Abigroup Contractors Pty Ltd v Multiplex Constructions Pty Ltd & Ors [2003] QSC 173

SUPREME COURT OF QUEENSLAND CITATION: Abigroup Contractors Pty Ltd v Multiplex Constructions Pty Ltd & Ors [2003] QSC 173 PARTIES: ABIGROUP CONTRACTORS PTY LTD ABN 40 000 201 516 (plaintiff / first respondent) v MULTIPLEX CONSTRUCTIONS PTY LTD ABN 96 008 687 063 (first defendant / first applicant) and WATPAC AUSTRALIA PTY LTD ABN 71 010 462 816 (second defendant / second applicant) and THE CROWN in the right of the STATE OF QUEENSLAND through the DIRECTOR GENERAL, DEPARTMENT OF PUBLIC WORKS ABN 46 752 917 (third defendant / second respondent) FILE NO/S: No S 3723 of 2003 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court DELIVERED ON: 5 June 2003 DELIVERED AT: Brisbane HEARING DATE: 28 May 2003 JUDGE: Philippides J ORDER: Pursuant to s 21 of the Subcontractors’ Charges Act 1974 the first respondent’s notices of claim of charge dated 1 April 2003 and 2 May 2003 be cancelled CATCHWORDS: BUILDING AND ENGINEERING CONTRACTS – Subcontractor’s charge – claim for uncertified amounts – application pursuant to s 21 of the Subcontractors’ Charges Act 1974 for cancellation or modification of first respondent’s claims – whether claim for money payable or to become -- 1 of 10 -- 2 payable under the subcontract – whether claim for money, the payment of which is governed by a provision of the subcontract still to be complied with Subcontractors’ Charges Act 1974 s 5(2), s 5(6), s 9, s 10(1A), s 21, s 23 Groutco (Australia) Pty Ltd v Thiess Contractors Pty Ltd [1985] 1 Qd R 238 Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322 Riteway Constructions Pty Ltd v Baulderstone Hornibrook Pty Ltd [1998] 2 Qd R 218 Re An Application by James Hardie Building Systems Pty Ltd (1999) 15 BCL 199 COUNSEL: Mr H Fraser QC and Mr P Hastie for the applicants Mr J Bond SC and Mr D Kelly for the first respondent No Appearance by the second respondent SOLICITORS: Minter Ellison for the applicants Carter Newell for the first respondent No Appearance by the second respondent PHILIPPIDES J: Background Facts [1] In May 2001, the applicants, an unincorporated joint venture, entered into a managing contract with the Department of Public Works for the redevelopment of Lang Park. In April 2002, the applicants entered into a subcontract with the first respondent, Abigroup, under which that part of the project known as the Community Infrastructure West Works was subcontracted to the first respondent. [2] The first respondent claims two charges pursuant to Subcontractors’ Charges Act 1974 (“the Act”) over monies payable to the applicants by the Department of Public Works. These concern a notice of charge delivered on 1 April 2003 for the sum of $1,559,158.70 and a further notice of charge delivered on 2 May 2003 for the sum of $1,735,548.10. [3] The applicants bring this application for cancellation or modification of the charges and for consequential orders pursuant to s 21 of the Act. The applicant’s primary submission is that the notices claim monies that have not been certified as payable to the first respondent by the joint venture, and that accordingly the claims are not for monies payable to the subcontractor under the subcontract within the meaning of the Act. [4] Clause 42 of the General Conditions (AS2545-1993) provides for a system of claims, certificates and payments. On the 25th day of each month the subcontractor is required to deliver to the “main contractor’s representative” 1 the claim for payment. Such claims for payment are to include the value of work carried out by 1 By cl 2 of the Special Conditions, this term means the “Managing Contractor’s Representative”. -- 2 of 10 -- 3 the subcontractor in the performance of the contract together with all amounts then due to the subcontractor arising out of or in connection with the subcontract or for any alleged breach thereof. Within 21 days after the claim, the representative is required to issue to the main contractor and the subcontractor a payment certificate stating the payment which is to be made (relevantly) by the main contractor to the subcontractor. The quantum of a payment certificate is the payment which, in the opinion of the main contractor’s representative, is to be made. Within 35 days after receipt by the representative of a claim for payment or within 14 days of the issue of a payment certificate (whichever is the earlier), the main contractor is to pay to the subcontractor the amount shown on the certificate (or if no payment certificate has been issued, the amount of the subcontractor’s claim). [5] All of the unpaid claims, the subject of the notice of charge, are for uncertified sums, being the difference between the amounts in the progress claims and the amounts certified. For present purposes the claims fall into three categories: (a) Claims by the first respondent for work where the representative has certified his opinion that a lesser percentage of work has been completed compared to the percentage claimed by the first respondent; (b) Claims by the first respondent for amounts in relation to variations which the representative has not yet assessed, but has paid some of the claimed amount on account; (c) Claims for variations which the representative has rejected. Is the Absence of a Certificate Fatal ? [6] On behalf of the applicants is was submitted that as the amounts