In brief - Superintendent misses deadline, builder entitled to deemed progress certificate
The Court of Appeal decision in Dial D v Kingston Building dealt with a common problem which arises where a superintendent misses a deadline and a builder becomes entitled to a deemed progress certificate. The question in this case was whether a superintendent could issue a certificate the following month, in the defects liability period and when the work was practically complete, when the builder had carried out no relevant work and had submitted no claim during that month.
Amended form of standard contract AS4000-1997 for development of medical centre
The case Dial D Pty Ltd As Trustee for the Smith Street Unit Trust v Kingston Building (Australia) Pty Ltd  NSWCA 277 concerns a dispute between the builder, Kingston, and the principal, Dial D, over the builder's entitlement for payment of a progress claim, among other things.
The parties entered into a written contract dated 31 March 2010 for the development of a medical centre in Charlestown. The contract was comprised of an amended form of a standard contract AS4000–1997 together with certain special conditions.
Practical completion was achieved on 5 July 2012 and there was a 12 month defects liability period from the date of practical completion.
The builder undertook variations and remedial works from July to December 2012.
Builder issues progress claim, superintendent fails to issue progress certificate
On 21 December 2012, the builder sent the superintendent a progress claim for $1,170,695.09. Pursuant to clause 37.1 of AS4000–1997, the builder was obliged to make progress claims for work done under the contract on or before the 25th day of each month.
The superintendent failed to issue a progress certificate in response to the December progress claim within the 14 day timeframe required by clause 37.2 of AS4000–1997. This failure was "deemed" in itself to be a progress certificate which gave rise to the amount claimed by the builder to be due and payable by the principal to the builder.
Superintendent issues progress certificate the following month, contradicting builder's claim
No progress claim was made by the builder in January 2013. This was because the builder had done no work under the contract during that month.
On 31 January 2013, the superintendent issued a progress certificate which contradicted the builder's earlier progress claim and required the builder to pay $1,067,571.53 to the principal for negative variations and liquidated damages for delay.
Principal argues that January progress certificate supersedes December progress claim
Proceedings were commenced in the Supreme Court by the builder who claimed, amongst other things, that the progress certificate issued by the superintendent, dated 31 January 2013, was void and of no effect. The Supreme Court agreed with the builder on this point.
The principal argued that it was open to the superintendent to issue a progress certificate for January, contradicting the December progress claim, and thereby superseding it. The basis for this contention was that the builder did not work in January and therefore did not made a progress claim in that month, but that still entitled the superintendent to issue the progress certificate.
Supreme Court finds that January progress certificate has no effect
The Supreme Court found that the January progress certificate was void. Judgment was entered for the builder, requiring the principal to pay the builder the amount of the December progress claim.
Once the builder's entitlement to payment of the amount claimed in the December progress claim arose by virtue of the deemed December progress certificate, it became an "accrued right" and was unconditionally acquired by the builder, subject to the builder's final entitlement to payment under the contract.
According to the Supreme Court, the occasion for the superintendent to issue a progress certificate in January 2013 was only enlivened when the builder made a progress claim by the 25th of the month for work it had done in that month, and was not enlivened where no progress claim was made by the builder during January, which was a month in which no work had been performed.
The January progress certificate was of no effect for the reason that the Superintendent had no entitlement to issue that certificate under the contract. The principal's submission that the January certificate had superseded the deemed December progress certificate was not accepted.
The Supreme Court considered that it would be an "extraordinary result" if in a month where a builder did not make a progress claim, a superintendent would be able to issue a progress certificate that deprived the builder of its entitlements for an earlier unpaid progress claim.
It was considered that this would not have formed part of the bargain reached by the parties when they entered into the contract, nor would the parties have intended for the superintendent to have the power to overcome the effect of a failure to respond to a progress claim on time.
Court of Appeal sets aside finding that January progress certificate was void
The principal appealed the Supreme Court's decision and contended, amongst other things, that the Supreme Court did not properly interpret the meaning of clauses 37.1 and 37.2 in the contract AS4000–1997, which dealt with the making of progress claims and progress certificates.
One of the questions raised by the principal on appeal was whether the January progress certificate was valid. The principal contended that the Supreme Court erred in the finding that the superintendent was not entitled to issue the January payment certificate because it had not received a January progress claim from the builder.
The Court of Appeal considered that there was an entitlement on the part of the Superintendent to issue the January certificate, irrespective of whether or not the builder had performed work in January. On this matter, the Court of Appeal set aside the Supreme Court's finding that the January progress certificate was void and of no effect.
December payment claim not superseded by January progress certificate
While the principal was successful in its appeal from the decision that the January certificate was void and of no effect, the Court of Appeal rejected the argument that the January progress certificate had superseded the amount deemed to have been certified in relation to the December payment claim, and as such, that no amount was owed to the builder.
The Court of Appeal set aside the declaration made by the trial judge as to the invalidity of the superintendent's January certificate. The other matters raised by the principal were dismissed.
Superintendent may issue progress certificate even if builder has not made progress claim
This case demonstrates that under AS4000–1997, a superintendent may issue a progress certificate where a builder fails to issue a progress claim for that same month, even when the builder had performed no work for which it could make a claim and even in the defects liability period.
Both original and subsequent progress certificate enforceable under AS4000-1997
However, the rights under the original (deemed) progress certificate are accrued and enforceable. The rights under the subsequent progress certificate are also enforceable.
It therefore becomes a practical problem about whether those rights can be enforced in a timely manner or set off against each other.
|Joanne Perdriau||Nick Crennan|
|Colin Biggers & Paisley|
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