Novawest Contracting Pty Ltd v Taras Nominees Pty Ltd [1998] VSC 205

Supreme Court of Victoria|1998-12-23|Before: Gillard J.

Novawest Contracting Pty Ltd v. Taras Nominees Pty Ltd

BUILDING CONTRACT - Standard form general conditions AS 2124-1992 - Interim Certificate - Payable without deduction - No entitlement to set-off claim for damages for delay - Parties exclude the right.

The plaintiff, Novawest Contracting Pty Ltd ("the plaintiff") is a company which carries on the business of civil engineering and construction.

The defendant, Taras Nominees Pty Ltd ("the defendant") carries on the business of land developer.

The basic facts which led to the dispute between the parties and the proceeding in the court can be briefly stated.

By an agreement made on 14 April 1997, the defendant engaged the plaintiff to construct certain road and drainage works and other works within a development known as the Citiwest Garden Estate at Maribyrnong.

Pursuant to the terms of the contract, a company, Fisher Stewart Pty Ltd, was appointed as superintendent of and under the agreement.

The contract provided for progress payments for works progressively carried out by the plaintiff. The procedure was for the plaintiff to make application to the superintendent and the superintendent was authorised to issue a certificate stating the amount of the payment and within a time period of 28 days after receipt of the application for payment or within 14 days of the issue by the payment certificate whichever was the earlier, the defendant was obliged to pay the contractor the amount set out in the certificate.

The superintendent issued two progress payments being No. 7 on 7 January 1998 in the sum of $81,210 and No. 8 on 26 February 1998 in the sum of $148,260.

The defendant refused to pay the full amounts due under the certificates, contending that there had been delays in the works caused by the plaintiff and defendant was entitled to recover liquidated damages for the delay.

As a consequence, a writ was issued in this court and the plaintiff made application for summary judgment pursuant to Order 22. The matter came on before a Master and on 29 September 1998, the Master ordered that the defendant pay the sum of $190,845.56 which sum included interest. He also ordered that the defendant pay the costs.

The plaintiff asserts that it is entitled to judgment on the certificates in accordance with the terms of the contract between the parties.

The defendant does not deny that the amount claimed is in accordance with the amount of the certificates and under the terms of the contract the plaintiff is entitled prima facie to be paid.

However, the defendant contends that it has a cross-claim for liquidated damages for delay which exceeds the amount of the plaintiff's claim and hence it is entitled to set-off the amount by way of defence.

It is not disputed by Mr P. Barton of counsel who appeared for the plaintiff that on the affidavit material there is an arguable claim that the defendant is entitled to liquidated damages for delay. However, he submits that the defendant is not entitled to set up by way of defence a cross-claim for liquidated damages for delay.

He relied upon the decision of this court in L.U. Simon Builders Pty Ltd v. H.D. Fowles & Ors [1992] VicRp 60; (1992) 2 V.R. 189, and a decision of the Court of Appeal of Queensland in the case of Re Concrete Constructions Group Pty Ltd (1997) 1 Qd. R. 6.

He submitted that those cases stood for the proposition that the contract between the present parties entitled the plaintiff to recover the full amount of the certificates without any deduction and that any cross-claim by the defendant was to be treated as such and not as a defence by way of set-off.

He also relied upon a number of other cases which applied the same proposition.

Mr M. Phipps, Q.C. who appeared with Mr M.G. Roberts of counsel for the defendant submitted that on a proper construction of the contract in question, the defendant was entitled to raise its cross-claim for liquidated damages by way of defence of set-off.

Whether or not the defendant can rely upon a defence of set-off to the plaintiff's claim depends upon the terms of the contract between the parties.

Upon analysis of the plaintiff's case, it is saying that it was the common intention of the parties to the contract that -

(i) the plaintiff contractor was entitled to payment of the amount certified by the superintendent without any deductions;

(ii) that even though the plaintiff is in breach of a term of contract which has caused damage to the defendant, the defendant is not entitled to exercise its common law right to raise the claim for damages as a set-off to the plaintiff's claim.

