CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS –
REMUNERATION – DEDUCTIONS – where the applicant
and first respondent
entered into a modified AS2124 – 1992 cost plus construction contract
Source
Original judgment source is linked above.
Catchwords
CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS –REMUNERATION – DEDUCTIONS – where the applicantand first respondententered into a modified AS2124 – 1992 cost plus construction contractwhich operated in respect of bothpre-contractual and post-contractual workcarried out by the applicant for the first respondent in respect of a mixed-usedevelopmentproject – where the second respondent is the corporateSuperintendent under the construction contract responsible for certifyingpayment claims made by the applicant for works performed under the contract– where a portion of the construction costs are“SupervisionCosts” for direct services supplied by the applicant’s employees andofficers – where the Superintendentrevisited, and reduced, SupervisionCosts previously paid by the first respondent to the applicant in respect ofpayment claims 3to 31 – where the applicant challenges theSuperintendent’s contractual ability to reduce the cost of work already
claimed
and paid in payment claims 3 to 31, or alternatively, the cost of work
claimed and paid in payment claims 3 to 12 which cover the
works done
pre-contractually – whether the Superintendent was contractually
prohibited from reducing Supervision Costs previously
paid in respect of payment
claims 3 to 31 – whether the Superintendent was contractually prohibited
from reducing Supervision
Costs previously paid in respect of payment claims 3
to 12
CONTRACTS – BUILDING, ENGINEERING AND RELATED CONTRACTS –
REMUNERATION – CERTIFICATES – FINALITY OF CERTIFICATES
– where
the applicant and first respondent accept that if the Superintendent is
contractually prohibited from revisiting, and
reducing, Supervision Costs
previously paid in respect of payment claims 3 to 31, or 3 to 12, then the Court
should sever the reduction
made by the Superintendent on the relevant
certificate – whether the Court can sever a prohibited part of a payment
certificate
without affecting the validity of the remaining portion of the
certificate
Building Industry Fairness (Security of Payment) Act
2017 (Qld), s 101(4)
Acciona Infrastructure Australia Pty Ltd v
Chess Engineering Pty Ltd (No 2) [2020] NSWSC 1788
& General Life of Australia Ltd v A Hudson Pty Ltd (1985) 1 NSWLR
314
Maxcon Constructions Pty Ltd v Vadasz (No
2) (2017) 127 SASR 193
Minister for Immigration and Multicultural
Affairs v Bhardwaj (2002) 209 CLR 597
[2002] HCA 11
New South Wales
v Banabelle Electrical Pty Ltd [2002] NSWSC 178
(2002) 54 NSWLR 503
Nicholson v Knaggs
(No 3 - Severance and Costs) [2009] VSC 328
Re Concrete Constructions
Group Pty Ltd
Blue Chip Pty Ltd v Concrete Constructions Group Pty
Ltd [1997] 1 Qd R 6
Re McBain
Ex parte Australian Catholic
Bishops Conference [2002] HCA 16
(2002) 209 CLR 372
Rhomberg Rail Australia Pty Ltd
v Concrete Evidence Pty Ltd [2019] NSWSC 755
Sino Iron Pty Ltd v
Mineralogy Pty Ltd (2019) 55 WAR 89
WMC Resources Ltd v Leighton
Contractors Pty Ltd (1999) 20 WAR 489
YIC Industrial Pty Ltd v SPA
Investments Pty Ltd (2022) 10 QR 768
Judgment (187 paragraphs)
[1]
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - DEDUCTIONS - where the applicant and first respondent entered into a modified AS2124 - 1992 cost plus construction contract which operated in respect of both pre-contractual and post-contractual work carried out by the applicant for the first respondent in respect of a mixed-use development project - where the second respondent is the corporate Superintendent under the construction contract responsible for certifying payment claims made by the applicant for works performed under the contract - where a portion of the construction costs are "Supervision Costs" for direct services supplied by the applicant's employees and officers - where the Superintendent revisited, and reduced, Supervision Costs previously paid by the first respondent to the applicant in respect of payment claims 3 to 31 - where the applicant challenges the Superintendent's contractual ability to reduce the cost of work already claimed and paid in payment claims 3 to 31, or alternatively, the cost of work claimed and paid in payment claims 3 to 12 which cover the works done pre-contractually - whether the Superintendent was contractually prohibited from reducing Supervision Costs previously paid in respect of payment claims 3 to 31 - whether the Superintendent was contractually prohibited from reducing Supervision Costs previously paid in respect of payment claims 3 to 12
[2]
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - CERTIFICATES - FINALITY OF CERTIFICATES - where the applicant and first respondent accept that if the Superintendent is contractually prohibited from revisiting, and reducing, Supervision Costs previously paid in respect of payment claims 3 to 31, or 3 to 12, then the Court should sever the reduction made by the Superintendent on the relevant certificate - whether the Court can sever a prohibited part of a payment certificate without affecting the validity of the remaining portion of the certificate
WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489
[29]
YIC Industrial Pty Ltd v SPA Investments Pty Ltd (2022) 10 QR 768
[30]
M F Johnston KC with T Smith, for the first respondent
[31]
[1] The applicant ("GMG") and the first respondent ("Iris") entered into a written construction contract on 24 May 2024 in relation to a mixed-use development in Western Australia known as the Shenton Quarter Project ("the Project"). The second respondent ("the Superintendent") is the corporate superintendent under the construction contract.
[2] The construction contract is a modified AS2124 - 1992 which operated in respect of both pre-contractual and post-contractual construction work carried out by GMG for Iris in respect of the Project.
[3] Before GMG's involvement, the Project was in a partially complete state. Unsurprisingly, the construction contract was a cost plus agreement. The plus factor was 10 per cent of the construction costs, together with GST which was then added on.
[4] An identifiable portion of the construction costs were for direct services supplied by GMG employees and officers ("Supervision Costs").
[5] A dispute has arisen between GMG and Iris in respect of Payment Certificates 32 to 40, where, in the process of certifying the corresponding payment claims submitted by GMG, the Superintendent revisited certain Supervision Costs previously paid or certified in respect of Payment Claims 3 to 31.
[6] The ambit of the dispute the subject of this originating application is a confined one.
[7] The real issues the subject of this confined dispute are:
Was the Superintendent contractually prohibited from revisiting Supervision Costs previously paid or certified in respect of Payment Claims 3 to 31?
By reason of Special Condition 3.11, was the Superintendent contractually prohibited from revisiting Supervision Costs previously paid in respect of Payment Claims 3 to 12?
If the answer to either real issue 1 or 2 is in the affirmative, can the prohibited part of the certificate be severed without affecting the validity of the remaining portion of the certificate?
[8] It was accepted by both parties that if GMG obtained an affirmative answer to either of the first or second real issue, and also the third real issue, then the Court should give a judgment in favour of GMG in an amount which reflected the severed reduction which the Superintendent had impermissibly made.
[32]
[9] As set out in the introduction, the construction contract was a form of cost plus contract entered into for the partially built Project.
[10] There was pre-contractual construction work undertaken by GMG for Iris, which included the work identified in Payment Claims 3 to 12. Those particular payment claims were defined in the construction contract as the "Prior Payment Claims". As will be seen, the subject matter of these Prior Payment Claims was dealt with quite differently to all other payment claims. Special Condition 3.11 of the construction contract contained an agreement by Iris to the effect that it would not challenge the amounts payable under the Prior Payment Claims.
[11] At the heart of the dispute before the Court was the fact that the Superintendent retrospectively carried out a reassessment of Supervision Costs. This included the Supervision Costs within the Prior Payment Claims which the Superintendent had not assessed in the first instance. It also included Supervision Costs previously paid or certified for Payment Claims 13 to 31.
[12] Specifically, in Payment Certificates 32 to 40, the Superintendent revisited the Supervision Costs the subject of Payment Claims 3 to 31. Those Supervision Costs were reduced initially by a rate of 12 per cent, and then subsequently by an increased rate of 40.6 per cent.
[13] The 12 per cent and then later 40.6 per cent reductions made by the Superintendent were attributable in each case to the Superintendent purportedly forming an opinion that the reductions accounted for impermissible profit components in the Supervision Costs claimed. A general breakdown of those amounts, at the 40.6 per cent reduction rate, can be seen at paragraph [40] of the affidavit of John Gowdie, sworn 18 June 2025.[2] Further, Certificate 40 contains detailed calculations of how the reductions had been made for Supervision Costs previously covered by each of Payment Claims 3 to 31. Those calculations allow an accurate identification of the dollar reductions applied to Supervision Costs for each GMG officer or employee over each of Payment Claims 3 to 31.
[14] The reductions in Certificate 40 for Payment Claims 3 to 31 referrable to Supervision Costs, inclusive of the uplift of 10 per cent and the requisite GST, comes to a total amount of $1,331,908.33. This represents the amount the subject of the first real issue.
[33]
[18] The first and second real issues in this case will largely turn on an analysis of the contractual provisions. Those provisions need to be set out in some detail.
[19] As stated in the introduction, the construction contract was a modified AS2124. The modifications to the general conditions of the AS2124 were identified in Part B and Special Condition 2.1.
[20] Relevantly for this proceeding, the general structure of the construction contract was as follows:
unmodified general conditions of the AS2124;
Parts A and B of the AS2124;
Special Conditions; and
Schedule C and D to the Special Conditions.
[21] Starting then with the general conditions of the AS2124, the following clauses are relevant.
