Dial D v Kingston Building

Supreme Court of NSW|2013-12-13|Before: McDougall J, Stevenson J

Judgment 1HIS HONOUR: On 31 March 2010, the plaintiff (Dial D) and the defendant (Kingston) made a contract under which Kingston as "Contractor" undertook to construct a building at Charlestown for Dial D as "Principal". The superintendent certified that practical completion was achieved on 5 July 2012. That date marked the start of a 12 months defects liability period. 2On 16 August 2013, the superintendent issued what was, or purported to be, a "Final Certificate" under the Contract. That document certified that Kingston owed in excess of $992,000.00 to Dial D. 3Kingston disputes that it owes any amount to Dial D. It says, on the contrary, that it is owed in excess of $1.34 million. 4Dial D, relying on the terms of the contract, seeks judgment against Kingston for the amount certified by the superintendent. Kingston says that the certificate is invalid, or "void", for a number of reasons. It seeks a declaration accordingly. 5Kingston has recovered two judgments against Dial D: (1) judgment in a sum exceeding $1.17 million pursuant to a decision of Stevenson J given on 5 March 2013 ([2013] NSWSC 173); and (2) judgment in a sum exceeding $784,000 given in this court pursuant to an adjudication determination in Kingston's favour. The real issues in dispute 6Identification of the real issues in dispute is difficult. Neither party provided any statement of what it saw as being the real issues. Further, although the parties had provided outlines of their submissions, issues emerged in the course of the hearing which had not been addressed in those submissions. It is undesirable that parties given an urgent hearing (as happened in this case) should not articulate clearly the real issues that they see as requiring determination. 7Doing the best I can, the real issues seem to me to be as follows: (1) was the final certificate issued in time? (2) If it was not, is it nonetheless valid or enforceable? (3) Was it open to the superintendent, after the expiry of the defects liability period, to issue a direction under cl 29.4 of the General Conditions of Contract (GCC) effecting a "deemed variation" of the works? (4) In any event, is the power to direct a "deemed variation" one that is available only as an alternative to, and not available for exercise in addition to, the power to direct Kingston to rectify defective work? (5) If it were not open to the superintendent to direct a deemed variation, is the final certificate invalid because it incorporates, as an element of calculating Kingston's liability to Dial D, the amount at which the superintendent valued that deemed variation? (6) Is Kingston's notice of dispute given on 23 August 2013 ineffective because it was not given in accordance with the terms of the contract: specifically because it was not served "served before the 7th day after the issue of the final certificate"? (7) If the final certificate is valid, is Dial D entitled to a judgment for the amount certified by it, or is the certified amount to be set off against the judgments that Kingston has recovered against Dial D?

Relevant provisions of the contract 8The contract between the parties incorporated, with some amendments that for the most part are not significant, the general conditions of contract AS 4000-1997. Clause 2.1 of the GCC provided: 2.1 Performance and payment The Contractor shall carry out and complete WUC in accordance with the Contract and directions authorised by the Contract. The Principal shall pay the Contractor: a) for work for which the Principal accepted a lump sum, the lump sum; and b) for work for which the Principal accepted rates, the sum of the products ascertained by multiplying the measured quantity of each section or item of work actually carried out under the Contract by the rate accepted by the Principal for the section or item, adjusted by any additions or deductions made pursuant to the Contract. 9Clause 20 obliged Dial D to ensure that at all times there would be a superintendent and that the superintendent would fulfil all aspects of its roles and functions reasonably and in good faith. I note that the identity of the superintendent changed from time to time. It is not necessary to go through the changes. It was common ground that at all material times the entity exercising (or purporting to exercise) the functions of the superintendent had been appointed as superintendent. 10Clause 29 dealt with the quality of work. Clauses 29.1 and 29.3 to 29.5 are relevant: 29.1 Quality of material and work Unless otherwise provided the Contractor shall use suitable new materials and proper and tradesmanlike workmanship. ... 29.3 Defective work If the Superintendent becomes aware of work done (including material provided) by the Contractor which does not comply with the Contract, the Superintendent shall as soon as practical give the Contractor written details thereof. If the subject work has not be rectified, the Superintendent may direct the Contractor to do any one or more of the following (including times for commencement and completion): a) remove the material from the site; b) demolish the work; c) reconstruct, replace or correct the work; and d) not deliver it to the site. If: a) the Contractor fails to comply with such a direction; and b) that failure has not been made food within 8 days after the Contractor receives written notice from the Superintendant and the Principal intends to have the subject work rectified by others, the Principal may have that work so rectified and the Superintendent shall certify the cost incurred as moneys due from the Contractor to the Principal. 