Southern Region Pty Ltd v State of Victoria

Supreme Court of Victoria|2001-10-26|Before: Byrne J

BUILDING CONTRACT - final payment claim - summary judgment application - whether separate defects liability period established - whether claim supported by evidence of amount claimed. AS2124-1992 cll. 37, 42.1, 42.7.

This proceeding arises out of the construction of the Police and Courts Complex at Ballarat. The plaintiff, Southern Region Pty Ltd ("the Contractor"), by writ filed on 27 June 2001, sues the defendant, the Minister for Police and Emergency Services for and on behalf of the State of Victoria ("the Principal"), for $7,698,951 being the amount of an uncertified claim made under a building contract dated 28 November 1997. The Contractor also sues the Principal for damages for breach of certain express and implied terms of the building contract. Before the court is a summons filed on behalf of the Contractor on 10 July 2001 seeking summary judgment for the sum uncertified.

The circumstances which give rise to the proceeding and the summary judgment application are unusual and a little complicated. For the most part, however, they are not in dispute. It is convenient that I set them out at this point.

On 28 November 1997 the Contractor entered into a contract for the demolition of existing buildings and the construction of the new Police and Courts Complex. The contract price was $17,866,000. The contract was based on the standard form agreement, AS2124-1992, with certain modifications.

The date for practical completion, as adjusted, was 18 August 1999 and the works were certified to have achieved that condition on 15 May 2000. This had the consequence that the defects liability period would expire on 14 May 2001.

Soon after practical completion the parties were in dispute. On 30 June 2000 the Contractor lodged its progress payment claim number 30 seeking payment of about $5.6M. Progress payment certificate number 32 issued by the Superintendent in response to this claim showed no amount due to the Contractor from the Principal nor to the Principal from the Contractor. On 27 July 2000 the Contractor gave notice of dispute pursuant to cl. 47.1. In substance, this dispute concerned the entitlement of the Contractor to payment of the sums sought in its progress payment claim number 30, to extensions of time for completion and to release of one half of the security provided by it in the form of a bank guarantee. The response of the Superintendent dated 27 August 2000 was that the Contractor was in fact indebted to the Principal in the sum of $1,846,166.

The dispute was on 18 December 2000 referred to arbitration pursuant to cl. 47.2. Points of claim and of defence and counterclaim were served in March and April 2001. In these pleadings the Contractor seeks substantial sums for variations and for delay and disruption costs. The total sums claimed were $7,303,163.20. These claims are resisted by the Principal.

And so things stood on 13 May 2001, the day before the expiry of the defects liability period. On that day the Superintendent wrote to the Contractor two letters one of which was indeed remarkable.

The first letter of that date sets out the Superintendent's concerns about the performance of the security system. I shall return to this letter in a little detail later. For present purposes it is sufficient to note that the Superintendent purported to apply a separate defects liability period to this system which period was to expire 12 months after the Contractor demonstrated that the system was complete.

The second letter of 13 May invited the Contractor to lodge a final payment claim pursuant to cl. 42.7. This clause is in the following terms:

"42.7 Final Payment Claim 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'. 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. After the expiration of the period for lodging a Final Payment Claim, any claim which the Contractor should have made against the Principal and has not made shall be barred."

The remarkable feature of the second letter is that, if the first letter of 13 May was effective to extend or create a new defects liability period then, arguably, the time for lodging a final payment claim was far in the future. The Contractor, needless to say, was quick to seize the invitation. On 15 May 2001 it lodged a final payment claim and on 17 May 2001 a further final payment claim, correcting an evident typographical error in the earlier claim. The amount claimed in each case was the same, $7,698,951, the amount for which judgment is presently sought. Before me argument focussed on the legal effect of the 17 May claim.

