March 2012
By David Rodighiero, Partner
Protect yourself against adverse interpretation: recommended
amendments to standard form construction contracts
Introduction
With 2012 in full swing, it is an appropriate time to
consider two recent issues which have led us to
recommend amendments to standard form
contracts. These issues are:
the identification of reference dates (when
payment claims may be made under security
of payment legislation) in a contract; and
a superintendents discretion to extend time
for the benefit of a contractor.
Time for Issuing Payment Claims
After the unanimous decision of the Qld Court of
Appeal in Daysea Pty Ltd v Watpac Aust Pty Ltd,
it was commonly accepted that following the
issue of a progress claim upon practical
completion under contracts in a form comparable
to AS 2124-1992, contractors were not entitled to
issue further progress claims until final
completion.
However, a more recent decision of the Supreme
Court of Queensland demonstrates the
uncertainty of this principle.
This issue was considered by His Honour Justice
Douglas in the matter of Tailored Projects Pty Ltd
1
v Jedfire Pty Ltd . The claim in that matter was
based on a Queensland Master Builders
Association LSC2 August 2006 form contract
(QMBA Contract).
Under the QMBA Contract, monthly progress
claims were to be submitted by Tailored Projects
on the last day of the month. Clause 14(a) of the
QMBA Contract provided:
14. PAYMENT
(a) The Contractor shall submit payment
claims to the Proprietor by the following
reference dates:
(i) the times stated in the Schedule (or,
if any time stated in the Schedule is
not a Business Day, the next
Business Day) or the last Business
Day of each month, whichever is the
earlier; and
(ii) on the Works reaching Practical
Completion.
Practical Completion was achieved on 12 May
2008. Tailored Projects submitted a payment
claim under the Building and Construction
1
[2009] QSC 32
Carter Newell 2012
and Marnie Carroll, Solicitor
Payments Act 2004 (Qld) (BCIP Act) on 26 May
2008 and then a further payment claim on 31 July
2008 (July Payment Claim). While Jedfire
disputed the July Payment Claim on the basis
that more than one payment claim had been
served for the same reference date, it did not
serve a Payment Schedule within the time
stipulated under the BCIP Act.
In response, Tailored Projects applied to the
Supreme Court for summary judgment with
respect to the July Payment Claim on the basis
that a Payment Schedule had not been served
within the timeframe provided under section 18(4)
the BCIP Act. In support of its application,
Tailored Projects submitted that clause 14 of the
QMBA Contract established a contractual regime
similar in effect to the statutory regime.
2
Before Justice Douglas, Jedfire argued that more
than one payment claim had been made in
respect of the same reference date (being the
date of practical completion). Jedfire argued that
this was contrary to section 17(4) of the BCIP Act,
which states:
A payment claim may be served only within
the later of:
(a) The period worked out under the
construction contract; or
(b) The period of 12 months after the
construction work to which the claim
relates was last carried out or the related
goods and services to which the claim
relates were last supplied.'
A 'reference date' is (in part) defined in Schedule
2 of the BCIP Act as:
(a) A date stated in, or worked out under, the
contract as the date on which a claim for a
progress payment may be made for
construction work carried out or undertaken to
be carried out, or related goods and services
supplied or undertaken to be supplied, under
the contract
Accordingly, Jedfire submitted that the July
Payment Claim was invalid and that, on the basis
of clause 14(a), the only relevant reference dates
were the date of completion and the expiry date
of the defects liability period (in accordance with
clause 25 of the QMBA Contract). In reply,
Tailored Projects argued that section 17(4)
2
See Daysea Pty Ltd v Watpac Aust Pty Ltd [2001]
QCA 49 at [17]-[19] (which is discussed below).
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of the BCIP Act permitted payment claims to be
submitted within a period of 12 months after the
completion of the relevant construction work. On that
basis, Tailored Projects submitted that the two payment
claims were made with respect to different reference
dates.
At paragraph [17], Justice Douglas determined that the
relevant reference date should be determined in
accordance with the contract, stating that the claim
made in reliance on the Act fails as more than one
payment claim was made in relation to the reference
date for practical completion under the contract.