Whatever may have been the law concerning the right to defend a claim by setting-off a damages claim, it is now possible to do so. The controversy over common law or equitable set-off and debts and unliquidated damages has now been put to rest by the Rules of Court.

"Where a defendant has a claim against a plaintiff for the recovery of a debt or damages, the claim may be relied on as a defence to the whole or part of a claim made by the plaintiff for the recovery of a debt or damages and may be included in the defence and set-off against the plaintiff's claim, whether or not the defendant also counterclaims for that debt or damages."

In considering the issues raised and the construction of the contract, it is important to note that the contract in question does not expressly state that the defendant cannot raise a set-off by way of defence.

Clearly as a matter of law, a contracting party has a right to claim damages, prove them and then apply to set-off against the amount recovered. The plaintiff's contention denies that right.

The question is, has the defendant lost its common law right to set-off its damages for delay against the amount claimed by the plaintiff?

The law is clear with respect to parties interfering with common law rights by contract. It has long been established that to exclude common law rights the intention must be clearly and unequivocally spelt out.

In the leading case of Gilbert-Ash (Northern) Ltd v. Modern Engineering (Bristol) Ltd (1974) AC 689 Lord Diplock said at p.718 -

"So when one is concerned with the building contract one starts with the presumption that each party is to be entitled to all those remedies for its breach as would arise by operation of law, including the remedy of setting up a breach of warranty in diminution or extinction of the price of material supplied or work executed under the contract. To rebut that presumption one must be able to find in the contract clear unequivocal words in which the parties have expressed their agreement that this remedy shall not be available in respect of breaches of that particular contract."

(Emphasis added)

A building contract is no different to any other contract and is to be construed in accordance with the well-established principles concerning the interpretation of contracts.

In the Modern Engineering case Lord Morris of Borth-y-Gest at p.699 said -

"When parties enter into a detailed building contract there are, however, no overriding rules or principles covering their contractual relationship beyond those which generally apply to the construction of contracts. The particular wording of a particular contract may have to be considered in relation to particular facts. A decision in some one particular case as to the meaning and application of words in a contract will not have governing force as to the meaning of different words in a different contract. Nor, if a contract provides for the issuing of interim certificates, should it be supposed that debts of a special class will come into existence, i.e. debts in relation to which there cannot under any circumstances be any defence or set-off. Provisions governing such interim certificates will probably be found in the contract."

The principles guiding a court construing a contract are not in doubt. In construing a written contract, the court seeks to determine the common intention of the parties at the date of execution. The exercise is an objective one.

The primary source of the common intention is the words of the contract. They are to be construed in context, after considering the instrument as a whole, and in their ordinary and every day meaning unless they have a special meaning by reason of custom, usage of trade or for some other reason. The setting, the circumstances, the context or some other factor may stamp a particular meaning on the words used.

In D.T.R. Nominees Pty Ltd v. Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423 at 429, Stephen, Mason and Jacobs, JJ said -

"A court may admit evidence of surrounding circumstances in the form of 'mutually known facts' to identify the meaning of a descriptive term and it may admit evidence of the 'genesis' and objectively the 'aim' of a transaction to show that the attribution of a strict legal meaning would 'make the transaction futile'".

The reason for this approach is obvious. Language is used to express thought and intention. As a means of communication language suffers from the fact that both those responsible for the written word and the reader may have an inadequate command of the language or may use words to express different meanings. The courts seek to declare the common intention of the parties and it is not the function of the court to ascertain a party's actual intention. As has often been said -

"What a man intends is one thing - the expression of his intention is another".- see Simpson v. Foxon (1907) P. 54 at 57.

The court is concerned with the latter. In seeking the latter the court is entitled to look at the negotiations but in a limited way. They become part of the surrounding circumstances, what is called the factual matrix of facts objectively known to the parties at the date of contract.