[22] Clause 1 provided, in part, as follows:
[34]
The law governing the Contract, its interpretation, any agreement to arbitrate and the conduct of any arbitration or litigation, is the law of the State or Territory stated in the Annexure.
[35]
[23] Clause 2.1 provided, in part, as follows:
[36]
In the Contract, except where the context otherwise requires -
[37]
'Works' means the whole of the work to be executed in accordance with the Contract, including variations provided for by the Contract, which by the Contract is to be handed over to the Principal.
[38]
[24] Clause 23 provided, in part, as follows:
[39]
The Principal shall ensure that at all times there is a Superintendent and that in the exercise of the functions of the Superintendent under the Contract, the Superintendent -
[40]
(b) acts within the time prescribed under the Contract or where no time is prescribed, within a reasonable time; and
(c) arrives at a reasonable measure or value of work, quantities or time.
[41]
[25] Clauses 42.5 to 42.9 provided as follows:
[42]
The Contractor shall give the Superintendent at least 14 days notice of the date upon which the Contractor anticipates that Practical Completion will be reached.
[43]
When the Contractor is of the opinion that Practical Completion has been reached, the Contractor shall in writing request the Superintendent to issue a Certificate of Practical Completion. Within 14 days of the receipt of the request, the Superintendent shall give to the Contractor and to the Principal a Certificate of Practical Completion certifying the Date of Practical Completion or give the Contractor in writing the reasons for not issuing the Certificate.
[44]
When the Superintendent is of the opinion that Practical Completion has been reached, the Superintendent may issue a Certificate of Practical Completion whether or not the Contractor has made a request for its issue.
[45]
The issue of a payment certificate or a Certificate of Practical Completion shall not constitute approval of any work or other matter nor shall it prejudice any claim by the Principal or the Contractor.
[46]
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'.
[47]
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.
[48]
After the expiration of the period for lodging a Final Payment Claim, any claim which the Contractor could have made against the Principal and has not been made shall be barred.
[49]
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.
[50]
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 -
[51]
(a) fraud, dishonesty or fraudulent concealment relating to the Works or any part thereof or to any matter dealt with in the said Certificate;
[52]
(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
[53]
(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.
[54]
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.
[55]
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."
[56]
[26] Clauses 47.1 and 47.2 provided as follows:
[57]
If a dispute between the Contractor and the Principal arises out of or in connection with the Contract, including a dispute concerning a direction given by the Superintendent, then either party shall deliver by hand or send by certified mail to the other party and to the Superintendent a notice of dispute in writing adequately identifying and providing details of the dispute.
[58]
Notwithstanding the existence of a dispute, the Principal and the Contractor shall continue to perform the Contract, and subject to Clause 44, the Contractor shall continue with the work under the Contract and the Principal and the Contractor shall continue to comply with Clause 42.1.
[59]
A claim in tort, under statute or for restitution based on unjust enrichment or for rectification or frustration, may be included in an arbitration.
[60]
Within 14 days after service of a notice of dispute, the parties shall confer at least once, and at the option of either party and provided the Superintendent so agrees, in the presence of the Superintendent, to attempt to resolve the dispute and failing resolution of the dispute to explore and if possible agree on methods of resolving the dispute by other means. At any such conference each party shall be represented by a person having authority to agree to a resolution of the dispute.
[61]
In the event that the dispute cannot be so resolved or if at any time either party considers that the other party is not making reasonable efforts to resolve the dispute, either party may by notice in writing delivered by hand or sent by certified mail to the other party refer such dispute to arbitration or litigation.
[62]
A party served with a notice of dispute may give a written response to the notice to the other party and the Superintendent within 28 days of the receipt of the notice.
[63]
Within 42 days of the service on the Superintendent of a notice of dispute or within 14 days of the receipt by the Superintendent of the written response, whichever is the earlier, the Superintendent shall give to each party the Superintendent's written decision on the dispute, together with reasons for the decision.
[64]
If either party is dissatisfied with the decision of the Superintendent, or if the Superintendent fails to give a written decision on the dispute within the time required under Clause 47.2 the parties shall, within 14 days of the date of receipt of the decision, or within 14 days of the date upon which the decision should have been given by the Superintendent confer at least once to attempt to resolve the dispute and failing resolution of the dispute to explore and if possible agree on methods of resolving the dispute by other means. At any such conference, each party shall be represented by a person having authority to agree to a resolution of the dispute.
[65]
In the event that the dispute cannot be so resolved or if at any time after the Superintendent has given a decision either party considers that the other party is not making reasonable efforts to resolve the dispute, either party may, by notice in writing delivered by hand or sent by certified mail to the other party, refer such dispute to arbitration or litigation.
[66]
[27] Turning then to Parts A and B of the AS2124. Part A relevantly provided that for the purpose of cl 1 of the general conditions, the law which was applicable was Western Australian. In respect of Part B, the following items were relevant:
[67]
"1. The following Clauses have been deleted from the General Conditions in AS 2124 - 1992:
The following Clauses have been amended and differ from the corresponding Clauses in AS2124 - 1992:
[70]
The following Clauses have been added to those of AS2124 - 1992:
[71]
[28] Turning then to the special conditions. Special Condition 1 relevantly provided, in part, as follows:
[72]
1.1 The following definitions also apply to this Contract:
[73]
(g) "Contractor's Fee" means 10% plus GST of the Cost of the Works.
(h) "Contract Sum" means the sum payable to the Contractor by the Principal, being the Cost of the Works plus the Contractor's Fee.
[74]
(j) "Cost of the Works" means the reasonable, proper, and demonstrably incurred cost of the Works including but not limited to:
(1) all categories of costs set out in the Costs to Complete Estimate;
[75]
(2) all categories of costs set out in the Prior Payment Claims;
[76]
(3) all amounts payable by the Contractor as tenant under the Lease (including rent, maintenance and make good costs), except to the extent that any amount is payable due to a breach of the Lease by the Contractor;
[77]
(4) the cost of all subcontractors (including labour and / materials) related to the Works;
(5) the costs of labour and services supplied by or on behalf of the Contractor that are directly or indirectly related to completion of the Building, limited to (unless otherwise agreed by the Principal) those roles for which an hourly rate is set out in Schedule C;
(6) all fees payable in relation to any consent, approval or permit required for carrying out the Works;
(7) all fees payable for any surveyor, structural engineer, architect or other consultant engaged by the Contractor;
(8) all premiums and other costs relating to any insurances the Contractor is required to effect for the carrying out of the Works;
(9) the cost of all building materials;
(10) the Off-site Costs; and
(11) any excess for insurance claims by the Contractor,
(12) any costs agreed in writing by the Superintendent and Quantity Surveyor,
[78]
and provided that the Cost of the Works excludes any element of profit, and, except for the Off-site Costs, offsite overhead, or contribution to offsite overhead payable, directly or indirectly, to either the Contractor or any related body corporate of the Contractor.
[79]
(1) costs relating to information technology services (including integration with the Procore information management system), computer hardware and software directly related to or required for the Works and the Project,; and
[80]
(2) costs of off-site labour and supervision services supplied by the Contractor that are related to the Works, limited to (unless otherwise agreed by the Principal) those categories of roles for which an hourly rate is set out in Schedule C.
[81]
(t) "Prior Payment Claims" means Payment Claims for Works issued by the Contractor prior to the date of execution of this Contract, copies of which appear in Schedule D;
[82]
(v) "Quantity Surveyor" means the quantity surveyor approved by the Financier.
[83]
(x) "Works" means all works required to bring the Building to completion and rectify the Agreed Defects as set out in this Contract."
[84]
[29] Special Condition 2 relevantly provided, in part, as follows:
[85]
2.1 In lieu of clauses 3 and 42.1 of the General Conditions the following clause 3 of the Special Conditions applies.
[86]
[30] Special Condition 3 relevantly provided, in part, as follows:
[87]
3.1 The Contractor will execute and complete the Works and the Principal will pay the Contractor for the Works in accordance with and at the times specified in this special condition 3.
[88]
3.2 The Contractor shall deliver to the Superintendent and the Quantity Surveyor fortnightly claims for payment with the final claim being issued within 28 days after the expiration of the Defects Liability Period, or where there is more than one, the last to expire, ("Payment Claim") which are:
[89]
(a) supported by documentary evidence of the amount due to the Contractor; and
(b) for the Cost of the Works that are reasonably, properly and demonstrably incurred.
[90]
3.2A The Superintendent or Quantity Surveyor may, within 3 Business Days of receipt of a Payment Claim, request reasonable additional information or documentary evidence from the Contractor in connection with the amount claimed in the Payment Claim. The Contractor shall provide that information to the Superintendent and Quantity Surveyor as soon as reasonably possible and, in any event, within 2 Business Days after the request.
3.4 Within 5 Business Days after receipt of a Payment Claim, the Quantity Surveyor shall issue to the Principal and to the Contractor a certificate stating the amount of the payment which, in the opinion of the Quantity Surveyor, is to be made by the Principal to the Contractor, or by the Contractor to the Principal ("QS Certification").
[93]
3.5 Within 5 Business Days after receipt of a Payment Claim, 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 ("Payment Certificate"). The Payment Certificate must include the calculations used 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.
