Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd
[2025] QCA 50
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- Notable Unreported Decision
- Appeal Determined (QCA)
- Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd[2025] QCA 50
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Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd[2025] QCA 50
Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd[2025] QCA 50
SUPREME COURT OF QUEENSLAND
CITATION: | Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2025] QCA 50 |
PARTIES: | PACIFIC DIAMOND 88 PTY LTD AS TRUSTEE FOR THE PACIFIC DIAMOND 88 UNIT TRUST ABN 28 583 823 057 (appellant) v TOMKINS COMMERCIAL & INDUSTRIAL BUILDERS PTY LTD ABN 98 061 732 778 (respondent) |
FILE NO/S: | Appeal No 153 of 2025 SC No 13947 of 2024 |
DIVISION: | Court of Appeal |
PROCEEDING: | General Civil Appeal |
ORIGINATING COURT: | Supreme Court at Brisbane – [2024] QSC 321 (Treston J) |
DELIVERED ON: | 11 April 2025 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 10 March 2025 |
JUDGES: | Mullins P and Bond JA and Crow J |
ORDER: | The appeal be dismissed with costs. |
CATCHWORDS: | CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – SECURITY AND RETENTION FUNDS – where the appellant and the respondent were parties to a building contract – where the Superintendent issued a liquidated damages certificate and a payment certificate to the respondent – where the appellant sought to set off the certified liquidated damages against payment which was otherwise certified due to the respondent giving rise to an amount due from the respondent to the appellant – where the appellant thereafter gave the respondent notice of its intention to have recourse to security under the contract – where the respondent applied for and obtained declarations in the primary court that the appellant was not entitled to set off liquidated damages in the matter which it had – whether, pursuant to the proper construction of the contract, the primary judge was correct to determine that the appellant did not have a right to elect to set off certified liquidated damages against money it owes to the respondent in the form of a progress certificate CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS – THE CONTRACT – CONSTRUCTION OF PARTICULAR CONTRACTS AND IMPLIED CONDITIONS – OTHER MATTERS – where the primary judge had considered in aid of construction evidence of deletions made to the standard form of contract – where the primary judge had considered in aid of construction certain antecedent negotiations – where evidence of the party’s refusal to include in their contract a provision which would give effect to something which is subsequently suggested to be their presumed intention is admissible in aid of construction of the contract Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24, followed Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12, cited Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7, followed Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407, followed RCR O'Donnell Griffin Pty Ltd v Forge Group Power Pty Ltd (Receivers and Managers Appointed) (in liq) [2016] QCA 214, distinguished |
COUNSEL: | D D Keane KC, with M W P Ziebell, for the appellant |
SOLICITORS: | Mills Oakley for the appellant |
- [1]MULLINS P: I agree with Bond JA.
- [2]BOND JA: By a formal instrument of agreement dated 22 December 2021, the appellant (the Principal) and the respondent (the Contractor) entered into a contract pursuant to which the Contractor agreed to design and construct for the Principal a residential apartment building at Buddina in Queensland for a contract sum of $55,340,000.
- [3]In September 2024, at a time when the Contractor had not yet brought the works under the contract to the stage of practical completion (as defined), the Superintendent appointed under the contract issued certain certificates which purported to enable the Principal to set off $2,600,000 liquidated damages against the $694,343 which would otherwise have been owing to the Contractor, with the result that the $1,905,657 negative balance was said to have become owing by the Contractor to the Principal.
- [4]Based on the contention that the Contractor owed it the sum of $1,905,657, the Principal gave notice to the Contractor that it proposed to have recourse to one of the two bank guarantees which the Contractor had provided to the Principal as security pursuant to the contract. The bank guarantees were each in the amount of 2.5 per cent of the contract sum.
- [5]A dispute arose between the Principal and the Contractor as to whether, on the proper construction of the contract, the certificates had the effect which they purported to have and whether, accordingly, the Principal was entitled to have recourse to the security as it proposed to do.
- [6]The Contractor sought and obtained declarations from the primary judge the effect of which was –
- the Principal was not entitled to set off in the manner which it had purported to do;
- the Principal did not have any right of recourse to the security in respect of the amounts purportedly certified by the Superintendent as monies owing by the Contractor and notices issued asserting that right were invalid and of no effect; and
- $694,343 was payable by the Principal to the Contractor (together with interest thereon).
- [7]Since the primary judge made those orders, steps have been taken by agreement and by agreed form of order in the Court with the result that the Principal paid
$694,343 to the Contractor and delivered to the registrar of the Supreme Court, to be held by the registrar until further order of the Court, one of the two bank guarantees which the Contractor had provided as security under the contract. - [8]By this appeal the Principal sought to have set aside all of the orders made by the primary judge. The question of what should occur in relation to the bank guarantee presently held by the registrar is, by agreement between the parties, to be left to await determination by separate application made after the appeal is decided.
- [9]For reasons which follow, the appeal should be dismissed with costs.
The events leading up to the execution of the contract
- [10]I turn first to the identification of certain relevant events leading up to the execution of the contract. I note at the outset that the Principal contends that it is impermissible to have regard to some of that evidence in aid of construction of the contract. I will address the question of the use which can be made of the evidence later in this judgment.
The Contractor’s email of 20 December 2021 at 7.15 am
- [11]In December 2021, the Principal sent draft terms of a contract to the Contractor. The then-proposed general conditions of contract were in an amended form of an Australian Standard form of general conditions of contract called AS4300-1995.
- [12]On 20 December 2021 at around 7.15 am, the Contractor sent an email and attachment to the Superintendent responding to the proposed draft terms by providing a “contract departures schedule.” It is necessary to note some matters concerning the form of contract addressed by that schedule.
- [13]Clause 35.6 of the proposed general conditions of contract had made provision for the circumstances in which the Contractor might become liable to the Principal for liquidated damages in these terms:
“35.6 Liquidated Damages for Delay in Reaching Practical Completion
If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor shall be indebted to the Principal for liquidated damages at the rate stated in Item 43 for every day after the Date for Practical Completion to and including the Date of Practical Completion or the date that the Contract is terminated pursuant to Clause 44, whichever first occurs.
If after the Contractor has paid or the Principal has deducted liquidated damages, the time for Practical Completion is extended, the Principal shall forthwith repay to the Contractor any liquidated damages paid or deducted in respect of the period to and including the new Date for Practical Completion.
The Principal may recover the amount of liquidated damages:
- on demand from the Contractor;
- by deducting the amount from any amount otherwise certified by the Superintendent under clause 42; or
- from any Security,
even though Practical Completion has not occurred.
If liquidated damages are found to be void, voidable or unenforceable in any way or on any basis so that the Principal is not entitled to claim or recover liquidated damages for the Contractor’s failure to reach Practical Completion by the Date for Practical Completion, the Principal is entitled to claim and recover general law damages for breach of contract.”
- [14]Clause 42 of the then-proposed general conditions governed the way in which payment claims made by the Contractor would be assessed and certified by the Superintendent. The clause obliged the Superintendent to assess payment claims and to issue a payment certificate stating the amount which in the Superintendent’s opinion was to be made by the Principal to the Contractor or by the Contractor to the Principal. The Superintendent was obliged to set out in any payment certificate the allowances made for –
- "(i)the value of work carried out by the Contractor in the performance of the Contract to the date for submission of the claim;
- amounts otherwise due from-
- the Principal to the Contractor; and
- the Contractor to the Principal;
- amounts assessed under Clause 46.4 and not duly disputed;
- amounts paid previously under the Contract;
- amounts previously deducted for retention moneys; and
- retention moneys to be deducted,
arising out of the Contract resulting in the balance due to the Contractor or the Principal, as the case may be.”
