Golf Australia Holdings Ltd v Buxton Construction Pty Ltd [2007] VSCA 200

3 GAH and Buxton agreed to mediate their disputes and prior to the mediation they exchanged position papers in which they each set out their claims and contentions. In the GAH position paper, GAH claimed liquidated damages of $190,000. Any valid extension of time would necessarily reduce any claim for liquidated damages as the extensions operate to extend the Date for Completion under the contract. In the Buxton position paper, Buxton sought an allowance for claims for 'extensions of time' and resulting damages ('delay costs') which were quantified at $176,000.

4 The mediation was held on 11 July 2006 and culminated in the execution of the terms of settlement. The terms of settlement were drawn up in hand and signed on the spot by a representative of each of the parties. They were as follows:**

in relation to contract dated 11 February 2005 ("the Contract")

1. In full and final settlement of the Owner's claims against the Contractor set out in the Owner's position paper dated 7 July 2006 and in full and final settlement of the Contractor's claims set out in the Contractor's position paper dated 7 July 2006 and in full and final settlement of all other claims which either party could make against the other under or pursuant to the Contract (save those expressly provided for herein) the Owner shall pay to the Contractor by 31 July 2006 the sums of:

(c) the unpaid amounts due in respect of payment certificates 1 to 17; and

(d) GST on all of the above items (provided the Contractor has issued a tax invoice in respect thereof).

1. Defects and final completion will continue to be administered in accordance with the Contract.
2. Each of the Owner and the Contractor releases and discharges the other of them from and against all actions, suits, demands, claims, costs, loss, expense and damage howsoever arising in relation to the claims set out in paragraph 1.

The relevant provisions of the Building Contract

5 Clause 12.6 of the Building Contract provides that:

The Contract[or] must give the Contract Administrator claims for payment on account of the Contract Price and any other amounts payable by the Owner to the Contractor under the Contract ...

6 Clause 12.7 requires the Contract Administrator to process claims for payment as follows:

The Contract Administrator must within the time period stated in the Contract Particulars[1] of receiving a payment claim under clause 12.6 give the Contractor and the Owner a payment statement which sets out the Contract Administrator's determination as to:

1. the value of work completed in accordance with the Contract;
2. the amount already paid to the Contractor;

1. the amount the Owner is entitled to retain under clause 4.1; and

1. the amount then payable by the Owner to the Contractor on account of the Contract Price and otherwise under the Contract,

together with the reasons for any difference in the amount set out as then payable from the amount in the Contractor's payment claim.

The issue of a payment statement by the Contract Administrator does not constitute approval of any work nor will it be taken as an admission or evidence that the part of the Works covered by the payment statement has been satisfactorily carried out in accordance with the Contract.

7 Clause 12.8 provides for the Owner to pay the Contractor the amount set out as then payable in each payments statement:

Subject to clause 12.12 and 12.19, the Owner must within the time period sta[t]ed in the Contract Particulars[2] of receiving [a] statement under clause 12.7, pay the Contractor the amount set out as then payable in the payment statement, less any amounts disclosed as unpaid under clause 12.20.

**8 Clause 12.9 provides that a payment of moneys under clause 12.8 is not an admission of liability but is only to be taken as a payment on account.

The Owner may deduct from moneys otherwise due to the Contractor.

1. any debt or other moneys due from the Contractor to the Owner; and
2. any claim to money which the Owner may have against the Contractor whether for damages (including liquidated damages) or otherwise,

whether under the Contract or otherwise at law relating to the Works.

10 Clause 13.7 provides that, if the Works are not completed by the Date for Completion, the Contractor must pay liquidated damages for every day after the Date for Completion and that: 'The amount payable under this clause 13.7 will be a debt due from the Contractor to the Owner.'

11 The payment certificates numbered 1 to 17 were in evidence below and the trial was conducted upon the agreed basis that the certificates were 'payment statements' for the purposes of clause 12.7 of the Building Contract. Certificates 1 to 13 and 15 were unremarkable and paid in full. Certificates 16 and 17 were equally unremarkable but had not been paid before execution of the terms of settlement. Certificate 14 was different to the other certificates in that it incorporated a deduction for GAH's claim of $190,000 for liquidated damages. It was as follows:

_____________________________________________________________________

_____________________________________________________________________

_____________________________________________________________________

PROPRIETOR: MHY/Handbury Joint Venture Pty Ltd ACN: 089 865 298 CERTIFICATE NO: 14