[94]
3.6 Subject to the provisions of the Contract, within 10 Business Days after receipt by the Superintendent, the Quantity Surveyor and the Principal of a Payment Claim or within 5 Business Days of issue by the Quantity Surveyor of a QS Certification, 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 QS Certification as due to the Contractor or to the Principal as the case may be, or if no QS Certification has been issued within the prescribed timeframe, the Principal shall pay to the Contractor or the Contractor shall pay to the Principal, as the case may be, the amount as shown on the Payment Certificate, or if no QS Certification or Payment Certificate has been issued within the prescribed timeframe, the Principal shall pay the amount as shown on the Payment Claim.
[95]
3.7 A payment made pursuant to this special condition 3 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 final 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.
[96]
3.8 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.
[97]
3.9 In respect of any Payment Claims for the Cost of the Works, the Contractor must maintain open and transparent accounting records of all Costs of the Works and must make these records available to the Principal upon request.
[98]
3.8A If requested by the Superintendent, the Contractor shall provide reasonable information and documentary evidence demonstrating the build-up and cost base of each hourly rate set out in Schedule C (or other hourly rate that may be subsequently agreed). A request under this special condition 3.8A may only be made once in respect of each hourly rate. The Superintendent may, within 5 Business Days after a review under this special condition 3.8A, request reasonable additional documentary evidence or information from the Contractor and the Contractor shall promptly provide such information.
[99]
3.11 The Principal expressly agrees that the Prior Payment Claims are due and payable by the Principal to the Contractor, and the Principal waives any right to amend, audit, dispute or offset any amounts from the Prior Payment Claims.
[100]
[31] Turning then to the schedules to the special conditions the following schedule is relevant:
[101]
The Contractor warrants and represents to the Principal that the following hourly rates exclude any element of profit.
[102]
[32] It should be noted that Schedule D to the special conditions exhibited the actual Prior Payment Claims 3 to 12. It is unnecessary to reproduce them.
[33] For completeness, it should be noted that despite Special Condition 3 referencing a Quantity Surveyor, no such Quantity Surveyor had been appointed. As a result, the sole certification process under the construction contract was undertaken by the Superintendent.
[103]
First real issue - was the Superintendent contractually prohibited from revisiting Supervision Costs previously paid or certified in respect of Payment Claims 3 to 31?
[104]
[34] GMG contends that on the proper interpretation of the construction contract the Superintendent could not revisit the subject matter of payment claims which had previously been paid or certified. Its submissions were as follows.
[35] First, GMG submitted that the sole focus for the Superintendent when forming an opinion about a payment claim pursuant to Special Condition 3.5, was what, if anything, was payable to GMG for the Cost of the Works and Contractor's Fee in the payment claim submitted.
[36] GMG said that Special Condition 3.5 only contemplated an outcome which involved a positive payment to GMG. Special Condition 3.5 provided that the certificate was to state "...the amount of the payment which, in the opinion of the Superintendent, is to be made by the Principal to the Contractor". Those words were contrasted by GMG to the words in Special Condition 3.4 which contemplated the possibility of a Quantity Surveyor engaging in a certifying process which could lead to a positive or negative outcome. Special Condition 3.4 provided that the certificate was to state the amount of payment which, in the opinion of the Quantity Surveyor, "...is to be made by the Principal to the Contractor, or by the Contractor to the Principal".
[37] The different language was said by GMG to be deliberate and indicative of the Superintendent's certificate only concerning work not previously claimed.
[38] Secondly, and related to the first submission, it was contended that the opinion referred to in Special Condition 3.5 did not involve a wide-ranging audit or inquiry into all amounts previously invoiced and the subject of prior certification. GMG said that the formulation of the requisite opinion was a prescribed task limited to a consideration of the discrete amount sought to be paid to GMG pursuant to the relevant payment claim then before the Superintendent.
[39] Thirdly, GMG sought to rely on Special Condition 3.2A to bolster the above second submission. Special Condition 3.2A allowed the Superintendent or the Quantity Surveyor to request additional information or documentary evidence from GMG in connection with "...the amount claimed in the Payment Claim". GMG emphasised that the request and response under Special Condition 3.2A had to occur within a short period of time. This was said to be indicative of the opinion only being in respect of a claim for payment for work not previously the subject of a payment claim.
[105]
At any time and from time to time, the Superintendent may by a further certificate correct any error which has been discovered in any previous certificate, other than a Certificate of Practical Completion or Final Certificate."
[106]
[44] It was said that the deliberate omission of this general condition and the failure to include a special condition in a like form, supported GMG's interpretation of Special Condition 3.5. The gravamen of the submission being that past errors in interim certifications were intended to be redressed only by the final certification process or via the dispute mechanism in cl 47 of the general conditions.
[45] Sixthly, it was said that Special Condition 3.8 expressly provided that payment of moneys was not evidence of the value of the work or an admission of liability, but rather was a payment on account only. It was further said that Special Condition 3.7 provided that a payment made in accordance with Special Condition 3 did not prejudice the rights of either party to raise a dispute under cl 47 of the general conditions. The submission was that both of those special conditions were supportive of an interpretation of Special Condition 3.5 which meant that past payments and past certificates were not to be revisited by subsequent certificates, but again were only reviewable in the final certification process or via the dispute mechanism in cl 47 of the general conditions of the AS2124.
[107]
[46] Iris contended that the Superintendent was entitled to revisit prior payments or certifications. In support of that contention, it submitted as follows.
[47] First, Iris focused on certain of the express definitions in Special Condition 1.1.
[48] In particular, Iris noted that "Works" was defined to mean "all works required to bring the Building to completion, and to rectify the Agreed Defects...".
[49] Iris then noted that "Cost of the Works" was defined to mean, inter alia, "the reasonable, proper and demonstrably incurred costs of the Works", which was stated to include but not be limited to 12 descriptive items. Iris emphasised the definition concluded with the following statement: "...and provided that the Cost of the Works excludes any element of profit". Iris submitted that this last part of the definition identified that those costs were to exclude any profit component on the part of GMG. The definition of Contract Sum was said to reinforce this interpretation. The term Contract Sum was defined to mean "the Cost of the Works plus the Contractor's Fee". The "Contractor's Fee" was 10 per cent of the Cost of the Works.
[50] Iris then returned to the definition of Cost of the Works and in particular Item (j)(5)[3] of the definition which contained the following cost item description "...the costs of labour and services supplied by or on behalf of the Contractor that are directly or indirectly related to completion of the Building limited to (unless otherwise agreed by the Principal) those roles for which an hourly rate is set out in Schedule C". Even though some of the roles within Schedule C had a weekly rate, both parties have proceeded on the basis that all the roles identified in Schedule C are included in the roles referred to within Item (j)(5).
[51] By reference to those aspects of the definition of the Cost of the Works emphasised above, Iris contended that the reasonable, proper and demonstrably incurred costs for GMG's Supervision Costs for the roles identified in Schedule C are those costs calculated in accordance with Schedule C, but shorn of any profit component. It said that GMG's only entitlement to a profit component was to be found in the Contractor's Fee.
[52] Secondly, and related to the first point, Iris pointed to the fact that Schedule C contained an express warranty as follows: "The Contractor warrants and represents to the Principal that the following hourly rates exclude any element of profit". Iris submitted that this operated both as a warranty, and also as textual reinforcement of the definition of Cost of the Works which prohibited a profit component. By reference to both of those parts of the construction contract, Iris submitted that the reasonable, proper and demonstrably incurred costs of the Works did not include a profit component for Item (j)(5), being the Supervision Costs for the roles identified in Schedule C.
[108]
(a) supported by documentary evidence of the amount due to the Contractor; and
(b) for the Cost of the Works that were reasonably, properly and demonstrably incurred.
[109]
[54] I pause to note that GMG had submitted that the reference in Special Condition 3.2 to "reasonably, properly and demonstrably incurred" was mere surplusage in light of these words appearing in the definition of the "Cost of the Works". Iris disputed this. Iris submitted that, in effect, Special Condition 3.2 was stipulating that each payment claim was referencing the full "Cost of the Works" which had then been supplied and which were reasonably, properly and demonstrably incurred up to the issuing of each payment claim.
[55] Iris submitted that Special Condition 3.5 read with Special Condition 3.2(b) fell within that category of interim certification clauses which call for a valuation of the whole of the work completed to the date of each payment claim. In support of that submission, Iris relied on the statement by the editors of Hudson's Building and Engineering Contracts, 14th edition, 2020 at 4-069 as follows:
[110]
"In practical terms, it is desirable that errors in a certificate should be corrected by the Certifier, if at a later stage, the Certifier concludes that a mistake has been made. In the case of interim certificates, that is generally possible at the next interim certificate, or in the course of the final account process, and also on the issuing of the final payment certificate.
[111]
Indeed, most provisions for interim payments expressly involve a revaluation of the whole work (not the work done since the last certificate) each time a new certificate is given. Such certificates, then, are usually subject to readjustment, not only in the final certificate but also in subsequent interim certificates..."
[112]
[56] With the exception of Payment Claims 3 - 12 (being the Prior Payment Claims), I accept the interpretation of the construction contract contended for by Iris. My reasoning is as follows.
[57] First, Special Condition 3.2 provides, in part, for the delivery of fortnightly payment claims, which are "...for the Cost of the Works that are reasonably, properly and demonstrably incurred". Those words are indicative of each payment claim being constituted by the Cost of the Works up to the point in time of the particular payment claim issued, rather than only for the portion of the Cost of the Works not already the subject of a payment or a certificate, or in other words, limited only to the Cost of the Works accrued since the last payment certificate.