Although the wording within clause 14 of the QMBA
Contract differs to the equivalent payment provisions in,
for instance, Australian Standard form contracts, the
function of the clauses is similar. Accordingly, if the
decision of Justice Douglas in the Jedfire case is
followed, it is arguable that equivalent payment
provisions only provide for payment claims to be
submitted up to and upon the issue of a Certificate of
Practical Completion. A further progress claim issued
after Practical Completion will be invalid, except for the
Final Payment Claim submitted at the expiry of the
defects liability period.
Daysea Pty Ltd v Watpac Australia Pty Ltd
While the decision of Justice Douglas in Jedfire is clear
on its face, it requires consideration in light of the
3
decision in Daysea Pty Ltd v Watpac Australia Pty Ltd .
In that decision, the Queensland Court of Appeal
considered the validity of progress claims submitted
after practical completion in relation to AS4300-1995.
The case concerned an application for summary
judgment for payment of a progress claim where a
Payment Certificate was not issued in accordance with
clause 42.1 of the contract.
In Daysea, practical completion was achieved on 30
November 1999. Watpac issued progress claims
subsequent to practical completion on 3 December 1999
and 22 February 2000. However, those claims for
payment included claims in relation to the performance
of variations directed by the superintendent after
practical completion.
The superintendent failed to issue a Payment Certificate
for the claim made on 22 February 2000 within time and
Watpac sought full payment on that basis.
Daysea argued that the progress claim was invalid
because it was submitted after the date of practical
completion.
Justice Williams, who delivered the leading judgment,
stated at paragraph [27] that given the fact that work
had to be carried out at least on variations thereafter, it
was certainly not unreasonable to expect there would be
one further Progress Claim lodged.
The reasoning in Daysea at paragraphs [26] to [28]
appeared to be in light of the specific surrounding factual
circumstances in that case (namely, the performance of
extra works after practical completion). It is apparent
from the leading decision of Williams JA in Daysea, who
stated at [29] In the circumstances there is no
3 4
[2001] QCA 49
Carter Newell 2012
substance in the submissions that Progress Claim no 18
was invalid, agreed that the court understood the
argument that multiple payment claims had been
submitted after the date of practical completion and
dismissed it.
Isis v Clarence
The issue was further considered by Master Macready
in the New South Wales Supreme Court decision of Isis
4
v Clarence . The contract in that case was based on
AS2124-1992, but within the scope of the Building and
Construction Industry Security of Payments Act 1999
(NSW).
Isis argued that the contractual ability to make progress
claims continued after practical completion. Clarence
contended that the proper construction of clause 42.1 of
the contract provided the right to issue monthly claims
only continues until the issue of a certificate of practical
completion.
The relevant provisions of the contract provided:
42.1 Payment Claims, Certificates, Calculations
and Time for payment.
At the times for payment claims stated in the
Annexure and upon issue of Practical Completion
and within the time prescribed by Clause 42.7, the
Contractor shall deliver to the superintendent claims
for payment supported by evidence of the amount
due to the Contractor and such information as the
superintendent may reasonably require. Claims for
payment shall include the value of the work carried
out by the Contractor in the performance of the
Contract to that time together with all amounts then
due to the Contractor arising out of or in connection
with the Contract or for any alleged breach thereof.
42.7 Final payment claim
Within 20 days after the expiration of the defects
liability period, or where there is more than one, the
last to expire, the contractor shall lodge with the
superintendent a final payment claim and endorse it
final payment claim.
Macready M at [20] found that on the face of the
above clauses, there is nothing in them to give any
indication that multiple payment claims may not be
issued after the issue a certificate of practical
completion.
Implication of the above decisions
If the decision of Justice Douglas in the Jedfire is
followed, it is arguable that AS2124-1992, AS2545-1993
and AS4300-1995 standard form contracts only provide
for payment claims to be submitted up to and upon
practical completion. No further payment claims within
the defects liability would be valid, except for the final
payment claim submitted upon final completion.
However, in light of the observations of Williams JA of
the Queensland Court of Appeal in Daysea, which
appears to be opposed to such argument and the
decision of Master Macready in Isis (which did not
consider Daysea but in a reasoned decision came to the
[2004] NSWSC 73
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same conclusion), it would appear that the decisions of
Daysea and Isis would likely be followed.
