Dura (Australia) Constructions Pty Ltd v Hue Boutique Living Pty Ltd [2013] VSCA 179

What the court decided

In December 2004 Hue Boutique Living Pty Ltd (HBL) engaged Dura (Australia) Constructions Pty Ltd (Dura) under a standard form contract [1]. In September 2006, after disputes about alleged defects, HBL took the whole of the remaining work out of Dura's hands [1].

Clause 44.6 provided that, once work taken over was completed, the Superintendent was to ascertain the cost the Principal had incurred in completing it and certify that cost, the amount that would otherwise have been paid to the Contractor and the difference [7].

The Superintendent certified that $4,457,308 was payable by Dura to HBL [3], [8]. The certificate rested on work done by a quantity surveyor, Mr Clack, who allocated the costs between rectification, completion and "enhancements" outside the original scope [9]. The trial judge rejected Dura's criticism that Mr Clack's assessments were an "arbitrary split" [13]. He found that Mr Clack had exercised a judgment in allocating the costs [11], [13].

The trial judge dismissed Dura's claims and gave judgment for HBL on its counterclaim, ordering Dura to pay $6,173,155.80 including interest [2]. Dura did not appeal against the dismissal of its claims [3]. It brought two appeals, one against the judgment on the counterclaim and a separate appeal about money held in trust [3], [43], [59].

On appeal Dura argued that "ascertain" in clause 44.6 left no room for judgment or estimation, and that the clause could yield only "one uniquely correct value" [12].

Maxwell P treated the question as one of contract: a determination that does not meet the contract's terms has no effect, while one that complies binds the parties [15]. He set out the principles in W M C Resources Ltd v Leighton Contractors Pty Ltd ('W M C'), stated by Ipp J for the Full Court of the Supreme Court of Western Australia [18]. They included that a determination is not set aside merely because it is incorrect or reveals errors, so long as it was made in accordance with the contract [18].

Clause 23(a) acknowledged that the Superintendent was the Principal's agent, not an independent certifier, and obliged the Principal to ensure that the Superintendent used its reasonable endeavours to reach "a reasonable measure or value of work, quantities or time" [24]. Dura's senior counsel conceded that, where parties to a carefully drafted agreement use the same word more than once, they are taken to intend the same meaning each time [26]. Maxwell P added that this presumption is rebuttable, as the context in which a word is used may show a contrary intention [26]. Clause 40.5 provided for valuations of an amount "ascertained by the Superintendent", in some cases using reasonable rates or prices [27].

Maxwell P held that, in that clause, the parties used "ascertain" to authorise a computation that could involve "judgment, estimation and approximation" [28]. He found nothing in clause 44.6 to displace the presumption that the word bore the same meaning there, so the Superintendent could exercise judgment where necessary [29]. What the Superintendent did in relying on Mr Clack's work was within that function, and the parties were bound by the certificate [29].

Dura also argued that the Superintendent's lack of independence made it unlikely that the parties intended its certificate to be final and binding [35]. Maxwell P adopted the reasons for which a similar argument was rejected in W M C [36].

Ashley JA agreed with Maxwell P, for his reasons, that the certificate complied with clause 44.6 and that both appeals must be dismissed [59]. Redlich JA agreed that the Superintendent had ascertained the cost to complete in compliance with the contract, and so concluded that the appeal must be dismissed [60].

The trial judge had held that money held in a designated trust account after security of payment adjudications should be released to HBL [40], [42]. Dura's counsel accepted that the second appeal must fail if the certificate appeal failed, a concession Maxwell P said was properly made [43]. Redlich JA's reasons do not refer separately to the trust moneys appeal [60], [61].

By notice of contention HBL argued that Dura could not challenge the certificate in court because it had not followed the dispute procedures in clauses 47.1 and 47.2 [48]. Maxwell P said it was strictly unnecessary to decide the point but recorded his view that the contention was unsound [46]. In his view clause 47.1 was a procedural condition precedent to litigation, not a complete bar, and HBL could have insisted on it [52]. HBL instead contested the challenge on its merits at trial [54]. In Maxwell P's view this election was irrevocable, and HBL had waived, by its conduct, its right to insist on compliance [56]. He considered that clause 48, which, except as provided at law or in equity, required the Principal's prior written consent to a waiver, would not have altered that view, because HBL's waiver by conduct had effect by operation of law and so fell within the clause's exception [57], [58].

Ashley JA said he definitely inclined to the view that this analysis was correct but found it unnecessary to express a final opinion [59]. Redlich JA expressed no conclusion on the notice of contention, because election and waiver had not been fully explored on the appeal [61].

Why it matters

On Maxwell P's reasoning, which Ashley JA adopted, "ascertain" in clause 44.6 of this contract took its meaning from clause 40.5, read with clause 23(a) and the presumption of consistent meaning, which Dura's senior counsel properly conceded, so a certificate of the cost to complete could involve judgment where necessary rather than a mechanical tally of costs incurred.

Maxwell P applied the principle that such a determination is not set aside merely because it is incorrect; the question is whether it complied with the contract. The Superintendent's status as the Principal's agent did not change that result.

Because the reasoning turned on these clauses, a contract that uses "ascertain" in a different setting needs its own analysis.

Only Maxwell P expressed a concluded view on whether the builder's failure to follow the dispute clause barred its challenge, so the decision does not settle whether a party entitled to insist on the dispute procedure waives it by contesting the other party's challenge to a certificate on its merits.

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.