BETWEEN : LAMAC DEVELOPMENTS PTY LTD (ACN 009 337 213)

Application for summary judgment - Building contract AS2545 - 1993 cl 42.1 - Under cl 42.1 a sub-contractor's progress claim for a variation must be paid in full if no payment certificate is issued within the stated time by the main contractor's representative

Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 970739; 23 December 1997

Croudace Ltd v The London Borough of Lambeth (1986) 33 BLR 20

Mulvena v Commissioner for Railways (1888) 3 QLJ 108

Panemena Europea Narigacion v Frederick Leyland & Co [1947] AC 428

Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507

White v Johnston (1886) 8 ALT 53

1 MASTER BREDMEYER: This is an application by the plaintiff for summary judgment under Rules of the Supreme Court O 14. The plaintiff has filed two affidavits in support each from Mr Michael Lane a director of the plaintiff. The defendant has filed two affidavits in opposition, one from Mr Mervyn Waugh a director of the defendant, and a smaller affidavit from Mr Findlay the defendant's solicitor.

2 The power to order summary judgment under O 14 should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at 99. The test is whether, after the matter has been explained to the Court, there must be real uncertainty without full argument or further investigation of the facts, regarding the plaintiff's right to judgment: Australian Can Co Pty Ltd v Levin & Co Pty Ltd [1947] VicLawRp 47; [1947] VLR 332 at 335. If there is, there must be a trial. Even if the facts which are established are inconclusive, if it is not possible to say without doubt on the whole of the material that there is no question to be tried, there should be leave to defend; Fancourt v Mercantile Credits Ltd (supra). The procedure is not confined to cases which are plain and obvious and the fact that a transaction is intricate does not disentitle the plaintiff to relief in a clear case: Dey v Victorian Railway Commissioners [1949] HCA 1; (1979) 78 CLR 62 at 91. Extensive argument may be necessary to show that there is no question to be tried: Australian Can Co Pty Ltd v Levin & Co Pty Ltd (supra).

3 The plaintiff is a plumbing company based in Bunbury. The defendant is a builder based in Bunbury. The defendant won a contract to build the Bunbury Health Campus. The defendant sub-contracted the hydraulic works on the campus to the plaintiff for the lump sum of $3,698,414. It was an express term of the contract that the Australian Standard sub-contract conditions 2545-1993 be incorporated into the contract. The contract was finalised in November 1996. The plaintiff commenced work under the contract on the hospital in December 1996 and the hospital opened for patients on 15 March 1999. The contract gave a major role to the Main Contractor's Representative ("the representative") to be appointed by the contractor. In fact, no such representative was appointed until 23 April 1999 after the works had been completed. On 12 May 1997 the plaintiff sent a fax to the defendant asking the defendant to advise who was the nominated representative but this did not prompt the contractor to take any action. The appointment of the representative on 23 April 1999 was too late to be effective for reasons which I will give later.

4 The plaintiff in its statement of claim has sued for 25 claims which are detailed in a schedule totalling $845,934.36 plus interest. In a schedule handed up to me during the course of argument (which I will refer to as the "amended schedule") the plaintiff has reduced that to 17 claims totalling $675,147.14 plus interest. These claims were lodged against the defendant between the period 5 August 1998 and 2 February 1999.

5 A key provision in the contract is cl 42.1 which reads:

42.1 Payment Claims, Certificates, Calculations and Time for Payment

At the times for payment claims stated in the Annexure and upon issue of a Certificate of Substantial Completion and within the time prescribed by Clause 42.7, the Subcontractor shall deliver to the Main Contractor's Representative claims for payment supported by evidence of the amount due to the Subcontractor and such information as the Main Contractor's Representative may reasonably require. Claims for payment shall include the value of work carried out by the Subcontractor in the performance of the Subcontract to that time together with all amounts then due to the Subcontractor arising out of or in connection with the Subcontract or for any alleged breach thereof.

Within 21 days after receipt of a claim for payment, the Main Contractor's Representative shall issue to the Main Contractor and to the Subcontractor a payment certificate stating the payment which, in the opinion of the Main Contractor's Representative, is to be made by the Main Contractor to the Subcontractor or by the Subcontractor to the Main Contractor. The Main Contractor's Representative shall set out in the certificate the calculations employed to arrive at the amount and, if the amount is more or less than the amount claimed by the Subcontractor, the reasons for the difference. The Main Contractor's Representative shall allow in any payment certificate issued pursuant to this Clause 42.1 or any Final Certificate issued pursuant to Clause 42.8 or a Certificate issued pursuant to Clause 44.6, amounts paid under the Subcontract and amounts otherwise due from the Main Contractor to the Subcontractor and/or due from the Subcontractor to the Main Contractor arising out of or in connection with the Subcontract including but not limited to any amount due or to be credited under any other provisions of the Subcontract.

