Supreme Court of Queensland|2006-09-14|Before: Fryberg J

Watpac Australia Pty Ltd v. Spring Hill Developments (No 1) Ltd [2006] QSC 269 (14 September 2006)

HIS HONOUR: This is an application for an interlocutory injunction by a builder against the owner, or principal, as I shall call it, in relation to a building contract for a non-domestic building.

The principal matter in dispute for present purposes is whether the delay in the practical completion entitles the principal to charge liquidated damages. The builder contends that it is entitled to extensions of time for the period between the date for practical completion and the date of practical completion, a proposition denied by the principal and negated by the most recent certificate issued by the supervisor.

The principal claims that an amount of the order of $1.3 million is owing by way of liquidated damages. The security which has been provided is in a sum slightly in excess of $1 million and it is provided by an insurance company in the form of a bond. The contract permits the principal to have access to the proceeds of the bond effectively at any time.

The builder seeks the injunction pursuant to the provisions of s 67J of the Queensland Building Services Authority Act 1991,

(1) The contracting party for a building contract may reduce an amount payable under the contract by an amount owed under the contract, or use a security for the building contract, wholly or partly, to obtain an amount owed under the contract, only if-

(a) the reduction of the amount payable or the use of

the security is permitted under the contract; and

contracted party for the contract advising of the

proposed reduction or use and, if the amount owed

can be quantified when the first notice is given,

of the amount owed; and

the first notice is given, a further written notice

(the "second notice") to the contracted party

advising of the amount owed.

(2) The first notice must be given within 28 days after

the contracting party becomes aware, or ought reasonably

to have become aware, of the contracting party's right to

(3) If the second notice is required to be given, it

must be given within 3 business days after the contracting party becomes able to quantify the amount owed.

(4) If, because of subsections (1) and (2) or (1), (2)

and (3), the contracting party is stopped from reducing

an amount payable under a building contract by an amount

owed under the contract, or from using a security for a

building contract to obtain an amount owed under the

contract, the contracting party for the contract is not

stopped from recovering the amount owed in another way.

"amount owed", under a building contract, means an amount

quantified, is owed by the contracted party for the

because of circumstances associated with the contracted

"amount payable", under a building contract, means an

amount that, under the building contract, is payable by

the contracting party for the contract to the contracted

party for the contract, including any amount payable to

the contracted party from a retention amount for the

The builder submits that in the present case no notice has been given in accordance with that section.

There is no dispute between the parties that there was a letter dated 8th September 2006 given by the principal to the builder which satisfies the terms of sub-section (1) of the section. However, it is also undisputed that the letter was not given within the time provided by sub-section (2). This is not a case where sub-section (3) has any relevance. The builder submits that the notice is effectively a year late because the principal must have been aware of its entitlement to liquidated damages not later than 16th September 2005. That was when the practical completion was certified to both parties. It follows, it is submitted, that that is when the owner became aware, or at least ought reasonably to have become aware, of its right to obtain liquidated damages.

The principal responds to those submissions by submitting that the reference in s 67 J(1) to an amount owed under the contract is effectively a reference to the final amount payable under the contract. I was referred to the decision of the Court of Appeal in Daysea Proprietary Limited v Watpac Australia Proprietary Limited [2001] QCA 49, where the provisional nature of payments made in the course of the contract is referred to.

The principal acknowledges that by clause 35.6 of the contract the builder becomes indebted to it in respect of liquidated damages, but submits that this indebtedness is not what is referred to in the section because it does not fall under the final certificate. It is submitted that it must so fall because the obligation lies upon the superintendent in issuing certificates under clause 42.1.3 of the contract to adjust the amount payable to account for the amount of any liquidated damages.

It seems to me that that is not the proper construction of the Act. It would give the Act very little work to do if that were all it operated upon and it is difficult to see why it should be construed to operate at that time when indeed one might think that recourse to the security was most likely to occur. It seems to me more probable that the Act is aimed at controlling the demanding of security during the course of the project and preventing such demands being used to terrorise builders. I would reject the submission based on that construction of the Act.

I was also referred to clause 5.6 of the contract and it was submitted, as I understand it, that that clause provides recourse to retention moneys and for them to be converted into money. It was further submitted that the clause provides for recourse to retention moneys and for conversion of security into money in the circumstances set out in that clause and that this was what was happening in the present case.

It was submitted that that mechanism is not caught by the provisions in the statute. However the prohibition in the statute is on the use of security to obtain an amount owed. It seems to me that if the amount is owed it really makes no difference that there is another clause in the contract which permits the use of the security in what might be though not necessarily is a different way.

