Merym Pty Ltd v Methodist Ladies College - [2009] WADC 125

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: MERYM PTY LTD -v- METHODIST LADIES COLLEGE [2009] WADC 125

CORAM: O'NEAL DCJ

HEARD: 7 AUGUST 2009

DELIVERED : 24 AUGUST 2009

FILE NO/S: CIV 591 of 2009

BETWEEN: MERYM PTY LTD
Plaintiff
AND
METHODIST LADIES COLLEGE
Defendant

Catchwords:

Summary judgment - Building Contract AS 2124 - Construction of terms - Superintendent - Certifying payment - Correcting certificate

Legislation:

Nil

Result:

Appeal allowed

Representation:

Counsel:

Plaintiff: Ms P Cahill
Defendant: Mr S Pentony

Solicitors:

Plaintiff: Jackson McDonald
Defendant: Lavan Legal

Case(s) referred to in judgment(s):

Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1998) 14 BCL 215
Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Harry Smith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21
Thiess Constructions Pty Ltd v Pavements & Excavations Pty Ltd (2000) 16(1) BCL 42

O'NEAL DCJ: This matter comes before me as an appeal from a decision of the Deputy Registrar that granted summary judgment to the plaintiff.
The plaintiff is a construction company. The defendant operates a private girls school. In October 2006, the defendant engaged the plaintiff to build a classroom block.
The form of contract used by the parties included AS 2124 of 1992 for its general conditions. AS 2124 is a reasonably common standard form construction agreement. In these reasons I will refer to the entire agreement, including the general conditions as the "Contract".
The Contract provided, as is common, for the appointment for a Superintendent to perform a number of roles in the administration of the construction contract including as a certifier. In particular, as set out below, the Superintendent is a certifier of claims for payment by the Contractor under the Contract.
By the terms of cl 23 the defendant is to ensure that there is at all times a Superintendent and that in the exercise of the functions of the Superintendent, the Superintendent, among other things acts honestly and fairly. Clause 23 further provides:
"If, pursuant to a provision of the Contract enabling the Superintendent to give directions, the Superintendent gives a direction, the Contractor shall comply with the direction.
In Clause 23 'direction' includes agreement, approval, authorization, certificate, decision, demand, determination, explanation,
…"
One of the matters that the Superintendent had power to give a direction about was the matter of progress payments. Clause 41.1 of the Contract provides, in part:
"At the times for payment claims … the Contractor shall deliver to the Superintendent claims for payment supported by evidence of the amount due to the Contractor and such information as the Superintendent may reasonably require.
…
Within 14 days after receipt of a claim for payment, the Superintendent shall issue to the Principal and to the Contractor a payment certificate stating the amount of the payment which, in the opinion of the Superintendent, is to be made by the Principal to the Contractor or by the Contractor to the Principal. The Superintendent shall set out in the certificate the calculations employed to arrive at the amount and, if the amount is more or less than the amount claimed by the Contractor, the reasons for the difference. The Superintendent shall allow in any payment certificate issued pursuant to this Clause 42.1 … amounts paid under the Contract and amounts otherwise due from the Principal to the Contractor and/or due from the Contractor to the Principal arising out of or in connection with the Contract including but not limited to any amount due or to be credited under any provision of the Contract.
…
Subject to the provisions of the Contract, within 28 days after receipt by the Superintendent of a claim for payment or within 14 days of issue by the Superintendent of the Superintendent's payment certificate, whichever is the earlier, the Principal shall pay to the Contractor or the Contractor shall pay to the Principal, as the case may be, an amount not less than the amount shown in the Certificate …
Payments of moneys shall not be evidence of the value of work or an admission of liability or evidence that work has been executed satisfactorily but shall be a payment on account only, except as provided by Clause 42.8.
…"
Clause 42.8 is not relevant here.
Clause 42.2 of AS 2124 gives an express power to a Superintendent to:
"At any time and from time to time … by a further certificate correct any error which has been discovered in any previous certificate, other than … a Final Certificate."
The contract provided a Date for Practical Completion of this project. Allowing for extensions of time approved by the Superintendent I am told that the Superintendent determined that 28 March 2008 was the Date for Practical Completion. Failing Practical Completion by that date, the contract also provides in its terms for the imposition of liquidated damages to be paid by the plaintiff as Contractor to the defendant as Principal. Again, such terms are common place. Clause 35.6 provides:
