Galileo Miranda Nominee Pty Ltd v Duffy Kennedy Pty Ltd

[2019] NSWSC 1157

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Galileo Miranda Nominee Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 1157

Hearing dates:

1, 2, 3 July 2019; 9 August 2019

Date of orders:

06 September 2019

Decision date:

06 September 2019

Jurisdiction:

Equity - Technology and Construction List

Before:

Parker J

Decision:

6 September 2019

Catchwords:

CONTRACT – Breach of Contract – where Principal sought order that Contractor complete penetration schedule and provide copies of subcontracts – whether Principal’s take-out notice valid – whether Contractor entitled to suspend works by non-payment of interest on progress claim under Building and Construction Industry Security of Payment Act 1999 (NSW) – whether Contractor failed to proceed with due diligence in a competent manner and failed to comply with principal certifier’s occupation certificate requirements – whether Contractor otherwise validly suspended works with “reasonable cause”.

 

BUILDING AND CONSTRUCTION – construction contracts – Building and Construction Industry Security of Payment Act 1999 (NSW) – whether Contractor entitled to suspend works by Principal’s non-payment of interest on progress payment – whether interest accrued under s 11 forms part of “scheduled amount” under s 27(1) – “scheduled amount” comprises amount respondent “proposes to make” identified in payment schedule but excludes interest under s 11 - need to quantify interest in final way - accrual of interest to be interpreted consistently with statutory entitlement under Civil Procedure Act 2005 (NSW), s 100.

 

CONTRACT – Breach of Contract – whether Contractor entitled to suspend contract with “reasonable cause” by acting reasonably and in good faith – whether “reasonable cause” determined subjectively or objectively – suspension without “reasonable cause”.

 

CONTRACT – Breach of Contract – whether Contractor failed to proceed with due diligence in a competent manner and failed to comply with principle certifier’s occupation certificate requirements – whether error by PCA deprives its determination of contractual effect – Legal & General v A Hudson – erroneous view taken by PCA no answer to Contractor’s failure to satisfy preconditions to issue of occupation certificate – foreshadowed claim for extension no answer to Contractor’s failure to proceed with works in diligent manner.

CONTRACT – Breach of Contract – whether default notice valid – whether notice “issued” by Principal’s Representative – whether Principal’s Representative gave adequate or proper consideration to whether notice should be issued – notice “issued” where Principal’s Representative authorised release of notice without taking active role in preparation – notice acts as precursor to rights to terminate and not invalidated by technical deficiencies where commercial purpose achieved.

 

CONTRACT – Breach of Contract – whether Principal’s show-cause and take-out notices valid – whether power to take work out of Contractor’s hands subject to implied obligations of good faith and reasonableness – determination by Principal’s Representative closely connected with Principal’s exercise of power to terminate – Principal’s Representative validly formed determination.

 

EVIDENCE — Privileges — Without prejudice privilege – whether under contractual procedure Principal’s Representative entitled to consider discussions during “without prejudice” meeting when determining whether Contractor failed to comply with preconditions to issue of occupation certificate – privilege does not extend to non-curial proceedings.

CONTRACT – Interpretation – where Principal takes work out of Contractor’s hands prior to practical completion and contract does not expressly provide for return of security – whether Contractor entitled to the return of contractual security - where completion of works will necessarily be put in hands of further contractors – whether security extends to Principal’s claim for unliquidated damages - security to ensure performance of Contractor’s obligations extends post-termination.

Legislation Cited:

Building and Construction Industry Security of Payment Act 1999 (NSW), ss 4, 11, 14, 15(1), 16, 22(1), 23, 24(2), 25 and 27
Civil Procedure Act 2005 (NSW), s 100
Environmental Planning and Assessment Act 1979 (NSW), s 6.5(1)(c)
Evidence Act 1995 (NSW), s 131

Cases Cited:

Baker v Campbell (1983) 153 CLR 52; [1983] HCA 39
Booth v Trail (1883) 12 QBD 8
Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd; TWT Property Group Pty Limited v Cenric Group Pty Limited [2019] NSWCA 87
Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd (Formerly SC Land Richmond Pty Ltd) (No 3) (2013) 41 VR 636; [2013] VSCA 179
FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340
Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1994) 12 BCL 64
Lainson Holdings Pty Ltd v Duffy Kennedy Pty Ltd [2019] NSWSC 576
Legal & General Life of Aust Ltd v A Hudson Pty Ltd (1985) 1 NSWLR 314; [1985] ANZ ConvR 108; (1985) NSW ConvR 55-237
Liversidge v Anderson [1942] AC 206
Mallinson v Scottish Australian Investment Co Ltd (1920) 28 CLR 66
Perini Corporation v Commonwealth [1969] 2 NSWR 530
Reg v Inland Revenue Commissioners, Ex parte Rossminster Ltd [1980] AC 952
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; [1979] HCA 51
Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84; (1993) ATPR 41-266; [1993] FCA 445
Strike Australia Pty Ltd v Data Base Corporate Pty Ltd [2019] NSWCA 205
WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489; [1999] WASCA 10

Texts Cited:

J D Heydon, Cross on Evidence (11th ed, 2017, LexisNexis Butterworths) at [25375]

Category:

Principal judgment

Parties:

Galileo Miranda Nominee Pty Ltd (Plaintiff)
Duffy Kennedy Pty Ltd (Defendant)

Representation:

Counsel:
SG Finch SC/DAC Robertson (Plaintiff)
F Hicks SC/SS Ahmed (Defendant)

  Solicitors:
Mills Oakley (Plaintiff)
Madison Marcus (Defendant)

File Number(s):

2019/136937

Publication restriction:

Nil

Judgment

1. This judgment concerns a building project called “Palisade” at Miranda in Sydney. The development consists of two residential tower blocks containing 197 units. It was the subject of a design and construction contract dated April 2017 between Duffy Kennedy Pty Ltd (“DK”, defined in the contract as “the Contractor”) and Galileo Miranda Nominee Pty Ltd (“Galileo”, defined in the contract as “the Principal”). The contract price was $66 million. This figure, and other figures in this judgment are exclusive of GST.

2. The contract provided, in the usual way, for a project manager, described as the “Principal’s Representative”, to decide upon, and certify, elements of the contract such as extensions of time and progress payment entitlements. The Principal’s Representative appointed by Galileo for the purposes of the contract was Resource Co-ordination Partnership Pty Ltd (“RCP”).

3. The original date for practical completion was in February 2019. This date was not met and Galileo imposed liquidated damages on DK for the delay. By the end of that month, however, according to DK’s calculations, over 99.9% of the work, by value, had been done; the value of the remaining work was only about $56,000.

