Queensland Supreme Court confirms that there is nothing final about a final certificate

The Supreme Court of Queensland has recently held in Tomkins Commercial & Industrial Builders Pty Ltd v Majella Towers One Pty Ltd & Anor [2017] QSC 202 that a final certificate that certifies an amount due by the builder, that is also the subject of a notice of dispute, cannot be relied on by the principal as an “amount due” by the builder. Accordingly, the principal has no right to have recourse, for the amount in the certificate, from security until the notice of dispute has been resolved.

Relevant contractual provisions

Clause 5.2 of the contract provided, inter alia, that “security shall be subject to recourse by a party who remains unpaid after the time for payment where at least 5 days has elapsed since that party notified the other party of their intention to have recourse”.

Clause 5.4 of the contract provided for the reduction of release of security and prescribed that – “A party’s entitlement otherwise to security shall cease 14 days after final certificate.

Upon a party’s entitlement to security ceasing, that party shall release and return forthwith the security to the other party.”

Clause 37.4 of the contract addresses, inter alia, the final payment claim and certificate.

37.4 provided the mechanism regarding the final adjustment of the contract sum, final certificate and release of the final certificate security. Specifically, the fourth paragraph of 37.4 noted that the final certificate would be a discharge of each party’s obligations except for, inter alia, unresolved issues the subject of any notice of dispute pursuant to clause 42, served before the 7th day after the issue of the final certificate.”

Submissions

The superintendent issued a final certificate certifying that the builder owed money to the principal and deducted the value of the security from that amount.

The builder issued a notice of dispute relating to the entirety of the final certificate.

The principal gave notice of its intention to have recourse to the bank guarantee, for the purposes of the reduction of the debt, described as being the amount certified as payable to it in the final certificate.

The builder submitted that the principal was not entitled to security unless the time for payment under the contract had passed.

The builder contended that the time for payment had not arrived because a notice of dispute in relation to the entire amount certified in the final certificate had been served within the meaning of the fourth paragraph of cl 37.4(d) of the contract. The builder submitted that issuing such a notice, the fourth paragraph provided that the builder had no obligation to the principal by reason of that final certificate.

The builder relied on the interpretation of cl 37.4 in Martinek Holdings Pty Ltd v Reed Construction (Qld) Pty Ltd [2009] QCA 329 (Martinek). In that case the Queensland Court of Appeal held that:

  1. the final certificate is qualified because a notice of dispute has been issued in relation to it;
  2. this means that no right to payment has arisen which would otherwise arise pursuant to the third paragraph of cl 37.4; and as such,
  3. no right to payment has arisen, and cl 5.2 cannot be relied upon for recourse to the bank guarantee because the “time for payment” of the amount certified in the final certificate had not arisen and so has not passed.

Reasoning

In finding in favour of the builder, her Honour held that, while the construction does prevent the principal having recourse to the bank guarantee in circumstances of a dispute, this is how the parties allocated the risk under the contract where there is a dispute in relation to the amount certified under the final certificate and that recourse to the bank guarantee is limited to non-payment where the amount provided for in the final certificate is not the subject of challenge.

Her Honour, held that the bank guarantee should have been returned on the basis that no amount remained unpaid to which the principal could have recourse to the security.

Takeaway

Principals and contractors should be cautious when seeking to have recourse to security based on an amount owed under a final certificate. As demonstrated in this case, if the final certificate is subject to a notice of dispute, then there will be no amount owed until the dispute resolution process has concluded (which can often be lengthy and expensive – particularly if the contract provides for expert determination or arbitration).

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader’s specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

Key contacts:

Stephen Pyman – Director | Principal
Christopher Rowden – Principal

 

Comment

This post doesn't have any comment. Be the first one!

hide comments
...

This is a unique website which will require a more modern browser to work!

Please upgrade today!