Builder’s Claim for Delay Damages under Building and Construction Industry Security of Payment Act 1999 - Defeated

07/03/2022

Recently Watson & Watson Lawyers acted for a property owner who entered into a Building Contract for completion of the building of two properties following termination of a Contract with the original Builder.

The Building Contract for the Second Builder was in the form of one of the standard forms of Contracts regularly issued by Builders.

While the Contract was for a lump sum there were two significant variations agreed with the Builder arising from changes necessitated by defective work undertaken by the original Builder.

As is usual in many building contracts, the Building Contract had a provision in it (Clause 18) allowing for a claim for delay to be costed in the price of a variation.

There was no separately indentified claim for delay within either of the two variations agreed with the Builder.  The Owner paid the amounts claimed in those variations.

More than several months later, the Builder served a Tax Invoice purporting to be a claim for delay damages under the Building Contract.  The period of time said to comprise the delay period, was a period of almost half a year that had ended several months earlier.

Clause 19 in the Building Contract (Clause 19) provided:

19.1    The builder is entitled to a reasonable extension of the building period if the building works are delayed by the builder suspending the building works under Clause 25 or from a cause beyond the sole control of the builder including:

1. a variation or a request for a variation by the owner;
2. an act of God, fire, explosion, earthquake or civil commotion;
3. adverse weather;
4. an industrial dispute;
5. a dispute with adjoining or neighbouring residents or owners;
6. anything done or not done by the owner;
7. delays in getting any approvals;
8. a delay in the supply of materials selected by the owner;
9. the need for a survey of or other report in relation to the site; or
10. the industry shutdown being a 3 week period commencing on or about 2 December in each year if construction during the Christmas period could not have been reasonably foreseen at the date of this contract.

19.2    The builder is to give the owner written notice of an entitlement to an extension of time detailing both:

1. the cause of the delay; and
2. the extension of time,

within 10 working days after becoming aware of both the cause and the extent of the delay.

19.3    If the owner wishes to dispute the builder’s entitlements to an extension of time, the owner must within 5 working days of receiving the builder’s notice, give the builder a written notice:

1. disputing the extension of time; and
2. detailing the reasons why the extension of time is disputed.

19.4    For every day the subject of the extension of time caused by an act, default or omission of the owner, delay damages being the title of the actual increase in cost to the builder to carry out the building works plus the Builder’s Margin applied to the cost, is due and payable to the builder on demand.

The Builder after considerable delay, served an invoice in which it claimed over $400,000 for “delay costs” where there had been no prior applications made for an extension of time under Clause 19.  Very scant detail was provided in support of the claim which was for a period of time said to span almost 6 months. Even the face of the invoice, did not purport to be either a claim under Clause 19.1 or under 19.2.  Most of the delay claim was for daily delay damages.

On behalf of the owner we disputed the Builder’s right to those moneys.

Subsequently, the Building Contract was terminated by the parties and the Builder served a document purporting to be a Payment Claim under the Building and Construction Industry Security of Payment Act (1999) (NSW) (Security of Payment Act) for almost $500,000 that essentially claimed for the most part, the claim for delay damages it had made in its earlier invoice, and added a few further claims for other matters.  The delay claim component was in excess of 80% of the amount claimed.

Following receipt of the Builder’s Payment Claim, we prepared and served a Payment Schedule on behalf of our client disputing the Claim.

The Builder then proceeded to lodge an Adjudication Application under the Security of Payment Act.

We then prepared, lodged and served an Adjudication Response, Statements, Evidence and Submissions on behalf of our client.

In relation to the claim for delay damages, in the Payment Schedule and Adjudication Response, we submitted amongst other things, that:

• Clause 18 dealing with variations provided a mechanisim for claiming variations which included the right to include claims for extension of time for the variation.
• Clause 19 of the Contract provided the mechanism for claiming extensions of time.
• The Claimant did not seek an extension of time in any of the variations that were claimed.
• Claims for extensions of time had to include detail of the cause of the delay so the claim could be assessed as to whether the cause was beyond the sole control of the Builder. 
• The Claimant did not make any claims for extension of time in accordance with Clause 19. 
• The email correspondence relied upon by the Claimant in the Application did not constitute valid claims for extension of time under Clause 19.2
• In order for the Claimant to be entitled to claim delay costs under Clause 19.4, the Claimant must have first been entitled to an extension of time.
• The Claimant had not established that it was in fact delayed on each day of the delay claimed.
• Even if there is an extension of time for a cause of delay that gives rise to an entitlement for delay costs under Clause 19.4 and the Builder did not quantify the claim.

Ultimately the Adjudicator dismissed the delay claim on the basis that he was not satisfied the Builder was entitled to the delay costs as claimed.

This represented a major win for our client as this claim was the major component of the Payment Claim.

The Adjudicator found that Clause 19 operated as follows:

“(a)     First, there must be a delay caused by “an act, default or omission of the owner” 106.  That is the only cause of delay that Clause 19.4 allows.  I do not think it is a separate causative event.  Rather, it is a criteria applied to the circumstances giving rise to the causes in Clause 19.1.  For example, it would fairly obviously encapsulate the causes in Clause 19.1(a), (f) and possibly (h) but again, it depends on the particular circumstance.

(b)      Second, the Claimant must give written notice to the Respondent of the Claimant’s entitlements to an extension of time detailing the cause of the delay and the extension of time “within 10 working days after becoming aware of both the cause and the extent of the delay”107.  The cause of delay identified in the notice may be one of the causes listed in Clause 19.1 however, to form the basis of an entitlement to delay costs, that cause of delay must also be “an act, default or omission of the owner.”

(c)      Third, the amount of the Claimant is entitled to be paid is the “the actual increase in cost to the Builder to carry out the building works plus margin”.

The Adjudicator held that the Builder:

“(a)     Has not established on balance that the delays for which delay costs are claimed are “an act, default or omission of the owner.”  Indeed many are likely not either wholly or in part caused by “an act, default or omission of the owner”.  Further if the cause of the delay was “an act, default or omission of the owner”, that does not mean the whole duration of the delay claimed is also due to that cause.  The evidence provided does not identify that the Works were in fact delayed for the periods claimed.

(b)      Has on its own admission, not given any notices in accordance with Clause 19.2 of the Contract.  In my view, this is a critical issue.  The Contract provides the process that must be followed.  There is no evidence of anything that may constitute a waiver or basis for estoppel.

(c)      Has not presented evidence that satisfies me of the “actual increase in cost to the builder to carry out the building works” for each of the delays claimed.  The Claimant has merely calculated a day rate which really appears more in the nature of a global claim, which in my view, is not what Clause19.4 permits.

169.    The purpose of the mechanism under Clauses 19.2 and 19.3 is to allow the parties to define within a short time after the delay occurs, the nature and extent of the delay and from there, the Claimant’s entitlement not only to an extension of time but also to delay costs (if any).  That has not occurred and the result is the difficulty the Claimant now faces in trying to provide evidence to establish the cause and duration of delays and the actual increase in cost of carrying out the Works.  I understand the difficulty the Claimant now faces but that does not change the effect of its failure to do so.  I am not satisfied the Claimant is entitled to the delay costs as claimed and I do not allow that claim.”

If you are seeking legal assistance in relation to seeking to recover money (or oppose action) due from an Owner, Builder or Subcontractor including bringing or opposing a claim under the Security of Building Act or any other building or construction matter, please contact Richard Watson Accredited Specialist in the stream of Building & Construction or his Personal Assistant Shereen Da Gloria to discuss your matter and seek timely appropriate advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.