Construction Law: Contractual Obligations and Good Faith Principles

This report delves into the complexities of construction law, examining the essential elements of contract formation, including offer, acceptance, and consideration, with reference to the Australian legal framework. It explores the implications of breach of contract, emphasizing the importance of both express and implied terms, and the application of the parole evidence rule in resolving ambiguities. The report analyzes the Australian Consumer Law, particularly section 18, and its impact on contractual agreements, highlighting the prohibition of misleading and deceptive conduct. It further investigates contractual obligations, emphasizing the significance of good faith principles in commercial transactions, referencing key cases such as Commercial Bank of Australia v Amadio and BP Refinery (Westernport) Pty Ltd v Shire of Hastings. The analysis extends to counterclaims and defenses in construction disputes, focusing on the necessity of clear contractual terms and adherence to timelines, as illustrated by Waltons Stores (Interstate) Ltd v Maher, underscoring the importance of fulfilling contractual obligations and the consequences of non-compliance.

Running head: CONSTRUCTION LAW
Construction Law
Name of the Student
Name of the Author
Author Note

1
CONSTRUCTION LAW
Answer 1
In cases of construction of commercial transactions, a contract is made enforceable if it is entered
into between parties with an intention to create legal relations. In construction cases, a contract is
entered into to ensure that consultancy services, design services and guidelines are provided
within the agreement. Australia follows the law of United Kingdom and common law applies to
Australian jurisdiction. Abiding by the UNIDRIOT principles, there are certain stated guidelines
for breach of contract and the UNIDROIT principles also gives the remedies in cases of breach
of contract. Under the UNIDROIT principles, the guidelines are provided as to how to enter into
a contract. To constitute a valid contract there needs to be an offer and a subsequent acceptance
of that offer. The offer and acceptance by the parties constitute a valid contract. A valid contract
needs at least two parties and there has to be a legal and valuable consideration to make the
contract enforceable. LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001]
NSWSC 886 laid down the valid essentials of a contract and laid down the guidelines as to the
importance of a valid offer to constitute a contract (Adriansee, 2016). The facts of the above
mentioned case deals with a construction company which was concerned with the construction of
a stadium and the applicants of the case were responsible for the management and the
construction of the stadium. In this case, the construction company entered into a contract with
the State Authority and in this case it was decided that Docklands Stadium Consortium Pty Ltd
would be held to be in charge of the management of the stadium. The case was regarding breach
of contract as the State Authority had failed to take proper precaution and had it failed to take
proper precaution in the furtherance if the contract (Thomas & Wright, 2016). In the case it was
held that the State Authority had failed to take precaution and that the State Authority had
committed a breach of contract. This case was not solely a contract case, but had also involved

2
CONSTRUCTION LAW
constituents of tort. The case held that there was a breach of tort and a subsequent breach of
contract.
A contract has both express and implied terms. An implied term of a contract means the
terms of the contract which can be understood from the conduct and behavior of the parties.
Express terms of a contract are the ones which have been expressly mentioned by the parties. An
implied term of a contract also is binding if from the conduct of the parties it can be inferred that
they had the intention to create legal relations (Marsh, 2017). An important case dealing with
implied terms was discussed in the case of Codelfa Construction v State Rail Authority of New
South Wales. The mentioned case dealt at length with the concept of implied terms and
frustration. The parole evidence rule is applied to understand the ambiguities that surround a
case. In cases where there is an ambiguity in understanding the terms of the contract, this rule is
applied to understand and clear the confusions regarding the interpretation of the terms of the
contract. The Codelfa case dealt with the duties of a state authority and the court tried to clear the
ambiguities related to a contract. The parole evidence rule was upheld in the case of Pagnan SpA
v Feed Products Ltd [1987] 2 (Yeen, 2015). The case discussed the conditions when an offer can
be held to be valid and can constitute a contract. An external contract can also be held
enforceable after taking into consideration the external conditions of the situation. The external
conditions of the contract help in understanding the terms of the contract. A consumer is one
who indulges in trade and commerce for his or her own personal benefit. According to section 18
of the Australian Consumer Law, a consumer shall not be duped and a trader shall not coerce a
consumer to enter into a contract. No one shall indulge in any unfair trade practices and no one
shall be sold in any conduct that is with the intention of causing deception in trade. In this case,
there has been an allegation against the state Government that the State Authorities have