If the Subcontractor fails to make a claim for payment under Clause 42.1, the Main Contractor's Representative may nevertheless issue a payment certificate.

Subject to the provisions of the Subcontract, within 35 days after receipt by the Main Contractor's Representative of a claim for payment or within 14 days of issue by the Main Contractor's Representative of the Main Contractor's Representative's payment certificate, whichever is the earlier, the Main Contractor shall pay to the Subcontractor or the Subcontractor shall pay to the Main Contractor, as the case may be, an amount not less than the amount shown in the Certificate as due to the Subcontractor or to the Main Contractor as the case may be, or if no payment certificate has been issued, the Main Contractor shall pay the amount of the Subcontractor's claim. A payment made pursuant to this Clause shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under Clause 47 or as otherwise agreed) of the amount so properly due and payable, the Main Contractor or Subcontractor, as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable.

Payment of moneys shall not be evidence of the value of work or an admission of liability or evidence that work has been executed satisfactorily but shall be a payment on account only, except as provided by Clause 42.8.

Notwithstanding Clause 42.4, the Main Contractor shall be obliged to pay for an item of unfixed plant and materials where that item is-

(i) to be imported into Australia, provided the Subcontractor has given the Main Contractor a clean on board bill of lading or its equivalent, drawn or endorsed to the order of the Main Contractor and, where appropriate, a customs invoice for the item; or

(ii) listed in the Annexure and which is not an item to be imported into Australia, provided the Subcontractor establishes to the satisfaction of the Main Contractor's Representative that the Subcontractor has paid for the item, and the item is properly stored, labelled the property of the Main Contractor and adequately protected.

Upon payment to the Subcontractor of the amount which includes the value of the item, the item shall be the property of the Main Contractor free of any lien or charge.

Except as provided in the Subcontract, the Main Contractor shall not be obliged to pay for any item of unfixed plant and materials which is not incorporated in the Works."

6 That clause has received authoritative interpretation by the Queensland Court of Appeal in Blue Chip Pty Ltd v Concrete Constructions Group Pty Ltd (1996) 13 BCL 31 which was followed by Rolfe J of the New South Wales Supreme Court (Common Law Division - Construction List) in Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1997) 14 BCL 215. The Blue Chip case established:

1. That progress claims and payments made under building contracts are intended to be provisional only.

2. The superintendent in issuing a payment certificate can deduct sums due by the contractor to the principal but, if he fails to do so, there is no implied power in the principal to deduct such sums. There is no power, for example, to deduct liquidated damages before making a progress payment.

3. The correct construction of general condition 42.1 when taken in its entirety (and despite "Subject to the provisions of the contract"), is that what is certified is intended to be paid.

7 In Algons (supra) the sub-contractors submitted a progress claim to the contractor's representative but no payment certificate issued. The contractor filed a notice of motion seeking summary judgment. The contractor pleaded that, should it be found ultimately that the sub-contractor was entitled to any money, the contractor had a defence by way of set-off. In the cross-claim, the contractor claimed liquidated damages for delay and damages for the sub-contractor's alleged failure to use standards of workmanship required by the sub-contract. It was held following Blue Chip (supra), that the contractor was bound to pay the amount of the progress claim without recourse to equitable set-off on the basis that the amount was due and payable under the contract. The failure by the contractor to issue a payment certificate merely returned the parties to the position where there was an obligation on the contractor to pay the amount of the progress claim. The question of whether summary judgment should be granted depended on whether there was a triable issue with respect to the alleged right to equitable set-off. As the construction of the clause did not give rise to any real issue or question to be tried, this was an appropriate case for summary judgment. The requirements of equitable set-off were not met because:

a. The parties by their contract excluded the applicability of a set-off (unless made in a certificate issued by the contractor's representative); and

b. The contractor was able to rely upon any set-off in adjusting the financial rights and obligations between the parties at a later time.

8 The second paragraph of cl 42.1 permits the representative in preparing his payment certificate to deduct from the sub-contractor's claim amounts inter alia due from the sub-contractor to the main contractor arising out of, or in connection with, the sub-contract. So if there has been faulty work by the sub-contractor or delays caused by the sub-contractor, or the like, the representative can deduct sums from the sub-contractor's claim. However, by the fourth paragraph, if the representative fails to make any such deduction and issues a certificate for the full amount of the sub-contractor's claim, then that is to be paid. The main contractor is not permitted, on the authority of Blue Chip (supra), to then deduct some offsetting claim. Similarly, if the representative does not process the claim and does not issue a certificate at all, then the sub-contractor is entitled to be paid his claim in full 35 days after he has submitted the claim. I consider it a logical and proper construction of this clause to say that if no representative has been appointed and a claim is submitted, then the main contractor is not allowed to deduct any offsetting claim and the claim must be paid in full 35 days after receipt. Clause 42.1 contains an important default procedure in favour of the sub-contractor. As the two cases cited show, payments to the sub-contractor are provisional payments only and the clause itself states that payment of such moneys "shall not be evidence of the value of the work or an admission of liability or evidence that the work has been executed satisfactorily but shall be a payment on account only ...".

