The effectiveness of time bar clauses following the high court in decision in Andrews v. Australia and New Zealand Banking Group

Abstract

PurposeIn Australia, compulsory rapid adjudication under the Building and Construction Industry Security of Payment Act 1999 (NSW) (or the equivalent legislation another Australian State or Territory) is a common way that payment claims under commercial construction contracts are decided. Construction contracts often contain penalty clauses. In particular, time bar clauses have been used to impose a penalty upon claimants and are frequently raised by a respondent as a reason for withholding payment. In the recent case of Andrews v. Australia and New Zealand Banking Group [2012] HCA 30 (“the Andrews case”), decided by the high court of Australia, the court has described how Australian courts must deal with penal provisions in contracts. The purpose of this paper is to consider the effectiveness of time bar clauses in the light of the penalty doctrine enunciated in the Andrews case.Design/methodology/approachA “black‐letter” approach is adopted to analyse and explain the effectiveness of time bar clauses in the light of the penalty doctrine enunciated in the Andrews case.FindingsIn the Andrews case, the high court decided that a penalty may arise where there is a stipulation in a contract in favour of a second party and upon the failure of that stipulation (the primary stipulation) there is a secondary stipulation that imposes on the first party an additional detriment to the benefit of the second party. If the second party can be compensated for the failure of the primary stipulation then to the extent that the additional detriment imposed on the first party exceeds that compensation, it is a penalty. In the context of time bar clauses, if a construction contract provides that when one party (the first party) fails, within a time prescribed by the contract, to give the other party (the second party) notice of a claim for extra remuneration or an extension of time, the consequence is that the first party forfeits an entitlement to be paid money that the party would otherwise be entitled to claim, or the first party becomes liable to pay the second party money, the penalty doctrine might apply.Originality/valueThe penalty doctrine is applicable to all contracts. The analysis of the Andrews case presented in this paper may be of interest in international jurisdictions, particularly where statutory adjudication for the construction industry has been introduced or is being contemplated.