Footnotes and fine print fallacies - lessons from XJS World Pty Ltd v Central West Civil Pty Ltd

The recent decision of XJS World Pty Ltd v Central West Civil Pty Ltd [2024] NSWDC 465 is a wake-up call for anyone in the construction industry. It highlights the critical importance of drafting robust, clear construction contracts (no more relying on footnotes or vague terms!) and strictly adhering to contract terms to avoid costly disputes.

The case dives into pivotal issues such as:

• the necessity for crystal-clear contract language

• handling project delays and their repercussions

• repudiation, termination, and its legal consequences if done wrong

• liquidated damages and the complexities of the ‘prevention principle'

• when and how rights to strict compliance with the contract can be waived.

Background

On 15 April 2021, XJS World Pty Ltd (XJS) (being the relevant developer) enlisted Central West Civil Pty Ltd (CWC), a civil engineering works contractor, on a residential development near Bathurst, New South Wales (Contract).

On 3 April 2023, XJS terminated the Contract, alleging that CWC had failed to complete the works within three months or at all, and had not carried out the works pursuant to the contract’s requirements. 

CWC denied that it was in breach of the Contract and filed a cross-claim for unpaid invoices, amounting to $60,694.30.

The Contract

The Contract consisted of the Contract Schedule (or Particulars), Contract Conditions, Design Plans, Schedule of Rates, Bathurst Council Development Consent, and the Electrical Design. 

Most significantly:

• ‘Part B – Contract Conditions’ stated at clause 2 that the CWC was to “execute and complete the Works with due diligence and without delay”; and

• the ‘Part D – Schedule of Rates’ document noted in the footnotes that “the civil works will need to be completed within three months of Contract engagement.” (the Footnote).

The Footnote

XJS relied upon the Footnote and CWC’s failure to complete the works within three months, as a reason for its purported termination of the Contract.

It was the view of the Court that:

• the Footnote in the Part D Schedule of Rates did not form part of the Contract

• given Part D was a ‘Schedule of Rates’, it was only the rates and quantities data in that document that formed part of the Contract - not the entire document including the Footnote

• the Footnote’s wording was merely an expression of an expectation, not a binding obligation

• the three month requirement was inconsistent with provisions in the Part B Contract Conditions, which required the works to be completed with “due diligence”

• a “hierarchy clause” in the Part B Contract Conditions stated that in the event of any discrepancy of ambiguity between the contractual documents, the Part B Contract Conditions overcame the Part D Schedule of Rates (which contained the Footnote)

• given there was no agreed date for completion, XJS was not entitled to claim liquidated damages for delay.

The above underscores the importance of explicitly incorporating critical terms directly into the main body of a contract, rather than relegating them to secondary documents or the “fine print”.

Wrongful termination and repudiation

The Court also came to the view that XJS had no legal right to terminate the Contract. Its attempted termination was therefore repudiatory (i.e. proof of its unwillingness and readiness to perform the terms of the Contract).

Further, XJS had engaged a replacement contractor to complete the Contract, effectively blocking CWC from completing the work. This act invoked the “prevention principle”, which meant that XJS could not complain of CWC’s non-performance given XJS’ own actions caused that failure.

As a result of XJS’ repudiation, CWC was discharged (or released) from any further obligations thereafter.

Delay

The Court also delivered a strong message on the importance of evidence in construction disputes, by stating that:

• whilst communications exhibited in the case highlighted frustrations over delays from wet weather, they failed to prove that delays were due to CWC’s lack of due diligence

• the burden of proof rested squarely on XJS to show that CWC was responsible for any delays or contractual breaches

• XJS fell short of this burden because no expert analysis was provided to pinpoint delays, identify their causes, or explain their impact on the critical path, and variations and their time effects were not factored in at all.

The above is a stark reminder of what happens when thorough site documentation is not maintained or presented in Court.

Damages for breach of Contract

The Court also laid down practical guidance for tackling defective or incomplete works in breach of Contract claims:

• Connect the dots: non-compliant items or defects should be directly linked to the defendant’s acts or omissions and tied to the contractual term that is alleged to have been breached

• Isolate breach-related costs: keep breach-related expenses separate from other project costs - something which was notably absent in this case

• Bring your best evidence: when damages are tricky to quantify, the Court will do its best to assess them, but without solid evidence, expect minimal awards

• No guesswork allowed: the Court cannot “pluck figures out of the air” when clear evidence of damages could have been provided but was not.

Waiver

XJS also argued that it was entitled to claw back payments made to CWC for variations, claiming CWC had not strictly followed the Contract’s variation notice provisions.

The Court rejected this argument, stating:

• when XJS received each variation claim, it faced a choice whether to waive its rights to strict compliance and make the payment, or enforce its contractual rights and withhold payment

• by repeatedly waiving its rights and paying CWC its variation claims, XJS essentially forfeited any entitlement to recover those payments.

The verdict is clear: if you want to protect your position in a dispute, demand strict compliance with your contract from the start. Waiving rights in the moment can lead to costly consequences later.

Key takeaways

• Avoid relying on footnotes. There is no guarantee that they will be enforceable. Critical terms should be in the main body of the contract.

• Be careful when considering terminating a contract. The consequences of termination are dire if done incorrectly. Get legal advice.

• Consider, obtain, and present best evidence. This is crucial at the claims stage and also in litigation.

• Insist upon strict compliance with the contract. The contract is there for a reason. You never know how a waiver now might affect you in the event of a dispute in the future.

Authors: Anish Wilson & Holly Tang