4. A critical remaining step was to obtain the issue of the occupation certificate. The principal certifier responsible for issuing the certificate under the Environmental Planning and Assessment Act 1979 (NSW), s 6.5(1)(c), was McKenzie Group Consulting (NSW) Pty Ltd (“McKenzie”; also referred to in the evidence as the “Principal Certifying Authority” or “PCA”).

5. McKenzie’s requirements for the issue of the occupation certificate were set out in a check-list. McKenzie updated that list during the course of the project. By March, controversy had arisen between DK and McKenzie over two of the requirements in the list.

6. The first controversy concerned fire protection in the building. Fire protection devices had to be installed wherever pipes, wires or other services penetrated through structural walls, ceilings or floors of the building. McKenzie’s list required the contractor to provide a “penetration schedule” identifying each of these locations in the building (of which there were hundreds) and particulars for each location. DK’s position was that the necessary information had been supplied or was otherwise available to McKenzie or Galileo, and DK should not be required to assemble the required schedule.

7. The second controversy concerned the balustrades on the external balconies on level 7 of the towers. Four balconies were involved, two for each tower. McKenzie wanted the height of the balustrades to be increased so as to comply with safety requirements of the Building Code of Australia (“BCA”). DK argued that McKenzie’s interpretation of the BCA requirements was incorrect and no heightening was necessary.

8. The contract provided, in the usual way, for a system of progress payments which were subject to the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”). A progress payment of $323,000 was due in the third week of March. This payment was made by Galileo but it was made late. As a result of the delay, DK was entitled to interest. The amount of the interest was not large, being at most a few hundred dollars. Galileo’s payment did not include anything for interest. On 28 March, DK gave notice of the suspension of works under the Act on the grounds that its progress payment had not been paid in full.

9. The contract provided, in the event of default by DK, for a procedure whereby RCP as the Principal’s Representative could issue a notice requiring DK to remedy the default or show cause why the contract should not be terminated. If DK failed to show cause or to remedy the default to the satisfaction of RCP, Galileo was entitled either to terminate the contract or to take the remaining work out of the hands of DK.

10. On 29 March a default notice was issued pursuant to this provision and signed by both Galileo as Principal and RCP as Principal’s Representative. The notice relied on four separate grounds of alleged default. One was DK’s suspension of work. Another was DK’s alleged failure to proceed with due diligence and in a competent manner so as to complete the works. This ground was based on the failure to comply with McKenzie’s occupation certificate requirements concerning the penetration schedule and the balustrades. The other two grounds have not been pressed and it is not necessary to go into them for the purposes of these proceedings.

11. DK responded to the notice by making a show-cause submission. The response was issued on 12 April. Galileo was not satisfied with it. On 29 April Galileo issued a notice purporting to take the remaining works out of the Contractor’s hands. I will refer to this as the “take-out notice”.

12. The clause of the contract under which the take-out notice was issued required DK to deliver up drawings, certificates and other specified documents for the work done by it; and to secure and leave the site. The take-out notice demanded that DK comply with its obligations under this clause. In particular, the notice demanded that DK complete a penetration schedule in the form specified by Galileo and provide “settlement bags” for the units (the Contract specified that such a bag, containing keys, manuals and warranties, was to be produced for each unit so as to be handed over on settlement to the purchaser of the unit). The notice also required provision of copies of all of DK’s contracts with sub-contractors on the project.

13. On 1 May DK replied, disputing the validity of the take-out notice and asserting that it was a repudiation of the contract. DK purported to accept the asserted repudiation and bring the contract to an end. DK demanded that Galileo return the bonds which had been provided by way of security for DK’s obligations under the Contract.

Issues for determination

14. These proceedings were commenced by Galileo as plaintiff on 2 May. At that stage there was an issue about whether DK’s staff had actually left the site. Galileo sought orders that DK leave and secure the site and that DK provide Galileo with all keys and electronic fobs giving access to the site or parts of it. Galileo also sought orders that DK complete Galileo’s penetration schedule and provide copies of the sub-contractor contracts as well as settlement bags for each of the units.

15. The claims in these proceedings concern only some of the breaches of the contract alleged by Galileo. Galileo has foreshadowed claims for liquidated damages and for the recovery of the cost of having work completed by other contractors. Galileo’s position is that these claims should be dealt with in the ordinary way through the mechanisms provided in the contract.

16. DK cross-claimed. It sought a declaration that it had validly terminated the contract on the ground of repudiation by Galileo on 1 May 2019; an order that the proceedings be referred for enquiry and report as to the damages arising from the repudiation of the contract and its termination; and an order that Galileo return the security bonds.

17. The proceedings were initially brought on an urgent basis. Galileo now accepts that DK has left the site and the claims for relief associated with this have fallen away. The parties also agreed on a regime for the delivery up of access keys and fobs, and for the provision of settlement bags, and no claims are now made about these matters in the proceedings (they are however the subject of foreshadowed contractual claims by Galileo against DK).

18. An interim occupation certificate was issued on 2 May, the day after the proceedings were begun, for both of the towers except for the four units affected by the balustrade issue. Closing submissions were made in writing and addressed orally on 9 August. As a result Galileo has been able to complete the sales of units and allow the purchasers into occupation. This took some of the urgency out of the proceedings. Shortly before the hearing, an interim occupation certificate was issued for the four remaining units on level 7. The hearing ultimately took place on 1, 2 and 3 July. This completed the evidence. Counsel lodged written submissions and addressed them orally on 9 August.

19. As a result of developments since the proceedings began, the only remaining relief sought by Galileo consists of an order that DK complete Galileo’s penetration schedule and an order that DK provide Galileo with copies of its subcontracts. To establish its entitlement to this relief, Galileo must show that the take-out notice was valid. For its part, if DK is to succeed on its claim of repudiation, it must show that the take-out notice was invalid.

20. It is common ground that the take-out notice could not validly rely on an alleged breach of the contract by DK unless DK was in breach at the time that the show-cause notice was issued. Thus it is necessary to consider whether DK was actually in breach of the contractual provisions now relied upon by Galileo as at 29 March.

21. Galileo relies relevantly on two alleged breaches. The first alleged breach is that DK was not entitled to suspend works by reason of the outstanding progress claim interest. The second is that DK failed to proceed with due diligence and in a competent manner so as to bring the works to practical completion, by failing to comply with McKenzie’s occupation certificate requirements. There are two relevant non-compliances: the failure to provide the penetration schedule and the failure to undertake the balustrade work. Thus there are three separate breach issues.

