|Court of Appeal
New South Wales
|Medium Neutral Citation
|Dial D Pty Ltd as trustee for the Smith Street Unit Trust v Kingston Building (Australia) Pty Ltd  NSWCA 277
|13 August 2013
|Ward JA at ; Leeming JA at ; Tobias AJA at 
|1. To the extent necessary, grant leave to appeal.
2. Appeal allowed in part.
3. The declaration made in paragraph 1 of the orders of Stevenson J of 5 March 2013 be set aside.
4. Save as above, appeal dismissed.
5. If one or both of the parties seeks an order for costs of the appeal, it or they should serve short written submissions as to costs of the appeal by 9am on 30 August 2013.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court’s computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
|CONTRACTS – building, engineering and related contracts – the contract – construction of contract – whether further progress claim could be made – whether Superintendent entitled to issue progress and other payment certificate in month when no work done and contractor did not issue progress certificate – whether Superintendent’s progress certificate void
|Building and Construction Industry (Security of Payments) Act 1999
|620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2)  VSC 491
Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1997) 14 BCL 215
Built Interiors Pty Ltd v Three Dinosaurs Pty Ltd  NSWCA 290
Daysea Pty Ltd v Watpac Aus Pty Ltd  QCA 49
Gillard v Hunter Wire Products Pty Ltd t/as Hunter Screen Products (No 2)  NSWCA 450
Main Roads Construction Pty Ltd v Samary Enterprises Pty Ltd  VSC 388
Merritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd  2 Qd R 521
Metwally v University of Wollongong  HCA 28; (1985) 59 ALJR 481
Re Concrete Constructions Group Pty Ltd  1 Qd R 6
Thiess Constructions Pty Ltd v Pavements & Excavations Pty Ltd (2000) 16 BCL 42
Walker v Wilson (1991) 172 CLR 195
Winn v Director General of National Parks and Wildlife and Ors  NSWCA 17
Zauner Construction Pty Ltd v No 2 Pitt Street Pty Ltd  VSC 154
|Dial D Pty Ltd as trustee for the Smith Street Unit Trust (Appellant)
Kingston Building (Australia) Pty Ltd (Respondent)
DECISION UNDER APPEAL
- WARD JA: The appellant (Dial D) was the principal and the respondent (Kingston) was the builder under a construction contract dated 31 March 2010 (the contract) in relation to the construction of a medical centre in Charlestown. The dispute between them relates to the proper construction of provisions in the contract dealing with the making of progressive payment claims and the issue of progress or other certificates during the course of the contract. The appeal is from that part of the decision of Stevenson J ( NSWSC 173) relating to his Honour’s finding that a progress certificate dated 31 January 2013 (the January certificate), issued by the Superintendent, was void and of no effect.
- For reasons that will become apparent, and as was in effect conceded by the parties, the determination of this appeal can at best be of relevance in the assessment of interest and costs to which one or other of the parties may be entitled, since the contract makes provision for a final adjustment of all claims in connection with its subject matter following the expiry of the last defects liability period (see clause 37.4; CB 95T). It should also be noted at the outset that no issue arises on this appeal as to the construction or operation of the Building and Construction Industry (Security of Payments) Act 1999 (NSW), under which Kingston’s progress claims were made; no cross-claim for set-off was raised; and there was no question raised as to any bad faith or misconduct by the Superintendent in the issue of the January certificate that the primary judge found to be void and of no effect. The sole question raised on the appeal was as to the contractual entitlement of the Superintendent to issue, and hence the validity of, the certificate in question.
- The contract incorporated the Australian Standard General Conditions of Contract AS4000-1997 as amended and certain Special Conditions. Pursuant to clause 37.1 of the standard form general conditions, Kingston was obliged to claim payment progressively “in accordance with Item 28″ of the contract (CB 94U). Item 28 specified the “times for progress claims” as being “25th day of each month for WUC done to the 25th day of that month” (CB 55F). The letters “WUC” stood for “work under theContract“, defined in clause 1 as meaning “the work which the Contractor [Kingston] is or may be required to carry out and complete under the Contract and includes variations, remedial work,construction plant and temporary works” (CB 68N-P). Words italicised in the contract appear to denote the use of defined terms (of potential relevance in considering special condition 45.2, where “progress certificate” is not italicised).
- It is not disputed that practical completion was achieved on 5 July 2012 (CB 171D; CB 158Q). Under the contract, there was a twelve-month defects liability period from the date of practical completion (clause 35; CB 93E-M; CB 55C68N-P). After practical completion, Kingston carried out variations and other works. By letter dated 21 December 2012 (CB 116), and hence within the defects liability period, Kingston made a progress claim for $1,170,695.09 (CB 117-119). That payment claim included a total claim for variations of $1,463,512.02, plus GST, which increased the contract sum to $11,889,571.12 and, by reference to the amount received to date by Kingston, produced the sum claimed by it.
- In Dial D’s Commercial List Response, it disputed that the December progress claim had been given to the Superintendent for the purposes of clause 37.1 of the contract on or before 25 December 2013. However, on appeal there was no challenge to his Honour’s finding that the December progress claim had been issued in accordance with the contract and that, in circumstances where the Superintendent did not issue a progress certificate under clause 37.2(a) of the contract by 8 or 9 January 2013, Dial D was obliged to pay the amount claimed in the progress claim by 11 January 2013 (paras -) (CB 117W-X).
- On 14 January 2013, the Superintendent (Leed Building Group Pty Ltd) issued a progress certificate and payment schedule in response to the December payment claim (CB 121-122). It is accepted that this was out of time and of no effect.
- No payment claim was made by Kingston in January 2013. His Honour noted (at ) that the evidence revealed this was because Kingston had done no work under the contract after service by it of the December progress claim. No challenge was made to that finding in the notice of appeal (CB 43). It was conceded by Dial D in oral submissions that there was no work performed by Kingston in the period between 21 December 2012 and the issue by the Superintendent of the January certificate.
