Southern Region Pty Ltd v State of Victoria (No 3)
[2001] VSC 436
•23 November 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
BUILDING CASES LIST
No. 6457 of 2001
| SOUTHERN REGION PTY LTD (ACN 004 770 085) | Plaintiff |
| v | |
| THE MINISTER FOR POLICE AND EMERGENCY SERVICES FOR AND ON BEHALF OF THE STATE OF VICTORIA | Defendant |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 28 September 2001 and 1 November 2001 | |
DATE OF JUDGMENT: | 23 November 2001 | |
CASE MAY BE CITED AS: | Southern Region Pty Ltd v State of Victoria (No.3) | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 436 | |
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Building contract – Final Payment Claim – summary judgment application – whether Final Payment Claim supported by evidence of the amount due – whether Principal liable to pay the amount claimed in a Final Payment Claim where no Final Certificate issued within time – effect of Final Certificate issued out of time.
AS2124-1992 cll. 42.1, 42.7, 42.8
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Dr C.L. Pannam QC and Mr M.G. Roberts | Deacons |
| For the Defendant | Mr P.N. Vickery QC and Mr F.J.J. Tiernan | Minter Ellison |
HIS HONOUR:
On 26 October 2001 I published my reasons[1] in an application brought by the plaintiff, Southern Region Pty Ltd (“the Contractor”) seeking summary judgment against the defendant, the Minister for Police and Emergency Services for and on behalf of the State of Victoria (“the Principal”), for an uncertified Final Payment Claim for $7,698,951. In that judgment I summarised the circumstances which gave rise to the claimed entitlement and identified four issues which fell for determination to the degree of satisfaction required upon such an application. I will not here rehearse these circumstances. The four matters in issue were the following:
1.Was the Contractor entitled to submit a Final Payment Claim on 15 or 17 May 2001 given that a separate defects liability period which was established on 13 May 2001 had not expired?
2.Was the Final Payment Claim in form ineffective?
3.Does the default procedure for payment under cl. 42.1 apply to a Final Payment Claim?
4.Is the liability of the Principal under the default payment procedure affected by the subsequent issue of a Final Payment Certificate?
[1][2001] VSC 381.
I determined that there was no triable issue with respect to the first matter; the Final Payment Claim was not premature.
With respect to the second matter, I concluded that the formal requirements of a payment claim specified in the first paragraph of cl. 42.1 apply to a Final Payment Claim. The requirement that the claim be supported by evidence of the amount due is satisfied where this evidence has been provided to the Superintendent with the claim or prior to the claim. The Final Payment Claim in this case, delivered to the Superintendent on 17 May 2001, comprised a table containing 11 items, each with an amount of money claimed.[2] No further detail or evidence accompanied the claim. Counsel on behalf of the Contractor sought to overcome this deficiency by contending that the evidence required by the first paragraph of cl. 42.1 had been provided in the previous progress payment claim 30, which had been submitted to the Superintendent on 30 June 2000, and which claim was substantially rejected by the Superintendent in progress payment certificate 32. Four of the items in the Final Payment Claim, however, differed from those in progress payment claim 30. It was then put on behalf of the Contractor that sufficient evidence of these four amounts sought in the Final Payment Claim was contained in the points of claim filed and delivered in the arbitration between the Principal and the Contractor. Having considered the evidence and submissions on this matter, I concluded that there was a triable issue as to whether these pleadings in the arbitration had been delivered to the Superintendent before the Final Payment Claim was submitted on 17 May 2001. Accordingly, I concluded that there was a triable issue as to the validity of the Final Payment Claim and that the summary judgment application should fail.
[2]The claim is set out in my October judgment at [2001] VSC 381 at [28].
Since publishing these reasons, and before I had formally pronounced any order dismissing the Contractor’s application, my attention has been drawn to a piece of evidence which uncontrovertibly shows that the Contractor’s points of claim in the arbitration were sent to the Superintendent on 2 April 2001 by the solicitors for the Contractor. This evidence is an unchallenged notice to admit in this proceeding sent on 14 August 2001. Each of the parties has now invited me, in these circumstances, to revisit my conclusion with respect to the second matter in issue and to consider the third and fourth matters. I indicated that I would do so and, having done so, I publish these supplementary reasons in the Contractor’s application for summary judgment. They should be read in conjunction with my earlier October judgment.
Was the Final Payment Claim Effective ?
Accepting that it is sufficiently clear that the points of claim in the arbitration were in the hands of the Superintendent before the Final Payment Claim of 17 May 2001 was received, the question becomes whether this material is sufficient to satisfy the requirements of the first paragraph of cl. 42.1 that the claim be “supported by evidence of the amount due to the Contractor”.