22. Even if it was in breach when the show-cause notice was issued, DK still attacks the validity of the take-out notice. DK makes two contentions. The first is that the show-cause notice was invalid. The second is that, even if the show-cause notice was valid, the take-out notice was not. The main question is whether the relevant contractual powers had to be, and were, exercised in good faith and reasonably.

23. For its part, Galileo contends that even if the take-out notice was invalid, it was not a repudiation of the contract. If this is correct, DK had no right to terminate.

24. In its List Response, DK put in issue whether, even if the take-out notice was validly issued, it was obliged to provide the penetration schedule and the copies of the sub-contracts. But this point was abandoned in final submissions; DK now accepts that if it fails in its challenge to the validity of the show-cause notice, Galileo is entitled to the relief it seeks. Nor did DK press its assertion that it was not required to produce these documents because of a lien for unpaid amounts under the Contract.

25. The final question concerns the contractual security. DK’s contention is that, whether the take-out notice was valid or not, it is entitled to the return of the undertakings. For its part, Galileo’s contention is that it is entitled to have the security remain in place.

Suspension of works

26. DK puts its case on suspension of works in two ways. First, DK contends that it had a statutory entitlement to suspend the works at any time when there was unpaid interest. Galileo’s other argument relies on the terms of the contract. As will be seen below, the contract relevantly provided that a default notice could be issued if DK suspended works “without reasonable cause”. DK contends that even if it had no statutory right to suspend, it had “reasonable cause” to do so.

27. There is no dispute as to the facts on this part of the case. They are established by documentary evidence.

28. The progress claim which resulted in the suspension was claim number 26. It was issued on 26 February 2019, claiming $1,010,161.72. RCP responded with a payment schedule acknowledging that the sum of $293,984.42 was due. It is common ground that, as a result, Galileo was liable under the Act to make payment of this sum, to which I will refer as “progress payment 26”.

29. The payment was due on 19 March. Galileo initiated an electronic payment of the amount on 22 March, which was a Friday. Payment did not reach DK until the following Monday, 25 March.

30. On that day, 25 March, DK issued a notice to Galileo under s 16(2)(b) of the Act. The notice recited the background facts and stated that Galileo had “not made full payment as required under the Contract and the Act”. DK went on to give notice of its intention to suspend carrying out work under the contract.

31. The next day, 26 March, Galileo wrote to DK stating that payment had been made on 22 March and enclosing proof of the payment instruction. Galileo stated that the default in payment had been remedied when the notice was issued and there was no entitlement to suspend the works. In response, DK stated that the payment had been made the previous day (this was in fact when it was received) but that the payment “was not in accordance with the contract”. DK’s email stated that the s 16(2)(b) notice “is valid and stands”.

32. The two business days referred to in s 16(2)(b) expired at the end of 27 March. On 28 March, DK served a further notice, this time of actual suspension of the works. There appears to be no obligation under the Act to give notice of suspension, and the notice described itself as a notice under s 23(1), rather than s 27, but no point is taken about this.

33. The 28 March notice referred to the notice given on 25 March and recited that two business days had passed since the giving of the notice. It stated that DK was “immediately” suspending the carrying on of construction work. The suspension took effect on that day, although I was told that in fact DK continued to work on some aspects of the project.

34. Galileo’s default notice (issued on 29 March) asserted DK had “wrongfully, and without reasonable cause” suspended the carrying out of the works before practical completion. By way of particulars the notice acknowledged that progress payment 26 had been delayed but stated that payment had been received on 25 March, and asserted that DK therefore had no entitlement under the Act to suspend the works.

26. DK’s response to the show-cause notice (issued on 12 April) recited that on 12 March a payment schedule of $2,983,984.42 (exclusive of GST) had been served, which it described as the “scheduled amount”; that the scheduled amount had been due for payment on 19 March 2019; that Galileo had paid the amount plus GST; but that under cl 19.8 of the Contract Galileo was required to pay interest on overdue payments at the rate of 10% per annum.

27. The response stated that interest had accrued and remained unpaid in the sum of $177.20 and that this unpaid interest formed part of the scheduled amount. The response argued that on this basis, the scheduled amount had not been paid in full. It followed that DK had been, and was, entitled to suspend work. This was the first occasion on which DK explicitly stated that the failure to pay the interest had been the problem.

28. On 15 April, Galileo paid the interest amount of $177.20. But the works remained suspended. This remained the position up until the take-out notice was issued on 29 April.

Legislative provisions

38. The entitlement under the Act to interest on a late progress payment comes from s 11 which relevantly provides:

Due date for payment

(1)   Subject to this section and any other law, a progress payment to be made under a construction contract is payable in accordance with the applicable terms of the contract.

…

(2)   Interest is payable on the unpaid amount of a progress payment that has become due and payable at the rate:

(a) prescribed under section 101 of the Civil Procedure Act 2005, or

(b)   specified under the construction contract,

whichever is the greater.

(3)   If a progress payment becomes due and payable, the claimant is entitled to exercise a lien in respect of the unpaid amount over any unfixed plant or materials supplied by the claimant for use in connection with the carrying out of construction work for the respondent.

…

39. The suspension of works is dealt with by Division 3 (s 27). Section 27 provides:

Claimant may suspend work

(1)   A claimant may suspend the carrying out of construction work (or the supply of related goods and services) under a construction contract if at least 2 business days have passed since the claimant has caused notice of intention to do so to be given to the respondent under section 15, 16 or 24.

(2)   The right conferred by subsection (1) exists until the end of the period of 3 business days immediately following the date on which the claimant receives payment for the amount that is payable by the respondent under section 15 (1), 16 (1) or 23 (2).

(2A)   If the claimant, in exercising the right to suspend the carrying out of construction work or the supply of related goods and services, incurs any loss or expenses as a result of the removal by the respondent from the contract of any part of the work or supply, the respondent is liable to pay the claimant the amount of any such loss or expenses.

(3)   A claimant who suspends construction work (or the supply of related goods and services) in accordance with the right conferred by subsection (1) is not liable for any loss or damage suffered by the respondent, or by any person claiming through the respondent, as a consequence of the claimant not carrying out that work (or not supplying those goods and services) during the period of suspension.

40. DK’s notice of intention for the purposes of s 27(1) was given under s 16 of the Act. That section relevantly provides:

Consequences of not paying claimant in accordance with payment schedule

(1)   This section applies if:

(a)   a claimant serves a payment claim on a respondent, and

(b)   the respondent provides a payment schedule to the claimant:

(i)   within the time required by the relevant construction contract, or

(ii)   within 10 business days after the payment claim is served,

whichever time expires earlier, and

(c)   the payment schedule indicates a scheduled amount that the respondent proposes to pay to the claimant, and

(d)   the respondent fails to pay the whole or any part of the scheduled amount to the claimant on or before the due date for the progress payment to which the payment claim relates.

