B K Excavations Pty Ltd v Oakes Developments Pty Ltd
[1998] QDC 81
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- B K Excavations Pty Ltd v Oakes Developments Pty Ltd[1998] QDC 81
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B K Excavations Pty Ltd v Oakes Developments Pty Ltd[1998] QDC 81
B K Excavations Pty Ltd v Oakes Developments Pty Ltd[1998] QDC 81
DISTRICT COURT | No 17 of 1998 |
CIVIL JURISDICTION
JUDGE McGILL SC
B K EXCAVATIONS PTY LTD (ACN 067 190 578) | Plaintiff |
and
OAKES DEVELOPMENTS PTY LTD (ACN 003 694 086) | Defendant |
BRISBANE
DATE 19/03/98
JUDGMENT
HIS HONOUR: This is an application for summary judgment in proceedings commenced in the District Court at Bundaberg by a plaint filed on 19 February 1998.
The plaintiff claims money payable pursuant to certificates issued by the superintendent under a building contract between the plaintiff, as contractor, and the defendant, as proprietor, dated 14 February 1997.
The plaintiff claims the sum of $156,309.88 being the amount of progress certificate number 4 or, in the alternative, the sum of $127,006.93 being the net amount obtained by deducting from the amount of certificate number 4 the amount of certificate number 5, which was for a sum in favour of the defendant, of $30,302.96.
The matter came before the Court by way of a summons for judgment under rule 153. The contract between the parties is exhibited to the affidavit Mr Griggs filed 19 February 1998. On 14 February 1997 the plaintiff's tender was accepted on behalf of the defendant and the same day a formal agreement was signed by both parties.
The contract incorporates general conditions of contract AS2124/92 as varied by the contract documents. The letter accepting the tender stated the date for practical completion of 9 May 1997. However, the works were delayed somewhat and this led to negotiations between the parties which culminated in the execution by both parties of a deed dated 7 August 1997.
That deed provided:
Clause 1:
The parties hereby affirm the contract.
Clause 2:
The practical completion payment under the contract shall be determined using the method of adjustment set out in clause 44.6 of AS2124 general conditions of contract provided always that the principal reserves and the contractor acknowledges that the principal has the right to apply liquidated damages at the rate of $250 per day from the 14th day of June 1997.
Clause 3:
The practical completion payment shall be due and payable not later than 30 business days after the sealing and release of the survey plan or plans for the subdivision by Hervey Bay City Council and receipt of such plans by the principal.
Clause 7:
The principal reserves its right to require the contractor to compensate it for losses incurred by it due to the delay in completion of the contract and particularly expenses incurred in extensions of financing arrangements. The principal shall be entitled to deduct such sums from the practical completion payment. The contractor by its execution hereof does not admit liability to pay such amounts.
The effect of clause 1 is obvious. Clause 2 varied the contract by making clause 44.6 applicable and it is difficult to see how this clause would be applicable nevertheless except to the extent of giving the defendant the capacity to submit a claim to the superintendent for determination which could then be the subject of a set-off against any claim by the plaintiff. It also had the effect of varying the provision for liquidated damages, which was $150 per day from 9 May 1997 as adjusted by the superintendent. It is not clear if this clause deprives the superintendent the power to grant further extensions of time. The matter may depend on whether the date of practical completion had already been extended by the superintendent to 14 June 1997.
Clause 7, on its face, just preserves the defendant's right to claim and the plaintiff's right to dispute. But the second sentence referring to giving a right to deduct from the practical completion payment when taken with the terms of clause 2 seems to me to indicate that the claim is to be submitted to the superintendent and assessed under clause 44.6. This is, in fact, what the defendant did on 10 December 1997 as appears from paragraph 21 of the affidavit of Mr Allwood.
The defendant argued that the meaning of the expression “practical completion payment” in the deed was to be determined in the light of extrinsic evidence and, on that basis, that the deed by this reference contemplated one such payment which would wrap up the job subject to the final payment under the contract.
The defendant sought to rely on extrinsic evidence to establish that construction. The test for the availability of extrinsic evidence in this situation was stated by Mason J, as His Honour then was, in Codelfa Constructions Proprietary Limited v. The State Rail Authority of New South Wales (1982) 149 CLR 337 at 352:
“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning but it is not admissible to contradict the language of the contract when it has a plain meaning.
Generally speaking, facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction unless they were known to both parties. Although, as we have seen, if the facts are notorious knowledge of them will be presumed. It is here the difficulty arises with respect to the evidence of prior negotiations.
Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But insofar as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by and merged in the contract itself. The object of the parol evidence rule is to exclude them the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.”
The expression, “the practical completion payment” is not defined in the deed or indeed in the contract but, in my opinion, it is not ambiguous.
The scheme of AS2124 in clause 42 provides clearly enough for a series of claims to payment which are to be made in accordance with a timetable set out in the annexure and upon issue of a Certificate of Practical Completion. There is also provision for a final payment claim within 28 days of the expiration of the defects and liability period under clause 42.7.
A Certificate of Practical Completion is issued by the superintendent under clause 42.5 and it triggers a right to make a claim under 42.1. The payment of such a claim is obviously the practical completion payment. In my opinion, the contrary proposition is not sufficiently arguable to justify the grant of leave to defend on this ground.
It follows, in addition, that extrinsic evidence is inadmissible to seek to modify the construction of what I regard as a clear turn, an unambiguous term. It follows that the affidavit of Mr Marles is wholly inadmissible and the affidavit of Mr Allwood, paragraphs 5 to 12, and the third sentence of paragraph 15 are inadmissible on this ground. In addition, the second sentence of paragraph 4 is inadmissible on the grounds of irrelevance.
Objection was also taken to part of paragraph 16 but, in my opinion, this is admissible, although it is simply evidence of what occurred; it does not amount to evidence that practical completion occurred prior to 4 September 1997.
Under annexure B, the plaintiff was entitled to make a claim every 28 days. A claim was in fact made on 4 September 1997 by the plaintiff and was apparently accepted by the superintendent who issued progress certificate number 4 on 13 October 1997 for $156,309.88. Pursuant to the letter accepting the tender this was payable 14 days later.
Further claims were made on 26 September 1997 and 19 December 1997. These claims were in fact after the date which was later recognised by the superintendent as the date of practical completion, namely 18 September 1997 although the matter has been complicated by the fact that the superintendent appears never actually to have issued a certificate of practical completion as contemplated by clause 42. No doubt the matter was made more complicated by the fact that under the contract documents practical completion required the concurrent agreement or the concurrent satisfaction of the local authority as well as the superintendent. However, the superintendent appears to have treated these claims as practical completion claims and in his certificate dealt with claims by the defendant as well as claims by the plaintiff. The net result was a certificate for $30,302.95 in favour of the defendant, although subsequently two revisions of the certificate have been issued. There is a power to correct errors in clause 42.2 of the standard conditions of contract. and for the purposes of a judgment summons I must assume that this power has been validly exercised. The most recent version of this certificate therefore is for an amount of $37,128.57 in favour of the defendant.
The effect of the certificate in these circumstances has been considered in a number of previous decisions in the Supreme Court. In Graham Allan Earthmoving Proprietary Limited v. Woodwark Bay Development Corporation Limited writ 4304 of 1988, Justice Dowsett was concerned, on the hearing of an application for summary judgment on 15 December 1988, with an argument as to the effect of clause 42 of the then current addition of AS2124, which was in similar terms to clause 42 of the present version. His Honour at page 6 said:
“These clauses lead me to the inevitable conclusion that it was the intention of the parties at the time of contracting that the superintendent's certificate be the sole warrant for payment and that such payment be made notwithstanding any argument as to the correctness of the certificate. No doubt if it were alleged that any certificate had been given in bad faith it might be open to have such a certificate set aside but there is no assertion to that effect here”.
His Honour went on to say:
“This does not mean it is no longer open to the defendant to challenge the accuracy of the certificates. This may be done in the way contemplated by clause 46, however until such time as there has been a successful challenge to those certificates it seems to me to be the intention of the parties as revealed in the contract that the plaintiff, the contractor, have the benefit of those certificates and have the money. The superintendent is after all appointed by the principal. The functions conferred upon him via the contract are, one might say broadly, to act as honest broker between the two of them. There is nothing at all curious about the parties in advance agreeing to their rights being provisionally adjusted in this way by a person who presumably would have their trust”.
His Honour therefore gave judgment for the plaintiff for the amount for which the superintendent had certified in that case and dismissed an application for a stay.