- The January certificate in its terms stated that it was issued pursuant to clause 37.2 of the contract (CB 132-137). In clause 5 of that certificate, the Superintendent certified, inter alia, that the amount of $1,067,571.53 was owed by Kingston to Dial D and that the certificate was a progress certificate both under clause 37(a) and clause 37(b) of the contract. It is apparent that the Superintendent was intending to refer to clauses 37.2(a) and (b). The Superintendent in that certificate assessed the variations claimed by Kingston at a negative amount (-$17,244.03) and assessed Dial D’s liquidated damages claim for delay at $609,435 based on a practical completion date of 18 October 2011. In the certificate, the Superintendent also certified that “[t]here are not retention moneys held, however Dial D holds security pursuant to the Contract to which it may have recourse” (clause 5(c)).
The proceedings before Stevenson J
- Prior to the issue of the January certificate, Kingston had commenced proceedings in the Technology and Construction List of the Court, seeking declaratory relief in relation to the 14 January certificate and judgment in the amount claimed in the December payment claim. Following the issue of the January certificate, it amended its summons to include a claim for a declaration that the “purported progress certificate” issued on or about 31 January 2013 was and is void and of no effect under the terms of the contract (CB 7G). It was in that context that the issue as to construction of the contract came before the primary judge.
- His Honour heard the matter on 4 March 2013 and, with commendable expedition, determined the matter and gave oral reasons the following day. His Honour found that once Kingston’s entitlement to payment of the amount the subject of the December payment claim arose it became something akin to an accrued right in the sense that it was unconditionally acquired; albeit on account of whatever might be determined to be Kingston’s final entitlement to payment under the contract ().
- As to the construction of clause 37.2, his Honour found that it was enlivened only when Kingston did not make a progress claim by the 25th of the month for work it had done in that month and that it was not enlivened where no progress claim was made by Kingston during the month “because it did no work” (). His Honour concluded that the occasion for the Superintendent to issue a progress certificate in January 2013 under clause 37.2 had not arisen and the purported 31 January certificate was of no effect (), the Superintendent having no entitlement to issue that certificate (). His Honour noted and rejected the submission by Dial D that the January certificate had superseded the deemed December payment claim (-).
- His Honour did not consider that special condition 45.2 of the contract, which dealt with the situation where the Superintendent failed to set out certain amounts in a progress certificate, had any role to play in the construction of clause 37.2, on the basis that it did not give the Superintendent an entitlement to issue a progress certificate which it otherwise did not have ().
- Judgment was entered in favour of Kingston in the amount of the December payment claim plus interest and costs. His Honour also declared that the January certificate was void and of no effect.
- By Notice of Appeal filed 13 March 2013 (CB 42C-D), Dial D contends that his Honour erred in finding:
1. that on the proper construction of the contract, unless [Kingston] had undertaken WUC (as defined by the contract) since the time of its last-made progress claim under clause 37.1 of the contract, [Kingston] was not entitled to make a further progress claim under that clause.
2. on the basis of that construction of the contract, that:
(a) [Kingston] was not entitled to make a progress claim pursuant to clause 37.1 of the contract on 25 January 2013; and accordingly,
(b) the Superintendent was not entitled, pursuant to clause 37.2 of the contract, to issue its payment certificate dated 31 January 2013.
3. that on the proper construction of the contract, special condition 45.2 of the contract did not otherwise entitle the Superintendent to issue its progress certificate dated 31 January 2013.
4. that in the circumstances, and on the construction of the contract as found by him, the Superintendent’s progress certificate dated 31 January 2013 was void and of no effect.
- Dial D accepts that the December payment claim, which was deemed to be a progress certificate as a result of the failure of the Superintendent to respond thereto within the relevant time, gave rise to an amount due and payable to Kingston as at 11 January 2013 (CB 165T-U). However, it submits that this was not an “accrued right” that was unable to be varied by subsequent progress certificates. Rather, it submits that the January certificate was valid and superseded the deemed progress certificate, such that as at the time of the hearing before the primary judge there was no amount payable pursuant to that earlier certificate. Although in Dial D’s written submissions it is asserted in the alternative that the January certificate operated as a set-off, this was not raised in any cross-claim in the proceedings below.
Relevant provisions of the contract
- Clauses 37.1 and 37.2 provide as follows:
37.1 Progress claims
The Contractor shall claim payment progressively in accordance with Item 28.
An early progress claim shall be deemed to have been made on the date for making that claim.
Each progress claim shall be given in writing to the Superintendent and shall include details of the value ofWUC done and may include details of other moneys then due to the Contractor pursuant to provisions of theContract.
The Superintendent shall, within 14 days after receiving such a progress claim, issue to the Principal and the Contractor:
a) a progress certificate evidencing the Superintendent’s opinion of the moneys due from the Principal to theContractor pursuant to the progress cIaim and reasons for any difference (‘progress certificate‘); and
b) a certificate evidencing the Superintendent’s assessment of retention moneys and moneys due from theContractor to the Principal pursuant to the Contract.
If the Contractor does not make a progress claim in accordance with Item 28, the Superintendent may issue the progress certificate with details of the calculations and shall issue the certificate in paragraph (b).
If the Superintendent does not issue the progress certificate within 14 days of receiving a progress claim in accordance with subclause 37.1, that progress claim shall be deemed to be the relevant progress certificate.
The Principal shall within 7 days after receiving both such certificates, or within 21 days after theSuperintendent receives the progress claim, pay to the Contractor the balance of the progress certificateafter deducting retention moneys and setting off such of the certificate in paragraph (b) as the Principalelects to set off. If that setting off produces a negative balance, the Contractor shall pay that balance to thePrincipal within 7 pays of receiving written notice thereof.
Neither a progress certificate nor a payment of moneys shall be evidence that the subject WUC has been carried out satisfactorily. Payment other than final payment shall be payment on account only.
