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Welcome to the December 2010 edition of Critical Path.
In this edition we:
consider the effect of amending contract documents during
contractual negotiations without drawing the amendments to the
attention of the other party to the transaction
investigate various models for construction management
contracting
report on recent case law from the Queensland Supreme Court
which suggests that a claimant can now deliver two identical
payment claims in certain circumstances under the Building and
Construction Industry Payments Act 2004, and
examine a decision of the New South Wales Court of Appeal which
discusses the grounds upon which an adjudicator's decision can
be challenged.
We hope you find these articles interesting as well as
informative. If you have any questions regarding their content,
please contact us.
James Morgan-Payler
Partner and Editor of Critical Path
Sophisticated parties, legal advice given, effect of signed
document changed by the Court to reflect parties' true
intention
In Thiess Pty Ltd v. Flsmidth Minerals Pty Ltd [2010]
QSC 6, Thiess Pty Ltd (Thiess) was engaged to
design and construct three calciners, which are thermal treatment
processors, for an aluminium plant. Thiess engaged Flsmidth
Minerals Pty Ltd (Flsmidth) to carry out most of
the design work.
The calciners were defective, as some structural members of the
calciners failed. Thiess commenced proceedings against Flsmidth
seeking to recover $23.6 million in damages. Following negotiations
in respect of these proceedings, the parties entered into a
settlement deed and a side deed.
There was an agreed limitation in the side deed on
Thiess' rights in respect of the proceedings according to
certain liability insurance indemnifying Flsmidth. There were two
policies that were potentially available to Flsmidth to indemnify
it against its liability to Thiess in the proceeding. There was a
policy issued by QBE, for which the cover for any one claim was
limited to $20 million. There was also a policy issued by Liberty,
for which the cover was $40 million for any one claim, in excess of
the $20 million covered by the QBE policy.
It was common ground between the parties that the side deed
expressly limited Flsmidth's potential liability in the
proceedings to the extent to which it was indemnified by only the
QBE policy. Thiess contended that this was a mistake and it was the
common intention, or at least its intention, that the limit should
be the indemnity available under both the QBE and Liberty policies
and that the side deed ought to be rectified. Thiess mistakenly
believed that because the Liberty policy was a follow form policy
(being an excess insurance policy applying the same terms as the
underlying insurance policy), then Liberty would be obliged to pay
if QBE had indemnified the insured.
During the negotiations, the parties and their solicitors
circulated numerous versions of the draft settlement deed and side
deed. The limitation of liability issue was initially included in
the settlement deed. Flsmidth's solicitors sent an updated
version of the side deed, including this limitation of liability
clause, by email to Thiess' solicitors showing the
amendments in mark up. As this was a new clause, the entire wording
of the limitation of liability was shown in mark up. There was no
indication that the limitation clause had changed from the
settlement deed to limit Flsmidth's liability to just the
cover in the QBE policy. The covering email to the amended deed
made no mention of this change.
Finding in Thiess' favour, the Supreme Court of
Queensland held that it was the common intention of the parties
that a reference to the QBE policy naturally included a reference
to both the QBE and Liberty polices. The side deed was rectified to
reflect this common intention.
The message from this case is that when formalising the terms of
a deed or contract, any changes made when preparing the document
must expressly be brought to the attention of the other party to
ensure that those terms are enforceable.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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