February 13, 2020

A recent decision in the United States of America has considered whether a party should be estopped in equity from asserting a contractual entitlement to liquidated damages.

In Fortney & Weygandt, Inc. v. Lewiston DMEP IX, LLC, 2019 ME 175, a developer (GBT) engaged a builder (F&W) to construct five retail building stores in Maine, USA. Because of a range of factors, including unusually harsh winter weather and delays caused by GBT’s conduct, all of the projects failed to achieve substantial completion by the dates provided in the relevant contracts.

F&W had notified GBT of delays as they arose, requested extensions of time to the agreed dates for substantial completion, and submitted revised schedules to GBT. GBT often did not respond to these notices or updated schedules.

GBT stopped making progress payments in June 2015, and F&W, operating under the belief that EOTs had been granted, continued works until August 2015. When GBT failed to respond to F&W’s enquiries regarding non-payment, F&W ceased works and notified GBT. The Court accepted that F&W was ready and able to resume works if GBT had paid the overdue invoices and issued the change orders. GBT responded to F&W with letters seeking liquidated damages, calculated by reference to the original contracted substantial completion dates.

F&W commenced proceedings against GBT for breach of contract and violation of prompt payment statutes. GBT counterclaimed seeking liquidated damages and damages for breach of contract, alleging that F&W’s works were incomplete and defective.

In the Maine Business and Consumer Court, Murphy J found that it was reasonable and justified for F&W to believe that GBT would grant the extensions and accept F&W’s adjusted schedule. On appeal by GBT, on the question of equitable estoppel, the Maine Supreme Judicial Court agreed, observing that:

  •   an employee of GBT had expressly told F&W that a final change order would be issued to update the substantial completion dates once the projects were complete;
  •   even after the contracted substantial completion dates had passed, GBT had issued many additional change orders across the projects, and increased the scope of F&W’s work;
  •   on previous projects that F&W delivered for GBT governed by identical contracts, GBT had not asserted its right to impose liquidated damages, despite F&W having failed to meet the contracted substantial completion dates; and
  •   GBT did not respond to F&W’s multiple requests for extensions of time, in circumstances where GBT had also directed F&W not to be concerned by the timeline.

The Court found that GBT’s “misleading statements”, conduct and silence throughout the projects had indicated an intention to grant the requested extensions, and that it would not seek to enforce the liquidated damages provisions. Accordingly, the Court upheld Murphy J’s finding that GBT was estopped in equity from relying on the liquidated damages clauses.

This case provides an interesting examination of the United States’ approach to whether explicit statements are required for the doctrine of equitable estoppel to apply. Australian courts have also acknowledged that silence can, in certain circumstances, amount to a misrepresentation. While a party’s silence or failure to assert a right may not alone be sufficient to constitute an implied waiver of an express right, Australian courts will consider parties’ conduct as a whole, as well as the surrounding facts, to determine whether equity should intervene to prevent a party asserting a contractual entitlement.

The full decision can be found here.

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