Viridian Noosa Pty Ltd v Neumann Contractors Pty Ltd

[2] Principal and contractor are parties to a building contract which incorporates General Conditions of Contract (AS 2124-1992).

[3] On 14 May this year, the Superintendent certified, pursuant to cl 42 of those General Conditions, that the sum sued for was due for payment by the contractor to the principal. Clause 42.1 required the contractor, "subject to the provisions of the contract", to pay to the principal, within 14 days of issue of the certificate, "not less than the amount shown in the Certificate as due". None of the sum so certified has been paid.

[4] After the litigation commenced, the contractor furnished a Notice of Dispute, invoking cl 47.2 of the General Conditions. The contractor prefers to have arbitrated two classes of disputes relating to the certificate: whether it is valid; and whether the sum certified for payment was a correct assessment.

[5] The principal accepts[1] that the challenges in the Notice to the certificate constitute a dispute which may be referred, as cl 47.2 stipulates, "to arbitration or litigation". And cl 47 is an "arbitration agreement" within s.53 of the Act.[2] If, therefore, the litigation is a "proceeding...in respect of a matter agreed to be referred to arbitration" within the meaning of that expression in s.53, then s.53 is a source of power to stay the case to enable the notified disputes to be resolved by the procedures prescribed in cl 47, which will end with arbitration.

[6] The principal contends, however, that its "proceeding" in the Court is not "in respect of a matter agreed to be referred to arbitration". This is said to follow from cl 47.4, which provides:

"Nothing herein shall prejudice the right of a party to institute proceedings to enforce payment due under clause 42...".

[7] This contention is not obviously compatible with the logic in the reasoning of the majority in Mulgrave Central Mill. But it is not necessary to decide whether cl 47.4 puts the litigation beyond the reach of s.53. For even if s.53 confers power to grant the stay, the circumstances do not justify such a restraint on the prosecution of the litigation.

[8] First, in respect of this contract, in considering whether to stay the litigation so that the challenges to the certificate can be determined by arbitration, there can be no predisposition in favour of arbitration.

[9] Clause 47.2 envisages "arbitration or litigation" as means for the resolution of notified disputes. The contract does not express a general preference for one over the other. More significantly, cl 47.4 provides in terms for litigation to enforce payment of a cl 42 certificate. Presumably, cl 47.4 reflects construction industry experience with problems that can attend entangling enforcement of a superintendent's certificate with arbitration of such wider disputes as assessing costs of variations or rectification of defects. However that may be,[3] to permit the litigation to proceed would accord with the special provision the parties have made concerning means to enforce payment of a cl 42 certificate.[4]

[10] Secondly, there is no reason to suppose that arbitration offers a better way for resolving the contest about validity of the certificate.

[11] The contractor contends that the Superintendent's certificate is invalid because, put shortly, it was not made in accordance with the contract.

[12] A suggested ground of invalidity is that the Superintendent deducted not only liquidated damages for delay but also delay costs for which the principal claimed to be liable to a third party as a result of the contactor's delayed performance. On the contractor's case, this decision is inconsistent with the contract, for two reasons. First, the language of the material provision, cl 30.5, is said not to sustain the decision. Secondly, the contractor argues that damages for delay are limited to the liquidated damages for which the contract stipulates.

[13] So the first ground of challenge to validity turns on the meaning of the contract.

[14] The second challenge also concerns the proper interpretation of cl 30.5. The certificate is said to be invalid because, when the Superintendent set about the exercise required by that clause, he valued alleged costs to rectify work rather than the diminution in value to "the Works" resulting from the principal's having accepted defective works. It was the latter, the contractor contends, that the clause required the Superintendent to value.

[15] A third ground of invalidity propounded is that when the Superintendent performed the valuation exercise required by cl 42, he certified the amount payable to the applicant in respect of the H Block Works at nil, while certifying for a deduction of the amount payable in respect of the rectification works for that work. On the contractor's case, the principal was not entitled to refuse to pay for the works (that had been accepted) and also seek an amount as loss pursuant to cl 30.5. It seems that such an error was acknowledged by the Superintendent by letter. The contractor accepts that the quantum of the error is comparatively minor ($36,150.65).

[16] The final suggested ground of invalidity is that the Superintendent had a special interest in the result on the footing that he was a director of the principal.

[17] As the contractor acknowledges, superintendents under building contracts are often employees of a principal. Here, however, the contractor maintains that it was not aware that the chosen Superintendent was one of the principal's directors. This is said to matter to the validity of the certificate on the footing that, as a director, the Superintendent owed obligations that are different, in character and degree, from those owed to the principal as an employee. It is suggested that, although a contractor may have to accept apparent conflicts that exist when a superintendent is an employee, nothing requires the contractor to accept an even closer involvement with the principal (and greater potential for conflict) unless that has been disclosed before the contract was made.

[18] Accordingly, all the issues that arise on the challenges to validity of the certificate are legal, not factual. In the circumstances, there is no reason to suppose that these challenges can be decided more conveniently in an arbitration. And there is no sufficient justification for enmeshing this contest over certificate validity in an arbitration involving wider disputes about other issues raised by the Notice, even if (i) an arbitrator could, by interim award, separately determine the validity challenges and (ii) such an award might be got and enforced as effectively and efficiently as a judgment.

[1] cf Abigroup Contractors Pty Ltd v Multiplex Constructions Pty Ltd [2003] QCA 501; [2004] 1 QdR 470, 479.

[2] Mulgrave Central Mill Company v Hagglunds Drives Pty Ltd [2001] QCA 471; [2002] 2 QdR 514.

[3] True it is, as Mr Bond SC argued, that by contemplating that a party may "institute" court proceedings, cl 47.4 refers to starting litigation rather than to both commencing and maintaining that procedure. But, for present purposes, the significance of cl 47.4 lies in revealing that the parties have not stated a preference that disputes about payment certificates should be arbitrated.

[4] cf Southern Region Pty Ltd v State of Victoria [2001] VSC 250, [9].