[58] Special Condition 3.5 sits consistently with such an interpretation of Special Condition 3.2. It provides for the broad formation of an opinion by the Superintendent of the amount of the payment which is to be made by the Principal to the Contractor. That amount of payment can take into account the totality of the Cost of the Works to date, including by making allowances for payments or prior certified sums where no reassessment is relevant.
[59] Secondly, the distinction which was sought to be made by GMG between the wording of Special Condition 3.4 and Special Condition 3.5 is one which does not exist on the proper interpretation of the construction contract. The absence in Special Condition 3.5 of language contemplating a certificate which may identify an amount payable by GMG to Iris (that is, a negative certificate) is, in my view, an obvious drafting error.
[60] There is no logical commercial reason why a potential certificate from a Quantity Surveyor issued under Special Condition 3.4 should be for either a positive or a negative amount, whilst the Superintendent issued certificate under Special Condition 3.5 should be only for a positive amount.
[61] That illogical operation might have still reflected the objective intention of the parties if there were no other textual indicators. However, Special Condition 3.6 also supports that the omission is a drafting error. Special Condition 3.6 imposes the payment obligation flowing from the issued certificates. It provides for a cascading priority of payment obligations. If there is a Quantity Surveyor certificate, payment is to be made on that certificate. If there is none, then payment is to be made on the Superintendent's certificate. If there is again none, then payment is to be made on the full amount claimed in the payment claim.
[113]
"...the amount of payment which, in the opinion of the Superintendent, is to be made by the Principal to the Contract, or by the Contractor to the Principal."
[114]
[66] Thirdly, I accept Iris's submission that there is a broad opinion vested in the Superintendent. Where the payment claim is for the Cost of the Works up to the point of each payment claim, then, with one exception, that broad opinion may include the forming of an opinion as to whether GMG's Supervision Costs for the roles identified in Schedule C to the special conditions have profit components which should be excised.
[67] The exception I refer to is for Payment Claims 3 to 12, which I will deal with later in these reasons.
[68] Fourthly, the interpretation promoted by Iris is not affected by Special Condition 3.2A. Even if Special Condition 3.2A operated for a particular payment claim so that a request for additional documents and information was limited to the portion of the Cost of the Works which had not previously been certified or paid for, the Superintendent would have previously had an opportunity to request additional documentary evidence for the already certified or paid for work when the Superintendent carried out the prior certification process for past payment claims. Practically speaking, a certifier would usually act on the prior certificates, unless rectifying errors or where there was some reason to revisit a previous assessment. It is ultimately unnecessary to express a final view on the operation of Special Condition 3.2A.
[69] Fifthly, Special Condition 3.8A supports the interpretation contended for by Iris. It allows for a single request to be made by the Superintendent during the life of the construction contract. The request may seek the provision of reasonable information and documentary evidence demonstrating the build-up and cost base of each hourly rate set out in Schedule C. Its obvious purpose is to allow the Superintendent to ensure that the Supervision Costs regulated by Schedule C do not have profit components.
[70] An interpretation of the construction contract which recognises that the Superintendent's opinion can exclude such profit components, both retrospectively and prospectively from interim payment certificates, is to be preferred.
[71] The alternative interpretation is unappealing. It would result in a situation where an impermissible profit component had been discovered by the Superintendent, but that Superintendent could not then act on that information until the final payment claim in respect of pre-existing certified amounts. It is unlikely that reasonable businesspersons in the position of the parties would have understood Special Condition 3.5 to have that meaning. An interpretation of Special Condition 3.5 which would allow for that information to be both retrospectively and progressively acted on would be preferable. It would accord with the textual indicators that make clear that the parties agree that GMG is not entitled to be paid for impermissible profit components.
[115]
Second real issue - by reason of Special Condition 3.11, was the Superintendent contractually prohibited from revisiting Supervision Costs previously paid in respect of Payment Claims 3 to 12?
[116]
[79] GMG made a separate submission that, irrespective of the general position reached under the first real issue, the Superintendent was not empowered to seek to question any part of Payment Claims 3 to 12, that is, the Prior Payment Claims. This contention was based on the following propositions.
[80] First, GMG pointed to the nature of Payment Claims 3 to 12 in terms of the formation of the construction contract. These Prior Payment Claims concerned costs of works which pre-dated the entering into of the construction contract. It was emphasised that none of the Prior Payment Claims were ever the subject of certification by the Superintendent.
[81] It was further said that the Prior Payment Claims were not calculated by reference to Schedule C, as that schedule did not exist at the time they were delivered and paid for.
[82] Secondly, GMG relied heavily on the operation of Special Condition 3.11 which provided as follows:
[117]
"3.11 The Principal expressly agrees that the Prior Payment Claims are due and payable by the Principal to the Contractor, and the Principal waives any right to amend, audit, dispute or offset any amounts from the Prior Payment Claims."
[118]
[83] The Prior Payment Claims had been issued by GMG between approximately
[119]
20 December 2023 and 5 February 2024, and they had been paid in full. Whilst not expressly deposed to in the affidavit material, the obvious inference arising from the due dates on the various invoices in Schedule D is that each Prior Payment Claim had been paid for well before the construction contract was entered into in May 2024.
[120]
[84] In the context of the matters set out above, GMG said that the operational effect of Special Condition 3.11 was that the Superintendent was mechanically required to include the Prior Payment Claims in full in any assessed opinion. That is, they were simply to be accounted for and were not challengeable.
[85] Accordingly, to the extent that the Superintendent sought to reopen the Prior Payment Claims when forming its Special Condition 3.5 opinion for the purpose of Payment Certificates 32 to 40, it was doing so outside the terms of the construction contract.
[121]
[86] Iris initially objected to this second real issue being heard, as it submitted the issue was not one which had been previously raised by GMG on the originating application.
[87] I will dispose of this objection first before I summarise Iris's substantive contentions on this second issue.
[88] GMG's initial notice of dispute dated 21 March 2025 expressly relied upon Special Condition 3.11 in disputing that the Superintendent could reopen the Prior Payment Claims.[5]
[89] On 1 April 2025, solicitors for Iris responded to, inter alia, the contention that had been made about Special Condition 3.11. It did so in a way that partly reflected Iris's submissions in response to this issue at the hearing.[6]
[90] On 17 April 2025, GMG sent a further notice which repeated and relied upon aspects of the original notice. This included its contention based on the effect of Special Condition 3.11.[7]
[91] I am satisfied that the second real issue had been sufficiently raised prior to the filing of the originating application.
[92] Whilst not separately identified as an alternative in the originating application relief, the relief sought was broad enough to allow the grant of relief referrable only to the reductions made to Supervision Costs within Payment Claims 3 to 12. Such reductions were a subset of the reductions referred to in the relief (being within Payment Claims 3 to 31).
[93] Further, the amended written submissions of GMG at page 4, and the Schedule A to those submissions at paragraphs [54]-[56] made reference to Special Condition 3.11 and the Prior Payment Claims.
[94] Whilst the significance of the second real issue only fully emerged during oral argument, it was apparent from the above matters that GMG was relying on the operation of Special Condition 3.11 as part of its argument in support of the monetary relief claim as a result of the reductions. Particularly in light of the first notice of dispute dated 21 March 2025, the underlying premise of the second real issue cannot have come as a surprise to Iris.
[95] The second real issue turned on the proper interpretation of the construction contract and the application of principles of law which were already ventilated in support of the first issue.
[122]
[108] I have concluded that the Superintendent acted outside the terms of the construction contract by reducing the Supervision Costs within the Prior Payment Claims. My reasoning is as follows.
[109] It may be immediately accepted that the formation of a broad discretionary valuation by a certifier can accommodate significant mistakes or errors on the part of the certifier. The very nature of an interim certificate is that:
[123]
(a) it is not a final determination for all time;
(b) it ultimately only represents the opinion of the designated person as to value on an interim basis;
(c) the underlying opinion may subsequently be proven to be mistaken or erroneous as to valuation, but in most cases, this will not invalidate the certificate in part or whole.
[124]
[110] Despite these matters, it is still possible to challenge such a certificate if the certifier has acted outside the terms of the contract.
[111] This position was explained by McHugh JA in Legal & General Life of Australia Ltd v A Hudson Pty Ltd(1985) 1 NSWLR 314 at 335 - 336 as follows:
[125]
"...While mistake or error on the part of the valuer is not by itself sufficient to invalidate the decision or the certificate of valuation, nevertheless, the mistake may be of a kind which shows that the valuation is not in accordance with the contract. A mistake concerning the identity of the premises to be valued could seldom, if ever, comply with the terms of the agreement between the parties. But a valuation which is the result of the mistaken application of the principles of valuation may still be made in accordance with the terms of the agreement. In each case the critical question must always be: Was the valuation made in accordance with the terms of a contract?"[8]
[126]
[112] This statement was approved of by Muir J (as his Honour then was) in Covecorp Constructions Pty Ltd v Indigo Projects Pty Ltd[2002] QSC 322 at [30].
[113] The limits of erroneous but valid opinions will be determined by a consideration of the terms of the contract in question. The terms of the contract may, for certain matters or items, require a certifier to value on a mechanical basis by reference to detailed fixed and objective criteria.[9] A failure to apply the contractually required mechanical basis may take the opinion outside the terms of the contract in part or in whole.
