Merkon Constructions Pty Ltd v Residence Company Pty Ltd [2025] VSC 151

Chris Hey  |  Michael Lo  |  Meg Reid

Key takeouts

• The entry into a contract which may give rise to a breach of an earlier contract does not mean that the later contract is illegal or unenforceable.
  
• The issue of a final certificate by a superintendent does not confirm that no moneys are owed, nor does it necessarily give rise to an estoppel from further payment claims. 

Facts

Resident Company Pty Ltd (developer) engaged Merkon Constructions Pty Ltd (builder) to construct a multi-level residential apartment building. 

In addition to the construction contract, the developer, builder and the developer’s financier were party to a side deed (Side Deed). In accordance with the Side Deed:

• the builder was required to provide to the financier evidence that all of the builder’s subcontractors and suppliers had been paid; and
• was not permitted to take, or maintain any security interest over the apartment building.

The developer and the builder entered into a deed varying the terms of the construction contract (Variation Deed). Under the terms of the Variation Deed, the date for practical completion was extended, the contract sum was increased, and the builder was granted an unregistered mortgage over the apartment building as security against the developer.

The superintendent had issued a certificate of practical completion, which the builder had countersigned confirming that the certified amounts had been paid (Final Certificate).

The builder claimed the amount of $2,448,869 under the construction contract (as amended by the Variation Deed). The developer rejected the builder’s claim by asserting that:

• the Variation Deed was illegal and unenforceable against the developer as the Variation Deed was entered into in breach of the terms of the Side Deed; and

• the builder was estopped from further payment claims because by signing the Final Certificate, the builder acknowledged that ‘…all certified money by the [superintendent] has been settled in full between both parties’

Decision

The court held that the Variation Deed was not illegal and unenforceable simply because the terms of the Variation Deed may give rise to a breach of the term of the Side Deed, namely the prohibition against the builder to take or maintain any security interest over the apartment building. The court considered that the builder’s breach of the Side Deed by entering into the Variation Deed could have been actionable by the financier if the financier suffered loss and damage. However, this was not the case here. 

The builder was not estopped from further payment claims against the developer by reason of the builder’s signature on the Final Certificate. The court identified that:

• by the Variation Deed, the parties acknowledged that there were further monies owed by the developer to the builder; and
• there was no evidence the developer had suffered any detriment in connection with the alleged representation by the builder (signing of the Final Certificate).