29.4 Acceptance of defective work Instead of a direction pursuant to subclause 29.3, the Superintendent may direct the Contractor that the Principal elects to accept the subject work, whereupon there shall be a deemed variation. 29.5 Timing The Superintendent may give a direction pursuant to this clause at any time before the expiry of the last defects liability period. 11Clause 35 provided for the defects liability period: 35 Defects liability The defects liability period stated in Item 27 shall commence on the date of practical completion at 4:00 pm. The Contractor shall carry out rectification at times and in a manner causing as little inconvenience to the occupants or users of the Works as is reasonably possible. As soon as possible after the date of practical completion, the Contractor shall rectify all defects existing at the date of practical completion. During the defects liability period, the Superintendent may give the Contractor a direction to rectify a defect which: a) shall identify the defect and the date for completion of its rectification; and b) may state a date for commencement of the rectification and whether there shall be a separate defects liability period therefor (not exceeding that in Item 27, commencing at 4:00 pm on the date the rectification is completed and governed by this clause). If the rectification is not commenced or completed by the stated dates, the Principal may have the rectification carried out by others but without prejudice to any other rights or remedies the Principal may have. The cost thereby incurred shall be certified by the Superintendent as moneys due and payable to the Principal. 12Part A of the annexures to the GCC provided, for the purposes of cl 35, that the defects liability period should be "12 months". 13By cl 1, "date of practical completion" was defined to mean (except where the context other requires): a) the date evidenced in a certificate of practical completion as the date upon which practical completion was reached; or b) where another date is determined in any arbitration or litigation as the date upon which practical completion was reached, that other date; 14It was common ground that the date of practical completion was, as certified by the superintendent, 5 July 2012. 15Clause 36 dealt with variations. By clause 36.1, the superintendent was authorised, with a relevant limitation, to direct variations: ... The Superintendent, before the date of practical completion, may direct the Contractor to vary WUC by any one or more of the following which is nevertheless of a character and extent contemplated by, and capable of being carried out under, the provisions of the Contract: ... 16Clause 37 dealt with payment. Clause 37.1 provided for progress claims to be made. Clause 37.2 provided for their certification. Clause 37.3 dealt with unfixed plant and materials. It is not necessary to set out those subclauses. 17Clause 37.4 dealt with the final payment claim and its certification: 37.4 Final payment claim and certificate Within 28 days after the expiry of the last defects liability period, the Contractor shall give the Superintendent a written final payment claim endorsed 'Final Payment Claim' being a progress claim together with all other claims whatsoever in connection with the subject matter of the Contract. Within 42 days after the expiry of the last defects liability period, the Superintendent shall issue to both the Contractor and the Principal a final certificate evidencing the moneys finally due and payable between the Contractor and the Principal on any account whatsoever in connection with the subject matter of the Contract. The final certificate shall be conclusive evidence of accord and satisfaction, and in discharge of each party's obligations in connection with the subject matter of the Contract except for: a) fraud or dishonesty relating to WUC or any part thereof or to any matter dealt with in the final certificate; b) any defect or omission in the Works or any part thereof which was not apparent at the end of the last defects liability period, or which would not have been disclosed upon reasonable inspection at the time of the issue of the final certificate; c) any accidental or erroneous inclusion or exclusion of any work or figures in any computation or an arithmetical error in computation; and d) unresolved issues the subject of any notice of dispute pursuant to clause 42, served before the 7th day after the issue of the final certificate. 18As cl 37.4(d) indicates, cl 42, dealing with dispute resolution, provided for either party to give to the other written notice of dispute in relation to any "difference or dispute... in connection with the subject matter of the Contract ...". First issue: was the final certificate issued in time? 19It was common ground that, for the purposes of cl 37.4, there was only one defects liability period. That was the defects liability period that, by cl 35, commenced at 4:00pm on 5 July 2012 (the date of practical completion), and that had a duration of 12 months. The parties' submissions 20Mr Corsaro of Senior Counsel, who appeared with Mr Kalyk of Counsel for Dial D, submitted that: (1) the defects liability period expired at 4:00pm on 5 July 2013; (2) it followed that the final certificate had to be issued by 4:00pm within 42 days thereafter; (3) those 42 days expired, so that the certificate had to be issued before 4:00pm on, 16 August 2013. 