That decision was referred to with approval by McPherson JA in the Court of Appeal in Merritt Cairns Construction Proprietary Limited v. Wulguru Heights Proprietary Limited [1995] 2 QdR 521 at 527, where His Honour also noted that it had subsequently been followed in other single Judge decisions. That case, which dealt with the 1986 edition of AS2124 also held that the conditions of contract did not authorise a principal to deduct from the amount of the payment certificate an amount which the principal claimed to be payable as unliquidated damages for delay.
The matter was taken up again by the Court of Appeal in Blue Chip Proprietary Limited v. Concrete Constructions Group Proprietary Limited (1996) 13 Building and Construction Law 31 where the Court was considering the 1992 edition of AS2124, the same edition as was used in this contract. The Court in that case held that a claim for liquidator damages under the contract was not to be deducted from a progress payment as certified under clause 42. At page 34 McPherson JA referred to the sort of considerations which were referred to by Dowsett J, and were expressed more succinctly by Fitzgerald P at page 56.
“The fourth paragraph of general conditions 42.1 must be taken with the remainder of that clause. What is certified is intended to be paid.”
In my opinion this applies to certificate number 5 just as much as to certificate number 4 and therefore the amount now certified on the basis of these certificates, subject to a further argument to which I shall come in a moment, is the net amount and that amount would be recoverable.
This seems to follow also from clause 42.10. The net amount is $119,181.31.
The defendant advanced to further argument based on clause 43. The purpose of this clause is clearly to protect the sub-contractors and it provides that the principal is not to pay unless the sub-contractor has been paid as verified by a statutory declaration by the contractor or if there is an excess over the amount that is determined as payable to sub-contractors by the superintendent.
The superintendent in the present case sought a statutory declaration from the plaintiff which was not given although a request was forwarded for payment of a number of subcontractors pursuant to clause 43. The essential parts of course that clause 43 provide:
“If the contractor provides to the superintendent satisfactory proof of the maximum amount due and payable to workers and subcontractors by the contractors, the principal shall not be entitled to withhold any amount in excess of the maximum amount. At the written request of the contractor, and out of monies payable to the contractor, the principal may on behalf of the contractor make payments directly to any worker or subcontractor”.
Clause 42.1 in the relevant paragraph provides that it operates subject to the provisions of the contract and it seems to me that the obvious interpretation of clause 43 is that it operates in respect of money otherwise certified to be paid. Indeed, clause 43(c) expressly provides that the principal may withhold payment of money, “Notwithstanding clause 42.1”.
It seems to me, therefore, that it is clear that non-payment of subcontractors provides a good defence, notwithstanding the certificate of the superintendent. It is therefore quite impossible for me to say that the contrary is indisputably correct which I would have to do in order to refuse leave to defend.
The contractor is not obliged to the principal to pay the subcontractors as is apparent for the use of the word “may”, but there is a clear intention in the clause to protect subcontractors and if the only basis of a defence is a failure to pay a subcontractor and the defendant can pay the subcontractor itself and get credit for that payment under the contract and there is no real dispute as to the amount payable to the subcontractor, it would, in my view, be quite wrong to allow a different dispute between the parties, between the principal and the contractor, to hold up this payment. Because of this practical consideration I think it is reasonable to grant, in the appropriate case, leave to defend conditional on the subcontractors being paid when there is no real dispute as to liability to pay them. This should preferably be determined by the superintendent but, if necessary, it can be determined by a Court.
Other matters which were raised in Mr Allwood's affidavit appear to be a reiteration of claims which have already been submitted to the superintendent under clause 46 and to the extent that the superintendent has accepted them, are reflected in the revised version of certificate number 5. It is, I think clear, from the authorities to which I have referred, that it would not be a basis for interfering with the effect of the certificate of the superintendent that the defendant wished to continue to pursue these claims. In any case the claims include one for the time of the directors of the defendant involved in some negotiations in relation to the extension which does not appear to have any obvious basis and the claim advanced for expenditure wasted in relation to advertising the sub-division; that seems also to be somewhat artificial. However, these are matters which cannot, at the moment, be the subject of a set-off and would have to be the subject of a separate claim which, if proceeded with before the superintendent could, under the general conditions of contract, lead to an arbitration. I gather that there are other disputes between the parties lurking in the wings and it is I think highly desirable if the parties could resolve their disputes through a process of meditation rather than ending up with a very expensive litigation or even more expensive arbitration.
For the moment, however, I am told that the defendant is willing to make payments to subcontractors pursuant to the provisions of clause 43. It seems to me that the superintendent should have, at least in the first instance, the opportunity of determining what claims should be paid, or at least, the contractor should have the benefit of the advice of the superintendent as to those matters.