- [15]Clause 42 went on to oblige the Principal to pay the Contractor or the Contractor to pay the Principal as the case may be an amount not less than the amount shown on the payment certificate. The clause went on to specify that payments so made would be regarded as payments on account and that either party could dispute whether the amount was properly due and payable and that appropriate adjustments would be made on determination of the dispute, and the requisite obligation to pay or re-pay monies would then be created.
- [16]It may be observed of cl 35.6 that the creation of a liability in debt for liquidated damages did not depend upon any form of certification by the Superintendent. Rather the clause explicitly stated that a debt as between the two contracting parties would exist in the event that certain factual circumstances existed. Thus if the Contractor was one day late in achieving the Date for Practical Completion a debt would come into existence and that debt would increase at a daily rate for each day thereafter until one of two events occurred, namely practical completion was achieved or the contract was terminated. Further the Principal was permitted to recover in any one of three specified ways even though practical completion had not yet been achieved. Clause 42 made it clear that the amount of any such debt would also be brought to account in the payment certificate process.
- [17]The Contractor’s email of 20 December 2021 advised:
“We have just received and completed the contract departures schedule.
This is being passed on without a detailed review to keep things moving however there seems to be a significant difference in the terms from this contract to the Seanna Contract that we had discussed.
Whilst it seems extensive, we may be able to get through the majority of them and agree relatively quickly. There may only be a couple that may need a little bit more work to get right.
We are committed and available to get it done this week.”
- [18]The attached “contract departures schedule” was a 27-page document which listed various contractual clauses in respect of which the Contractor had an issue; provided a description of the issue and suggested an amendment. Amongst other things, the contract departures schedule identified that the Contractor had issues in respect of cll 35.6 and 42, as to which the following observations may be made:
- The contract departures schedule stated in respect of cl 35.6 that the Contractor did “not agree with the Principal being able to recover liquidated damages on demand or deducted from certified payments and [s]ecurity”.
- The Contractor suggested an amendment which deleted the whole of the last two paragraphs of clause 35.6, commencing with the words “The Principal may recover …”.
- The issues suggested in relation to cl 42 did not amend those parts of the clause which permitted the Superintendent to take into account in payment certificates amounts otherwise due from the Contractor to the Principal.
- It may be doubted whether the proposed amendments to cll 35.6 and 42 would have achieved the Contractor’s stated goal because they would have left intact the contractual creation by cl 35.6 of a debt in respect of the liquidated damages and the ability of the Superintendent in cl 42 to take that debt into account in the payment claim assessment process. That question does not need to be considered more closely.
- [19]The Principal and Superintendent did not respond specifically to the Contractor’s email on the morning of 20 December 2021, or to its express lack of agreement in the recovery of liquidated damages on demand or their deduction from certified payments or security. Rather, the evidence reveals there was the following flurry of activity:
- First, on 21 December 2021 at around 6:07 pm, the Superintendent emailed the Principal and the Contractor contract documents based on a different form of Australian Standard general conditions of contract – namely AS4902-2000 – and which he said had been put together hastily in advance of the Principal’s solicitors compiling the contract the next morning.
- Second the Contractor responded by email 30 minutes later at 6.40 pm on
21 December 2021, identifying some matters which the Contractor considered should be included in the contract “to reflect current issues”. - Third, on 22 December 2021 at 2.38 pm, the Principal’s solicitors sent to the Contractor and the Principal contract documents in the form which were executed. The AS4902-2000 general conditions had been amended from the form which had been provided in the Superintendent’s email the previous evening in a way which apparently responded positively to the Contractor’s request two days earlier that the Contractor did not agree with the Principal being able to recover liquidated damages on demand or deducted from certified payments and security.
- Fourth, the parties executed the contract dated 22 December 2021 in the form provided in the Principal’s solicitors’ email.
- [20]It is appropriate to examine the detail of that activity in a little more detail.
The Superintendent’s email of 21 December 2021 at 6:07 pm
- [21]On 21 December 2021 at around 6:07 pm, the Superintendent emailed the Principal and the Contractor six documents including an amended version of AS4902-2000 General Conditions of Contract. He advised:
“Please refer to the attached (put together hastily this afternoon and I need to recheck tomorrow) which should make up the contract.
[The Principal’s solicitors] will compile the contract in the morning.”
- [22]Although, for reasons which will become clear, it will later be necessary to examine the structure of the newly proposed AS4902-2000 form of general conditions of contract more closely, four preliminary observations may be made.
- [23]First, the contract contemplated the Contractor providing security in the form of two bank guarantees each in the amount of 2.5 per cent of the contract sum. The circumstances in which the Principal might have recourse to the security so provided were specified in cl 5.2, which provided:
“5.2 Recourse
Where there is a debt due and owing by the Contractor to the Principal under the Contract, the Principal may, after first having given 5 business days' notice of its intention to do so, and subject to having satisfied the requirements of section 67J of the QBCC Act (where applicable), have recourse to the security.
The Principal 's entitlement to recourse to security includes converting any security in the form of an unconditional undertaking into money and having recourse to the proceeds of the conversion of the security.”[1]
- [24]Second, the liquidated damages clause was in a different form to that contained in the previously proposed amended AS4300-1995 form. Rather than directly provide for a debt to come into existence, it obliged the Superintendent to certify liquidated damages as due and payable in certain circumstances. Clause 34.7 provided as follows:
“34.7 Liquidated Damages
If WUC does not reach practical completion by the date for practical completion, the Superintendent shall certify, as due and payable to the Principal, liquidated damages in Item 29 for every day after the date for practical completion to and including the earliest of the date of practical completion or termination of the Contract or the Principal taking WUC out of the hands of the Contractor.
If an EOT is directed after the Contractor has paid or the Principal has set off liquidated damages, the Principal shall forthwith repay to the Contractor such of those liquidated damages as represent the days the subject of the EOT.”[2] (italics in original)
- [25]Third, and notably, cl 34.7 did not oblige the Contractor to pay the amount so certified, whether within a particular time frame or at all. Rather, the obligation to pay on certificates issued by the Superintendent was set out in cl 37. Clause 37 was in the following form:
“37 Payment
37.1 Progress claims
The Contractor shall claim payment progressively in accordance with Item 33.
An early progress claim shall be deemed to have been made on the date for making that claim.
Each progress claim shall be given in writing to the Superintendent and shall include details of the value of WUC done and may include details of other moneys then due to the Contractor pursuant to the provisions of the Contract.
The parties agree that each progress claim given by the Contractor pursuant to this clause is a request for payment by the Contractor of the amount claimed in the progress claim.
37.2 Certificates
The Superintendent shall, within 10 business days after receiving such a progress claim, issue to the Principal and the Contractor:
- a progress certificate evidencing the Superintendent’s opinion of the moneys due from the Principal to the Contractor pursuant to the progress claim and reasons for any difference (‘progress certificate’); and
- a certificate evidencing the Superintendent’s assessment of retention moneys and moneys due from the Contractor to the Principal pursuant to the Contract.