3
CONSTRUCTION LAW
indulged in unfair practices and has used descriptive practices to mislead the applicant in the
factual situation. Acciona has blamed the State for using misleading terms in the contract to
mislead them into believing in the terms of the contract which are not properly mentioned and
are easily understood by the parties. The Contract was against the already established principles
of Australian Consumer Law. The facts of the factual scenario point towards the claim made by
Acciona stating that the contract violates section 18 of the contract. As a consumer, they have
been duped into entering into a contract without being told about the terms of the contract. The
conflict is regarding the building of the rail line that was agreed between the parties which are
deceptive and misleading.
Answer 2
Contractual Obligations are important in understanding the importance and implication of
modern commercial contracts. Contractual obligations need to be understood in its essence,
giving rise to good faith obligations that are binding on the parties. Good faith clause of a
contract mandates that a contract has to fulfill the task of upholding the good faith principles.
The contract has to be understood in the light of the freedom to make a contract and contractual
obligations. In commercial transactions, it is important to see the hardships of an individual and
try to ameliorate the conditions of the party. This has been an Australian principle which has
been upheld in many landmark cases (Eggers & Pickers, 2017). The parties need to assume their
responsibilities and effectuate the contracts to the best of their interest. In cases of express
contractual terms, it is easier to assume responsibility and apply the terms of the contract to the
fact situation. This principle of good faith was held in the case of Commercial Bank of Australia
v Amadio [1983] HCA 14. Again, in the case of BP Refinery (Westernport) Pty Ltd v Shire of
Hastings, the Court of Appeals was of the opinion that a good faith obligation is an important

4
CONSTRUCTION LAW
element of a contract and they need to be upheld to ensure that the parties ensure their rights and
duties in the perspective of the interests of the parties. A good faith principle is an important
implication of law. In the jurisdiction of Australia, in cases of commercial contracts, it is
important to see the good faith obligations as mandatory. In the case of Amadio, it was held that
the best way to enforce good faith obligations is to attach strict enforcement of the principles. An
incentive is an essential aspect to make sure that the parties perform their parts of the contract.
the Fair Trading Act, 1999 is an important legislation of Australia that constructively aims to
impose the fair trading conditions on the parties. Burger King Corporation v Hungry Jack’s Pty
Ltd is an important case that attracted various criticisms for applying the good faith doctrine. In
commercial contracts, the good faith is an individual domain of the party who is part of the
contract because being a big entity; he shall have the best interest reserved for himself.
Therefore, to understand good faith in the light of the duties and interests of the party, it is
essential to understand that the parties have the right to accord the given respect to the rights and
obligations of the other party. BP Refinery (Westernport) Pty Ltd v Shire of Hastings laid down
five tests that need to be followed by the parties to implement the good faith principle. The terms
of the contract need to be equitable and reasonable and the parties should be able to understand
the terms of the contract with clarity. The terms of the contract cannot be ambiguous and in cases
of an ambiguous contract the terms of the contract shall be comprehensive. Burger King
Corporation v Hungry Jack’s Pty Ltd [2001] 69 NSWLR 558 held that parties have an implied
duty to act in good faith. In this case, the parties have an implied duty to act in accordance with
the good faith principles and consider the rights and duties of the other party. The aim should be
to understand the elements of the contract in the best interest of the party. It is the duty of the
courts to check if there was an express term of good faith in the contract and whether the parties

5
CONSTRUCTION LAW
had expressly decided to act in accordance with the good faith principles. Therefore, Acciona
and the State Authority are obligated to act in good faith and honor the principles of the contract.
Answer 3
The principles of the Australian Act say that no trader shall act in a way to dupe or mislead their
customers. In this case, applying the principles of the Consumer Act, it can be said that the State
Authority cannot be said to act in a deceptive and misleading way to make the company believe
that a contract existed and the contract was such that gave the parties the rights and obligations to
act in a certain way. An opposition and a counter claim is made as a defense to an already
existing matter where one party tries to bring allegations against the other party. In this case,
Transport for New South Wales has to bring a counter claim against the claims and allegations
made by Acciona. Acciona has alleged that no terms of the contract were mentioned and the
State has acted in misleading ways trying to hide some relevant information from the company.
When a contract is entered into two parties, it is essential that they bring to table all the terms of
the contract and by doing so all the ambiguities regarding the cases are resolved. According to
the facts of the case, there was a negotiation between the parties that was entered into between
the parties. The terms of the agreement did not mention about the discussion that had taken place
between Ausgrid and the Transport which was not known to the company. It is a settled princi[le
of law that in cases iof ambiguities, it has to be checked if the parties had enough knowledge
regarding the matter at hand and the constituents of the contract. When a contract is entered, the
parties fix the time when the contract shall end. In this case, the state authorities have
complained that there has been no stipulation of time and the contractors have not confirmed by
what time the contract will be over and the constriction will be complete. Acciona has faltered in
this aspect because by the terms of the contract, the construction should be done within a fixed