Mason, J in Codelfa Construction Pty Ltd v. State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 at 352 stated, their use, as follows -

"Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision, we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except insofar as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to those factors at the expense of the actual language of the written contract."

(My emphasis)

As his Honour stated, it is the presumed intention of both parties which the court is seeking to determine. It must be steadily borne in mind that it is the common presumed intention and not the intention of one or other party.

One does not consider the aims and objectives of one party in contrast to the aims and objections of the other party. In the end the court must determine the common intention.

A building contract is in fact a commercial contract and the court should seek to determine and give effect to the commercial purpose and importantly, the commercial common sense of the transaction.

In Antaios Compania Naviera S.A. v. Salen Rederierna A.B. (1985) AC 191 at p.201, Lord Diplock said -

" ... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense."

See generally Schenker and Co (Aust) Pty Ltd v. Maplis Equipment and Services Pty Ltd [1990] VicRp 74; (1990) VR 834.

The court should avoid a result which is unreasonable or absurd when viewed in the commercial setting. See L. Schuler A.G. v. Wickman Machine Tools Sales Ltd [1973] UKHL 2; (1974) AC 235 at pp.251, 255-6, 264 and 272.

Clearly parties to a contract do not intend an absurd or unjust result.

The point is made by Lord Salmon in The Modern Engineering case supra at p.724 -

"My Lords, I cannot help thinking that building contractors and sub-contractors and architects advising building owners know far more about the building trade than I or, indeed any judges can hope to do. I am not prepared to approach any contract on the pre-supposition that the parties must have meant to exclude or

curtail the right of set-off. I am content to consider the

language of each contract and see whether it has done so."

(Emphasis added)

The task here is to borrow the words of Lord Morris in The Modern Engineering case, "simply and solely" one of interpretation of the contract made between the parties.

It is important to note that the issue in this case is not concerned with the implication of any term in the contract. Mr Barton did not argue that there was an implied term to the effect of excluding the right of set-off, nor do any of the cases dealing with the issue discuss the implication of such a term.

In my opinion there would be no basis for implying a term to the effect that the contract excludes the right of set-off.

Applying the principles stated by the Privy Council in B.P. Refinery (Western Port) Pty Ltd v. The Shire of Hastings (1977) 180 CLR 266 a court would not imply a term because it could not be said that it is reasonable and equitable, is not necessary to give business efficacy to the agreement and if the officious bystander had been asked whether that was the common intention of the parties the answer would not have been "of course".

Sometimes there is an overlap between a pure construction point and the implication of a term and which ever route is followed the same result is reached.

This is demonstrated in the case of Bronester Ltd v. Priddle (1961) 1 WLR 1294.

In that case a provision in a contract provided for the payment of commissions in advance. Payments were made but the commission was not in fact earned. The contract was silent as to what was to happen in those circumstances.

"Had the parties been asked at the time of the agreement whether it was necessary to put in a clause that the advances must be repaid, if it turned out that the commission in question was never earned, in my view both parties would have said: 'Yes, of course; as they are advances, they will have to be returned. It is quite unnecessary to put so obvious a matter into the agreement.'"

Willmer, LJ decided the case on the basis of an implied term.

The approach of Holroyd Pearce, LJ of what might be described as the commercial purpose and common sense of the agreement is a helpful one. To the question by the officious reasonable bystander to the parties at the date of execution, "Is it agreed that the contractor is entitled to be paid and you, the proprietor, is not entitled to set-off any claim for damages you may have"? - can one confidently say that both parties would have said "Of course".

Such an approach underlines what Lord Diplock said about the presumption concerning each party's right to remedies for breach.

Before turning to the terms of the contract, there are three well-established principles which must be stated.

First, it is not the court's function to re-make, re-form or re-write the contract because one party may think it is unfair or for some other reason.