If the Contractor does not make a progress claim in accordance with Item 33, the Superintendent may issue the progress certificate with details of the calculations and shall issue the certificate in paragraph (b).
Subject to clause 7.3, the Superintendent in receiving a progress claim does so as agent of the Principal for the purposes of the BIF Act.
If the Superintendent does not issue the progress certificate within 10 business days of receiving a progress claim in accordance with subclause 37.1, that progress claim shall be deemed to be the relevant progress certificate.
The Principal shall within 5 business days after receiving both such certificates, or within 15 business days after the Superintendent receives the progress claim, whichever is the earlier, pay to the Contractor the balance of the progress certificate after setting off such of the certificate in paragraph (b) as the Principal elects to set off. If that setting off produces a negative balance, the Contractor shall pay that balance to the Principal within 5 business days of receiving written notice thereof.
Neither a progress certificate nor a payment of moneys shall be evidence that the subject WUC has been carried out satisfactorily. Payment other than final payment shall be payment on account only.
37.3 Unfixed plant and materials
The Principal shall not be liable to pay for the unfixed plant and materials unless they are listed in Item 34 and the Contractor:
- provides the additional security in Item 14(e); and
- satisfies the Superintendent that the subject plant and materials have been paid for, properly stored and protected, and labelled the property of the Principal.
Upon payment to the Contractor and the release of any additional security in paragraph (a), the subject plant and materials shall be the unencumbered property of the Principal.
37.4 Final payment claim and certificate
Within 20 business days after the expiry of the last defects liability period, the Contractor shall give the Superintendent a written final payment claim endorsed ‘Final Payment Claim’ being a progress claim together with all of the claims whatsoever in connection with the subject matter of the Contract.
Within 30 business days after the expiry of the last defects liability period or within 10 business days after receipt of the final payment claim, whichever is the earlier, the Superintendent shall issue to both the Contractor and the Principal a final certificate evidencing the moneys finally due and payable between the Contractor and the Principal on any account whatsoever in connection with the subject matter of the Contract.
Those moneys certified as due and payable shall be paid by the Principal or the Contractor, as the case may be, within 5 business days after the debtor receives the final certificate, or within 15 business days after the Superintendent receives the final payment claim.
The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party’s obligations in connection with the subject matter of the Contract except for:
- fraud or dishonesty relating to WUC or any part thereof or to any matter dealt with in the final certificate;
- any defect or omission in the Works or any part thereof which was not apparent at the end of the last defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate;
- any accidental or erroneous inclusion or exclusion of any work or figures in any computation or an arithmetical error in any computation; and
- unresolved issues the subject of any notice of dispute pursuant to clause 42, served before the 7th day after the issue of the final certificate.
37.5 Interest
Interest in Item 35 shall be due and payable after the date of default in payment.”[3]
- [26]Fourth, the result was that the proposed AS4902-2000 form of general conditions of contract attached to the email of 21 December 2021 did not respond positively to the request that had been made by the Contractor by email at 7:15 am that morning that the Principal should not be able to deduct liquidated damages from certified payments or security. To the contrary, if, pursuant to cl 34.7 the Superintendent had certified an amount of liquidated damages as due and payable by the Contractor to the Principal, the Superintendent would also have been obliged to take that amount into account in the next monthly certificate issued pursuant to cl 37.2(b). The issue of such a certificate would then have to be dealt with in the manner specified in the second last paragraph of cl 37.2(b). Such a certificate could be set off by the Principal against monies otherwise payable to the Contractor. Indeed, depending on the amount of the cl 37.2(b) certificate as compared with the amount of the cl 37.2(a) certificate, and the extent to which the Principal elected to set off the former against the latter, such a certificate could give rise to a negative balance and the explicit contractual obligation on the Contractor to pay the balance within the time there specified. The expression of that obligation created a debt due and owing by the Contractor to the Principal. And, as already mentioned, cl 5.2 permitted the Principal to have recourse to security “where there is a debt due and owing by the Contractor to the Principal under the Contract.”
The Contractor’s email at 6.40 pm on 21 December 2021
- [27]Having received the bundle of documents that “should make up the contract” which had been “put together hastily” the Contractor responded by email 30 minutes later at 6.40 pm on 21 December 2021, attaching a “refined schedule of some contract departures” which the Contractor considered should be included in the contract “to reflect current issues”. The email mentioned two other proposed amendments. The email went on to observe that if the Principal’s solicitors “… prepare the contract on this basis there should only be fine tuning to wording to bring it all together”.
- [28]Neither the email nor the schedule suggested any alterations to cll 5.2, 34.7, or 37.2. Accordingly, the Contractor’s response did not maintain in relation to the newly proposed AS4902-2000 form of general conditions of contract the request made in relation to the previously proposed amended AS4300-1995 form that the Principal should not be able to deduct liquidated damages from certified payments or security.
The Principal’s solicitors’ email of 22 December 2021 at 2.43 pm which provided the documents which ultimately were executed
- [29]The next day, on 22 December 2021 at 2.43 pm, the Principal’s solicitors sent to the Contractor and the Principal the final version of the contract for execution, including a form of the proposed AS4902-2000 form of general conditions of contract which had been amended from the form provided by the Superintendent on the previous evening. This was the version contained in the contract dated 22 December 2021 as executed.
- [30]It was this final version that, for the first time, proposed an amendment to cl 37, by amending cl 37.2. In the version attached to the email and in the contract as executed, cl 37.2 provided:
“37.2 Certificates
The Superintendent shall, within 10 business days after receiving such a progress claim, issue to the Principal and the Contractor:
- a progress certificate evidencing the Superintendent’s opinion of the moneys due from the Principal to the Contractor pursuant to the progress claim and reasons for any difference (‘progress certificate’)
If the Contractor does not make a progress claim in accordance with Item 33, the Superintendent may issue the progress certificate with details of the calculations and shall issue the certificate in paragraph (b).
Subject to clause 7.3, the Superintendent in receiving a progress claim does so as agent of the Principal for the purposes of the BIF Act.
If the Superintendent does not issue the progress certificate within 10 business days of receiving a progress claim in accordance with subclause 37.1, that progress claim shall be deemed to be the relevant progress certificate.
The Principal shall within 15 business days after the Superintendent receives the progress claim, pay to the Contractor the balance of the progress certificate after setting off such of the certificate in paragraph (b) as the Principal elects to set off. If that setting off produces a negative balance, the Contractor shall pay that balance to the Principal within 5 business days of receiving written notice thereof.
Neither a progress certificate nor a payment of moneys shall be evidence that the subject WUC has been carried out satisfactorily. Payment other than final payment shall be payment on account only.”
- [31]The changes to the version proposed the previous evening were not tracked in the version provided in the email but are identified in the following tracked changed version of the clause.
“37.2 Certificates
The Superintendent shall, within 10 business days after receiving such a progress claim, issue to the Principal and the Contractor:
- a progress certificate evidencing the Superintendent’s opinion of the moneys due from the Principal to the Contractor pursuant to the progress claim and reasons for any difference (‘progress certificate’); and
- (b)a certificate evidencing the Superintendent’s assessment of retention moneys and moneys due from the Contractor to the Principal pursuant to the Contract.
