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Beware: Finalise the terms of your Construction Contracts

Ben Johnson ||

In a recent decision of C & V Engineering Pty Ltd v Hamilton & Marino Builders Pty Ltd [2020] NSWCA 103, the New South Wales Court of Appeal has illustrated that it may construe a commercial contract by reference to its “commercial purpose”. The decision has important and far reaching implications for those involved in the Building & Construction industry and is a lesson on when a Court will stop you from recovering payment where there is no final agreement on the terms of a contract.    

Background

Hamilton and Marino Builders Pty Ltd (Builder) was the Builder contracted to develop a unit complex in Mascot (Project). The Builder reached out to C & V Engineering Pty Ltd (Supplier), requesting the provision of metal joiners for the Project. All negotiations between the parties occurred by way of email correspondence.

During negotiations, the parties acknowledged that there was uncertainty as to the specific amount of metal joiners required for the project. Despite this, the Supplier provided the Builder a quote for the supply of 1000 metal joiners for a price of $44 per unit and asserted that it was a lump sum contract. After receiving the quotation, the Builder instructed the Supplier to proceed with the supply “as required”.

As the Project progressed, the Builder was able to determine that only 150 of the metal joiners would be required. The Builder notified the Supplier as soon as this information became available. In response, the Supplier asserted that the Builder had accepted a formal offer of 1000 units and was liable for the full amount of $44,000 ($44 x 1000).

Court proceedings were commenced to determine the proper construction of the contract. The Builder succeeded at first instance in asserting that it was only bound to accept the rates provided by the Supplier rather than for the sum of $44,000. The Supplier filed an appeal.

Businesslike Interpretation

The majority of the Court of Appeal dismissed the appeal, finding that the Builder’s email reply constituted a counteroffer for metal joiners “as required”, on the rates agreed in the reply email.

The Court highlighted that the contract was to be interpreted based on what a “reasonable businessperson”, in the circumstances, would have understood of the term “as required”. In making this assessment, the Court gave considerable weight to the fact that during negotiations, both parties were uncertain on how many metal joiners would be required. This was exemplified by the fact that the Supplier’s profit margin was not contingent on 1000 units being ordered.

Ultimately, it was concluded that the Builder had only accepted the rates stipulated in the quotation and not the number of units contained therein.

Important Takeaways

This case provides a useful reminder that parties should ensure that contracts reflect the parties’ commercial intentions, and the importance of parties to a contract being on the ‘same page’ in relation to their intentions about what is being offered and accepted.

If you require any assistance in relation to your contracts or to clarify any uncertainty in relation to a construction contract, please do not hesitate to contact a lawyer in Coleman Greig’s Building & Construction team, who would be more than happy to assist you.

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