Certainty in commercial transactions is important.

As Lord Diplock said in Scandanavian Trading Tanker v. Flota Petrolera Ecuatoriana (1983) 2 AC 694 at 740 -

"It is of the utmost importance in commercial transactions that, if any particular event occurs which may affect the party's respective rights under a commercial contract, they should know where they stand. The court should so far as possible desist from placing obstacles in the way of either party ascertaining his legal position ... because it may be commercially desirable for action to be taken without delay ... it is for this reason, of course, that the English courts have time and time again asserted the need for certainty in commercial transactions - for the simple reason that parties to such transactions are entitled to know where they stand, and to act accordingly."

It does nothing for the law, to have a situation where parties to a commercial contract have to go to their solicitors who spend hours pouring over a detailed contract to try and determine the common intention when the terms are not expressly stated, end up with an equivocal opinion and have to go to court to decide the issue.

Secondly, as I have already stated, the court is dealing with a commercial contract and it should be construed as one would expect commercial men to understand it.

Thirdly, the court's function is to consider the terms of the particular contract and accordingly reference to cases on other contracts indeed even similar-type contracts are not of great assistance. The court must be wary in considering other cases concerned with different contracts.

The point is well made by Lord Wright in Luxor (Eastbourne) Ltd v. Cooper (1941) AC 108 at p.130 -

"However that may be, what is in question in all these cases is the interpretation of a particular contract. I deprecate in general the attempt to enunciate decisions on the construction of agreements as if they embodied rules of law. To some extent decisions on one contract may help by way of analogy and illustration in the decision of another contract. But however similar the contracts may appear, the decision as to each must depend on the consideration of the language of the particular contract, read in the light of the material circumstances of the parties in view of which the contract is made."

The present matter is concerned with two interim certificates.

Prior to 1971 and the decision of the Court of Appeal in Downays Ltd v. F.G. Minter Ltd (1971) 1 WLR 1205 the law was accepted that an employer was entitled to set-off or counterclaim against the amount certified. Indeed there was no authority prior to that decision which supported the view that the amount certified is in a special position in that the employer cannot lawfully counterclaim and set-off the liability.

Downays case was followed in rapid succession by a number of other cases which reached the Court of Appeal in England and soon it appeared established that the case stood for the "authority for a general principle of law applicable to all building contracts and sub-contracts which contain provision for payment of the price of the works by instalments" that one could not raise by way of defence a set-off.

Lord Denning MR's view was that the building contract set up a procedure which involved a cash flow in the building trade, that it was the very life blood of the enterprise, and that the contractor should not be out of pocket so once certificates were given they must be honoured all the way. As his Lordship said in the Modern Engineering case in the Court of Appeal -

Three of their Lordships in the House of Lords disagreed with this approach and in the words of Lord Salmon -

"This philosophy leads to the presumption that the parties to every building contract or sub-contract must have intended to exclude the general principle of law relating to the right of set-off save in respect of liquidated or ascertained sums which are established or admitted as being due. At any rate every such contract which has been recently considered in the Court of Appeal , including even the present, has been so construed."

The majority of the members of the House of Lords were of the opinion that the philosophy was unsound.

In Australia there have been a number of cases in which courts at first instance have construed agreement that the parties have excluded or curtailed the right to set-off a claim for damages.

I refer to Triden Contractors Ltd v. Belvista (1986) 3 BCL 203, Sabemo Pty Ltd v. De Groot (1991) 8 BCL 132, L.U. Simon Builders v. Fowles [1992] VicRp 60; (1992) 2 VR 189 and Algons Engineering Pty Ltd v. Abbey Group Contractors Pty Ltd, unreported decision of Rolfe, J delivered 1 August 1997. The latter case conveniently refers to the decisions in Australia.

None of those cases were concerned with the contract in the present matter.