"If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor shall be indebted to the Principal for liquidated damages at the rate stated in the Annexure for every day after the Date for Practical Completion…
…
If after the Contractor has paid or the Principal has deducted liquidated damages, the time for Practical Completion is extended, the Principal shall forthwith repay to the Contractor any liquidated damages paid or deducted…"
In this action the plaintiff sues for payment in the amount of $510,100.86. That amount was certified by the Superintendent on about 11 February 2009 by certificate number 27 under the Contract for payment by the defendant to the plaintiff. The certificate concludes "Under the terms of the Contract, payment is due on or before 25 February 2009". In these reasons I will refer to that particular certificate as the "original certificate".
In an affidavit sworn on 13 March 2009, John Graeme Ripp, a director of the plaintiff, swore that the defendant is indebted to the plaintiff in the amount of $510,100.86 and that the defendant has no defence to the plaintiff's claim.
Mr Ripp's affidavit annexes – among other things – the original certificate. In that document after setting out his conclusion as to the amount owing, the Superintendent – strangely – adds, "The certificate does not make any reference to LAD's [liquidated damages] for late completion, this is a matter for MLC [that is, the defendant] to address."
I say strangely because whatever else may be in dispute here, this much seems settled by authority: on the proper construction of cl 42, and in particular cl 42.1 of AS 2124, if an Principal asserts a claim for liquidated damages and wishes the Superintendent to address that offsetting claim in dealing with a claim for payment by a Contractor, it is a matter that the Superintendent may himself address and must bring to account if he is of the view that liquidated damages apply.
Despite the somewhat confusing language of cl 35.6 when contrasted with cl 42.1, unless a Principal asserts a claim to liquidated damages in the context of a claim for payment by a Contractor, the Superintendent need not take liquidated damages into account, much less raise them or refer to them in a certificate for payment. It would be odd if, without the issue having been raised by the Principal, the Superintendent took it upon himself to egg the Principal on with respect to such a claim.
The Principal cannot independently offset a claim for liquidated damages from a claim for payment based on a certificate where the Superintendent has failed or declined to take liquidated damages into account in certifying the amount to be paid: Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1998) 14 BCL 215.
An affidavit sworn by Lorica Storey on 2 April 2009 was filed on behalf of the defendant. In essence she says that the project Superintendent appointed under the Contract determined that the Date for Practical Completion is 28 March 2008. That is, taking into account all extensions of time that according to the Superintendent the Contractor was entitled to under the Contract, the work under the Contract should have been complete by that date. The Superintendent has determined that Practical Completion was only achieved on 21 January 2009. The Superintendent has calculated that as a result of that delay, liquidated damages in the amount of $598,000 are due from the plaintiff to the defendant.
Ms Storey says that she is informed by the Superintendent and believes that:
"7.1The superintendent issued progress certificate number 27 (attachment JGR4 to the Ripp Affidavit) on 11 February 2009 certifying that $510,100.86 was due to the plaintiff, and that the certificate does not make any allowance for liquidated damages for late completion;
7.2The superintendent then corrected progress certificate number 27 on 19 February 2009 under clause 42.2 of the General Conditions of Contract by deducting the liquidated damages payable by the plaintiff to the defendant.
7.3The Corrected Progress Payment Certificate No. 27 certified that the plaintiff was liable to make payment to the defendant in the amount of $147,699.15."
The certificate referred to in par 7.3 of her affidavit is annexed to the affidavit as LS1. This certificate is entitled "Progress Payment Certificate Number 27 - Corrected". In these reasons I will refer to this document as the "corrected certificate". The corrected certificate includes a reference to the plaintiff being indebted to the defendant for liquidated damages in the sum of $598,000 and says "as a result there is a payment due from (the plaintiff) of $149,699". This document also concludes with the words "under the terms of the contract, payment is due on or before 25 February 2009".
A draft defence is annexed to Ms Storey's affidavit and she deposes that she believes the contents to be true and correct. The substance of the defence is that pursuant to cl 42.2 the Superintendent issued the corrected certificate, certifying that a net payment of $147,699.15 was due by the plaintiff to the defendant and that the original certificate "is as a result of no force or effect". Ms Storey deposes however that no defence has been filed in these proceedings because the same matters are in dispute in arbitration proceedings between the parties brought pursuant to the terms of the Contract. No application has apparently been made so far with respect to a stay of these proceedings and I express no view as to the appropriateness or otherwise of granting a stay in the circumstances here.
It appears from the affidavit of Tristan Peter Iredell sworn 11 June 2009 that issues of delay, extensions of time, and the correctness of the Superintendent's decision to correct the original certificate by certifying the deduction of liquidated damages in the sum of $598,000 from the amounts otherwise due is in issue in the arbitration between the parties. The plaintiff's challenge to that assessment by the Superintendent is based, not on any alleged misapprehension by the Superintendent of his power under the Contract, but rather on the alleged failure of the Superintendent to grant to the plaintiff extensions of time totalling 571 days.
This matter comes before me for a hearing de novo. It is for the plaintiff to satisfy me that there is no triable issue. Unless I am satisfied that there is "no real question to be tried" the plaintiff should not have judgment.
On the material before me I am satisfied that there is in fact a substantial issue to be tried and I am left wondering how Mr Ripp could be allowed to swear an affidavit asserting that the defendant "has no defence in this action" unless he was unaware of the corrected certificate issued eight days after the original one.
The submissions filed on behalf of the plaintiff recognise the obstacle presented by the corrected certificate. In the broadest terms, the plaintiff argues the corrected certificate was not validly issued in accordance with the terms of the contract. Although there is a degree of overlap, the plaintiff's submissions attack both the form of the certificate and the circumstances said to underlie the issuing of the two certificates that are said to invalidate the corrected certificate.
Three arguments were advanced for the plaintiff.
The first is that the corrected certificate marked was not in the terms of cl 42.2 "a further certificate". While it was accepted by the plaintiff that Superintendent was permitted to correct an error discovered in a previous certificate on the proper construction of cl 42.2, as I understand the argument, the issue of a further corrected certificate should not invalidate the prior certificate which was the subject of the correction. Properly construed, even where a corrected certificate is issued, under the scheme of provisional payments contemplated by many standard form construction agreements such as AS 2124, whatever adjustment might occur subsequently, once an amount was certified for payment it must be paid. Because the "progress payment certificate number 27 – corrected" attempted to override that provisional payment arrangement it was inconsistent with the terms of cl 42 in that it was not a "further" certificate, and therefore invalid.
I do not accept that argument and I find that the contrary position is at least arguable. Absent a provision like cl 42.2 the submission made on behalf of the plaintiff with respect to the operation of provisional payment arrangements in construction agreements would be correct. Absent the express power to correct a certificate previously issued, the only way to deal with an error or oversight is to bring it to account in a subsequent payment period: Thiess Constructions Pty Ltd v Pavements & Excavations Pty Ltd (2000) 16(1) BCL 42. In this case what that would mean is that if the Superintendent had erroneously failed to take into account liquidated damages when assessing the amount of any progress payment requested by the Contractor, that could only be dealt with by the issue of a payment certificate that effectively operated without reference to the prior certificate and was payable in accordance with cl 42.1 14 days after the issue by the Superintendent of that subsequent certificate.
What that would mean here would be that, having failed to take account of the defendant's offsetting claim for liquidated damages of $580,000, $510,100.86 would be due from the defendant to the plaintiff on 25 February 2009. If an error with respect to the $598,000 was discovered eight days later a further certificate could be issued, so the argument goes, if the certificate was "separate and subsequent". By that means the Superintendent would be entitled to certify $598,000 as owing by the plaintiff to the defendant and, so the argument goes, payable in 14 days. While that might provide an admirable consistency with a provisional payments scheme, it would appear to me to rather defeat the entire purpose of giving the Superintendent power to correct errors as is done in cl 42.2. At the very least it would appear to me to be arguable that the power given by cl 42.2 was meant to correct errors in such a way that, for example in the case of an error that resulted in the contractor being underpaid, it was not necessary for the contractor to wait a further 14 days from the date of the correction in order to get paid. It is at least arguable that the 14 and 28 day period for payment referred to in the fourth paragraph of cl 42.1 are intended to apply with respect to the regular payment claims stated in the Annexure to the Contract and referred to the in the opening lines of cl 42.1, and not to the time for payment of a corrected certificate under cl 42.2. That is an argument that at least warrants full development and the consideration of all relevant contextual evidence.
The second argument advanced for the plaintiff is that the issue of the corrected certificate by the Superintendent was not permitted by the terms of the contract because it did not in fact correct any error or oversight on the part of the Superintendent. The corrected certificate is said to be invalid because the correction it is argued is no more than "an acceptance of a belated challenge by the Principal to the accuracy of the certificate". It is asserted that a dispute of that kind should be dealt with by the dispute resolution provision of the contract.
This submission seizes upon the observation of the Superintendent in the original certificate to the effect that "the certificate does not make any reference to LADs for late completion, this is a matter for MLC to address". The plaintiff argues that this demonstrates a deliberate omission of liquidated damages. That the Superintendent deliberately did not take liquidated damages into account in certifying the amount for payment in the original certificate 27 cannot be doubted. The real question is why he failed to do so.
In Thiess Constructions Pty Ltd (supra) the court unanimously rejected an argument that there should be implied into the provisions of AS2124 term that would allow a principal to make a deduction for liquidated damages from an amount certified to be due under a progress payment certificate. In rejecting that argument McPherson JA and Helman J said, at p 14, that it was not necessary to imply such a term in order to give effect to the intention of the parties or to make the contract workable. They said:
"Despite the fact that cl. 35.6 describes the contractor as being 'indebted' to the principal for liquidated damages for delays beyond the date of practical completion, it cannot be doubted that it is for the principal to decide if he wishes to assert a claim to any such damages and to insist they are deducted from the amount of each progress payment as calculated and certified by the superintendent. If he does not, liquidated damages will not be deducted, if at all, until a later progress claim, or the final claim, is made by the contractor. It does considerably less violence to the words of cl. 35.6 and cl. 42.1 to read the contract in this way than to make the implication contended for by the principal."
I accept that the passage above represents part of the ratio of that decision and is binding upon me. As a matter of law therefore it seems plain enough that the Superintendent was not obliged to take liquidated damages into account in certifying any particular payment unless he was first asked to do so by the Principal. Whether of course the Superintendent then goes on to actually allow an amount for liquidated damages is a matter for the Superintendent exercising his function under AS 2124. On this application there is no evidence as to why the Superintendent said what he did about liquidated damages in the original certificate and no evidence as to why he appeared to change his mind in issuing the corrected certificate.
The plaintiff submits that I should not accept the corrected certificate at face value as having "corrected" an error made in the earlier certificate. The submission is that it was for the defendant to provide evidence by way of affidavit as to the circumstances surrounding the issue of the two certificates.
It is of course the case that where a plaintiff has otherwise complied with the requirements of O 14 a party wishing to show cause against the application assumes an evidentiary burden, although the overall legal burden of persuasion remains upon the applicant: Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd(1997) 143 FLR 18 at 23 (FC). It is trite that the power to order summary judgment is to be exercised with great care and not to be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99.