claimed have not been certified, they are not amounts “payable under the subcontract” and accordingly a charge cannot be sustained. In making this submission, the applicants relied upon Groutco (Australia) Pty Ltd v Thiess Contractors Pty Ltd (“Groutco”) [1985] 1 Qd R 238. In that case Campbell J (with whom McPherson and Sheahan JJ agreed) said (at 243 – 248): “It can be seen that subsec. (2) of s. 5 sets up two separate criteria, each of which must be satisfied before a charge can be supported. These are that the charge shall secure (a) payment in accordance with the subcontract, and (b) payment of all money that is payable or is to become payable to the subcontractor for work done by him under the subcontract. … The expression “contract price” is defined (s. 3(1)) to include “the money payable for the performance of work under a contract or subcontract, express or implied, whether or not the price is fixed by express agreement”. … Although ss. 5, 10, 11 and 12 do not refer to “contract price” the definition in the Act of “contract price” supports the construction that s. 5(2), when it refers to moneys payable “in accordance with the subcontract”, is limited to the money payable in accordance with the payment terms of that subcontract relating to the work to be performed under it. The reference to “the debt secured by a charge” -- 3 of 10 -- 4 in s. 9 and to “the right of a person to whom a debt is due and owing for work done” in s. 23 also support this view. I do not consider that the word “debt” in these sections can be construed so as to include unliquidated damages for breach of contract: …” [7] McPherson J delivered additional reasons, stating (at 252): “When in ss. 9 and 23 that Act uses the expression “debt” it does so in the prevailing sense of that term, as meaning a liquidated sum of money presently due, owing and payable by one person to another and one which, as s. 5(2) adds, is so payable “in accordance with” the subcontract. That excludes a claim for unliquidated damages for breach of contract, together, it may be thought, with a claim for liquidated damages recoverable only upon proof by the claimant of a breach of contract by the contractor. What the claimant is seeking here falls outside those limits.” [8] The first respondent argues that the absence of a certificate covering the claims is not fatal and puts forward three contentions: 1. The first respondent argued that it is a sufficient answer to the application to demonstrate that payment of the amounts claimed are governed by a provision of the subcontract still to be complied with within the terms of s 5(6) of the Act, so that the monies can be said to be monies that are “to become payable” under the subcontract. In this case, it is said that the parties have not yet complied with contractual provisions which establish a procedure for the resolution of disputes in relation to the rejection of the first respondent’s claims. 2. In addition, the first respondent argued that the reason why it did not have a relevant payment certificate was that the certifier has rejected the first respondent’s claims about the proper value of the work (including varied work). It was said that the failure to obtain a certificate, in respect of the claims the subject of the charges, occurred in circumstances amounting to a breach of contract by the applicants, such that the first respondent had an arguable case that it was absolved from the necessity of obtaining it. 3. Thirdly, the first respondent contended that the construction of the statute which underlies the applicants’ argument was erroneous. It was argued that, on the proper construction of ss 5(2), 5(6) and 10(1A) of the Act, it was not essential that the first respondent be able to establish that there was a debt accrued due to it (even if not yet payable) as at the date on which it seeks to claim a charge. Section 5(6) of the Act [9] Section 5(2) of the Act provides that the charge “secures payment in accordance with the subcontract of all money that is payable or is to become payable to the subcontractor for work done by the subcontractor under the subcontract”. Section 10(1A) of the Act provides that the claim of charge must be in respect of money payable at the date of the notice of the charge and “money to become payable to the -- 4 of 10 -- 5 subcontractor after the date of the notice for work done by the subcontractor prior to that date.” [10] Section 5(6) of the Act throws light on the ambit of the words “money that is payable or is to become payable to the subcontractor for work done by the subcontractor under the subcontract”. It provides : “Money that is or is to become payable to a subcontractor for work done by the subcontractor under a subcontract, and the payment of which is secured under subsection (2) – (a) includes money the payment of which is governed by a provision of the subcontract still to be complied with, including for example the following – (i) a provision establishing a procedure for the certificate of the amount, quality or value of work that had been performed; (ii) a provision establishing a procedure for the resolution of a dispute about the amount, quality or value of work that has been performed; and (b) does not include the following – (i) damages for beach of contract or in tort; (ii) an amount payable on the basis of extra-contractual remedy, including, for