Martinek Holdings Pty Ltd v Reed Construction (Qld) Pty Ltd

[2010] HCATrans 52

[2010] HCATrans 052

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane     No B49 of 2009

B e t w e e n -

MARTINEK HOLDINGS PTY LTD (ACN 106 533 242)

Applicant

and

REED CONSTRUCTION (QLD) PTY LTD (ACN 010 871 557)

Respondent

Application for special leave to appeal

CRENNAN J
KIEFEL J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE

ON FRIDAY, 12 MARCH 2010, AT 1.31 PM

Copyright in the High Court of Australia

MR P.J. DUNNING, SC:   May it please the Court, I appear with my learned friend, MR G.D. BEACHAM, for the applicant.  (instructed by McInnes Wilson Lawyers)

MR J.K. BOND, SC:   May it please the Court, I appear with my learned friend, MR M.D. AMBROSE, for the respondent.  (instructed by Holding Redlich Lawyers)

CRENNAN J:   Yes, Mr Dunning.

MR DUNNING:   Thank you, your Honours.  Your Honours, the application for special leave concerns the Building and Construction Industry Payments Act, an Act that has equivalent in most other jurisdictions in the Commonwealth.  It is an Act that, it can uncontroversially be submitted, has as its intention during the life of a building contract to ensure that progress payments are duly made to the builder to ensure that there is a flow of funds to allow the building to progress.

CRENNAN J:   Just on that question of there being cognate legislation in other places and generally on the issue of whether there is a question of public importance, I notice there seems to be a distinct difference of opinion as to whether the contract in question is a standard form contract, and certainly in the John Holland Case there was no equivalent of clause 37.4(d), and I just wondered what your present position is in relation to that aspect of the application.

MR DUNNING:   Certainly, your Honour.  May I deal with the nature of the standard form contract first of all.  May I ask your Honours please to go to the applicant’s bundle of documents and may I ask your Honours please to go to tab 4 on the bottom of page 29 where your Honours will see 37.4 in its standard form, and then if we ask your Honours please to go to tab 5 which is on page 31 in that same bundle, your Honours will see at clause 2.18, “At clause 37.4, insert a new paragraph after (d) with the following”, so that to the extent there was any alteration to 37.4, it was in a way that was irrelevant to the proceedings below or the application for special leave.

Your Honour, on the topic of general importance, what appears in tabs 6, 7 and 8 are other Australian standard form contracts.  If I could take your Honours please to tab 6, that is AS4902 of 2000.  Your Honours will see on the foot of page 33 and going over to the 34 materially identical provisions, and the same may be said for AS4901, which your Honours will see on page 35 starting at about point 4 on the page.  Under tab 8 at page 36, starting at about point 3 or point 4 on the page, again materially identical, that is for AS4906.  The last in the illustrations we give is tab 9, AS2124.  It is slightly differently expressed, but between about lines 10 and 35 there is the same conception that there will be a final accounting at the end, at which point the payments on account during the life of the building contract will be subsumed in a final account.  We would make those submissions in answer to Justice Crennan’s first question.

CRENNAN J:   Yes, thank you.

MR DUNNING:   Thank you, your Honour.  As to John Holland, your Honour, yes, the clause was differently expressed, but the question of principle that is provoked about what is finality for the purpose of section 100 of the Queensland Act, or any of its analogues, is not, in our respectful submission, affected by the fact that in that particular case it was expressed in that different language.

KIEFEL J:   Is it really a question of construction or a question of the application of the facts to a fairly straightforward provision?

MR DUNNING:   In our respectful submission, your Honour, it is not simply a question of construction.  True it is the question of construction arises first.  A question of construction, in our respectful submission, will always arise first when considering whether section 100 has been engaged.

KIEFEL J:   What I am really saying to you, is it a pure question of construction or is it really particularly fact dependent?

MR DUNNING:   In our respectful submission, your Honour, it is not particularly fact dependent.  It is the proper legal construction of these standard provisions.

CRENNAN J:   As to the facts, there was a notice given, was there not, disputing the final certificate within the time contemplated by the contract which prima facie looks like it comes within that fourth exception under clause 37.4?

MR DUNNING:   Yes, your Honour, to both questions.  A notice of dispute was given within time and it did engage the fourth paragraph of 37.4.  The construction question that is raised though is, did that have the operation which the Court of Appeal held that it did so that, in effect, you create this intermediate contractual state, in our respectful submission.  You have a situation where during the life of the contract progress claims might be made and paid on account, and that is still under 37.2, and it runs alongside the statutory regime, and then you have the making of a final claim, and nobody suggests that the final claim was not properly dealt with under 37.4, is the fact that it is disputed something that takes away from its finality, and that is the question.

