Keegan v Ballast Point Pty Ltd [2022] NSWCA 179

Andrew Hales  |  Sophie Wallwork  |  James Pelosi

Key takeout

For certification by a third party to be construed as a condition precedent to a principal’s obligation to pay a contractor, the building contract must contain clear and express language to that effect.

Facts

Mr Keegan (owner) and Ballast Point Pty Ltd (builder) were parties to a Master Builders Association of NSW standard form cost plus residential building contract (March 2015) for alterations and additions to a residential property. Special condition 3 provided that the appointed architect administer the contract on behalf of the owner was to assess and certify the builder’s payment claims.

The builder commenced proceedings against the owner in the District Court alleging that further moneys were owed to it for work performed under the contract as well as a builder’s fee. 

The owner contended that special condition 3 gave the architect the exclusive role of assessing and certifying the amount payable to the builder under a payment claim. As a result, the owner was only obliged to pay the builder amounts assessed and certified by the architect, which he had done.

The primary judge rejected this argument stating that the contract obliged the owner to pay payment claims independently of whether they had been assessed and certified by the architect.

On appeal, the sole issue for the court was whether, pursuant to the operation of special condition 3 the owner was only obliged to pay amounts that had been assessed and certified by the architect as due and payable. 

Decision

The Court of Appeal dismissed the appeal and held that the particular language of special condition 3 did not expressly or impliedly make the assessment and certification of payment claims by the architect a condition precedent to the builder’s entitlement to payment.  The owner’s interpretation of special condition 3 was inconsistent with the clear terms of the owner’s obligation to pay the builder for work performed under the contract and further special conditions that allowed the owner to terminate the architect’s services in relation to the administration of the contract at any time without requiring the architect be replaced.

The court held that a more sensible construction of the special conditions was that the architect was able to act an agent for the owner and assess and certify payment claims in that capacity. This was rather than establishing a payment regime that modified the owner’s payment obligations to the extent that the owner was only liable to pay claims which had been assessed and certified by the architect (and not otherwise).

The court further clarified that in order for certification by a third party to be construed as a condition precedent to a principal’s obligation to pay a contractor under any given contract (and effectively limit the obligation to pay only certified amounts), the contract must contain clear and express language to that effect. This follows previous authorities where certification by a third party has been so construed.