Patrick McGrath

BA,LLB(Hons) MComLaw(Hons)
Patrick McGrath

Phone +64 9 300 1257
Mobile +64 21 619 540
patrick@mcgrathlaw.co.nz

Vulcan Building Chambers
Level 4 Vulcan Buildings
Cnr Vulcan Lane and
Queen St

PO Box 3320
Auckland 1140
New Zealand

Court upholds 15 working day limitation clause


In a recent High Court decision, a company was prevented from having its day in court because it failed to bring its claim within the 15 working day period specified in the contract concerned.

The case is H & H Contractors Ltd v Leighton Contractors Pty Ltd. It is a reminder of the importance of carefully checking the wording of a contract as soon as there is any sign of a dispute.

Leighton Contractors and H & H Contractors signed an agreement for H & H to provide drainage and earthmoving work on the Manukau Extension (State Highway 20). The contract provided that H & H was not able to make any claim under the contract unless it submitted a prescribed notice detailing the claim "within 15 working days after the first day upon which [H & H] could reasonably have been made aware of the matter". The prescribed notice required, among other things, particulars of "…the breach, act, omission, direction, approval or other circumstances or event on which the claim is or will be based", and particulars of the likely quantum.

Soon after work began, on 27 February 2008 Leighton Contractors raised various issues as to H & H's performance and required it to remedy "all material breaches" at its own cost within 5 days. Leighton stopped providing H & H with new work and employed another contractor so that H & H could concentrate on "remediation". H & H objected (in writing), pointing to the fact they had a contract for the entire drainage works, and asserting that they would have a lost profits claim if Leighton employed another contractor. They did not, however, submit the prescribed notice.

Having received no further work, in November 2008 H & H inquired as to when they would be required to continue. On 28 January 2009, Leighton Contractors wrote to H & H telling them that because of performance issues with their work another contractor had been employed and no further assistance from H & H was required. There was further correspondence between the parties. On 23 March 2009, H & H submitted the prescribed notice of its claim, alleging that Leighton had wrongly cancelled the contract, and that the performance issues they had raised were a fiction designed to side-line H & H and allow Leighton to get a cheaper contractor. Leighton replied that H & H were prohibited from raising the claim because it was outside of the 15 working day period.

H & H issued proceedings alleging breach of contract, wrongful repudiation of the contract and breach of the Fair Trading Act 1986. They sought damages of around $5 million for the lost profits they said they would have earned had the contract been permitted to run its course. Leighton applied to strike out the claim based on the time bar clause. They were successful at first instance before an Associate Judge, at least to the extent the two contract causes of action were struck out. However, H & H were allowed to continue with the Fair Trading Act cause of action – H & H Contractors Ltd v Leighton Contractors Pty Ltd.

H & H applied for a review of the decision striking out the two causes of action. Leighton applied for a recall of the decision to allow the Fair Trading Act cause of action to continue.

Justice Ellis upheld the decision to strike out the contract causes of action, and she struck out the Fair Trading cause of action as well.

Her Honour accepted H & H's argument that the contractual clause requiring that any claims made within 15 working days was to be strictly construed against the party relying on it. This is the usual rule in the case of exclusion clauses. Strictly speaking, the clause under consideration was not an exclusion clause as it did not permit a party to escape the consequences of its own wrongdoing. The clause merely made it a condition precedent to a claim that it be filed on time. However, Her Honour was prepared to regard the clause as an exclusion clause in the broader sense and construe it strictly. But construing the clause strictly did not help H & H because the clause was clear. There was no ambiguity to which the strict construction rule could apply.

Her Honour regarded the time bar clause as reasonable and entirely consistent with the wider commercial context. The contract contained a method of dispute resolution that, in the first instance, required the parties to act speedily and inexpensively and attempt to resolve the dispute relatively informally. This made sense against the background of major and multifaceted construction works involving a number of different subcontractors with interdependent roles. In that context delay by a party in taking steps to resolve a dispute could disrupt the wider project.

The Fair Trading Act cause of action alleged that H & H had been misled by Leighton not making its position clear, and that H & H would have submitted the prescribed notice in time had Leighton done so earlier. The Associate Judge had accepted the argument that the FTA cause of action could not be contracted out by the time bar clause.

Justice Ellis noted that it had previously been the position that the FTA could not be contracted out of , but that in the 2009 Court of Appeal decision of David v TFAC Ltd the view was expressed that commercial entities (but not consumers) should be able to contract out of the FTA if they wished. This was a commercial transaction and the wording of the time bar clause clearly stated that it applied to claims "under any statute", which obviously included the FTA claim. The FTA claim was, therefore, struck out too.

 

Patrick McGrath, October 2013