Superintendents are not Allowed to Revisit Payment Claims Unless the Contract Gives Them a Broad Discretion

The case — Gowdie Management v Iris-PW No. 1 2017 Pty Ltd [2025] QSC 297— sends a strong message to developers: superintendents are not allowed to revisit payment claims unless the terms of the contract gives the superintendent a wide discretion.

 Background

GMG (the applicant) and Iris (the first respondent) entered into a modified AS2124 – 1992 cost plus construction contract in relation to a mixed-use development known as the Shenton Quarter Project. Before GMG was involved, the project was partially complete. A portion of the construction costs is consist of Supervision Cost for direct services supplied by GMG employees and officers.

The dispute has arisen between GMG and Iris in respect of Payment Certificates 32 to 40 as in the process of certifying the payment claims submitted by GMG the Superintendent revisited and reduced Supervision costs that have already been paid for in respect of Payment Claims 3 to 31. Those Supervision Costs were reduced by 12 percent and then by 40.5 percent because in the Superintendent’s opinion that the reductions accounted for impermissible profit.

The issues of this dispute are:

1. 1. 1. Was the Superintendent contractually prohibited from revisiting Supervision Costs previously paid or certified in respect of Payment Claims 3 to 31?
      2. By the reason of Special Condition 3.11, was the Superintendent contractually prohibited from revisiting Supervision Costs previously paid in respect of Payment Claims 3 to 12 (Prior Payment Claims)?
      3. If the either issue 1 or 2 is in the affirmative, can the prohibited part of the certificate be severed without affecting the validity of the remaining portion of the certificate?

Court of Appeal Decision

Issue 1: Iris argued that the Superintendent was entitled to revisit prior payments or certifications because:

1. 1. 1. Work defined in Special Condition (SC) 1.1 to mean “all works required to bring the Building to completion, and to rectify the Agreed Defects”
      2. The definition of the Cost of the Works prohibited a profit component on the part of GMG. The definition of Contract Sum supports this interpretation. Contract Sum was defined to mean “the Costs of the Works plus the Contractor’s Fee”. GMG’s only entitlement to a profit component was to be found in the Contractor’s fees.
      3. Schedule C contained an express warranty that hourly rates exclude any element of profit. This warranty also reinforced the definition of Cost of the Works prohibits a profit component.
      4. SC 3.2 stipulates that each payment claim was referencing the full Costs of the Works which had been supplied and which were reasonably, properly and demonstrably incurred up to the issuing of each payment claim. SC 3.5 read with SC 3.2 (b) fell within the category of interim certification clauses which calls for a valuation of the whole of the work completed to the date of each payment claim.

The Queensland Supreme Court accepted the interpretation contended by Iris because:

1. 1. 1. SC 3.2 states delivery of fortnightly payment claims are for Costs of the Works that are reasonably, properly and demonstrably incurred. These words suggest each payment claim includes all cost of the works up to the date, it is not limited to the Cost of Works accrued since the last payment certificate. SC 3.5 is consistent with such interpretation of SC 3.2.
      2. The missing wording (negative certificate) in 3.5 is a drafting error. There is no logical commercial reason why the certificate under SC3.4 should be either a negative or positive amount. SC 3.6 supports the view that there is a drafting error in SC 3.5. SC 3.6 expresses that a certificate can be either negative or positive.
      3. There is a broad discretion vested in the Superintendent.
      4. The interpretation is not affected by SC 3.2A. Even if the request for additional documents was limited to the portion of costs of the works which had not been previously paid for. The certifier would usually act on prior certificates.
      5. SC 3.8A allows for a request to be made by the Superintendent during the life of the construction contract, which could be seek the provision of reasonable information and documentary evidence that shows the build-up and cost base of each hourly rate set out in Schedule C. The purpose is to ensure the Supervision Costs regulated by Schedule C do not have profit components.
      6. Disagree that retrospective reductions of impermissible profit component can only occur in the final certificate.
      7. The omission of cl 42.2 from the general condition is neutral. If the valuation process is of the whole of the works at each interim certification, any prior error can be correct at any point of time.

