Cases That Affect Contractual Agreements in the Building Industry

building-contractor-with-paperwork

As a supplier of decorative mouldings to the building trade the Finishing Touch works with a range of builders and sometimes directly supplies to owner/builders and was alerted recently to some court cases during 2016 that could affect contracts within the building trade. Contractual agreements between parties in the building industry can become the subject of disputes and when they do the clauses in the contracts become critical.

The first case can be applied generally as it relates to the amount of damages a party (for example, the builder) will pay when a contract breach occurs agreed upon at the time the contract is first entered into You may be familiar with the term ‘liquidated damages’. The case between Paciocco v ANZ [2016] went to the High Court in Victoria. The case looked at the possibility of a particular liquidated damages clause being struck out or struck down. This can occur if the court says the amount of liquidated damages specified is considered ‘extravagant’ or ‘unconscionable.’ In this case the court was dealing with the issue of late payment fees the bank was charging but the principles stated apply in other contexts, and they apply in particular to the construction industry.

In this case the court set a ‘new bar’ as to when a liquidated damages clauses may be struck out which has resulted in that bar now being set far higher than it used to be. This will make it much harder in future to have such a clause struck out as the precedent has been set.

Another case heard in 2016 in Victoria was about security of payment legislation. The case between SSC Plenty Road Pty Ltd v Construction Engineering (Aust) Pty Ltd involved the issue of a construction contract which provided for a method of resolving disputes between the parties if meeting and talking didn’t lead to resolution. The method stated in the contract was mediation. The case was to determine if the contract contained a ‘method of resolving disputes under the contract.’

Mediation was found not to be a ‘method of resolving disputes’ as it was not a method of resolving a dispute which is final, due to the fact that mediation of a dispute may or may not resolve a dispute and therefore the dispute may drag on. The overarching purpose of the legislation which is to settle disputed claims for payment quickly and with tight time frames was not met by mediation the court found as it was not a method of resolution of disputes, but a ‘mere’ forum for the issues within a dispute to be aired.

As, in the case of The Finishing Touch whose supply of lightweight, architectural decorative mouldings to builders has become ever more popular, business increases and more agreements are entered into it is important to be across changes that may affect the outcome of any disputes.

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