I mention, only to reject it, a supplementary submission put on behalf of the Principal that it was not sufficient that this material be forwarded by the solicitor for the Contractor, rather than by the Contractor itself. The commercial objective of the provision in question is that the Superintendent have material which permits the processing of the claim and the issue of a certificate within the fairly tight time frame provided in the second paragraph of cl. 42.1. The mere fact that the material, in other respects adequate, may have been provided by an agent of the Contractor cannot be significant.
The amounts sought in items 3, 5, 6 and 11 of the Final Payment Claim differ from the comparable items in previous progress claims and the evidence in support of these amounts cannot be found in these earlier claims. In his affidavit sworn 24 July 2001, Andrew George Smale, the Principal’s representative, identified those parts of the amended points of claim in the arbitration where the amounts claimed in items 3, 5 and 6 are to be found with detail as to their calculation. After examining this material I conclude that it satisfies the requirements of the first paragraph of cl. 42.1 with respect to those three items.
This leaves only item 11, “Costs - $102,507.10”. Of this item Mr Smale says this:
“This sum appears to refer to the costs incurred by the [Contractor], payable to Tracey Brunstrom and Hammond Pty Ltd, as part of the [Contractor’s] precast variation claim. In this regard I refer to paragraph 113 of the witness statement in chief of David Lindsay Swan in the Arbitration where he refers to the [Contractor] incurring this cost.”
Mr Lovett’s affidavit of 25 July 2001 does not deal with this item.
For the reasons set out in my judgment of October, I am unable to conclude that the witness statement of Mr Swan was in the hands of the Superintendent on or prior to 17 May 2001 when the Final Payment Claim was lodged.
When the matter returned before me on 1 November 2001, counsel for the Contractor offered a further submission that I should find the Superintendent was in possession of the necessary material because he wrote to the Contractor on 24 June 2001 rejecting the Final Payment Claim as premature. The Superintendent in this letter added:
“I also gather that those claims, ultimately in the amount of $7,698,951, replicate your earlier payment claims already assessed and certified by me in the sum of $1,180,570 payable by you to the Principal. You are presently disputing my assessment of those claims in your arbitration with the Principal.”
I reject this further submission on the basis that the use of the expression “I also gather” falls far short of a statement of fact. In any event, the assertion itself is factually incorrect, so that it provides no basis for the suggested conclusion. Finally, I am not confident of its evidentiary value since the Superintendent is not a party to this proceeding.
As things stand, therefore, I am satisfied to the standard required for a summary judgment application that the Contractor’s claim for $7,698,951 was received by the Superintendent on 17 May 2001 and that, on that date, the Superintendent had sufficient supporting evidence of the amounts sought in seven of the eight items claimed. The unsupported item is for a little over $102,500. The question then becomes whether this renders the whole claim ineffective. Insofar as this and other submissions put in this application require me to form a concluded view upon matters of construction of the written agreement, I am content to do so notwithstanding that this is a summary judgment application. I have heard a full argument on this as on other points of construction, so that I am able to reach conclusions on these questions of law.
I approach the question presently before me from the position that the procedures for certification, both progressive and final, in cl. 42.1 carry with them serious consequences for the parties. This leads to the conclusion that a strict approach should be taken to their construction[3]. These considerations have even more force where the procedure is leading to a Final Certificate for, as will be seen, the consequences of this are more significant for the parties than those flowing from progress payment certificates.
[3]At least with respect to the provisions with respect to payment, deductions and set-off: Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd [1995] 2 Qd R 521 at 527, per McPherson J. See Daysea Pty Ltd v Watpac Australia Pty Ltd [2001] QCA 49 at [19].
The second aspect is that the Superintendent has only a limited time under the second paragraph of cl. 42.1 to process the payment claim and to issue the payment certificate. It is true that the Superintendent has the power to require the Contractor to provide information with respect to the claim, but the first paragraph imposes upon the Contractor the responsibility, itself to put forward its claim supported by evidence. It may be supposed that it is the Contractor which is in the best position to provide this material, particularly as it is the Contractor who has decided to make the claim in the first place and to do so in a particular amount.
