Basis Of Law, Good Faith Obligations, And Counterclaims In Construction Cases

Elements of a Contract in Construction Cases

In construction cases, contracts are entered into by the parties to provide consultancy services, design services and also to produces guidelines for entering into agreements. Australian law while complying with Unidroit principles states the remedies for breach of contract and also gives the guidelines regarding entering into a contract (Vogenaur and Kleinheisterkamp 2015). The elements of a contract are that there shall be an offer and a subsequent acceptance to constitute a valid contract (Bonell 2018). The elements of a contract can be found in the case of LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886, where the case was concerned with the management of a Stadium. In 1997, Baulderstone (a construction company) attempted to bid for the contract to construct and operate the stadium.  On or about 27 June 1997, a written heads of agreement was entered into, and on 1 September 1997, the Docklands Authority announced that the Docklands Stadium Consortium Pty Ltd (“DSC”) won the bid and DSC would be responsible for the management of the stadium (Hepburn 2015). The case dealt with a breach of contract and how DSC had failed to take proper precaution (Valdes 2015). The LMIA was appointed as the manager and the applicant claimed that the breach of the contract also constitut3ed a breach of agreement(Vogenauer 2016). A claim was instituted against the construction company holding that the heads of the agreement had constituted a breach of agreement. This was not only a breach contract but also a case of tort dispute. The breach of tort also induced a subsequent breach of contract (Ramberg 2016).

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Codelfa Construction v State Rail Authority of New South Wales dealt with the case of implied terms and frustration (Burett 2017). In this case the plaintiff, that is, Codelfa was working for the State Rail Authority and this case applied the parole evidence rule to understand the ambiguity surrounding a case (Davies 2016). The same parole evidence rule was applied in the case of Pagnan SpA v Feed Products Ltd [1987] 2 (Yeen 2015). These cases discussed the importance of offer and explained when an offer constitutes a valid contract (Turner 2016). The terms of the contract need to be unambiguous and should explain the rights of the parties (Scollo et al  2015). There can be an admittance of an extrinsic contract if there is an ambiguity which needs to be solved (Hunt 2015). The external circumstances should be important to understand the implications of the terms of the contract. Section 18 of the Australian Consumer Law states that no one shall engage in any descriptive or misleading conduct while conducting a trade (Paterson and Brody 2016). In this case, there has been confusion between both the parties regarding the terms of the contract. Acciona has claimed that the State has indulged in unfair and descriptive terms thereby misleading Acciona into believe in terms of the contract that were against the principles of the Australian Consumer Law. The case in the present scenario is regarding the building of a 12 kilometer light rail line that was agreed between the parties but the terms of the contract have been deceptive which go against the said principles of the Australian Consumer Law.

Implications of Good Faith Obligations in Construction Contracts

It is important to understand contractual obligations in the light of good faith obligations. Good faith obligations are an important basis for modern contract law. In the context of commercial contracts, it is important to understand the implications of the contract as a good faith obligation (Macaulay 2018). The notions also suggests that the obligations of the parties need to be voluntary assumed by the parties themselves and that needs to do be done more in cases of sophisticated commercial contracts (Adriaanse 2016). The best to understand the good faith obligations is to attach express contractual terms so that the parties can assume their responsibilities better. This notion was upheld in the case of Commercial Bank of Australia v Amadio [1983] HCA 14. Again in the case of BP Refinery (Westernport) Pty Ltd v Shire of Hastings the Court of Appeals held that the doctrine of good faith should be seen as an implication of law and the obligation of good faith should be seen as a prerequisite of a contract in the eye of law (Armstrong 2016). More so, the concept of good faith is seen as an essential element in commercial contract. This case was concerned with ad hoc implication of good faith and dealt with the law of implied terms (Campbell 2014). This case laid down five tests that must be satisfied by the parties to a contract and these five tests are very strict (Klee 2015). The test for implied contractual terms is that the term has to be reasonable and equitable, the terms should render the contract effective and the terms shall not be such that the no meaning is attached to the contract if the implied term is done away with (Kelleher 2014). The implied terms shall not be contradictory to any existing express term; the implied term shall be capable of clear expression and shall not be ambiguous. In the case of Burger King Corporation v Hungry Jack’s Pty Ltd [2001] 69 NSWLR 558 the New South Wales Court of Appeal held that there was an implied duty of good faith in law and therefore the parties to a contract cannot act ultra vires to the conditions of a contract and cannot outside the scope of the terms. Therefore, from understanding the above cases, it is imperative to follow a duty of good faith in enforcing a contract (Hughes, Champion and Murdoch 2015). Therefore, in the Victorian Law perspective other than an ad hoc implication of law, it is important to consider a good faith doctrine for the construction of a contract (Zeller and Andersen 2016). Pagone J in the judgment stressed on the implications of the terms of a good faith provision from the structure of the contract. If it is not easy to determine contractual obligation, it becomes difficult to gauge the certainty of the contract. Therefore the parties to a contract are obligated to act in good faith. Not only implied good faith the courts also check whether there was an express agreement between the parties which can be equated with good faith (McKendrick 2014). The court aims to balance the interests between the parties and tries to ascertain their contractual obligations and duties. In Australian common law, to prove a contract existed the courts can rely on external evidence from witnesses.  This Article, like the common law, is also subject to other legislation or laws which specifically state that the contract must be in writing (Sadrieh and Voigt 2017).