(2)   In those circumstances, the claimant:

(a)   may:

(i)   recover the unpaid portion of the scheduled amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction, or

(ii)   make an adjudication application under section 17 (1)(a)(ii) in relation to the payment claim, and

(b)   may serve notice on the respondent of the claimant’s intention to suspend carrying out construction work (or to suspend supplying related goods and services) under the construction contract.

41. The term “scheduled amount” used in s 16(1) and s 16(2) is defined (s 4) as:

the amount of a progress payment that is proposed to be made under a payment schedule, as referred to in section 14.

42. Section 14 relevantly provides:

Payment schedules

(1)   A person on whom a payment claim is served (the respondent) may    reply to the claim by providing a payment schedule to the claimant.

(2)   A payment schedule:

(a)   must identify the payment claim to which it relates, and

(b)   must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount).

…

Statutory entitlement to suspend

43. It appears that the interest calculated by DK may have been based on only the three days from 19 March to 22 March, rather than the period from 19 March to 25 March when progress payment 26 was actually received. As a result DK was actually entitled to more interest than the $177 claimed. It would follow that even after the $177 was paid DK had still not been paid in full.

44. Counsel for DK, however, took no point about this. Counsel conceded that once payment of the $177 was made on 15 April and three business days then passed, any right of suspension which DK might have had would have ceased. But counsel contended that at the date the show-cause notice was issued (29 March), DK was entitled to suspend and there was no breach at that point. On this analysis, it would have been necessary for Galileo to issue a fresh show-cause notice on 18 April once it had made the $177 interest. It did not do so.

45. Counsel for Galileo accepted that the effect of s 16 and s 27 is that an entitlement to issue a s 16(2)(b) notice arises once the principal fails to make a progress payment by the due date. The right continues even if payment is subsequently made. But once payment is made, after three days any right to suspend, or continue the suspension, ceases.

46. On this analysis, because payment was not made by the due date (19 March), DK was entitled to issue the s 16(2)(b) notice on 25 March. DK was also entitled to suspend work on 28 March because three business days had not then passed from payment being made on 25 March. But, on Galileo’s analysis, the payment having been paid on 25 March, the right of suspension came to an end; the continued suspension from 29 March onwards was therefore a breach.

47. The issue between the parties was whether the interest was included in the amount which had to be paid to avoid suspension under the Act. I do not understand counsel to contest each others’ analysis of what followed if the other succeeded on this issue.

48. The argument by counsel for DK was based on what counsel characterised as a need, where there is a failure to make a progress payment by the due date, to achieve a consistent operation of the remedial provisions of the Act. It was common ground that the starting point is s 27 which confers the right of suspension DK purported to invoke in this case. The right of suspension ends when the claimant “receives payment for the amount that is payable”, relevantly, under s 16(1). Counsel submitted that s 16(1) does not in terms specify “the amount that is payable”, but that under s 16(2)(a)(i), the claimant is entitled to recover the outstanding amount by way of court proceedings. Counsel submitted that in any such proceedings the claimant would be entitled to recover not only the principal amount unpaid but also the interest under s 11. Counsel argued that the right of suspension should work in an analogous way. Otherwise a claimant who had validly suspended could be forced back to work without the respondent paying the interest to which the claimant is entitled.

49. Counsel for Galileo submitted that this argument was based on a misunderstanding of the nature of any interest awarded in proceedings under s 16(2)(a)(i). Counsel argued that such interest is awarded in such proceedings under the Court’s general power to award pre-judgment interest under the Civil Procedure Act, s 100. Counsel submitted that there is nothing in the Act itself which contemplates that a judgment obtained under s 16(2)(a)(i) is to contain interest under s 11.

50. In my view, this submission went a little too far. The entitlement to interest under s 11 must be enforceable by court proceedings if that proves necessary: Booth v Trail (1883) 12 QBD 8 at 10; Mallinson v Scottish Australian Investment Co Ltd (1920) 28 CLR 66 at 70. Separate proceedings could be brought but there is no reason why such a claim could not be combined with a claim for recovery of an unpaid progress claim under s 16(2)(a)(i).

51. Furthermore, where a party with a claim in civil proceedings has a legal entitlement, for instance by contract, to payment of interest at a particular rate, the court’s power under the Civil Procedure Act is generally exercised so as to award interest at that rate. I think it is artificial to treat interest under the Civil Procedure Act as being in some way distinct from the statutory entitlement to interest under the Act.

52. Counsel for Galileo was however right in pointing out that the right to obtain judgment under s 16(2)(a)(i) is a right to obtain judgment for “the unpaid portion of the scheduled amount”. And although s 16(1) does not use the words “amount that is payable”, it refers in sub-paragraph (d) to the failure by the respondent “to pay the whole or any part of the scheduled amount”. In my view it is quite clear that the reference in s 27(2) to “the amount that is payable under s 16(1)” is a reference to the “scheduled amount”.

53. As we have seen, the term “scheduled amount” is a defined term and means the amount identified in the payment schedule as the amount of the payment “that the respondent proposes to make”. At the time the scheduled amount is specified in the payment schedule, the time for payment has not arrived. The amount is one which the respondent “proposes to make”. The Act should not be construed on the assumption that the respondent intends, at the point when the schedule is issued, to make a late payment. The natural reading is that the amount refers to the amount specified in the payment schedule only.

54. Furthermore, while analogous operation of the rights of suspension and the right to obtain a judgment counts for something, it is not the only contextual consideration. In practice, identifying the amount of interest due under s 11 may not be straightforward. The facts of this case illustrate that.

55. Nor is it just a question of counting the correct number of days. Section 11(1) refers to the rate prescribed in the contract and there may be cases where that gives rise to a dispute as to what the contract says. On DK’s argument, the validity of a suspension (and consequential action under the contract) might depend on a dispute about the quantum of interest, where the answer would not be known until court proceedings had run their course. That would hardly be a workable interpretation to place on the Act. Above all, the parties need to know where they stand at the time that rights of suspension are invoked or are under consideration.

