Court of Appeal clarifies contractual obligations - lessons from XJS World v Central West Civil

In an earlier article (Footnotes and fine print fallacies - lessons from XJS World Pty Ltd v Central West Civil Pty Ltd), we explored the District Court of NSW’s decision in XJS World Pty Ltd v Central West Civil Pty Ltd [2024] NSWDC 465, which served as a cautionary tale about the dangers of vague contract drafting. 

The District Court’s decision was recently appealed, unsuccessfully, and the Court of Appeal has confirmed the lessons learnt from the case with the addition of a few more.

This article continues our analysis and closes the loop on a dispute that began with the drafting of a footnote.

The Appeal - what was at stake?

XJS World Pty Ltd (XJS), the developer, had engaged Central West Civil Pty Ltd (CWC) to perform civil works on a residential development in Bathurst.

The contract was based on a standard form Civil Contractors Federation minor works contract comprising multiple parts, including (amongst others):

• Part A: Contract Particulars

• Part B: Standard Conditions

• Part D: Schedule of Rates (including a Quotation Form which had been submitted by CWC)

Critically, Item 8 of Part A, which was meant to specify the “Date for Completion,” was left blank. However, the Quotation Form annexed at Part D of the contract included a footnote stating that the works “will need to be completed within three months of contract engagement.”

XJS terminated the contract in April 2023, alleging delays and breaches by CWC, and claimed liquidated damages for CWC’s delay.

CWC denied that it breached the contract and cross-claimed for unpaid invoices.

The District Court of NSW found in favour of CWC and XJS appealed that decision.

Core principles in the construction of commercial contracts

In coming to its decision, the Court of Appeal referenced earlier decisions that summarised the core principles of the construction of commercial contracts as follows:

• The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean;

• That requires consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured in the contract. That, in turn, is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating; and

• Unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties intended to produce a commercial result. The contract is to be construed to avoid it making commercial nonsense or working commercial inconvenience.

The Court of Appeal’s findings

The Court of Appeal (Payne, Kirk and Adamson JJA) unanimously dismissed the appeal.

Their reasoning reinforces several key learnings.

Standard form contracts must be activated deliberately

The Court held that the parties’ decision to leave Item 8 blank was deliberate.

As Justice Kirk explained:

• standard form contracts often include optional clauses that only apply if activated by the parties;

• if the parties choose not to complete those details, they are choosing not to activate those provisions; and

• that decision cannot be ignored, and it is not for the Court to rewrite the contract, or to insert words from another part of the contract, so as to insert a time where the parties chose not to do so.

In the present case, it made sense that the parties made that deliberate decision, because the notion of “Completion” in the contract involved not only the works being done but also “signed off as accepted by Bathurst Regional Council’s Representative for the issue of the Subdivision Certificate”. This meant that Completion was not something entirely in the control of CWC and could have taken some time.

The words in the Quotation Form did not align with the notion of Completion under the contract and did not allow for the time for approval from the council. Further, the contextual considerations suggest that the words in the Quotation Form were by way of explanation of the quoted work and prices in the quotation, rather than a distinct promise regarding timing.

The words used must demonstrate a contractual obligation

It was also found that the wording of the footnote in Part D to the contract was aspirational and informal.

The use of the words “will need to” was more in the nature of an expression of expectation rather than words of contractual obligation.

It did not and could not impose a binding date for completion.

The Court also emphasised that Part D was lower ranking than Part B under the contract’s order of precedence clause.

Since Part B required the completion date to be stated in Item 8 of Part A (which was blank), the footnote had no legal effect.

Liquidated damages must be anchored to clear terms

Because no completion date was agreed, the clause providing for liquidated damages ($1,000 per day) for delays could not be triggered.

This reinforces the importance of clearly drafting and activating critical terms, especially where liability for delays or damages is concerned and the effects of which can be significant.

Onus of proof and evidentiary clarity

It was not in dispute that significant delays occurred due to unusually wet weather and council-imposed requirements.

However, the Court was critical of XJS given that it failed to provide evidence that delays in completing the works were due to CWC’s lack of due diligence (including taking account of any delaying events beyond the reasonable control of CWC), and precisely how CWC had not progressed routine inspections and testing as alleged.

Further, the Court said that XJS made little attempt to provide a correlation between work done by a replacement contractor and the work, which was meant to be done by CWC, for the purposes of XJS’ claim for damages and “extra-over costs”.

Practical takeaways

This decision is a final warning to all participants in the construction industry.

• Do not rely on footnotes or informal language to impose obligations.

• Activate optional clauses deliberately and clearly or negotiate their wording to ensure rights are protected whilst project-specific conditions are addressed.

• Ensure that key dates and terms are stated in the correct part of the contract.

• Understand the hierarchy of contract documents, how precedence clauses operate, and where critical information is located (and meant to be located) in the contract.

• Ensure adequate evidence is provided to substantiate claims regarding delays and damages.

If you’re involved in drafting or negotiating construction contracts, don’t leave your obligations to chance. Contact our team at Bartier Perry for expert guidance on contract clarity, risk management, and dispute resolution.

Authors: Anish Wilson & Holly Tang

 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.