21Mr Rudge of Senior Counsel, who appeared with Mr Hicks of Counsel for Kingston, accepted that the final certificate had been issued by 4:00pm on 16 August 2013. He accepted, further, that, as a matter of arithmetic, 16 August 2013 was the 42nd day following from 5 July 2013. 22However, Mr Rudge submitted, the defects liability period expired on 4 July 2013. As a matter of arithmetic, he submitted (and Mr Corsaro agreed), 16 August was 43, not 42 days after 4 July 2013. It followed, Mr Rudge submitted, that the superintendent had no power to issue the final certificate, and it was ineffective. 23Neither Mr Corsaro nor Mr Rudge referred to any relevant authority in support of the position that he adopted, as to the reckoning of time. 24Mr Rudge did however rely on my decision in Kembla Coal and Coke v Select Civil [2004] NSWSC 628 at [54] to [60]. The principles to be applied 25In that case, the dispute was as to whether the defects liability period should be counted to start on, or from, 13 September 2003. The parties agreed that, if the former were correct, the defects liability period expired on 12 March 2004; and that if the latter were correct, it expired on 13 March 2004. That appears from [13] of my reasons. 26As is clear from [53], the issue was whether the period commenced on the date of practical completion, or on the following day. That is the issue with which I dealt at [54] to [60]. The contractual provisions under consideration in that case were not those under consideration in this case. The conclusion that I reached (which took into account the agreement as to the expiry date of the defects liability period, according to what was determined to be the commencing date) has nothing to do with the question presently under consideration in this case. 27I drew to counsel's attention Lewison, The Interpretation of Contracts (Sweet & Maxwell, 5th edition, 2011) at 15.04, 15.07. The first reference sets out and comments on "the corresponding date rule". The second deals with "fractions of a day". Neither Mr Corsaro nor Mr Rudge put submissions on what was there said. 28The corresponding date rule is framed as follows: Where a contract provides for the performance of an act within a certain number of months, the period expires on the day of the month bearing the same number as the date on which the period begins or, if there is no such day, on the last day of the month. 29Lewison cites Dodds v Walker [1980] 1 WLR 1061 (CA); [1981] 1 WLR 1027 [HL]. He notes that this case concerned the reckoning of time under a statute, but comments, "there is no difference in principle between a statute and a contract in this respect". 30Application of the corresponding date rule would mean, on the facts of this case, that the 12 month defect liability period would end on 5 July 2013. The point can be illustrated by looking at some of the judgments in Dodds. 31Templeman LJ, in the Court of Appeal, said ([1980] 1 WLR at 1066): When time is limited by reference to calendar months no account can be taken of the fact that some months are longer or shorter than others. February equals March. In my judgment if an act is authorised to be performed on any arbitrary day in any month of the year, then one month elapses on the corresponding day of the next month, provided that the day of the act itself is excluded from computation. 32Applied to this case, if a period of 12 months is allowed for the process of defects rectification, and if that period commences on 5 July 2012, it elapses on 5 July 2013, being the corresponding date in the 12th following month. 33As Stephenson LJ pointed out in the Court of Appeal (at 1068), and as Lord Diplock confirmed in the House of Lords ([1981] 1 WLR at 1029), the allowance is to be made only where the following month (or 12th month, or whatever the interval may be) does not have a corresponding date. Since that is not a problem in this case, it is unnecessary to consider it. 34In the passage of Lord Diplock's speech to which I have referred, his Lordship referred to the general application of the rule as involving the following simple process: .... all that the calculator has to do is mark in his diary the corresponding date in the appropriate subsequent month. Decision 35Applied to this case, the superintendent and the parties, having marked in their diaries 5 July 2012 as the date of practical completion and, hence, the date on which the defects liability period starts, would turn to their diaries for 2013 and mark the corresponding date, 5 July 2013, as the date of expiry of the defects liability period. 36There is no need to deal with Mr Corsaro's submission that the defects liability period expired at 4 pm on 5 July 2013. Even if (contrary to what is said in Lewison at 15.07, dealing with fractions of a day) 4 pm were the cut-off point, the impugned direction was given before 4 pm on the 42nd day following practical completion, 16 August 2013. See at [39] below. 37It follows (as I have said, the arithmetic is not in dispute) that the final certificate was issued within time.

Second issue: is the final certificate in any event invalid? 38This issue does not arise. Since its determination requires no finding of fact, there is no point to be served by dealing with it.