- Special condition 45.2, on which reliance was placed by Dial D as providing a substantive power to correct errors, provides as follows:
45.2 Progress Certificates
Failure by the Superintendent to set out in a progress certificate an amount which the Principal is entitled to retain, deduct, withhold or set-off from the amount which would otherwise be payable to the Contractor by the Principal will not prejudice the Superintendent’s ability to set out in a subsequent progress certificate an amount which the Principal is entitled to retain, deduct, withhold or set off from the amount which would otherwise be payable to the Contractor by the Principal.
- It is to be noted that the term “progress certificate”, where appearing in special condition 45.2, is not italicised, unlike in clause 37.2.
- In essence, each of the appeal grounds goes to the entitlement of the Superintendent to issue certificates under clause 37.2 in circumstances where the contractor has not made a progress claim because it has not performed work during the relevant month.
Ground 1 – The proper construction of clause 37.1 of the Contract
- Senior Counsel for Dial D, Mr Corsaro SC, submits that it is not a pre-condition to the making by Kingston of a progress claim in any particular month that Kingston must have carried out any work in that month. He emphasises that Item 28 of the contract refers to “WUC done to” the relevant date in the particular month not done “in” that month (CB 55E-G).
- The definition of “WUC“, to which I have already referred, includes work that Kingston “is or may be required to carry out and complete”. Mr Corsaro submits that where, at the time of a progress claim, defects have become apparent in the “Works“, which Kingston is obliged to rectify but has not done so, the value of the WUC ought properly to include a negative allowance for the cost to remedy those defects. Mr Corsaro thus submits that the words “for WUC done to the 25th day of that month” in Item 28 of the contract would permit Kingston to make a progress claim for the cumulative value of WUCcompleted to that time, not limited to work done during the month of claim. Mr Corsaro also points to the fact that clause 37.1 permits Kingston to include in a progress claim details of “other moneys then due” to it pursuant to the provisions of the contract.
- There is no definition in the contract of “value of WUC“.
- Counsel for Kingston, Mr Hicks, submits that there would be no obligation to include details of the alleged defects since that would not “change” the value of the WUC as Kingston would be obliged to rectify those at its own cost.
- The contention put for Kingston is that the right or entitlement to “claim payment progressively” under clause 37.1 is exhausted if the contractor has claimed for the WUC to date and its claims have been contractually certified in full.
- Both parties noted the distinction in clause 37.1 between the requirement that each progress claim “shall” include the value of WUC done and the fact that the progress claim “may” include a claim for other moneys then due.
- The first point to note in relation to Ground 1 of the Notice of Appeal is that his Honour did not, in terms, make such a finding. His Honour (at  noted that pursuant to clause 37.1 the contractor was entitled (I would interpose to say that “shall” indicates to me that the contractor is required) to submit payment claims progressively. His Honour correctly noted (at ) that the contractor was required to do so each month “for work done under the Contract to the 25th day of that month”.
- Implicitly, when construing clause 37.2, his Honour accepted that the contractor was not obliged or required to make a progress payment claim if no work had been carried out in that month (see ). His Honour did not address the separate question as to whether the contractor would have been entitled, in a month in which it had not carried out any work under the contract, to issue a progress payment claim, had it wished to do so, for other moneys then due to it. That question did not arise on the facts of the case and there was no finding as to that. Therefore, Ground 1 does not seem to me to be properly founded.
- Nevertheless, it having been raised and being of potential relevance to the construction of clause 37.2, in my opinion the proper construction of clause 37.1 requires (in the sense of mandates) the contractor to make a monthly progress payment claim only where the contractor has a claim for work under the contract (within the definition of WUC) done to the date specified in the particular month.
- The first sentence of clause 37.1 is expressed in mandatory terms: the contractor “shall claim payment progressively”. The contractor, when making a claim in compliance with that requirement, then has a discretion as to whether to include details of other moneys then due to it. However, the notion of a payment claim is one that connotes that there is something that is being claimed. That is supported by the opening words of clause 37.1 (“[t]he Contractor shall claim payment”). There is, therefore, logic to the construction of clause 37.1 for which Mr Hicks contends, namely that if the contractor has no claim for payment then it is not required to make a progressive payment claim. There is nothing to suggest that the contractor has an obligation, in a month for which there is nothing for it to claim, to issue a “nil” payment claim, simply to give the Superintendent the opportunity to raise claims that the principal might have or to revisit earlier certified claims.
- The relevant question is, then, what is meant by the requirement in clause 37.1 for the contractor to claim payment progressively “in accordance with Item 28″. That item, as defined in the contract, specifies the “[t]imes for progress claims”. Read literally, Item 28 is addressing the times at which progress claims are to be made, not their content. However, it identifies the times for the making of the claims by reference to what the claims are for – i.e., the 25th day of each month “for WUC done to the 25th day of that month”. Arguably, it says nothing as to whether and when claims might be made for moneys due for anything else in relation to the contract.
- While the definition of “WUC” includes both present and future work, Item 28 focuses on the time for progress claims for work “done”, not work to be done. Having regard to the commonsense meaning of “done to”, and the fact that what is required by clause 37.1 is that the contractor progressively “claimpayment”, I am of the view that the contractor is not required by that clause to make a progress claim in any particular month if it has no claim for work falling within the definition of WUC that “… has been done to the 25th day of that month”. If work has already been the subject of a certified claim, then the contractor has no obligation to issue a subsequent claim for progressive payment in relation to that work.
- Whether it would be open to a contractor to issue a progress claim where no work had been done that was not the subject of a previously certified claim, but there were other moneys then due, would be a different issue and it is not one that is raised on the facts of the present case.
- Mr Corsaro submits that the construction of clause 37.1 of the contract that he says was adopted by the primary judge leads to a number of consequences, which point to it not being the proper construction.