So thus, in our respectful submission, the special leave question that arises is, what are the relevant considerations to ascertain whether a determination under the contract ruled by the operation of section 100 of the Payments Act supersede an adjudication under that Act.  Your Honours, in our respectful submission, given the large amount of commerce in Australia that occurs under this standard form of contract and similar ones, such as I have taken your Honours to, and the necessary interaction of those contracts with the Payments Act in Queensland and as analogues interstate, it is a matter that raises a question of law of sufficiently wide import to justify a grant of special leave.

Your Honours, as to the operation of section 100 up to the point of the special leave question that we respectfully submit falls to be determined, there is very little controversy certainly between this side of the bar table and the reasons in the Court of Appeal.  Can I ask your Honours briefly to take up Justice Keane’s reasons in the Court of Appeal, first of all, your Honours, at page 16 in the application book in paragraph [7].  Justice Keane in the second sentence records:

To that end the Payments Act establishes a procedure for the making and adjudication of progress claims.

Then in paragraph [8]:

By virtue of s 99 of the Payments Act, it is not permitted for parties to a construction contract to agree that the Payments Act shall not apply, but s 100 of the Payments Act ensures that the adjudication of progress claims does not prevent the parties from finally resolving their entitlements inter se under the contract in a court or otherwise in accordance with law.

Then if we may ask your Honours please to go to page 19 of the application book in paragraph [15] in the first sentence where his Honour records:

It may be accepted that the final settling of accounts between contractor and principal established under the terms of the contract may supersede the interim adjudications effected under the Payments Act –

His Honour goes on to say that on the view taken in the Court of Appeal and below that did not occur because of the operation of 37.4(d).  Then in paragraph [16]:

It may be accepted that s 100(1)(a) of the Payments Act provides that the rights conferred by the Payments Act upon a party who has the benefit of an adjudication decision must ultimately yield to “any right that a party to a construction contract may have under the contract”.  But under the terms of cl 37.4(d) of the contract, the superintendent’s certification has not yet come into effect to entitle Martinek to refuse payment of the adjudication amount, save insofar as the sum of $72,027.27 may properly be set off against the adjudication amount.

As I made a submission a moment ago, that is largely uncontroversial.  The only extent to which it might be said that it is controversial between the parties is in a way that might be observed in our learned friend’s written submissions in this Court.  May we ask your Honours please to go to page 38 of the application book and go to subparagraph 12(c) of our learned friend’s written submissions where in the last sentence of that subparagraph:

The Payments Act explicitly treats the adjudication outcome as an interim one capable of being overturned by subsequent legal process.

In our respectful submission, that is a more confined approach to the matter than that expressed by Justice Keane which in turn contemplated that as a result it could be achieved by contractual means.  We will come shortly why, in our respectful submission, there is some significance in that distinction.  Your Honours, that being the operation of section 100 up to that point, it then necessarily provokes the inquiry as to what are the circumstances in which section 100 of the Act is engaged. 

Your Honours will see section 100 in a number of places, but conveniently your Honours might find them at the application book page 29 set out in paragraph 14.  Your Honours will see that what the section relevantly provides in subsection (1) is that:

Subject to section 99 –

which, in effect, preserves and makes it unable to be contracted out of the entitlements to progress payments under the Act –

nothing in part 3 affects any right that a party to a construction contract –

(a)may have under the contract; or

. . . 

(c)may have apart from this Act in relation to anything done –

which is sufficient for our purposes, and then at subsection (2) –

Nothing done under or for part 3 affects any civil proceedings arising under a construction contract –

So the question is, when is section 100 engaged for contractual purposes, is what this case concerns.  When is section 100 engaged such that the progress payment regime under the Payments Act, which has had the operation of overriding the contract during its life, cease to have that effect because under the contract a point has been arrived where the earlier adjudications are superseded by that contractual mechanism?  In our respectful submission, that raises the question of, when is something final for such a consideration.

CRENNAN J:    But you have still got to grapple, have you not, with the plain words of 37.4(d)? 

MR DUNNING:   Yes.

CRENNAN J:    The real nub of what the Court of Appeal has said, which is problematic for you, is to be seen in paragraph [17] of the judgment of Justice Keane on application book page 19, because I think the arguments dealt with there by Justice Keane are being repeated now before us in relation to 37.4(d).

