Minson Nacap Pty Ltd v Aquatec Maxcon Pty Ltd [2000] VSC 402

5. The claims for which judgment is sought are, first, for $460,174.15 said to be due by Aquatec to Minson under two progress certificates:

In fact, a third certificate, No. 12, was issued on 14 March 1998. This showed the total certified value of work to be only $2,929,680. After deduction of the amount said to have been paid, namely, $3,595,549 the amount shown was $665,867.92 due from Minson to Aquatec. In this sense, it was a negative certificate. It was accepted before me that this certificate contained an error inasmuch as the superintendent had recorded Minson as having been paid $3,595,549, on account of work previously done, apparently on the assumption that certificate 10 had been paid in full. In fact, the total amount previously paid was that shown in certificate 10, namely, $3,290,918. Certificate 11 contains the same error. This means, nonetheless, that certificate 12 remains a negative certificate; it should, however, show a payment due from Minson to Aquatec of $361,238. The three certificates ought therefore to have shown the following figures:

11. The second claim is for sums said to be payable under three uncertified progressive claims:

15. At the commencement of the hearing counsel for Aquatec sought leave to amend its defence and to bring a counterclaim. I had, on 4 August 2000, given that party leave to amend its defence and the pleading delivered pursuance to that leave was filed on 22 August 2000. It was in fact the third defence filed on behalf of Aquatec. The proposed fourth defence contained a number of amendments which, with the counterclaim, raise no difficulty; the problem on this application was caused by the insertion of a new paragraph 8. It is a curiously worded plea, expressed to be in the alternative to paragraphs 3-7C, much of it appears to set out evidence rather than fact. The nub of it appears in sub-paragraph (h) which is in these terms:

"(h) in the premises: (i) the Plaintiff's offer contained in its facsimile of 17 March 1997 was not an offer to `carry out design and construct... the Civil works... on terms and conditions as previously agreed'; (ii) the Defendant's response to the offer contained in its facsimile of 18 March 1997 did not correspond with the Plaintiff's offer and did not amount to an acceptance of it; (iii) no sub-contract was concluded between the Plaintiff and the Defendant; (iv) the Defendant denies the allegations in paragraph 4 of the Amended Statement of Claim and all other allegations in the Amended Statement of Claim by which reliance is placed upon the terms and conditions of any sub-contract between the Plaintiff and the Defendant."

19. Counsel for Aquatec, therefore, wished to argue, in answer to the claim for judgment based on the terms of the sub-contract alleged in paragraph 4 of the statement of claim, that there was in fact no sub-contract between the parties. Much of the affidavit material filed on its behalf went to support this contention. Counsel for Minson submitted that I should not allow the amendment, at least insofar as it puts the existence of the sub-contract in issue and that I should not receive argument directed to that issue. I acceded to this submission. These are my reasons.

22. Under the rules as they now stand, the plaintiff may seek summary judgment pursuant to O.22 at any time on the ground that the defendant has no defence to the claim or part of it. Where the application is brought after a defence has been served, the plaintiff is entitled to rely upon admissions contained in that defence because such an admission is binding on the defendant unless and until leave is given to amend. Such leave will ordinarily be granted unless the plaintiff would thereby suffer some disadvantage which cannot be cured by an ancillary order. The generosity of the court to amending parties has been underlined recently by the High Court in Queensland v JL Holdings Pty Ltd.[1] So much may be taken as non-controversial.

25. What was put here was that, in paragraph (c) of its current defence, Aquatec admits the existence of the sub-contract alleged in paragraph 4 of the statement of claim and upon which the claim is brought. This paragraph 4 is in these terms:

"By an agreement made on or about 18 March 1997 Aquatec engaged Minson as subcontractor to design and construct civil works for the project (`the works') for the sum of $3,580,132 according to the terms and conditions therein (`the sub-contract')."

The defence of 22 August asserts that it relies upon the following facts in defence of the claim. Fact (c) is expressed as follows:

"As to paragraph 4 thereof the Defendant admits that in or about March of 1997 it entered into a sub-contract with the Plaintiff for the Plaintiff to design and construct civil works for the project."