If the Contractor does not make a progress claim in accordance with Item 33, the Superintendent may issue the progress certificate with details of the calculations and shall issue the certificate in paragraph (b).
Subject to clause 7.3, the Superintendent in receiving a progress claim does so as agent of the Principal for the purposes of the BIF Act.
If the Superintendent does not issue the progress certificate within 10 business days of receiving a progress claim in accordance with subclause 37.1, that progress claim shall be deemed to the relevant progress certificate.
The Principal shall within 5 business days after receiving both such certificates, or within 15 business days after the Superintendent receives the progress claim, whichever is the earlier, pay to the Contractor the balance of the progress certificate after setting off such of the certificate in paragraph (b) as the Principal elects to set off. If that setting off produces a negative balance, the Contractor shall pay that balance to the Principal within 5 business days of receiving written notice thereof.
Neither a progress certificate nor a payment of moneys shall be evidence that the subject WUC has been carried out satisfactorily. Payment other than final payment shall be payment on account only.”
- [32]Given that –
- clause 5.2 in AS4902-2000 did not permit the Principal to have recourse to security unless there was a debt due and owing by the Contractor to the Principal under the Contract;
- clause 37.4 in AS4902-2000 (compared to the equivalent clause in the previous form of general conditions of contract) no longer directly created a debt when the work was not brought to the state of practical completion by the Date of Practical Completion; and
- the deletions to cl 37.2 no longer admitted of a cl 37.2(b) certificate which could be set off against a cl 37.2(a) certificate in the progress payment regime or operate to turn the Superintendent’s assessments of amounts due from Contractor to Principal into matters of obligation as between Contractor and Principal,
the form of contract proposed in the Principal’s solicitors’ email can be seen to be an apparently positive response to the Contractor’s request two days earlier that the Contractor did not agree with the Principal being able to recover liquidated damages on demand or deducted from certified payments and security. Whether regard may be had to that proposition in aid of construction of the contract is something which I will later address.
The contract as finalised
- [33]As earlier mentioned, the parties executed a formal instrument of agreement dated 22 December 2021. As executed, the contract was comprised of the following documents (which in the case of any ambiguity, discrepancy or inconsistency were to apply in the following order of precedence):
- the formal instrument of agreement;
- annexure Part A of the general conditions of contract;
- the amended form of AS4902-2000 general conditions of contract;
- a document entitled Principal's Project Requirements; and
- the remaining annexures to the general conditions of contract.
- [34]The contract as entered into was subsequently amended by –
- a deed of variation dated 23 February 2022;
- a deed dated 6 May 2022 between the Principal, the Contractor and various financiers; and
- a further deed of variation dated 15 August 2022.
- [35]For present purposes the only amendment to the contractual terms brought about by those instruments which should be noted was the deletion of cl 5.2 of the AS4902-2000 general conditions of contract brought about by the deed of 6 May 2022 and its replacement with the following clause:
“After first having given 5 business days’ notice of its intention to do so to the Contractor, and subject to having satisfied the requirements of section 67J of the QBCC Act (where applicable), the Principal may have recourse to the security if:
- an amount is payable by the Contractor to the Principal and the due date for payment of that amount has passed; or
- the Principal is entitled to terminate the Contract or take work out of the hands of the Contractor for any reason (including, without limitation, pursuant to clause 39.4 or clause 39.11).
The obligation in the preceding paragraph to give the Contractor
5 business days' notice of the Principal's intention to have recourse to the security does not apply if the Contractor is subject to an event listed in clause 39.11.”
Identification of the changes to the AS4902-2000 standard form
- [36]The totality of changes to cl 37 which, by executing the contract, the parties united in making to cl 37 of the AS4902-2000 standard form were identified in a document which the parties provided to the primary judge and which formed annexure A to her Honour’s reasons. For completeness, that document is reproduced below:
“37 Payment
37.1 Progress claims
The Contractor shall claim payment progressively in accordance with Item 33.
An early progress claim shall be deemed to have been made on the date for making that claim.
Each progress claim shall be given in writing to the Superintendent and shall include details of the value of WUC done and may include details of other moneys then due to the Contractor pursuant to the provisions of the Contract.
The parties agree that each progress claim given by the Contractor pursuant to this clause is a request for payment by the Contractor of the amount claimed in the progress claim.
The parties agree that each progress claim given by the Contractor pursuant to this clause is a request for payment by the Contractor of the amount claimed in the progress claim.
37.2 Certificates
The Superintendent shall, within 14 10 business days after receiving such a progress claim, issue to the Principal and the Contractor:
- a progress certificate evidencing the Superintendent’s opinion of the moneys due from the Principal to the Contractor pursuant to the progress claim and reasons for any difference (‘progress certificate’); and
- (b)a certificate evidencing the Superintendent’s assessment of retention moneys and moneys due from the Contractor to the Principal pursuant to the Contract.
If the Contractor does not make a progress claim in accordance with Item 33, the Superintendent may issue the progress certificate with details of the calculations and shall issue the certificate in paragraph (b).
Subject to clause 7.3, the Superintendent in receiving a progress claim does so as agent of the Principal for the purposes of the BIF Act.
If the Superintendent does not issue the progress certificate within 14 10 business days of receiving a progress claim in accordance with subclause 37.1, that progress claim shall be deemed to the relevant progress certificate.
The Principal shall within 7 days after receiving both such certificates, or within 2115 business days after the Superintendent receives the progress claim, pay to the Contractor the balance of the progress certificate after setting off such of the certificate in paragraph (b) as the Principal elects to set off. If that setting off produces a negative balance, the Contractor shall pay that balance to the Principal within 75 business days of receiving written notice thereof.
Either a progress certificate nor a payment of moneys shall be evidence that the subject WUC has been carried out satisfactorily. Payment other than final payment shall be payment on account only.
37.3 Unfixed plant and materials
The Principal shall not be liable to pay for the unfixed plant materials unless they are listed in Item 34 and the Contractor:
- provides the additional security in Item 14(e); and
- satisfies the Superintendent that the subject plant and materials have been paid or, properly stored and protected, and labelled the property of the Principal.
Upon payment to the Contractor and the release of any additional security in paragraph (a), the subject plant and materials shall be the unencumbered property of the Principal.
37.4 Final payment claim and certificate
Within 28 20 business days after the expiry of the last defects liability period, the Contractor shall give the Superintendent a written final payment claim endorsed ‘Final Payment Claim’ being a progress claim together with all other of the claims whatsoever in connection with the subject matter of the Contract.
Within 42 30 business days after the expiry of the last defects liability period or within 10 business days after receipt of the final payment claim, whichever is the earlier, the Superintendent shall issue to both the Contractor and the Principal a final certificate evidencing the moneys finally due and payable between the Contractor and the Principal on any account whatsoever in connection with the subject matter of the Contract.
Those moneys certified as due and payable shall be paid by the Principal or the Contractor, as the case may be, within 7 5 business days after the debtor receives the final certificate, or within 15 business days after the Superintendent receives the final payment claim.