56. The need to quantify interest in a final way is implicitly recognised in the Act itself. As well as suspending works, or moving to obtain judgment, an unpaid claimant has the option of obtaining an adjudicator’s determination (s 16(2)(a)(ii)). This results in a specified amount due defined as the “adjudicated amount” (s 22(1)) which must be paid by the due date (s 23(2)). If that amount is not paid, the authority to whom the adjudication application was made can provide an adjudication certificate which can then be filed as a judgment (ss 24 and 25). It is specifically provided in s 24(2) that if interest is due and payable on the adjudicated amount, the authority can be asked to specify the amount of interest payable in the certificate. If so specified, the interest is added to and “becomes part of” the adjudicated amount. The Act thus provides a mechanism whereby outstanding interest can be certified so that there is no possible debate about the amount.

57. Section 27(2) provides that a right of suspension exists if there is a failure to pay in full the amounts payable under ss 15(1), 16(1) or 23(2). If the adjudication procedure has been followed and a certificate specifying interest has been issued, the adjudicated amount under s 23(2), which must be paid in full if the suspension is to cease, may include interest. But there is no equivalent mechanism for determining the interest under s 16(1) (or s 15(1)) and including it in the amount payable. I think this tells against creating such a mechanism by implication.

58. Failure to pay the interest may be frustrating for a claimant but it would be an over-statement to suggest that the claimant has no remedy. The contract may, of course, oblige the respondent to pay interest on the outstanding payment claims. If so, the interest can be included in the next payment claim under the contract. Even if this approach is not available, the claimant has the option of seeking judgment or an adjudication certificate.

59. In my view, the better conclusion is that, for the purposes of s 27(2), the “amount that is payable” under s 16(1) is the amount specified in the payment schedule and does not include interest under s 11. It follows that DK was not entitled to continue the suspension of works after 28 March.

Suspension without “reasonable cause”

60. DK’s contention is that if it is wrong in its construction of the Act, that construction was still reasonably open to it. DK submits that it acted in good faith and its suspension was therefore with “reasonable cause”.

61. It is notable that DK did not specifically refer to the failure to pay interest in its correspondence with Galileo up to 29 March. All DK said in its correspondence was that “the amount due under the payment claim has not been paid in full”. Nor is there evidence before the Court going to whether DK actually had reasonable grounds for believing that Galileo’s failure to pay interest justified it in suspending the works. There was, for instance, no evidence before the Court that DK had obtained legal advice on the question. But I do not think this point should be decided on the onus of proof.

62. In my opinion the first question is whether “reasonable cause” includes DK’s subjective reasoning process at all. In the famous case of Liversidge v Anderson [1942] AC 206, the House of Lords had to consider a regulation which allowed for detention if the Minister “has reasonable cause” to believe that the person was of hostile origin or associations and by reason of that it was necessary to exercise control over him. In his judgment, Lord Atkin said:

It is surely incapable of dispute that the words “if A has X” constitute a condition the essence of which is the existence of X and the having of it by A. If it is a condition to a right (including a power) granted to A, whenever the right comes into dispute the tribunal whatever it may be that is charged with determining the dispute must ascertain whether the condition is fulfilled. In some cases the issue is one of fact, in others of both fact and law, but in all cases the words indicate an existing something the having of which can be ascertained. And the words do not mean and cannot mean “if A thinks that he has”. “If A has a broken ankle” does not mean and cannot mean “if A thinks that he has a broken “ankle”. “If A has a right of way” does not mean and cannot mean “if A thinks that he has a right of way”. “Reasonable cause” for an action or a belief is just as much a positive fact capable of determination by a third party as is a broken ankle or a legal right. If its meaning is the subject of dispute as to legal rights, then ordinarily the reasonableness of the cause, and even the existence of any cause is in our law to be determined by the judge and not by the tribunal of fact if the functions deciding law and fact are divided.

63. Lord Atkin continued:

Thus having established, as I hope, that the plain and natural meaning of the words “has reasonable cause” imports the existence of a fact or state of facts and not the mere belief by the person challenged that the fact or state of facts existed, I proceed to show that this meaning of the words has been accepted in innumerable legal decisions for many generations, that “reasonable cause” for a belief when the subject of legal dispute has been always treated as an objective fact to be proved by one or other party and to be determined by the appropriate tribunal.

64. After discussing the authorities his Lordship concluded:

After all this long discussion the question is whether the words “If a man has” can mean “If a man thinks he has”. I am of opinion that they cannot, and that the case should be decided accordingly.

65. Lord Atkin was dissenting, but his decision was vindicated by subsequent authority: Reg v Inland Revenue Commissioners, Ex parte Rossminster Ltd [1980] AC 952. Lord Atkin’s comments on the ordinary grammatical import of a condition of “reasonable cause” are of general application, but it might be argued that the subject matter of the decision, concerning as it did the liberty of the subject, imposes some limitation on its application.

66. In the present case I am dealing with the construction of a commercial contract. It must be construed in a business-like way. I think that commercial considerations favour an objective test. The other party to the contract needs to know where it stands; that party has no means of knowing about the internal deliberations and thinking processes of the suspending party and should not have to resort to litigation to find out. Particularly is this so where a contractual power of suspension is in issue.

67. It follows, in my view, that whether or not DK had “reasonable cause” depends upon objective considerations, not on whether there was an arguable basis for its contention.

68. In this case, the amount of interest was minuscule in the scheme of things. Counsel for DK asserted that Galileo had been generally slow about making payment claims and as a result a substantial amount of money had accrued in interest over the course of the contract. I do not think this makes any difference. In my view the suspension of work remained completely disproportionate and the failure to pay interest did not constitute “reasonable cause”.

69. I conclude that DK’s suspension was in breach of the contract as at 29 March when the show-cause notice was issued, and DK remained in breach thereafter until the take-out notice was issued a month later.

Requirements for occupation certificate

70. The documentary evidence on this part of the case was supplemented by witness evidence called by the parties. Evidence was called from Nathan James Pratt for DK. He was employed by DK as its Construction Manager. Mr Pratt was the person at DK with day-to-day control over the building work on the project. In his dealings with McKenzie, he was assisted by Mark Gladman and Ramy Edrees.

71. For Galileo, evidence was called from Geoffrey Spencer Pearce of McKenzie. Mr Pearce was the person responsible for actually certifying the work. Although McKenzie is a company, Mr Pearce was described as a “partner”. He was assisted by Aaron Celarc, employed as Senior Building Surveyor, and Zac Wilkins, employed as Assistant Building Surveyor.