Clause 42.1 contains the procedures for lodging payment claims. In the second paragraph of this clause it is provided that the Superintendent must issue a payment certificate within 14 days of receipt of the claim. Under cl. 42.8, which specifically deals with the final payment certificate, the Superintendent is obliged to issue such a certificate within 14 days after receipt of the final payment claim or within 14 days after the expiration of the time for lodgement of the final payment claim fixed by cl. 42.7 which I have set out above. Clause 42.1 in its fourth paragraph obliges the Principal to pay the amount claimed where the Superintendent fails to issue a payment certificate within time. The present claim of the Contractor is predicated on such a failure. There is dispute whether this default procedure applies to a final payment claim. The 14 day period after the lodgement of the claim in this case expired on 28 May or 30 May 2001, depending upon which claim is relied on.

On 29 May 2001 the Superintendent wrote to the Contractor that "due to the incompleteness of various components of the works a Final Certificate cannot be issued at this stage". No final payment certificate was issued within either 14 day period.

Then followed an exchange of contentious correspondence culminating in the commencement of this proceeding on 27 June 2001.

On 17 July 2001, notwithstanding the events which I have summarised, the Principal directed the Superintendent to issue a final payment certificate and the Superintendent did so on 20 July 2001. In this document the Superintendent certified that in his opinion the sum of $1,880,570 was due from the Contractor to the Principal. For some reason this was not received by the Principal by fax until 23 July. On the following day, 24 July, the Principal gave notice of dispute raising for determination the validity of the Contractor's final payment claim and the liability of the Principal to pay the sum claimed. On 6 August 2001, notwithstanding its instruction to the Superintendent of 17 July, the Principal gave a further notice of dispute seeking a determination whether the works in a 78 page defects list were completed in accordance with the contract.

This is an application for summary judgment. In accordance with well established principle I should give judgment only where the liability of the defendant is clearly established and there is no triable issue of fact involved.

As I mentioned at the outset, there is no dispute about the matters which I have set out above. There is, however, a dispute about the entitlement of the Contractor to the amounts and time extensions sought in the first arbitration and in the amounts for variations sought in the final payment claim. There is also dispute as to the existence of defective or incomplete work and as to the liability of the Contractor to pay liquidated damages for late completion. It was contended on behalf of the Contractor that it is entitled to payment of the $7.6M claimed in its final payment claim notwithstanding that these disputes or some of them may be determined adversely to it in the arbitration or elsewhere. I shall proceed on this basis.

The issues raised in argument were the following:

1. Was the Contractor entitled to submit a final payment claim on 15 or 17 May given that a separate defects liability period which was established on 13 May 2001 had not expired?

2. Was the final payment claim in form ineffective?

3. Does the default procedure for payment under cl. 42.1 apply to a final payment claim?

4. Is the liability of the Principal under the default payment procedure affected by the subsequent issue of a final payment certificate?

I have set out above the terms of cl. 42.7. The time for the Contractor to lodge his final payment claim is "within 28 days after the expiration of the Defects Liability Period, or where there is more than one, the last to expire". There is no doubt that the original defects liability period expired on 14 May 2001. The question here is whether the Superintendent in its first letter of 13 May 2001 created a separate defects liability period pursuant to the third paragraph of cl. 37 and, if so, whether the existence of this period which has admittedly not expired, postpones the time for lodging the final payment claim under cl. 42.7.

The third paragraph of cl. 37 is in the following terms:

"37. DEFECTS LIABILITY ... At any time prior to the 14th day after the expiration of the Defects Liability Period, the Superintendent may direct the Contractor to rectify any omission or defect in the work under the Contract existing at the Date of Practical Completion or which becomes apparent prior to the expiration of the Defects Liability Period. The direction shall identify the omission or defect and state a date by which the Contractor shall complete the work of rectification and may state a date by which the work of rectification shall commence. The direction may provide that in respect of the work of rectification there shall be a separate Defects Liability Period of a stated duration not exceeding the period stated in the Annexure. The separate Defects Liability Period shall commence on the date the Contractor completes the work of rectification. Clause 37 shall apply in respect of the work of rectification and the Defects Liability Period for that work."