A further consideration is the possible consequence to the contracting parties of a failure to provide this supporting evidence. It may be supposed that where the Contractor fails to justify a claim the Superintendent might properly reject it, giving this as a reason as required by the second paragraph of cl. 42.1. The submission put on behalf of the Principal in this case, however, would go further. For want of material in respect of one component of the claim, the whole claim is ineffective. In the case of a progress claim, this may not be of great significance, for a properly documented claim may be submitted in the following month or the Superintendent may, in any event, issue a payment certificate under the third paragraph of cl. 42.1. Even so, where the Superintendent, relying upon an insufficiency of supporting evidence, concludes that a progress payment claim is ineffective and declines to issue a certificate, this may expose the Principal to the risk of a claim under the fourth paragraph of cl. 42.1 for payment of the amount sought by the Contractor in the impugned progress payment claim.
The scheme of cl. 42.1 is that the payment claim is a single claim notwithstanding that it may contain individual components each of which is itself a claim for payment.[4] The first paragraph requires that the amount of this payment claim be supported by evidence. Where it is not, the payment claim is ineffective. Whether this consequence flows from a want of evidence in support of one or more items which together produce the “amount due to the Contractor” will depend upon the significance of the item or items in the totality of the claim. One, but perhaps not the only aspect of this significance, will be the relationship between the amount of the item and the amount of the claim, or the amount of that part of the claim which the Superintendent is required to assess.
[4]Compare “any claim” in cl. 42.7, third paragraph and in cll. 42.6 and 42.8.
In the present case the amount of the Final Payment Claim is about $7.7M. This represents a claim for payment for work of a total claimed value of $27.8M of which most had been previously claimed and allowed. The unpaid claimed amount is about $6.5M. Of this sum, about $5.6M had been previously claimed in progress payment claim 30 and rejected, the difference being found in items 3, 5 and 6 in the Final Payment Claim. In round figures, these items are greater than those included in payment claim 30 by about $1.28M, made up as follows:
Item 3 VGR1 $21,000 Item 5 Precast Concrete ($40,000) Item 6 Delay and Disruption $1,300,000 These are the Contractor’s items upon which the Superintendent was required to form a view within the period for certification. There are two further items which were not supported by evidence: item 10 relating to the interest calculation of $1.1M, and item 11 pertaining to costs of $102,107.
In terms of the task of the certifying Superintendent, the new claim under item 11 represents about 10 percent of the further claims in Items 3, 5 and 6. The new claim is expressed in a way that sheds no light on the nature of the amount claimed. Accepting as I do that the claim for interest is essentially a matter of principle and, putting to one side any Principal’s items to which the Superintendent must have regard in forming an opinion as to the amount finally due, I am unable to be satisfied that Item 11 is so insignificant that the failure to provide any supporting evidence might be disregarded. I conclude that there is a triable issue that the Contractor’s payment claim of 17 May 2001 failed to satisfy the requirements of the first paragraph of cl. 42.1 and is therefore ineffective.
This conclusion carries with it the consequence that there is a triable issue that the failure of the Superintendent to issue a certificate within time cannot bring into play the provisions of the fourth paragraph of cl. 42.1. Accordingly, the Contractor’s application for summary judgment must fail.
Nevertheless, in case this conclusion should not stand, and in deference to the arguments put on behalf of the parties, I shall deal with two remaining issues in this application.
Does the Default Procedure for Payment under Clause 42.1 Apply to a Final Payment Claim?
I set out below the first five paragraphs of cl. 42.1:
42.1Payment Claims, Certificates, Calculations and Time for Payment
At the times for payment claims stated in the Annexure and upon issue of a Certificate of Practical Completion and within the time prescribed by Clause 42.7, 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. Claims for payment shall include the value of work carried out by the Contractor in the performance of the Contract to that time together with all amounts then due to the Contractor arising out of or in connection with the Contract or for any alleged breach thereof.
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 or any Final Certificate issued pursuant to Clause 42.8 or a Certificate issued pursuant to Clause 44.6, 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.
If the Contractor fails to make a claim for payment under Clause 42.1, the Superintendent may nevertheless issue a payment certificate.
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 as due to the Contractor or to the Principal as the case may be, or if no payment certificate has been issued, the Principal shall pay the amount of the Contractor’s claim. A payment made pursuant to this Clause shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under Clause 47 or as otherwise agreed) of the amount so properly due and payable, the Principal or Contractor, as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable.
Payment 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
The sixth and seventh paragraphs of this clause in AS2124-1992 were replaced in the contract by different terms dealing with the pricing of variations.[5] The eighth paragraph is not relevant for my purposes.
[5]See Annexure 1 cl. B2.8.
The three paragraphs of cl. 42.7, the three paragraphs of cl. 42.8, as well as cl. 42.9 are set out below:
“42.7 Final Payment Claim
Within 28 days after the expiration of the Defects Liability Period, or where there is more than one, the last to expire, the Contractor shall lodge with the Superintendent a final payment claim and endorse it ‘Final Payment Claim’.