Third issue: direction of deemed variation 39The relevant facts are not in dispute. At about 11:38 am on 16 August 2008, which was some 2 ½ hours before the issue of the final certificate, the superintendent gave what was (or purported to be) a direction pursuant to GCC cl 29.4. That direction (which was in writing) attached a schedule which set out various items of defective or incomplete work, and the superintendent's estimate of the cost of completing the individual items. The total estimated cost was $840,668.63. 40The direction (omitting formal parts) stated: Pursuant to Clause 29.4 of the AS400-1997 General Conditions of Contract, the Superintendent hereby directs that Contractor that the Principal elects to accept certain works done by the Contractor which does not comply with the Contract and as such, there shall be a deemed variation. The works that are the subject of this deemed variation are further described in the attached 'Schedule of Outstanding Defects' dated 15 August 2013, which is a summary/compilation of the defects lists issued from time to time to the Contractor that has been filtered to show only those defects that are considered outstanding. The attached schedule provides an estimate of the cost of completing the individual items, which forms the basis of this deemed variation. 41It is not necessary to set out the balance of the document, nor any part of the schedule. The variation was assessed in a negative sum - that is to say, as an amount payable by Kingston to Dial D. The parties' submissions 42Mr Rudge submitted that the superintendent had no power to give this direction. That followed, he submitted, from cl 29.5. 43Mr Corsaro submitted, without elaboration, that the direction was validly given pursuant to GCC cl 29.4. Decision 44It may be accepted that cl 29.4 authorises the direction of a "deemed variation". But the power to do so is limited by cl 29.5. The subject with which that clause deals is "a direction pursuant to this clause". Thus, it extends not only to directions given under cl 29.3 but also to directions given under cl 29.4. There is no basis for construing cl 29.5 as applicable to the former, but not to the latter. 45It follows that the relevant contractual provisions did not authorise the direction to be given after the expiry of the defects liability period. In this case, it does not matter whose view as to the date of expiry of the defects liability period is correct, because on any view a direction given on 16 August 2013 was given well after that date. 46I add that if, for some reason which Mr Corsaro's submissions did not address and which I cannot see, cl 29.5 should not be taken to be applicable to a direction under cl 29.4, the outcome would be the same, but for a different reason. In that hypothetical factual universe, the general limitation contained in cl 36.1 would apply.

Fourth issue: cl 29.4 as an alternative to cl 29.3 47It is not necessary to deal at length with this question, because the conclusion that I have reached, on the third issue, means that the "deemed variation" direction was ineffective. 48However, in case the matter goes further, I should record that there is no relevant factual dispute. Before 16 August 2008 (that is to say, before the "deemed variation" direction was given), the superintendent had given directions to Kingston pursuant to cl 29.3: in summary, to rectify work that , the superintendent said, did not comply with the contract. It was because (in the superintendent's opinion) Kingston had not done so that the superintendent thereafter gave the "deemed variation" direction. 49On the face of things, cl 29 would appear to provide for alternative remedies in respect of non-compliant work. The first alternative is given by cl 29.3. That provides for a process of direction to rectify and (if there is a failure to comply with that direction) rectification by others, with the cost being backcharged to the contractor. 50Alternatively, the principal may accept the work in its non-compliant state. The superintendent may give a direction to this effect, which operates as a "deemed variation" to the WUC. 51Thus, it might be thought, the clause provides for two, true, alternatives where, in the opinion of the superintendent, there is non-compliant work. If that were so, then an election to pursue one of those alternatives might be thought to render the other unavailable, at least in respect of the same allegedly non-compliant work. I add that even if this be correct, the superintendent would not be bound to make the same election in every subsequent case of allegedly non-complaint work. The alternative would arise in respect of "the subject work" (as cl 29.4 makes clear): that is to say, the work referred to in the introductory paragraph of cl 29.3.

Fifth issue: impact on validity of final certificate 52It is apparent that the greater part of the amount certified by the final certificate to be owing by Kingston to Dial D - in round figures, $840,000.00 of the total of $992,000.00 certified - is referable to the "deemed variation" direction. The former is about 85% of the latter. The parties' submissions 53Mr Rudge's submissions on this point appeared to assume that if the direction were ineffective (because it was outside the authority to direct given by the contract) then, as a necessary consequence, the final certificate would be invalid. 54Mr Corsaro submitted that it mattered not if (contrary to his submissions) the direction were invalid. That followed, he submitted, because there was no allegation of bad faith. Thus, he submitted, this was like any other case in which the final certificate valued work incorrectly. The error would not deprive the certificate of whatever effect it might otherwise have. 55Mr Corsaro submitted that, in cases of error (not involving bad faith or the like) in such certificates, the remedy was that given by the contract. In this case, he submitted, the remedy was that suggested by cl 37.4(d) itself: to give notice of dispute before the seventh day following the issue of the certificate. 56Mr Rudge submitted, in reply, that this was not a case of incorrect or erroneous exercise of a power otherwise available. That was so, he submitted, because the superintendent had no power at all to give the direction. It followed, he submitted, that the superintendent had no power to include the amount of that direction in the final certificate. 57Mr Rudge submitted, further (and necessarily in the alternative), that the inclusion of the certified amount was, at best, an "accidental or erroneous inclusion of... [an amount of money] in [the] computation" of the amount due by one party to the other. Thus, he submitted, it was caught by the "slip rule" contained in cl 37.4(c) as one of the four express exceptions to the conclusive effect of the final certificate. Decision 58In my view, the last submission is correct. Clause 37.4(c) provides that a final certificate does not have the conclusive effect otherwise accorded to it, to the extent of the accidents or errors referred to in it. It could not be said that the inclusion of the monetary value of the "deemed variation" direction was accidental. Quite clearly, the superintendent intended to take it into account. But for the reasons I have given, it must be regarded as erroneous. It is erroneous because the superintendent had no power to give the direction. Thus, the valuation of the alleged defects and omissions the subject of that direction has no contractual effect. 59It may be noted that the exclusion set out in sub-para (c) does not require any action to be taken (for example, the giving of notice) and is not subject to any temporal limitation. 60In the circumstances, it is unnecessary to express a view as to whether, by analogy to the common law's principles governing judicial review of administrative action, the final certificate is in any event invalid because, in reaching the conclusion set out in it, the superintendent erred in law, or took into account an irrelevant matter.