6
CONSTRUCTION LAW
time which has not been recognized by the parties. Waltons Stores (Interstate) Ltd v Maher
[1988] HCA 7 in this the mentioned case, it was held by the courts that once a party enters into a
contract and the terms are clear and express, the parties are duty bound to follow. In cases there
is an implied authority that says that the terms need to be understood with clear and concise
understanding, the terms need to be so understood that the parties can execute the contract.
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7 applied the concept of promissory
estoppels in contract cases saying that if a party enters into a contract, they need to ensure that
the terms of the contract have been fulfilled properly. The parties shall be stopped from claiming
that they did not understand the terms of the contract and if a contract says that a construction
will be completed within a certain time, it is the duty of the parties to ensure that the contract will
be completed. N this case, the contractors cannot escape from their liability and they need to
complete the task within the specified time.
Question 4
The case of Acciona is based on the core intensive payment made under the Construction
law and the provision regarding the validity of the claim and the counter claim are to be
discussed. It has been clarified from the case that both the parties have certain allegations against
them. Before coming in a conclusion regarding the facts that what documents are required to be
submitted before the court, it is important to discuss about the claim of the parties against each
other. The Spanish company has alleged that the government had not disclosed all the relevant
facts regarding the case or project at the time of signing the contract. Further, the company

7
CONSTRUCTION LAW
regarding the underground wire system that was supposed to make by AUSGRID has made
claim, but the company came to know that the project had been rejected by the AUSGRID. It has
been alleged by the company that the government had not mentioned this fact to the company
before or at the time of signing the contract. It has been contended by the company that if they
knew the fact, they did not sign the contract. Further, the company had to face serious issues
while collecting the money and the expenses become double. On the other hand, the government
has denied all the facts stated by the company and made certain counter claims against the
company. According to the state counsel, much negligence has been found in the part of the
company. The company had failed to complete the work within specific time for their fault. The
appointed contractor of the company had failed to complete the project and the company had
provided relevant information regarding the project. In addition to this, the state counsel had
claimed that the company had failed to submit any relevant documents that established the
truthfulness of the required amount made by the company. Further, another claim has been made
against the negotiation process. Therefore, following documents are required to be submitted
before the court to clarify the respective claims of the company and government.
The company had to submit the terms and conditions of the contract and it is to be
highlighted by the company whether the government has made all the disclosure regarding the
AUSGRID. The necessity of AUSGRID Company regarding the current contract has also to be
determined. Further, the company has to submit all the necessary documents regarding the
payment portion. The company has to show that they have taken all the necessary measurements
but the company could not make the project completed within stipulated time for the wrong acts
of the governments.

8
CONSTRUCTION LAW
On the other hand, government has to show that they have disclosed all the documents
and information to the company and the company had all the knowledge regarding the matters
and condition of the project. Further, the government can collect information regarding the
payment related claim made by the company. The government should submit the terms and
relevant conditions of the contract so that the innocence of government can be proved.
Both the parties of the contract are required to present the witnesses before the court. The
government counsel and the company should have to represent the parties who have signed the
contract. Further, if there are any witnesses relevant for the case should be produced before the
court. Further, the representative of AUSGRID should produce before court to identify the real
problems regarding the project.
Question 5
It has been observed from the case that the main subject matter of the case is based on the
dispute arises from construction of rail line and the government has contracted the Spanish
company for doing the job. However, it has been alleged that the company has failed to complete
the work within time. Further, the company has stated that the government has failed to disclose
all the relevant information regarding the project for the best interest of the contract. The
company accused that the acts of the government attract the provision of section 18 of the
Australian Consumer Law and made misstatement regarding the contract signing process with
AUSGRID. According to the Contract law, there should be good faith regarding the contract and
no parties are allowed to make any imbalance regarding the bargaining process. The Australian
Court of Justice had made a suggestion in 2001 regarding the good faith regarding the contract
and according to the court, in case of any breach regarding the contractual fact; the plaintiff can

9
CONSTRUCTION LAW
bring an action against the defendant under the Tort Law. There are certain other provisions have
laid down under the case that are required to be resolved. Further, according to the case material,
it is important to verify which claim is perfect. In this portion, the relevant provision of law has
to be considered. The problems regarding the case are to be identified.
In this case, it has been observed that the rail project has become the apple of discord in
between the company and the government. Further, it is to be stated that both the parties have
hurled mud on each other. Considering the case and all the statements, the problem ground
should be divided in two parts. The company has made a claim that the contract was not made in
good faith and the government has failed to disclose all the materials positively. According to the
company, the government had failed to narrate the statements made by AUSGRID, who was
supposed to deal with the underground wiring system. Therefore, the obligation grounds
regarding the AUSGRID and the project are required to be identified. . On the other hand, certain
claims have been made on behalf of the government too. In this point, the main problematic issue
is to identify whether the company has fulfilled all their obligations prudently or not. The
intervention of contract law and certain provisions of Construction Law could resolve these
problems. According to the judgment made in Commercial Bank of Australia Ltd v Amadio
[1983] HCA 14, it can be stated that interest of both the parties should be secured and no one
should adjudged illegally. In these cases, the affected party can claim repudiation of the contract.
Further, if it has been proved that any of the parties to the contract has failed to act in due care
and diligence, process can be taken against the wrongdoer (Lines MacFarlane Marshall Pty Ltd
v Fletcher Construction Australia Ltd [2000] VSC 358).
Part B