CONTRACTOR: Buxton Constructions Pty Ltd DATE PRINTED: 12/04/2006

INVOICE NO: TBA CLAIM DATE: 31/03/2006 COST CODE: 100.10.00

___________________________________________________________________________________

____________________________________________________________________________________________

CONTRACT WORK ASSESSED TOTAL This Certificate TOTAL Previous THIS PAYMENT

____________________________________________________________________________________________

VALUE OF WORK DONE $10,934,251 $10,231,276 $702,975

DEDUCTIONS: Liquidated damages (66 days as per contract administrator's

Additional Liquidated damages for delay in hand over of Buildings

B and A from 1st to 29th March 2006 (29 days @ $2,000 per day -($ 58,000)

____________________________________________________________________________________________

____________________________________________________________________________________________

____________________________________________________________________________________________

____________________________________________________________________________________________

DATE DUE FOR PAYMENT: 28/04/2006 CHEQUE AMOUNT: $AUS DOLLARS $564,273

____________________________________________________________________________________________

SECURITY HELD TO DATE Security Limit: 5.00% $418,420

____________________________________________________________________________________________

____________________________________________________________________________________________

12 Following the issue of Certificate 14, Buxton issued a tax invoice in the amount of $564,273 and GAH paid that amount. But, at the same time, Buxton also gave notice that it disputed GAH's claim for liquidated damages and GAH's entitlement to deduct that or any amount from the amount claimed in Certificate 14.

**13 The question for judgment below was whether within meaning of clause 1(c) of the terms of settlement 'the unpaid amounts due in respect of' payment certificate 14 included the $190,000 which GAH had deducted from the amount otherwise payable. It was agreed that the parties' position papers at the mediation, which were referred to in the terms of settlement, were part of the material that could be considered in construing clause 1(c).

14 The judge held that 'the unpaid amounts due in respect of' payment certificate 14 included the $190,000 , essentially for four reasons:

• First, he said that the words of clause 1(c) had to be read in the light of the express mutual releases from all claims under or pursuant to the Building Contract 'save those expressly provided for herein'. As his Honour observed, Buxton was thereby released from any obligation to pay any amount due by it to GAH under the Building Contract, including in respect of any claim by GAH for liquidated damages; because there was not an express provision to the contrary. Contrastingly, the unpaid amounts due by GAH to Buxton under payment certificates 1 to 17 were not the subject of the releases. It was expressly provided in clause 1(c) that those amounts be paid.

• Secondly, the judge considered that, upon its proper construction, clause 1(c) imposed an obligation on GAH to pay what was unpaid by GAH to Buxton in respect of payment certificates 1 to 17. It did not impose an obligation on Buxton to pay amounts unpaid by it to the owner in respect of payment certificates, such as, for example, the liquidated damages referred to in payment certificate 14.

• Thirdly, the judge noted that there was no provision in the Building Contract which enabled GAH to treat its payment of $564,273 on account of certificate 14 as if it were payment of the whole sum of $702,975 stated in the certificate. To the contrary, the judge said, the scheme of the contract was to treat payments by the owner under payment statements as 'on account' of the contract price and without any admission of liability; and, in his Honour's view, there was no reason to suppose that the parties intended any different consequence when GAH defacto 'paid' itself for a liquidated damages claim by means of a purported right of set-off.

• Fourthly, the judge considered that there was nothing in the terms of settlement or in the surrounding circumstances which indicated a different intention for the purposes of the terms of settlement. To the contrary, his Honour said, the fact that each party in its position paper claimed an entitlement to the $190,000 reinforced the conclusion that the parties intended to treat the $190,000 as an unpaid amount due to the contractor under payment certificate 14. And that was especially so when regard was had to the release of all of the owner's claims, and the express preservation of the contractor's claims for amounts due and unpaid in respect of the payment certificates.**

**15 GAH contends that the judge erred by failing to pose for himself the question of whether the sum of $190,000 plus GST was upon the proper construction of clause 1(c) of the terms of settlement 'due' in respect of payment certificate 14. We reject that contention. It is plain from his Honour's reasons that he took the question for decision to be whether so much of the amount of $702,975 shown in certificate 14 as was not paid because of the $190,000 set-off was 'an unpaid amount due in respect of payment certificate 14'.[3]

16 GAH next submits that, even if the judge asked himself the correct question, ex facie the only amount due in respect of certificate 14 was the sum of $564,273 shown in the certificate as due for payment, and therefore that is what the parties must have intended by clause 1(c). As GAH would have it, the 'amount due' is to be construed by reference to what is claimed in the certificate and not by reference to what the contract provides is to be claimed in the certificate.