Penetration schedule

72. Australian Standard 4072.1 in Appendix B provides that when the installation of a fire resistant ceiling system has been completed, the installer should provide written evidence to the building owner or building owner’s representative that each such system is identical to a tested specimen and that each such system has been correctly installed in accordance with the manufacturer’s installation instructions. This is to be provided in the form of a certificate or the like from the installer. Clause B3 then provides:

B3 STATEMENT OF COMPLIANCE AND SCHEDULE

Included on or attached to the certificate, form or statement of compliance should be a record of each installation giving the following information:

(a)   Project name and address.

(b)   Name, address and contact phone number of installing company or party.

(c)   Date of final inspection of installation.

(d)   Description of service or control joint.

(e)   Identification of the position of the installations, for example-

(i)   marked up drawings;

(ii)   sketches; and

(iii)   photographs.

(f)   Description of the system used or a schedule of systems.

(g)   Description of product or system used to maintain the FRL of the building element of each installation.

NOTE: Each installation should be numbered for ease of identification on the drawing.

(h)   The FRL of the installation.

(i)   A unique number that references each installation.

73. The standard also contains, in figure B1, a “recommended format for listing penetrations and control joints” which it also describes as an “example”. Figure B1 is reproduced below:

74. Figure B2 gives a sample statement of compliance. It is reproduced below:

75. BCA fire resistance provisions for service penetrations (BCA cl 3.15) contain requirements concerning testing and installation. The testing requirements include that the system is identical with a system tested in accordance with AS 4072.1. The installation requirement is set out in specification C3.15. The specification refers back to the testing requirements for the components but does not otherwise pick up the certification and recording procedures in AS 4072.1.

76. Attached to the contract was a lengthy document issued by RCP in April 2017 setting out the “Principal’s Project Requirements” (“PPR”). Under the heading “Architectural”, the PPR stated:

The Contractor must deliver the Works in accordance with the Architectural documents, as noted in this PPR:

…

(b)   The Architectural design must comply with the specific requirements outlined in the Development Consent as set out in the Contract…and all relevant standards and the Architectural design documents in the Annexures.

77. The architectural design documents included a specification for fire stopping. Under the heading “Submissions” this stated:

General: Submit evidence of conformance with the recommendations of AS 4072.1. Appendix B.

Certification: Submit a completed certification list and schedule for installed fire-stopped penetrations and control joints.

-   List form: To AS 4072.1 Figure B1.

-   Schedule form: To AS 4072.1 Figure B2.

78. The PPR also contained provisions dealing with the consultants on the project. These provided that the Principal would engage separately and pay the fees of, among others, the PCA. Clause 4.17(a) stated:

It is the Contractor’s responsibility to manage the PCA to procure and obtain the Construction Certificates and Occupation Certificates (including any interim occupation certificates as required by the Contractor). The Principal is responsible only for the costs associated with the PCA’s provision of its scope of services as per the PCA fee proposal set out in the Annexures where the Contractor requires further inspections, and/or additional construction and occupation certificates, in addition to the allowance contained in the PCA’s fee proposal, the Contractor is responsible for those costs.

McKenzie’s fee proposal was not in evidence, or, if it was, I was not referred to it.

79. Clause 4.33 stated:

With the exception of those responsibilities of the Principal within the Contract, the Contractor will be responsible to procure and obtain all the Construction Certificates necessary and the Occupation Certificate for the Works.

For clarity, this obligation will also include changes in design and construction methods nominated by the Contractor, Provisional Sum Items, clarifications and amendments or during the Design and Construction process as approved by the Principal and/or Principal’s Representative.

The Principal will engage the Private Certifier and is responsible for the payment for the Private Certifier professional services during the work under contract as set out in the Contract. It is the Contractors responsibility to manage the Private Certifier to procure and obtain all approvals and the Occupation Certificate.

80. In November 2017 McKenzie gave DK advance notice of what “would generally be required prior to the issue of the Interim/Final Occupation Certificate”. This was in the form of a checklist. Item 13 was:

Statement or certificate from the contractor responsible for the installation of fire seals, fire collars, fire pillows and fire dampers confirming that they have been installed in accordance with the BCA Clause C3.15 and Spec C3.15 and manufacturers specifications, including a schedule of the systems, fire rating achieved and relevant fire test report numbers. Test reports are to be provided for the systems utilised.

81. This checklist was incorporated in a document produced by McKenzie described as the “Occupation Certificate Proforma Package”. I will refer to this as the “OC Package”.

82. The OC Package was updated by McKenzie for DK as the project progressed. The earliest version of the Package in evidence was issued in October 2018. It contained several checklists. The relevant one was the first, which was entitled “Administrative and BCA Compliance Verification”. Checklist item 12 was in the same terms as item 13 on the checklist from the letter of 22 November 2017 which I have quoted above.

83. The Package also included corresponding forms of installation certificates to be completed by the installer. One was for fire seals and collars and the other was for fire/smoke dampers. The form for fire seals and collars is reproduced below:

84. The fire seals, collars and dampers were actually installed by subcontractors. In evidence are completed installation certificates using the forms provided by McKenzie, and which were submitted in their completed form by DK to McKenzie. The certificates were lodged by being uploaded to a dropbox to which all interested parties had access.

85. Although the installation certificates had a field where the location was to be entered, the completed certificates in evidence do not contain precise locations. They only contain generic information identifying the nature of the locations where the penetrations occurred (such as “floor waste”). This became an issue between DK and McKenzie.

86. The earliest communications in evidence occurred on 12 March. At 9.19 am that day Mr Celarc sent an internal email to Mr Wilkins stating that McKenzie “needed to know the location of all penos”. At 10.28 am Mr Wilkins forwarded Mr Celarc’s email to Mr Edrees attaching a spreadsheet in the form of a schedule. Mr Wilkins’ email stated:

Can you please have the attached penetration schedule completed for the development nominating all the penetration locations and systems used.

87. About an hour later Mr Wilkins sent a further email to Mr Edrees attaching both the spreadsheet and a revised version of the OC Package. The email repeated the request to complete the penetration schedule which was attached. The Package checklist at item 12 was in the same terms as had previously been sent but the words “including a schedule of the systems” were bolded. The checklist had a column for comments against item 12. DK had previously identified the certificates having been provided for plumbing, electrical and mechanical. In response, McKenzie commented:

Please provide a full penetration schedule nominating systems and locations and provide test reports for all systems used.

88. The spreadsheet schedule was in the form of a table which consisted of thirty-five columns, containing particulars for each penetration. The details required for each penetration included location details by reference to the as-built drawings; the building level; the grid reference, the location, and so forth. The particulars also included product and manufacturer details, and an installation check list which included space for a hyperlinked photograph of the installation; and inspection and certification details. The table covered 1,342 separate installations, and full completion of all of the particulars would have required approximately 54,000 entries.