Issue 2: Iris contended the Superintendent is allowed to revisit Supervision costs that had been previously paid in respect of Payment Claims 3 to 12 because:

1. 1. 1. Pursuant to SC 3.5 the opinion to be formed by the Superintendent was wide enough that allows the Superintendent to form an opinion on whether there was an impermissible profit component in the Supervision Costs contained within the Prior Payment Claims.
      2. SC 3.5 should be read in the context of cl 23 that required the Superintendent to arrive at a reasonable measure or value of work, quantities or time. Which would make the opinion formed by the Superintendent to be one that involved wide discretionary valuation which the parties were bound by, even when the valuation was later found to be incorrect.
      3. Even if Sc 3.11 prohibited the Superintendent from revisiting the subject matter of the Prior Payment Claims, that was an error it was allowed to make. The opinion contemplated in Sc 3.5 accommodated errors by the Superintendent in its valuation process.
      4. GMG is limited to the despite mechanism contained in cl 47 or via the final certification process in cl 42 of AS2124 general conditions.

The Court rejected the arguments contended by Iris and concluded that the Superintendent acted outside the terms of the construction contract by reducing the Supervision Costs within the Prior Payment Claims because:

1. 1. 1. Even though the formulation of a broad discretionary valuation by a certifier can accommodate significant errors on the part of the certifier but it is still possible to challenge a certificate if the certifier has acted outside the terms of the contract.
      2. In SC 3.5, the Superintendent’s opinion had an evaluative aspect to it. Such evaluative aspect concerned the subject matter of Payment Claims 13 to 31 and the consideration of whether they included impermissible profit components within the Supervision Costs. However, the Prior Payment Claim is distinguished from Payment Claims 13 to 31 because:
      3. Prior Payment Claims were precontractual work – not subject of an initial certification process by the Superintendent.

• • • • Prior Payment Claims were paid before the construction contract being entered into.
      • Content of the works and amount of costs of the Prior Payment Claims were matters of empirical fact.
      • SC 3.11 contained an express agreement between the parties that works and costs for Prior Payment Claims could not be challenged by Iris.

1. 1. 4. Iris contends SC3.11 only prohibits iris from challenging the prior payment claims but it does not prohibit the superintendent from challenging. This argument was rejected because this is not what a commercial businesspersons would have understood the clause to have operated.
      5. The prior payment claims does not come within the ambit of item (j)(5) instead it is encompassed in item (j)(2) of the definition of the Costs of the Works.

Issue 3: Iris contends the doctrine of severance was not available to sever the reduction on the relevant certificate because:

1. 1. 1. GMG have not cited authority to support the proposition that a provisional payment certificate could be adjusted by declaration of the court.
      2. SC 3 did not by its terms contemplate severance. If the court were to set aside part of the certificate, that would result in a curial usurpation of the agreed contractual risk allocation process constituted by the superintendent making interim payment decisions.
      3. Relied on decisions of James Trowse and BM Alliance in support of the contention that severance was not available in respect of a contractual interim certificate.

The court rejected the argument contended by Iris and held the doctrine of severance can be applied to interim certificates because:

1. 1. 1. The certificate would still represent the opinion of the superintendent as to what is payable.
      2. Recent authorities provide some limited support for the proposition that an interim contractual certificate may be the subject of severance in appropriate circumstances.
      3. The terms of the construction contract did not indicate that severance was either expressly or implied excluded. The final certification process in cl 42 and a dispute resolution mechanism in cl 47 does not indicate a contractual intention to exclude severance. These are just alternative mechanisms to redress error.
      4. Opinion formed under Sc 3.5 is not treated as an indivisible whole. It is required to provide reasons and calculations for the opinion reflected in the certificate. This attribute allows to identify which parts of the opinion are impermissible.
      5. Severance is not possible if the invalid part of the certificate infects the residual opinion forming process, and this is not the case here.

Key Takeaways for Developers

The case sends a clear message to developers in QLD:

1. 1. 1. Superintendents is not allowed retrospectively carry out reassessment of the payment claims unless the contracts give a wide discretion.
      2. Interim contractual certificate may be the subject of severance in appropriate circumstances such as the impermissible opinion and the consequent impermissible reduction can be specifically identified and has no infection on the residual opinion and the remaining amounts in a certificate.

Key contacts: