Enwerd Pty Ltd v Metier 3 Pty Ltd [2016] VSCA 234

What the court decided

Enwerd Pty Ltd and SHL Nominees (1965) Pty Ltd (the owners) owned land at 535 and 555 Bourke Street, Melbourne [1]. To redevelop the St James Building on that land, they engaged Metier 3 Pty Ltd (the architect) to provide architectural services and Construction Engineering (Aust) Pty Ltd as builder [2]. After a dispute about the architect's fees, the owners and the architect entered into a deed of settlement dated 19 November 2012, which provided for payment by instalments [4].

Under clause 2(e) of the deed, payment of the last instalment, $300,000, was "subject to Practical Completion of the Works" [9]. Clause 2(e) also required the provision of the construction drawings and other documents due from the architect under the architect agreement [9]. The deed defined "Practical Completion" as the issue of a certificate of practical completion "in accordance with the contractual arrangements for the performance of the Works" [10]. The construction contract defined the Date of Practical Completion as the date the superintendent certified, or another date determined in any arbitration or litigation [16].

On 1 March 2013 Case Meallin & Associates Pty Ltd, the superintendent under the construction contract, issued a document described as a certificate of practical completion (the CPC) [18]. The architect invoiced the final instalment on or about 8 March 2013 [20]. The trial judge found that the documents were provided by 20 March 2013 [21]. On 21 March 2013 the owners told the superintendent that they considered the CPC "premature and inappropriate" [22]. In April 2013 they told the architect that the CPC had been issued prematurely and that, in their view, the trigger for the final payment had not been reached [26].

The owners terminated the superintendent's appointment in May 2013 [27]. In September 2013 their representative wrote that, with the superintendent replaced, it "appeared to be moot to follow the contractual process" for overturning the CPC [30]. The architect commenced a proceeding against the owners in the Trial Division in November 2013 [31]. In November 2014 the owners paid $300,000 (plus GST) without admitting liability [32].

The trial judge, Vickery J, first answered a preliminary question in the architect's favour, holding that the entitlement to the last instalment arose on the issue by the superintendent of a duly issued certificate of practical completion, and setting out grounds on which a certificate might be invalid [34], [35]. At trial he held that the entitlement arose when the CPC was issued, and that the CPC remained valid for the purposes of the deed unless it was set aside by a court or an arbitrator [45]. He therefore did not address the owners' arguments that the CPC was invalid [46]. He also held that, by election, the owners were precluded from claiming that the CPC was invalid [47]. He found that the architect had provided the required documents by 20 March 2013 [49]. He gave judgment for the architect with interest of $48,069.86 from 21 March 2013 to the date of payment, dismissed the owners' counterclaim so far as it sought declaratory relief, adjourned the rest of the counterclaim for directions and ordered the owners to pay costs [50].

The Court of Appeal (Whelan and McLeish JJA and Cavanough AJA, in joint reasons) refused leave to appeal [5], [80].

On the first ground, the Court rejected the argument that the judge had construed the deed by reference to post-contractual conduct [55]. It held that the judge had looked at later events to identify what the contractual arrangements for performing the works were, and to decide whether the certificate had been issued in accordance with them, not to fix the meaning of "contractual arrangements" in the deed [55]. The Court said that those events would have been relevant even if the arrangements were confined to the construction contract, because under that contract the certified date stood unless a successful challenge in arbitration or litigation displaced it [56].

On the second ground, the owners argued that the judge had misapprehended, or given insufficient weight to, evidence of their repeated objections to the CPC [59]. The Court held that the argument rested on a mistaken premise, namely that the issue was whether the owners had affirmatively accepted the CPC [62]. The first issue was whether the CPC had been successfully challenged in a court or an arbitration, and the judge was right that the CPC operated under the construction contract unless it was so challenged [62]. The Court said that both the deed and the construction contract placed weight on certainty, and that, given the extensive list of requirements for practical completion, the certificate was critical to performing the contract with relative certainty [63]. As the trial judge had held on the preliminary question, the deed, like the construction contract, operated on the certificate, not on practical completion in fact [63]. It was not in issue that the owners had not pursued their objections, and the issue of the CPC satisfied clause 2(e) [64].

On the third ground, the owners argued that the judge should have decided whether the CPC was valid on its face [65]. The Court held that this ground must be rejected [69]. It said there was "a distinct air of unreality" in deciding the CPC's validity between the owners and the architect while it remained unimpeached between the owners and the builder [69]. The deed and the architect agreement depended on the framework of rights and obligations under the construction contract [69]. The Court accepted that the final reasons departed to some extent from the earlier observations on grounds of invalidity, but agreed with the architect that those observations were obiter and proved not to be relevant on the proper construction of the deed [70]. Counsel for the owners accepted that, on the owners' argument, no valid certificate had issued or ever would [71]. The Court said it followed that the architect would never be entitled to payment under clause 2(e) without a further agreement [71]. The Court said that this result attributed "uncommercial, and even bizarre, intentions" to the parties [72].

Although the fourth ground, on election, strictly did not arise, the Court dealt with it [73]. It said that the owners could not insist on the architect performing its services during the defects liability period under clause 2(f) while denying that practical completion had been reached under clause 2(e) [75]. The Court described this as a plain case of election, and added that detriment is not necessary for a binding election [75], [76].

On the fifth ground, counsel for the owners accepted that, if the argument on practical completion failed, he could not challenge the finding that the disputed documents had not been "issued" within clause 17.3(i)(i) of the architect agreement [79]. Those documents concerned work done only after the CPC was issued, and the ground failed [79].

The Court concluded that, unless the CPC was set aside, the owners were bound to pay the final instalment once the CPC had issued and the documents had then been provided [80]. Since the CPC was not set aside, the application had no real prospect of success [80].

Why it matters

Where a payment under a related agreement, such as a settlement with a consultant, depends on the issue of a certificate under a construction contract, and that contract substitutes a date determined in arbitration or litigation for the certified date, the decision indicates that, depending on the terms of that agreement, the certificate is likely to govern the payment until it is set aside. A party that objects to the certificate but does not pursue a challenge under the construction contract may not be able to resist the payment by attacking the certificate's validity against the payee.

The decision turned on the terms of this deed and this construction contract, and was given on an application for leave to appeal. The Court's remarks on election were made on a ground that, it said, strictly did not arise.

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.