Advantage Construction and Joinery Services Ltd v Mitchell [2001] FJHC 164; HBA0005J.2001s (21 December 2001)

IN THE HIGH COURT OF FIJI
(AT SUVA)

CIVIL APPEAL NO. HBA 5 OF 2001S

Between:

ADVANTAGE CONSTRUCTION
AND JOINERY SERVICES LIMITED
Appellant

and

DR. ROSEMARY MITCHELL
DR. PRAVEEN KUMAR
DR. TUKAHA MUA
(trading as Gordon Street Medical Centre)
Respondents

Tikaram for the Appellant
R. Prakash for the Respondents

JUDGMENT

The Respondents who are partners in a medical practice formerly traded as the Gordon Street Medical Centre. In about 1998 after a new building was constructed in Suva named the Downtown Boulevard the Respondents decided to move their practice there. They took a lease on shops 8 and 9. In order to meet the particular requirements of the medical practice it was necessary that the shop spaces be partitioned and generally adapted to the needs of the practice.

In July 1998 Erasito Consultants Ltd, Consulting Engineers and Project Managers (Erasito) prepared the tender document and contract specification for the proposed works (Contract No. 119/98). As is frequently the case the documents have not been fully completed however as can be seen from the first page of the general conditions of contract (page 180 of the record) the contract was based on and incorporated the Australian Standard General Conditions of Contract AS 2124 – 1992. The tender documents are at pages 162 to 179 of the record. The general and special conditions of contract are at pages 180 to 240 of the record.

On 17 July 1998 the Appellants tender was accepted by Erasito on behalf of the Respondents (page 160) and work began. On 12 August 1998 Erasito sent the Respondents the first Progress Certificate (Defence Exhibit D1) in the amount of $14,493.84. This was paid on 14 August (Exhibit D2).

On 1 September Erasito submitted Progress Certificate No. 2 (Exhibit D3) valued at $27,418. On 7 September $12,418 was paid by the Respondents (Exhibit D4) with the balance to be paid “at a later date pending our discussion with the bank”. The balance of $15,000 was paid on 14 September (Exhibit D 5).

On 14 December 1998 Erasito sent the Respondents Progress Certificate No. 3 valued at $13,607.63 (Exhibit D 6). In the fourth paragraph of Erasito’s letter it was pointed out that under the general conditions of the Contract payment of the certified sum was to be made by the Respondents within 14 days of receipt of the certificate.

On 4 January 1999 Erasito again wrote to the Respondents (Exhibit D7). From this letter it emerges that following receipt of the third Progress Certificate certain discussions took place between Erasito and the Respondents. These led to the Progress Certificate being revised down to $12,314.12 and being renumbered as No. 3A (see Exhibit D8).

On 6 January 1999 the Respondents paid $4,000 towards the progress certificate No. 3A (Exhibit D 9). They advised Erasito that “the balance of $9,607.63 will be dealt with at a later date pending the doctors discussions”.

On 28 January the Appellants solicitors wrote to the Respondents demanding paying of $12,314.12.

On 1 February 1999 Erasito wrote to the Appellant’s solicitors (Exhibit D 11). In the third paragraph of the letter they wrote:

“the Principal (the Respondents) has not stated that monies owing in ... progress certificate 3A ... will not be paid. The principal has merely stated that they are disputing a number of items listed in the certificate. You were advised to make arrangements to meet with the Principal to resolve the dispute and discuss methods of payment or to advise the engineer in writing providing details of your disagreement and details of your preferred method of payment.”

In the 4th paragraph of their letter Erasito wrote:

“it is considered by the Engineer to the Contract that the contractor has not explored all avenues available to resolve the dispute. With reference to clause 47 of the General Conditions of Contract you are requested to submit in writing details of the issue relating to the dispute. You are also requested to confer with the Engineer and the Principal to either settle the dispute ... or to explore alternative dispute resolution procedures before formal arbitration or litigation proceedings are commenced.”

On the following day (2 February 1999) the Appellant replied (Exhibit D 12). He indicated that he was not prepared to enter into further negotiations. He pointed out that payment in respect of Certificate 3A was due 14 days after it has issued. He confirmed that the amount being demanded was not $12,314.12 but $8,314.12.

Two days later the Appellant issued a writ in the Suva Magistrates’ Court seeking payment of that sum.

In their defence the Respondents admit that Progress Certificate No. 3A was issued. They say however that certain items in the certificate (which they did not particularise) were disputed, that the Appellant did not attend a meeting to attempt to resolve the dispute and that accordingly the disputed amount was not paid. The Respondents also counterclaimed the sum of $5,300 being the cost of unparticularised remedial works.