Sixth issue: validity of Kingston's second notice of dispute 61For present purposes, there are two relevant notices of dispute. The first was given by Kingston on 7 February 2013. The issues the subject of that notice are "unresolved." They have been referred to arbitration. No award has been given. 62The second (relevant) notice of dispute, and that with which this issue is concerned, is the one given by Kingston on 26 August 2013. 63It was common ground (and in any event is obvious) that, counting from (but excluding) 16 August 2013, 23 August is the seventh day thereafter. In the language of cl 37.4(d), it is "the seventh day after the issue of the final certificate". The parties' submissions 64Mr Corsaro submitted that the notice of dispute was ineffective, because it was served on, and not before, that seventh day. 65Mr Rudge submitted that the requirement that the notice be "served before the seventh day" was satisfied because, considering the contract in its entirety, the relevant words should be construed as meaning "before the end of the seventh day". Decision 66I do not accept Mr Rudge's submissions. Within the very subclause that contains the words in question - cl 37.4 - the effect that he seeks to give to the words in question has been expressed, without any obscurity whatsoever, at least three times: (1) in the first (unnumbered) paragraph: "[w]ithin 28 days after the expiry of the last defects liability period"; (2) in the following (unnumbered) paragraph: "[w]ithin 42 days after the expiry of the last defects liability period"; (3) in the following (unnumbered) subparagraph: "within 7 days after the debtor receives the final certificate". 67I do not propose to extend the length of these reasons to unconscionable proportions by referring to every other occasion, within the GCC, where that phraseology is used to denote the time within which, or by which, some action must be taken. 68To my mind, the contrast between the clear language used elsewhere in the contract to give effect to the conclusion for which Mr Rudge would contend in the case of para (d), and the language actually used, is clear. 69As a matter of ordinary English usage, the words "before the seventh day" mean that that which they qualify must occur before the seventh day commences. In effect, Mr Rudge's submission is equivalent to saying, in the case of a named day rather than a day described only by date, that a requirement to do something "before Sunday" is satisfied if the thing is done on Sunday. That is not the ordinary English meaning of the phrase. Nor, making necessary adjustments for the difference in language, is it the ordinary meaning of the contractual phrase "before the seventh day...". 70In my view, the notice of dispute given by Kingston on 26 August 2013 is not a notice, unresolved issues in which would constitute an exception to what otherwise might be the conclusive effect of the final certificate. 71I should however record that it appeared to be common ground that the unresolved issues the subject of the earlier notice of dispute dated 7 February 2013 were to be so treated. 72I have said "appeared to be common ground" because, somewhat late in the day, Mr Corsaro produced a schedule which, he said, was intended to compare the claims made in the earlier notice of dispute with the claims made in the later one. I did not understand at the time, and on further reflection still do not understand, either the point of the comparison or the reasons why it was undertaken. 73At one stage, I think, Mr Corsaro was seeking to submit that the only impact of the unresolved issues under the earlier notice of dispute was the difference between the amount certified in the final certificate and the total of some $1.281 million (in round figures) that was constituted by or referable to the unresolved disputes. As I understand it, Mr Corsaro's position was that this calculation took into account, in some way, the amount of Kingston's final payment claim (made, after expiry of the defects liability period, pursuant to cl 37.4). If that was the point then I am not sure that I agree. Kingston's final payment claim assessed that it was owed, in round figures, $1.34 million. The superintendence's final certificate asserted, again in round figures, that Dial D was owed $992,000.00. 74The difference between those extremes is of the order of $2.3 million. It may be that not all the amount of $1.34 million was the subject of the earlier (and in my view only valid unresolved) notice of dispute. But in circumstances where, as I have said, I do not understand either the attempted comparison or its purpose, it is unwise to say more.

