliment it and not exclude it or exempt employer from getting away with his own slip.
From the many cases discussed here, it has been identified that EOT provisions are crucial for construction contracts in setting out the party's obligations, performance, and entitlement to LD in ensuring that the right to LD is not lost due to the prevention principle. Moreover, the superintendent’s discretion to grant EOT without the contractor’s entitlement should be regulated by a better provision under the contract. Conveniently it should create certainty for the parties of the contract to deal with EOT and LD.

Allternative Dispute Resolution..next best thing after litigation?

Different type of dispute may require different type of avoidance, management and resolution method. The already existing alternative dispute avoidance and dispute resolution methods are dispute avoidance procedures such as ‘Dispute Review Boards’ (“DRBs”), ‘Dispute Adjudication Board (“DAB”) and ‘Dispute Resolution Adviser’ (“DRA”) and alternative dispute resolution methods include Expert Determination, Negotiation, Mediation and Arbitration.

In comparison of the DRBs, DAB and DRA to litigation, these disputes avoidance procedures are cheaper and cost lesser time than litigation. However, not all of the decisions from these methods are final and binding. DRBs only has a non-binding recommendation and methods such as DAB and DRA may produce a final and binding decision with room for it to be challenged through litigation or arbitration within a period specified. Never the less these methods are great only in trying to avoid from major disputes from taking place. They can be a good tool to avoid litigation proceedings but not as an alternative method to litigation.

As for dispute resolution through the method of expert determination, it is an appropriate method to be adopted when technical issue has arisen and requires an expert’s opinion. Usually it is not related to legal matters and litigation is not necessarily required. Moreover, the method can give a fast result, but the determination is not final and binding unless the parties have agreed to it. If the parties fail to reach an agreement, then they will have to seek resolution through arbitration or litigation.

A different approach to dispute resolution, yet have long been established in the business world, negotiation is a method where the parties communicate to seek resolution on the dispute matter. If the parties are open to compromise on the issues, it is a cost efficient method for clarification and resolving misunderstanding. The result from the negotiation is also easily enforceable and binding if the parties have made the agreement in a form of contract or deed. However since negotiation is about the power of persuasion, this method does have a weakness where the result of the negotiation result may be one-sided to the stronger party. If the weaker party feels that the result is unfair, they can choose to proceed with litigation (on the absence of mediation or arbitration provision in the existing contract).

Mediation is also a familiar method of alternative dispute resolution recognize in the industry. It is now a common method to be pursued prior to arbitration or litigation. Mediation is similar to arbitration where a neutral person is being elected as a regulator or facilitator in a proceeding to help the parties to achieve an agreement to a solution to the issue in dispute. Moreover alike to negotiation and expert determination, the result from mediation is only enforceable if a contract or deed has been made. Besides, if conducted well it will not jeopardize the working relationship between parties and even further create a better understanding between parties. However, since the objective of mediation is to reach settlement, it might take longer time and would increase the proceeding cost too. In this kind of situation, it is better for the parties to opt for arbitration or litigation.

Finally, among the most recognized method for alternative dispute resolution in the industry, arbitration is usually the next best method if the parties fail to seek resolution through mediation or negotiation. It is a dispute resolution method where a single or multiple independent arbitrator/s mutually elected by the parties in private proceedings. The arbitrator elected is usually an expert in the fields that is in dispute. With this, the arbitrator can make the best decision within his jurisdiction, especially if it is a technical dispute that the parties are facing. In these private proceedings, the parties are free to determine the scope, nature and rules. At a glance, it can be seen a less formal proceeding that can achieve the same result as litigation proceedings. Yet, arbitration method could be much faster than litigation and since it is faster, more cost can be saved too. Furthermore the arbitration award is final and binding and easily enforceable domestically and internationally. This would be a good alternative to litigation if the parties in disputes are in an international construction and trading contract.