31. I read this paragraph, notwithstanding the careful use of the indefinite article before the word "sub-contract" as an admission of the sub-contract alleged in paragraph 4. If the paragraph were to be read otherwise it should be struck out immediately as evasive and embarrassing.

34. Having formally admitted the existence of the sub-contract and such of its terms as Aquatec relies upon by way of defence and as one foundation of its counterclaim, Aquatec then says in the alternative that there was no such contract. I accept that R. 13.09 permits a pleader to make inconsistent allegations of fact in the alternative. This, however, cannot permit the pleader to discard ordinary logical and rational processes. It is, of course, not uncommon to see a defendant deny a contract and then, in the alternative, to rely upon it or certain parts of it. It does not follow that these alternatives may be reversed. So long as the defendant in this case unconditionally admits the existence of the sub-contract I will not permit it to resile from that admission in the alternative within the same pleading.

37. I turn now to the application for summary judgment. It proceeded on the basis that Aquatec raised or would raise by way of defence and counterclaim the existence of alleged defects in the work of Minson which caused loss to Aquatec. These defects are said to be breaches of its contractual obligations under the sub-contract and of its duty of care. The loss suffered is said to be the cost of rectification of the defective work and losses suffered by Aquatec as a consequence of the suspension, and later termination, of the head contract by the principal. These losses exceed the claims of Minson. These matters, which will doubtless be in issue at trial, must be treated as triable issues for the purposes of the present application.

40. The plaintiff's case was, then, that it was entitled to payment pursuant to cl. 42 of the general conditions of contract AS4303-1995 notwithstanding these claims. The relevant parts of cl. 42.1 are as follows:

42.1 Payment Claims, Certificates, Calculations and Time for Payment (1) At the times for payment claims or upon completion of the stages of the work under the Subcontract stated in Annexure Part A and upon the issue of a Certificate of Practical Completion and within the time prescribed by Clause 42.5, the Subcontractor shall deliver to the Subcontract Superintendent claims for payment supported by evidence of the amount due to the Subcontractor and such information as the Subcontract Superintendent 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 otherwise due to the Subcontract arising out of the Subcontract. (4) Within 21 days of receipt of a claim for payment, the Subcontract Superintendent shall assess the claim and shall issue to the Main Contractor and to the Subcontractor a payment certificate stating the amount of the payment which, in the Subcontract Superintendent's opinion, is to be made by the Main Contractor to the Subcontractor or by the Subcontractor to the Main Contractor. The Subcontract Superintendent shall set out in the certificate the calculations employed to arrive at the amount and, if the amount is more or less than the amount claimed by the Subcontractor, the reasons for the difference." (6) Subject to the provisions of the Subcontract, within 35 days of receipt by the Subcontract Superintendent of a claim for payment or within 14 days of issue by the Subcontract Superintendent of the Subcontract Superintendent's payment certificate, whichever is the earlier, and within 21 days of the issue of a Final Certificate, 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 such 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 42.1 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 the 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. (7) 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 under Clause 42.6"

The paragraphs within cl 42.1 are not numbered in the document. I have inserted numbers in brackets for ease of reference.

45. It is convenient that I deal first with the second group of claims, those based on progress claims 13, 14 and 15, in response to which the superintendent issued no progress certificate within 35 days of receipt. Under the seventh paragraph of cl. 42.1, which I have set out above, Aquatec is obliged, in such an event, to pay the amount of the claim in full. The fact that the claims were made and that no certificate issued are not in dispute.

48. Counsel for Aquatec submitted that this provision did not operate because the three progress claims in question did not comply with the formal requirements of the contract in two respects.

51. First, it was said that the claims, which were lodged after the issue of progress certificate 12, failed to have regard to a variation of the contract work by the deletion of certain water retaining and other reinforced concrete structures. This deletion, it is said, appears in progress certificate 12. In fact, certificate 12 shows a reduction also in respect of earth works at the Apollo Bay site. In progress certificate 11, the contract value and the performed value of these items are shown as follows:

In progress certificate 12 these items are treated as follows:

In the progress claims that followed, the contract value of the works in question remained as before progress certificate 12, but the percentage payable was increased by Minson to 99% for each site in respect of water retaining and other reinforced structures and to 100% for Apollo Bay earthworks. These claims represented Minson's assessment of the percentage completion of these items in its earlier claims, certainly from claim 11.