The Contractor shall include in that claim all moneys which the Contractor considers to be due from the Principal under or arising out of the Contract or any alleged breach thereof.
After the expiration of the period for lodging a Final Payment Claim, any claim which the Contractor should have made against the Principal and has not made shall be barred.”
42.8 Final Certificate
Within 14 days after receipt of the Contractor’s Final Payment Claim or, where the Contractor fails to lodge such claim, the expiration of the period specified in Clause 42.7 for the lodgement of the Final Payment Claim by the Contractor, the Superintendent shall issue to the Contractor and to the Principal a Final Payment Certificate endorsed ‘Final Certificate’. In the certificate the Superintendent shall certify the amount which in the Superintendent’s opinion is finally due from the Principal to the Contractor or from the Contractor to the Principal under or arising out of the Contract or any alleged breach thereof.
Unless either party, either before the Final Certificate has been issued or not later than 15 days after the issue thereof, serves a notice of dispute under Clause 47, the Final Certificate shall be evidence in any proceedings of whatsoever nature and whether under the Contract or otherwise between the parties arising out of the Contract, that the Works have been completed in accordance with the terms of the Contract and that any necessary effect has been given to all the terms of the Contract which require additions or deductions to be made to the Contract Sum, except in the case of -
(a)fraud, dishonesty or fraudulent concealment relating to the Works or any part thereof or to any matter dealt with in the said Certificate;
(b)any defect (including omission) in the Works or any part thereof which was not apparent at the end of the Defects Liability Period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the Final Certificate; or
(c)any accidental or erroneous inclusion or exclusion of any work, plant, materials or figures in any computation or any arithmetical error in any computation.
Within 14 days after the issue of a Final Certificate which certifies a balance owing by the Principal to the Contractor, the Principal shall release to the Contractor any retention moneys or security then held by the Principal.
42.9 Interest on Overdue Payments
If any moneys due to either party remain unpaid after the date upon which or the expiration of the period within which they should have been paid then interest shall be payable thereon from but excluding the date upon which or the expiration of the period within which they should have been paid to and including the date upon which the moneys are paid. The rate of interest shall be the rate stated in the Annexure and if no rate is stated the rate shall be 18 percent per annum. Interest shall be compounded at six monthly intervals.”
Pursuant to the fourth paragraph of cl. 42.1, where the Superintendent fails to issue a payment certificate within 14 days after a claim for payment is submitted, “the Principal shall pay” the amount of the Contractor’s claim. There can be no doubt that this obligation to pay arises where the uncertified claim is a progress payment claim[6] It was submitted on behalf of the Contractor that this result follows equally where the claim for payment is a Final Payment Claim lodged with the Superintendent pursuant to cl. 42.7. This derives considerable support from the references in the first paragraph of cl. 42.1 to the time within which the Final Payment Claim must be lodged and to references to the Final Payment Claim in the second and fifth paragraphs of cl. 42.1. It was put that it followed that, as a matter of construction, the fourth paragraph of cl. 42.1 was equally applicable to a Final Payment Claim. It was pointed out that this, the fourth paragraph, contained the obligation to make payment, an obligation which is not found in cl. 42.8. Accordingly, it was put, reference must be made to the fourth paragraph of cl. 42.1 in order to find this obligation and, furthermore, to fix the date upon which the obligation arises. This date is important to fix the date for the commencement of the interest obligations pursuant to cl. 42.9 and the right of the creditor party to have recourse to retention moneys pursuant to cl. 42.11.[7]
[6]Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1997) 14 BCL 215 at 219, per Rolfe J (NSW).
[7]Modified in this contract by Annexure 1 cl. B2.9.
The scheme of cl. 42.1 provides for the issue of a certificate by the Superintendent within 14 days after receipt of a claim for payment[8] and for payment by the Principal of the certified sum or the amount claimed within 28 days after receipt by the Superintendent of the claim or within 14 days after the issue of the certificate, whichever is the earlier.[9] In Daysea Pty Ltd v Watpac Australia Pty Ltd[10] the Court of Appeal in Queensland was confronted with a case which arose out of the very similar provisions of AS4300-1995. In that case, the Superintendent failed to issue a progress payment certificate within the stipulated 14 days after receipt of a claim but did so before the expiry of the 28 day period for payment. It was accepted that, upon the expiry of the 14 day period the Principal was obliged to pay the amount of the claim; the issue before the court was the effect of the late certificate.
[8]Clause 42.1, second paragraph.
[9]Clause 42.1, fourth paragraph.
[10][2001] QCA 49.
The Court of Appeal concluded that the late certificate was ineffective[11]: it was as if no certificate at all had issued. In the course of his judgment in which the other members of the court concurred, Williams JA made a number of observations which are pertinent to the issue before me. His Honour observed, as I have already mentioned, that a strict approach to the construction of cl. 42.1 should be adopted at least with respect to the provisions for payment, set off and deductions. This approach has also meant that a certificate which does not satisfy the formal requirements of the clause is not valid[12]. In the case of a progress payment claim and a progress payment certificate, the consequences of such default are of limited duration and, in any event, curable. If a claim is ineffective, this deficiency may be cured when the next claim is submitted or, where appropriate, the Superintendent may issue a certificate pursuant to the third paragraph of cl. 42.1. Where the certificate is ineffective, any payment made of the amount of the claim will be adjusted upon the issue of the next valid certificate[13]. These consequences flow from the provisional nature of the progress payment procedures.
[11][2001] QCA 49 at [17].
[12]CMR Builders (Vic) Pty Ltd v Rosebud Hotel Pty Ltd (1996) 13 BCL 55 (SC, Vic, Byrne J); Algons Engineering Pty Ltd v Abbey Group Pty Ltd (1997) 14 BCL 215 (SC, NSW, Rolfe J).
[13]Daysea Pty Ltd v Watpac Australia Pty Ltd [2001] QCA 49 at [31]; Zauner Construction Pty Ltd v No. 2 Pitt Street Pty Ltd (2001) 17 BCL 357 at [18] per Byrne J (SC, Vic).
With this should be contrasted the two essential features of the Final Certificate procedure under cll. 42.7 and 42.8. The first is that this procedure has a finality which is altogether lacking in the progress payment procedure; the second is that it deals with or triggers rights other than rights to payment. It is, subject to service of a notice of dispute pursuant to cl. 47 and to three specified exceptions, evidence of due completion of the work[14] and that all due adjustments to the contract sum have been made,[15] and it fixes the commencement of the period within which the security must be released[16].
[14]Compare cl. 42.1, fifth paragraph (progress certificate not evidence of quality).
[15]Compare cl. 42.1, fourth paragraph.
[16]See cll. 42.8, third paragraph and 5.8, third paragraph.
Like the cl. 42.1 procedures, the periods for the performance of acts under cll. 42.7 and 42.8 are specified without any power to enlarge them. The Final Payment Claim must be lodged within 28 days of the expiration of the Defects Liability Period. This Defects Liability Period itself, in the present contract, is a fixed period of 12 months[17] commencing upon the Date of Practical Completion[18]. Once the Date of Practical Completion is fixed by the certificate of the Superintendent issued pursuant to the third paragraph of 42.5, the time periods leading to the termination of the contract by completion proceed inexorably and automatically.[19] This means that, in the present contract where practical completion was achieved on 15 May 2000, the following deadlines were thereby established:
[17]Annexure 1 Item A35.
[18]Clause 37, first paragraph.
[19]Subject only to the establishment of a separate defects liability period pursuant to cl. 37, third paragraph.
14 May 2001 Defects Liability Period expired.
28 May 2001 The last date for the Superintendent to direct rectification or completion work.[20]
11 June 2001 The last date for the Contractor to lodge its final claim[21] and the date upon which any claim by the Contractor not previously made is barred[22].
25 June 2001 The last day for the Contractor to dispute a direction of the Superintendent to carry out rectification or completion work[23].
25 June 2001 The last day for the Superintendent to issue the Final Certificate[24].
9 July 2001 The last day for release of security[25].
10 July 2001 If no notice of dispute pursuant to cl. 47 has been given, the Final Certificate becomes evidence that the works have been satisfactorily completed and that all adjustments to the contract sum have been duly made, subject to three specified exceptions[26]. [20]Clause 37, third paragraph.
[21]Clause 42.7, first paragraph.
[22]Clause 42.7, third paragraph.
[23]Clause 46.2, as modified by Annexure 1 cl. B2.10.
[24]Clause 42.8, first paragraph.
[25]Clause 42.8, third paragraph, cl. 5.8, third paragraph.
[26]Clause 42.8, second paragraph.
A number of things should be noted as to this timetable. First, cl. 42.8 does not fix the time for payment of the sum certified in the Final Certificate to be finally due.
Second, the various periods are not affected by any incompleteness of the work[27]. Accordingly, the Final Certificate may have to be issued notwithstanding that the Contractor has failed to comply with the Superintendent’s direction given pursuant to cl. 37 to perform rectification or completion work. Indeed, the direction may then be subject to dispute under cl. 46.2. It would follow, in such a case, that the Superintendent would be obliged to issue a Final Certificate which is evidence of due completion of the work at a time when the Superintendent was of opinion that this was not the fact. The contract makes no provision for a qualified Final Certificate[28]. It is true that the amount certified to be finally due may contain an allowance for a breach of contract[29], or an adjustment of the price pursuant to cl. 30.5, but this may not be desirable where the Principal wishes the Contractor to carry out the work or where the Contractor evinces a readiness to do so.
[27]Compare AS2124-1981 cl. 44.10.
[28]Walker v Black (1879) 5 VLR(L) 77, referred to without disapproval in Ian Delbridge Pty Ltd v Warrandyte High School Council [1991] 2 VR 544 at 552.
[29]Clause 42.8, first paragraph.
Third, unlike the procedure established under the second paragraph of cl. 42.1, the Superintendent under the first paragraph of cl. 42.8 is obliged to issue a Final Certificate, notwithstanding that no Final Payment Claim has been lodged.
Finally, unlike the fourth paragraph of cl. 42.1, the contract does not in cl. 42.8 deal with the possibility that the Superintendent might fail to issue a Final Certificate within time.
I return to the provisions of cl. 42.1 to determine whether it applies generally to the process of issuing a Final Certificate. I have concluded that the first paragraph is directed to all claims for payment, including a Final Payment Claim, for this is simply the last of the payment claims[30]. A Final Payment Claim must therefore conform to the requirements of this paragraph.
[30]See cl. 42.7, first paragraph.
The second paragraph of cl. 42.1 is directed to the duty of the certifying Superintendent. The first sentence fixes the time within which the certificate shall issue and its content. It is convenient to set out again this sentence and the equivalent in cl. 42.8 for the purposes of comparison:
“42.1… 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.
42.8… the Superintendent shall issue to the Contractor and to the Principal a final payment certificate endorsed ‘Final Certificate’. In the certificate the Superintendent shall certify the amount which in the Superintendent’s opinion is finally due from the Principal to the Contractor or from the Contractor to the Principal under or arising out of the Contract or any alleged breach thereof.”
The fact that these matters are dealt with separately in cl. 42.8 suggests that this part of cl. 41.2 has no function where cl. 42.8 operates.
The second paragraph of cl. 42.1 goes on to give a direction to the Superintendent as to matters which must be allowed in “any payment certificate issued pursuant to this cl. 42.1 or any Final Certificate issued pursuant to cl. 42.8 or a certificate issued pursuant to cl. 44.6”. These matters are “amounts paid under the Contract, amounts otherwise due from the Contractor to the Principal and/or from the Principal to the Contractor 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”. Attention has been drawn to the disconformity between the expression “amounts otherwise due… arising out of or in connection with the Contract” in the first and second paragraphs of cl. 42.1 and “the amount… due… under or arising out of the Contract” in cl. 42.8[31]. This may indicate a difference in content between the certificate issued by the Superintendent under cl. 42.1 and that under cl. 42.8, or it may only be a drafting infelicity. The inclusion in cl. 42.8 of amounts due under or arising out of “any alleged breach of contract” may not be of significance, having regard to the interpretation of cl. 42.1 in Devaugh v Lamac Developments Pty Ltd[32].
[31]See Devaugh Pty Ltd v Lamac Developments Pty Ltd (1999) 16 BCL 378 (FC, WA) at [126], per Parker J.
[32](1999) 16 BCL 378 at [134], per Parker J (FC, WA).
In any event, there is a significant difference between the two certifying procedures in the case where no payment claim is received from the Contractor. Under cl. 42.1, unlike cl. 42.8, the Superintendent is under no obligation to issue a certificate.
Finally, the descriptions in the third sentence of the second paragraph of cl. 42.1 of the three kinds of certificate which the Superintendent may have to issue, shows that the Final Certificate is issued, not pursuant to cl. 42.1, but pursuant to cl. 42.8. I conclude from all of this that the first sentence of the second paragraph of cl. 42.1 has no application to a Final Certificate.
The third paragraph of cl. 42.1 has no application to a Final Certificate.