From these comparisons, it can be distinguished that the most suitable method as an alternative to litigation is arbitration. Litigation is a rigid legal proceeding in court or tribunal with the most formal resolution method that is expensive and has potential for long delays, while arbitration is faster and cost efficient proceeding in a friendlier environment. Both proceedings can achieve a final and binding result, but arbitration might achieve a better result if the issue in dispute is a technical issue and not a legal issue.

--this is what I answered in one of my exam. i scored 15 of 25..not bad, but i know next time i can do better..correto mundo!

My 1st attempt to write legal argument (with comment from my lecturer)

INTRODUCTION

From the factual background given, it is identified that the subject in question is that if Ali owes a duty of care to Carlos by letting him drink to an intoxicated point and letting him enter into agreement to let intoxicated Bianca drive him back home making Ali liable for the damages of the injury suffered by Carlos from the collision due to Bianca’s irresponsible driving under the influence of alcohol.

ALI’S DUTY OF CARE TO CARLOS

Ali is the host of the party that supplied a bath filled with beers to the guests, inviting them to drink while enjoying their time there, in which had opened the opportunity for Bianca and Carlos to drink to a heavily intoxicated state and later on putting themselves in danger.

In the case of Johns v Cosgrove & Ors (1997) MVR 110, the court referred to a certain authorities established in Australia, England and Canada supporting the principle that there is responsibility of the alcoholic drink provider to the person who have consumed it and is heavily intoxicated in result of the consumption to ensure that he/she is not exposed to any foreseeable danger.

In the case, Derrington J ruled:

It is not negligence merely to serve a person with liquor to the point of intoxication; but it is so if because of the circumstances it is reasonable foreseeable that to do so would cause danger to the intoxicated party, such as, for example where the intoxication is so gross as to cause incapacity for reasonable self-preservation when it is or should be known that he or she may move into dangerous circumstances, and where no action is taken to avert this.
Ali was aware that Carlos was in such state and was in reality putting him in potential danger by accepting to be driven home by another person who is under the influence of alcohol.

Therefore Ali does owe Carlos a duty of care during his intoxicated state at and after her party.

ALI’S BREACH OF SUCH DUTY

Since it has been established that Ali does owe a duty of care to Carlos, it is now important to identify if there is any breach of such duty.

From the hypothetical, it is evident that Ali was aware of the agreement made by both of the intoxicated persons, in which they are not in proper state of mind to make a sound judgement. Driving under the influence of alcohol obviously would expose the driver and any of the passengers to a foreseeable danger. With Bianca also being known by Ali as a person with ghastly drinking habits and severe intoxication problem; it places a greater weight to the foreseeable danger ahead for both the driver and the passenger.

Ali’s decision in not objecting or do anything to stop Bianca from driving Carlos home, implies that Ali enabled Bianca to drive in a drunken state which resulted in the accident that injured Carlos. Ali had exposed both Bianca and Carlos to danger, consequentially breached her duty of care.

THE DAMAGES

As a result of Ali’s breach, she had become liable to the damages suffered by Carlos.
However, Ali is not the only person who should be held liable to the damages. Carlos had accepted the beer provided by Ali and became drunk although knowing that later he has to get himself home. In a way he should have foreseen the danger that he might have put himself in if he’s intoxicated at the party.
In the case, the judge referred to the cases Kilminster v Rule (1983) 32 SASR 39; McPherson v Whitfield [1996] 1 Qd R 474. The judge agreed to the rule that if the plaintiff had deliberately become intoxicated, he shall be liable to the damages because he is also at fault into putting himself into any potential danger.

CONCLUSION

From the analysis, it is evident that Ali is at negligence by breaching her duty of care to Carlos during his intoxicated state by letting him become the passenger of the drunken Bianca. However, Carlos is also at fault by being deliberately intoxicated at Ali’s party foreseeing the fact that he might also put himself in danger. Therefore both parties are liable to the damages.

MY LECTURER'S COMMENT

This is a good attempt. Your response is well structured and argued. Your classification of issues however is casery and you have not spotted the main issues raised by the question.

MY COMMENT ON THE COMMENT

okie dokie... Now I know.

YOUR COMMENTS?