[114] The editors of Hudson's have put it this way at paragraph 4-049:[10]
[127]
"...A certificate in proper form, issued at the correct time, will not be invalidated if the Certifier has arrived at a valuation which has later proved to be incorrect in certain respects. The parties have agreed that either temporarily or permanently the Certifier's judgment as to the value is the one which will be used under the contract, and they are normally taken to accept that there will be errors which will either be left uncorrected until a later review or will not be corrected at all. However, a certificate may still contain errors of substance.
[128]
If the certificate then refers to matters outside its scope, such references may have to be ignored or may be so serious as to show that the Certifier was not deciding the right issues."
[129]
[115] In many respects, a Superintendent is acting as a form of expert determiner, albeit on an interim basis for progressive payment claims. In the context of discussing expert determinations, Nettle JA (with whom Maxwell P and Bongiorno AJA agreed) in AGL Victoria Pty Ltd v SPI Networks (Gas) Pty Ltd (formerly TXU Networks (Gas) Pty Ltd)[2006] VSCA 173 observed at [53] - [54] as follows:
[130]
"...[T]he distinction drawn in some of the authorities...[is] between an error in the exercise of a judgment, opinion, or discretion entrusted to an expert, and an error which involves objective facts or a mere mechanical or arithmetical exercise. Subject to the contract in question, it is easier to suppose that parties to a contract contemplate that an error of the former kind be beyond the realm of review than it is to think that they intend it to be fixed with errors of objective fact or in processes of mechanical calculation.
[131]
As this case demonstrates however, matters are likely to be more complex where error occurs in the course of an exercise which is partly comprised of discretion, judgment or opinion and partly constituted of objective fact or mechanical calculation. In some such cases, the overriding discretionary or judgmental character of the exercise may so inform each step in the determination as to put even those steps which are matters of objective fact or mere mechanical calculation beyond the scope of permissible review. In other instances it may appear that, despite the overall character of the exercise, the various steps in the determination are severable, according to whether they are essentially discretionary or judgmental or simply matters of objective fact or mechanical calculation, and that those steps which are of the latter kind are within the scope of permissible review. The question in each case is what the parties should be presumed to have intended, and that is to be determined objectively from the terms of the contract, bearing in mind the context in which it was created." (Footnotes omitted)[11]
[132]
[116] There is no doubt that the Superintendent's opinion allowed for in Special Condition 3.5 had an evaluative aspect to it. One such evaluative aspect concerned the subject matter of Payment Claims 13 to 31 and consideration of whether they included impermissible profit components within the Supervision Costs claimed. Such an interim reassessment by the Superintendent was, in my view, beyond review.
[117] However, that position is to be distinguished from how the Superintendent was required to mechanically deal with the Prior Payment Claims. That is so because:
Those Prior Payment Claims were for pre-contractual work which was not the subject of an initial certification process by the Superintendent.
The Prior Payment Claims had all been paid prior to the construction contract being entered into.
The content of the works and the amount of the costs constituted by the Prior Payment Claims were matters of empirical fact given that all of the constituent invoicing documents were contained in Schedule D to the special conditions. As a result, no value judgment was involved in identifying the works or costs constituted by the Prior Payment Claims.
Most importantly, Special Condition 3.11 contained an express agreement between the parties to the construction contract that operated so that the makeup of the works and costs for the Prior Payment Claims could not be challenged by Iris. That Special Condition again provided as follows:
[133]
"3.11 The Principal expressly agrees that the Prior Payment Claims are due and payable by the Principal to the Contractor, and the Principal waives any right to amend, audit, dispute or offset any amounts from the Prior Payment Claims."
[134]
[118] Special Condition 3.11 unambiguously establishes the status of both the works delivered and the costs incurred under the Prior Payment Claims as being matters beyond challenge by Iris.
[119] Iris said of Special Condition 3.11 that whilst it could not challenge the Prior Payment Claims, the Superintendent was not prohibited from challenging them. Such an interpretation of Special Conditions 3.5 and 3.11 must be rejected. That is not how commercial businesspersons in the context of the construction contract would have understood those clauses to have operated.
[120] Special Condition 3.11 represents a binding agreement, not simply on an interim basis, but also on a final basis. The suggestion that the Superintendent could amend, audit, dispute or offset any amounts from the Prior Payment Claims by way of forming an opinion contemplated by Special Condition 3.5, is one which would entirely undermine the operation of Special Condition 3.11.
[121] The obvious function of Special Condition 3.11 is to establish with empirical certainty the unimpeachable content and value of the Prior Payment Claims.
[122] The Prior Payment Claims were not, at any stage, the subject of an initial certification process undertaken by the Superintendent. Nor did the Prior Payment Claims come within the ambit of Item (j)(5) of the definition of Cost of the Works. Rather, the Prior Payment Claims were separately encompassed in Item (j)(2) of the definition of the Cost of the Works.[12] This accords with their unique status.
[123] While the closing sub-paragraph of the definition of Cost of the Works had the statement "...provided that the Cost of the Works excludes any element of profit...", that particular statement needs to be read in the context of the more specific Special Condition 3.11 which operated to render unimpeachable the work and costs the subject of the Prior Payment Claims as articulated in Schedule D. In effect, the Prior Payment Claims are taken to have no profit component in them, as the parties have expressly agreed:
[135]
(a) they are due and payable in full; and
(b) Iris cannot substantively dispute them.
[136]
[124] The suggestion that the Superintendent could amend, audit, dispute or offset any of the amounts in the Prior Payment Claims in circumstances where Iris was prohibited from doing so should be rejected.
[125] To illustrate this point, make the assumption (as has occurred here), that the Superintendent has reopened the Prior Payment Claims to remove some perceived profit component from Supervision Costs. GMG could then dispute any certificate issued on that basis pursuant to cl 47 of the AS2124. Clause 47 is a dispute resolution mechanism between Iris and GMG. In a dispute under cl 47, GMG would then rely upon Special Condition 3.11 which binds Iris by way of an unambiguous agreement that the Prior Payment Claims are due and payable by Iris to GMG and that Iris cannot amend, audit, dispute or offset any of the amounts of the Prior Payment Claims. In any resolution of such a dispute, GMG would receive the whole of the Prior Payment Claim costs.
[126] Clearly this construction contract did not operate to allow the Superintendent to unilaterally reopen work and costs which Iris was contractually prohibited from reopening or challenging itself, including in relation to any alleged profit component.
[127] On the proper interpretation of the construction contract, in forming the opinion required under Special Condition 3.5, the Superintendent was obliged to mechanically certify the full amount of the empirically established costs of the Prior Payment Claims without deduction. In failing to mechanically certify that full amount, the Superintendent has acted contrary to the terms of the contract, in a way which invalidates, at the minimum, this aspect of its opinion.
[128] The answer to the second real issue is therefore in the affirmative.
[137]
Third real issue - if the answer to either real issue 1 or 2 is in the affirmative, can the prohibited part of the certificate be severed without affecting the validity of the remaining portions of the certificates?
[138]
[129] Having found that the Superintendent acted outside the terms of the contract in forming its opinion in respect of the reductions referrable to the Prior Payment Claims, the next issue is what effect does that have on the certificates which the Superintendent issued.
[130] I have determined that the offending reductions to the certificates, referrable to amounts covered by the Prior Payment Claims, can be severed from the certificates that have been issued. Accordingly, I have answered this question in the affirmative.
[131] Had this not been the case, I would have had to call the matter back on for further argument.
[132] GMG had not made submissions as to whether, absent the ability to sever, the reductions could have invalidated the whole of the certificates. In the absence of such an argument being ventilated, it would not have been appropriate to determine the application on that issue without procedural fairness being afforded to the parties. Given my conclusion on severance, it has been unnecessary to recall the parties for such further argument.
[139]
[133] GMG submitted that the Court could and should sever the reductions made by the Superintendent in respect of the subject matter of the Prior Payment Claims.
[134] First, GMG submitted that the doctrine of severance was a rule of construction derived from the common law.[13]
[135] GMG said that severance, as a rule of construction, was available in a variety of circumstances such as:
[140]
(a) invalid portions of legislation or subordinate legislation;
(b) contractual terms which were uncertain or unenforceable by reason of public policy;
(c) portions of administrative decisions made beyond power;[14]
[136] It was submitted that severance of a contractual term would be permitted if such severance did not materially alter the nature of the bargain or create a new one.[16] It was said that a similar position pertained to severance of invalid portions of a will.[17]
[137] Secondly, GMG made reference to the blue pencil ("blue pencil") test, being the notional crossing out of the severed portion of a document by the running of a blue pencil through it. It was said that the "blue pencil" expression was figurative and did not mandate a mechanical application.
[138] In this respect, GMG relied upon the observations in Harrington v Lowe(1996) 190 CLR 311 at 328 (per Brennan CJ, Dawson, Toohey, Gaudron, McHugh and Gummow JJ) in the context of the severance of a portion of subordinate legislation. The members of the court observed as follows:
[142]
"As to the common law in Australia, the position, as established by the earlier decisions of this Court to which we have referred appears to be that a valid operation for the sub-rules might be preserved after textural surgery by operation of the "blue pencil" rule so that the valid portion could operate independently of the invalid portion, or, failing that, by treating the text as modified so as to achieve severance. But this latter step may be taken only where in so doing there is effected no change to the substantial purpose and effect of the impugned provision, and, in particular, there is not left substantially a different law as to the subject-matter dealt with from what it would otherwise be."
