The recent decision of Valmont Interiors Pty Ltd v Giorgio Armani Australia Pty Ltd (No 2) [2021] NSWCA 93 considered circumstances in which a party may be estopped from relying on contractual non-compliance as a basis to deny variations claims.

Giorgio Armani (Armani) engaged Valmont Interiors (Valmont) to provide construction and fit-out works for a new Emporio Armani store at Sydney Airport. The contract sum was a “fixed project price inclusive of all items, excluding those items supplied by [Armani]”. Armani advised Valmont that joinery was an excluded item, which would be provided by an existing foreign supplier. Shortly after works commenced, the supplier sent Armani an email advising that it was unable to provide some of the joinery. Armani forwarded the email to Valmont, who in turn supplied the joinery, albeit neither party followed the procedures in a variation clause of the contract.

Armani subsequently refused to pay Valmont for the joinery supplied, relying on the waiver and release provisions in the variation clause, which it argued arose due to Valmont’s failure to notify Armani of the purported variation in accordance with the clause. The clause relevantly provided:

If [Valmont] considers that a Direction of [Armani] is a Variation but [Armani] has not issued a Variation Direction, [Valmont] must give notice of the purported Variation to [Armani] within 5 Business Days after the Direction … If notice is not provided by [Valmont] in accordance with this clause … [Valmont] releases and waives any entitlement it may have to a Claim against [Armani] in connection with, or arising from, the purported Variation.

Valmont commenced proceedings in the District Court of NSW to recover the costs of supplying the joinery (amongst other things).

While the primary judge found that, in relation to variations generally, Armani was estopped from relying on the waiver and release for costs incurred by Valmont prior to 11 April 2016 (being the date on which Armani asserted to Valmont in writing that there were no variations on the project), Valmont’s claim in relation to the joinery was rejected. This was because in the primary judge’s view:

•    the estoppel came to an “abrupt halt” from that date, as Valmont became aware of the requirements for variations under the contract, including the need for Armani’s written confirmation;
•    nothing in Armani’s correspondence led Valmont to assume that variation works could progress without following those requirements; and
•    notwithstanding this, Valmont proceeded to supply the majority of the joinery to Armani following that date.

The Court of Appeal took a different view, agreeing with Valmont that the estoppel continued in respect of the joinery after 11 April 2016.  It found that nothing in the communications on 11 April 2016 displaced Valmont’s assumption that it would be paid for the cost of supplying the joinery, and that it was not required to comply with the variation procedure under the contract in relation to the joinery. The Court found that:

•    Armani’s statement that “there are no variations on this project” conveyed its understanding that its instruction to Valmont to supply the joinery was not a variation, but an extra-contractual request;
•    the fact that Valmont incurred costs following 11 April 2016 demonstrated that Valmont continued to understand that it would be paid for the provision of the joinery;
•    even if the communications on and after 11 April 2016 could be considered to be a sufficiently clear departure, Armani would still have been estopped from relying on the variation clause because, at that time, Valmont had suffered irreversible detriment by incurring liabilities to its joinery suppliers, and it was no longer possible for Valmont to comply with the 5-day time limit in the variation clause;
•    the fact that Valmont had sought written approval for other works, but had not done so for the joinery, is consistent only with Valmont proceeding on the assumption that Armani’s approval was not required because it was implicit in Armani’s original instruction;
•    having instructed Valmont to supply the joinery, Armani was required to clearly advise that it no longer intended to pay for the joinery, either because of Valmont’s non-compliance with the variation clause or for any other reason; and
•    in light of all the facts, including Armani’s statement that it was “happy to agree upon additional payment on the project … to be addressed upon completion of the works”, it was unconscionable for Armani to resist payment to Valmont.

Bell P (with whom Macfarlan and Leeming JJA agreed) emphasised that:

•    the requirement to inform a party labouring under an assumption that the assumption has changed must be discharged clearly; and
•    notice of any departure from an assumption must be communicated in sufficiently clear terms and within a reasonable timeframe.

Contracting parties should be aware of the risk that their conduct in relation to contractual arrangements and provisions may give rise to estoppels which, if not displaced, may impact their ability to enforce contractual rights.

The full decision can be accessed here.