Risky Business: Latent Conditions
With many of our clients operating in the property development, construction and leasing space, we are acutely aware of the consequences of any delay in getting from AFL to handover. Tight timeframes coupled with substantial upfront and ongoing capital expenditure and exposure require tight controls. Risk, claims for extension of time and cost overruns need to be managed both contractually, commercially and on the ground.
Our article dealing with the risky business of latent conditions examines some guiding principles with have evolved through case law in establishing claims from extension of time of payment.
Latent conditions are encountered physical conditions which could not be identified by a contractor at the time of tender. In deciding whether a condition is a latent condition, and whether the contractor is entitled to an extension of time or payment, the 'experienced contractor test' is applied.
Three key principles apply.
The test is objective: The test requires a comparison of conditions encountered and what the contractor should reasonably have expected if he had examined the relevant information, rather than what the contractor did reasonably expect after actually examining the information. In Glenorchy City Council v Tacon Pty Led, Glenorchy City Council sought leave to appeal an arbitrator's decision that found Tacon's allowance for a difference in conditions was reasonable on the information provided. The information provided contained inaccurate information. Con CJ held that even though Tacon did not actually read the report which contained inaccurate information at the time of tender, the test was objective and an experienced contractor would have read the incorrect information.
A contractor can't rely on inaccurate information: A contractor cannot rely on reports containing inaccurate information, if it is not reasonable to rely on that inforation. In Obrascon Huarte Lain SA v Her Majesty's Attorney General for Gibraltar, Obrascon sought to rely on an environmental statement which underestimated the removal of contaminated soil. Akenhead J found that an experienced contractor would have looked past the environment statement and referred to previous uses of the site which included a runway, a fuel farm and a rifle rage.
Disclaimers do not nullify a latent condition clause: The Court will look at the information available and assess whether it would be reasonable for an experienced contractor to undertake further analysis and investigation. In BMD Major Projects Pty Ltd v Victorian Urban Development Authority, the Court held that the provision of the documents regarding the accuracy of the information could not succeed in avoiding liability of the latent condition.
If you have any questions or concerns about how to safeguard the consequences of latent condition claims call Integra on +61 92188588 and a member of our Construction, Property/Leasing and Insurance Teams can assist.
To see the full article on this topic see the link below.
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