Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2025] QCA 50

Michael Creedon | Luke Trimarchi | Charlotte Kath

Key takeouts

• Where an ambiguity arises as to the construction of a contract, deleting words from a standard form contract may be evidence that the parties did not wish to be bound by those terms.
  
• The meaning of commercial contract terms is to be determined by what a reasonable business person would have understood those terms to mean. Typically, the parties’ subjective intentions are irrelevant in this consideration.
  
• One circumstance in which it may be permissible to have regard to evidence of the parties’ subjective intentions is where there is evidence that the parties have specifically refused to include a particular provision in their contract.

Facts

In December 2021 Pacific Diamond 88 Pty Ltd (principal) and Tomkins Commercial & Industrial Builders Pty Ltd (contractor) entered into a contract by which the contractor agreed to design and construct a residential apartment building (contract).

Construction of the contract

When negotiating the contract, the principal sent a draft contract to the contractor, which included a proposed set general conditions based on an amended form of AS4300-1995.

The following then occurred:

• the contractor sent an email to the superintendent with a ‘contract departures schedule’ which stated it did ‘not agree with the [p]rincipal being able to recover liquidated damages on demand or deduct from certified payments and [s]ecurity’, and the contractor suggested the deletion of two of paragraphs to that effect;
• the superintendent emailed the principal and contractor an amended version of an AS4902-2000 general conditions of contract;
• the contractor responded, attaching a ‘refined schedule of some contract departures’; and
• the principal’s solicitors sent the contractor and the principal the final version of the contract, which was signed by the parties, based on a further amended version of the proposed AS4902-2000 general conditions of contract.

Relevantly, the final version, for the first time, proposed an amendment to clause 37.2 by deleting paragraph (b) which was otherwise included in the unamended and previous versions of the AS4902-2000 general conditions. The ordinary operation of clause 37.2(b) required the superintendent within 10 business days after receiving a progress claim to issue alongside a progress certificate, a certificate evidencing the superintendent’s assessment of retention moneys and moneys due from the contractor to the principal. While sub-paragraph (b) was deleted, the executed contract still made several references to the certificate the subject of that provision.

The payment dispute

In September 2024 the superintendent issued certificates which purported to enable the principal to set off $2,600,000 in liquidated damages against the $694,343 which would have otherwise been owing to the contractor, resulting in a $1,905,657 negative balance owing by the contractor to the principal. The principal proposed to have recourse to one of the bank guarantees provided by the contractor to recover the net balance owing to the principal.

A dispute arose as to whether the certificates had the effect they purported to have, and accordingly, whether the principal was entitled to have recourse to the security. The contractor successfully applied to the Queensland Supreme Court for declarations that:

• the principal was not entitled to set off in the manner it had purported to;
• the principal did not have the right to draw down on the security in respect of the amounts owing by the contractor; and
• the sum of $694,343 (plus interest) was payable by the principal to the contractor.

We considered this decision in A right to levy liquidated damages does not equal a right to set off liquidated damages – Construction Law Made Easy

The principal appealed the decision.

Decision

The Court of Appeal dismissed the appeal with costs.

By deleting subparagraph (b) in clause 37.2, the parties deleted the mechanism by which the superintendent could certify that were monies due from the contractor to the principal could be brought to account against an interim payment. However, the deletion did not prevent such matters from being brought to account in the final contractual payment mechanism.

The principal’s submission that neither the contractual nor equitable right to set off were excluded by the terms of the contract and that the trial judge erred in having regard to inadmissible evidence when construing the contract, was not substantiated.

Contractual interpretation

In considering the relevant principles of contractual interpretation the court noted that the starting position is that the meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean. 

This requires consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose of the contract.  The subjective intentions of the parties are irrelevant.  However, the court concluded that there was one circumstance in which it may be permissible to have regard to evidence of the subjective intention of the parties and that is where the parties have refused to include in their contract a provision which would give effect to something.  Evidence of such a refusal is admissible with a view to rebutting an alleged presumed intention of the parties.  Bond JA concluded that the emails, sent by the contractor noting its disagreement with the principal’s right to set off liquidated damages and the principal’s solicitor responding positively to that request, fell within that category of evidence and clarified the parties’ mutual intention to exclude the deleted provisions from their contract.

Proper construction of the contract

Bond JA concluded that a reasonable businessperson would have thought that the parties’ refusal to include the deleted provisions in their contract negatived the presumed intention alleged by the principal, that the principal could set off the amount of liquidated damages which the superintendent had certified against the amount of certified as payable to the contractor.