Supreme Court New South Wales

• Medium Neutral Citation: St Hilliers Construction Pty Ltd (In Administration) -v- Fitzpatrick Investments Pty Ltd [2012] NSWSC 804
• Hearing dates: 2 July 2012
• Decision date: 02 July 2012
• Jurisdiction: Equity Division - Technology and Construction List
• Before: Hammerschlag J

Decision

Proceedings dismissed

• Catchwords: BUILDING AND CONSTRUCTION - where design and construct building contract requires provision by the contractor of bank guarantees as security for performance - where, upon satisfaction of certain conditions, the contractor is entitled to a reduction of the security - whether such conditions satisfied - whether, by taking possession of the works, the principal has exercised an election amounting to a waiver of its right to continue to keep the security
• Cases Cited: Tricontinental Corporation Ltd v HDFI (1990) 21 NSWLR; Newtown Management Pty Ltd v The Owners of Strata Plan 67219 [2009] NSWSC 150; Sargent v ASL Developments Limited (1974) 131 CLR 634
• Category: Principal judgment
• Parties: St Hilliers Construction Pty Ltd ACN 028 594 563 - Plaintiff; Fitzpatrick Investments Pty Ltd ACN 001 662 862 - Defendant
• Representation: D.T. Miller SC with N. Shaw - Plaintiff; F.C. Corsaro SC - Defendant; Colin Biggers & Paisley - Plaintiff; Clark McNamara Lawyers - Defendant
• File Number(s): 2011/370383

EX TEMPORE Judgment

Introduction

1 HIS HONOUR: On 6 November 2008 the plaintiff (as Contractor) and the defendant (as Principal) entered into a written design and construct building contract ("the contract") for the construction of a commercial building in the Docklands area of Melbourne in the State of Victoria for a contract sum of $37,669,956.

2 Clause 5 of the contract, read with paragraph 13 of Annexure Part A, obliged the plaintiff to provide three bank guarantees: one for an amount equivalent to 2.5 per cent of the contract sum (i.e. $941,748), one for an amount equal to 2.5 per cent of the contract sum less $200,000, and one for $200,000. The plaintiff duly provided the guarantees.

3 Clause 5.8(A) of the contract provides relevantly as follows:

5.8 Reduction of Security

(A) Upon the later of:

(a) issue of the Certificate of Practical Completion; and

(b) the provision of all of the items referred to in paragraphs (c) to (h) inclusive of 42.3,

the Principal's entitlement to security shall be reduced to the percentage thereof stated in Annexure Part A or, if no percentage is stated, to 50% thereof. If at any time after Practical Completion the Superintendent is of the opinion that it is reasonable to further reduce the Principal's entitlement to security, that entitlement shall be reduced to the amount which the Superintendent determines to be reasonable.

4 No percentage is stated in the Annexure.

5 In these proceedings the plaintiff claims an entitlement to have the security reduced by 50 per cent, i.e., by the amount of the first guarantee. It claims return of the guarantee.

relevant provisions of the contract

6 Clause 2 of the contract contains the following definitions:

'Consultant' means any person engaged by the Contractor to perform consultancy services in connection with the work under the contract and includes any consultant of the Principal or another person whose prior contract is novated to the Contractor under Clause 10, and any Consultant's executors, administrators, successors, permitted assigns, employees, servants and agents.

'Practical Completion' is that stage in the execution of the work under the Contract when:

(d) all certificates from Consultants in accordance with Clause 9.9 have been provided to the Superintendent;

(q) The following documents have been provided to the Superintendent in a form satisfactory to him:

(v) certification from each Consultant addressed to the Principal (including ESD Consultant) that, in its view, the parts of the Works relevant to its discipline have been completed in accordance with the Contract.

Date of Practical Completion' means:

(a) the date certified by the Superintendent in a Certificate of Practical Completion to be the date upon which the Practical Completion was reached; or

(b) where another date is determined in any arbitration or litigation as the date upon which Practical Completion was reached, that other date.

7 Clause 9.9 of the contract provides relevantly as follows:

9.9 Certifications by Consultants

It shall be a condition precedent to the issue of each payment claim, any Certificate of Practical Completion, acceptance of defects rectification and the Final Certificate that all Consultants (but in relation to a payment claim, limited to those Consultants whose disciplines are relevant to any of the work under the Contract the subject of the payment claim) certify in writing that the relevant work under the Contract has been completed in accordance with the Contract and the approved design documents, where the certification relates to a claim for the payment of money, using the form of certification in annexure Part F. Certifications are required from the following Consultants for the parts of the work under the Contract that relate to their disciplines:

(a) Architect; and

(b) landscape architect; and

(c) structural engineer; and

(d) civil engineer; and

(e) mechanical engineer; and

(f) electrical engineer; and

(g) hydraulic engineer; and

(h) fire services engineer; and

(i) façade engineer; and

(j) lift engineer;

(k) ESD consultant;

and, if necessary, the Contractor must appoint Consultants (with the approval of the Principal) for that purpose.

