16 June 2017

Regulating the Queen of Hearts - what's wrong with a simple solution?

If onerous notice or time bar clauses are to be regulated by the security of payment legislation, a simple (prescriptive) solution might be the best answer.


SOCLA’s recent discussion evening on time bars seemed to reach a broad (albeit not universal) consensus on two things.

The first was that the regulation of unreasonably onerous notice provisions was a good idea in principle, or at least worth of serious consideration. 

The second was that there’s no easy fix. 

The idea of a flexible prohibition, with no prescribed time periods and instead relying on notions of reasonableness, is not without difficulty.  The uncertainty created by such a provision and the risk of even more litigation are valid concerns.

At the same time, an outright ban on time bars may be a step too far in the context of freedom of contract and potential prejudice under the security of payment legislation.  The growing avenues for relief for those on the wrong side of these clauses are another relevant consideration.

The idea of a statutory prohibition based on specified minimum timeframes (say, for the sake of argument, 5 business days for a notice, 10 business days for a claim) is worthy of further debate. 

The primary appeal of this approach is its simplicity.  And as blunt as it may first sound, the approach is not devoid of subtlety.

This approach would likely result in principals and head contractors adopting a two-tiered regime in their contracts, as follows.

First, there would be a clause that would bar claims if the relevant notice or claim were not given within the minimum allowable timeframe.

Second, where there was a genuine concern about the timing of notices, there would be a different clause (or clauses) stipulating shorter timeframes than those prescribed in the statute.  A breach of this clause would not result in the claim being barred.  Instead, it would give rise to a claim to damages where a loss caused by the late notice could be proved.

This regime would effectively shift the onus of justifying the onerous notice provision onto the party seeking to rely on it.  At the same time, parties with a genuine need for short or otherwise challenging notice provisions would continue to have the ability to protect themselves.

Granted, the security of payment legislation complicates things.  A principal or head contractor could be exposed as a result of an adjudicator being unable to take into account a claim for damages for a late notice.  However the aggrieved party would be able to pursue its rights under the contract, outside the security of payment legislation.

And yes, the principal or head contractor would remain exposed in the event of the claimant’s insolvency.  But this would not be the first time their interests would be subordinated to the broader goal of improving cashflow down the contracting chain.

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About the Author

Greg Henry | Principal

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Greg Henry | Principal

Author

Greg Henry | Principal

greg.henry@turtons.com

Greg is a principal at Turtons and a senior commercial lawyer who acts for a range of clients mainly in the construction and technology sectors. Greg advises on both transactional and contentious matters.


greg.henry@turtons.com | (02) 9229 2904

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