RCR O'Donnell Griffin Pty Ltd v Forge Group Power Pty Ltd (Receivers and Managers Appointed) (in liq) & Ors [2016] QCA 214 reaffirms the position that rights, obligations, claims or liabilities will not be preserved post termination of a contract, if their existence requires some further performance of the contract.
The appellant, RCR O'Donnell Griffin Pty Ltd (subcontractor), and the first respondent Forge Group Power Pty Ltd (contractor) were parties to a subcontract for the performance by the subcontractor of electrical work in the construction of the Diamantina Power Station. During the course of the subcontract, the contractor became insolvent and in March 2014, was ordered to be wound up.
As a result, in April 2014, the contractor, subcontractor and Diamantina Power Station Pty Ltd (principal) entered into a Deed of Novation (Deed) by which the subcontract would be terminated on 22 April 2014 (Novation Date) and a new contract for the remainder of the works would be made between the subcontractor and the principal. Under the Deed the parties agreed that discharge of the subcontract would not affect 'any accrued rights, obligations, claims or liabilities arising under the [subcontract] in connection with the performance of the [subcontract] before the Novation Date'.
At the Novation Date, it was uncontested that there was a progress payment outstanding from the contractor to the subcontractor in the sum of $4.2 million. However, following the Novation Date, the contractor alleged that it was entitled to approximately $2.5 million in liquidated damages for the subcontractor's delay in performing the subcontract. The subcontract required that such liquidated damages had to be assessed and certified by the superintendent, but this had not been done. In fact, when the contractor became insolvent there was no superintendent appointed under the subcontract.
So, following the Novation Date, the contractor appointed a superintendent to assess and certify the amount of liquidated damages payable under the subcontract. The contractor then announced its intention to call on two bank guarantees provided as security under the subcontract for payment of the liquidated damages on the basis that it was an accrued claim against the subcontractor.
The subcontractor contested the claim that the contractor's liquidated damages claim was an accrued right at the time of the Novation Date.
On trial at first instance, Byrne SJA of the Supreme Court decided that the liquidated damages claim was an accrued right at the time of the Novation Date and the contractor was therefore entitled to call on the bank guarantees. The subcontractor appealed against that decision.
Decision
The Court of Appeal allowed the appeal
It was declared the contractor was not entitled to call on the bank guarantees on the basis that its right to recover liquidated damages had not accrued before the date of termination.
McMurdo JA (Applegarth J concurring) held that there was no accrued right to the liquidated damages as at the Novation Date. His Honour accepted that the liquidated damages claim could be said to arise from the subcontractor's performance of the subcontract before the Novation Date, however, found that there was no entitlement on the wording of either the subcontract or Deed, to appoint a superintendent after the Novation Date. His Honour held that that appointment required further performance of the terminated subcontract and consequently there was no valid certification of liquidated damages giving rise to an accrued right or claim that would be preserved post termination. His Honour stated: 'The notion that rights, obligations, claims or liability should not be preserved if their existence required some further performance of the Subcontract, is consistent with the general law affecting discharge of contracts.'
