A recent decision in the Supreme Court of Western Australia has continued the trend of the Courts in applying the generally accepted meaning of ‘due and payable’ contained in construction contracts.

Background

In the case of Weston v Perkins (WA) Pty Ltd [2021] WASC 84, Mr Maxwell Weston was appointed as Superintendent under a building contract (Contract) between Austpro Management Services Group Pty Ltd (Austpro) (as principal) and Perkins (WA) Pty Ltd (Perkins) (as contractor). In that capacity, Mr Weston took custody of a bond issued by Perkins as post-completion security under the Contract.

In June 2020, Perkins issued a notice of termination of the Contract and requested Austpro to return the bond. Perkins also applied for an adjudication under the Construction Contracts Act 2004 (WA). On 18 August 2020, the adjudicator determined that Austpro was liable to return the bond to Perkins. Austpro and Manda Capital Holdings Pty Ltd (Manda), which provided finance to Austpro for the project, requested Mr Weston to not return the bond.

On 12 October 2020, after Perkins filed a certified copy of the adjudication determination in the Supreme Court of Western Australia, the Court issued an order under the Civil Judgments Enforcement Act 2004 (WA) for the seizure and delivery of the bond. On 28 October 2020, Mr Weston applied for relief by way of interpleader.  Austpro also filed an urgent application to set aside the Court’s order. This proceeding determined whether the bond was required to be returned and to whom.

The Court’s decision

Justice Allanson held that the bond was to be returned to Manda, the financier.

Firstly, Justice Allanson stated that the adjudication did not determine the rights between Perkins and Manda because Manda was not a party to the adjudication.

Justice Allanson then referred to clause 42.11 of the Contract. It contained two circumstances in which a party may have recourse to security. The first circumstance was where a party failed to pay an amount ‘due and payable’ under the Contract within the time provided by the Contract. The second circumstance was where a party failed to pay any money ‘due’ otherwise than under the Contract.

Justice Allanson referred to CPB Contractors Pty Ltd v JKC Australia LNG Pty Ltd [No 2] [2017] WASCA 123 at [122]. It discussed the generally accepted meaning of ‘due and payable’ and ‘due’ in construction contracts.  ‘Due’ means any sum that a person is legally liable to pay, irrespective of whether the time for payment has arrived. ‘Payable’ means a debt that is due, that is, legally liable to be paid, but also where the time for payment has arrived and an action could be maintained in respect of it. In the expression ‘due and payable’, the word ‘payable’ often means a requirement to be immediately or presently paid such that the word ‘due’ does not add anything to a statement that an amount is ‘payable’.

Perkins submitted that the Contract imposed certain conditions which were required to have been met before an amount was ‘due and payable’. Perkins submitted that those conditions were not satisfied and Austpro had no right to call upon the bond. Justice Allanson held that both clauses preserved the parties’ rights other than those specifically conferred by the Contract. This meant that when Weston, as Superintendent, advised Perkins of matters requiring rectification at practical completion, Austpro had a legitimate claim that Perkins was liable to rectify defects or omissions in the works. This liability was independent of the Contract. At the time of practical completion, Austpro had a claim for an amount due and the right to have recourse to the bond. The Court held that it was not necessary that the amount due had been determined and was then payable.

What does this mean?

Parties, particularly those which have provided security, should not proceed on the basis that recourse is limited to situations where money has become payable as a debt due under a contract, and the time for payment of it has expired. Specific drafting is required to properly capture the parties’ intention as to what events crystallise a principal’s right to have recourse to security.

For further information on this decision, please contact:

Andrew Kelly | Partner | +61 7 3338 7550 | [email protected]

Tom McKillop | Senior Associate | +61 7 3338 7530 | [email protected]