Requirements for Counterclaims in Ambiguous Contract Disputes

The facts point towards an ambiguous contract term which had induced the company to engage in a misleading contractual term. The company claims that the terms of the contract were deceptive and therefore had deceptive undertones thereby making the company unsure of the terms of the contract. To make a strong counter claim and opposition, Transport of NSW has to prove that the offers were made in clear terms and there were no ambiguities in the terms of the offer.  Transport for NSW has been accused of issuing guidelines that were completely different from the plan that Acciona had with the company. In that case, the terms of the contract being in conflict with the already accepted provision can be claimed that latent conditions can be made enforceable in court. The contractual terms agreed between Acciona and Transport was discussed between the parties and a proper negotiation was reached. Acciona was aware of the terms of the contract and being fully aware of the terms had agreed to be a part of it. The counterclaim that can be raised by Transport of NSW is that the damages claim is outrageous and not within the stipulated time and discussed amount.  The timeframe that was discussed between the parties was not respected and the contractors have not given a proper time within which they would be able to complete the work. The contract has not been willing to give a “meaningful timeline” for completing the task. As has been held in the case of Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7, that though formal contracts are not exchanged, the parties are under and obligation to treat the contract as enforceable and treat the exchange between the parties as formality and an obligation to honor the terms of the agreement. Under Australian Law ‘promissory estoppels’ is seen as a sword as well as a shield, that is, it protects the interests of the parties and also acts as an impediment to their contract. in cases of promissory estoppels, a party cannot go back on the discussed terms of the contract. therefore, for a promissory estoppels to apply, the parties have to show that there was a formal contract which is enforceable and binding on the parties even though there was no consideration. In cases of promissory estoppels, a party is not allowed to back on the terms of the contract. The same principle can be applied in the present case, that is, the party is stopped from going back on the terms of the contract and in doing so he shall be held to be liable for breach of contract. In such cases, equity acts as an important condition which needs to be taken into consideration by both the parties to ensure that the terms of the agreement are not abandoned. As the case Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7 held that the plaintiff was under an obligation to communicate to the other party a reasonable time within which the contract would be performed, in this case also Transport can claim that they need to know the time by which the contract would be completed. The State Authority had asked Acciona to go slow and start doing the work and not to stop from continuing. Therefore, Acciona is stopped from retreating from the implied promise that he is endowed with, that is, the promise to complete the contract on time. Time is an essence of contract and therefore, the contract needs to be completed on time. The only exception to the time clause is that the contract could not have been completed on time due to some urgency or the parties were under a confusion that the  contract was a mere formality and the parties were not bound by the terms of the contract. In the present case, Acciona had an implied duty to ensure that the contractors complete the contract within a stipulated time. Acciona has failed to complete the work on time and therefore had breached the condition of contract. this is a valid counterclaim by Transport that Acciona has not completed the contract within the framework and has also not given a valid justification for failing to do so. The conditions of the contract were such that it had to be treated as a formal expression of contract and therefore the contract was binding on both the parties.  

In this present case, a dispute regarding the invoice payment and validity of the contractual terms in a construction case have been cropped up. Considering the brief of the case, it has been observed that both the parties have made their claims and counter claims to this effect and the dispute is required to be resolved as soon as possible. The main claim of the company named Acciola has been established on the fact that the government has failed to disclose all the necessary information regarding the contract and for that, the company has to face serious financial damage. On the other hand, it has been claimed by the government that they had done all their duties and there is no faults in their parts. However, government has made the claim that the alleged company has failed to act diligently and they had failed to make the thing done within stipulated time. Further, the company has failed to make any justification against their proposed expenses. In addition to this, the government has made the claim that the negotiation process has been made to resolve the dispute but the company has failed to represent them faithfully and could not get the invoice payment by the arbitrator. It has been contended by the government that the contractor of the company has failed to act prudently to complete the work within specific time. Therefore, the government is not liable to pay any additional payment to the company. The company made a plea that the company thought that ASUGRID had accepted the proposal of the government and in subsequent event, it has been observed that AUSGRID had not accepted the same and according to the company, government had misguided them to this effect. Government had to disclose this matter to the company before the contract has been signed in between them. However, this matter has made a political satire and it has been observed that labour leader Luke Foley had contended that due to the laxity on the part of th government, an affordable project became so expensive. Following documents are required to support each party’s claim before the court of law and are required to be submitted at the time of the hearing.