The fourth paragraph of cl.42.1, with which I am now concerned, deals with the obligation of the Principal to make payment. The times at which this obligation arise are calculated from the receipt by the Superintendent “of a claim for payment” or from “the issue by the Superintendent of the Superintendent’s payment certificate”. The amount to be paid is “the amount shown in the certificate as due to the Contractor or to the proprietor as the case may be” or “the amount of the Contractor’s claim”. The payment obligation is prefaced by the words “subject to the provisions of the Contract”. I have concluded that a claim made pursuant to cl. 42.7 is simply “a final payment claim”, the last of the payment claims, and must conform with the requirements of the first paragraph of cl. 42.1 which deals with all payment claims. Clause 42.8 uses similar terminology when it speaks of “a final payment certificate endorsed ‘Final Certificate’”. This means that a Final Certificate is also the last of the payment certificates for the purposes of the fourth paragraph of cl. 42.1[33]. The terms of the Final Certificate are that the Superintendent certifies “the amount which… is finally due”, an expression which also picks up the terms of the payment obligation in the fourth paragraph of cl. 42.1. There is no obligation to pay imposed by cl. 42.8 because it is imposed by cl. 42.1. Under the fourth paragraph of cl. 42.1 the obligation is pay the amount certified to be due within 14 days after the issue of the Final Certificate. The inescapable consequence of this is that, where no Final Certificate is issued, the time for and the amount of payment are also fixed by the fourth paragraph of cl. 42.1.
[33]It may be otherwise in cl. 42.6 which has not been amended since AS2124-1986 notwithstanding the re-introduction of the finality provisions in the 1992 revision.
In the present case, no Final Certificate was issued within 14 days after 17 May 2001. It was not suggested that the position was affected by the letter of the Superintendent of 25 May 2001 in which the Superintendent expressed the view that no Final Certificate should issue because the work was incomplete. This is clearly correct because, under this contract, the Superintendent’s obligation is to issue a Final Certificate whether the work be finally complete or not. The consequence of this is that on 14 June 2001 the Principal became obliged to pay to the Contractor the sum of $7,698,951 claimed.
What is the effect of a late Final Certificate?
There remains the fact that on 20 July 2001 the Superintendent purported to issue a Final Certificate. No criticism was addressed as to the form of this document; it was said on behalf of the Contractor that it was late and therefore ineffective.
Clause 42.8 does not deal with the case where the Superintendent fails to issue the Final Certificate or does so after the expiry of the stipulated period. Counsel for the Contractor pointed out that the obligation imposed upon the Superintendent, “within 14 days… the Superintendent shall issue…”, uses the same mandatory terms as are found in the second paragraph of cl. 42.1. They contended that the interpretation of this part of cl. 42.1 in Daysea Pty Ltd v Watpac Australia Pty Ltd[34], namely that a late progress payment certificate is ineffective, should equally apply to a Final Certificate.
[34][2001] QCA 49.
Accepting that, as a matter of construction, similar words in the same document should be given similar meanings, the words in cl. 42.8 must, nonetheless, be construed in the setting in which they are found. The Final Certificate in this contract plays an important role other than that of determining the amount payable by one party to the other. I have already mentioned some of these differences.
First, the Final Certificate complements the barring provision of the third paragraph of cl. 42.7. Under this paragraph, the Principal is protected from late claims. Subject to the three stipulated exceptions, the Final Certificate issued under cl. 42.8 provides evidence which protects the Contractor from allegations that the works do not comply with the contract; and which protects both parties from further adjustments to the contract sum. This closure mechanism, which has been a feature of earlier editions of the AS2124 contracts, was omitted in AS2124-1986[35] where the Final Payment Certificate was essentially the last of the payment certificates. It was restored in the 1992 revision. In the notes to AS2124-1992 published by Standards Australia, the change of name from “Final Payment Certificate” to “Final Certificate” is said to mark a fundamental change from the 1986 edition and to emphasise the role of the certificate in bringing finality to the contract[36] in line with other widely used forms of contract in the construction industry[37].
[35]See AS2124-1986 cll. 42.8, 42.6.
[36]Doc 2124N-1992, p.12.
[37]See NPWC3 cl. 42.5; JCC cl. 11.12.
The issue of the Final Certificate gives finality not only to the parties but also to the Superintendent. The Superintendent has no power to correct any error in it by further certificate[38] and no power to recall it or to review it. Once it is issued the Superintendent is “to all intents and purposes functus officio”[39]: the role of the superintendent is then ended.
[38]Clause 42.2.
[39]Ian Delbridge Pty Ltd v Warrandyte High School Council [1991] 2 VR 545 at 550, per Murphy J, Fullagar and Vincent JJ concurring.
The issue of the Final Certificate also marks the commencement of the period within which securities are to be returned[40].