Seventh issue: should Dial D have judgment? 75The conclusions that I have reached so far include that the final certificate contains an error, or erroneous computation, because it includes the value assigned by the superintendent to the deemed variation: $840,000.00. 76In addition, there are the unresolved issues that are the subject of the notice of dispute dated 7 February 2013. That notice of dispute effectively takes issue with the superintendent's determination of every claim made by Kingston in its progress claim 25. It is common ground that the superintendent's response to that is to be found in a document known as payment certificate 26. The parties' submissions 77Mr Corsaro's comparison of progress claim 25 with payment certificate 26 shows that there were many hundreds of thousands of dollars claimed in respect of variations but not allowed. It is correct to say, as Mr Corsaro submitted, that the claims and the certifications were varied thereafter. Nonetheless, as Mr Corsaro's schedule shows, the unresolved issues on the variations alone exceed $900,000.00 in total. In addition, the backcharges for alleged defects and liquidated damages total about $370,000.00. Those backcharges too are the subject of the notice of dispute given on 7 February 2013, and thus form part of the "unresolved issues" that have been referred to arbitration. 78The conclusive effect of the final certificate (assuming that it is otherwise valid) is thus subject to the exceptions under para (c) - the erroneous inclusion of the value of the deemed variation in the computation of the balance due - and para (d) - the unresolved issues of about $910,000.00 in respect of variations and $370,000.00 in respect of backcharges. 79Mr Corsaro submitted that none of this mattered, because the effect of the exceptions was to detract from the conclusive effect of the final certificate, but not to qualify or negate the obligation to pay the amount that it stated as due and payable. 80Mr Corsaro submitted that the scheme of cl 37.4 was as follows: (1) the contractor is required to give a final payment claim; (2) thereafter, the superintendent is required to issue a final certificate "evidencing the moneys finally due and payable..."; (3) the amount so "certified as due and payable" is to be paid by the debtor to the creditor within seven days thereafter; and (4) the final certificate is conclusive evidence of accord and satisfaction and the discharge of each party's obligations in connection with the contract except for matters falling within the four lettered subparagraphs. 81It followed, Mr Corsaro submitted, that the exceptions to the conclusive effect of the certificate were not exceptions to, or qualifications of, the obligation to pay the moneys certified by it as being due and payable. 82Mr Rudge relied on the decision of the Court of Appeal of the Supreme Court of Queensland in Martinek Holdings Pty Ltd v Reed Construction (Qld) Pty Ltd [2009] QCA 329. In that case, Keane JA (with whom de Jersey CJ and Holmes JA agreed) concluded at [20], having considered cl 37.4 of the GCC with which I am concerned, that "it is only the moneys certified as due and payable by a certificate unqualified in its effect by the fourth paragraph of cl 37.4 that give rise to a right to payment in accordance with the third paragraph of cl 37.4". 83Mr Rudge submitted that the reasoning of Keane JA leading to this conclusion was correct, as was the conclusion itself. In any event, he submitted, I should follow the decision, at least unless convinced that it is plainly wrong (and, he submitted, it was not). 84Mr Corsaro submitted that the conclusion was wrong, and that in any event both the conclusion (at [20] of the reasons) and the reasons leading to it were not essential to the actual decision in the case. The decisions in Martinek 85To understand those submissions, it is necessary to give some close attention to the facts and to the reasons, both at first instance and on appeal. I should say however that I am doing so out of deference to the detailed arguments of counsel, not because I consider myself at liberty to take a different view of the operation of cl 37.4 in this case. 86The first instance decision is that of White J: [2009] QSC 328. As her Honour's reasons show, Martinek was the principal and Reed the contractor in respect of a construction project in Mackay. Their contract included the GCC which I am concerned, and cl 37.4 was relevantly unamended. 87The defects liability period expired on 4 July 2009. On 31 July 2009, Reed submitted its final progress claim. That progress claim was said to be also a payment claim for the purposes of the Building and Construction Industry Payments Act 2004 (Qld). That Act (the Payments Act) is in many respects similar to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Security of Payment Act). 88Although the superintendent had not dealt with the claim for the purposes of cl 37.4, Martinek nonetheless served a payment schedule to protect its position under the Payments Act. Reed submitted that dispute to adjudication. The adjudicator determined that Reed was entitled to be paid an amount in excess of $919,000.00; the adjudicated amount, including fees and interest, exceeded $946,000.00. 89Thereafter, the superintendent issued his final certificate. That certificate assessed Reed's final payment entitlement at $665,000.00, and amounts due by Reed to Martinek exceeding $730,000.00, leading to an amount due by Reed to Martinek of, again in round figures, $65,000.00. 