Built Qld Pt Ltd v Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd (No 2) [2021] QSC 301

Michael Creedon  |  Megan Sharkey  |  Oliver Waddingham

Key takeouts

A claim for payment, which is framed in restitution and not made under a contractual right under a building contract, will not attract the penalty rate of interest under section 67P of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).

Where cash security is used to secure a contractor’s obligations under a building contract, a principal should ensure the timely return of any remaining security. Otherwise the principal may be required to pay interest on any amount the principal is not entitled to.

Facts

Original proceedings

Built Qld Pty Ltd (Built) and Pro-Invest Australian Hospitality Opportunity (ST) Pty Ltd (Pro-Invest) entered into a contract for Built to design and construct a hotel in Spring Hill (Contract). During the development, Pro-Invest issued notices to Built requiring it to install an air-conditioning system which allowed mode control in each room.

The works under the Contract achieved practical completion on 3 March 2017. Built commenced proceedings against Pro-Invest in relation to the air-conditioning works, claiming it was a variation under the Contract (Original Proceeding). Pro-Invest counterclaimed for alleged defects, additional liquidated damages and alleged lost wages. The Court in the Original Proceeding found in favour of Pro-Invest, concluding:

• the additional works were a notice to rectify defective work, not a variation; and
• Pro-Invest was entitled to the costs of rectification work on other defective works.

Built’s claim to interest

Built’s obligations under the contract were originally secured by an unconditional performance bond to the amount of $834,150.68 (Bond). On 11 April 2019, Built unsuccessfully sought an interlocutory injunction to prevent Pro-Invest calling on the Bond. Following the dismissal of Built’s interlocutory application, the parties agreed that Built would pay Pro-Invest a cash security (equal to the Bond) so that Pro-Invest did not call on the Bond. The cash security was paid on 9 May 2019.

As a result of the court’s finding on defects in the Original Proceeding, Pro-Invest was entitled to $742,393.39 of the cash security, leaving a balance of $91,757.29 (Remaining Security Amount). Built claimed interest on the Remaining Security Amount, on that basis that it was an amount payable under the Contract and as such a ‘progress payment’ for the purpose of section 67P(1)(a) of the QBCC Act. Section 67P of the QBCC Act compels the payment of a penalty rate of interest on any late progress payments.

Alternatively, Built claimed it was entitled to interest on the Remaining Security Amount:

• at a contractual rate of interest of 10%; or
• under section 58 of the Civil Proceedings Act 2011 (Qld) (CP Act), on the basis that Pro-Invest had the benefit of the amount of $834,150.68 since 9 May 2019, despite only being entitled to $742,393.39, and therefore wrongfully retained the sum of $91,757.29.

Pro-Invest argued that it was not appropriate to award any interest on the Remaining Security Amount, on the basis that:

• the Remaining Security Amount was not claimed as a ‘progress payment’ nor was it a ‘progress payment’ under the legislation;
• Built’s claim was not a claim pursuant to a contractual right under the contract, but was a claim for restitution; and
• the Remaining Security Amount was not an ‘overdue payment’.

Pro-Invest argued that Built was not entitled to the penalty rate of interest under section 67P(1) of the QBCC Act and that the contractual rate of interest was not applicable.  Further Pro-Invest contended that the Court’s discretion to award interest under section 58 of the CP Act should not be exercised.

Decision

Justice Williams considered that Built’s claim was framed in such a way that it was not clear that an entitlement to interest under section 67 of the QBCC Act or under the Contract would arise. The claim was framed in restitution and it was not a contractual claim in a strict sense.   However, Her Honour did consider that as Pro-Invest had the benefit of the Remaining Security Amount since 9 May 2019 it was appropriate to award interest and exercised the court’s discretion to award interest under section 58 of the CP Act at the rate of 10%.