The written contract was entered into by the parties on 14 April 1997. It comprises a bundle of attached documents called "Contract Documentation". Part V is described as "Conditions of Contract" and provides -

"The general conditions of contract AS2124-1992 shall form part of the contract."

Clause 42 of the general condition is concerned with certificates and payments.

Before going to the contract in detail it is necessary to refer to a decision of the Court of Appeal of Queensland in which a contract in the same form was considered. The plaintiff relied upon it.

The case is re Concrete Constructions Group Pty Ltd (1997) 1 Qd R 6.

In that case the proprietor engaged the contractor to carry out work on the construction of an apartment building in Brisbane. The written contract incorporated the same conditions as in the present matter.

Clause 35.6 is concerned with liquidated damages for delay.

There were delays in the construction and the proprietor claimed some $630,000 damages for delay.

Certificate No. 16 certified a substantial sum of money to be paid and the proprietor deducted from the certificate an amount for liquidated damages for delay.

The issue before the court was whether there was an implied term in the contract to the effect that the proprietor could make a deduction for liquidated damages from the amount certified.

This is different to the issue with which I am concerned.

Not surprisingly, based upon the well established principles concerned with implying terms, the Court of Appeal held that there was no basis for implying a term.

The court did not consider the question whether the contract precluded the right of the proprietor to raise its claim by way of set-off to the claim made by the contractor.

Mr Phipps, Q.C. submitted that since the case did not address the question raised here, it was of no assistance to the plaintiff.

Whilst I agree, nevertheless I am assisted by the court's consideration of the contract.

In construing the contract the court has not been provided with any evidence as to the factual matrix known to the parties at the time of execution. It follows that the court must construe the contract according to its terms in the light of what little evidence the court knows about the parties.

The contract contained a provision for liquidated damages for delay and there is evidence to support the finding that the works were delayed by the plaintiff in breach of the contract. It is alleged by the defendant that the liquidated damages for delay is in the order of $181,100.

As stated above the contract superintendent was a company called Fisher Stewart Pty Ltd ("Fisher").

On 7 January 1998 Fisher issued progress payment certificate No. 7 for $81,210 and on 26 February 1998 issued the progress payment certificate No. 8 for $148,260.

There is a dispute about time extensions and the amount of the damages for delay but on any view there is some evidence before the court that the defendant does have an arguable case for damages for delay.

Mr Barton on behalf of the plaintiff referred the court to a variety of provisions in the contract and submitted that it was clear that it was the common intention of the parties to exclude the right of the proprietor to raise a defence by way of set-off against claims for interim certificates.

Whilst Rolfe, J in Algons case was concerned with a contract described as AS2545-1993 the terms of that contract are similar to the terms with which the court is concerned. I have been assisted by his Honour's analysis also.

The first question is to consider the entitlement of the plaintiff to payment on certificates which are issued by the superintendent and whether it is entitled to be paid without deduction.

Clause 42 is concerned with certificates and sets out the following step by step regime relevant to this case -

(i) On the last day of each month, the plaintiff shall deliver to the superintendent Fisher a claim for payment with supporting evidence.

(ii) Within 14 days of receipt of the claim, the superintendent shall issue to the parties a payment certificate which shall set out the superintendent's calculation as to amount, and if the amount certified is different to the claim, the reasons for the difference.

(iii) The superintendent shall allow in the certificate, inter alia, amounts due by the plaintiff to the defendant "arising out of or in

connection with the contract including but not limited to any

amount due or to be credited under any provision of the contract".

It is pertinent to observe that the provision gives the superintendent a very wide power to make adjustments.

(iv) 'Subject to the provisions of the contract' within 28 days of the

receipt by the superintendent of the claim or within 14 days of

the issue of the payment certificate, whichever is earlier, the

defendant 'shall pay to the plaintiff ... an amount not less than

the amount shown in the certificate as due to the contractor'.

The sub-clause contains two very important and significant provisions to the question in issue. They are -

(a) "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 goes on to provide that

after determination there will be an accounting between the parties.

