On 20th December 2005, the Supreme Court of South Australia handed down its judgment in the appeal in Decor v Cox, a decision that will encourage principal contractors to ensure that personnel entrusted with the programming of construction works are competent and diligent. The upholding of Decor’s appeal marks the first Australian case in which a global claim for damages for breach of a construction contract has succeeded at trial. Tom Grace, then with Johnson Winter & Slattery and now a partner in Fenwick Elliott Grace, acted for Decor in the dispute.
Decor was a subcontractor to Cox, who as principal contractor to DAIS, undertook the construction of the TDU centre at Hindmarsh. Decor tendered on the project on the basis of a 15 week construction period. The project was marked by a series of delays, and Decor spent 40 weeks on site.
At the conclusion of the works, Cox claimed that Decor was responsible for the delays and refused to pay the final amounts due. Decor claimed it was entitled to its payments and said that the delays had arisen because Cox had not properly organised the project, resulting in a lack of available work areas and inefficient use of Decor’s workforce.
The dispute commences
Decor invoked the arbitration procedures under the AS2545 contract and the parties entered into a lengthy arbitration. Decor obtained independent expert opinion showing that the delays caused by Cox’s failure to properly program the works had resulted in an additional 5,000 man-hours on site. Cox provided answering expert evidence.
The general position on delay claims
Generally, to succeed in a claim for delay, it is necessary to prove who caused each delay and then prove the cost to the claimant of the particular delay.
The global claim by Decor
However, in this instance, Decor claimed that the delays had been ongoing and general in nature, arising from a persistent breach of Cox’s obligations to give Decor access to sufficient of the Site to enable it to carry out the works in accordance with the contract program, and a breach of Cox’s obligations to provide information to Decor to enable proper co-ordination of the works. Such a claim is often described as a global claim.
In addition to the damages sought for the failure to co-ordinate trades and materials, Decor also sought the balance due under the contract and compensation for the extra administrative and site costs it had incurred due to the prolongation of the construction period.
The interim award
The arbitrator’s interim award granted to Decor the balance due under the contract and compensation for the additional administrative and site costs incurred during the prolongation of the construction period.
The finding on the global claim
In relation to the global claim, the arbitrator adopted the four elements described by Justice Bryne in John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd. In John Holland, a decision dealing with the pleadings of a global claim, Justice Byrne said that a claimant under a global claim must prove four elements to succeed:
- that the claimant could reasonably have expected to perform the subcontract works within the labour hours allowed in its tender;
- that the respondent breached the relevant terms of the contract causing the claimant to expend more labour hours than it allowed in its tender;
- that the actual hours expended exceeded the tender allowance; and
- that the breaches of contract were the only “causally significant factor” explaining the labour hours overrun.
The arbitrator said that Decor had proved the final three of these elements but had not proved the first because it had not called independent evidence to corroborate the evidence given by its own estimator.
The findings on appeal
Justice Besanko found this was an error of law, that Decor’s estimator’s evidence should have been accepted by the arbitrator and referred the matter back to the arbitrator.
Significantly, Decor brought its claim as a claim for damages for breach of contract rather than under the provisions of the contract that deal with delays and compensation for delays. This was a strategic decision made by Decor on advice in order to avoid the limitations otherwise imposed by clauses 35 and 36 of the contract.
At the time of writing this article, Cox has appealed the decision of Justice Besanko to the Full Court of the Supreme Court of South Australia.
Barry Jenner, of the independent bar, was counsel for Decor in the arbitration. Tom Grace acted for Décor throughout the dispute and was junior counsel in the Supreme Court appeals.
Contributor: Tom Grace
Tom is a former engineer who ran his own construction company for 20 years before becoming a construction lawyer. He has wide experience in the engineering and construction fields and specialises in the resolution of commercial disputes.