MR DUNNING:   Yes.  Your Honours will have seen from our written outline that, in our respectful submission, the approach taken by the Court of Appeal to the construction of the three relevant paragraphs of 37.4 was an erroneous one that each of those subparagraphs has a specific job to do.  We would not, with respect, agree with the characterisations of our submissions in the Court of Appeal the way they proceed in the judgment.  We do not go as far as to say that, in effect, the fourth paragraph is divorced from the second and the third.  But what we do respectfully submit – I am sorry, Justice Crennan.

CRENNAN J:   I was going to say, all four are exceptions, are they not, in relation to whether or not that final certificate is conclusive evidence?  They all operate in a similar way, do they not?  They cover different subject matter, but they are all exceptions.

MR DUNNING:   Your Honour is speaking of those that are nominated as (a) to (d) in the fourth paragraph?

CRENNAN J:   Yes.

MR DUNNING:   Yes, your Honour, they are all exceptions according to their particular terms, yes.  But, your Honour, the operation of that paragraph, in our respectful submission, on a fair reading of its language, it is directed at providing conclusive evidence of the accord and satisfaction and the discharge of each party’s obligations such that once that part of the fourth paragraph is engaged, there is nothing left to be litigated, the parties are freed from all of their rights and obligations under the contract, save in those four enumerated circumstances.  So that the operation of that fourth paragraph, relevant to the issue of this particular application, is to say that unless you move within time to put in a notice of dispute, you cannot raise any disputes and you are limited, in effect, to those disputes that you do raise for that reason, because otherwise the provision will operate as in accord and satisfaction in relation to anything else. 

The second and third paragraphs, in our respectful submission, have a different operation; it is related, but it is different.  The second paragraph is designed to arrive at the moneys finally due and payable between the contractor and principal on any account whatsoever.  So that is, it is to subsume the payments on account that have occurred to date into the final certificate issued by the superintendent by which he gives a certificate which evidences those moneys that are said to be finally due and determined on any account whatsoever.  It quantifies that sum.  The third paragraph, its operation is to determine when that sum is to be paid and identify it as a debt, and the character of that debt is obviously the one reflected in the paragraph.  Then the fourth paragraph has the operation which I have outlined to your Honours. 

Your Honours, the error in the construction and the reasons why, in our respectful submission, it is an appropriate case for a grant of leave really can be illustrated best by the fact that the Court of Appeal’s approach to the matter is to say that the $72,000 that the superintendent arrived at can be pursued by Martinek and can be set off against the adjudicated amount by the adjudicator.  Now, those two amounts each assume the non‑existence of the other.  Each purport to be, in the circumstances of this matter and any matters like it, the final amount owing under the contract.

CRENNAN J:   There is about $1 million difference between them, is there not?

MR DUNNING:   There is about $1 million difference and they arrive at a figure, on the Court of Appeal’s reasoning, that nobody supports.  So in the Court of Appeal’s reasoning $800,000‑odd is paid by us.  That is not contended for by Mr Bond’s side, it is not contended for by our side, and it is because you end up with this irrational set off, in our respectful submission, because you set off two figures that necessarily assume that the other does not exist and that is why, in our respectful submission, the

construction is wrong and the approach to section 100 is wrong, because you end up in this, in effect, contractual and statutory twilight zone where, on the issue of the final certificate, all of a sudden you do not look at the matter just as being on account.

You can set off these two figures in a way that it would never have been possible to do so and it creates these problems.  What if the dispute procedure in clause 42 of the contract is not pursued or is abandoned?  What does a party in the position of Martinek then do?  Apply for a declaration that the procedure has come to an end or if the mediation and meetings are unsuccessful, the party who wishes a notice of dispute litigates the claim and its claim is dismissed, on the Court of Appeal’s reasoning that alone would not be sufficient; something more would be required. 

That is why our learned friends say, legal process is required to determine the matter, and the distinction between that and Court of Appeal’s approach of it being also possible under the contract is a matter of some relevant distinction.  The relevant distinction, the point our learned friends make in that regard, is to recognise this very difficulty, that otherwise the dispute procedure could simply stall and the position of the final certificate would be left in limbo.  In our respectful submission, the better analogy is to interlocutory and final judgments of the Court – thank you, your Honours.

CRENNAN J:   Thank you, Mr Dunning.  We do not need to trouble you, Mr Bond. 

We are not persuaded that the judgment of the Court of Appeal is attended by sufficient doubt such as to warrant a grant of special leave.  Special leave is refused with costs.

AT 1.52 PM THE MATTER WAS CONLUDED