The Contractor must ensure that all the Consultants that provide the certifications required by this Clause 9.9 must be the Consultants that prepare the Design Documents for the relevant parts of the work under the Contract, unless the Principal gives written approval for a change in the Consultant, such approval not to be unreasonably withheld or delayed.

8 Clause 35.2 of the contract provides:

35.2 Time for Practical Completion

The Contractor shall execute the work under the Contract to Practical Completion by the Date for Practical Completion.

Upon the Date of Practical Completion the Contractor shall give possession of the Site and the Works to the Principal.

9 Clause 42.1 of the contract includes, relevantly, the following provision:

42.1 Payment Claims, Certificates, Calculations and Time for Payment

At the times prescribed in Item 46 of Annexure Part A, 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 work carried out by the Contractor in the performance of the Contract to that time together with all amounts then otherwise due to the Contractor arising out of the Contract. Each claim for payment shall detail the percentage of the work under the Contract completed to date and be in a form acceptable to the Superintendent and shall be accompanied by:

(b) a statement from each relevant Consultant and major subcontractor who is responsible for design of any component of the work under the Contract that the work by the Contractor for which payment is claimed has been performed in accordance with the applicable Design Documents and the Contract. Each statement is to be in the form of Annexure Par F (attachment);

10 Clause 42.3 of the contract provides, relevantly, as follows:

42.3 Certificate of Practical Completion

The Contractor shall give the Superintendent at least 21 days notice of the date upon which the Contractor anticipates that Practical Completion will be reached.

When the Contractor is of the opinion that Practical Completion has been reached, the Contractor shall in writing request the Superintendent to issue a Certificate of Practical Completion. When making such request the Contractor shall provide to the Superintendent the occupancy permit or like permission for the lawful occupancy of the Works or the relevant portion thereof. The Contractor shall include in its notice to the Superintendent advice in writing as to the status and as to the anticipated dates for completion or provision of the following as the case may be:

(l) any defects and omissions identified in the Works to date;

(m) reports on preliminary commissioning of services installations;

(n) operating and maintenance manuals including final commissioning report of services installations;

(o) as built Design Documents;

(p) all manufacturers' and suppliers' warranties and guarantees required to be assigned, novated or provided to the Principal in accordance with Clause 9.10;

(q) a declaration and statement, made as at that date, in the form of Annexure Part F; and

(r) the Depreciation Schedule in a form approved by the Superintendent; and

(s) each other document or matter required to be provided or satisfied for Practical Completion.

Within 14 days after the receipt of the request, the Superintendent shall give to the Contractor and to the Principal a Certificate of Practical Completion certifying the Date of Practical Completion or give the Contractor in writing the reasons for not issuing the certificate.

When the Superintendent is of the opinion that Practical Completion has been reached, the Superintendent may issue a Certificate of Practical Completion, whether or not the Contractor has made a request for its issue.

The Contractor must use all reasonable endeavours to complete and provide all of the items in paragraphs (e) to (h) above on the Date of Practical Completion and must in any event complete and provide all of such items within 28 days after the Date of Practical Completion.

11 Clause 48 of the contract provides as follows:

WAIVER OF CONDITIONS

Except as provided at law or in equity or elsewhere in the Contract, none of the terms of the Contract shall be varied, waived, discharged or released, except with the prior consent in writing of the Principal in each instance.

12 Annexure F, Attachment 2, is in the following form:

ATTACHMENT 2: CONSULTANTS & SUBCONTRACTOR STATEMENTS

I, the undersigned, with regard to the discipline for which I am responsible, acknowledge that we have a duty of care to the Principal and state that:

(a) There are/are no material disputes between myself and [insert] ("the Contractor") in connection with the Works. [Details of any material dispute are/are not attached.]

(b) Work to the date of this Statement has been completed in accordance with applicable Design Documents and the Contract, and there are no apparent defects that have not been notified to the Superintendent.

(c) We are/are not aware of any matters which may result in the Site or the Works not being fit for their intended use, or which would result in the Works not complying with all the requirements of the Contract and all Legislative Requirements. [Details of these matters are/are not attached].

the dispute

13 On 14 November 2011, the Superintendent issued a Certificate of Practical Completion to the effect that the entirety of the work under the contract was Practically Complete as at 31 October 2011. On or about that date, the defendant took physical possession of the works and remains in possession.

14 On 15 May 2012, the plaintiff went into voluntary administration and on 28 May 2012, the defendant exercised a power given to it under the contract to bring the contract to an end.

15 It is common cause that when the Certificate of Practical Completion was issued, and the plaintiff took possession of the works, there had been no certification, as contemplated by cl 9.9 of the contract, by consultants, in writing, that the relevant work under the contract had been completed in accordance with the contract and the approved design documents, had not been fulfilled.

16 However, the plaintiff puts that such certification occurred by not later than 13 March 2012 by the execution of written statements signed by each of the relevant consultants in the following form:

ATTACHMENT 2: CONSULTANTS & SUBCONTRACTOR STATEMENTS

I, the undersigned, for the purposes of all progress claims and practical completion of the Project, and with regard to the discipline for which I am responsible, acknowledge that we have a duty of care to the Principal and state that:

(a) There are/are no material disputes between myself and St Hilliers Contracting ("the Contractor") in connection with the Works. [Details of any material dispute are/are not attached.]