[143]
[139] Thirdly, GMG contended that, applying the above principles, the portion of the certificates from Certificates 32 to 40 which effected reductions to the Prior Payment Claims, could be severed. By analogy, GMG referred to the intermediate appellate court decisions of Maxcon Constructions Pty Ltd v Vadasz (No 2)(2017) 127 SASR 193, particularly at 222 (per Blue J[18] with whom Lovell J agreed) and Duro Felguera Australia Pty Ltd v Samsung C & T Corporation[2018] WASCA 28; (2018) 52 WAR 323, particularly at [140] to [152] (per Buss P and Murphy JA), where severance was found to be available in respect of adjudication decisions made pursuant to those States' equivalent legislation to the Building Industry Fairness (Security of Payment) Act 2017 (Qld) ("the BIF Act").[19]
[140] In relation to the Queensland Court of Appeal decision of BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd[2015] 1 Qd R 228 relied upon by Iris, GMG accepted that Muir JA (with whom Holmes CJ and A Lyons J agreed) had observed as follows:
[144]
"[71] Whatever the position might be if the parties to an adjudication make no complaint about the adjudication decision, the decisions of the High Court relied on by BMA make it plain that once a court determines that a decision of the type in question is affected by jurisdictional error, the decision cannot give rise to legal consequences."
[145]
[141] However, GMG submitted that in making that observation, the Court of Appeal had to consider the availability of severance. GMG submitted that on the appeal both parties had proceeded on the basis that no severance of the underlying adjudication decision was permissible. It was submitted that this had also been the position of both parties at first instance. In this respect, GMG referred to BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd[2012] QSC 346 per Applegarth J at [58].
[142] I pause to note that, in relation to the submission made in respect of how both parties proceeded on the appeal, by reference to the authorised report of BM Alliance,[20] it seems apparent from the summary of arguments of both parties that there had been a mutual acceptance of the unavailability of severance.[21]
[143] GMG submitted that, at first instance and on appeal, both parties had accepted the reasoning in James Trowse Constructions Pty Ltd v ASAP Plasterers Pty Ltd[2011] QSC 145 on this issue, particularly at [51] to [56] per Atkinson J.
[144] GMG challenged the correctness of James Trowse.
[146]
[145] First, Iris submitted that the doctrine of severance was not available to sever any invalid portion of a certificate.
[146] Iris noted that GMG had not cited any authority to support the proposition that a provisional payment certificate derived from a contractual process could have part of it excised, and the certificate be adjusted by declaration of the court, absent a determination on the merits. In this respect, they noted that Muir J in Covecorp[22] had observed that no such authority had been identified to him in that case.
[147] Secondly, Iris submitted that Special Condition 3 did not by its terms contemplate severance. Iris submitted that if the Court were to set aside only part of the certificate, that would result in a curial usurpation of the agreed contractual risk allocation process constituted by the Superintendent making interim payment decisions. Iris said that even if it were later established that the Superintendent was in error or that the certificate did not accurately reflect the amount properly due and payable, those were errors or mistakes that, on its proper interpretation, the construction contract contemplated the Superintendent could make on an interim basis without review.
[148] As with the last heading, Iris submitted that GMG's recourse lay in the dispute regime contemplated by cl 47 of the general conditions of the AS2124 or by further reconsideration as part of the final certification process under the unamended portions of cl 42 of the general conditions of the AS2124.
[149] Thirdly, Iris relied on the decision in Covecorp.[23] In that case, Muir J was dealing with a scenario under the AS2124 general conditions where a certificate had been issued with the certifier making a deduction in the amount due to damages incurred under a separate contract. His Honour formed the tentative view that in making that deduction the superintendent acted outside the terms of the contract. His Honour referred to one potential possible consequence of such a conclusion arising from the superintendent having acted outside the contract being a finding that the whole certificate was invalidated such that the progress claim might have needed to be the subject of a fresh determination. His Honour noted that another course potentially open was the course identified in by Ipp J (with whom the other members of the court agreed). This course would involve the court itself exercising the relevant discretion as if it were the Superintendent, in circumstances where the Superintendent had failed to form the requisite opinion.
[147]
[152] I am satisfied that the doctrine of severance can be applied to interim certificates under this construction contract.
[153] I am also satisfied that it is appropriate in the circumstances to sever from the relevant certificates the impermissible reductions made in respect of the Prior Payment Claims.
[154] The severing of these reductions allows, for example, Certificate 40 to be read so that the certified amount is increased by an amount equivalent to the severed reductions.
[155] In accordance with the position accepted by both parties, if such a severance was allowable, then a judgment ought to be entered in terms of the increase to Certificate 40 by an amount reflected by the impermissible reductions, inclusive of the 10 per cent for the Construction Fee, and GST. That total figure is $251,867.77.
[156] My reasoning for this conclusion is as follows.
[157] First, I accept the submission of GMG that the doctrine of severance is a common law principle relating to the construction of certain articles intended to be legally operative.
[158] At its heart, severance allows an article intended to be legally operative to be construed in a way that facilitates a valid legal operation for the residual portion of that article. As GMG demonstrated by its submissions, this common law principle of construction has found application in respect of a variety of articles, such as legislation, subordinate legislation, trust instruments, wills, contracts and administrative decisions.
[159] Here, the certificates are documentary articles which have emanated from the operation of the construction contract and have contractual force by reason of the same construction contract. They give rise to contractual obligations on the part of Iris or GMG to make payments to the other.
[160] At a broad level, I see no reason why the common law doctrine of severance should not apply to an article constituted by such a certificate. That no authority was located in support of this conclusion does not equate to the conclusion being incorrect.
[161] Embedded within this initial broad conclusion is a recognition that for severance to be available its application must not result in the certificate being something which is substantially different in purpose and effect from the operation which was agreed to between the parties. In my respectful view, a certificate would still represent the opinion of the Superintendent as to what is payable where all that is severed is that aspect of the certificate which corresponds to a particular opinion which was always impermissibly formed outside the terms of the contract.
[148]
"It follows from what we have already said that [the trial judge] misapprehended the nature and scope of the power. By so doing, he misconstrued the statute which gave him jurisdiction addressed an irrelevant consideration and exceeded his jurisdiction. This error might also be characterized as an error on the face of the record.
[149]
The extraneous factor to which [the trial judge] had regard, namely, the perceived necessity to approve entry on to private property for the purpose of installing, maintaining, servicing and retrieving listening devices, not only contributed to the making of the decision to approve the use of the listening device, but it also took the form of an invalid authorisation to enter on to private property. No doubt in some circumstances it is possible to disregard that part of the decision that goes beyond power and treat as valid that part of the decision which is within power. But that must become a much more contentious exercise when the invalid part of the decision has influenced the making of the valid part of the decision. In this case, the approval is expressed in such a way as to make it appear that authorization to enter private property was an integral and essential element in the approval to use listening devices. So much is made clear by the reference to installation in both the paragraph which constitutes the approval and the first condition. In this situation there is no scope for speculation, on the assumption that speculation is legitimate, about what [the trial judge] would have done had he appreciated that authorization of entry on to private property was beyond power.
[150]
If it were necessary to consider the question from the viewpoint of severance, we would come to the conclusion that it is not possible to sever. The fact that what is bad is an integral and essential element of what is good leads to the conclusion that the approval is wholly void." (the italics is that of Buss P and Murphy JA).
[151]
[164] Having concluded that severance was available in appropriate circumstances in respect of administrative decisions, Buss P and Murphy JA then went on to undertake a specific analysis of the Western Australian equivalent to the BIF Act so as to further determine whether that Act otherwise excluded severance from being available in respect of an adjudicator's decision. Their Honours ultimately concluded that, on the proper construction of the Act, severance was not expressly or impliedly excluded.
[165] In my respectful view, the Queensland Court of Appeal decision in BM Alliance did not substantively deal with the question of whether the common law doctrine of severance was unavailable generally in respect of adjudicator's decisions where jurisdictional error was present. As set out previously, the authorised report of the appeal in BM Alliance[31] records that both the appellant and respondent had uniformly submitted to the Queensland Court of Appeal that severance was not available. They did so in reliance on James Trowse.[32] This was also the position which had been taken by the parties at first instance.
[166] This necessarily meant that both at first instance and on appeal, the Court did not engage in a substantive consideration of the wider authorities which were traversed by Buss P and Murphy JA in Duro, or by Blue J in Maxcon.
[167] The statement of principle expressed by Muir J in BM Alliance, as set out in the summary of GMG's contentions, reflected the observations in Bhardwaj previously highlighted above. However, as pointed out by Buss P and Murphy JA, the observations in Bhardwaj were not directed to the question of partial invalidity.
[168] As a result of the enactment of s 101(4) of the BIF Act, the availability of the common law doctrine of severance to adjudication decisions in this State has apparently not been revisited at an appellate level after BM Alliance.
[169] The underlying reasoning in James Trowse for the unavailability of severance was as follows:
[152]
"[56] The Victorian equivalent of BCIPA includes provisions not found in its interstate equivalents which may render the adjudicator's decision partially void: see Building and Construction Industry Security of Payment Act 2002 (Vic) (the "Victorian Act") s 10B, s 23(2A) and (2B). In the absence of any such provision, it is not possible to sever the adjudication decision.
[153]
[57] The statutory scheme in Queensland provides for an adjudication decision for one amount only. Pursuant to s 26 of BCIPA, an adjudicator is to decide the amount of the progress payment, if any, to be paid by the respondent to the claimant (the adjudicated amount), the date on which any amount became or becomes payable, and the rate of interest payable on any amount.
