Wednesday, September 2, 2009

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 26th 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 31st May 1999. It was only 3months later, on 20th 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 18th 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 2nd 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.


· 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.