Suggested amendments
As the above decisions all turned on the interpretation of
the contractual entitlements of a contractor to deliver a
payment claim, it is recommended that contracts be
amended to expressly provide whether progress claims
can be submitted during the defects liability period.
Extension of Time Provisions
Over the past 10 years, it has generally been accepted
that Australian Standard form contracts provide the
superintendent with a unilateral discretionary power to
grant extensions of time. This discretionary power
exists notwithstanding whether a contractor has a
contractual entitlement or has not made a claim.
Following on from the decision of the New South Wales
Court of Appeal in Peninsula Balmain v Abigroup
5
Contractors Pty Ltd , a line of authorities have
confirmed that the superintendent under an Australian
Standard form contract must exercise its discretion
under clause 35.5 of AS2124-1992 by extending the
time for completion where they are required to act
honestly or fairly.
Peninsula Balmain involved an unmodified clause 35.5
of AS 2124-1992. In that case, the contractor had not
made any claim for an extension of time. A court-
appointed Referee nevertheless found that a
superintendent, acting honestly and fairly, should have
exercised his discretion and extended time for
completion. The Court of Appeal agreed with the primary
judges acceptance of the Referees conclusion, opining
that the superintendents power to grant an extension of
time is capable of being exercised for the benefit of both
the contractor and principal.
The Court further determined that the power to extend
time survived the termination of the contact. The Court
reasoned that as the liquidated damages mechanism
expressly operates after the termination of a contract,
there must be a date of practical completion after
termination for that clause to operate. Accordingly, the
Court found that the superintendents power is not lost
on termination, even if the claim for exercise of the
power to extend notwithstanding non-compliance had
not been made until after termination [at 80].
The decision in Peninsula Balmain gave rise to the
principle that a superintendent, who is given an
unqualified power to extend time, should (if required to
act reasonably or in good faith) do so for the
contractors benefit even where the contractor has not
made a claim or has not otherwise strictly complied
with the requirements of a contract. This principle has
been subsequently followed in Kane Construction Pty
6
Ltd v Sopov and 620 Collins Street v Abigroup Pty
7
Limited (No 2) .
Accordingly, a superintendent may be required to grant
an extension of time where it is fair and reasonable to
do so, even though a contractor has not complied with
the notice and time requirements for extension of time
5
[2002] NSWCA 211
6
[2005] VSC 237
7 8
[2006] VSC 491
Carter Newell 2012
under the contract. However, the burden still remains
on the contractor to prove its entitlement.
The judgment of Justice McMurdo in the matter of
Hervey Bay (JV) Pty Ltd v Civil Mining and Construction
8
Pty Ltd provides that it is possible to draft extension of
time provisions to remove the obligation placed on
superintendents to exercises their discretionary power.
The case concerned an adjudicators determination of
delay damages under an amended AS 2124-1992
contract. While the superintendent did not grant
extensions of time, the adjudicator, standing in the
shoes of the superintendent determined that the
contractor was entitled to those extensions and awarded
delay damages. The Hervey Bay contract had
specifically removed the clause 23 obligations from
acting on the discretion to extend time unilaterally.
In that case, the superintendent was relieved from an
obligation to exercise the discretionary power.
The Contractors argument, which the adjudicator
accepted, was that the adjudicator was entitled to allow
delay costs absent the grant of an extension of time
from the superintendent if the adjudicator concluded, as
he did, that the Contractor was entitled to an extension
of time.
However, Justice McMurdo of the Supreme Court of
Queensland however said:
In my view there is no tenable construction of cl
35.5A by which the Superintendent could be said to
be under any obligation and in particular an
obligation to extend time if it would be fair to do so.
Absent such an obligation there was no entitlement
in any sense to an extension of time, if there had not
been compliance with cl 35.5. So in the adjudicators
calculation, he was wrong to have included delay
costs for which extensions of time have not been
granted and for which there was no entitlement to an
extension under cl 35.5 or cl 35.5 A.