[154]
[58] The adjudicated amount is a statutorily created sum that once determined is final and binding upon the parties. Once determined, an adjudicated amount can be the subject of an Adjudication Certificate and thereafter a judgment registered with the Court and capable of enforcement against the respondent. The adjudicated amount founds the sum claimed in the judgment along with other sums for costs and interest.
[155]
[59] Save a slip rule, there is no mechanism available to sever any unlawful finding from an adjudicated amount, in particular a part of the adjudicated amount that is infected by jurisdictional error as found in this case." (footnotes omitted)
[156]
[170] Until relatively recently, similar such reasoning to that in James Trowse had been accepted in first instance decisions in New South Wales. In this respect, I refer to Fulton Hogan Construction Pty Ltd v Cockram Construction[2018] NSWSC 264 per Ball J at [40] to [48] and the authorities summarised therein. [33]
[171] However, the New South Wales position has apparently altered to one which now accepts the availability of severance of portions of adjudication decisions affected by jurisdictional error. In this respect, see Acciona Infrastructure Australia Pty Ltd v Chess Engineering Pty Ltd (No 2)[2020] NSWSC 1788 per Henry J at [63] to [64] and Rhomberg Rail Australia Pty Ltd v Concrete Evidence Pty Ltd[2019] NSWSC 755 per Ball J at [25] to [26].
[172] Ultimately, the present proceeding does not require resolution of these conflicting authorities. The certificates involved in this proceeding are not adjudication decisions under Western Australia's equivalent of the BIF Act.
[173] In my view, the analogy sought to be drawn from these cases is overstated. Indeed, Iris, in its oral submissions, urged caution in this Court seeking to draw too great an analogy with the adjudication decision authorities. I agree with that submission. At best, the most recent authorities can be said to provide some limited support for GMG's contentions that an article like an interim contractual certificate may be the subject of severance in appropriate circumstances.
[174] Thirdly, and more relevantly, a consideration of the terms of the construction contract in question does not indicate that severance was either expressly or impliedly excluded.
[175] The existence of the final certification process in cl 42 and a dispute resolution mechanism in cl 47 does not, in my view, indicate an objective contractual intention to exclude the common law principle of severance. Each of those contractual routes provides an alternative mechanism to seek to redress errors or mistakes in a certificate. However, they are not inconsistent with the continued availability and application of the common law doctrine of severance.
[157]
[184] In conclusion, I am satisfied that the Superintendent acted outside the terms of the contract in revisiting and then reducing the amounts payable under the Prior Payment Claims. The amount of the impermissible reductions from the Prior Payment Claims was $251,867.77, inclusive of the 10 per cent Contract Fee and GST. That reduction can be severed from Certificate 40, which was the last interim certificate.
[185] As per the agreed position between the parties, that means that on the proper construction of Payment Certificate 40, it ought to be construed as allowing for an additional payment of $251,867.77, inclusive of the 10 per cent Contract Fee and GST. I will give judgment by ordering Iris to pay GMG $251,867.77.
[186] GMG ought to have interest on the $251,867.77, calculated pursuant to clause 42.9 of the construction contract at a rate of 10 per cent as provided for in the Annexure to the general conditions, with the periodic capitalisation of interest as set out in the clause.
[187] Neither party made substantive submissions as to how interest should be calculated. Any such calculations must take into account that initially only a 12 per cent reduction had been made.
[188] In these circumstances, I will hear the parties further on the appropriate interest calculation on the judgment sum, and also on the issue of costs. Once that has occurred, I will then give further judgment on those two residual issues of interest and costs.
[158]
[2] There is a slight error in the para [40] breakdown. As a consequence, the figures used in these reasons are derived from Certificate 40.
[159]
[4]Fitzgerald v Masters[1956] HCA 53; (1956) 95 CLR 420 at 426-427 and YIC Industrial Pty Ltd v SPA Investments Pty Ltd (2022) 10 QR 768 at [33].
[160]
[5] GMG's solicitor's letter at para [6(d)], [33(a)], [43] and [44], exhibited at pp. 466 to 483 to the affidavit of John Gowdie, sworn 18 June 2025.
[161]
[6] Iris's solicitor's letter, second page, three-fifths of the way down in the paragraph beginning "You also rely on Special Condition 3.11 regarding the Superintendent's inability to challenge the rates in Schedule C and assert that Prior Payment Claims are due and payable without any right to amend, audit, dispute or offset.", exhibited to the affidavit of John Gowdie, sworn 18 June 2025 at p. 485.
[162]
[7] GMG's solicitor's letter dated 17 April 2025, at para [8], [9] and [12], exhibited to the affidavit of John Gowdie, sworn 18 June 2025 at pp. 490 to 495.
[163]
[8] That extract was cited with approval by the editors of Hudson's at 4-050.
[164]
[9]Covecorp Constructions Pty Ltd v Indigo Projects Pty Ltd[2002] QSC 322 per Muir J at [31] and [32], referring with approval to various authorities, including the intermediate appellate authority of WMC Resources Ltd v Leighton Contractors Pty Ltd (1999) 20 WAR 489 per Ipp J at 509 (with whom the other members of the Court agreed).
[165]
[10] Hudson's Building and Engineering Contracts, 14th edition, 2020 at 4-049.
[166]
[11] This extract was approved by the Western Australian Court of Appeal constituted by Buss P, Murphy and Beach JJA in Sino Iron Pty Ltd v Mineralogy Pty Ltd(2019) 55 WAR 89 at [207].
[167]
[13]Duro Felguera Australia Pty Ltd v Samsung C & T Corporation[2018] WASCA 28; (2018) 52 WAR 323 at [121] (per Buss P and Murphy JA) and Attorney-General (SA) v Corporation of the City of Adelaide(2013) 249 CLR 1 at [8] per French CJ.
[17]Nicholson v Knaggs (No 3 - Severance and Costs)[2009] VSC 328 at [5] per Vickery J.
[172]
[18] The observations of Blue J were likely obiter but were of a considered nature.
[173]
[19] The reference to 'equivalent' is not intended to suggest that the various States' legislation was materially identical. The relevant legislation considered in each of those authorities did not contain the current s 101(4) of the BIF Act.
[33] This case was overturned on appeal on a different issue, see: Cockram Construction Ltd v Fulton Hogan Construction Pty Ltd[2018] NSWCA 107; (2018) 97 NSWLR 773.
[187]
[34] In the affidavit at p. 451, Payment Claims 3 to 12 are referred to as "W3 to W12".
Parties
Applicant/Plaintiff:
Gowdie Management Group Pty Ltd
Respondent/Defendant:
Iris-PW No. 1 2017 Pty Ltd [2025] QSC 297
Legislation Cited (3)
Industry Fairness (Security of Payment) Act 2017
Construction Industry (Security of Payment) Act 2021
Construction Industry Security of Payment Act 2002
[15] The reductions in Certificate 40 for Payment Claims 3 to 12 referrable to Supervision Costs, inclusive of the uplift of 10 per cent and the requisite GST, comes to a total amount of $251,867.77. This represents the amount the subject of the second real issue.
[16] This application only involves a challenge to the Superintendent's contractual ability to revisit the cost of work already paid or certified for in respect of Payment Claims 3 to 31, or alternatively, Payment Claims 3 to 12. There were similar progressive reductions made for Supervision Costs claimed for the first time in Payment Claims 32 to 40. Those progressive reductions were not the subject of challenge in this proceeding.
[17] For completeness, it should be noted that the Superintendent indicated that it would abide by the order of the Court but otherwise took no active role in the proceeding.
[40] In short, it was said that each payment claim delivered to the Superintendent or Quantity Surveyor on a fortnightly basis formed a discrete claim for work not previously certified or paid for. It was only this discrete area of work about which the request for further documents or evidence could be targeted.
[41] Fourthly, it was submitted that Special Condition 3.8A did not alter the contended for interpretation of Special Condition 3.5. It was said that Special Condition 3.8A allowed for a one-off occasion whereby the Superintendent could request GMG to provide reasonable information and documentary evidence demonstrating the build-up and cost base of each hourly rate set out in Schedule C. It was said that this special condition provided for very short timeframes for the provision of the requested information, and the making of a follow up request for additional documentary evidence, which then had to be responded to promptly.
[42] It was submitted that none of the matters dealt with in the special conditions supported Special Condition 3.5 being interpreted as to allow the revisiting of prior paid for or certified amounts for such Supervision Costs calculated in accordance with the Schedule C rates. GMG's contention was that these past paid for or certified amounts were only able to be revisited in the final certification process, or via the dispute mechanism established by cl 47 of the general conditions of the AS2124.
[43] Fifthly, to the extent there was ambiguity in the meaning of Special Condition 3.5, reliance was placed by GMG on the fact that one of the omitted general conditions in the AS2124 was cl 42.2, which was in the following terms:
[53] Thirdly, Iris then relied on the wording of Special Condition 3.2. Iris submitted that Special Condition 3.2 provided for the delivery of payment claims which were:
[62] Special Condition 3.6 expressly contemplates that a certificate from the Quantity Surveyor could be either a negative or positive one. Special Condition 3.6 also expressly contemplates that a certificate from the Superintendent could be either a negative or positive one. In this respect, Special Condition 3.6 provides, in part, as follows "...within 10 Business Days after receipt by the Superintendent...the Principal shall pay to the Contractor or the Contractor shall pay to the Principal, as the case may be, the amount as shown on the Payment Certificate..."
