Background

Valmont Interiors Pty Ltd (Contractor) entered into a contract (Contract) with Giorgio Armani Pty Ltd (Principal) for the construction and fit-out works  of a store at the Sydney Kingsford Smith Airport (Works).

The Contract described the Works as a ‘fixed project price inclusive of all items, excluding those items supplied by [the Principal]’. One Principal supplied item was joinery. The Principal engaged Sun Bright Construction Co Ltd (Joinery Supplier) for this purpose. During the Works, the Principal unable to ensure that the Joinery Supplier would supply the joinery within the time required by the Contract, thereby creating a risk that the Contractor would be delayed. The Principal directed the Contractor to supply the remaining joinery items to avoid further delays to the Works. The joinery was supplied by the Contractor and the Works.

The Principal then refused to pay the Contractor for  the joinery items, as well as other variations. The Principal sought to rely on Contractor’s failure to adhere to clause 15 of the Contract which prescribed a notification procedure for variations under the Contract (Variation Procedure). The Variation Procedure contained a time bar clause operating as a waiver and release in favour of the Principal if certain conditions were not met.

Decision at Trial

The Contractor commenced proceedings in the District Court of New South Wales seeking damages for breach of contract, or alternatively quantum meruit (First Proceeding). The trial judge entered judgement for the Contractor. The judgment included an amount in relation to certain variations, notwithstanding that the Contractor had not complied with the Variation Procedure.

The trial judge held that the Principal was estopped from relying on the Variation Procedure because it had approved and paid variations during the course of the Works without strict insistence on the Variation Procedure. The trial judge however held that the estoppel only affected work performed up to the date of an email in which the Principal made it clear that it would rely on the Variation Procedure going forward. The Contractor incurred costs for joinery after the date of this email. Accordingly, the trial judge held that the Contractor was not entitled to be paid for its costs associated with the joinery.

Decision on Appeal

The key issue on appeal was whether the estoppel continued to operate after the date of the Principal’s email. If so, the Contractor would be entitled to its costs for the joinery notwithstanding that the Variation Procedure had not been followed. The Court of Appeal held that the estoppel did not come to an “abrupt halt” as at the date of the email because:

• the Email did not displace the assumption that had been induced by the Principal that the Contractor would be compensated for the cost of supplying the joinery as directed; [1]
• the Principal made representations in the Email that “there are no variations”, conveying the understanding that the direction to supply joinery was not a variation, but rather a separate extra-contractual request by the Principal; [2]
• On the back of these representations, the Contractor was entitled to expect to be paid for the joinery unless and until it was ‘disabused of that reasonable understanding’.[3] and

Given that the change in affairs was not communicated to the Contractor in sufficiently clear terms, this had not occurred.[4] In addition, the Court noted that because the Principal had not strictly relied on the Variation Procedure, the Contractor was entitled to proceed on the assumption that the requisite approval from the Principal was implicit in its original direction.[5] Against this backdrop, the NSWCA found that in the circumstances, it was unconscionable for the Principal to rely on the Variation Procedure and allowed the appeal in part.[6] The Contractor was, on this basis, entitled to claim and be paid for its joinery costs.

Conclusion

Further information / assistance regarding the issues raised in this article is available from the authors, Bill Papastergiadis – Partner, Nathan Cutts – Partner, Phillip Vassiliadis – Senior Associate or your usual contact at Moray & Agnew.

[1]  Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 2) [2021] NSWCA 93, 85-87, 127, 128.

[2]  ibid , 88-90, 127, 128.

[3]  ibid, 91, 127, 128.

[4]  ibid, 95, 127, 128.

[5]  ibid, 98, 127, 128.