9 The defendant said in this case that the payments claimed by the sub-contractor all relate to variations of contract and that is not disputed. None of the claims relate to the lump sum price of $3,689,414. The progress claims totalling that sum have been paid in full. The defendant argued that variations are different to other claims from a sub-contractor and, as such, do not come within the scope of par 42.1. The first paragraph of 42.1 reads:

"... The sub-contractor shall deliver to the main contractor's representative claims for payments supported by evidence of the amount due to the sub-contractor and such information as the main contractor's representative may reasonably require. Claims for payment shall include the value of the work carried out by the sub-contractor in the performance of the sub-contract to that time together with all amounts then due to the sub-contractor arising out of or in connection with the sub-contract or any alleged breach thereof."

10 The defendant in argument emphasised the word "due" in the last sentence quoted. He said that a claim for a variation carried out by the sub-contractor can only be "due" to the sub-contractor if the variation has been valued under cl 40.1. He said that, until such time as the work involved in the variation has been valued in accordance with that clause, the agreement to carry out a variation is simply a new contract. If the price is not agreed, the sub-contractor is entitled to be paid on a quantum meruit basis. He can be paid outside the contract altogether or he can claim under cl 47 in an arbitration. Clause 40.1 permits the representative to order the sub-contractor to execute a variation. The sub-contractor is only bound to execute a variation which is within the general scope of the sub-contract. Upon receipt of a notice from the representative ordering a proposed variation, the sub-contractor is to provide an estimate of the cost. Unless the representative and the sub-contractor agree upon the price for the variation, the variation directed or approved by the representative shall be valued under cl 40.5. Under that sub-clause the representative is to determine the value of the variation and certain guidelines are given there. The defendant has argued that unless the variations claimed have been valued by the representative in accordance with cl 40, no sums in respect of them are due to the sub-contractor, and hence he cannot get the benefit of the default procedure of cl 42. Indeed cl 42 is simply not applicable.

11 The last sentence of the first paragraph of cl 42.1 refers to claims for payment "arising out of or in connection with the sub-contract ...". I consider that the plaintiff's claims for variations clearly arise out of or in connection with the sub-contract. I also consider that the words in that sentence "claims for payment shall include the value of work carried out by the sub-contractor in the performance of sub-contract to that time together with all amounts then due to the sub-contractor ..." do not mean claims for payment then finally due to the sub-contractor or claims for work then properly due to the contractor. On the latter point, contrast the use of the word "due" in the first paragraph compared to phrase "amount properly due and payable" referred to in the fourth paragraph. I remind myself that cl 40 does not provide a procedure whereby claims for variations are to be paid, whereas cl 42 does. On a proper construction of the contract, the sub-contractor, who claims payment for a variation, gets the benefit of cl 42.1 notwithstanding that the value of his work has not been determined under cl 40. A proper construction would allow the sub-contractor to submit such a claim. It can be supported by evidence of the work due. The representative can request information about the claim. The claim can include the value of the work carried out. The representative should then allow it, or disallow it whole or in part, in accordance with the fourth paragraph, and issue a certificate for payment. As stated in the clause, payment of moneys is not to be taken as evidence of the final value of the work done, or an admission of liability, or evidence that the work has been executed satisfactorily, but is simply a payment on account. I consider it would be capricious, unreasonable, inconvenient and unjust interpretation to require the sub-contractor claiming a variation where there is no representative to first give a notice of dispute under cl 47 and proceed to arbitration under that clause, or to proceed gainst the main contractor outside the contract.

12 Subject to some other matters which I mention in a moment, the 17 claims for variations submitted in the plaintiff's amended schedule are claims due to be paid to the sub-contractor and they arise out of the contract and should be paid. It was not primarily the plaintiff's fault that no representative was appointed. In all cases the 35 day period elapsed without any payment being made. The last claim No 25 was submitted on 2 February 1999 and the 35 days elapsed on 9 March 1999. The defendant appointed Mr S Naulls as main contractor's representative on 23 April 1999. On 7 May 1999 he issued a contract variation advice for invoices 751, 940, 758, 929, 930, 931, 948, 949, 759, 932 and 933 - (which are 11 of the claims listed in the plaintiff's amended schedule). This assessed the value of the variations at $168,480. It made three deductions from that sum: $25,186 for variations already paid; $53,908.18 for bank charges notified to the plaintiff; and $20,000 being an estimate of bank charges due for faulty work, leaving a total of $69,385.82. He then issued a progress payment certificate for that balance on the same date and that sum was paid on 7 May 1999. His appointment and his payment certificate were too late to be effective legally in relation to the claims the subject of this action.