- The first is whether such a construction would deprive the contractor of an ability to claim for “any [other] moneys due” under the contract in a particular month if it had not completed work falling within the definition of WUC in that month. As to this, Mr Hicks reiterates the submission that where the contractor’s claims have already been certified in full and no further WUC undertaken then there is no occasion or basis to make a further progress claim. Insofar as that appears to involve a concession that Kingston would not then be able to claim by way of a progress payment claim for other moneys then due, it is not necessary to decide whether such a concession is soundly based. Even if this is the effect of the construction of the clause, it might simply illustrate the accepted technicality of the interim payment regime provided for under the standard form general conditions. In that regard I note that inDaysea Pty Ltd v Watpac Aus Pty Ltd  QCA 49 Williams JA, with whom Davies JA and Mackenzie J agreed, referred to the consideration in re Concrete Constructions Group Pty Ltd  1 Qd R 6 of such provisions regulating the rights of the parties as to progress payments and to the statement by McPherson JA and Helman J in that case (at 12) that:
…Such claims and payments are, in building contracts in the common form, always intended to be provisional only . . . That is to say, they await the day when a final certificate issues, in which the ultimate indebtedness by one party to the other is ascertained and fixed.
- Willams JA noted (at ) that the significance of such a clause was that “progress payments are critical to the survival of the contractor and to the completion of the project”. Reference was also made toMerritt Cairns Constructions Pty Ltd v Wulguru Heights Pty Ltd  2 Qd R 521; Thiess Constructions Pty Ltd v Pavements & Excavations Pty Ltd (2000) 16 BCL 42; and Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1997) 14 BCL 215, as to the need for strict compliance with such clauses. Williams JA said that the reasoning in Algons as to the need for strict compliance was compelling. He noted the serious consequences of issuing a certificate, observing at :
The proprietor is bound to pay the amount of the certificate notwithstanding that the amount is provisional only and subsequently may be found to be incorrect. Notwithstanding such considerations the proprietor must pay the amount specified in the certificate and take the chance that any excess can be recovered subsequently. Similarly, the contractor is not entitled to payment of anything more than the amount specified in the certificate though it may well be less than the progress claim made. Even though it may ultimately be found that the contractor was entitled to more, the recovery of any such amount must await the determination of disputes at the end of the contract. (my emphasis)
- Second, Mr Corsaro submits that if Kingston refused to undertake remedial works after completion then the construction adopted by the primary judge would preclude the Superintendent from issuing a certificate that covered any amount due to it under the contract by reason of that refusal. Mr Hicks’ response, as noted earlier, is that the value of the WUC does not change by reference to alleged defects and there was no occasion for the contractor to “claim payment progressively” in respect of alleged defects because it is not entitled to further payment, whether or not it rectified any such defects. He further notes that the contract provided a series of rights and mechanisms for Dial D and/or the Superintendent to deal with defects, both generally and within the defects liability period, by way of certification that might be issued at any time and without reference to clause 37.2 (referring to clauses 29.3 and 35). Similarly, there is provision for the certification of liquidated damages without reference to clause 37.2 (in clause 34.7).
- Mr Corsaro’s contention, however, is that the provision of a mechanism in various clauses of the contract for certification of moneys payable is not the same as the provision of a mechanism for progressive payment of those amounts. He referred to a number of clauses of the contract under which provision is made for periodic adjustments to the contract sum (such as clauses 3, 11.2, 13, 14.2, 26.3, 27, 29.3, 34.7, 34.9 and 35), which it is said set out the machinery for determination of amounts payable but not all of which directly impose a payment obligation on one or other party. Those provisions relate to matters such as provisional sums, adjustments required as a result of legislative requirements, amounts payable for protection of people or property, damage to the works, disturbance of survey marks, cleaning up, defective work, liquidated damages, delay damages and rectification of defects.
- In support of the argument that clause 37.2 permits the Superintendent to issue the certificates there identified even if there has been no work done under the contract in a particular month, and no payment claim made by the contractor, Mr Corsaro submits that the only clause that directly imposes a payment obligation in respect of amounts to be certified or determined in accordance with a number of those provisions is clause 37 and that, absent the inclusion of such amounts in any progress certificate under clause 37.2, Dial D is not entitled to offset any such entitlements from any progress certificates issued (there referring to Daysea Pty Ltd v Watpac Australia Pty Ltd  QCA 49; Main Roads Construction Pty Ltd v Samary Enterprises Pty Ltd  VSC 388; and Algons Engineering Pty Limited v Abigroup Contractors Pty Limited (1997) 14 BCL 215).
- This argument is more relevantly dealt with when addressing the proper construction of clause 37.2.
- Third, Mr Corsaro raises issues going to the uncertainty that he submits would flow from the primary judge’s construction – namely, that it would not necessarily be known to the principal whether WUC had been done in any month and, therefore, it would not necessarily know whether the contractor was entitled to make a progress claim; and that if Kingston did make a progress claim in a month in which it had not undertaken any WUC the validity of that claim, and consequential steps in relation to that claim, would be in doubt. As to the first of those matters, Mr Hicks submits that whether WUC had been undertaken in any particular month would be a matter of fact and that it is not in issue in this case. In any event, he contends that this would not be a matter peculiarly within the knowledge of the contractor. As to the complaint as to the uncertainty of the contractual validity of a progress claim submitted in a month where no WUC had been undertaken, again Mr Hicks submits that this is not in issue in the present case. I consider the submissions of Mr Hicks on this issue to be well founded.
- Finally, Mr Corsaro contends that if the construction of clause 37.1 of the contract for which Mr Hicks contends (and which his Honour implicitly accepted) is correct then it has the consequence that any deemed progress certificate under clause 37.2 would remain unable to be adjusted unless and until Kingston either completed further WUC and made a claim in that month or otherwise made a progress claim. That may be the result of such a construction. However, unless there is a requirement to issue “nil” payment claims, that result simply means that a principal may be left to recoup amounts found to have been erroneously certified through the final adjustment process or by a claim made otherwise than through the payment claim process, consequent upon certification under one of the other clauses of the contract.