[40]Clause 42.8, third paragraph.
The significance of the Final Certificate in bringing this contract to completion cannot be over-emphasised. The obligation imposed upon the Superintendent to issue the certificate even when no Final Payment Claim has been lodged highlights its important role. If, notwithstanding this contractual injunction, no Final Certificate is issued, these functions remain unexercised and the parties do not receive the closure for which they bargained. It is true that, in such a case, the Contractor will be entitled to receive the payment which has been claimed in the Final Payment Claim, but this may not reflect the proper final entitlement of the parties, an entitlement which cannot be determined otherwise than by the dispute resolution processes of cl. 47[41]. The failure of the contract to deal with this circumstance in cl. 42.8 is to be contrasted with the fourth paragraph of cl. 42.1.
[41]See cl. 42.1, fourth paragraph.
There are two possibilities to resolve these difficulties which arise where the Final Certificate is not issued as contemplated by cl. 42.8. First is to accept that the contract does not deal with this event: the functions of the Final Certificate must forever remain unexercised and the final adjustment of the amount due under the contract must pass to the dispute resolution process[42]; the second is to fill the gap by permitting the Superintendent to issue an effective late Final Certificate.
[42]See cl. 42.1, fourth paragraph.
Counsel for the Contractor contended for the first option. Relying upon the conclusion reached in Daysea Pty Ltd v Watpac Australia Pty Ltd,[43] they argued that the requirement for the issue of a Final Certificate within the stipulated period was mandatory in the sense that, if it was late, it was ineffective. Faced with the consequence, doubtless unpalatable to their client, that this would mean no release for the Contractor from claims for breach of contract, they argued in the alternative that cl. 42.8 would permit the Superintendent to issue a late Final Certificate which would bring into play all of the consequences other than that of fixing the amount finally due. This has the added difficulty of being logically unsatisfactory. If the late Final Certificate is effective to achieve the objectives of cl. 42.8 other than that of fixing the amount finally due, why should it not be effective for all purposes?
[43][2001] QCA 49.
Notwithstanding the similarity of terminology between the second paragraph of cl. 42.1 and the first paragraph of cl. 42.8, and my respectful acceptance of the reasoning in Daysea Pty Ltd v Watpac Australia Pty Ltd[44] with respect to progress payment certificates, I am unable to conclude that a late Final Certificate is ineffectual. The consequences to the parties of such a situation are so unsatisfactory that I am unable to accept that they intended this result. I rely upon the fact that, unlike cl. 42.1, cl. 42.8 provides no machinery to deal with such an eventuality. I construe the words “shall issue” in the first paragraph of cl. 42.8 as directory only, in the sense that a failure to issue the Final Certificate within the specified time does not render a subsequently issued Final Certificate ineffective.
[44][2001] QCA 49.
If, as is said in the Daysea case[45], this involves implying a term in the contract, so be it. In Devaugh v Lamac Developments Pty Ltd[46], the Full Court of the Supreme Court of Western Australia filled the gap in a sub-contract based on a AS2545-1993, where the contractor had not appointed a certifier to receive and process the sub-contractor’s progress claims. The majority was prepared in these circumstances to infer in cl. 42.1, which was in terms very similar to that clause before me, a term that, in such an event, the contractor itself should be the certifier[47]. In the present case, I have no doubt that, if the parties at the time of contract had addressed the eventuality that the Final Certificate is not issued within time, they would have accepted as non-controversial that this gap be filled by permitting the Superintendent to issue a Final Certificate late. In this way each party would obtain the benefit of the finality of the Final Certificate and the release of securities while, at the same time, the Contractor would suffer no disadvantage by the lateness of the issue of the Final Certificate because of its entitlement in the meantime to payment of the amount claimed pursuant to the fourth paragraph of cl. 42.1.
[45][2001] QCA 49 at [16].
[46](1999) 16 BCL 378 (FC, WA).
[47](1999) 16 BCL 378 (FC, WA).
Returning to the present case, I am satisfied that, upon a proper construction of the contract, the Final Certificate of 20 July 2001 is effective to trigger all of the consequences of a validly issued Final Certificate including the obligation imposed by the fourth paragraph of cl. 42.1 to pay in accordance with its terms. It follows that on 3 August 2001, 14 days after the issue of the Final Certificate, the liability of the Principal to pay $7,698.951 which had arisen on 14 June 2001, 28 days after the receipt of the Final Payment Claim, was replaced by a liability in the Contractor to pay to the Principal the sum of $1,880,570. For this reason, too, the Contractor’s claim for summary judgment must fail.
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