It is appropriate at this stage to refer to clause 47 which is a dispute resolution clause. The important point to note is that notwithstanding the existence of any dispute the parties shall continue to perform the contract. More importantly the parties are obliged to continue to comply with clause 42.1.

(b) "Payment of money 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."

This is again a very significant provision. The reference to clause 42.8 is the final certificate. But taken with the right to dispute the certificate and the power to correct certificates under clause 42.4 the parties have the right despite payment to contest the matter thereafter.

One adds to that the provisions of clause 42.6 which is concerned with the effect of certificates and it is clear that the issue of a payment certificate does not constitute approval of any work or any matter and shall not prejudice any claim by the parties.

In my opinion the provisions of clause 42.1 which I have summarised and referred to make it clear that once the certificate is issued it must be paid without deduction.

That conclusion is based upon the plain meaning of the words used which is the primary source of the common intention of the parties. There is no necessity to refer to other provisions or the fact that the contract envisages a steady flow of money to the contractor.

My opinion is re-inforced by the terms of clause 42.10 which is concerned with set-offs by the principal. It provides -

"The principal may deduct from monies due to the contractor any money due from the contractor to the principal otherwise than under the contract and if those monies are insufficient the principal

may, subject to clause 5.5, have recourse to retention monies and,

if they are insufficient, then to security under the contract."

(Emphasis added)

In clause 42.11 the defendant would be entitled to have recourse to retention monies if the plaintiff failed to pay to it any monies due and payable under the contract.

The significance of these two provisions is that the parties have expressly provided for limited deductions arising outside and within the contract.

The expressio unius est exclusio alterius maxim recognises that if the parties take the trouble to expressly set out certain provisions then presumably they have set out all that they intend to be binding. See Aspdin v. Austin (1844) 5 QB 671 at 684 and Rhodes v. Forwood (1876) 1 App. Cas. 256 at 265.

The maxim is no more than a canon of construction to assist to determine the common intention of the parties and one must be extremely wary of applying the maxim in case it does defeat the intention of the parties.

However, in my opinion the two provisions do give support to my conclusion that it was the intention of the parties that once a certificate is issued then the proprietor, in this case the defendant, must pay without deduction.

Mr Phipps, Q.C. submits, however, that by reason of clause 35.6 the defendant is entitled to deduct the amount for liquidated damages on the basis that the sub-clause is concerned with a debt.

In this context he emphasises the words used in clause 42.1, namely, "subject to the provisions of the contract" the defendant must pay the amount shown in the certificate.

"If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor shall be indebted to the Principal for liquidated damages at the rate stated in the Annexure for every day after the Date for Practical Completion to and including the Date of Practical Completion or the date that the Contract is Terminated under Clause 44, whichever first occurs. If after the contractor has paid or the principal has deducted liquidated damages, the time for Practical Completion is extended, the Principal shall forthwith pay to the Contractor any liquidated damages paid or deducted in respect of the period up to and including the new Date for Practical Completion."

The contract divided up the works into what was called portions and they were to be completed on different dates. The rate for liquidated damages varied for each portion of the works.

I accept that clause 35.6 establishes a debt for each day after the date for practical completion which of course can be extended. The debt is established upon the happening of that fact and would become due and payable immediately. There is no provision in the contract which would defer the entitlement.

Mr Phipps, Q.C. submits that that gives the power to the defendant to deduct the amount of the liquidated damages from any payment due under a payment certificate.

I do not accept that argument. Clause 42.1 is dealing with a particular subject. Namely, the calculation of a claim leading to a certificate which must be paid as "an amount not less than the amount shown in the certificate".

One could not find a clearer manifestation of the intention of the parties.

The regime found in clause 42.1 allows for an adjustment but once the calculation is made and the certificate is issued then payment must be made. Whilst clause 35.6 creates a debt and also appears to recognise that the defendant may have deducted liquidated damages the fact is that the purpose of clause 42.1 is clear.

