Building & Construction Law News March 2009

Erect Safe Scaffolding -v- Sutton [2008] NSWCA 114

This case highlights the shift in responsibility for the safety of workers on a building site, where workers maybe employed by a head contractor or a subcontractor or a third party providing goods or services on a site.

In this case, Ian Sutton, the first respondent, was injured at work in 2002 while working on the construction of a large multi-storey residential and commercial building. He was employed by Dalma Formwork Pty Limited ("Dalma"). The Head Contractor on the site was Australand Constructions Pty Limited ("Australand"), Dalma is a formwork company and subcontractor to Australand. Erect Safe Scaffolding (Australia) Pty Limited ("Erect Safe"), provided scaffolding services to Australand pursuant to a contract dated 9 September 2002. It was responsible for erecting and maintaining the scaffolding on the site.

Mr Sutton was injured when he was constructing formwork and struck his head on a cross bar erected by the scaffolding company. Australand was found to be partially liable for the accident, as well as Erect Safe because of the failure to change their work practices to prevent the accident occurring, where the matter had been brought to their attention previously. In terms of apportioning the liability for the payout to Mr. Sutton, Australand relied in a clause in their Contract with the Sub Contractor which stated, in effect as follows:

"The Subcontractor must indemnify Australand Constructions against all damage, expense (including lawyers' fees and expenses on a solicitor/client basis), loss (including financial loss) or liability of any nature suffered or incurred by Australand Constructions arising out of the performance of the Subcontract Works and its other obligations under the Subcontract."

12.1 Public Liability

Before commencing work, the Subcontractor must effect and maintain during the currency of the Subcontract, Public Liability insurance in the joint names of Australand and the Subcontractor to cover them for their respective rights and interests against liability to third parties for loss of or damage to property and the death of or injury to any person.

‘Subcontract Works' means the whole of the design and work to be executed in accordance with the Subcontract, including variations ... ."

Clause 12.2 required that the sub-contractor have workers compensation insurance for its employees. The provision continued:

"The insurance must be extended to indemnify Australand Constructions for their statutory liability to persons employed by the Subcontractor. The Subcontractor must ensure that every sub-subcontractor to the Subcontractor is similarly insured."

The Court considered the meaning of these clauses and the extent of Erect Safe's indemnity for Australand's responsibility for the accident, even where Australand had a duty to Sutton to provide a safe site. After a lengthy consideration of the actual wording of the indemnity clause and past cases, the Court of Appeal ruled that in this case:

"The obligation was to obtain insurance to cover Australand and Erect Safe "to cover them for their respective rights and interests against liability to third parties ...". Australand's "rights and interests" referred to are those provided by the indemnity provided in clause 11. There being no right in Australand to recover from Erect Safe in respect of damages occasioned by its own negligence, there was no obligation in Erect Safe to obtain insurance to support Australand's direct liability to another caused by the negligent act of Australand".

Consequently, we at Forumlaw encourage all building contractors to check and confirm and obtain advice and assistance if required to be clear on the extent of their obligations regarding indemnifying other contractors on building sites for acts which may cause death or injury.

Don't short change yourself! The importance of obtaining the approval of the correct party

A building company Quarante developed a strata scheme of units in King St, Sydney. It sought recovery of some $250,000 for facade works (the works) from the Owners Corporation (the "OC") . The claim was based on an alleged contract with alternative claims in quantum meruit and estoppel.

Quarante alleged a contract with the OC formed by a conversation between the Managing Director of Quarante , Mr Anderson, and an employee of the strata manager of the OC, Ms Wells

Quarante was to undertake the works for a number of the owners of the units affected by the façade, however, when the money which had been set aside to do the work was expended otherwise, Quarante advised the strata manager it would not proceed.

Quarante proposed that the OC pay for the works. Ms Wells accepted the suggestion as a good idea ("the reimbursement conversation"). Quarante then arranged for the works to be carried out by a builder.

After this the OC passed a resolution dealing with the facade as part of the common property and conferring various additional powers on the OC in relation to the facade and its refurbishment. Quarante issued a final claim for $129,000 and the OC resolved at a meeting attended by Ms Wells and Quarante to authorise the payment. No payment was made however. Later a further claim was made by Quarante.

Matters came to a head when an extraordinary meeting of the OC was held and attended by a number of lot proprietors. The meeting resolved to issue a statutory demand on Quarante in respect of recovery of an amount alleged to be wrongly paid to Quarante. Quarante then issued proceedings for recovery of the $250,000.

The trial judge held that an agreement was made between Ms Wells and Mr Anderson of Quarante in their telephone conversation regarding the works but that the managing agent had neither ostensible or actual authority to bind the OC to such a contract.

The trial judge also rejected the alternative claims for quantum meruit and estoppel.

On appeal, Acting Justice Sackville delivered the principal judgment. The first issue he considered was whether the conversation between Ms Wells and Mr Anderson gave rise to a binding contract.

Sackville AJA held that the "reimbursement conversation" would not appear to an objective observer to amount to a contractual arrangement since there was no reference to the likely cost of the works, or the formalities necessary to implement them. Moreover there were statutory procedures that had to be followed before the OC could arrange for any such agreement could be carried into effect.

His Honour also looked at post contractual conduct as providing no further assistance in establishing the terms of any contract. He held that the reimbursement conversation was not intended to create a binding contract.

…and from a practical point of view … how to make progress claims

In order to minimise the opportunities available to debtors to avoid making payments on progress claims, it is important to ensure that such claims are sufficiently detailed. Overall, potential confusion or grounds for argument are to be avoided. This will require that:

The claim sufficiently identifies the legal entity for who the work is being carried out. It is important that contracts are not entered into with business names, as opposed to registered companies.
The works for which payment is being claimed are sufficiently set-out. This must include any variations or additional work performed.
If the contract requires it, Statutory Declarations and insurances may also need to be set-out.
Where no reference date is included in the contract, it may be prudent to ensure that invoices and progress claims are issued on the last day of each month.
When laying-out the amounts claimed, it must be made abundantly clear in the invoice how each amount was arrived at, what it relates to and how it affects the initial contract sum.
All potentially relevant documents should also be attached. These may include Variation Approvals and Descriptions, Statutory Declarations, Insurances, Formal Notices issued under the contract and any correspondence between the contractor and the client.