17 We do not accept that submission either. It treats clause 1(c) as if it referred to the 'amount described in the certificate as being due.' But the clause does not say that. It provides for 'unpaid amounts due in respect of the payment certificates', and the words 'in respect of' are words of potentially wide possible connection.[4] The implication is that clause 1(c) was intended to impose an obligation on GAH to pay all those amounts which had been claimed and not paid to date.

18 Furthermore, the scheme for payment laid down by clauses 12.7, 12.8 and 12.9 is opposed to the notion that the amount due under a certificate is the amount remaining after setting off a claim under clause 12.19. As appears above, a payment statement under clause 12.7 is required to state the amount payable by the Owner to the Contractor on account of the contract price and otherwise under the contract and, under clause 12.8, the Owner is required to pay the amount set out in the statement as then payable [scil. on account of the contract price and otherwise under the contract]. Clause 12.19 affords a right of set-off against amounts 'otherwise due', but it does not provide for the results of the set-off to be included in the payment statement. Counsel for GAH accepted that the amount 'otherwise due' is the amount under clause 12.7 and that the amounts that may be set off under the contract do not affect the amount due under clause 12.7. The scheme of the contract is thus that a set-off under clause 12.19 is to take place, if at all, only after the payment statement has been issued and, assuming that the claimed set-off is valid, in satisfaction of the amount 'otherwise due'. In this case the set-off was disputed.

19 So, looking at the matter objectively from Buxtons' point of view, the unpaid amount due in respect of Certificate 14 was the amount of $190,000 which Buxton contended had been wrongly deducted and, looking at the matter objectively from GAH's point of view, given that GAH agreed by the terms of settlement to give up all its claims other than those expressly provided for in the terms of settlement, and that the $190,000 claim for liquidated damages was not expressly provided for in the terms of settlement, the unpaid amount due in respect of Certificate 14 was the amount of $190,000 which it had previously contended it was entitled to setoff. The logical implication is that the expression 'unpaid amounts due in respect of the certificates' was selected in order to embrace that understanding.

20 GAH further contends that the trial judge did not give adequate reasons as to why the reference in the certificate to its liquidated damages claim should be disregarded. We do not agree. The reasoning of his Honour makes plain why the set-off included in the certificate is not to be taken into account in determining the amount due under the contract. Moreover, it is for this court to construe the terms, the trial judge having no particular advantage.

21 Alternatively, counsel argues that Buxton did not contend at trial that the certificate should not have included any particulars of set-off of liquidated damages and that, if that had been raised, GAH may have relied upon a variation to clause 12 or an estoppel to support the inclusion of the set-off in the certificate. There is no substance in this submission. According to the pleadings and the reasons for judgment, Buxton's case has always rested in part upon the contention that 'the amount due' in respect of certificate 14 is the amount that is due pursuant to clause 12.7 of the Building Contract. Buxton has not changed its position and the trial judge has reached no conclusion that catches GAH by surprise.

22 GAH contends in the alternative that 'due' according to ordinary acceptation means 'immediately payable' and submits that the sum of $190,000 plus GST was not immediately payable: for the reason that Buxton might not have been able to establish a valid claim to that amount.

23 In our view there are two answers to that proposition. First, 'due' and 'payable' are not necessarily synonymous. An obligation may be debitum in praesenti and yet still only solvendum in futuro.[5] Secondly, the amount of $190,000 was immediately payable. Granted, that clause 12.19 conferred a right of set-off, it was a right of set-off at law, and a set-off at law does not extinguish an obligation against which it is set up in answer. Unlike equitable set-off or an accord and satisfaction, legal set-off admits the debt which is due but in effect sets up a cross-claim as being a ground on which the debtor is excused from payment. Until and unless the debtor recovers judgment on the set-off in favour of the debtor the debt remains extant.[6] It would be different if it were an agreed set-off. That would amount to payment.[7] But that was not this case. Clause 12.19 provided for set-off but did not commit Buxton to agreeing to the set-off. Buxton remained free to dispute the set-off as it did. Effectively, the only thing which GAH derived from clause 12.9 was a right to plead in bar.

24 GAH contends that the judge was in error in failing to take into account that Buxton issued a tax invoice for the net amount of certificate 14 and was paid that amount. It argues that those facts constituted clear objective evidence of the parties' state of mind at the time of entry into the terms of settlement.

25 We reject that argument. Given the terms of the Building Contract, the only thing that the issue of the tax invoice could be taken to have said about the parties' state of mind was that Buxton realised that the GAH could not be forced to pay more until the dispute about the $190,000 claim for liquidated damages was resolved. The fact that the tax invoice was accompanied by a notice disputing the entitlement of GAH to deduct the $190,000 puts the matter beyond doubt.