10
CONSTRUCTION LAW
This part of the problem is based on the advisory ground given to the company.
Considering the case, it has been observed that there was a yawning gap in between the
estimated amount and total expenses regarding the project. The company has to face certain
negative problems due to it. However, the company should make an application under the
Building and Construction Industry Security of Payment Act 2002. This Act is particularly
dealing with the claims regarding building contract. According to the purpose of the Act, cash
flow should be remained under the business of construction and therefore, it is important to
resolve all the disputes amicably. Under the Act, certain negotiation process has been given. The
order of the arbitrator will be mandatorily imposed on the parties. According to the claim of the
company, financial condition of Acciola has been deteriorated and therefore, company has to
choose certain legal process where the company has not bear lump sum expenses. Further, the
company should have to claim the invoice payment from the government and make a claim
under section 18 of the Security of Payment Act. However, all these applications should be filed
within time or it will be rejected by the court [Hickory Developments Pty Ltd v Schiavello (Vic)
Pty Ltd & Anor [2009]. However, it is important to state that the decision of the arbitrator in this
case is applied mandatorily and both the parties are bound to maintain the decisions of the
arbitrator. The decision of the former adjudicator will be imposed even if there are any different
notions taken by the subsequent adjudicator. The claims of both the parties are required to be
analyzed independently and the company should have to deliver all the necessary documents and
calculated facts regarding the expenditure of the company. According to the general provision,
the decision of the adjudicator is mandatorily imposed on the parties. However, if the company
thought that the decision of the adjudicator has denied the proper policy or judgment, the
company can make a claim for certiorari. Further, it can be suggested that the company should

11
CONSTRUCTION LAW
raise the question regarding misleading statement made by the government regarding the
AUSGRID. According to Bitannia Pty Ltd and Anor v. Parkline Constructions Pty Ltd [2006]
NSWCA 238, the company can make a claim for misleading statement, but all their statements
should be made in accordance with the statement mentioned in section 15(4)(b) of Security of
Payment Act 1999. This section will taken away the right to make counter claim by the party that
provide misstatement. Therefore, the company should have to follow all these rules accordingly.

12
CONSTRUCTION LAW
Reference
Adriaanse, M. J. (2016). Construction contract law. Palgrave Macmillan.
Adriaanse, M. J. (2016). Construction contract law. Palgrave Macmillan.
Bailey, J. (2014). Construction Law. Crc Press.
Bitannia Pty Ltd and Anor v. Parkline Constructions Pty Ltd [2006] NSWCA 238
BP Refinery (Westernport) Pty Ltd v Shire of Hastings
Building and Construction Industry Security of Payment Act 2002
Cahill, M. L. (2018). The social construction of sexual harassment law: The role of the national,
organizational and individual context. Routledge.
Codelfa Construction v State Rail Authority of New South Wales.
Commercial Bank of Australia Ltd v Amadio [1983] HCA 14
Commercial Bank of Australia v Amadio [1983] HCA 14
Eggers, P. M., & Picken, S. (2017). Good faith and insurance contracts. Taylor & Francis.
Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor [2009] VSC 156; 26 VR 112
Hughes, W., Champion, R., & Murdoch, J. (2015). Construction contracts: law and management.
Routledge.
Lines MacFarlane Marshall Pty Ltd v Fletcher Construction Australia Ltd [2000] VSC 358
LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2001] NSWSC 886

13
CONSTRUCTION LAW
Marsh, P., 2017. Contracting for engineering and construction projects. Routledge.
Pagnan SpA v Feed Products Ltd [1987] 2
Saunders, P. (Ed.). (2017). Welfare to work in practice: social security and participation in
economic and social life. Taylor & Francis.
Sharkey, J. A. (2017). Australian Rules: A Survey of the High Court of Australia on
Construction Law 1965-2016. AUSTRALIAN LAW JOURNAL, 91(12), 986-
1012.
Thomas, R. W., & Wright, M. (2016). Construction contract claims. Palgrave Macmillan.
Yeen, J.M.C., 2015. The Sound of Silence–An Analysis of the Incorporation of Arbitration
Terms after Contract Formation R1 International Pte Ltd v Lonstroff AG [2015] 1
SLR 521. Asian International Arbitration Journal, 11(1), pp.93-104.