Construction contracts are often drafted with notice-based time bars, which operate to bar a contractor from receiving an entitlement it otherwise would have had, on the basis that a notice was not submitted within the time or in the manner required by the contract.
These regimes can act to provide the principal with certainty surrounding the contractor’s entitlements throughout the project and allow them to manage any associated risks accordingly. However, the mechanisms are becoming increasingly more complicated, with harsh and onerous consequences for the contractor.
There may be equitable grounds on which a contractor can overcome a notice-based time bar; for example, conventional estoppel. However, when the parties’ conduct affirms the contractual regime, the contractor may be left attempting to comply with notice-based time bars that are unreasonably onerous or not even capable of being complied with.
In the recent decision of V601 v Probuild [2021] VSC 849 (V601), the Court considered a notice-based time bar and found that the time bar provision in respect of extension of time (EOT) claims should be interpreted broadly, resulting in the contractor not being time barred in the issuing of certain EOT claims.
In Western Australia, the Building and Construction Industry (Security of Payment) Act 2021 (WA) has been introduced, which includes a prohibition on notice-based time bars that are declared as ‘unfair’ if compliance ‘is not reasonably possible’ or ‘would be unreasonably onerous’.
This followed the Western Australian case of CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217, in which the Court had no choice other than to uphold a strict time bar given the clear and unambiguous language prescribed by the contract. However, even in that case, the Court acknowledged that the time bar was harsh, but it was only the overtly clear words that avoided an alternative construction of the time bar not applying.
It begs the question: are both the Courts and the legislature looking for ways to avoid enforcing harsh and unfair contractual time bars in construction contracts?
V601
On or around 23 May 2011, V601 Developments Pty Ltd (principal) and Probuild (Aust) Pty Ltd (contractor) entered into a contract for the design and construction of a project known as The Precinct at Abbotsford, Victoria (contract).
The principal commenced proceedings seeking recovery of liquidated damages entitlements under the contract, relying on certificates issued by the principal’s superintendent (superintendent). The contractor subsequently filed counterclaims disputing the validity of these certificates, as it considered that the superintendent was colluding with the principal in defeating the contractor’s entitlements to EOT claims. In its counterclaim, the contractor sought (amongst other things) costs associated with accelerating work as a result of the EOT claims to which it pleaded it was entitled to being rejected.
In order to obtain an EOT, the contract contained a notice-based time bar in relation to the EOT claim only. There was no time bar in relation to the notice of delay, which often appears in construction contracts. The notice-based time bar was contained in clause 34.3(d) of the contract and required the contractor to give an EOT claim to the superintendent:
| …as soon as the Contractor can ascertain or estimate with reasonable accuracy, the extent of the delay, and in any case not later than 10 Business Days after the occurrence of the Qualifying Cause of Delay. |
The principal contended that one of the contractor’s EOT claims did not comply with the notice-based time bar in the contract.
On a strict interpretation of clause 34.3(d), it may be considered that the contractor’s EOT claims were due no later than 10 Business Days after the occurrence of the Qualifying Cause of Delay or sooner if the Contractor could ascertain or estimate with reasonable accuracy the extent of the delay before that time. However, Digby J found that the clause applied in a different manner.
At paragraphs 1022 to 1023 of the decision, Digby J found that:
| I consider that sensibly and reasonably construed, and given that the occurrences of the type listed in the definition of Qualifying Cause of Delay do not necessarily, or in some cases self-evidently, give rise to delay to the works (and in the case of a Latent Condition may have occurred years before), under cl 34.3, the relevant occurrences are not required to be the subject of an EOT claim until the specified time after the Contractor can ascertain, or estimate, the relevant extent of delay with reasonable accuracy. | |
| Therefore, in my view, cl 34.3 should be broadly construed, so as not to require the submission of a Contractor’s claim for extension of time, until after the contractor can identify, and with reasonable accuracy ascertain or estimate, the actual delay caused by the Qualifying Cause of Delay. |
Accordingly, whilst clause 34.3(d) expressly states that the EOT claim was due within 10 Business Days after the occurrence of the Qualifying Cause of Delay, the Court adopted an alternative interpretation that allowed the EOT claim to be made not only after the commencement of the Qualifying Cause of Delay but after the extent or duration of the delay could be estimated with reasonable accuracy.