- I am not satisfied that error has been shown in his Honour’s consideration of the operation of clause 37.1 of the contract.
Ground 2 – Proper construction of clause 37.2
- Ground 2 of the notice of appeal alleges error in the finding that the Superintendent was not entitled pursuant to clause 37.2 to issue the January payment certificate. To the extent that it is predicated on error in relation to the construction of clause 37.1 (by the use of the words “and, accordingly” at the end of paragraph (a) of Ground 2), that has not been established and the ground would fail. Assuming, however, that what is in issue (under this ground or under Ground 4) is the proper construction of clause 37.2 even if the proper construction of clause 37.1 is as I consider it to be, is there an error in his Honour’s finding?
- Mr Corsaro submits, in effect, that the fact that work under the contract has not been carried out during the relevant month is irrelevant because it nevertheless remains the case that Kingston has not issued a progress claim “in accordance with Item 28″. In other words, the fact that Kingston may not have been required to do so, or that there was no occasion or basis that called for it to do so, is irrelevant; if it did not do so then the power of the Superintendent to issue one or both of the certificates provided for in clause 37.2 is enlivened. I consider that argument to be correct.
- The construction for which Dial D contends treats the words “in accordance with Item 28″ in clause 37.2 as descriptive in the sense that they focus attention on whether the contractor has made a progress claim that meets the description in or is in conformity with Item 28 (i.e., “for WUC done to the 25th of the month”) and is issued within the time specified in Item 28, such that the reason for it not having been issued is irrelevant.
- In Walker v Wilson (1991) 172 CLR 195 Deane, Toohey and McHugh JJ at 208 said “the words ‘in accordance with’ should be construed as meaning ‘in conformity with’ or ‘consistently with'” (followed by this Court in Winn v Director General of National Parks and Wildlife and Ors  NSWCA 17 at per Stein JA).
- Relevantly, what clause 37.2 is addressing is not whether there was a requirement to issue a claim under clause 37.1 but whether a claim in conformity with (“in accordance with”) Item 28 had been issued. With respect to his Honour, I consider that, on the ordinary meaning of the words in clause 37.2, all that is required to give rise to the entitlement, in the case of the 37.2(a) certificate, and the obligation, in the case of the 37.2(b) certificate, on the part of the Superintendent to issue the clause 37.2 certificates is that, as a matter of fact, the contractor has not, by the 25th of a month, made a progress claim for work under the contract, as defined, done to that month (i.e., up to and including that month). If no such progress claim has been issued then, whether or not the contractor was entitled or obliged to make such a claim, the fact is that there has been no such claim and the second paragraph of clause 37.2 is engaged. This is so whether or not the reason that no claim has been made by the contractor is that all work has been dealt with in previously certified progress claims.
- As adverted to above, Mr Corsaro relied, in support of his contended construction of the clause, on clause 37.2 being the only mechanism by which payment could be required for various amounts as certified by the Superintendent. I do not consider that to be a compelling argument in favour of his construction, though I think that is the better construction for the reasons set out above. The fact that other clauses refer to certification of amounts does not mean that clause 37.2 should be interpreted to provide a means for recovery of those amounts on an interim basis if it were not otherwise able to be so construed.
- The reasons for his Honour concluding to the contrary of Dial D’s construction were, first, that this was consistent with the placement of the Superintendent’s right to issue the certificates within clause 37.2 (; CB 40R) and, second, that clause 37.2 incorporated a reference to Item 28 (; CB 40U-V). I think there is little to be drawn from the first and his Honour did not place much weight on this. The first two paragraphs of clause 37.2 deal with alternative scenarios: one in which the contractor has made a progress claim and one in which it has not. There is thus an internal logic in them being grouped together.
- More important to his Honour’s reasoning was the fact that clause 37.2 incorporated a reference to Item 28 and the latter referred to progress claims for work under the contract done to the relevant date of the particular month (; CB 40U-V). However, whether or not the clause permitted the contractor to issue a claim relating to previously certified claims, the relevant fact is that no claim was made in the relevant period.
- Reliance was placed by Mr Corsaro on the decision of Rolfe J in Algons Engineering Pty Limited v Abigroup Contractors Pty Limited  NSWSC 478, where his Honour noted, and summarily rejected, a submission for the party there in the position of Kingston that there was no entitlement on the part of the party in the position of the Superintendent (there referred to as the sub-contractor and main contractor’s representative, respectively) to issue a payment certificate when the contractor had not made any claim for payment. However, his Honour rejected that submission by reference to the wording of the particular contract there before him, which was expressed in different words to clause 37.2, in that it provided that if the contractor failed to make a claim the main contractor’s representative “maynevertheless issue a payment certificate” (my emphasis). Like his Honour, I do not see Algons as being of assistance in determining the construction of the relevant clause in the present case.
- His Honour considered that if the clause were construed as had been contended for by Dial D, namely, that the January certificate superseded the December progress claim (that was, by operation of the contract a deemed certificate), the Superintendent would be able to deprive the builder of an accrued right to payment (; CB 39W-40B); that this would give to the Superintendent what would effectively amount to a “slip rule”; and that this would be an extraordinary result. His Honour recognised, nevertheless, that any such accrued rights were only on account of whatever might be determined to be the contractor’s final entitlement to payment under the contract ().
- Mr Hicks submits that the construction relied upon by Dial D would deprive clause 37 of substance and force; and would make the express obligation to pay effectively meaningless. It is submitted that if the obligation to pay could be superseded on a monthly basis there would be no reasonable opportunity to enforce the obligation. That, however, would be a consequence of the operation of the particular payment regime in question. In any event, the authorities that refer to later certificates “superseding” earlier ones do not suggest that the earlier progress certificates did not give rise to an accrued right – it is simply one that, in some circumstances might not be enforced by reference to other rights later accruing; or that might only be taken into account by way of set-off or by reference to interest payments.
