Case: Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd (1998) 3 VR 812
Outcome: discussed
one consideration that might be brought to bear in deciding whether a claimed or asserted entitlement to payment is intended to be sufficient, is where the claimed or asserted entitlement is made in the context of an independent party having first certified that a certain state of affairs exists. Where the parties have entrusted, by agreement, an independent person with the task of being satisfied and certifying that a certain state of affairs exists, and the contract then provides for the payment of money if that state of affairs exists, a claimed entitlement to payment may be inferred to be sufficient: Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd (1998) 3 VR 812 at 822. It would be unusual, it was said, for an entitlement, particularly for A$25 million, to arise on mere assertion of breach, unconnected with some specific independent certification process, subject to one matter, discussed below. Thirdly, another consideration is that if the contract provides, expressly, for a right to deduct certain moneys, i.e. a right of self-help, it may be inferred that those particular moneys may be payable on an asserted or claimed entitlement: Fletcher v Varnsdorf at 822. There are, in this contract, specific provisions giving ONGC the right to deduct moneys in the period prior to practical completion. They are found in cll 5.9.7.2 and 7.3.9. Notwithstanding the absence of a certification provision, and the onerous terms of cl 5.9.7.2, it may be inferred that the parties intended Clough to pay those amounts on assertion of breach, and for the performance guarantees to be called for that purpose, leaving Clough out of pocket whilst it fought out any dispute about that in an arbitration. Fourthly, in the period after practical completion, a specific provision, similar to cl 5.9.7.2, also requires Clough to pay moneys to ONGC irrespective, it seems, of any dispute as to the validity of ONGC's claim. This is cl 6.1.2. Again, the provision is onerous in that it purports to require Clough to pay costs associated with reinstatement of the works simply upon a complaint of non-conformity by ONGC. Again, that clause gives ONGC a right to deduct moneys, irrespective of the pendency of any unresolved dispute (by arbitration or otherwise), concerning ONGC's claims that the works are non-conforming. Again, the guarantees are likely to have been intended by the parties to operate on the strength of a claimed entitlement in this circumstance. Fifthly, cl 6.3.2 is another provision which gives a right to deduct. In the present circumstances, because there has been no agreed extended date for practical completion, it applies where there is an agreement or arbitral or other determination that ONGC has a right to recover liquidated damages. Sixthly, the magnitude of the guarantees, totalling A$25 million, needs to be considered in the context of a construction which requires that any asserted breach, however trivial, or ephemeral, could see the contractor deprived of A$25 million working capital. That, it is said, would be a peculiar result. Seventhly, bearing in mind the above considerations, cl 3.3.3 operates to allocate risk to Clough in specified circumstances, and otherwise provides ONGC with substantial security by way of recourse to the Banks, in the event that Clough is slow to, or is unable or unwilling, to pay ONGC, where ONGC has established that Clough has failed to honour its commitments under the contract. Accordingly, the demands in this case are equivalent to the certificate provided by the National Australia Bank (NAB) to HSBC, certifying in effect that the conditions of the letter of credit had been met: Ideas Plus Investments Ltd v National Australia Bank Ltd (2006) 32 WAR 467 at [14]. The Western Australian Court of Appeal held that the certificate "amounted to no more than an implied representation that it had reasonable grounds for issuing the certificate" at [51]. The reasonable grounds were the bona fide belief by NAB that the conditions were satisfied at [55]. The written demands are also analogous to the requisite statutory declaration in Fletcher Construction v Varnsdorf at p 830 to the effect that the amount claimed represented an amount(s) remaining unpaid to the owner. This was so even where the amount was disputed by the contractor.