In the recent case of Tomkins Commercial & Industrial Builders Pty Ltd v Pacific Diamond 88 Pty Ltd [2024] QSC 321, the Qld Supreme Court considered an application of the builder (Tomkins) seeking declarations that the developer (Pacific Diamond) was not contractually entitled to set off amounts certified as LD’s against amounts payable to the builder.
The case concerned a review by the Court of an amended AS4902-2000 payment clause (cl 37), where the Superintendent’s right to issue certificates to the builder evidencing money due from the builder to the developer, had been struck through, leaving only the Superintendent’s right to issue a progress certificate for amounts payable to the builder.
The background was that the Superintendent had on the same day issued separate certificates to the builder, certifying LD’s in the sum of $2.6m payable to the developer and a progress certificate assessing payment to the builder of approx. $700K less $2.6m set-off for LD’s, with an amount payable by the builder to the developer of approx. $1.9m. The developer also gave notice to the builder of its intention to have recourse to bank guarantees provided as security under the contract.
Before the Court, the builder argued the effect of the amended payment clause was there was no right of set-off against amounts payable to the builder (prior to final certificate). The developer argued the right to set-off instead arose in the LD’s clause and not the payment clause.
The Court held that the LD’s clause did not provide the developer with a right of set-off, rather a right to the Superintendent to certify LD’s and that the right to set-off amounts payable to the builder (if not amended) arose from the payment clause. Further, the Court held the deleted words in the payment clause had the effect of removing both contractual and common law rights of set off.
The Court also admitted extrinsic evidence of pre-contractual negotiations between the parties relevant to the interpretation of the amended payment clause, where the builder had previously indicated that it would not accept a right of set-off for LD’s against amounts payable to the builder and the developer’s access to security for LD’s.
Accordingly, the Court made a declaration that there was no right of set-off in the payment clause, the developer could not access security in relation to the certified LD's, and the balance of the progress certificate (excluding LD’s) of approx. $700k was payable to the builder.
Although unnecessary with the declarations made, the Court also considered the issue of injunction argued by the builder in the alternative, to prevent the developer from having access to security. On assessment of the balance of convenience (due to the financial status of developer, wording of the security clause and other matters), the Court found that if an injunction was required, it would have been upheld.
The take home is that amended AS contracts need to be carefully reviewed to ensure that important contractual rights are preserved. Parties higher in the contractual chain should ensure set-off rights are preserved by a general ''catch all'' set-off clause, seperate to the payment clause, and amend the LD's clause to give rise to a clear right of set-off
In the recent case of Tomkins Commercial & Industrial Builders Pty Ltd v Pacific Diamond 88 Pty Ltd [2024] QSC 321, the Qld Supreme Court considered an application of the builder (Tomkins) seeking declarations that the developer (Pacific Diamond) was not contractually entitled to set off amounts certified as LD’s against amounts payable to the builder.
The case concerned a review by the Court of an amended AS4902-2000 payment clause (cl 37), where the Superintendent’s right to issue certificates to the builder evidencing money due from the builder to the developer, had been struck through, leaving only the Superintendent’s right to issue a progress certificate for amounts payable to the builder.
The background was that the Superintendent had on the same day issued separate certificates to the builder, certifying LD’s in the sum of $2.6m payable to the developer and a progress certificate assessing payment to the builder of approx. $700K less $2.6m set-off for LD’s, with an amount payable by the builder to the developer of approx. $1.9m. The developer also gave notice to the builder of its intention to have recourse to bank guarantees provided as security under the contract.
Before the Court, the builder argued the effect of the amended payment clause was there was no right of set-off against amounts payable to the builder (prior to final certificate). The developer argued the right to set-off instead arose in the LD’s clause and not the payment clause.
The Court held that the LD’s clause did not provide the developer with a right of set-off, rather a right to the Superintendent to certify LD’s and that the right to set-off amounts payable to the builder (if not amended) arose from the payment clause. Further, the Court held the deleted words in the payment clause had the effect of removing both contractual and common law rights of set off.
The Court also admitted extrinsic evidence of pre-contractual negotiations between the parties relevant to the interpretation of the amended payment clause, where the builder had previously indicated that it would not accept a right of set-off for LD’s against amounts payable to the builder and the developer’s access to security for LD’s.
Accordingly, the Court made a declaration that there was no right of set-off in the payment clause, the developer could not access security in relation to the certified LD's, and the balance of the progress certificate (excluding LD’s) of approx. $700k was payable to the builder.
Although unnecessary with the declarations made, the Court also considered the issue of injunction argued by the builder in the alternative, to prevent the developer from having access to security. On assessment of the balance of convenience (due to the financial status of developer, wording of the security clause and other matters), the Court found that if an injunction was required, it would have been upheld.
The take home is that amended AS contracts need to be carefully reviewed to ensure that important contractual rights are preserved. Parties higher in the contractual chain should ensure set-off rights are preserved by a general ''catch all'' set-off clause, seperate to the payment clause, and amend the LD's clause to give rise to a clear right of set-off
