My last article commented on the Consumer Law Reform Bill and
the proposal to prohibit the use of ''unfair contract terms''
in standard form consumer contracts.
That has been prompted by concerns raised by consumer
organisations that consumers are exposed since there is often
little or no opportunity for consumers to negotiate the terms
of contracts with suppliers. The recent High Court case of
H&H Contractors Limited v Leighton Works illustrates the
different approach taken in relation to commercial contracts
between business organisations.
The case of H&H Contractors Limited (H&H) v Leighton
Works (LW) involved a works contract whereby H&H was
contracted to perform drainage and earthmoving works for LW
on the Manukau extension project in Auckland.
That contract contained clauses dealing with the process to
be followed in the event of a dispute and in particular
included clause 45 which provided that H&H was not
entitled to make any claim against LW unless H&H had
submitted a notice to LW within 15 working days of becoming
aware of an issue. Clause 45 went on to state that if H&H
submitted a claim later than that 15 working day period then
H&H was deemed to have waived its entitlement to the
In this case the timing point revolved around an email sent
by LW on January 28, 2009, advising that they had not called
on H&H to return to the project as a result of
performance issues, they had engaged another contractor and
that no further assistance was required from H&H. Further
correspondence followed and on March 23, 2009, H&H served
a notice on LW claiming breaches of the contract by LW and
advising that its claim would exceed $1 million.
LW's position was that H&H was barred from making any
claim because the notice was given more than 15 working days
after LW's January 28 email. This was the issue that had to
be considered by Justice Ellis in the High Court.
H&H's claim against LW consisted of alleged breach of the
works contract, wrongful repudiation of the contract and
breach of the Fair Trading Act 1986 by LW. H&H contended
that clause 45 of the works contract was an exclusion clause
which should be interpreted ''contra proferentem'', should be
''read down'' where it is inconsistent with the object and
intent of the contract and does not apply in circumstances
where there has been a fundamental breach of contract
. The contra proferentem rule is a rule of contractual
interpretation which provides that where a clause is
ambiguous then the preferred meaning should be the one that
works against the interest of the party who drafted the
However Justice Ellis' view was that the wording of clause 45
was clear and unambiguous as it clearly provided that a party
to the contract could not make a claim against the other
unless it complied with the contractual procedures and time
frames. Therefore, the contra proferentem rule was of no
assistance to H&H. She also held that the clause was not
inconsistent with the object and intent of the works contract
and that the time limits for making a claim were in fact
consistent with the wider commercial context in which the
parties were operating.
She said a method of dispute resolution that requires the
parties to act speedily and inexpensively made particular
sense against the background of major and multifaceted
construction work such as the Manukau extension where a delay
by one subcontractor in taking steps to resolve a dispute
could result in unnecessary disruption to the wider project
and prejudice to other contractors and third parties.
H&H submitted that it was not possible to ''contract
out'' of the Fair Trading Act and that clause 45 could
therefore not operate to defeat H&H's claim under that
Act. H&H pointed to earlier case law to support that
submission. Justice Ellis held clause 45 does not purport to
preclude a claim under the Fair Trading Act altogether, it
merely places procedural and time constraints. She pointed to
a more recent Court of Appeal decision casting doubt on the
policy of not allowing parties to contract out of the Fair
Trading Act and that the policy should be confined to
Justice Ellis noted LW and H&H were significant
commercial entities assumed to have negotiated from positions
of equality and with independent advice. She commented that
even if clause 45 did represent a ''contracting out'' clause
(excluding liability under the Fair Trading Act altogether)
then she would be inclined to hold that it was not prohibited
and could be enforced.
The result was that all of H&H's claims against LW were
struck out on the basis that H&H had not complied with
the time limits set out in clause 45 of the works contract.
That clause was clear and unambiguous and unfortunately for
H&H they had no recourse against LW.
- David Smillie is a partner in Gallaway Cook Allen