Gowdie Management Group Pty Ltd v Iris-PW No. 1 2017 Pty Ltd [2025] QSC 297

Andrew Orford | Ren Shike | Sarah Nichols

Key takeouts

A superintendent’s ability to retrospectively reassess previous payment claims depends on the terms of the contract.

A superintendent will not be permitted to reopen work and costs unless the terms of the contract specifically allow the superintendent to do so.

An invalid reassessment of costs may be severed from a payment certificate.

Facts

In May 2024, Iris-PW No. 1 2017 Pty Ltd (Iris) and Gowdie Management Group Pty Ltd (GMG) entered into a construction contract (contract) relating to a mixed-use development in Western Australia. The contract governed both pre-contractual and post-contractual work carried out by GMG.

Cameron Chisholm & Nicol (W.A.) Pty Ltd was listed as the superintendent under the contract (Superintendent). The Superintendent was responsible for certifying any payment claims made for works performed.

A dispute arose between the parties regarding the Superintendent’s reassessment of GMG’s costs. Specifically, when certifying payment claims submitted by GMG, the Superintendent revisited and reduced supervision costs previously paid for payment claims 3 to 31 (Payment Claims 3 to 31). The Superintendent also revisited and reduced costs associated with GMG’s pre-contractual work. Such costs related to payment claims 3 to 12 (Payment Claims 3 to 12).

GMG commenced proceedings in the Supreme Court of Queensland challenging the Superintendent’s contractual ability to reduce costs already claimed and paid. The dispute concerned the following questions:

If so, could the prohibited part of the payment certificate be severed?

Was the Superintendent contractually prohibited from revisiting supervision costs in respect of Payment Claims 3 to 31?

Irrespective of the answer to 1, was the Superintendent contractually prohibited from revisiting supervision costs in respect of Payment Claims 3 to 12 for work pre-dating the contract?

Decision

The Court held that while the provisions of the contract allowed the Superintendent to revisit costs in respect of Payment Claims 13 to 31, the Superintendent acted outside the terms of the contract by reducing the amounts under Payment Claims 3 to 12, which were expressly due and payable in full under the contract. As a result, the prohibited reductions could be severed from the payment certificate.

Iris was also ordered to pay GMG an amount equivalent to the prohibited reductions, being $251,867 including GST. Sullivan J turned his mind to the payment of interest but noted that neither party had made substantive submissions on the topic and invited the parties to make further submissions as to how interest should be calculated.

Was the Superintendent contractually prohibited from revisiting supervision costs in respect of Payment Claims 3 to 31?

Sullivan J answered this question in the negative. His Honour held that the Superintendent was entitled to revisit such costs. This was because on the proper interpretation of special condition 3.5, the Superintendent was entitled to form an opinion as to whether there was an impermissible profit component and retrospectively reduce certified amounts within the ambit of their certification function.

Notably, special condition 3.8A allowed the Superintendent to request information about the cost base of hourly rates. His Honour found that this condition recognised the Superintendent’s ability to exclude profit components, both retrospectively and prospectively, from interim payment certificates. Any alternative interpretation was considered ‘unappealing’.

Was the Superintendent contractually prohibited from revisiting supervision costs in respect of Payment Claims 3 to 12?

Sullivan J answered this question in the affirmative. His Honour found that the Superintendent acted outside the terms of the contract by reducing the costs in Payment Claims 3 to 12.

Sullivan J noted that a contract may require a certifier to value on a mechanical basis. In this case, his Honour found that the Superintendent was obliged to mechanically certify the full amount of the costs in Payment Claims 3 to 12 (without deduction), based on the wording of special condition 3.11. Under special condition 3.11, the Principal expressly agreed that the prior payment claims were due and payable, waiving ‘any right to amend, audit, dispute or offset any amounts‘. His Honour found that this condition represented a binding agreement (on both an interim and final basis). As such, a suggestion that the Superintendent could reduce any amounts from Payment Claims 3 to 12 would ‘entirely undermine’ the operation of the condition. By failing to mechanically certify that full amount, the Superintendent acted contrary to the contract.

Could the prohibited part of the payment certificate be severed?

Sullivan J answered this question in the affirmative. It was appropriate to sever the prohibited reductions made in respect of Payment Claims 3 to 12.

Initially, Sullivan J considered whether the doctrine of severance could apply to the payment certificates. His Honour accepted that the doctrine is a common law principle relating to the construction of certain articles intended to be legally operative. In this case, the certificates were documentary articles that emanated from the operation of the Contract. As such, his Honour saw no reason why the doctrine of severance should not apply.

Sullivan J also considered the terms of the contract. Relevantly, the contract’s final certification process and dispute resolution mechanism did not demonstrate an intention for severance to be excluded. Although such terms provided a mechanism by which to redress errors in a certificate, they were not inconsistent with the application of severance.

Further, the Court held that the Superintendent’s opinion should not be viewed as an ‘indivisible whole’. When giving this opinion in the certificate, the Superintendent is contractually required to show calculations and provide reasons. These reasons will allow parties to identify which part of the opinion is impermissible.

Importantly, in reaching this decision, Sullivan J noted that there will be cases where severance of a certificate is impossible. This may occur where the portion of the opinion underlying the invalid part of the certificate ‘infects the residual opinion forming process’.