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The company has to show the contents of the contract agreed in between them and the government regarding the project. They have to show the provisions of expenses that they had done and all the calculations should be submitted categorically. Further, the company has to show certain case laws in their support and they have to prove that AUSGRID had rejected the facts of the contract.

The court has to submit the agreement where the company has agreed to submit all the works within that stipulated times and also required to be submitted the facts that the contractor had denied or refused to submit their works within that period. The government has to establish the facts that the payment made by the company is outrageous in nature. Further, the government should interpret the terms of the contracts. They have to make sure that they have disclosed all the relevant facts of the project to the company at the time of the contract and the company had given their consent on that.

The witnesses of the case are the director of the company who had put his signature on the contract and the government attorney or any member whose signature has been put on the contract. Further, the director of AUSGRID should come before the court to identify him and his role in the project.  

Considering the facts of the case study, certain problems have come into lights. It has been observed that the present company has alleged that the NSW government has failed to disclose the fact that Ausgrid had disallowed the project regarding underground wire system and the company has encountered financial loss due to it. The company has alleged that the acts of the government attracted the provision of section 18 of the Australian Consumer Law and failed to act in accordance with Australian Construction Act. In LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886, it has been observed that in case of any breach of provision of Construction Act, the defendant will be held liable under Tort law (Dixon 2017). In such circumstances, the party has to prove that all the elements of contract have been followed at the time of contract. However, in this case, it has been observed that the government has also made certain counter claims where they held the company liable for the estimated cost and assured that all the works done by the government are following the provisions of the Construction law. However, all the problems are required to be identified. Further, it should be decided what legal actions can be taken to avoid future problems cropped up due to this.

Considering the case law, certain problem statements have been come into existence. The first problem regarding the issue is whether the contract made between the parties is valid or not. Further, it is to be discussed whether the company could claim to set aside the contract on unconscionability ground or not. It is also to be decided whether the contract between the parties have attracted the provision of the Construction law and made with good faith or not (Murray 2014). In this case, the first thing is to interpret the provisions of the construction contract. According to the law, good faith must exists in between the parties and it is to be find out whether any imbalance in bargaining power has been considered or not. The problem of this case has been reflected in the case of Lines MacFarlane Marshall Pty Ltd v Fletcher Construction Australia Ltd [2000] VSC 358, where it has been claimed and counter claimed by both the parties that parties to the case has failed to act in due diligence. It has been observed by the court, “rights under the general law are not to be regarded as excluded unless the contract manifests an explicit intention of doing so”. Therefore, it can be stated that the parties to the case have to establish the facts. If any faults have been observed in anyone’s part, the other party could repudiate the contract.

This part is dealing with the application provision of Security of Payment Act and suggests the company how to avoid future problems regarding the same.  Building and Construction Industry Security of Payment Act 2002 was enacted to deal with the claim made under building contract. Further, under this Act, certain procedures have been taken in order to ensure the cash flow under the business. Further, it protects the parties against any expensive litigation. The company is advised to make an application under the Act and opted for a negotiation process to retain the cash flow in the construction business. The company can make an application for invoice payment and in this case, it is not necessary to consider whether the payment is accurate or not (Bell 2017). However, it is to be kept in mind that the application should based on section 18 of the Security of Payment Act 2002 and file the application within time. According to Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor [2009] VSC 156; 26 VR 112, in case of late application, the same will be rejected. Further, in Dualcorp v Remo Constructions [2009] NSWCA 69, it has been observed by the court that the decision of the former adjudicator will be applied on the subsequent adjudicator and if the former adjudicator has cancelled any entitlement of payment, the parties could not claim for the same in subsequent event. However, it has been mentioned under Grocon Constructors v Planit Cocciardi Joint Venture [2009] VSC 339 that if the arbitrator has failed to come into a fruitful solution, certiorari can be available for the affected parties. Therefore, the company can make application under the provision of certiorari. To conclude, according to the judgment of Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd [2010] NSWCA 283, it can state that in case of any conditional performance security, possible limitations of the calls are to be analyzed by the principals (Faraz et al 2015).  


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