The letter of 13 May in question is as follows, omitting formal parts:

"RE SECURITY INSTALLATION Further to my letters dated 2, and 28 February and 11 April 2001, and recent correspondence and on site meetings, I seek your confirmation that the Security System, as installed by Complex Security Management, is complete, is fully operational and conforms with the documents. In particular I also seek your confirmation that the duress alarms and Intruder Detection system is fully operational and can be monitored by Protection Pacific. I also refer you to your letter dated 18 April 2001 in which you advised that as built drawings would be made available by 19 April 2001. At this stage I have not received as built drawings on the Security system. As you are aware, the security system from date of Practical Completion has been the subject of numerous faults, breakdowns and malfunctions. To this time I have not been satisfied that the contracted scope of works for this part of the project has been properly completed. In this regard, in accordance with Clause 37 of the General Conditions of Contract, a separate defects liability period of 12 months shall apply to the security system from the date that the contractor demonstrates that the security system is complete. I have also made you aware that I am not satisfied that the installation of the local control units has been in accordance with the contract documents. I refer you to the Electrical Specification Section 21.15.11 Local Control Units in which specifies that `local control units' be located within equipment rooms/cupboards in approved locations (as shown on drwgs). I find that no instructions were issued during the course of the works to relocate the controllers into ceiling spaces adjacent to or in proximity to the doors. You have indicated that the subcontractors accepted shop drawings did not conform to the contract drawings but in accordance with Clause 8.4 of the general Conditions of contract such non-conformity does not relieve the contractor of the responsibility to comply with the contract. Pursuant to Clause 37, I direct that the local control units are to be located in accordance with the contract documents and that the work of rectification be completed within 14 working days."

The date for expiry of the defects liability period is an important one in the administration of this contract. It fixes the date beyond which the Superintendent may not direct rectification of omissions and defects pursuant to cl.37. In accordance with cl. 42.7 it marks the commencement of the period within which the final payment claim should be lodged and the period at whose expiration the Contractor may not bring further claims against the Principal.

Under the third paragraph of cl. 37, which I have set out above, the Superintendent may in certain circumstances extend the defects liability period in respect of part of the work. This may be done as part of a direction to rectify an omission or defect given pursuant to that paragraph. In his letter of 13 May the Superintendent informed the Contractor that "a separate defects liability period of 12 months shall apply to the security system from the date that the contractor demonstrates that the security system is complete". Earlier in the letter the Superintendent sought the Contractor's confirmation "that the Security System... is complete". It was submitted on behalf of the Contractor that the seeking of such a confirmation was not a direction to rectify. It was not suggested on behalf of the Principal that the provision of such confirmation, as distinct from the actual completion of the security system, was part of the works. What was put on behalf of the Principal was that the problems with the security system were well known and had been raised in the Superintendent's letters of 2 February 2001, 28 February 2001 and 11 April 2001 which are referred to in the 13 May letter and also in the Bassett Consulting Document dated 6 April 2001 and in a Site Minute of 3 April 2001 which were not. The letter in effect, therefore, contained a direction to attend to those matters.

To my mind the operation of cl. 37, insofar as it concerns a separate defects liability period, should not be left to inference or supposition. The Contractor is entitled to know where it stands on this important matter. It may be that the deficiencies in the security system mentioned in the earlier correspondence had been attended to by 13 May. Absent a specific direction to rectify an omission or defect in the security system, it is not open to the Superintendent to provide for a separate defects liability period for that work of rectification.

Then it was said that in the letter there was a direction with respect to the location of local control units which were part of the security system. This is true, and it may have entitled the Superintendent to provide a separate defects liability period for that relocation work, but this he did not do.

I conclude that no separate defects liability period was established by the letter of 13 May. It is true that by letter dated 29 May 2001 the Superintendent directed specific rectification work to be done and purported to extend the defects liability period for the performance of that work. This, however, was not effective to create a separate defects liability period because it was later than 14 days after 14 May 2001.

It follows from this that the 28 day period for lodging the final payment claim began to run on 14 May 2001. The claim of 17 May 2001 was not premature.

A final payment claim, like any payment claim, must comply with the requirements of the first paragraph of cl. 42.1 which is in the following terms:

"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 Practical Completion and within the time prescribed by Clause 42.7, the Contractor shall deliver to the Superintendent claims for payment supported by evidence of the amount due to the Contractor and such information as the Superintendent may reasonably require. Claims for payment shall include the value of work carried out by the Contractor in the performance of the Contract to that time together with all amounts then due to the Contractor arising out of or in connection with the Contract or for any alleged breach thereof."