[63] Accordingly, the text of Special Condition 3.6 also supports the existence of a drafting error in Special Condition 3.5.
[64] In those circumstances, the Court would readily read into Special Condition 3.5 the additional words which would allow the Superintendent to issue a negative certificate.[4] Those additional words are necessary to overcome the self-evident inconsistency between Special Conditions 3.5 and 3.6.
[65] For the purposes of this determination, I will correct the inconsistency which I have found to be a drafting error, and read into Special Condition 3.5 the following words which are in bold:
[72] Sixthly, I do not accept the contention of GMG that it is only at the final certificate that such retrospective reductions of impermissible profit components can occur. I note that GMG submitted that at this point the profit component would be deductable as a breach of the express warranty in Schedule C. Clause 42.8 of the general conditions of the AS2124 allows the Superintendent in the final certificate to take into account any amounts arising out of any breaches of the construction contact.
[73] The fact that there may be a free-standing breach of warranty claim open to Iris if GMG included a profit component in the Schedule C rates does not denude the Superintendent of its ability to form an opinion about the matter in the certifying process when considering the Cost of the Works. In the final certification process, the Superintendent still has to reach an opinion as to the Cost of the Works independent of any breach of contract claim. Such an opinion will take into account any impermissible profit component in the GMG Supervision Costs claimed.
[74] Seventhly, the omission of cl 42.2 from the general conditions is neutral. Clause 42.2 would have provided a free-standing power to correct a certificate at any time within the limit of the clause's subject matter. However, as Hudson's recognises, if the valuation process is of the whole of the works at each interim certification, any prior error can be corrected in any event at that point in time.
[75] In conclusion, on the proper interpretation of Special Condition 3.5 of the construction contract, the Superintendent was entitled in the certifying processes for Payment Claims 32 to 40 to form an opinion about whether the Supervision Costs for the roles identified in Schedule C and claimed by GMG in Payment Claims 13 to 31, had an impermissible profit component. To the extent that the Superintendent then retrospectively reduced previously certified amounts for such Supervision Costs, that reduction was one which was within the ambit of the opinion the Superintendent was authorised to form. It may ultimately be proven to be an incorrect opinion, but that is irrelevant. The certification was on account only and this opinion was formed within the terms of the contract.
[76] The answer to the question posed for the first real issue is in the negative in respect of Payment Claims 13 to 31.
[77] It is, therefore, unnecessary to consider the severance issue in respect to this part of the dispute as it pertains to Payment Claims 13 to 31.
[78] I will deal separately with Payment Claims 3 to 12 as part of the next real issue.
[96] At the hearing, I allowed the second issue to proceed.
[97] The second issue was the subject of substantive oral argument. I then allowed Iris to put on further written submissions on the second issue. Iris took up this opportunity and I have had regard to those further written submissions.
[98] I am satisfied that if there had been any prejudice to Iris, that prejudice was mitigated by providing Iris with the opportunity to put on further written submissions. No adjournment was asked for by Iris.
[99] Accordingly, I will disallow the objection.
[100] I turn then to the substantive contentions of Iris.
[101] First, Iris maintained that the opinion which was to be formed by the Superintendent pursuant to Special Condition 3.5 was wide enough to accommodate the forming of an opinion as to whether there was an impermissible profit component embedded in the GMG Supervision Costs contained within the Prior Payment Claims.
[102] Iris relied on its prior observation about the definition of the Cost of the Works, specifically the statement in the definition to the effect that such costs would not include any profit component.
[103] Secondly, Iris submitted that Special Condition 3.5 also needed to be read in the context of cl 23 of the AS2124 general conditions. In particular, Iris said that cl 23 required the Superintendent to "[arrive] at a reasonable measure or value of work, quantities or time". It submitted that Special Condition 3.5 read together with cl 23 operated so that the opinion to be formed by the Superintendent was one which involved a broad discretionary valuation which the parties were provisionally bound by, even if the valuation was later found to be incorrect.
[104] In this respect, Iris referred to the observations in Re Concrete Constructions Group Pty Ltd; Blue Chip Pty Ltd v Concrete Constructions Group Pty Ltd[1997] 1 Qd R 6 at 12, per McPherson JA and Helman J, and Daysea Pty Ltd v Watpac Australia Pty Ltd[2001] QCA 049 at [18] per Williams JA (with whom Davies JA and Mackenzie J agreed at [1] and [45] respectively).
[105] Thirdly, Iris submitted that even if (which it disputed) Special Condition 3.11 precluded the Superintendent from revisiting the subject matter of the Prior Payment Claims, that was an error it was authorised to make within its broad discretion. That is, the opinion contemplated by Special Condition 3.5 accommodated errors by the Superintendent in its valuation process. It was said this was necessarily so because the interim payment certificates were on account only and represented the risk allocation between the parties under the construction contract.
[106] Fourthly, Iris submitted that the remedies which GMG had were limited to the dispute mechanism contained in cl 47 of the AS2124 general conditions or via the final certification process in the unmodified portions of cl 42 of the AS2124 general conditions.
[107] Additional submissions were made by Iris in relation to severance, but those particular submissions will be dealt with as part of the third real issue.
[150] Iris submitted that neither of those two possibilities discussed by Muir J involved the process of the severance of the offending portion of the opinion.
[151] Fourthly, Iris relied by analogy on the decisions of James Trowse[25] and BM Alliance[26] in support of the contention that severance was not available in respect of a contractual interim certificate.
[162] Secondly, there is some slight support to be found by reference to the growing body of authority in favour of allowing severance of portions of adjudication decisions. The most recent intermediate appellate authority on this issue is that of the Western Australian Court of Appeal in Duro.[27] In the majority decision of Buss P and Murphy JA, there was a careful analysis of the principles relating to the doctrine of severance, with a particular focus on administrative decisions.[28] In so analysing, Buss P and Murphy JA had the benefit of considering the other intermediate appellate decisions of BM Alliance[29] and Maxcon.[30]
[163] Their Honours' analysis of the relevant authorities on the availability of severance of portions of administrative decisions is compelling. I will not reproduce their reasoning in full, but I will highlight two aspects of it:
Their Honours referred to the oft-cited cases of Minister for Immigration and Multicultural Affairs v Bhardwaj[2002] HCA 11; (2002) 209 CLR 597 and Re McBain; Ex parte Australian Catholic Bishops Conference[2002] HCA 16; (2002) 209 CLR 372. These High Court decisions contained observations that the presence of jurisdictional error would render the underlying administrative decisions wholly void, as the decision would lack legal foundation. However, their Honours pointed out that the observations in both of these cases were not directed to the question of partial invalidity.
Their Honours separately identified a number of statements by members of the High Court which were consistent with severance being available for administrative decisions, even where there was jurisdictional error. Those statements relevantly included Cheatley v The Queen[1972] HCA 63; (1972) 127 CLR 291, specifically the statement found in the dissenting judgment of Walsh J at 308, who was the only member of the Court who had to consider the issue of severance, and Coco v The Queen[1994] HCA 15; (1994) 179 CLR 427. This last case involved the review of a decision by a judge to approve the installation of a listening device under invasion of privacy legislation. Their Honours referred specifically to the statement of Mason CJ, Brennan, Gaudron and McHugh JJ at 443-444:
[176] Fourthly, the opinion formed by the Superintendent under Special Condition 3.5 should not be seen as an organic and indivisible whole. The opinion reflected in the certificate is contractually required to show calculations and provide reasons. Those attributes of the certificate will allow, in appropriate circumstances, the identification of that part of the opinion which was impermissible.
[177] For the reasons previously expressed, Special Condition 3.11 established in a clear and indisputable way that the parties had agreed that the entirety of the Prior Payment Claims were due and payable and could not be disputed by Iris. Special Condition 3.11 operated so that the Superintendent was required to mechanically account in full for those empirically identifiable Prior Payment Claim costs. This simply reflected the effect of the specific agreement reached between the parties in respect of the Prior Payment Claims.
[178] In circumstances where the Superintendent was required to mechanically account for the full value of the Prior Payment Claims in any certification process, whether interim or final, any reduction by the Superintendent attributable to the Prior Payment Claims was beyond the terms of the construction contract.
[179] The application of the blue pencil test is a simple enough process in the circumstances of this case. As GMG correctly identified in its submissions, the blue pencil test allows for modification of the text in appropriate cases, of which this is one.
[180] Using Certificate 40, by reason of it being the last interim certificate, its calculations identified with specificity the impermissible reductions to the Prior Payment Claims.
[181] Certificate 40 can be found in the affidavit of Mr Gowdie, sworn 18 June 2025 commencing at page 447 of the exhibits. The exact reduced amounts for each of Payment Claims 3 to 12 are apparent in the calculations at page 451 of the exhibit.[34] For each of the Prior Payment Claims, the calculations particularised hourly rates for each of the relevant employees or officers and then multiplied the hours of work attributed to each of them. The product of that equation was then reduced by 40.6 per cent.
[182] There will be many cases where severance of a certificate will be impossible. One such case will be where the portion of the opinion underlying the invalid part of the certificate infects the residual opinion forming process. However, that is not the present case. The impermissible opinion and the consequent impermissible reduction to the certificate can be specifically identified and in no way infects the residual opinion forming process and remaining assessed amounts disclosed by the certificate.
[183] The effect of the application of the common law construction principle of severance to the impermissible portion of the certificate leaves, by application of the blue pencil test, a certificate, which in truth represents the opinion the Superintendent was authorised to make under Special Condition 3.5.