90Martinek, as White J recorded at [18]: ... conceded that the Final Certificate meant that Martinek had a contractual right to payment of the amount identified as due and payable by Reed to Martinek, ... but it was not final so as to bring about the accounting envisaged in s 100 of the Payments Act. 91I pause to note that s 100 of the Payments Act is, if not identical to, relevantly indistinguishable from, s 32 of the Security of Payment Act. 92Reed gave notice of dispute in respect of the superintendent's final certificate. Thus, as White J said at [30]: .... it cannot be said that the Final Certificate has finality so as to bring into play the allowance provisions in s 100 of the Payments Act. The Adjudication Decision stands until the final position has been reached between the parties. 93Accordingly, her Honour dismissed Martinek's application for a stay of the adjudicator's determination which, as her Honour said at [1], was in effect "an order restraining [Reed] from proceeding... to seek an Adjudication Certificate and file a judgment in this court". 94The Court of Appeal dismissed the appeal from the decision of White J. 95Keane JA, having briefly summarised the facts, stated Martinek's position as follows, at [6]: [6] Martinek commenced proceedings in the Trial Division of the Supreme Court contending that the final certificate issued by the superintendent under the contract trumps the adjudication decision by establishing the final position of the parties under the contract. On this basis Martinek argues that Reed may not pursue the inconsistent rights which would otherwise be available to Reed under the Payments Act. It was common ground between the parties at first instance and in this court that the resolution of this issue turns on the interpretation of cl 37.4 of the contract. Before turning to a discussion of the contract, it is desirable to give a brief summary of the relevant provisions of the Payments Act. 96His Honour, having dealt with relevant provisions of the Payments Act and the contract, turned to the decision of White J. He summarised the parties' positions as follows, at [11] (omitting citations): [11] In the proceedings below, Martinek argued that the superintendent's final certificate operated to supersede the adjudication decision. Reed argued that the superintendent's final certificate gave Martinek a contractual right to payment of $72,027.27 but it did not produce a final settling of accounts which was apt to subsume or supersede the adjudication decision. In this regard, Reed relied particularly (though not exclusively) on the terms of cl 37.4(d) of the contract. 97At [14], Keane JA held that the notice of dispute given by Reed "engaged the terms of cl 37.4(d) to deny to the superintendent's certificate the effect for which Martinek's argument contends". 98His Honour reasoned at [15], [16] that the final settlement of accounts between a contractor and a principal could supersede the interim effect of adjudications under the Payments Act. But that would not happen, his Honour said, until the "accord and satisfaction" and "discharge of obligations" for which cl 37.4 provided took effect. And this had not happened, his Honour said, because of the notice of dispute. I set out those paragraphs: [15] 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, but in this case, the terms of cl 37.4(d) of the contract reflect an intention that the "accord and satisfaction" and the "discharge of obligations" between the parties not be effected by the superintendent's certificate while the issues the subject of Reed's notice of dispute remain "unresolved". [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. 99At [17] his Honour dealt with an argument that "the second and third paragraphs of cl 37.4 are to be read separately from the fourth paragraph" (at the risk of stating the obvious, his Honour was referring to the unnumbered paragraphs within cl 37.4, not to the lettered subparagraphs). That argument was conceptually related, although not identical, to the submissions put by Mr Corsaro that I have noted at [80], [81] above. 100Keane JA rejected the argument. He said that the paragraphs should be construed to work harmoniously each with the other. It followed, in his Honour's view, that the fourth paragraphs both explained and qualified the effect of the second and third paragraphs. I set out [17]: [17] On Martinek's behalf it is argued that the second and third paragraphs of cl 37.4 are to be read separately from the fourth paragraph. That argument is unpersuasive for two reasons. First, one must attempt to give all the paragraphs of cl 37.4 an operation by which each paragraph works in harmony with the others: the fourth paragraph should not be read as an operative stand alone provision; rather, its natural reading is as an explanation and qualification of the effect of the second and third paragraphs. Secondly, both the second and the fourth paragraphs of cl 37.4 speak in terms of the evidentiary effect of the superintendent's certificate: that is an express invitation to treat the fourth paragraph as an explanation and qualification of the effect of the superintendent's certificate as "evidencing the moneys finally due and payable between the Contractor and Principal on any account ... in connection with the subject matter of the contract." 101Then, after having referred to my decision in John Holland Pty Ltd v Roads and Traffic Authority of NSW, and the decision of the Court of Appeal therefrom (see respectively (2006) 66 NSWLR 624 and [2007] NSWCA 140), and having referred to the transfer of the risk of insolvency effected by the Payments Act, his Honour stated the conclusion at [20] that I have set out above. Decision 102Mr Corsaro relied on the concession made by Reed, as recorded at [18] of the reasons of White J. This showed, he submitted, that the contractual entitlement to payment of the certified amount was not an issue in the litigation. That was confirmed, Mr Corsaro submitted, by the apparent repetition of the concession at [11] of the reasons of Keane JA. 103I accept that a close reading of the reasons shows that the precise issue in the litigation was whether the superintendent's final certificate was conclusive, as White J put it at [30], to bring into play the "allowance provisions" in s 100 of the Payments Act: "until the final position has been reached between the parties". 