The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party’s obligations in connection with the subject matter of the Contract except for:
- fraud or dishonesty relating to WUC or any part thereof or to any matter dealt with in the final certificate;
- any defect or omission in the Works or any part thereof which was not apparent at the end of the last defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate;
- any accidental or erroneous inclusion or exclusion of any work or figures in any computation or an arithmetical error in any computation; and
- unresolved issues the subject of any notice of dispute pursuant to clause 42, served before the 7th day after the issue of the final certificate.
37.5 Interest
Interest in Item 35 shall be due and payable after the date of default in payment.
37.6 Other moneys due
The Principal may elect that moneys due and owing otherwise than in connection with the subject matter of the Contract also be due to the Principal pursuant to the Contract.”
The dispute between the parties comes before the primary judge
- [37]On 25 September 2024 the Contractor issued to the Principal progress claim 32 by which the contractor claimed $3,796,590.79 plus GST.
- [38]In response the Superintendent provided to the Contractor and to the Principal liquidated damages certificate no. 5 and payment certificate no. 32, both dated
2 October 2024. - [39]Liquidated damages certificate no. 5 was signed by the Superintendent and relevantly provided as follows:
“This Certificate is issued pursuant to clause 34.7 of the contract.
Adjusted Date for Practical Completion | 20 June 2024 |
Date of Payment Certificate No 32 | 02 October 2024 |
Days after the Date for Practical Completion up to and including 02 October 2024. | 104 days |
Liquidated Damages rate (Item 29 of Annexure A) | $25,000/day |
Amount due and payable by the Contractor to the Principal (which the Principal may elect to set off from the amount certified in this Payment Certificate or any future Payment Certificate) | $2,600,000.00 |
- [40]Payment certificate no. 32 was also signed by the Superintendent which relevantly provided as follows:
“This Payment Certificate 32 is issued in response to Progress Claim 32 which was received by the Superintendent on the 25 September 2024, in respect of a Reference Date of 25 September 2024.
The Principal has elected to apply liquidated damages pursuant to clause 34.7 of the contract and the attached Liquidated Damages Certificate 05.
Pursuant to clause 37.2 the Principals Representative hereby certifies a payment of $1,905,657 (Excluding GST) from the Contractor to the Principal. Payment by the Contractor to the Principal is due on or before 10 October 2024.
| CERTIFIED | PREVIOUS | THIS PAYMENT (Excl GST) |
Value of WUC (Excl Purchaser Upgrades) | $56,138,055.00 | $55,443,712.00 | $694,343.00 |
Purchaser Upgrades | $1,081,048.00 | $1,081,048.00 | Nil |
Total Certified | $57,219,103.00 | $56,524,760.00 | $694,343.00 |
Amounts set off by the Principal from Payment Certificates (Ref LD Certificate) | -$2,600,000.00 | $0.00 | -$2,600,000.00 |
Total Payment | $55,619,103.00 | $56,524,760.00 | $-1,905,657.00 |
- [41]The Principal contended that the result of the certificates was that it was entitled to set the $2,600,000 liquidated damages amount off against the $694,343 that was otherwise owing to get a net sum payable by the Contractor to the Principal of $1,905,657.
- [42]On 11 October 2024 the Principal gave the Contractor notice that it intended to have recourse to the bank guarantee which the Contractor had provided as security under the contract in order to recover the net amount which it contended was owing consequent upon the certifications by the Superintendent.
- [43]The primary judge recorded how the matter came before her and identified the central question before her in these terms:
“[The Contractor] seeks declarations that the Principal is not contractually entitled to set off in the manner which it has. This involves an examination of the contract as a whole, but particularly clauses 34.7 and 37.2. In the alternative to the declarations, [the Contractor] seeks an injunction to restrain the Principal from having recourse to those guarantees.
The matter came on urgently in applications court on 18 October 2024 and consent orders were made which record undertakings preserving the status quo until the final determination of the matters in the dispute in the proceeding, or earlier order.
At the heart of the matter is a question about the construction of the terms of the contract, and specifically whether the Principal has a right to elect to set off certified liquidated damages against money due from the Principal to the Contractor certified in a progress certificate.”
The issues which arise on the Principal’s appeal
- [44]The primary judge resolved against the Principal the question posed in the last paragraph of the previous quote.
- [45]The essential parts of her Honour’s reasoning were as follows:
- Her Honour considered cl 37.2 in the contract as executed (recorded at [30] above) and noted –
- in relation to the third paragraph, that it was not immediately clear what was the certificate the Superintendent was to issue in paragraph (b);
- in relation to the second last paragraph, that it was not clear what of the certificate in paragraph (b) the Principal could elect to set off,
- Her Honour considered cl 37.2 in the contract as executed (recorded at [30] above) and noted –
because there was no such clause.
- Her Honour accepted that cl 37.2 had to be construed in the context of the contract as a whole and considered whether cll 5.2 and 34.7 assisted to resolve the ambiguity in cl 37.2 by the two references to “the certificate in paragraph (b)”, as the Principal had submitted, but concluded that they did not.
- Because cl 37.2 was ambiguous, her Honour admitted evidence of prior negotiations (namely the communications referred to at paragraphs [10] to [30] above) to establish background facts known to both parties and the subject matter of the contract. Her Honour also had regard to the words deleted from the standard form of the clause (namely the deletions identified at [31] to [36] above).
- Her Honour rejected the Principal’s submissions that deleting cl 37.2(b) had no impact on the Principal’s right to set off. Her Honour noted that the terms of the deletions removed the certification process that could give rise to the setting off. Her Honour found that to be consistent with the parties having agreed to remove that right after the Contractor had advised that it did not agree with the Principal being able to recover liquidated damages on demand or deducted from certified payment and security. Her Honour observed that this construction of the contract did not deny the Principal the right of set off absolutely. Instead, by cl 37.4 the right to set off was preserved to the final payment claim.
- The Principal had submitted that, because cl 34.7 used the expression “the Principal has set off”, an independent right to set off arose under that clause. Her Honour concluded that cl 34.7 itself did not create a right of set off.
- Her Honour also rejected the Principal’s contention that, because the deleted cl 37.2(b) itself did not mention set off, its deletion could not impact the right to set off. On the contrary, because cl 37.2(b) provided the mechanism by which the set off occurred once the relevant certificate had been issued, the effect was that cl 37.2, when regard is had to the deleted words, had created the right of set off. Deleting clause 37.2(b), had the effect of excluding any equitable right to set off certified liquidated damages progressively, although the right to set off remained in the final accounting between the parties.
- [46]In this Court the Principal encapsulated its criticism of the reasoning of the primary judge in these terms:
“It is contended that the Trial Judge erred in law because:
- the Trial Judge erred in the construction of the Contract by failing to have regard to the express terms of the Contract and the Contract as a whole; and
- the Trial Judge erred in the Trial Judge’s construction of the Contract by having regard to inadmissible evidence when construing the Contract.
In the premises of those errors, the Trial Judge erred when the Trial Judge concluded that:
- the Principal does not have a right to elect to set off moneys due from the Principal to the Contractor certified in a progress certificate; and
- that the amendment to clause 37.2 of the Contract was intended to, and did, ‘remove [the equitable right of set off] until the final certificate stage’ of the Contract.
The Principal’s position is that neither the contractual right to set off nor the equitable right to set off were excluded by the terms of the Contract. Nor does the position change if the Court has regard to the amendments to the standard terms upon which the Contract was based.”