The claims of 15 May and 17 May in this case were in very brief form. They comprise only a table setting out in summary the make up of the claim. For example, the 17 May claim is in the following terms:

"Ballarat Police and Courts Complex Amended Final Payment Claim 15th May 2001

Add interest calculated to 15 May 2001 and continuing until the total final payment claim is fully paid

It was put on behalf of the Principal that this did not satisfy the requirements of cl. 42.1 since it was not a claim "supported by evidence". The whole phrase is "supported by evidence of the amount due to the Contractor and such information as the Superintendent may reasonably require". It was not argued that the phrase "as the Superintendent may reasonably require" qualifies "evidence" as well as "information" and I express no view upon this. It is, however, not altogether clear what is intended by the word "evidence" in this context. It cannot be supposed that it means evidence which is admissible in a court of law. It was submitted that the word may take some colour from the fact that the claim was a final payment claim seeking a final payment certificate whose consequences, in terms of cl. 42.8 are very serious[1]. There is, therefore, good reason for the Contractor to provide evidence with the final payment claim. I express no view upon this submission since the evidence shows that no material at all was provided with the claim in support of the amount claimed.

It was argued on behalf of the Contractor, in reliance upon the observation made by me in respect to progress payment claims[2], that it is not necessary that claims for payment be documented in full where they have been previously submitted and dealt with in earlier progress payment claims and progress payment certificates. In principle, there is no reason why this should not be equally applicable to a final payment claim since the first paragraph of cl. 42.1 applies to these as well as to progress payment claims. Furthermore, it is in the nature of a final payment claim that it sets out a final statement by the Contractor of amounts due under the contract, including variations, adjustments for provisional sums and prime cost items and the like. Most, if not all, of these matters will normally have been processed and approved in whole or in part by the Superintendent during the course of the project. Others will have been processed and rejected. Clause 42.1 could not have the effect of requiring the Contractor to resubmit evidence to justify these claims and I would not construe it to impose such an unreasonable obligation. Its evident purpose is to impose upon the Contractor the obligation to volunteer with the claim material sufficient for it to be processed. What, in a given case, is sufficient for the purpose of a valid claim will depend upon the nature of the item in question and the material referable to it which is already in the hands of the Superintendent, bearing always in mind that the clause contemplates that further material may be asked for. A relevant factor, too, must be the relatively short time within which the Superintendent is required to respond.

It was put that in the present case the make-up of the various items comprising the final payment claim and the documentation in support of those claims was well known to the Superintendent since he had access to them as part of progress payment claim 32 and in the arbitration.

The factual basis, however, for the Contractor's submission on this point is not free from controversy. The amounts sought in items 3, 5, 6 and 11 of the final payment claim differ from the comparable items in progress payment claim 30. These differences are explained in paragraph 7 of the affidavit of the Contractor's building manager, Ronald Charles Lovett, sworn 25 July 2001 and in paragraph 12 of the affidavit of the Principal's representative, Andrew George Smale, sworn 24 July 2001. What appears from these affidavits and from the exhibits referred to is this:

This item which, in the final payment claim, is valued at $4,428,276.90 is $21,064 less than the comparable item in progress payment claim 30. In that claim the amount represents the total of over 780 variation items totalling $4,449,341. The amount certified by the Superintendent in response to this progress payment claim was $2,243,183. Mr Lovett's explanation of the difference between the items in progress payment claim 30 and in the final payment claim is that "the [Contractor] has adjusted a small number of the variations". I am unable to discern from the documents what was the nature of this adjustment. Mr Smale points out that the amount in the final payment claim is the amount claimed in paragraph 72 and Schedule 9 of the amended points of claim in the arbitration.