In its reply and defence to the counterclaim the Appellant denied that a dispute existed. It pointed out that Certificate 3A was itself issued after representations were received from the Respondents concerning certificate 3. The counterclaim was denied.

The hearing took place at the Suva Magistrates’ Court on 30 March 2000 (pages 110 to 135 of the record) and this is an appeal from the judgment of the court awarded in favour of the Respondents.

In addition to the Appellant, Mr. Erasito and an architect Mr. Jiten Narsey gave evidence. The Appellant’s evidence was consistent with his case as pleaded. Mr. Erasito confirmed that he had issued certificate No. 3A which he believed to be correct. This certificate was not paid in full because the Respondents wished to discuss the matter further. This, he agreed, is not the normal procedure. Mr. Narsey expressed the view that payments should be made once a Progress Certificate has been issued. Any disputed items should be resolved later and before the completion certificate is issued.

The only witness for the Respondents was Dr. Mitchell. She explained that work on the conversion of the premises was much delayed with considerable resulting inconvenience. Progress Certificates 1 and 2 were paid without any problem but when Certificate 3 was issued the Respondents decided “not to take it at its face value” and had a meeting with Erasito. As a result of this meeting Certificate 3A was issued. Apparently, however, the Respondents was still unhappy with the newly certified amount and wanted further discussions. That was why only $4,000 was paid. As to the Counterclaim this was the amount quoted by Mani Chand another builder, to complete the works after the Appellant left the site.

In cross examination Dr. Mitchell accepted that the Respondents had effectively overruled their own consultant, Erasito. They felt that they could not rely on him.

In a very short Judgment delivered soon after the May 2000 upheaval the Resident Magistrate found Dr. Mitchell to be a witness of truth “on the central issue of credibility”. What that issue was is not specified. The Magistrate also accepted the Respondents submissions, set out with admirable clarity in an excellent written submission, that a progress certificate is not conclusive but is merely provisional and subject to adjustment (see pages 45 et seq. of the record). Finally, the Resident Magistrate acceptable Mr. Mani Chand’s quotation for completing the contract works and she awarded the full amount of the counterclaim to the Respondents.

Although building contracts have their own peculiarities the rights of parties under these contracts are broadly the same as under any other contract: they are the rights and duties as set out in the contract document. The question before the Resident Magistrate was not whether the Appellant had properly carried out the conversion works, nor whether Erasito had properly issued progress certificate No. 3A. The case as pleaded and presented only raised one issue, namely whether the Respondents were entitled under the contract to refuse full payment on progress certificate 3A on the ground that they disputed its correctness.

Unfortunately, the central document, the contract itself was not placed before the Resident Magistrate. As already noted this central document was AS 2124 – 1992. It is a pity that neither the Resident Magistrate nor Counsel considered to this document, a copy of which was finally placed before me following the hearing of the appeal, since it directly answers the question raised by the Appellant’s action.

Under Clause 42.1 the principal (here, the Respondents) must pay the contractor (the Appellant) the full amount of a progress certificate within 14 days of its receipt. This payment must be made whether or not the amount certified is disputed by the principal and payment is without prejudice to the right of the principal to dispute the amount properly due and payable under the dispute provision set out in clause 47 of the contract. Clause 42.1, line 45 clearly states:

“Payment of moneys shall not be evidence of the value of the work or an admission of liability or evidence that work has been executed satisfactorily but shall be a payment on account only .....”.

The dispute procedure set out in clause 47 is detailed, clear and straightforward. Line 18 reads:

“Notwithstanding the existence of a dispute the Principal and the Contractor shall continue to perform the contract and subject to clause 44 the contractor shall continue with the work under the contract and the principal and the contractor shall continue to comply with clause 42.1.”

Clause 44 deals with default. Clause 44.7 line 6 describes as a “substantial breach” of contract by the Principal “failing to make a payment in breach clause 42.1.”

Under this contract the Appellant was entitled to be paid the full amount certified by Erasito within 14 days. He was not paid. Neither party followed the dispute procedure but the Respondents did not argue that the Appellant was in any way prevented from exercising his right to terminate the contract under the provisions of clause 44.9 and to sue for the sum owed to him.

I do not think that the Respondents were well or fully advised of their rights and liabilities under this contract. Had they better understood the situation they would not have refused payment in full of Certificate 3A. Be that as it may, I am satisfied that the Respondents substantially breached the contract by failing to pay and, having failed to remedy the breach, the Appellant was entitled to terminate the Contract. In the absence of any specific or detailed evidence of default by the Appellant he was entitled to succeed in his claim. Given that the Appellant was entitled to terminate the Contract no question of a counterclaim can arise.

The appeal is allowed. There will be judgment for the Appellant for the full amount claimed. The counterclaim is dismissed. I will hear counsel as to costs.

M.D. Scott
Judge

21 December 2001