58. In his affidavit, the superintendent, Mr McFarlane, merely asserts without further explanation that he certified progress claim no. 12. In paragraphs 16 and 17 of this affidavit he contents himself with references to the correspondence which followed the issue of the certificate, being Minson's letter of 24 April 1998 - Exhibit RM22, his responses dated 1 May 1998 - Exhibit RM23 and 20 May 1998 - Exhibit RM24. He does not verify the assertions contained in this correspondence. The Minson letter points out that certificate 12 shows a total diminution of $821,411 in the value of works performed and that no reasons for this were provided as required by the fourth paragraph of cl. 42.1.

61. Mr McFarlane's explanation for the diminution in value deserves to be quoted in full:

"The negative amount of -$665,867.92 is a derivative of our current problems with respect to the non-compliance of the aeration basins on both sites, with regard to Structural Integrity and Water Tightness Integrity. Thus, these structures are currently valueless in their present state and this is reflected on the accompanying spreadsheet in dollar terms."

No such spreadsheet was part of the exhibit. I read this sentence as asserting that the tanks were leaking and that they were therefore valueless or, in the case of Lorne, 23% less valuable than Minson asserted. Mr McFarlane relies on cl. 30.4 as the basis for his entitlement to decrease the value. No argument was presented on this, presumably on the basis that it was a triable issue. For my purpose, it is necessary that I observe that, on its face, the diminution in the value of work performed appears not so much to depend upon cl. 30.4 as on cl. 30.3. Much, however, will turn on the terms of the superintendent's direction, and this is not before me. If, however, the reduction in certificate 12 represents a change by the superintendent in his assessment of the value of work performed as a result of the appearance of defects, then Minson cannot be criticised for holding a different view of this value. As with any difference of opinion as to the value of work performed, the contract provides procedures for resolving this. The first of these procedures is for the superintendent to reject the sub-contractor's assessment with reasons in the certificate issued in response to the claim. The first basis of attack upon the progress claim, therefore, fails.

66. The second argument is that the claims contained "one line" variation claims. This, it was said, violated the contractual obligation of Minson to support its claims by evidence. These claims for variations had, it seems, been included in earlier claims and rejected. In the past the superintendent had criticised Minson for submitting and resubmitting claims in this form. Be that as it may, it does not mean that the claims are in such a form that they do not satisfy the requirements of cl. 42.1. Since progress claims are cumulative, past rejected claims which Minson wishes to pursue may be included in its assessment of work performed. In such a case, it cannot be necessary that on each occasion they must be documented in full.

69. It follows from my rejection of these submissions that the claims are, in terms of clause 42.1, payable in full in the same way as a certified sum. The question now becomes whether Aquatec is obliged to pay these sums without deduction for defective work and consequential losses and whether it can resist Minson's application for judgment for this reason.

72. A great advantage of standard form contracts is that the parties have the benefit of judicial decisions as to their meaning. In the case of forms which are used throughout the country there is the added advantage that the law in this area should not differ from jurisdiction to jurisdiction. This gives to contracting parties a certainty which is valuable for them and for the construction industry generally. That said, the court must be cautious lest, even when such forms are adopted, small changes may have been introduced which may bear upon their construction. Happily this is not the case here. Clause 42.1 of the Australian Standard contracts has, for relevant purposes been very stable for many years.

75. In Re Concrete Constructions Group Pty Ltd,[2] the Court of Appeal in Queensland considered cl. 42.1 of the standard form AS 2124-1992. The court concluded that the sum certified was to be paid without deduction for a disputed claim for liquidated damages for delay. The introductory words in the paragraph of cl. 42.1 under consideration, namely "subject to the provisions of the Contract" did not have the consequence that the principal's obligation to pay the sums certified was subject to the right to set off an indebtedness for liquidated damages arising under cl. 35.6. A like result was arrived at by Rolfe J in New South Wales in Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd,[3] where the contract in question incorporated standard form AS 2545-1993. In that case the principal sought unsuccessfully to deduct from progress payments sums alleged to be due for liquidated damages and defective work. I will not burden this judgment with further recitation of authority. The same approach with respect to similar standard form contracts has been adopted in Western Australia,[4] and will be adopted by me in this case.