His Honour (in obiter) commented that whether the
Superintendent had refused or postponed consideration
of the extensions of time, the adjudicator was entitled to
include delay costs if the Contractor was entitled to
those extensions.
Accordingly, the obligation to exercise its discretion for
the benefit of the Contractor is absolute. Should a
contract not be expressly amended to remove the
discretion of the Superintendant (in the Contractors
favour) the position in Peninsula Balmain may prevail.
Principals may also consider amending any contractual
provisions which may entitle a contractor to delay
damages (i.e. GC 36 of AS 2124-1992) to ensure the
entitlement only arises when the contractual
requirements have been complied with.
[2008] QSC 58
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A Contractors ability to issue payment claims
upon termination
For the past eight years, the general consensus across all
Australian jurisdictions was that contractors were not
prevented from issuing payment claims under security of
payments legislation following termination of the contract
regulating the works.
This position was based on the New South Wales case of
Brodyn Pty Ltd t/as Time Cost and Quality v Davenport,9
where the Court of Appeal held that the NSW security of
payments legislation (BCISPA) does not provide that
reference dates cease on termination of a contract or
cessation of work, unless the contract provides otherwise.
BCISPA defines reference dates in relation to a
construction contract 10Until recently, this interpretation of
reference dates was generally accepted in Queensland.
The Supreme Court of Queensland in Walton Construction
(Qld) Pty Ltd v Corrosion Control Technology Pty Ltd & Ors
11
held that the termination of a construction contract
deprives the claimant its entitlement to make a payment
claim under the Queensland security of payments
legislation (BCIP Act) as the termination prevents the
reference dates from occurring.
Justice Lyons noted that the subcontract contained a
default clause common in Australian Standard form
contracts which provides that the parties rights will be the
same as they would be at common law had the defaulting
party repudiated the subcontract. Accrued rights survive
termination of a contract for repudiatory conduct, such as
those arising under an arbitration or liquidated damages
clause. However, Justice Lyons said that the existence of
contractual terms which specifically survive termination
demonstrates that contractual terms typically do not operate
after termination. Accordingly, Justice Lyons found that the
effect of clause 44.10 of the contract was that reference
dates ceased to accrue with the exercise of a right to
terminate under clause 44 of the contract.
Walton was further distinguished from its NSW counterpart,
Brodyn on the basis that the wording in the relevant Acts
differed. Justice Lyons found that while the NSW Act
defines a reference date in relation to a construction
contract:
the use of the expression under a construction
contract found in the Queensland definition makes it
9
[2004] NSWCA394
10
Building and Construction Industry Security of Payment Act 1999
(NSW) section 8(2)
11
[2011] QSC 67
somewhat more difficult to conclude that a reference
date occurs after termination. There is no longer a
contract under which there might be a reference date.
Ultimately, Justice Lyons found that it was [at 58]
inconsistent with the statutory language to conclude that
a statutory right to a final payment accrues
independently of a reference date; or that a reference
date occurs after termination, at least where that would
be contrary to the effect of the contract.
Queensland is the only jurisdiction which uses the expression
under a construction contract. The definition of reference
date in Victoria, South Australia and Tasmania is similar to
the New South Wales legislation,12while the Australian Capital
Territory legislation uses the expression for a construction
contract. 13 A reference date is not defined in Northern
Territory and Western Australian legislation.
Therefore, in Queensland alone a payment claim issued after
termination of an Australian Standard form contract may be
invalid for want of a reference date. If you want to preserve
your right to issue payment claims following any termination
of a construction contract, you should amend any Australian
Standard form contract to ensure the contract expressly
provides for the issuing of payment claims following
termination.
Authors
David Rodighiero
Partner
T (07) 3000 8376
E djr@carternewell.com
Marnie Carroll
Solicitor
T (07) 3000 8484
E mcarroll@carternewell.com
12
Building and Construction Industry Security of Payment Act 2002
(Victoria) section 9(2); Building and Construction Security of
Payment Act 2009 (SA) section 4; Building and Construction
Industry Security of Payment Act2009 (TAS) section 4.
13
Building and Construction Industry Security Act 2009 (ACT)
section 10(30.