Further, the superintendent should, if necessary, determine what amount he is satisfied is the maximum amount due and payable to workers and subcontractors so as to see whether there is any amount, any excess, over that amount which would be payable. If the amounts referred to in the earlier letters are all properly payable, there will be no excess, so payment of the subcontractors will exhaust the claim. It may be, however, that the superintendent will determine otherwise and that is a matter which I do not know at the present time.
In view of the fact that the defendant is prepared to follow this course, I think that rather than give conditional leave to defend today, which would involve formulating what could be a complicated condition, the appropriate course is to adjourn the matter for 14 days to give the defendant and the superintendent the opportunity to work things out. Hopefully, at the end of that time, the subcontractors will have received all proper payments and the existence of any excess will have been properly determined. I should also say that this will give the parties time to formulate a proper submission to mediation and the terms of a referring order.
In the circumstances, therefore, the only order that I make today is to adjourn the matter for 14 days, that is, 2 April 1998. It will be at George Street.
...
HIS HONOUR: 9.15 on 6 April, that will be back here in this Court then and I transfer the file to the Brisbane Registry of the Court. Costs reserved until 6 April.
DISTRICT COURT | Plaint No 17 of 1998 |
CIVIL JURISDICTION
JUDGE McGILL
B K EXCAVATIONS PTY LTD | Plaintiff |
and
OAKES DEVELOPMENTS PTY LTD | Defendant |
BRISBANE
DATE 06/04/98
HIS HONOUR: Yes, well, this matter came before me on 19 March by way of a judgment summons. I have set out in reasons given on that occasion the background to the matter and matters which were argued. It appeared when the matter was then before me that there were a number of subcontractors and that indeed if those subcontractors were paid directly by the defendant pursuant to clause 43 of the contract that would exhaust the amount which would be otherwise clearly recoverable by the plaintiff and that without payment of those amounts this provided an arguable ground of defence under clause 43. The matter was adjourned for 14 days to enable the question of what payments could properly be made to be resolved.
Since then the issue has been passed to the Superintendent who has expressed the view that the amounts claimed were in order, but expressed some doubt as to whether two of the listed entities Dundowran Blue Metal Quarries and Vinidex Tubemakers Pty Ltd were actually subcontractors, on the basis that they were simply suppliers.
The contract does not contain - that is contract AS2124 does not contain any general definition of the term “subcontractor” so as to include or exclude suppliers. Clause 10 of the contract talks about selected and nominated subcontractors and includes the suppliers in the term “subcontractor” for the purposes of that clause.
That provides, I think, to some extent assistance each way in the argument about whether the term “subcontractor” generally in the contract includes a supplier. Parts of that clause assume that the concept of subcontractor would include a supplier, but in other parts, such as the definition of nominated subcontract work, reference is made expressly to the supply of items which is not found in the definition of work in clause 2. Clause 9 talks about the right to subcontract work and it may be that the correct question of interpretation is as to whether the word “work” in that clause extends to the supply of materials.
That question is similar to one discussed by the Full Court in Dowstress Queensland Pty Ltd v. The Mission Congregation Servants of Holy Spirit and Another, [1987] 1 QdR 150, where it was held that the supply of materials under a contract for the sale of goods was not work for the purposes of that term in the Subcontractors' Charges Act, a matter which is perhaps now put beyond doubt by the definition of work in the current reprint of that Act.
In view of that, in my opinion, it is at least arguable that the term “subcontractor” in Clause 43 does not extend to a supplier; it seems to me that the matter is not sufficiently clear that I could say for the purposes of a judgment summons that the contrary construction is clearly wrong. It is not a point that I think should be decided on a judgment summons, and I would, therefore, resolve the proceedings today on the assumption that it may be that the suppliers are also subcontractors for the purpose of Clause 43.
The point may be made that in so far as the function of Clause 43 is to protect third parties and to ensure that they are paid, there is no particular reason to distinguish between a supplier and a subcontractor who actually does part of the work. In any case that, I think, raises a triable issue and it would mean, if it were correct, that subject to payment of the four undisputed subcontractors there was a triable issue in respect of the balance of the amount claimed by the plaintiff.
The four subcontractors which are undisputed are Boral Asphalt or Boral Bitumen for a total of $52,218, R J and R A Lowry for $21,526.50, C M Testing Service for $4,810 and Noel Hoppert Contracting for $10,691.40. A total of $89,251.50.