This item concerns the pre-cast concrete variation. It is valued at $361,487 in the final payment claim and at $401,487 in progress payment claim 30. The Superintendent entirely rejected this claim in progress payment certificate 32. Mr Lovett, in his affidavit of 24 July 2001, says that the difference between the amount in progress payment claim 30 and the amount in the final payment claim represents the rectification of an error in progress payment claim 30. He says that the documentation in respect of the claim was provided to the Superintendent in a letter dated 24 February 2000. My examination of this document does not disclose any detail of this rectification. Mr Smale says that the amount in the final payment claim is that contained in paragraph 25 and Schedule 5 of the amended points of claim in the arbitration.

This item appears in progress payment claim 30 as $4,064,544 being the aggregate of three items for delay/prolongation costs, acceleration costs and increased costs due to disruption. The Superintendent entirely rejected these claims in certificate 32. In the final payment claim these items are valued at $5,366,862.30. The difference of about $1.3M between the two claims is explained by Mr Lovett, rather elliptically, as being due to "the method in which the delay costs were calculated". He says, and Mr Smale agrees, that the larger sum included in the final payment claim is that sought in paragraph 12 and Schedule 2 to the amended points of claim in the arbitration.

This item, called "costs" in the final payment claim, is there valued at $102,507. It may be the equivalent of an item for costs from 23 December 1999 found in progress payment claim 30 which is valued at $390,000 which appears to have been ignored in certificate 32. Mr Smale says that the item in the final payment claim appears to be costs incurred as part of the Contractor's pre-cast concrete variation claim.

The first paragraph of clause 42.1 requires the Contractor to provide to the Superintendent the final payment claim supported by evidence of the amount due. Accepting, as I do, that for the purpose of a valid claim, this minimal requirement is to provide this evidence to the Superintendent with the final payment claim or at some time previously so that the Superintendent can process the claim as required by the second paragraph of that clause, the question for me is whether the evidence shows to the degree required in an application for summary judgment that this has been done.

It is apparent from the evidence of Mr Smale that the Contractor has provided the information to the Principal in its points of claim in the arbitration. I am invited on behalf of the Contractor to infer that the information was on 17 May 2001 in the hands of the Superintendent. Mr Lovett says that "it is inconceivable that the Superintendent did not have a copy of that pleading". Counsel for the Contractor pointed out that this is confirmed by the fact that the Superintendent did not, after receiving the final payment claim, seek further information and, further, that the Superintendent was able in July 2001 to issue a final payment certificate without seeking further information. To that may be added the fact that it seems that the Superintendent and the Principal appear to have been very close - close enough for the Principal to direct the Superintendent to issue a final payment certificate notwithstanding the Superintendent's view that this was not appropriate.

I am not prepared, however, to give summary judgment where an essential fact depends upon supposition. It may be correct, as the Contractor contends, that the Superintendent had or had access to the points of claim and to the witness statements in the arbitration, but there is no evidence of this. Nor am I prepared to draw the suggested inference from the failure of the Superintendent in May 2001 to seek further information. It is clear from his letter of 29 May 2001 that the response to the claim made in that letter depended, not upon any assessment of the validity of the claim itself, but rather on his view that no final payment claim was appropriate. I am no more ready to draw this inference as to his state of knowledge of the evidence supporting the final payment claim at the time the claim was lodged from circumstances attending the issue of the final payment certificate two months later, or from its terms.

I am not satisfied that there is no triable issue as to the facts which the Contractor must establish to show that a valid final payment claim was lodged on 15 May or 17 May 2001. The application for summary judgment must fail at this point.

In these circumstances, it is not necessary that I express any view upon the third and fourth issues which I have identified in paragraph [17] above and I do not do so. The application for summary judgment will be dismissed.[3]

[1] See also cl. 42.2 which makes the final payment certificate not capable of correction.

[2] Minson Nacap Pty Ltd v Aquatec-Maxcon Pty Ltd (2000) 17 BCL 269 at [17].

[3] After hearing further submissions on 1 November 2001, a supplementary judgment [2001] VSC 436 was published on 23 November 2001 which affects certain conclusions in this judgment. This judgment should therefore be read in conjunction with the 23 November 2001 judgment.

At a glance

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Judgment (56 paragraphs)

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