89. Two days later, Mr Gladman wrote to Mr Wilkins as follows:

Please note, this “Peno register” has never before been a requirement for O.C.

We will not be completing it.

…

●   We have issued all pertinent Fire Sealing Certificates which covers all penetrations on the project

●   McKenzies have undertaken numerous inspections through the life of the project, for which fire sealing was inspected

●   There has been no previous request for this item for O.C. in the last 2 years, until yesterday

Hence, if you require information on penetrations please consult the services

trades’ As-Built Documentation in conjunction with their Fire Seal certification.

90. A few hours later Mr Celarc responded. He stated that item 12 of the checklist had always required a penetration schedule and included a copy of the text, including the bolding. His email continued:

The template we provided was a guide, a more simplified version can be used. For example, similar to the fire door schedule provided.

This is a standard OC item which also assists with on-going maintenance as it allows contractors to identify all penetration types, what they are penetrating and the locations. Please see below example of a more simplified template which is acceptable to use. Each trade can complete to cover the penetration fire stopping relevant to their work.

…

Happy to discuss.

91. The “more simplified template” embedded in the email was as follows:

Number	Installation Reference	Date of Installation	Location of Penetration	Size of Penetration	Type of Penetration
1	E3.1 Level 00 Unit 1	20/12/2018	E3.1 Level 00 Unit 1	20mm	Cable
2	E3.1 Level 00 Unit 2	20/12/2018	E3.1 Level 00 Unit 2	20mm	Cable
3	E3.1 Level 00 Unit 3	20/12/2018	E3.1 Level 00 Unit 3	20mm	Cable
4	E3.1 Level 00 Unit 5	20/12/2018	E3.1 Level 00 Unit 5	20mm	Cable

92. Mr Gladman replied (underlining original):

Schedules as per this item you reference and template you mention have already been provided.

Please view the O.C. Dropbox including from the Services Trades for which have already been approved and closed out in the O.C. list at Essential Fire Safety Measures items 10. and 14. which covers your request.

93. Mr Gladman’s reference to the “OC list” was to a different checklist, which identified essential fire safety measures. These specified fire dampers, fire seals and collars and identified the “standard performance” by reference to BCA and AS provisions. DK had annotated the checklist with references to the subcontractor’s certificates which had been provided.

94. Mr Celarc responded:

To satisfy item 12, a full schedule of every penetration in the building is required. This is not negotiable and provided on every residential project.

Yes item 10 and 14 are closed out on the essential fire safety measures as the installation certificate covers off the Australian standards and BCA clauses.

95. On the following day, Friday 15 March, Mr Gladman replied:

Your OC list has at item 12 always noted “a schedule of the systems”, no question.

However this CLEARLY refers to a schedule of the fire-sealing systems used on the project, e.g. the Electrician may use a number of systems such as fire caulking, fire pillows, fire collars, fire wrap etc for different applications on the project.

At no time has there been referenced or noted for there to be a full schedule of every penetration on the project.

In my 16 years in the construction industry, a schedule of this kind has never been a requirement for O.C. In DK’s extensive experience, this is not ‘provided on every residential project’.

We also again reiterate, McKenzie Group inspected the project throughout the construction and viewed penetrations throughout structure, framing, rough-in and close-up stages.

Fire Doors and Dampers require a full schedule. There is no legislative requirement for a full schedule of every penetration on the project. If McKenzie Group believe there is, please provide reference of this requirement re BCA 2016.

96. There was no immediate response from McKenzie. The following Monday, 18 March, McKenzie issued the next OC Package. The requirement in item 12 was unchanged.

97. On 20 March, Mr Pratt provided an updated response to the latest version of the OC Package. Against the requirement to provide a full penetration schedule in item 12 he wrote “email 15 March 2019”. The same evening Mr Pratt sent an email to Mr Wilkins and Mr Hughes concerning outstanding items on the project. One of these was item 12 on the OC checklist. Mr Pratt wrote:

Schedule of systems with locations as provided in proforma has been completed. COMPLETE

98. The following morning Mr Wilkins responded with McKenzie’s comments. The comment for item 12 was:

Incomplete as per previous correspondence. Further details required.

99. On 25 March McKenzie issued the next version of the OC Package. The requirement in item 12 was again unchanged.

100. On 26 March RCP issued a formal Principal’s Representative Direction (numbered 56) under the contract. The direction stated:

Further to the ongoing advice from the Principal Certifying Authority (PCA), the Contractor is directed to comply with the following instruction noted by the PCA as required to satisfy BCA compliance condition #12:

“Provide a full penetration schedule nominating systems and locations and provide test reports for all systems used”.

In accordance with clause 4.19(a) and 4.33 of the Principal’s Project Requirement’s (PPR), “it is the Contractor’s responsibility to manage the PCA to procure and obtain all approvals and the Occupation Certificate.”

The Contractor is also required to comply with the Fire Stopping section of the Architectural specification (Section 0182, 1.7 Submissions), which note the following requirements as issued to the Contractor as part of tender documentation:

“Submit a completed certification list and schedule for installed fire-stopped penetrations and control joints.

-   List form: To AS 4072.1 Figure B1.

-   Schedule form: To AS 4072.1 Figure B2”

The above-mentioned list and schedule forms of AS4072.1 are attached for reference, and clearly require the Contractor to maintain an itemised penetration schedule in addition to referencing systems used.

The Contractor is directed to commence with resolving the compliance issue immediately, and to manage the PCA to procure and obtain all approvals and the Occupation Certificate in accordance with its Contractual obligations.

101. On the same day RCP issued a further Principal Representative’s Direction (numbered 57). The direction relevantly stated:

Further to the ongoing advice of the Principal Certifying Authority (PCA), the Contractor is directed to satisfy the remaining outstanding conditions as noted in the latest Occupation Certificate Proforma Package issued by McKenzie Group dated 25th March 2019 and in accordance with the following clauses of the Principal’s Project Requirement’s (PPR):

102. PRD 57 then quoted from PPR cll 4.17A and 4.33 (set out at [79] above) and noted that a number of items in the BCA check list remained outstanding, including item 12.

103. These formal directions were followed by email correspondence between Mr Gladman and Stephen Hughes of RCP about the penetration schedule requirement. This correspondence culminated in the following exchange on 27 March:

Mr Hughes:   It is the Contractor’s responsibility to complete documentation of the works. As fire stopped penetrations have been installed throughout the job, I take it section 1.2 of the spec has been addressed.

The direction is referring to the submission requirements post design i.e. the requirement to submit a completed certification list and schedule for installed fire-stopped penetrations and control joints in the form attached to the direction.