13 The defendant has argued that there is a gap in the statement of claim so that it does not plead an arguable cause of action. The gap alleged is that the contract does not plead that the plaintiff carried out the work the subject of the claims for variation. There is a gap in the statement of claim as pleaded but it is covered by the plaintiff's evidence. Paragraph 9 of Lane's first affidavit says that the claims for payment were "for work done progressively at the hospital pursuant to the contract". Moreover the defendant's director Waugh, does not say that the work was not done but rather that the claims are not due for payment because the value of the variations was not agreed or valued in accordance with cl 40, and, in two cases, the claims are for work which had to be done by the plaintiff under the sub-contract anyway. I consider that the divergence between the claim and this evidence is a matter which could easily be cured by amendment to the statement of claim and that it would be just to do so and I would be willing to make an amendment perhaps in these terms: 7A "The plaintiff carried out the work the subject of the claims for payment set out in the schedule".

14 I consider that the defendant has not, in the words of O 14 r3(1) shown that there is any issue or question in dispute which ought to be tried. That sub-section goes on to say "or that there ought for some other reason to be a trial of the claim ...". The defendant's counsel says that there are other reasons in this case why summary judgment should be refused and that is that the plaintiff's claims for variations have been investigated by the representative in April and May 1999 and have been valued by a quantity surveyor and they come to much less that the plaintiff has claimed. Also the defendant has a number of offsetting claims against the plaintiff and these too will be referred to arbitration. As stated above, the defendant has paid to the contractor the balance which it says is then due, namely $69,385.82 which is far short of the $675,147.14 claimed by the plaintiff in its amended schedule. The defendant has referred me to General Credits (Finance) Pty Ltd v Shipton Holdings Pty Ltd, unreported; SCt of WA; Library No 2054; 19 May 1977 where the Court declined to order summary judgment because the defendant had shown that there were circumstances which ought to be investigated and which deserved the close attention of a trial. Moreover, the defendant is apprehensive that if it is required to pay $675,147.14 plus interest as a provisional payment under cl 42.1 the money might be spent and the defendant unable to recover it if it is successful, or substantially successful, in the arbitration. I note that the defendant gave a notice of dispute to the plaintiff pursuant to cl 47 of the contract disputing the plaintiff's claim for variations on 7 May 1999. That is the start of the arbitration process. The defendant's solicitors asked the plaintiff's solicitors for financial information on the plaintiff company but were refused. I can appreciate the defendant's concern on this but I do not consider this concern is a proper basis for withholding summary judgment. The defendant is hoisted with its own petard. It neglected to appoint a representative within good time. If it had done so, he could have deducted various sums which he considered due by the sub-contractor to the contractor and the defendant would not be faced with the large financial risk which it now faces. Moreover to withhold summary judgment would mean that the dispute over the plaintiff's final entitlement to payment for the variations, less any counter-claims from the defendant, would go on to trial. This is clearly undesirable when the parties are bound contractually to the dispute resolution procedure set out in cl 47. I consider they should follow that procedure and there is no need to send this case on for trial before a Judge. The defendant is, in effect, asking for some kind of Mareva injunction lest it win the arbitration but find that the plaintiff has no money or has gone into liquidation. I do not propose to give the defendant leave to defend. However, I will consider this matter again if the defendant makes an application for a stay under O 14 r3(2) and or under the inherent jurisdiction of the Court pending the final determination of matters under cl 47.

15 I propose to award summary judgment for the plaintiff for the sum of $675,147.14 as set out in the amended schedule plus interest of $62,609.99 to 10 June 1999 as set out therein, a total of $737,757.13.

16 In doing so I have considered the defendant's evidence in par 5.4 of Mr Naulls' affidavit that claims 24 and 25 were not variations but were progress payments on the contract works and were paid on 12 March 1999. I agree with those statements. Claim 24 in the schedule is $12,687 dated 16 December 1998. The claim itself is labelled "Progress claim No 24" invoice No 757. Claim 25 in the schedule is labelled "Progress claim No 25" dated 2 February 1999 for $9712, invoice No 762. The documents show that these two invoices were included in a payment of $38,810 made by the defendant to the plaintiff on 12 March 1999. Credit for payment of this sum is shown in the amended schedule.