Relevant principles of contractual interpretation
- [47]It was not disputed in this Court that cl 37 was ambiguous.[4] Nor was it disputed that in the circumstances it was open to the Court to take account of the words which had been deleted from the standard form as an aid to the proper construction of the contract.
- [48]Those two concessions were significant. The former eliminated the need to consider whether the so-called ambiguity threshold continues to form part of the common law of Australia. The latter meant that it was not necessary to determine whether it mattered that the words which had been deleted from the standard form were not patent on the face on the contract as executed, the relevant parts of the standard form simply having been deleted presumably by word-processor.[5]
- [49]In Electricity Generation Corporation v Woodside Energy Ltd French CJ, Hayne, Crennan, and Kiefel JJ wrote (emphasis added, footnotes deleted):
“… this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”[6]
- [50]An important distinction must be made in relation to the permissible use of the surrounding circumstances known to the parties. As Allsop P observed in Franklins Pty Ltd v Metcash Trading Limited (emphasis added):
“The High Court authorities to which I have referred and in particular Pacific Carriers v BNP Paribas and Toll (FGCT) v Alphapharm, and the recognition of the significance of the objective theory assist in appreciating the scope of the evidence that is admissible. The evidence, to be admissible, must be relevant to a fact in issue, probative of the surrounding circumstances known to the parties or of the purpose or object of the transaction, including its genesis, background, context and market in which the parties are operating. What is impermissible is evidence, whether of negotiations, drafts or otherwise, which is probative of, or led so as to understand, the actual intentions of the parties. Such evidence might be legitimate, however, if directed to one of the legitimate aspects of surrounding circumstances. The distinction can be subtle in any particular case. As Macfarlan JA and I said in Kimberley Securities Limited v Esber [2008] NSWCA 301 at [5]; (2008) 14 BPR 26, 121:
‘[5] The possible subtlety of the distinction can be seen in Lord Wilberforce’s reasons in Prenn v Simmonds … at 1384-1485, and the recognition that the objective commercial aim may, possibly, be ascertained from some aspect of what has passed between the parties. The distinction can also be seen in what Mason J said in Codelfa at 352 about prior negotiations and their legitimate use “to establish objective background facts which were known to both parties and the subject matter of the contract”, and their inadmissibility “in so far as they consist of statements and actions of the parties which are reflective of their actual intentions or expectations”…’”[7]
- [51]There is one circumstance in which it may be permissible to have regard to evidence of the subjective intention of the parties in aid of construction of their bargain. Where the parties have refused to include in their contract a provision which would give effect to something which is subsequently suggested to be the presumed intention of persons in their position, evidence of that refusal is admissible with a view to negativing the alleged presumed intention. As Mason J observed in Codelfa Construction Pty Ltd v State Rail Authority of NSW:
“There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract which the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. But is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstances.”[8]
- [52]His Honour’s observations have been followed by intermediate appellate courts and, indeed, are to be regarded as the justification for what has been conceded to be appropriate in this case, namely to have recourse to deleted words or clauses from standard or common form agreements for the purpose of construing ambiguous language.[9] In Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd Kiefel, Bell and Gordon JJ observed, citing the relevant passage from the judgment of Mason J in Codelfa, that:
“The deletions do not evidence a prior intent, which could have changed, but rather they identify a matter which, on the face of the document, was rejected by both parties.”[10]
The proper construction of the contract
- [53]The Principal contends that a reasonable businessperson would have understood the terms of the contract to mean –
- The Principal could set off the amount of any liquidated damages which the Superintendent had certified pursuant to cl 34.7 against the amount of the certificate issued by the Superintendent issued pursuant to cl 37.2(a), to get a negative balance which the Contractor would be obliged to pay the Principal pursuant to cl 37.2.
- In the event the Contractor failed to do so within time, the Principal could have recourse to the security pursuant to cl 37.2.
- [54]That would certainly have been the outcome if the relevant deletions had not been made to cl 37.2 of AS4902-2000. If the deletions had not been made:
- The Superintendent would have been obliged to issue a certificate pursuant to cl 37.2(a) and a certificate pursuant to cl 37.2(b).
- The Superintendent would have been required to include the amount of liquidated damages in the certificate issued pursuant to cl 37.2(b).
- The Principal would have been explicitly enabled to elect to set off the whole amount of the cl 37.2(b) certificate thereby negativing the possibility that it would have to pay any monies to the Contractor pursuant to the
cl 37.2(a) certificate, and, because the set off would have produced a negative balance, thereby also explicitly engaging the Contractor’s obligation to pay the amount of that balance to the Principal within the contractually agreed number of business days after the Contractor had received written notice thereof. - Any failure by the Contractor to pay within time would have operated to permit the Principal to have recourse to the security.
- [55]But the relevant deletions were made.
- [56]The question is whether the reasonable businessperson would have understood the contract as operating in the same way, notwithstanding the deletions. Or, to put it another way, where the deleted provisions would have given effect to what the Principal says was the presumed intention of the parties, would the reasonable businessperson have thought that the parties’ refusal to include the deleted provisions in their contract negatived the alleged presumed intention?
- [57]In order to answer that question one must form a view of the significance of the deleted provisions to the parties’ presumed intention concerning the operation of the contract. One must also consider whether regard can be had to the email exchanges which preceded the parties refusing to include the deleted provisions in their contract.
- [58]The contract had features which are common to many, if not most, building and construction contracts, namely –
- the parties agreed that the Principal would pay the Contractor its contract price progressively in the form of monthly progress payments;
- to that end, the parties agreed upon a particular contractual mechanism pursuant to which the Principal’s obligations to make progress payments would be created;
- the contractual mechanism also operated to accommodate the possibility that events might happen during the performance of the contract which might result in the need to create an obligation on the Contractor to make a payment to the Principal;
- payments made pursuant to the contractual mechanism (whether by Principal to the Contractor or Contractor to Principal) would be regarded as payments on account;
- the position as to payment would ultimately be finalised by a final certificate process, unless the dispute resolution process was engaged within time, in which time it would be finalised by the dispute resolution mechanism.[11]
- [59]In the operation of the payment mechanism and for other specified contractual purposes, some significance was to be given to various forms of expression of opinion by a third person, in this case “the Superintendent”.
- [60]That was reflected in the following provisions of the contract:
- Pursuant to cl 12.1 of the general conditions of contract, the Contractor was obliged to take certain measures to protect people and property. If the Contractor failed to comply, the Principal was permitted to have the obligation performed by someone else. “The cost thereby incurred shall be certified by the Superintendent as moneys due from the Contractor to the Principal.”
- Pursuant cl 13 of the general conditions of contract, if urgent action was required to protect the WUC (namely the work under the contract) the Contractor was obliged to take it. If the Contractor should have but failed to do so, the Superintendent was permitted to take the necessary action. If the action should have been taken by the Contractor at its own cost, the Superintendent was obliged to “certify the cost incurred as moneys due from the Contractor to the Principal.”
- Under the contract the Contractor was obliged to insure against certain risks. Pursuant to cl 19 of the general conditions of contract, the Contractor was obliged to provide satisfactory evidence that insurances had been effected and maintained. If after being requested to do so it failed promptly to provide such evidence, then the Principal was entitled to refuse to make any payment at all until evidence was produced. The Principal was also permitted to arrange its own insurance of the relevant risks and “the cost thereof shall be certified by the Superintendent as moneys due and payable from [the Contractor] in default to [the Principal].”
