The NSW Court of Appeal interprets the effect of agreed upon Variations on a Delay Costs clause
November 28, 2018
The recent decision of the New South Wales Court of Appeal in Chengcheng (Aust) Enterprise Melbourne Pty Ltd v Mansfield Corporation Pty Ltd  NSWCA 244 considers the contractual interpretation of a delay costs clause, including the ability to claim loss and expense under both a delay costs clause and a variation clause.
Chengcheng (Aust) Enterprise Melbourne Pty Ltd engaged Mansfield Corporation Pty Ltd under a Design and Construction Contract for the refurbishment of a restaurant. The Contract allowed Chengcheng to direct Mansfield to carry out a variation, and clause 10.4 of the Contract provided that, unless otherwise agreed by the parties, a variation was to be valued by Mansfield on a fair and reasonable basis, and was to include the value of pricing work, time-related costs and expenses (Variation Clause). Relevantly, clause 10.6 of the Contract also provided that “if the progress of the Works is delayed or disrupted by a Variation… then the Contractor will be entitled to reimbursement of loss or expense as a result of the delay or disruption as a result of the delay or disruption at the daily rate set out at Schedule 23…” (Delay Costs Clause).
Over the course of the refurbishment, a number of variations were directed by Chengcheng. The value of the variations was agreed by the parties (and paid by Chengcheng), and a claim for an extension of time of 45 days was approved. After Practical Completion, Mansfield issued a further invoice claiming payment under the Delay Costs Clause as reimbursement of loss or expense in relation to the 45-day period, in addition to the amounts it had already been paid under the Variation Clause. Chengcheng did not pay the invoice and Mansfield commenced proceedings in the NSW District Court.
The Court at first instance found in favour of Mansfield, and Chengcheng sought to appeal this decision to the Court of Appeal.
On appeal, Chengcheng challenged Mansfield’s right to the further payment on a number of grounds. Each of these grounds relied on the view that, in the circumstances, Mansfield had no entitlement to delay costs under the Delay Costs Clause.
In dismissing Chengcheng’s appeal the Court of Appeal held (among other things) that:
- the Delay Costs Clause refers simply to a “Variation”, and the Court therefore did not agree with Chengcheng’s argument that the clause is intended to be limited only to allow delay costs where there are unforeseen consequences of the Variation in terms of the costs of delay;
- there is nothing in the Variation Clause or Delay Costs Clause to support Chengcheng’s view that no further claim is available under the Delay Costs Clause where the variation is agreed between the parties and has been paid pursuant to the Variation Clause; and
- contrary to Chengcheng’s argument, there is no commercial absurdity in allowing the contractor to recover the value of “pricing work, time-related costs and expenses” arising from a variation under the Variation Clause, and to additionally be entitled to reimbursement of a liquidated sum to compensate for lost opportunity costs inherent in delay in the progress of completion of the works by reason of a variation.
The full decision can be found here.