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Tender Exclusions and Whole Agreement Clauses

18 November 2020

#Construction & Infrastructure

Published by:

Andrew Morello

Tender Exclusions and Whole Agreement Clauses

The recent case of Jabbcorp v Strathfield Golf Club 20201 is a clear example of the importance of properly capturing all qualifications, departures and exclusions to the scope of works in the final contract to avoid costly and uncertain disputes in relation to variations. It also highlights how contract value management throughout the building design and construction process, including the tender stage, is crucial to establishing clear and mutual project objectives and value drivers between the parties.

Background
Jabbcorp (NSW) Pty Limited (Jabbcorp) entered into a design and construct contract (AS4902) with Strathfield Golf Club (the Club) on 23 December 2016 (the Contract) for construction works relating to a new clubhouse, an access road and associated work.

On or about 16 December 2015, Jabbcorp submitted a tender to undertake the work for a total price of $27.15 million, which was significantly over budget. On 21 March 2016, Jabbcorp submitted a second revised tender for the amount of $22.5 million, which included a number of cost reductions and qualifications to help meet the project budget.

Prior to Jabbcorp being selected as the nominated contractor there were further tender negotiations and clarifications with the Club, seeking to lower the contract price which resulted in removal of scope.

One particular inclusion that was of importance to the dispute was:

ALL utility works required have been allowed for within the construction boundary only, with the exception of the electrical substation.

One item said to be excluded was:

Any works required on the golf course and outside the construction boundary that may be a requirement of the DA consent.

On 4 July 2016, the Club sent Jabbcorp an email confirming whether the current tender (GMP) [Guaranteed Maximum Price] for the section 96 drawings at $22.25 million + GST was still valid. On 29 August 2016, the Club accepted Jabbcorp’s final tender.

Between April 2017 and October 2018, Jabbcorp submitted numerous claims to the Club for variations, back charges and progress claims which were rejected by the Club and became the subject of this dispute.

Issues
Of particular reference to this case were the scope of work items said to be excluded by Jabbcorp, the wording of the Contract, the rules of contract interpretation and the relevance of the whole agreement clause.

The decision
The argument put forward by Jabbcorp centred on the phrase “construction boundary”, as this was determinative of whether certain works should have been excluded from the scope of works, in which case they would be valid variations. Jabbcorp relied on the tender documentation and negotiations to argue that that works performed were outside of the construction boundary, being the area outside the footprint of the clubhouse, and were therefore excluded.

In determining whether the variations alleged by Jabbcorp were valid, Ball J referred to the definition of “Excluded Works”, as follows:

(u) Any works required on the golf course and outside the construction boundary of the Site, including if those requirements are pursuant to the Development Consent.

To determine whether supporting evidence of external circumstances was required to interpret the definition of “Exclusion Works”, and more importantly, the phrase “construction boundary”, his honour considered six legal principles relevant to the interpretation of a commercial contract set out in Mount Bruce Mining v Wright Prospecting2, namely that:

  1. rights and liabilities of parties under contract need to be determined objectively, by reference to its text, context and purpose
  2. it is necessary to ask what a reasonable businessperson would have understood
  3. ordinarily reference to the contract alone is possible
  4. recourse to events, circumstances and things external to the contract is necessary… in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”
  5. each of the events, circumstances and things external to the contract to which recourse may be had is objective
  6. a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

Further, his honour referenced the principles on contractual interpretation as expounded in the leading High Court case of Codelfa3, noting that:

“…the negotiations between the parties leading to the contract are not relevant to its correct construction except to the extent that they shed light on the objective facts known to both parties”.

Accordingly, his honour did not give any regard to the pre-tender negotiations, noting it was unclear why negotiations are relevant if a word or phrase did not have a particular meaning, was not considered to be a technical word or was not the subject of extensive negotiations. The Court found that the surrounding circumstances did not assist Jabbcorp, as Jabbcorp tried to construe the exclusion by reference to the subjective intention of the parties. It followed that Ball J agreed with the Club’s argument that there was no real work for the tender exclusion to do.

Entire Agreement Clause

In determining whether it was appropriate to consider extrinsic material, his honour also gave consideration to the entire agreement clause 3.2:

The contents of this document constitute the entire agreement between the parties and supersede any prior negotiations, representations, understandings or arrangements made between the parties regarding the subject matter of this document, whether orally or in writing.

The question was whether an entire agreement clause altered the common law position which permits extrinsic evidence to determine the correct interpretation of a contractual meaning. The court found that the construction of the entire agreement clause must be considered to answer that question. It reiterated the finding from the earlier case of MacDonald v Shinko Australia4, which found that the purpose of the entire agreement clause was to exclude any evidence of terms additional to or different from the written instrument.

Notwithstanding the rule in MacDonald, his honour noted that:

“it still leaves open the possibility of considering extrinsic material where the meaning of words in the contract cannot be inferred solely from its terms because those terms are ambiguous.”

His honour therefore rejected the arguments put forward by Jabbcorp on the view that the phrase “construction boundary” should not be interpreted narrowly as the negotiations did not establish that the parties intended for the phrase to have a particular meaning. He determined that the phrase was not intended to exclude work on the golf course that was outside the area covered by the work the subject of the tender. Ball J also took the view that there was no basis for there to be a narrow interpretation of the exclusion contained in para (u) of the definition of “Excluded Works”.

In reaching this decision, the court determined that Jabbcorp’s claim must fail with respect to the variations, the back-charges and the claim in respect of the validity of the Club’s liquidated damages claim. Accordingly, his honour dismissed the case and ordered costs against Jabbcorp.

Conclusion

Tenderers need to be very careful in relation to their departures and qualifications to the scope of works, particularly in complex construction projects. Where a departure, exclusion or qualification is not clearly stated, and included in the Contract as intended, it may make recovery for variations which are incorrectly assumed to be out of scope impossible.

Further, the parties should be careful assuming that a whole agreement clause will prevent the courts from looking at extrinsic or prior material where the meaning and/or parties’ intention is not clear, as this is not necessarily the case.

Authors: Scott Alden & Andrew Morello

1 Jabbcorp (NSW) Pty Limited v Strathfield Golf Club [2020] NSWSC 1317
2 Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104 at [47]-[51]
3 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
4 MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 15

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Published by:

Andrew Morello

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