The deduction which is envisaged by clause 35.6 is given effect to by any adjustment made by the superintendent, and the final certificate. In addition, clause 42.11 gives the right to the defendant to recourse to retention monies and any security provided when a debt is due and payable.

Clauses 42.1 and 35.6 are dealing with different subjects and objects. They have different work to do.

The obligation clearly spelt out in clause 42.1 is not cut down by clauses 35.6.

Fitzgerald, P in the Queensland case of re Concrete Constructions Group Pty Ltd came to the same conclusion, supra at p.8.

Rolfe, J in the Elgons Engineering Case also came to the same conclusion.

Mr Phipps, Q.C. also relied upon the provisions of clause 42.10 which deals with set-offs but it is noted that the right to set-off only arises where monies become due "otherwise than under the contract".

Clause 42.10 does not assist the defendant and what is more, supports the plain words used in clause 42.1.

It follows that in my opinion the plaintiff was entitled to receive the payments pursuant to the payment certificates without any deduction.

That, however, leaves the question whether the parties have evinced a common intention that in a proceeding brought to enforce payment pursuant to the payment certificates it is open to the defendant to raise by way of set-off the debt due for liquidated damages.

In my opinion the defendant is not entitled to set-off the amount owing for liquidated damages against the amounts certified for payment. The contract itself provides avenues open to the defendant to recover the amounts whether it be via later certificates adjusting the amount or a final certificate or the dispute resolution clause.

But to permit the defendant to raise a set-off by way of defence to the payment of the certificates would clearly defeat the common intention of the parties which is expressed in clause 42.1 that the amount of the certificate was to be paid "not less than the amount shown in the certificate as due to the contractor".

The parties have put in place a mechanism which protected their respective interests and required the defendant to pay the plaintiff on any certificate once issued but also enabled the defendant to protect its interest by pursuing a number of avenues to recover the liquidated damages.

To permit the defendant in the court proceeding to raise a defence of set-off would be to defeat the common intention of the parties.

I am satisfied that the plaintiff has established that the presumption in favour of the defendant being permitted to raise its common law rights have been rebutted by the words of their contract.

My conclusion is supported by the approach of the House of Lords in Mottram Consultants Limited v. Bernard Sunley & Sons Ltd (1975) 2 Ll. L.R. 197.

In that case the issue was whether or not it was the common intention of the parties to deny the right to the defendant to set-off against the amount claimed in a certificate. The certificates were issued by an architect.

At p.210 Lord Cross referred to the fact that the contract showed clearly that the proprietor was not entitled to withhold payment in the case because of some allegation that there was an error made. His Lordship went on to say -

"It was for the architect to put that right if need be in a monthly certificate. I think therefore that the Master was right to give Sunley judgment for the full sum claimed ... "

This appeal is by way of a re-hearing de novo so the ultimate question that I have to consider is stated by the High Court in Fancourt v. Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87 at p.99 -

"The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried."

I am satisfied that there is no real question to be tried and that the plaintiff is entitled to final judgment.

Further, I would not be prepared to grant a stay on the judgment pending the hearing of the defendant's counter-claim because to do so would be to defeat their common intention.

I conclude by pointing out that the general conditions of contract were settled by a committee representing the interests of many sections of the construction industry including bodies that might be said to represent the interests of those other than construction contractors.

The end result was the standard form. If proprietors wish to protect themselves by having the right to set-off claims against interim certificates then it would be easy to change the standard form.

Accordingly, subject to the submissions of counsel, I propose to make the following orders -

(i) That the appeal brought by the defendant by notice dated 3 October 1998 against the order of Master Wheeler made 29 September 1998 is dismissed.

(ii) That the defendant pay the plaintiff's costs of the appeal.

At a glance

Court

Decision date

Before

Source

Judgment (158 paragraphs)

Parties

Cases Cited (6)