CMA
Unlike in V601, in CMA Assets Pty Ltd v John Holland Pty Ltd [No 6] [2015] WASC 217 (CMA) a notice-based time bar in respect of EOT claims was upheld by the Court. In this case, the language in the subcontract regarding the notice-based time bar was very clear and unambiguous, expressly stating:
| The Subcontractor shall not be entitled to any extension of time pursuant to this General Conditions Clause 10.12 unless… [the Subcontractor] notified John Holland, in writing, of the Subcontractor’s intention to apply for an extension of time, within 7 days… | |
| If the subcontractor fails to comply with General Conditions Clause 10.12 then… the Subcontractor shall have no entitlement to an extension of time. |
In upholding the notice-based time bar, Allanson J held that (at 375):
| There is no doubt the strict application of cl 10.12 and cl 10.13 is harsh. But I am not satisfied that it is without purpose and absurd, so that an alternative construction must be given, notwithstanding apparently clear words. |
In essence, it was only because the language in the contract was so very clear that the Court was bound to uphold the time bar rather than favour an alternative construction that would allow the contractor additional time to issue its notices.
However, the comments of Allanson J indicate that in absence of undoubtedly clear language as to the requirements of the notice-based time bar, the Courts will look to an alternative construction to overcome an unreasonably harsh or unfair time bar.
WA SOP Act
Following the decision of CMA, Western Australia has introduced the Building and Construction Industry (Security of Payment) Act 2021 (WA) (WA SOP Act).
Section 16(2) of the WA SOP Act provides:
| A notice-based time bar provision of a construction contract may be declared under this section to be unfair in the case of a particular entitlement under the contract if compliance with the provision in that case — | |
| (a) is not reasonably possible; or | |
| (b) would be unreasonably onerous. |
Section 16(4) of the WA SOP Act further provides that:
| A notice-based time bar provision of a construction contract that is declared to be unfair has no effect in the case of the particular entitlement that is the subject of the proceedings in which it was declared unfair, but continues to have effect in other circumstances or challenges arising under the same or a related contract. |
Under section 16(3) of the WA SOP Act, the power to declare that a notice-based time bar in a construction contract is unfair is not limited to adjudications under the WA SOP Act but broadly extends to:
- an adjudicator or review adjudicator in an adjudication proceeding under the WA SOP Act;
- a court for the purposes of proceeding for the recovery of money or enforcing other rights under a construction contract;
- an arbitrator for the purposes of arbitration proceedings under the construction contract or any separate agreement between the parties; and
- an expert appointed by the parties for the purposes of proceedings to determine a matter under the construction contract.
Accordingly, in Western Australia, time bars that are unreasonably onerous or not reasonably possible to comply with are now largely prohibited or at least open to further scrutiny during any legal proceedings. However, the party alleging that a notice-based time bar provision is unfair bears the onus of establishing that it is unfair.
Take home points
The decision of V601 and the comments of Allanson J in CMA indicate that the Courts are willing to favour an interpretation of a construction contract that overcomes an unreasonable or harsh contractual time bar, where possible. This is despite Courts generally avoiding modifying the terms of a commercial contract in an arms’ length transaction.
In an Australian first, Western Australia has even legislated to protect contractors against unfair notice-based time bars.
In defeating late claims, time bars within construction contracts should be drafted in terms that are clear and unambiguous to avoid the Courts determining that an alternative interpretation may apply. In Western Australian, such clear and unambiguous wording may no longer be sufficient if the clause is still considered to be unreasonably onerous or not capable of compliance.
More information
For information about this case or for advice, please contact:
Darren Cain, Principal Lawyer and
Head of Construction and Infrastructure
(03) 8600 0701 or dcain@kcllaw.com.au
Damien Simonetti, Principal Lawyer
(03) 8600 0708 or dsimonetti@kcllaw.com.au
Author
This Construction & Infrastructure case note was authored by Damien Simonetti, Principal Lawyer.
Note: This update is a guide only and is not intended to constitute legal advice.