(b) Work to the date of this Statement has been completed in accordance with applicable Design Documents and the Contract, and there are no apparent defects that have not been notified to the Superintendent.

(c) We are/are not aware of any matters which may result in the Site or the Works not being fit for their intended use, or which could result in the Works not complying with all the requirements of the Contract and all Legislative Requirements. [Details of these matters are/are not attached.]

(d) We have been paid for all claims for payment.

17 Each form identifies the relevant discipline, the name of the party giving it, the qualification of the party and the date of the acknowledgement.

18 The plaintiff puts that these statements meet the requirements of cl 5.8(A)(b) and that it is, in the circumstances, entitled to a 50 per cent reduction in the security it has provided.

19 In the alternative, it puts that the defendant waived the entitlement to the provision of the relevant certificates by exercising an inconsistent election to take possession of the works. The plaintiff puts that, in addition, this amounted to the exercise of an election inconsistent with the maintenance of a right to continue to hold the guarantee.

CONSIDERATION

20 There was no issue between the parties that the provision of the relevant certificates is a condition precedent to the entitlement of the plaintiff to a reduction in the security.

21 It is well settled that it is meaningless to speak of the substantial performance of a condition precedent. Either it has been performed or it has not: see Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689 at 705 and Newtown Management Pty Ltd v Owners of Strata Plan 67219 [2009] NSWSC 150 at [80] and [84]-[85].

22 The first issue for resolution is thus whether that condition precedent has been fulfilled. This is to be answered by examining whether the certificates meet with the requirements of cl 9.9 (and in turn, cl 5.8(A)) of the contract.

23 As may be readily observed, the certificates are (with the exception of the inclusion of subparagraph (d)) in the form of Attachment 2 in Annexure Part F to the contract. This is the form which the contract mandates for claims for the payment of money.

24 The certificates contemplated by cl 9.9 are important instruments. Their provision has the consequence that the plaintiff becomes entitled to a reduction in, and the defendant must forego a significant part of, the valuable security which the plaintiff has provided for its performance.

25 Clause 5.8(A)(b) makes it clear that there must not only be a Certificate of Practical Completion, but that the certificates by the consultants must be provided. It is to be remembered that the consultants do not have contractual privity with the principal.

26 The statements in question contain the qualification "work to the date of the statement" has been completed. This is less than the fulfilment of the condition. The defendant is entitled to receive, and the provision requires, an unqualified certification that the relevant work has been completed, not that work to a particular date has been.

27 That these words contain an important and unjustified qualification is bolstered by the fact that the form of the document used is undoubtedly the form which is intended to be used in relation to progress payments. The form envisages future payments for future work yet to be done.

28 In my view, the certificates proffered do not amount to performance of the condition precedent.

29 I note that the defendant put further submissions that:

(a) the Certificate of Practical Completion was itself invalid amongst others because the existence of valid consultants' certificates was necessary for it to issue;

(b) compliance with cl 9.9 of the contract required certificates in the precise words of the clause; and

(c) the certificates were of no force because, as a matter of subjective intention, the consultants did not intend to give the certificates contemplated by cl 5.8(A)(b).

30 Given the conclusion that I have reached, it is not necessary to deal with these submissions.

31 I turn to the submission that the defendant has waived its entitlement to fulfilment of the condition precedent and, accordingly, to maintain the security.

32 In Sargent v ASL Developments Limited (1974) 131 CLR 634 at 641 Stephen J set out the relevant principles as follows:

The doctrine of election as between two inconsistent legal rights is well established, but certain of its features are not without their obscurities. The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence. As Williston points out (Contracts, 3rd ed, vol 5, par 683) the doctrine is not out of harmony with the general rule that a binding surrender of a right requires a sealed release or consideration; by surrendering one right the elector thereby gains an advantage not previously enjoyed, the ability to exercise to the full the other, inconsistent right.

33 The plaintiff's submission that the defendant has exercised an election amounting to a waiver of the entitlement to comply with certification is unsustainable for two reasons.

34 Taking possession (even if it was unauthorised) of the works is not necessarily inconsistent (or inconsistent at all) with the defendant's entitlement to require production of the certificates. Taking possession does not involve the corollary that the defendant has foregone its right to have the certificates.

35 That this is so is demonstrated by the fact that cl 5.8 distinguishes between Practical Completion, and the provision of the certificates respectively. Possession is to be given on Practical Completion only (see cl 35.2).

36 The second difficulty with the submission is that cl 48 of the contract protects the defendant precisely against the assertion now being made.

CONCLUSION

37 It follows that the proceedings are to be dismissed. I so order.

38 The plaintiff is to pay the defendant's costs.

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Amendments

14 August 2012 - Heading repositioned
Amended paragraphs: 19 & 20

Decision last updated: 14 August 2012