Australian Building Insurance Services Pty Ltd v CGU Insurance Limited

The question in this case was whether the purchaser of a building insurance claims repair work business was entitled to claim statutory penalty interest under s 67P of the Queensland Building Services Authority Act 1991 on progress amounts claimed in invoices issued under a novated supplier agreement. The invoices included work done to complete and rectify repair work left incomplete by the seller prior to the novation. The Court of Appeal held that the purchaser was a “contracted party for a building contract” within the meaning of s 67P and so was entitled to statutory penalty interest.

Fraser and Philippides JJA and Crow J

5 June 2020

In 2013, the appellant purchased a building insurance claims repair work business from a company called Price Constructions. The business was a supplier to the respondent of such services under a preferred supplier agreement. Both Price Constructions and the respondent consented to Price Constructions’ interest in the supplier agreement being assigned to the applicant. [6]. It was accepted by the parties that the assignment of Price Constructions’ rights and obligations under the supplier agreement effected a novation of the supplier agreement. [7]. At the date of sale, there were various incomplete insurance repair jobs that Price Constructions had commenced, but not completed. The appellant finished these, together with various new jobs. The respondent paid all invoices issued by the appellant, which totalled $601,896.09. [6]. The invoices issued covered work performed but not completed by Price Constructions prior to the novation, as well as works undertaken by the appellant. [9]. Some payments were delayed, however. [6].

The appellant brought a claim in the District Court seeking interest on the late progress payments at the statutory penalty rate pursuant to s 67P of the Queensland Building Services Authority Act 1991 (the QBSA Act), in the amount of $242, 032.14. [1]. Under s 67P, where: a “contracting party for a building construct is required to pay an amount (the ‘progress amount’) to the contracted party for the building contract” (s 67(1)(a)); “the progress amount is payable as the whole or a part of a progress payment” (s 67(1)(b)); and, the time for payment of the progress amount has passed and yet the progress amount has not been paid (s 67(1)(c)), then the “contracting party” is required to pay the “contracted party” interest at the statutory penalty rate (s 67(2)). [10]. Several of these terms were defined in the QBSA Act. Most relevantly, the “contracting party”, in the context of a “building contract” means “the party to the contract for whom the building work the subject of the contract is to be carried out, while the “contracted party” is “the party to the contract who is to carry out the building work the subject of the contract”. [10]–[13]. In addition, “progress payment” has the same meaning as in Sch 2 of the Building and Construction Industry Payments Act 2004 (BCIPA). [11].

The primary judge held that the appellant was not entitled to interest at the statutory penalty rate. [14]–[20]. While his Honour accepted the assignment effected a novation, the primary judge did not accept that the appellant was “the contracted party for a building contract” within the meaning of s 67P in respect of work done by Price Constructions prior to the novation. [15]–[18].

On an application for leave to appeal by the appellant, the principal issue was whether the primary judge had erred in finding that the appellant was not a “contracted party” within the meaning of s 67P. The leading judgment in the Court of Appeal was delivered by Philippides JA (Fraser JA and Crow J agreeing). [1], [38]. At the outset, her Honour noted that it was appropriate to grant leave to appeal, given that the matter concerned matters of statutory interpretation of general significance to those involved in contracting for building services and because the appellant had raised an arguable case. [5].

After reviewing the parties’ submissions ([21]-[28]), Philippides JA turned to consider the proper construction of s 67P of the QBSA Act. Her Honour explained that s 67P(1)(a) of the QBSA Act – which focused on the contractual obligation to pay a progress amount under the building contract as a precondition to statutory penalty interest under s 67P(2) – was:

“not directed to a person who physically undertakes contractual work but to the contractual obligation to pay the progress amount in question imposed under the building contract – that is the contractual obligation imposed on the party for whom the building work, the subject of the contract, is to be carried out (the contracting party) for the benefit of the party who is to carry out the work thereunder (the contracted party).” [29]. 

Therefore, under the novated supplier agreement, it was the appellant which undertook the contractual obligations to carry out building work. This was so even of work performed by Price Constructions but which was incomplete or in respect of which rectification was required. The appellant “thus became the contracted party for a building contract to which the respondent was the contracting party for whom the construction work was to be carried out thereunder”. [29].

Furthermore, the requirement in s 67P(1)(b) that the progress amount qualify as a progress payment under BCIPA did not provide any impediment to the appellant’s claim. [30]. The reference in the BCIPA definition of “progress payment” to a “person who has undertaken to carry out construction work under the contract” was also “to be understood as a reference to a contractual undertaking not the physical performance of the work”. [31]. Nothing in the BCIPA definition of “progress payment” precluded the appellant from being a “contracted party” for a “building contract. [30]–[32]. Justice Philippides noted that, as the “contracted party”, the appellant could render fees under the “novated supplier agreement, which imposed on it all the contractual obligations and conferred to it all the contractual rights”. [32]. The decision in Ball Construction Pty Ltd v Conart Pty Ltd  [2014] QSC 124 was distinguished as, in contrast to that case, the appellant here had become “entitled under the novated supplier agreement to issue an invoice for the relevant building work and other work it had thereunder undertaken contractual responsibility to carry out”. [33]-[34].

Accordingly, Philippides JA concluded that the primary judge had erred in failing to find that the appellant was a “contracted party” within s 67(1)(a) of the QBSA Act for the pre-novation work done under the novated supplier agreement. Her Honour also found that the requirements of ss 67(1)(b) and 67(1)(c) of the QBSA Act were satisfied. Accordingly, the appellant was entitled to $242,032.14 as penalty interest. [36]

In the result, leave to appeal was granted, the appeal allowed, judgment for the appellant in the amount of $242,032.14 entered and the respondent ordered to pay the appellant’s costs, absent further order. [37].

S Walpole