104That having been said, Keane JA directed attention to why it was that the certificate did not "entitle Martinek to refuse payment of the adjudication amount". It did not do so, his Honour said, because that certificate "has not yet come into effect" (both quotations come from [16] of his Honour's reasons). 105To my mind, the analysis that Keane JA gave, of the structure and operation of cl 37.4, at [17] of his reasons, is the explanation of why it is that the certificate "has not yet come into effect to entitle Martinek to refuse payment of the adjudication amount". It did not have that effect, his Honour said, because the "explanation and qualification" in the fourth paragraph applied to each of the second and third paragraphs. In particular, and again as his Honour said, it explained and qualified the second paragraph by depriving the superintendent's certificate of the evidentiary effect stated in that paragraph. 106Because the third paragraph takes as its subject "[t]hose moneys certified as due and payable" (i.e., as referred to in the second paragraph), it must follow that the qualifying effect that the fourth paragraph, if engaged, has on the second paragraph flows through to the third paragraph. 107That, as I understand it, is what Keane JA said far more succinctly and far more clearly at [17]. And, again as I understand it, that is why Keane JA concluded at [20] that "it is only the moneys certified as due and payable by a certificate unqualified in its effect by the fourth paragraph of cl 37.4 that give rise to a right to payment in accordance with the third paragraph of cl 37.4". 108Thus, I do not regard the critical reasoning on which Mr Corsaro focused his attention as being an incidental, rather than a necessary, step leading to the ultimate conclusion. But even if it were not essential to the conclusion, I would be bound to follow it, unless persuaded that it is plainly wrong. I do not regard it as plainly wrong. On the contrary, and if I may say so, it seems to me that his Honour provides a compelling and coherent account of the operation of cl 37.4. 109The effect of Mr Corsaro's submission is that the contractor (in this case, Kingston) would be required to pay the principal (in this case, Dial D) the full amount of the certification, even though there were (as there is in this case) a dispute as to the principal's entitlement, which dispute was in the throes of resolution in accordance with cl 42. Indeed, on Mr Corsaro's analysis, the same result would follow even if there were a clear (or arguable) "slip" within subpara (c). 110It may be accepted, as Keane JA observed in RJ Neller Building Pty Ltd v Ainsworth [2008] QCA 397 at [40], that the Payments Act transfers the risk of insolvency, at least until interim accounts are settled on a final basis. It may be accepted, also, that it would be open to parties to a contract to stipulate for the outcome for which Mr Corsaro contended. But clear words would be needed to achieve that outcome. To my mind, cl 37.4, considered as a whole, falls far short of the necessary degree of clarity.

Conclusion and orders 111The result is that Dial D has not made goods its claim to judgment, and its summons must be dismissed with costs. 112Kingston filed a cross-claim. It sought, among other relief, a declaration that the final certificate "is void and of no effect". 113Had I agreed with Mr Rudge's primary submission - that the certificate was given out of time - then it would have been appropriate to make that declaration. However, I have concluded that it was given in time. 114The other possible head of invalidity is based on the certificate's incorporation of the "deemed variation" direction. As I have noted, Mr Rudge submitted that the effect of this was to render the certificate "unenforceable, void and of no effect". However, the only reason advanced in support of this submission was that the certificate was either void and unenforceable, "as it is corrupted by the purported direction", or that it was unenforceable to the extent that it incorporated the direction and thus erroneous. The first limb of that reason was not elaborated. 115In those circumstances, I do not think that it is appropriate to make the declaration sought. I say that because the question was not properly addressed in argument, with the result that (among other things) Dial D was not given an opportunity to respond to detailed and reasoned submissions showing why it was said that the certificate is void, as opposed to erroneous or in part unenforceable. 116Perhaps the best way of expressing my state of mind is to say that I am not satisfied, on the basis of the limited submissions on the point, that Kingston has made good its entitlement to the declaration claimed. 117In those circumstances, I think that the appropriate outcome is to dismiss the cross-claim, again with costs. To the extent that there are separate costs payable one way and the other, they should be set off. 118I make the following orders: (1) dismiss the summons with costs. (2) dismiss the cross-summons with costs. (3) order that costs be set off. (4) direct that the exhibits be handed out.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 December 2013

Building and Construction Industry Payments Act 2004(Qld)

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