Colormode Pty Ltd v Civic Construction Group Pty Ltd [2024] QDC 148

Michael Creedon  |  Clare Turner  |  Siobhan Beckett

Key takeouts

• This case serves as timely reminder that a party’s failure to deliver a notice of claim in accordance with the requirements of a construction contract may result in a party being denied payment for amounts that it would otherwise be entitled to recover.

• It is also a further example of Australian courts being willing to hold parties to the contractual terms to which they agreed by enforcing time periods under construction contracts, even when doing so produces a harsh result.

Facts

Civic Construction Group Pty Ltd (Civic) subcontracted Colormode Pty Ltd (Colormode) to paint a residential apartment building Civic was constructing.  The project involved multiple buildings, which are referred to by the names ‘Ferry Road’, ‘Habitat’ and ‘Soko’.  These names were used by both Civic and Colormode to identify and refer to the subcontracts associated with each building.  Each subcontract was in the form of an amended AS 4901-1998 subcontract.

The dispute arose when Colormode claimed amounts from Civic it asserted were due under each subcontract.  The total claimed by Colormode, after it abandoned parts of its claims during the trial, was $552,018, including $95,919 retained by Civic, as security, from amounts due to Colormode.

Ferry Road Subcontract

Colormode claimed $99,991 excluding retention via six separate claims, including the costs of painting soffits during the defect liability period, the costs for variations to the scope of work, and costs associated with the rectification of defects attributable to other trades.

Habitat Subcontract

Colormode claimed $98,609 excluding retention, for the costs of rectifying defects by other trades.

Soko Subcontract

Colormode claimed $257,498 excluding retention, via five separate claims, including the costs of variations to the scope of work and unauthorised contra charges.

Decision

Judge Barlow KC calculated that Colormode was entitled to the following amounts under the respective contracts:

1. Ferry Road: $46,705.  Some of the works constituted variations to the contract, however, other works the subject of the claims were either not variations or were undertaken by Colormode to rectify its own defects.
2. Habitat: $NIL.  The works the subject of the claims were undertaken before the defects liability period commenced.
3. Soko: $4,340. Some of the works constituted variations to the contract, however, other works Colormode claimed were undertaken by another subcontractor appointed by Civic.

Ultimately the court found that Colormode was not entitled to payment of any of these sums because of Colormode’s failure to comply with clause 37 of the subcontracts, which required Colormode to deliver its final claim within a specified time period following the expiry of the defects liability period. The court noted that clause 37 was designed to provide a mechanism for the payment of progress amounts, including the final progress amounts. Therefore, Colormode’s entitlements were contingent upon complying with the requirements set out in clause 37, which Colormode failed to do.  Where this clause is clear, the court is generally inclined to uphold it. Judge Barlow KC also noted that in this case, the time limit for the issue of a final payment certificate is strict. He emphasised that there are good commercial reasons for enforcing these time limits.

As to Colormode’s claim that it was entitled to payment for variations to the original scope of works, Colormode argued that Civic failed to adhere to the procedural requirements set out under clause 36 (Notification of Variations) when directing Colormode to complete the variations and as such Civic was estopped from insisting strict compliance with the contract.  This argument was unsuccessful. The court found that Civic did not act in a way that would lead Colormode to believe that it was not required to comply with clause 36. The court ultimately found that Colormode knew there was a risk that if it did not comply with the contractual procedures, Civic might not pay it for works Colormode considered to be variations. The court was of the view that the subcontract made it clear that if Colormode did not comply with clause 36 it would not be entitled a variation.

As to the retention moneys, while the court found that Civic was obliged to return the retention moneys to Colormode under each subcontract, it found that as Colormode did not give any notices to Civic within the specified time, it was no longer entitled to recovery of retention moneys under the Ferry Road Subcontract or the Soko Subcontract.  Colormode was successful in its claims to the retention money of $38,121 under the Habitat Subcontract, together with interest.

Although it was not pleaded as a counterclaim, Civic claimed that Colormode was required to pay it liquidated damages (LDs) under each subcontract for the delay between the date for practical completion and the date of practical completion.  However, the court concluded that as Civic was obliged to make the claim for LDs promptly and in accordance with the subcontracts, it was incumbent on the superintendent to determine any LDs before the date of the issue of the final certificate. This had not occurred. The court held that Civic was also bound by the time limits in the subcontracts, and as such, was not entitled to any liquidated damages.

The outcome was that Colormode was only successful in claiming the retention money of $38,121 under the Habitat subcontract. Colormode’s limited success was caused by its failure to give notice of its claims within the time specified in the subcontract, thus emphasising the importance of adhering to contractual requirements in order to ensure payment.