December 11, 2023
Built Qld Pty Limited v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd (No 2) [2023] QCA 140 was a case of 2023 that contained a list of timely reminders of issues often experienced on construction projects. Scope amendments, defect rectification, determination of EOT’s along with assessment methods were all live issues before the Court.
The Case
Pro-Invest Australian Hospitality Opportunity (SP) Pty Ltd (Pro-Invest) engaged Contractor Built Qld Pty Limited (Built Qld) for the design and construction of a hotel in Brisbane. During construction, Built Qld made a number of claims for variations, extensions of time, and delay damages, and Pro-Invest made claims for defective works and liquidated damages.
During the course of the project, Built Qld received a defects notice from Pro-Invest which, directed them to remove and replace the air conditioning system because it did not have a ‘mode control’ feature and was therefore defective (Defects Notice). Built Qld argued that the Defects Notice was not a defect rectification, but rather a direction to carry out a variation, and as such, Built Qld was entitled to claim for associated additional costs, an extension of time (which is subsequently submitted), and for delay damages.
Pro-Invest disputed that the direction to replace the air conditioning systems (contained in the Defect Notice) was a variation, and maintained that it was a direction to rectify defective work (under the relevant clause in the contract) and Built Qld was required to bear its own costs.
At Trial
At first instance, the Court agreed with Pro-Invest and found that the Defects Notice was a notice to rectify defective works. It followed that the Court rejected Built Qld’s claim for an extension of time and delay damages, as it’s claim was time barred. The Court also found that there was insufficient evidence to establish the additional costs claimed by Built Qld were linked to the installation of the alternative air conditioning system.
Built Qld appealed this decision.
On Appeal
On appeal, the Court disagreed with the earlier findings, and instead found that the Defects Notice was not a direction to rectify defective works, and was in fact a variation as the replacement of the air conditioning system provided by the contract (alleged by Pro-Invest as required under the contract), was in fact, not works required under the contract.
The tender clarification formed part of the Contract gave Built Qld an option of supplying an alternative air conditioning system, provided it met the performance requirement of the tender drawings and specifications (Specifications).
Pro-Invest argued that the air conditioning system was defective because it did not give the occupant of each individual room mode control. Built Qld argued that the contract did not stipulate the air conditioning system was to give every room ‘mode control’ because:
- The contract did not provide a proper definition of Built Qld’s obligation to build the air conditioning system; and
- The contract required Built Qld to install a ‘VRF’ system which complied with the performance requirements of the Specifications, which did not include a performance requirement that each individual room have ‘mode control’.
The Court of Appeal found a reference to ‘the contractor’s alternative proposal’ in the Contract was a descriptive term which lacked meaning unless consideration was given to extrinsic evidence. The Court considered extrinsic evidence in the form of emails but found that the correspondence constituted continued negotiations between the parties as to the detail of the air conditioning system to be installed.
With respect to the term ‘performance requirement’, in a case concerning a building contract was considered to be closely related to the notion of ‘performance specification’, and was designed to fill the same contractual purpose. The Court of Appeal found that the ‘mode control’ feature, was a prescriptive requirement, rather than a performance requirement. The air conditioning system installed by Built Qld complied with the performance requirements and therefore did not need to comply with the prescriptive requirement. Accordingly, the works were not defective and Built Qld was entitled to the price of the varied work.
As the works were not defective, and the direction contained in the Defects Notice was found to constitute a direction, Built Qld was entitled to an extension of time.
The relevant clause in the contract provided that the claim for an extension of time notice be given within 14 days of when the Contractor reasonably becomes aware of the qualifying cause of delay.
Built Qld served its extension of time notice 15 days after it has received the Defects Notice, where the relevant clause prescribed it must be provided within 14 days of become aware of the qualifying cause of delay. Whilst the Court agreed that time bar clauses should be strictly enforced, it did not agree that the extension of time was served out of time.
The Defects Notice was given well after the end of a business day, was seven pages long and required an engineering opinion to be formed with respect to 11 separate alleged defects in which the air conditioning system failed to comply with the Specifications. It was only after the engineering opinion was formed, could a legal decision be made in relation to the contractual effect of the Defect Notice, in terms of its characterisation as either a defects notice or direction to perform a variation. The Court considered that only once Built Qld had made decisions with respect to the engineering and legal matters, could a commercial decision be made on how to respond to the Defect Notice.
The Court held that it was not until all three of the decision had been made that Built Qld could, or should reasonably, have become aware of the qualifying cause of delay.
Further, Built Qld argued that compliance with the Defects Notice caused it to take extra time to achieve practical completion, therefore justifying an extension of time. Built Qld also argued that it had to keep its site open and operating for the extended period, and it should be entitled to the related on site overhead costs of doing so.
The Court agreed and held that Built Qld had provided a basis for its costs as reasonably and necessarily incurred due to the Defects Notice.
Following success of the first appeal there were lengthy submissions regarding the issue of costs, this article does not address these issues. For more information, read the case here.
Key Takeaways
The decision emphasizes (and reminds us):
- To review the language of any performance specifications. Is your scope clear?
- Whether works are considered defective may be measured by what the prescriptive or performance requirements are; and
- Qualifying cause of delay require you (typically) to have reasonably been aware of a delay.
LPC Lawyers
LPC Lawyers have industry knowledge and experience to assist both Principals and Contractors in all major projects and payment disputes.
If you would like to discuss any matters raised in the above article or this series as it relates to your specific circumstances, please contact Lamont Project & Construction Lawyers.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
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