- This raises the question whether the issue of a subsequent certificate by the Superintendent necessarily “supersedes” an earlier deemed certificate, as Mr Corsaro contends. I am not satisfied that a later valid certificate will necessarily have that effect but, even if it does, it does not seem to me to be inconsistent with the payment regime put in place under the contract by which successive payment claims and progress certificates may be issued and the value of the WUC may be progressively adjusted to take into account matters relating to the contract, including the possibility that the Superintendent may have failed to include in an earlier progress certificate a deduction, set-off or the like.
- The language of later progress certificates “superseding” earlier ones is drawn from a series of cases in which the effect of subsequent certificates after earlier invalid certificates (or no certificates) was considered.
- In Zauner Construction Pty Ltd v No 2 Pitt Street Pty Ltd  VSC 154, on which reliance is placed by Mr Corsaro, Byrne J considered a claim for summary judgment for unpaid monthly progress claims in circumstances where the principal defaulted shortly after the building work commenced and work was suspended but the contractor continued to issue monthly progress clams including claims for delay and prolongation costs. The Superintendent issued valid certificates for some of the claims but issued no, or late, certificate for others.
- The contract in question was a different standard form contract from the present (AS 2124-1992) as modified by certain special conditions. The reasons indicated that the contract included a clause that required the principal to pay the amount of the claim within a prescribed time where the superintendent failed to issue a certificate or issued the certificate late, though the terms of that clause were not reproduced in his Honour’s judgment. During the course of argument, the Court enquired as to whether a copy of the standard form contract there considered (AS 2124-1992) was available. After judgment was reserved, a copy of the contract was made available through enquiries made by Dial D’s lawyers of the legal practitioners who had appeared in the Zauner case. It was received by this Court over the objection of Kingston, which submitted that if it were to be received there should also be put before the Court certain pages of the transcript of the proceedings before Stevenson J and sought leave to put on further submissions. Directions were made in chambers for that to occur.
- In the event, clause 42.1 of the contract considered in Zauner is in broadly similar terms to the corresponding provision extracted in 620 Collins Street Pty Ltd v Abigroup Contractors Pty Ltd (No 2) VSC 491, to which the Court was taken during submissions. In particular, it included provision that “[i]f the Contractor fails to make a claim for payment under Clause 42.1, the Superintendent may nevertheless issue a payment certificate”.
- However, unlike the AS4000-1997 contract in the present case, clause 42.2 of the Zauner contract expressly permitted the Superintendent, at any time and from time to time, by a further certificate to correct any error discovered in any previous certificate, other than a Certificate of Practical Completion or Final Certificate.
- In Zauner, Byrne J said (at ):
… The scheme of cl 42.1 is that payment should be made in accordance with the superintendent’s certificate. Provided a valid certificate is issued, it matters not that the certificate is in error. It may be corrected by a further certificate issued pursuant to cl 42.2 or by a re-evaluation of the work in a subsequent payment certificate or, perhaps, by a determination pursuant to General Condition 47, as amended by Special Condition 21. An overpayment made pursuant to a certificate may be restored pursuant to cl 47.3. I reject the submission put on behalf of the principal that it is not obliged to pay where the uncertified claim or the sum certified for payment is based on a misapprehension or a misapplication of the contract. (my emphasis)
- His Honour then noted at  that:
The contractor is entitled to submit claims for payment including claims for “amounts then due to the Contractor arising out of or in connection with the Contract”. These amounts include sums which might be due under cl 44.9 [dealing with damages incurred by suspension of the work] as well as sums under cl 36 [which related to payment for extra costs where an extension of time was granted]. The superintendent is entitled and required to form an opinion as to the amount of the payment which is to be made by the principal to the contractor and to include this in a payment certificate issued within 14 days of receipt of the claim pursuant to cl 42.1. This clause makes clear that certified sums are to be paid and that such payments are to be on account only without prejudice to the entitlement of the principal to dispute the certificate under cl 47 as amended by Special Condition 21. Indeed, the superintendent is entitled under cl 42.1 to issue a certificate notwithstanding that no claim has been made.
- His Honour accepted (at ) the contractor’s submission that where the superintendent failed to issue a certificate or where the certificate was issued late, the effect of the clauses there under consideration was that the principal was obliged to pay the amount of the claim within the prescribed time. However, his Honour went on at  to say:
There is, however, a complication where, following the failure of the superintendent to issue a certificate timeously or at all, a valid certificate is subsequently issued. In the Daysea case a final certificate was issued after an invalid payment certificate. Having concluded that the contractor was entitled to payment of the sum claimed where the payment certificate was invalid because it was late, the Court of Appeal nevertheless refused to give judgment in that sum, for, if paid, it would have to be repaid in accordance with the valid final certificate. It follows, equally, that the obligation to pay which arises from a later valid payment certificate will supersede any entitlement for payment of the sum claimed where no valid certificate has issued. (my emphasis)
- His Honour concluded that various of the claims were cumulative, such that the amount payable in respect of those claims was the amount stated in the last of the series plus any prolongation costs claims which were not included in this sum. However, those claims were followed by a claim that was met with a valid nil certificate. His Honour said that “[t]his certificate supersedes the obligation to pay against the prior uncertified claims” (at ), though expressly putting to one side the principal’s obligation to pay interest on those uncertified claims pursuant to clause 42.9 of the contract.
- The nil certificate was then followed by a further series of claims, again cumulative, in respect of which the certificates were issued late. His Honour said that, applying the principle in Daysea, the principal’s obligation was then to pay the cumulative amount shown in the last of those claims, again putting to one side interest.
- That series of claims was followed by a claim in response to which there was a valid certificate issued, which his Honour noted had certified the value of work included in that claim at a particular amount. His Honour said that the determination of the value of the work performed superseded the contractor’s valuation of the work included in the four previous claims (where certificates had been issued late).