Thirdly the principal, in reliance upon the decision in Multiplex Ltd v Qantas Airways Ltd [2006] QCA 337, submitted that the present was an amount certified as claimed to be owing but not an amount payable within the meaning of the section: see paragraph 6 of the judgment. It seems to me that that paragraph is not concerned directly with the present issue but was concerned rather with questions of hypothetical versus actual payment.

The principal also sought to rely upon the second part of clause 5.6 to assert that the builder was prohibited from taking steps to restrain the owner from making a demand under the security or receiving payment under it. That is what might be described as an adventurous submission. Courts look with disfavour upon contractual provisions which purport to prevent persons from having access to the courts. It seems to me probable that such a provision if so construed would be void as ousting the jurisdiction of the Court.

The final argument, as I understood it, advanced on the merits by the principal was one which derived from the interchange between the Bench and the builder during its submissions. It was that the requirement in subsection (2) for the notice to be given within 28 days was not a requirement the breach of which invalidated a notice under subsection (1). The question whether an act done in breach of a statutory provision has an invalidating effect is analogous to the issue considered in Project Blue Sky Incorporated v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355, where particularly at paragraph 92 and following the issue is considered.

I expressed the view in the course of the hearing that the better construction of the section was that failure to comply with the time requirement did not invalidate the notice but might be a factor in considering whether, by reason of breach of the statutory provision, an injunction ought to be issued to restrain the realisation of the security.

Mr Freeburn for the builder submitted that that was not a correct construction because subsection (4) referred to the combined effect of subsections (1) and (2) as stopping or reducing an amount payable. However, the precise wording of subsection (4) is: "If because of subsections (1) and (2)...the contracting party is stopped from...using a security."

The use of the word "stopped" is unusual and the section, it seems to me, is comfortably applied to the situation where, having taken subsections (1) and (2) into account, a court issues an injunction to restrain access to the security. In other words there is still work for subsection (4) to do upon the construction supported by the principal. Had it been intended that failure to comply with subsection (2) invalidated the notice under subsection (1) the section could easily have provided that the security could be used if and only if the notice was given in accordance with subsection (2). It does not do so.

While I am reasonably confident of the correctness of that interpretation it has to be said that the matter has come on in the applications jurisdiction and only a limited number of authorities have been cited to me. On balance I have come to the conclusion that it is arguable to the contrary; in other words that Mr Freeburn makes out an arguable case. It is, I think, a wrong case. His client will, I think, lose, but the case is arguable. If his client is willing to provide the usual undertaking as to damages and if the balance of convenience favours the grant of the injunction it seems to me that the builder has taken the first step required to be taken in order to obtain an injunction.

I turn then to the question of balance of convenience. The main point raised on behalf of the principal was that in a few weeks if nothing is done it will become obliged to cancel the security and the security will vanish. To counter that the builder offered, in effect, to consent to the principal retaining the security pending the determination of the proceedings. No doubt some wit will have to be employed in framing the appropriate undertaking in that regard but it seems to me that in substance that is capable of overcoming the principal's objection.

Second, there is the problem that the principal will be kept out of its entitlement to interest in the sense that if it had realised the security it would be entitled to earn interest upon the proceeds. To overcome that the builder offered to provide $50,000 for security for interest payable under the contract, such security to be to the satisfaction of the registrar. No one has put before me any calculations of the amount of interest which would be owing but it is not suggested that this is an unrealistic amount, at least, in the light of the position as it presently stands and the time that it is likely to take for the matter to be resolved, if it is resolved quickly.

It seems to me that that offer is sufficient to overcome the balance of convenience point relating to interest, provided it is borne in mind that if the proceedings drag on for more than a couple of months and it turns out that $50,000 is insufficient to cover interest that the owner should be at liberty to return to the Court to seek relief from the injunction unless the security be increased.

On the other side of the coin the builder points to its reputation as a builder being damaged if the bond is called-up. The evidence shows that the builder has never had a bond or a bank guarantee called-up and it is submitted that the damage to its reputation would be irreparable and would be unable to be measured by a monetary amount. There is, I think, force in that submission.

It seems to me that the balance of convenience clearly favours the grant of the injunction. Consequently, upon receipt of the usual undertaking I will make the injunction sought.

I would ask that counsel bring in a draft tomorrow embodying the undertakings and appropriate orders.

HIS HONOUR: Costs reserved. Draft to be brought in.

HIS HONOUR: Draft to be brought in by close of business Monday.

Queensland Building Services Authority Act 1991

Watpac Australia Pty Ltd v. Spring Hill Developments (No 1) Ltd [2006] QSC 269 (14 September 2006)

At a glance

Court

Decision date

Before

Source

Judgment (54 paragraphs)

Watpac Australia Pty Ltd v. Spring Hill Developments (No 1) Ltd [2006] QSC 269 (14 September 2006)

Legislation Cited (1)

Cases Cited (1)