Principals beware of waiving time bars in the contract

23 August 2021

What happened?

In Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 2), the Court had to consider whether Giorgio Armani Australia Pty Ltd (the Principal) had:

  • engaged in conduct that gave rise to an assumption by Valmont Interiors Pty Ltd (the Contractor) that compliance with the contractual notice requirements was not required; and
  • failed to clearly disabuse the Contract of that assumption.

The Contractor and the Principal were parties to a contract under which the Contractor agreed to provide construction and fit-out works for an Armani retail store. The Contractor’s scope of works included installing joinery to be supplied by the Principal’s supplier (Sun Bright).

When Sun Bright could not provide the required joinery, the Principal directed via email the Contractor to supply the joinery. The Contractor did so, and the Principal refused to pay for the joinery, alleging that the Contractor had failed to comply with the notice requirements in the contract and had released or waived any claim to be paid for the joinery.

The variation notice requirements of the contract provided that:

  • if the Contractor considered a direction of the Principal was a variation, but the Principal had not issued a variation direction, the Contractor was required to give notice within 5 business days after the direction; and
  • if the Contractor failed to provide that notice within the stipulated period, the Contractor released and waived any entitlement to a claim it may have against the Principal in connection with, or arising from, the variation.

The Principal relied on an email dated 11 April 2016, which it claimed made clear that it would rely on the notice requirements and disabused any assumption that compliance with the requirements was not required.

What did the Court say?

The Court agreed with the primary judge that:

  • throughout the project, variations had been paid without insistence on compliance with the notice requirements;
  • the Principal encouraged the Contractor to supply the joinery without reference to the notice requirements;
  • the Contractor supplied the joinery on the assumption that it would be paid even though it had not complied with the notice requirements; and
  • the Principal was estopped from relying on the Contractor’s non-compliance with those requirements to bar the Contractor’s claim.

However, the Court disagreed with the primary judge that the estoppel came to an “abrupt halt” on 11 April 2016, and found that:

  • the Contractor was entitled to assume that it would be paid for the cost of supplying the joinery unless it was disabused of that understanding in clear terms;
  • the email of 11 April 2016 was not sufficiently clear to have the effect that it was no longer reasonable for the Contractor to hold this assumption, in part because the email dealt with fa├žade works, not the joinery works; and
  • the estoppel continued to operate (at least as far as the joinery was concerned) beyond 11 April 2016.

In the circumstances, the Court held that it would be unconscionable for the Principal to resist payment for the supply of the joinery on the basis of the Contractor did not comply with the contractual notice requirements.

Why is this case important?

Principals and contractors alike may be at risk of being estopped from relying on contractual notice requirements and time bars by failing to enforce those requirements, including by approving claims that were submitted out of time.

If a party considers that its counterparty is operating under an assumption that compliance with the contract notice requirements is not required, it should disabuse that assumption as soon as possible in clear terms.

This article is written by Leighton Moon, Partner, Con Koutsantony, Senior Associate and Fin Neaves, Associate.

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