- Relevantly, however, the series of progress claims on which summary judgment was sought appear simply to have added, to the value of the work, an amount presumably referable to the delay/suspension costs since no work was being undertaken during the suspension. It is therefore not surprising that each later valid payment claim would supersede the previous one since it, in effect, included that previous one in the new value of work and to allow both would result in double recovery. His Honour, though putting to one side the principal’s obligation to pay interest on the claims pursuant to clause 42.9, appeared to accept that interest might be payable on the earlier valid claims. For present purposes, had each subsequent claim simply been a claim for payment of the month’s interest/delay/suspension or prolongation costs, and not any earlier certified amounts, then it is difficult to see that it would have been treated as superseding the deemed certified amount for the value of work in the initial claim(s). Therefore, the sense in which the word “superseded” was there used must be borne in mind when considering the position in the present case.
- I consider the effect of the later valid certificate on the earlier deemed progress certificate in the present case in the context of Ground 4 of the notice of appeal.
- Finally, I note that Mr Hicks raised the spectre of a Superintendent in bad faith issuing subsequent certificates to frustrate the ability of the contractor in the interim to enforce a liability to pay under an earlier one. Such conduct would arguably be met by a challenge to the exercise by the Superintendent in such a case of the power in bad faith.
- Therefore, I consider that there was an entitlement on the part of the Superintendent to issue the January certificate and in the absence of any other challenge to its validity the declaration made by his Honour to the contrary should be set aside.
Ground 3 – Special Condition 45.2 of the Contract
- Mr Corsaro relied on special condition 45.2 (CB 58S-V) as indicating that the parties’ contractual intent was not to preclude the issue by the Superintendent of certificates under clause 37.2 in months in which Kingston did not issue a progress claim. Mr Corsaro submits that, on its true construction and consistent with the weight to be given to special condition 45.2 as a special condition of a standard form contract, that special condition operates to permit the Superintendent to issue a later progress certificate in any month to remedy any failure by the Superintendent to include in a progress certificate an amount which Dial D was entitled to deduct and does not require as a precondition that Kingston issue or be entitled to issue a progress claim (CB 164T-X).
- His Honour correctly rejected that argument. Special Condition 45.2 does not address the question as to when the Superintendent is entitled to issue a progress certificate; it simply precludes the Superintendent from being prevented from later raising a deduction or the like which was not included in an earlier progress certificate. It has the effect of negativing any question of waiver.
- Ground 3 therefore fails.
Ground 4 – Conclusion that the January certificate was void and of no effect
- It follows from the conclusion as to Ground 2, that there was an error in finding that the January certificate was void and of no effect. The question is what follows for the purpose of the appeal other than the setting aside of the declaration to that effect.
- It is submitted by Mr Hicks that the regime established by clause 37.2 clearly envisages that an obligation to pay arises in the following circumstances: first, where a progress certificate and clause 37.2(b) certificate are issued, whether or not in answer to a progress claim that the contractor was entitled to submit; and, second, where a progress claim was submitted, but no progress certificate and clause 37.2(b) certificate are issued in response, as was the case with the December progress claim (CB 173R-174C).
- Mr Hicks notes that there is nothing in the contract that states that a right to payment under clause 37.2 is superseded or conditional upon subsequent events or purported documentation (CB 174F-G). He concedes that there might be some set-off available but relies on the fact that none was asserted at first instance and that no cross-claim was filed (CB 174H).
- In the further submissions served on 23 April 2013, following the provision to the Court of the contract that had been considered in Zauner, Mr Hicks amplifies both those submissions.
- First, he contends that Zauner is to be distinguished on two bases: first, that in the present case, unlikeZauner, the contract expressly deemed an uncertified payment claim to be the relevant progress certificate and, second, that in Zauner the relevant contractual obligation to pay the amount of the contractor’s claim arose only if no payment certificate had been issued (clause 42.1), whereas here the relevant obligation was to pay the deemed certified amount.
- Second, Mr Hicks repeats the submission made as to the decision by Dial D not to raise a set-off in the proceedings before Stevenson J, referring to transcript of the discussion before his Honour and relying on Metwally v University of Wollongong  HCA 28; (1985) 59 ALJR 481at 483 for the proposition that Dial D is bound by that forensic decision.
- As to the latter, the Commercial List Response filed by Dial D asserted an entitlement to have recourse to a bank guarantee held by Dial D as security pursuant to the contract in certain circumstances ( at CB 32). It noted, in the list of issues likely to arise, issues as to whether, if Kingston were entitled to judgment in respect of the progress claim, execution on that judgment should be stayed; and as to whether Kingston was entitled to restrain Dial D from calling upon the security held by it pursuant to clause 5 of the contract (CB 30). However, the transcript of the proceedings before Stevenson J makes it clear that a set-off claim was not pressed.
- As to the former, whether or not the points of distinction highlighted between the Zauner case and the present are of significance on the question as to whether the January certificate superseded the December deemed progress certificate, for the following reasons I am of the view that the January certificate did not supersede the earlier deemed certificate.
- In the 620 Collins Street case referred to earlier, Osborn J considered an application for leave to appeal from the award of an arbitrator on the ground, inter alia, that the arbitrator had erred in awarding interest on the whole of an uncertified progress payment sum. At , his Honour noted that the arbitrator had recorded that there was no dispute between the parties that, under the contract, a failure by the superintendent to certify a claim gave rise to entitlement to payment; nor was there any dispute that “because of its progressive nature, a contractor’s entitlement to be paid the amount certified in a certificate only remained extant until supplanted by a new entitlement on the contractor’s part as determined by the payment regime of the particular contract”. To the extent that this was not an issue disputed by the parties and the subject of debate, the fact that the court proceeded on that basis does not lend precedential value to that proposition.