26 GAH argues as well that Buxton would have made the terms of settlement clearer if the sum of $190,000 were still to be paid. That argument is unpersuasive, resting as it must upon a view as to the likely construction of the terms. It might equally be said that GAH would have required a clear term if it were intended that it was to be released from making that payment.

27 Finally, GAH prays in aid the fact that, when the terms of settlement were first drawn up, clause 1(c) provided that '(c) the unpaid amounts due in respect of certified claims' and that before the terms of settlement were executed that was amended to read: '(c) the unpaid amounts due in respect of payment certificates 1 to 17'. Counsel argues that whereas the earlier form of the clause might be taken to mean the amount claimed by Buxton, the change in verbiage implies a considered decision to confine GAH's payment obligation under clause 1(c) to the net amount remaining after set off of the $190,000 claim for liquidated damages.

28 We do not accept that argument either. It is impermissible to construe a contract by looking at what the parties said or did in the course of negotiations.[8] Consequently, where an instrument appears to have been altered during the course of negotiations, the court cannot look at the instrument as it originally stood compared to the alterations which were made in it in order to throw light upon the parties' intention.[9] It is different in a case where a printed form has been used and altered or in an action for rectification. But in this case, the terms of settlement were drafted wholly in hand and there is no question of rectification. Furthermore, the term 'certified claims' would not advance GAH's argument that the amount due under clause 1(c) is the amount after setting off its claim under 12.19. There is no such thing as a certified claim under the Building Contract. The contractor's 'payment claim'[10] when received by the administrator, requires the administrator to determine the amount 'then payable by Owner to the Contractor'. The administrator's determination is then to be set out in the 'payment statement' given to the Contractor and Owner.[11] The parties accepted that 'contractor payment certificate' 14 was a 'payment statement' under the Building Contract.

29 Buxton contends that the judge was right. The terms of settlement released and discharged GAH from Buxton's claim for delay costs and released and**

discharged Buxton from GAH's claim for liquidated damages, so that GAH's claim for liquidated damages was in effect offset against Buxton's claims for delay costs. Buxton asks rhetorically, was it really the parties' intention by clauses 1 and 3 of the terms that the amounts specified 'on account' in payment certificates would also not be paid when these amounts were not the subject of the releases?

30 We accept that contention. A reasonable person in the position of the parties would have understood the expression in clause 1(c) 'the unpaid amounts due in respect of payment certificates' as being the amount GAH was required to pay Buxton in respect of the full value of the work done by Buxton 'on account' of the contract price. The Building Contract did not provide for any amount of set-off claimed by GAH to be included in the 'payment statement'.

**31 In our view the judge was correct for the reasons which he gave that the effect of clause 1(c) of the terms of settlement was inter alia to require GAH to pay the amount of $190,000 which it had purported to set off in reduction of the amount otherwise due under payment certificate 14.

32 It follows in our view that the appeal should be dismissed.**

[4] Trustees Executors Etc Co v Reilly [1941] VicLawRp 22; [1941] VLR 110, 111; Powers v Maher [1959] HCA 52; (1959) 103 CLR 478, 484-5; cf. The Herald & Weekly Times Ltd v Victorian Civil and Administrative Tribunal [2005] VSC 44; (2005) 11 VR 422, 427.

[5] Federal Commissioner of Taxation v James Flood Pty Ltd [1953] HCA 65; (1953) 88 CLR 492, 507.

[6] In re K L Tractors [1954] VicLawRp 70; [1954] VLR 505, 507; Meagher Gummow & Lehane's Equity, Doctrines and Remedies, 4th Ed, [37-045].

[7] Spargo's Case (1873) LR 8 Ch App 407, 412; The Commissioner of Stamp Duties (New South Wales) v Perpetual Trustees Company Ltd [1929] HCA 27; (1929) 43 CLR 247, 271; East Finchley Pty Ltd v Federal Commissioner of Taxation (1989) 89 ATC 5280, 5290; Pro-Image Studios v Commonwealth Bank of Australia & Anor (1991) 4 ACSR 586, 588-9.

[8] Prenn v Simmonds [1971] 1 WLR 1381, 1385; L G Schuler A G v Wickman Machine Tool Sales Ltd [1973] UKHL 2; [1974] AC 235, 261; Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352.

[9] Inglis v Buttery (1878) LR 3 App Cas 552, 558; Chitty on Contract, 25th ed [782]; Backhouse Motor-Bus Services (Adelaide) (in liq) [1920] SALR 81, 96.