78. Next, it was said that these principles have no application where, as here, the contract has been terminated. A show cause notice under cl. 44.02 was given by Aquatec on 5 June 1998 and again on 30 June 1998. From the date of the notice Aquatec is, by cl. 44.4, entitled to suspend payments to Minson until the first occurring of a number of events. In this case, the operative event was the act of Aquatec on 9 July 1998 to give notice of termination pursuant to cl. 44.4(b). The suspension thereupon ceased and the rights to payment fell to be determined pursuant to cl. 44.10. This clause, so far as is here relevant, provides as follows:

"If the Sub-contract is terminated pursuant to Clause 44.4(b) or 44.9, the rights and liabilities of the parties shall be the same as they would be at common law had the defaulting party repudiated the Sub-contract and the other party had elected to treat the Sub-contract as at an end and recover damages."

82. On behalf of Minson it was submitted that this clause, for present purposes, means that its accrued right to payment under cl. 42.1 was not affected by the termination; future rights only were at an end. This proposition was not challenged by counsel for Aquatec, and if I may say so, properly so.

85. Counsel on its behalf said that the rights of Minson to payment under cl.42.1 depended, in that event, upon the termination of the cl. 44.4 suspension. Since Minson disputed the validity of the termination, it must accept the possibility that this dispute might be resolved in its favour. If that were to occur, the event terminating the suspension had not yet occurred so that the amounts previously accrued due were not payable. I am unpersuaded by this ingenious argument. If it should hereafter appear that the termination of the contract is ineffective this must be because the notice under cl. 44.2 was not or ought not to have been given, or because Minson had satisfied its requirements. In either event the suspension has terminated.

88. Next, it was submitted that Aquatec is entitled to defend or set off against the claims of the plaintiff its damages claims in accordance with R. 13.14. As I have mentioned recently,[5] it is open to the parties to agree that no such right is available. I construe the present agreement as containing such a provision. Accordingly, the procedural right is not available to Aquatec to resist the claim of Minson.

91. It follows from this that Minson is entitled to judgment. The next question is the amount of this judgment. Progress certificates 10, 11 and 12 purport to show in each case the amount then owing between the parties on a cumulative basis, that is, the cumulative value of work performed less the accumulated payments made. Two of these certificates contain the errors to which I have previously referred. The amount which should have been certified as owing by Aquatec to Minson under these certificates is as follows:

98. Given the progressive nature of these claims and certificates, it seems clear that it would not be proper to award judgment in respect of them individually. The contract appears to contemplate that credit should be given by the certifier and the claimant, not for previous certificates or claims, but for previous payments. It would follow from this that the present entitlement of Minson must arise from the last of the certificates or claims which provide a basis for this entitlement. This is its entitlement to $1,277,020 under uncertified claim no. 15. There will be judgment, therefore, in this sum.

101. Finally, it was put on behalf of Aquatec that if I should arrive at this point, I should order a stay of execution pending the determination of the defective work counterclaim. I will not grant such a stay. The contract contains in cl. 5, familiar provisions for security to be provided by Minson to ensure its due and proper performance of the sub-contract. The agreed scheme for progress payments was doubtless devised with knowledge that Aquatec has this protection.

104. I propose, therefore, that there be judgment for the plaintiff in respect of the claims made in paragraphs A and B of the prayer for relief in the sum of $1,277,020. I will hear counsel as to the terms of this judgment including interest and costs.

[1] [1997] HCA 1; (1997) 189 CLR 146

[2] [1997] 1 Qd R 6

[4] Lamac Developments Pty Ltd v Devaugh Pty Ltd [1999] WASC 76, Master Bredmayer (AS 2545-1993)

[5] Leighton Contractors Pty Ltd v East Gippsland Catchment Management Authority [2000] VSC 26 at [23]