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Latent conditions in civil construction: What constitutes ‘forthwith’ notification? (Part 2)

01 November 2022

#Construction, Infrastructure & Projects

Published by:

Emily Trompf

Latent conditions in civil construction: What constitutes ‘forthwith’ notification? (Part 2)

In part one of this two-part series, we considered some of the guiding principles as to how a latent condition clause applies by revisiting the dispute between BMD Major Projects Pty Ltd and the Victorian Urban Development Authority from 2007, a matter which resulted in a lengthy trial before the Victorian Supreme Court and Victorian Court of Appeal.

In this instalment, we consider the issues regarding effective notification of latent conditions as raised in BMD Major Projects Pty Ltd v Victorian Urban Development Authority [2007] VSC 409 (BMD v VicUrban) and on appeal in BMD Major Projects Pty Ltd v Victorian Urban Development Authority; Victorian Urban Development Authority v BMD Major Projects Pty Ltd [2009] VSCA 221.

What were the notification requirements?

On the topic of effective notification, the trial and appeal decisions largely concerned the operation of clause 12.2 of the parties’ contract (Contract), which was a modified version of the Australian General Conditions of Contract AS2124-1992. That clause required that:

“If during the execution of the work under the Contract, the Contractor becomes aware of a Latent Condition, the Contractor shall forthwith and where possible before the Latent Condition is disturbed, give written notice thereof to the Superintendent.”

Further, among other things and if required by the superintendent, the notice was to specify how the latent condition differs materially from the physical conditions, which the contractor should have reasonably anticipated at the time of tender had it examined and expected all the things required under the Contract.

Was the notice given ‘forthwith’?

BMD gave VicUrban written notice of the unexpected variance in natural surface levels encountered at ‘the Southern Stockpile’ 10 days after it became aware of this variance. However, VicUrban argued that this notice was not given “forthwith”.

While recognising that “forthwith” was taken to mean “immediately” by various authors, the court at first focused on the meaning that the parties intended by considering the surrounding context and facts. The court determined that the notice had been given forthwith because it was sent “without delay and as soon as reasonably practicable or as soon as reasonably possible in all the circumstances”. The surrounding context and facts included the following:

  • BMD verbally informed VicUrban and the superintendent upon becoming aware of the variation at the site
  • VicUrban and the superintendent observed testing in the Southern Stockpile at the invitation of BMD
  • the superintendent instructed BMD to conduct further excavations at the site to determine the extent of the variation
  • when further works revealed a variation in surface levels of approximately 10 metres, BMD gave the written notice to VicUrban.

On appeal, VicUrban argued that the requirement for notice to be given forthwith means as soon as possible in the circumstances, and that verbal notice onsite could not satisfy the contractual requirement.

The Court of Appeal upheld the position of the trial judge, confirming that:

  • the onsite verbal notice was a surrounding circumstance that was relevant to the trial judge’s finding that the written notice was given forthwith
  • timing of the written notice was forthwith in circumstances where the material difference was not detected before the written notice was given (noting that prior to that time, BMD only suspected there might be a material difference which was being investigated).

The case also provides further examples of whether a notice is given forthwith, as there were subsequent latent condition claims and notifications given by BMD to VicUrban for other parts of the site. For instance:

  • written notice of the latent condition given approximately four days after it became apparent that there were dramatic variations in the levels in a particular area was considered “forthwith”, even though excavation started approximately one month earlier
  • written notice of the latent condition given after excavation of an area was completed, but the same day as BMD obtained the survey results, was considered “forthwith”.

It is not uncommon to see terms such as ‘promptly’, ‘as soon as possible’ and ‘forthwith’ used interchangeably in notice obligations under a contract. In fact, the standard form latent condition clauses in the AS4902-2000 and 4910-2002 contracts require notice of latent conditions to be given promptly. These terms impose similar requirements on parties to give notice without delay having regard to the surrounding circumstances. By comparison, a contractual obligation to give notice within a reasonable time provides contractors with greater latitude.

The locational scope of the notice

In the event the court found that the subsequent latent condition notices relating to other parts of the site were not given forthwith and therefore not in accordance with the Contract, BMD argued that its first notice concerning the Southern Stockpile was sufficient notification of the latent condition over the entire site where earthworks were required to be undertaken. It argued that the fact that the additional works turned out to occupy a considerably larger space than when the latent condition was first encountered went to the extent of that condition and did not create a series of new conditions requiring separate notification.

The Supreme Court considered the critical question of whether the identification of the location was a “necessary ingredient to an understanding of the latent condition being notified” under clause 12.2. The Court considered that BMD had given notice that the surface level was lower than anticipated and only capable of exact determination by further works. It was in the nature of what was being notified that its extent was unknown and hidden until revealed by further works.

The Court held that the original notice, which did not specify the locational limits of the latent condition, was notification of the Southern Stockpile’s condition where work was taking place, and more broadly, notification that the surface levels were lower than expected in the areas proximate or adjoining to the Southern Stockpile. That included some nearby stockpiles, but did not include stockpiles located further away.

Because the Court of Appeal upheld the trial judge’s finding that the subsequent notices were valid anyway, it did not consider this point.

Estoppel

At the trial and on appeal, BMD also relied on estoppel as a fall back where the Court rejected its submissions as to timely notification and claims for an extension of time for practical completion. Although the trial judge concluded that all notices were given “forthwith” by BMD and lengthy consideration of the estoppel claim was not required, his Honour noted that, should it be necessary, he would have found that VicUrban was estopped in respect of the extent of the latent condition. His Honour accepted that notes taken by a BMD representative at a meeting with the parties on 6 August 2002 recorded a VicUrban representative assuring BMD “that the strict terms of the contract were to be put aside”.

It was noted on appeal that there was evidence that VicUrban’s primary interest was quality, that it would “put the Contract in the bottom drawer” and that the time and costs issues for BMD would be sorted out. Their Honours affirmed their support for upholding a finding of estoppel where it found that notification had not been effected in accordance with clause 12.2.

Key takeaways

 For those claiming or responding to a claim for a latent condition, note the following:

  • for clauses like 12.2, the term “forthwith” may not impose an obligation for “immediate” notice on the parties, depending on the surrounding circumstances evidencing the parties’ intention. In this instance, it required notice given without delay and as soon as reasonably practicable in the circumstances
  • updating the relevant parties and the superintendent regularly about works concerning a latent condition can assist in demonstrating that the formal written notice was given “forthwith” and without unreasonable delay
  • where a latent condition extends over various portions of a site but where the exact parameters are unknown, notification under clause 12.2 may not require that limits of the area of the latent condition be specified. However, where the area is not specified, the notification may only extend to areas proximate or adjoining the area or location identified in the latent condition notice.

If you require assistance with understanding your notification clause or assessing whether notification has been given as required, contact us below or send in your enquiry here.

Authors: Kirsty Smith & Emily Trompf

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Emily Trompf

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