example, as reasonable compensation for work done; (iii) damages or other relief under another Act or an Act of another State or the Commonwealth, including damages or other relief under the Trade Practices Act 1974 (Cwlth).” [11] The first respondent argued that the claims were for monies to become payable to it for work done under the subcontract, given that the claims fell within s 5 (6)(a) of the Act and did not fall within any of the categories excluded by s 5(6)(b) of the Act. The first respondent submitted that the claims were for “money, the payment of which is governed by a provision of the subcontract still to be complied with” for the purposes of s 5(6)(a)(ii) of the Act, that is, “a provision establishing a procedure for the resolution of a dispute about the amount, quality or value of work that has been performed”. The provision of the subcontract relied upon for the purposes of s 5(6)(a)(ii) is cl 47 of the special conditions of the subcontract, which provides for a system of dispute resolution, in combination with cl 42.1 of the general conditions. [12] Clause 42.1 of the general conditions provides, inter alia: “… A payment made pursuant to this Clause shall not prejudice the right of either party to dispute under Clause 47 whether the amount so paid is the amount properly due and payable and on determination (whether under Clause 47 or as otherwise agreed) of the amount so properly due and payable, the Main Contractor or Subcontractor, as the case may be, shall be liable to pay the difference between the amount of such payment and the amount so properly due and payable …”. [13] Clause 47 of the general conditions was amended by the special conditions, by the deletion of cl 47 of the general conditions and the insertion of a new cl 47. Clause 47.1 of the special conditions provides as follows: -- 5 of 10 -- 6 “Notice of Claim Other Than Progress Claims & Final Payment Claim This clause 47 applies in respect of each of the following: (a) Any dispute that the Subcontractor has with the determination of a claim made by the Subcontractor under clause 46. (b) Any claim in tort, equity or under any statute in relation to, or arising out of the Subcontract or the Subcontract Works against the Managing Contractor. If this clause 47 applies, the Subcontractor shall notify the Managing Contractor’s Representative in writing of the dispute or claim. The notice shall specify adequate details of the Subcontractor’s dispute or claim, including the legal basis for the dispute or claim and the amount claimed. If the amount is not ascertainable at that time, the notice must state the Subcontractor’s best estimate of the likely amount of its claim. The notice required by this clause shall be given within thirty (30) days following the day on which any of the following happens: (a) The Subcontractor receives written notice of the determination under clause 46. (b) In the case of a claim said to arise in tort, the date on which the breach of duty occurred. (c) In the case of a claim said to arise under statute or in equity, the day on which the last event happened that gives rise to the cause of action constituting the claim.” [14] The first respondent contended that the effect of cl 42.1 of the general conditions is that either party had a right to dispute under cl 47, whether the amount certified and paid was the amount properly due and payable. It was submitted that on determination of the amount properly due and payable, there would arise an obligation to pay the difference between the amount paid and the amount which was properly due and payable. The charges, as I have mentioned, are claimed for uncertified components of payments claims where the certifier has disagreed with the first respondent’s assessment of the extent of the completion of the subcontract work and the first respondent’s assessment of either the fact, value or extent of the completion of variation work. The first respondent referred to the affidavit evidence of the its project manager, Mr Tracey, that for each charge, the information in the claim of charge was correct and that of Mr Gore, a registered engineer, who had certified that that he had examined the claim and had certified that it was prima facie proper to proceed. [15] On behalf of the applicants, it was submitted that s 5(6)(a)(ii) of the Act does not apply, because there is no procedure for the resolution of the present disputes about the claims. It was said that the dispute resolution system provided for in cl 47 was confined to the matters specified therein. The applicants argued that cl 47 had no application to the present claims, given that the claims were not claims “in tort, equity or under any statute”, nor were they made under clause 46 of the subcontract. Clause 47, it was argued, did not apply to a dispute concerning a claim for payment of an amount claimed to form part of the contract sum, nor any payment for what was claimed to be a variation directed by the main contractor’s representative or to -- 6 of 10 -- 7 be made pursuant to cl 12.3. Consequently, it was argued that s 5(6)(a)(ii) had no application. [16] Even if the first respondent’s interpretation of cl 42.1 were to be accepted so that it conferred a right to dispute resolution such as to extend to the present circumstances, a difficulty arises concerning the ambit of cl 47. I accept the applicants’ submissions