Buxton Construction v Golf Australia Holdings [2007] VSC 10
In the Supreme Court of Victoria, Hargrave J held that a mediated term of settlement requiring an owner to pay unpaid amounts due under payment certificates obliged it to pay the sum it had deducted from a certificate for liquidated damages, because the settlement released that claim and payments under the certificates were on account [24], [25], [27], [29], [30].
What the court decided
By a building contract dated 11 February 2005, the contractor agreed to construct golf lodges for the owner at the Moonah Links Golf Course [3]. The contractor claimed delay costs arising from extensions of time and challenged the owner's right to deduct liquidated damages, which the owner asserted for delays in completion [4]. The disputes were compromised at a mediation on 11 July 2006 and brief handwritten terms of settlement were signed [6]. Under clause 1(c) the owner was to pay "the unpaid amounts due in respect of payment certificates 1 to 17", and clause 3 contained mutual releases [7].
The parties agreed that the terms were a binding written agreement, and the judge said that the sole issue was their proper interpretation [8]. Payment certificate 14 stated $702,975 as the value of work done since the previous certificate, and set off amounts totalling $190,000 for the owner's liquidated damages claim [15], [21]. The balance of $512,975 (plus GST) was paid before the mediation [15].
The contractor argued that the balance due for work done under certificate 14 remained an unpaid amount due under clause 1(c) [22]. The owner argued that the release covered any claim to the deducted amount and that only the net amount, already paid, had ever been due [23].
Hargrave J heard disputed evidence subject to objection, but decided the interpretation without any regard to it [11], [12]. His Honour asked what reasonable persons in the position of the parties would have understood the words to mean, favouring a commercially sensible construction [19].
His Honour rejected the owner's submissions and found an unpaid amount of $190,000 due in respect of certificate 14 [24]. First, the mutual releases freed the contractor from the owner's liquidated damages claim, while amounts unpaid by the owner under the certificates were not released and were expressly to be paid [25]. Second, clause 1(c) imposed an obligation on the owner and did not impose any obligation on the contractor, such as for liquidated damages [26]. Third, the building contract treated payments under payment statements as "on account" of the contract price and without any admission of liability [27]. There was no reason to suppose a different consequence was intended when the owner in effect paid itself by exercising its right of set-off [27]. Fourth, nothing in the terms or the surrounding circumstances indicated a different intention [28]. Each party's claim to the $190,000 in its position paper reinforced the conclusion that the parties intended to treat it as an unpaid amount due to the contractor [28].
Reasonable persons in the parties' position would therefore have understood clause 1(c) to require payment of the full value of the work stated in certificate 14 [29]. His Honour held that the owner must pay the contractor $190,000 together with GST under clause 1(d) [30]. It was unnecessary to rule on the admissibility of the disputed evidence [31]. His Honour said he would hear the parties on the form of orders and on costs [32].
Why it matters
Where terms of settlement release one side's set-off claims but preserve amounts due under payment certificates, a sum withheld by set-off may still be payable, so drafters should say expressly how disputed deductions are to be treated. The Court of Appeal dismissed the owner's appeal, Nettle and Redlich JJA (Neave JA agreeing) holding that "the judge was correct for the reasons which he gave" (Golf Australia Holdings Ltd v Buxton Construction Pty Ltd (2007) VSCA 200). Their Honours added reasons of their own, including that the building contract did not provide for the set-off to be included in the payment statement, that a set-off at law does not extinguish the debt and that the terms could not be construed by looking at the parties' negotiations, so both judgments should be read together.
Numbers in square brackets are paragraph numbers of the judgment. This note summarises a decided case for education and is not legal advice. See how the notes are written.