- Pursuant to cl 27 of the general conditions of contract, the Contractor was obliged to perform certain cleaning and other works. If it failed to comply, the Superintendent was empowered to direct it to rectify the failure and in certain specified circumstances, the Principal was permitted to have the work carried out by others “and the Superintendent shall certify the cost incurred as moneys due from the Contractor to the Principal.”
- Pursuant to cl 29.3 of the general conditions of contract, if the Superintendent became aware of defective work by the Contractor, he was obliged to give written notice to both parties of the defective work. If the Contractor did not rectify the work, the Principal was permitted to give certain types of directions to the Contractor which, if not complied with, could then permit the Principal to have the work rectified by others “and the Superintendent shall certify the cost incurred as moneys due from the Contractor to the Principal.”
- Pursuant to cl 34.7 of the general conditions of contract the Superintendent would, in particular circumstances, become obliged to “certify as due and payable to the Principal, liquidated damages …”.
- Pursuant to cl 34.9 of the general conditions of contract in certain circumstances the Contractor could become entitled to costs of delay. If a compliant claim was lodged the Superintendent was obliged to “determine the reasonable extra on-site costs as are necessarily incurred by the Contractor as a direct result of the delay for each day for which an EOT has been granted (limited to the maximum daily delay cost rate in Item 40 in Annexure Part A) and notify the Principal and the Contractor accordingly.”
- Pursuant to cl 35 of the general conditions of contract, the Superintendent was enabled to give the Contractor a direction to rectify defects during a contractual “defects liability period”, including by specifying dates by which rectification work had to be performed. If the Contractor failed to comply the Principal was enabled to have the work done by others. “The cost thereby incurred shall be certified by the Superintendent as moneys due and payable to the Principal.”
- Pursuant to cl 36 of the general conditions of contract, the Superintendent was enabled to direct the Contractor to perform variations to the work under the contract. In certain circumstances, the Superintendent became obliged to “certify an adjustment to the contract sum”.
- Pursuant to cl 37 of the general conditions of contract, the Superintendent was obliged to issue certificates evidencing his opinion on certain matters.
- [61]Notably, the various clauses other than cl 37 which authorised the Superintendent to certify costs as moneys due from the Contractor to the Principal, did not in turn require the Contractor to pay the amounts certified whether at all or within any particular time. It was the unamended form of cl 37.2 which explained how effect was intended be given to such assessments by the Superintendent within the regime for the formulation of obligations for the making of payments on account. It was only pursuant to the operation of the unamended form of cl 37.2, that any assessment by the Superintendent as to monies due from the Contractor to the Principal might be used to set off against monies otherwise due to the Contractor or turned into an obligation to pay the Principal within a specified time. It was only via the unamended form of cl 37.2 that any assessments by the Superintendent that there were monies due from the Contractor to the Principal pursuant to the contract could be turned into matters which affected the payment obligations of the parties inter se.
- [62]By the deletions made to cl 37.2, the parties deleted the mechanism by which any assessments by the Superintendent that there were monies due from the Contractor to the Principal pursuant to the contract (including any certified liquidated damages) could be brought to account in the interim contractual payment mechanism. However, as the primary judge recognised, that deletion left intact the mechanism by which such matters could be brought to account in the final contractual payment mechanism. The Superintendent could bring any such assessments into account via the final certificate provisions of cl 37.4. In that way, the certified liquidated damages would reduce the amount of the final certificate or even give rise to a final certificate which required the Contractor to pay the Principal. Of course the Contractor would have the ability to give a notice of dispute within time after the issue of the final certificate, thereby enabling the possibility of, for example, obtaining an extension of time negating liquidated damages via an arbitral process and enlivening an obligation on the Principal to repay.
- [63]The result is that in my view the second question posed at [56] above should be answered in the affirmative. This is a case where the deleted provisions would have given effect to what the Principal says was the presumed intention of the parties, with the result that the reasonable businessperson would have thought that the parties’ refusal to include the deleted provisions in their contract negatived the alleged presumed intention. The primary judge’s rejection of the Principal’s argument was correct.
- [64]I would reach that conclusion based on a consideration of the structure of the contract as a whole and the obvious significance of the deletion of what was otherwise a critical component of the contractual mechanism for payment.
- [65]However, that conclusion is strengthened when regard is had to the emails to which the Principal takes objection. The emails would normally be regarded as steps in negotiation to which regard should not be had because they simply revealed the parties’ subjective intentions from time to time. However, in my view this case falls within that limited category of case referred to by Mason J in the quote from Codelfa which appears at [51] above. That is the justification in point of principle for having regard to the evidence of the parties’ refusal to include the deleted provisions in their contract in the first place. It seems to me that the email correspondence contextualises and clarifies what should be taken to have been evidenced about the parties’ mutual intention by that refusal. On the morning of 20 December 2021 the Contractor requested a particular outcome; on the afternoon of 22 December 2021 the Principal’s solicitors responded positively to that request; and by the executed contract of 22 December 2021 the parties reflected that mutual intention in the relevant deletions to the form of the central certification clause.
- [66]The Principal suggested that the deletions from cl 37.2 amount only to the deletion of the need for a superfluous certificate. It contended that the cl 37.2(b) certificate was superfluous because the words of cl 34.7 (quoted at [24] above) should be construed as creating a debt immediately due and payable. Then, so the argument ran, there were no words in cl 37.2 which would tend to exclude the right of equitable set off which would exist absent clear exclusion. Moreover, the words of the second paragraph of cl 37.4 make it clear that there must be a right of set off based on the certificates.
- [67]The Principal’s argument fails for a number of reasons.
- [68]First, a certificate by the Superintendent is merely a formal expression of opinion by a third party as to the matters the subject of the certificate. Whether that expression of opinion operates to affect the obligations of the parties inter se, turns on the proper construction of the contract itself. In this case if the deletions had not been made the operation of the contract would have been that which I identified at [58] - [61] above. It was not the cl 34.7 certification which created an obligation to pay. No words in cl 34.7 did that. Rather, the task of turning the Superintendent’s expression of opinion into an obligation to pay was performed by the express words of cl 37.2. Moreover, it was the link between cl 34.7 and cl 37 which made clear that any payment which occurred consequent upon discharge of the obligation to pay so created would be a payment which was to be regarded as a payment on account. It was the mechanism for so altering obligations inter se which the second paragraph of cl 34.7 had in contemplation. The suggestion that once the deletion of words removed that operation of cl 37.2, the certification in cl 34.7 should now be regarded of its own force to create an obligation to pay is a suggestion of the presumed intention of the parties which the reasonable businessperson would have thought had been negatived by the parties’ refusal to include the deleted provisions in their contract.
- [69]Second, there is no necessary intendment in the contract when construed as a whole to give the words of cl 34.7 the meaning which they do not literally bear. The words do not themselves say that the certificate operates to create an obligation to pay the amount so certified, whether by a particular time or at all. They merely say that the Superintendent certifies that there is an amount which is due and payable. If there had been no mechanism in the contract by which effect could ever be given to such certificates that might well have been sufficient to support the notion that the parties must have intended that the certificate give rise to an immediate obligation to pay that which had been certified. But even after the deletions from cl 37.2 the contract did contain a mechanism by which eventually effect could be given to such certificates, namely the final certificate provisions in cl 37.4. On that basis the progress payment regime would work as a basis for progress payment of the contract sum on account, with the possibility that the final certificate might operate to require the Contractor to pay monies back to reflect any certificates that amounts had become due and payable by the Contractor to the Principal during the course of the project.
- [70]Third, as mentioned, the second paragraph of cl 34.7 had the deleted parts of cl 37.2 in contemplation. Either the second paragraph should be regarded as words to which no effect can be given once cl 37.2 is deleted, or, with a degree of awkwardness, the paragraph could be regarded as being directed to possibilities which might arise during the operation of the final certificate provisions. The latter option is more consonant with the intention revealed by the deletion of cl 37.2. Having regard to the terms of cl 37.4:
- Certified liquidated damages could be taken into account in the final certificate issued pursuant to cl 37.4, by being set off against the amount which would otherwise have been payable to the Contractor, thereby giving rise to a reduced final certificate in favour of the Contractor. If the Contractor disputed that by giving notice pursuant to cl 37.4(d) on the basis that it should have been granted an extension of time, it might vindicate that position in arbitration obtaining a direction from the arbitrator that there should have been an extension of time. The third paragraph of cl 37.4 would then require the Principal to repay the amount by which the final certificate had been reduced on account of the liquidated damages.
- Similarly, certified liquidated damages could be taken into account in the final certificate issued pursuant to cl 37.4, giving rise to a reduced final certificate in favour of the Principal, which the Contractor then paid. If the Contractor disputed that by giving notice pursuant to cl 37.4(d) on the basis that it should have been granted an extension of time, it might vindicate that position in arbitration obtaining a direction from the arbitrator that there should have been an extension of time. The third paragraph of cl 37.4 would then require the Principal to repay the amount which the Contractor had paid it on account of the liquidated damages.
- [71]Fourth, because there was no mechanism by which an obligation to pay liquidated damages was created in advance of the final certificate mechanism there could be neither legal nor equitable set off at the time that payment certificate 32 was issued.
- [72]Fifth, in written submissions delivered after the appeal was argued and purportedly in response to the notice of contention addressed below, the Principal asserted reliance on the view expressed in RCR O'Donnell Griffin Pty Ltd v Forge Group Power Pty Ltd (Receivers and Managers Appointed) (in liq) [2016] QCA 214 that the certification of liquidated damages in a contract which had clauses to the same effect as cl 34.7 in the present contract and the unamended form of cl 37.2 did, by force of the cl 34.7 certification by itself and before any cl 37.2 certification, create a debt due and payable. That case does not persuade me to reach a different view to that which I have expressed for three reasons. First, it is not clear how much commonality the contract as a whole in that case shared with the contract as a whole in the present case. Second, and, in any event, the views there expressed were expressed in relation to an argument not advanced before the Court of Appeal and should be regarded as obiter. Third, I would regard the views expressed by way of obiter to be inapplicable to the present contract, for the reasons I have expressed in this judgment.
The notice of contention
- [73]Having regard to the conclusion which I reach on the arguments advanced by the Principal in support of its appeal, it is, strictly speaking, unnecessary to address the argument raised by notice of contention.
- [74]I will briefly express my view nevertheless.
- [75]By a notice of contention filed by leave granted during the course of argument on the appeal and supported by written submissions filed after oral argument had concluded, the respondent contended that the primary judge’s decision should be affirmed based on an argument as to the proper construction of the contract which had not been advanced before her.
- [76]The argument was that Liquidated Damages Certificate 5 issued by the Superintendent on 2 October 2024 was invalid and of no effect because it did not comply with cl 34.7 of the contract. The essence of the argument was that cl 34.7 should be construed as only authorising certification of liquidated damages once the end points of the calculation could be established. Where, as here, at the time of certification the end point could not be established (because practical completion had not yet been achieved and the contract had not been terminated), the clause did not authorise the Superintendent to make any certification of liquidated damages at all.
- [77]For reasons earlier expressed, my view is that, because of the deletion from the standard form, the parties had united in rejecting the notion that the Principal would be able to recover liquidated damages on demand or would be permitted to deduct liquidated damages from certified progress payments and security. The Principal would only be able to utilise any certified liquidated damages as part of the final certificate process. That process could only take place at the end of the defects liability period, which was a period which commenced on the date of practical completion.
- [78]It follows that there would be no imperative to read cl 34.7 as authorising certification at any time earlier than the date on which practical completion had been reached. The clause would be construed literally and, absent earlier termination, not as one which authorised certificates of liquidated damages to be issued before practical completion was achieved. I would uphold the notice of contention.
- [79]I should observe, however, that it would not necessarily follow that I would reach the same conclusion if the contract had been in a form which included an unamended form of cl 37.2. For such a contract there may have been much more to be said in support of the notion that the parties should have been taken to have contemplated liquidated damages being into account in the monthly payment certification process during the period after the date for practical completion and until practical completion was achieved. Digby J reached that view in Adcon Vic Pty Ltd v Icon Co (Vic) Pty Ltd [2020] VSC 165. It is unnecessary to express a view on the correctness of his Honour’s analysis given the differences between the two forms of contract and the evidence relevant to their construction.
Conclusion
- [80]The appeal should be dismissed with costs.
- [81]CROW J: I agree with the reasons of Bond JA.
Footnotes
[1] This term was an alteration to the AS4902-2000 standard form, which merely provided “Security shall be subject to recourse by a party who remains unpaid after the time for payment where at least 5 days have elapsed since that party notified the other party of intention to have recourse.”
[2] This term was identical to the term in the AS4902-2000 standard form.
[3] This term retained the provisions referable to cl 37.2(b) from the AS4902-2000 standard form. It deleted cl 37.6 from the standard form which provided “The Principal may elect that moneys due and owing otherwise than in connection with the subject matter of the Contract also be due to the Principal pursuant to the Contract” but otherwise reflected only minor alterations to the AS4902-2000 standard form in relation to timing.
[4] It had been disputed before the primary judge.
[5] If it had been necessary so to determine I would have agreed with the observations made by the Ormiston J in Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VR 411 at 422 that “… It is unrealistic to assert that the decision to exclude a term in the one case should be characterised only as negotiations when not in the other case, merely because in the latter one it can seen from the form of what the parties rejected in the course of those negotiations.”
[6] Electricity Generation Corporation t/as Verve Energy v Woodside Energy Ltd (2014) 251 CLR 640 at 656-657 [35].
[7] Franklins Pty Ltd v Metcash Trading Limited (2009) 76 NSWLR 603 at 619 [24].
[8] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352-353 per Mason J.
[9] Gee Dee Nominees Pty Ltd v Ecosse Property Holdings Pty Ltd [2016] VSCA 23 per McLeish JA at [96]–[98]; Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd [2017] NSWCA 27 per Bathurst CJ at [115]-[116].
[10] Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at 549 [9].
[11] In this form of contract disputes would ultimately be resolved by arbitration, although parties were permitted to have recourse to the courts in certain circumstances: see cl 42 of the general conditions of contract.