that cl 47 is of confined ambit. I find that clause 47 does not extend to the circumstances of the present claims. This is reinforced by the fact that the time frame for the giving of notices for the purpose of cl 47.1 refers back to the matters specified in cl 47.1 (a) and (b) and is clearly not apposite to impose time periods in respect of other matters. Thus, even if cl 42.1 confers the right contended for by the first respondent, it would give rise to an inconsistency with cl 47. The subcontract provides 2 that any inconsistency between the terms and provisions of the general conditions and the special conditions is to be resolved in favour of the special conditions. This has the consequence that cl 47, being a special condition, prevails over cl 42.1, being a general condition. [17] Accordingly, I find that there is no provision in the subcontract establishing a procedure for the resolution of a dispute concerning the claims in issue. Section 5(6)(a)(ii) has no application. Is the absence of the certificate irrelevant because it can be said that its absence is the result of the applicants’ breach of contract? [18] Relying on cl 23 of the subcontract and authorities such as Peninsula Balmain Pty Ltd v Abigroup Contractors Pty Ltd (2002) 18 BCL 322, the first respondent argued that the Managing Contractor’s Representative, Mr Ghannoum, was required to exercise his discretion independently from the managing contractor, that is, the applicants. The first respondent argued that it was apparent from the affidavit of Mr Taylor that Mr Ghannoum had abdicated any independent role and was not exercising an independent discretion. The applicants, however, argued that Mr Taylor’s affidavit should not be construed in the manner argued by the first respondent. I accept those submissions. Mr Taylor’s affidavit merely deposes to the process by which the payment certificates were provided to Mr Ghannoum. I do not accept that any arguable case of there being a breach of contract is disclosed concerning the issuing of the certificates. [19] The first respondent also submitted that cl 23 of the subcontract requires the Managing Contractor’s Representative to “arrive at a reasonable measure of value of works”. It was contended that there was an arguable case a reasonable figure was not arrived at by Mr Ghannoum and that that failure constituted a breach of contract. It was said that if at trial it was determined that the first respondent’s assessment of value was in fact reasonable, it would also follow that the applicants’ assessment was not reasonable in breach of cl 23. In making this submission, the first respondent sought to rely on a line of authority said to establish the proposition that if one contracting party prevents the fulfilment by another party of a condition precedent, it cannot rely on the non completion of condition precedent. 3 2 See cl 3 of the Formal Instrument of Agreement which provides for an order of precedence. 3 See Peter Turnbull & Co Pty Ltd v Mundus Trading Company (Australia) Pty Ltd (1954) 90 CLR 235 at 246-7. Se also Qline Interiors Pty Ltd v Jezer Construction Group Pty Ltd [2002] QSC 088 at [60] to [70] and Barclay Mowlem Constructions Pty Ltd v Ishikawajima-Harima Heavy Ind Co Ltd [2003] QSC 010 at [19] to [20]. -- 7 of 10 -- 8 [20] The difficulty with this argument is that even if the first respondent were able to point to an arguable breach of cl 23, that merely gives rise to a claim for damages and not a claim to which the Act applies. Accordingly, the submission fails. Is a certificate required in any event? [21] The first respondent contended that the construction of the statute which underlies the applicants’ argument is erroneous and argued that on the proper construction of ss 5(2), 5(6) and 10(1A) of the Act it was not essential that the first respondent be able to establish that there was a debt accrued due to it (even if not yet payable) as at the date on which it seeks to claim a charge. The first respondent submitted that amendments to the Act, in the form of s 5(6) of the Act, are such as to permit a construction of s 5(2) which leads to the conclusion that a notice may be given under the Act, despite the absence of certification. [22] It was submitted that s 5(6) of the Act was the legislative response to a line of authorities, such as Riteway Constructions Pty Ltd v Baulderstone Hornibrook Pty Ltd [1998] 2 Qd R 218 (Riteway) and Re An Application by James Hardie Building Systems Pty Ltd (1999) 15 BCL 199, 4 which seemed to suggest that in subcontracts, where the determination of the amount payable depended on the determination of a certifier, the subcontractor could have no entitlement to a charge in the absence of a relevant determination, because it could not establish the existence of the money which was payable or to become payable to it. Whether or not those cases are properly regarded as authority for any such proposition, 5 it was submitted that, since the introduction of s 5(6) of the Act, such an interpretation of s 5(2) of the Act is no longer open. [23] The first respondent submitted that s 5(6) of the Act not only overrode decisions such as Riteway, but also indicated that the construction of s 5(2) on which the decisions proceeded is no longer correct. That construction is said to be erroneous because it is based on an interpretation of the statutory words “payable or … to become payable” as if they required the existence of at least a present debt, albeit one not payable until some time in the future, imposing an unnecessary requirement for which there was no statutory warrant. [24] The first respondent does not cavil with the reasoning that the statutory words “payable or … to become payable” require a person claiming a charge to demonstrate objectively and by reference to the contract that the sum claimed at least arguably would become payable under the contract. The first respondent’s argument was with the proposition that where the amount payable depends upon the assessment of any factor within the judgment of an intermediary, no sum could ever be identified as an amount “to become payable”, until that determination is made. The first respondent further argued that the fact that the language of existing or accrued debt was not used in s 5 of the Act was an indication that Parliament did not intend that charges would only exist where a subcontractor could prove such debt. (Equally, it was said that the use of the language of debt in s 9 and s 23 of the Act 4 See also Henry Walker Etlin Contracting Pty Ltd v Mostia Construction (2003)19 BCL 147. 5 In this regard, the respondent relied upon statements of Williams J in Concept Constructions (Qld) Pty Ltd v Ashphalt Pavements Pty Ltd [2000] QSC 269 at para 9 that the cases do not lay “down any principle other than that the subcontractor must establish that there is money payable or to become payable with respect to work done prior to the date of the charge before the charge can be legally effective …”. -- 8 of 10 -- 9 did not indicate that Parliament meant that s 5(2) should be interpreted as referring only to existing debt). The introduction of s 5(6) of the Act was said to be confirmation of the validity of this general approach to legislative intention. [25] The first respondent submitted that the ordinary and natural meaning of the reference to money that is “… payable or is to become payable to the subcontractor for work done by the subcontractor under the subcontract” simply required the subcontractor ultimately to prove that the amount claimed would become contractually payable. It was thus argued that the absence of a certificate (in a contract which provides that mechanism) did not inevitably mean that the monies were not monies “to become payable”. By illustration, the first respondent argued that, firstly, evidence might be adduced to demonstrate that a certificate would issue in at least the amount claimed. Secondly, it was said that evidence might be adduced to demonstrate that there was a contractual mechanism by which the absence of a certificate (or existence of a certificate with which the subcontractor is dissatisfied) might be overcome and that mechanism would operate so that the amounts claimed would eventually become payable under the subcontract. Thirdly, the first respondent extended the line of reasoning to argue that, in addition, there was a further category (into which the present case is said to fall) where evidence might be adduced suggesting an arguable case that a court would adjudicate that the amounts claimed were payable under the contract. The first respondent contended that in the present case, it had shown an arguable case that the monies claimed would become payable pursuant to the subcontract consequent upon the decision of a c0ourt. [26] While the first and second propositions are undoubtedly correct, I do not consider that the introduction of s 5(6) of the Act has the wide reaching consequences contended for by the first respondent in the third example offered by the first respondent. [27] The statutory extension of the words “… money that is or is to become payable to the subcontractor for work done by the subcontractor under the subcontract” by s 5(6) of the Act is of deliberately limited ambit. The extension is to money the payment of which is governed by a provision of the subcontract yet to be complied with. Inclusive examples are given. I reject the view that in enacting s 5(6) of the Act the legislature evinced an intention not only to reverse decisions such as Riteway, but also to permit an interpretation of s 5(2) which would have the wide compass contended for by the first respondent. The amendment to s 5 introduced by s 5(6) is not of such a nature as to render the construction of s 5(2) of the Act by the Court in Groutco no longer correct. Indeed, s 5(6)(b) reinforces the dicta in Groutco. [28] The subcontract, requiring certification of progress claims as a precondition for payment, and that certification procedure having been completed, but not covering the amounts claimed, in circumstances where there is no contractual provision for dispute resolution upon a dispute arising as to the quantum of the certification, the first respondent is unable to establish an arguable case that the amounts claimed are for monies payable or to become payable under the subcontract. [29] I find that the charges are not permitted under the Act and should be cancelled. It follows that it is not necessary to consider the question of modification of the charges. -- 9 of 10 -- 10 Orders [30] Pursuant to s 21 of the Act, I order that the first respondent’s notices of claim of charge dated 1 April 2003 and 2 May 2003 be cancelled. [31] I shall hear submissions as to costs. -- 10 of 10 --