- The arbitrator had apparently also treated as common ground the proposition that even if a contractor’s entitlement to be paid an amount had been extinguished the contractor was entitled nevertheless to judgment for interest on the sum so certified over the relevant period during which the contractor was entitled to receive payment thereof, citing Daysea Pty Ltd v Watpac Aust Pty Ltd  QCA 49 at . That was the relevant issue, for present purposes, on the application for leave to appeal. It was argued that interest should not be awarded in respect of the portion of the claim that was ultimately disallowed by the arbitrator.
- Osborn J rejected that contention, noting that the scheme of the contract was clear. The contractor was entitled to payment of its progress claim and use of the money comprised in such claim during the period in issue, notwithstanding that its future entitlement to the money was provisional (). It was entitled to an award of interest to compensate it for being deprived of the use of the progress claim amount during the period in which it was entitled to, but deprived of, it (). Reference was made toDaysea in support of that proposition (at -).
- In Daysea, the form of contract was an amended form of AS 4300-1995. There, a claim for payment was made and no payment certificate was issued within the prescribed period. It was issued two weeks late. The Queensland Court of Appeal upheld the view of the Queensland Building Tribunal and reasoned that the contract required strict compliance with the certification procedure and that the purported certificate was invalid. In the interim a final certificate had been issued under the contract, stating that no money was payable to the builder with respect to the progress claim and that a sum of liquidated damages was payable to the principal.
- The Queensland Court of Appeal at  said:
… If the amount paid pursuant to the Tribunal judgment was still in the hands of the appellant the Final Certificate would have provided that such sum be paid to the respondent, and that would be binding, at this stage, on the appellant. It follows that the summary judgment order cannot be restored. The position is that the appellant was entitled to the sum of $590,335 until the issue of the Final Certificate on 2 January 2001. In consequence the only relief that the appellant is now entitled to is judgment for interest on that sum over the relevant period.
- Osborn J considered that the above statement in Daysea as to the entitlement to interest was correct and the point in issue so plain that leave to appeal to challenge that entitlement was refused.
- In Zauner, the finding that the later certificate superseded the earlier uncertified progress claims is explicable on the basis that the successive certificates contained claims for past amounts increased by the further delay, interest or prolongation costs as the case may be. Therefore, whether or not that decision is distinguishable on the bases suggested in Mr Hicks’ further submissions, it does not require the conclusion that the January certificate here superseded the deemed December progress certificate.
- The December deemed progress certificate gave rise to a liability to pay the amount claimed. That liability was enforceable by Kingston. When the January certificate was issued, in the absence of any other dispute as to the validity of that certificate, that gave rise to a liability on the part of Kingston to pay the amount so certified but did not, in my opinion, supersede the earlier certificate.
- Daysea would suggest the obvious result in the present case would be that if the amounts in the respective certificates did not coincide there would be available to the parties a set-off as between the two amounts, taking into account interest payable on the amounts so certified from the date that they were payable. However, that was not the position adopted by Dial D at the hearing before Stevenson J, nor was it Dial D’s position on the appeal. In oral submissions on the appeal (T 3.19ff), Mr Corsaro noted Dial D’s contention as being that clause 37.2 provided for money to be due on certification, but no right to set-off and disavowed the suggestion that the contract contained two concurrent certification provisions creating debts on certification.
- While there was a potential issue noted in the Commercial List Response as to whether any judgment on the December deemed progress certificate should be stayed in light of the January certificate and as to whether Kingston was entitled to restrain Dial D from calling upon the security held by it pursuant to the contract in respect of the amount payable under the January certificate, it appears that those issues were not pressed before his Honour. They may well now be otiose having regard to the expiry of the defects liability period and the ability for the parties now to obtain a final adjustment of the amounts due under the contract.
- Finally, I note that this proceeding was commenced and heard as if it were an appeal as of right. Its subject matter, however, was the validity of certificates issued under the construction contract, which did not finally determine either party’s final position. The certificates only ever gave rise to a right to payment on account.
- In those circumstances, nothing determined by the primary judge or this Court can affect either party’s right to final payment. All that can be determined by these proceedings is the entitlement of one party to be paid on account, pending the final determination of the party’s rights. Notwithstanding the finality of the orders from which Dial D appeals, and the size of the payments to be made on an interim basis in accordance with those certificates, it may be that there was an argument that leave to appeal was required pursuant to s 101(2)(r) of the Supreme Court Act 1970 (NSW) having regard to what might be said to be “truly at issue or, inversely, not unrealistically at issue” in the proceedings (Gillard v Hunter Wire Products Pty Ltd t/as Hunter Screen Products (No 2)  NSWCA 450). In Built Interiors Pty Ltd v Three Dinosaurs Pty Ltd  NSWCA 290 at  it was said that “The Court looks at the true potential recovery of the appellant.”
- The issue was not raised and hence does not fall to be determined in this case. Were leave to have been necessary then, in light of the course taken in the proceeding, a grant of leave would be appropriate.
- For the reasons set out above, I would set aside the declaration made as to the invalidity of the January certificate but would otherwise dismiss the appeal. My tentative view is that, both parties having enjoyed some success, this is a case where it would be appropriate for there to be no order as to costs of the appeal. If one or both of the parties seeks some other order, then it or they should serve short written submissions by 9am 30 August 2013 and the issue will be dealt with on the papers. Therefore, I propose the following orders:
1. To the extent necessary, grant leave to appeal.
2. Appeal allowed in part.
3. The declaration made in paragraph 1 of the orders of Stevenson J of 5 March 2013 be set aside.
4. Save as above, appeal dismissed.
5. If one or both of the parties seeks an order for costs of the appeal, it or they should serve short written submissions as to costs of the appeal by 9am on 30 August 2013.
- LEEMING JA: I agree with Ward JA.
- TOBIAS AJA: I agree with the orders proposed by Ward JA for the reasons she has expressed.