Mr Gladman:   Completion of documentation has nothing to do with it.

The allowance under the contract as you are stating is to schedule pennos as were documented.

Where is it documented?

This is the allowance under the contract.

As for McKenzie Group, we reiterate.

The requirement has always been to provide ‘a schedule of the systems’. This has been previously provided. And McKenzie Group have previously inspected the project throughout its life, inclusive of reviewing penetrations. The requirement only risen recently to have a ‘full penetration schedule nominating systems and locations’ is quite clearly therefore an addition to the contract, not to mention a critical delay to the project from the PCA.

104. There was no further reply from RCP before 29 March when the default notice was issued.

105. In his affidavit evidence, Mr Pearce explained why the compliance certificates, on their own, did not contain all the relevant information, nor bring it together in a convenient form. He stated that the preparation of a penetration schedule of the sort requested by McKenzie in this case is common practice. On the other hand, Mr Pratt stated that in 25 years in the construction industry he had never been required to complete such a schedule.

106. Mr Pratt also said in his affidavit that at the time no one from McKenzie ever informed him that the reports and certificates which had been provided by DK “were in any way inadequate or that more specific testing reports or information was required”. But under cross-examination he conceded that:

(1)   McKenzie had made it clear that the certificates already provided were inadequate, and a further schedule bringing the information together was required;

(2)   McKenzie had made it clear from 14 March that this requirement was non-negotiable;

(3)   Nevertheless, DK was refusing to prepare such a schedule.

107. I was not impressed by Mr Pratt’s evidence on this issue. What he said in his affidavit was plainly incorrect and his evidence under cross-examination was marked by repeated prevarication and stone-walling. I think it is clear that Mr Pratt understood what McKenzie wanted but decided that DK would not comply.

108. Mr Pearce was cross-examined about the issue of the interim occupation certificate in May following the take-out notice. He acknowledged that he considered that the building was safe for occupation and he would not have issued the certificate otherwise. I deal with the significance of this evidence below.

Balustrades

109. The relevant requirement of the BCA is in clause D2.16. That provides:

D2.16 Barriers to prevent falls

(a)   A continuous barrier must be provided along the side of-

…

(iii)   a floor, corridor, hallway, balcony, deck, verandah, access bridge or the like; and

…

If the trafficable surface is 1 m or more above the surface beneath

(c)   A barrier required by (a) must be constructed in accordance with      Table D2.16a.

110. Table D2.16(a) relevantly provides that the minimum barrier height is one metre. Heights are measured “vertically from the surface beneath”.

111. The table also provided under the heading “Barrier Climbability” that:

Any horizontal or near horizontal elements between 150mm and 760mm above the floor must not facilitate climbing.

112. The design for the level 7 balustrades consisted of a railing barrier on top of the outer lip of the balcony. On the balcony side, below the barrier, was a horizontal concrete hob. The top of the hob was 280 millimetres above the surface of the balcony.

260. In my view, this reasoning provides guidance in the present case. Clause 18.2 of the Contract describes the security as “being provided as security for the performance of the Contractor’s obligations under the Contract”. Counsel for DK argued that once the works were taken out of DK’s hands, it was no longer performing any obligations under the Contract, but I cannot agree. DK’s obligation to execute the works ceased, but it was still in contractual relations with Galileo. It still had ongoing obligations, including the provision of the documents it was required to provide under cl 24.2. The contract in the Geraldton case also contained provision for the works to be taken out of the hands of the contractor in certain circumstances, and it is clear from the analysis by Franklyn J at 72-73 that his Honour assumed that this was an ongoing source of potential liability to the Contractor which was intended to be covered by the security. Moreover, as the Full Court held, the security also covered any past breaches of the contract: see at 74.

261. In the Geraldton case counsel for the contractor emphasised that termination of the contract before the date for practical completion would deprive the contractor of the reduction of the security on practical completion and the further release of security when the final certificate was issued. But for the Full Court this was not sufficient reason to read down the reference to the security being for “due performance” of the contract. Counsel for the Contractor had mounted an argument that a term would be implied entitling the Contractor to return of the security in the event of termination. But it had been conceded that, if the Court concluded (as the Full Court did) that the security attached to the obligation to pay unliquidated damages, then the implication could not be sustained.

262. It is easy to see why this concession was made. If the security attached to a claim for damages on termination, then the putative implied term would have flown in the face of the express provisions of the contract. In my view, the position in the present case is similar. Once it is accepted that the security covers liabilities during the period after the take-out notice, as well as accrued liabilities up to that point, the implication contended for becomes impossible.

263. Of course, this does not mean that the security can never be retrieved if the works are taken out of the Contractor’s hands. There may be an implication that, if the works are taken out of the Contractor’s hands, the security must be returned within a time which is reasonable in the circumstances. But it is not necessary to consider this in the present case. It is clear from the evidence that Galileo considers that it has claims against DK and that it intends to pursue them. DK’s contention in these proceedings is that upon the issue of the take-out notice Galileo’s entitlement to hold the security ceases. For the reasons which I have given, I reject that contention.

Conclusions and orders

269. I have concluded that:

(1)   as at the date of the issue of the default notice, 29 March 2019, DK was in default of its obligations under the contract by reason of its suspension of works and its refusal to provide the penetration schedule and raise the level 7 balustrades as required by McKenzie;

(2)   the default notice was validly issued;

(3)   the take-out notice issued on 29 April 2019 was also validly issued;

(4)   Galileo remains entitled to the benefit of the security despite the issue of the take-out notice.

270. It follows that the Contract remains on foot and DK is obliged to provide the penetration schedule and the other documents required under cl 24.2. DK’s cross-claim must be dismissed.

271. Galileo has succeeded in obtaining the relief for which it pressed on its claim in these proceedings. DK’s cross-claim has failed. So far as I can see, there is no reason why costs should not follow the event. Any application for any different order can be made in accordance with the Rules.

272. The orders of the Court are:

1.   Order that the defendant provide to the plaintiff:

(a)   a penetration schedule containing the particulars specified in the plaintiff’s letter to the defendant dated 29 April 2019;

(b)   copies of all contracts with subcontractors employed by the defendant for the purposes of the project referred to in that letter.

2.   Order that the defendant’s cross-claim be dismissed.

3.   Order that the defendant pay the plaintiff’s costs of the proceedings, including the cross-claim.

**********

Amendments

09 September 2019 - inserted images at paragraphs [74] and [83]

10 February 2020 - make typographical amendments

Decision last updated: 10 February 2020