The plaintiff asks me, in effect, to infer from the absence of explanation from the defendant about the surrounding circumstances as to the issue of the original and corrected certificates that any such explanation would not have assisted the defendant. Putting aside whether drawing an inference of that kind would ultimately help the plaintiff to meet the overall legal burden of persuasion that it carries, the difficulty with that, in my view, is that it relies in the first instance on an inference which the plaintiff seeks to have me draw. That is, I am asked to infer first from the words of the Superintendent in the original certificate that the reason that liquidated damages were not then deducted was because the defendant had not at that point asked for it to be done. With respect, the fact that the Superintendent mentioned liquidated damages at all in the way that he did, and then did not bring them to account at least equally suggests that the defendant asserted a claim to liquidated damages but that the Superintendent (perhaps confused by the language of cl 35.6) misapprehended the manner in which liquidated damages could or should be dealt with. According to the affidavit filed on behalf of the defendant, the corrected certificate was issued on 19 February 2009 under cl 42.2 of the general conditions of the contract. That ultimately is where the evidence lies.
It was not contended on behalf of the plaintiff that the power to correct under cl 42.2 was limited to, for example, mistakes arising from arithmetical calculations. In my view it is at least arguable that the words used in cl 42.2 "any error which has been discovered in any previous certificate" extends to an error induced by misapprehension on the part of the Superintendent as to the manner in which he is obliged to deal with liquidated damages in certifying payment pursuant to cl 42.1.
A submission included by the plaintiff in its written outline is that:
"In truth, the Superintendents purported 'correction' of 'amendment' of Progress Payment Certificate No. 27 is a belated attempt by the Principal to:
(a)to challenge the accuracy of the certificate; and/or
(b)mount an off-setting claim to the plaintiff's entitlement to payment for work performed under the contract.
In fact, the appropriate means to make any such claim and have it resolved is via clause 47 i.e. the dispute resolution clause."
Clause 47.1 AS 2124, urged on me by the plaintiff's submission, provides as follows:
"If a dispute between the Contractor and the Principal arises out of or in connection with the Contract, including a dispute concerning a direction given by the Superintendent, then either party shall deliver by hand or send by certified mail to the other party and to the Superintendent a notice of dispute in writing adequately identifying and providing details of the dispute."
On the evidence before me this has not occurred with respect to either the original certificate or the corrected certificate. Both would constitute a direction "under the terms of AS 2124" and both would be open to challenge in the arbitration proceedings.
It is the case that the Superintendent is appointed by the defendant. However there is no suggestion, other than perhaps by this attack on the corrected certificate, that the Superintendent has failed to conduct himself other than honestly and fairly in accordance with the provisions of cl 23. There is no evidence of enquiries of the Superintendent by the plaintiff nor explanation by the plaintiff, if it be the case, as to why it has not made enquires or failed to institute the dispute resolution provisions provided for by cl 47 with respect to the issues raised on this application.
One way of testing the submission made on behalf of the plaintiff is to consider what the position would have been had the Superintendent said nothing on the subject of the liquidated damages in the original certificate and then, eight days later, as Ms Storey says in her affidavit, "then corrected progress certificate number 27 … under clause 42.2 of the General Conditions of Contract, by deducting the liquidated damages payable by the plaintiff to the defendant".
In those circumstances I would have had no difficulty in concluding that the corrected certificate raised a triable issue. The question is, do the words used by the Superintendent with the respect to the position he was taking as to liquidated damages in the original certificate make any difference? In my view they do not. The words used in the original certificate do not assist me in any way in understanding why the Superintendent did not then take liquidated damages into account. I am left with competing certificates, arguably validly issued under the terms of the contract the second of which negates the first.
In HarrySmith Car Sales Pty Ltd v Claycom Vegetable Supply Co Pty Ltd (1978) 29 ACTR 21 at 22, Blackburn CJ considered a similar position under the analogous Rules of the Supreme Court of the Australian Capital Territories. He said:
"…it is, in my opinion, entirely contrary to principle to allow a plaintiff, in an application under O 15, where the evidence shows a defence to the statement of claim, to anticipate an issue which could arise only if the plaintiff were to deliver a reply. The essence of O 15 procedure is the verification by the plaintiff of his own statement of claim. Such verification may be the basis of leave to sign judgment if the defendant does not show a genuine possibility of defence, of fact or of law, to the claim that is pleaded. If the defendant does show such a possibility, the limit of the scope of O 15 procedure has been reached…"
In my view that is the position that this matter has reached. In defence of the plaintiff's claim based on the original certificate the defendant has put into evidence a corrected certificate which on its face appears to raise at least an arguable defence. The plaintiff wishes to assert that on the proper construction of the terms of AS 2124 the corrected certificate is not valid in form and alternatively that as a matter of fact the issue of the corrected certificate was not a valid exercise of the Superintendent's authority. Those are matters which properly belong in a reply.
A third argument advanced on behalf of the plaintiff is that the corrected certificate was not issued in accordance with the terms of the contract because it required the plaintiff to pay the defendant an amount of money within a period of time less than the 14 days provided under cl 42.1 of the General Conditions. With respect that would appear to be the first argument re-stated.
In my view, strictly speaking it is probably unnecessary for a Superintendent to say anything about the time for payment. That is provided for expressly by cl 42.1. In any event however it seems to me to be arguable that the whole point of giving the Superintendent power to correct a certificate is to ensure that the correction relates to the prior payment claim period so that, for example, a party is not further kept out of money that it should have received earlier.
There is in my view no merit in the plaintiff's submissions. The power of the Superintendent to correct a certification previously made is expressly given by cl 42.2. The power of a Superintendent to offset liquidated damages claims from payments sought by a Contractor is authoritatively settled by the cases that I referred to earlier in these reasons. There is nothing in the evidence before me that leads me to conclude that the defendant does not have at least an arguable defence to the plaintiff's claim.
The appeal is allowed and the plaintiff's application for summary judgment is dismissed.
I will hear from the parties with respect to costs.