The two disputed subcontractors, that is suppliers who may or may not be subcontractors, are Dundowrin Blue Metal Quarries $16,990.02 and Vinidex Tubemakers Pty Ltd $13,344.22. These total $30,334.24. If this amount is added to the amount of the undisputed subcontractors the total amount is in excess of the balance I referred to on the last occasion being the difference between progress certificate number 4 and the then current adjustment of progress certificate number 5, an amount of $119,181.31.
It is therefore unnecessary to determine whether the superintendent has validly adjusted the amount allowed in certificate number 5 further since the last hearing.
It follows that I am prepared to give leave to defend conditional upon payment of the four amounts referred to earlier to the entity that I described as the undisputed subcontractors.
MS KELLY: Your Honour, might I be heard before you proceed?
HIS HONOUR: Yes.
MS KELLY: Your Honour, I have instructions in view of Your Honour's ruling to not dispute the payment to Dundowran and Vinidex in accordance with the superintendent's assessment. In view of Your Honour's ruling that leave to defend is in any event going to be granted, I have instructions in view of that to consent to the payment direct by the owner of those two suppliers.
HIS HONOUR: Yes. Mr Hastie, what do you want to say about that?
MR HASTIE: It presents a problem in a number of respects but one respect obviously is that then it makes the issue of the funds that are available out of which to make the payments. If one includes those two payments and also has regard to the certificate 5C, my client would be funding out more than the plaintiff's true claim.
HIS HONOUR: And I suppose if in fact these people are not within clause 43, there is no power to make the payment on the account of the plaintiff.
I think in the circumstances I am not prepared to change the ruling further. The parties can always arrange something independently for a greater amount and for a greater payment to be made if they want to do so. But the amounts that I will require payment of as conditions of leave to defend are just the four undisputed subcontractors.
Mr Hastie, would you give me a time within which that could be paid?
MR HASTIE: I was going to suggest a couple of days. I am just trying to work out a number that would be suitable. Perhaps if Your Honour makes the order by Thursday.
HIS HONOUR: If you are confident that they would be able to make the payments by then I would like to do that. Well it will be conditional upon making those four payments by 4 p.m. on 9 April.
I will give leave to the defendant to defend. It follows that the application for summary judgment is refused.
Now one other matter that I hoped might be resolved today was a submission for mediation and a referring order. I had in mind that the whole of the dispute between the parties would be mediated even though only part of that dispute is currently the subject of proceedings in this court. I am conscious of the fact that the whole dispute is not currently before the Court so that there may be some difficulties about making a referral order unless the parties are willing to co-operate in having a full mediation. That is what I am concerned about. Really because this would be a convenient opportunity to have the matter mediated in the hope that the mediation might lead to the resolution of everything.
MR HASTIE: I'm sure that I speak for my learned friend as well, we are waiting to see what happened last week in terms of the final resolution as far as the superintendent is concerned. And there are some other proceedings I think that may have affected the plaintiff, and there may need to be some, from the plaintiff's point of view, a formulation of the claim. So that would need to be done. But perhaps if Your Honour stood it down on the basis that my learned friend and I could come to an agreement about a referral order. If Your Honour indicated you were going to make it, we could make inquiries about a mediator and-----
HIS HONOUR: The parties can always have a mediation themselves anyway, I mean they can just agree on a mediation.
MR HASTIE: That's so.
HIS HONOUR: It was really just an opportunity to encourage the parties to take that course sooner rather than later. If it was thought that a referral order would assist in getting a mediation going promptly, then I am keen to make one.
MR HASTIE: I suspect there are a lot of issues that would need some time to formulate from the plaintiff's point of view anyway.
HIS HONOUR: I think the other thing is simply that I can urge the parties to consider the advantages of mediation which they can do themselves without a referring order.
MR HASTIE: Yes, thank you, Your Honour.
HIS HONOUR: I think that might be sufficient for present purposes.
With regard to the question of costs, my inclination is to reserve all the costs partly in the hope that the matter may still be settled by mediation, partly because I think there has been something of a draw overall and partly because it may turn out that claims have been made in affidavits which are really not correct. A Judge who has considered the whole matter in a trial will be in a better position to decide whether or not this was a proper application.
Does anyone want to argue about that?
MR HASTIE: No, Your Honour.
MS KELLY: We don't, thank you.
HIS HONOUR: The costs including the costs reserved earlier will be reserved to the trial.