Is a late final certificate valid under the contract? Or is there another mechanism for certifying the final value of a contract when the Superintendent fails to issue a certificate in time? This is exactly what the Supreme Court of Victoria had to decide in the 2001 case of Southern Region Pty Ltd v State of Victoria[1]. You can read on or I can save you the hassle: the Superintendent can issue a late final certificate and it will be effective.

Background

Southern Region Pty Ltd (The Contractor) was engaged by Minister for Police and Emergency Services (The Principal) to construct the Police and Courts Complex at Ballarat, Victoria. The contract was a modified AS2124-1992. The adjusted date for practical completion was the 18th August 1999, the date of practical completion was certified as 15th May 2000 which meant the defects liability period was to expire on 14th May 2001. The contractor issued a final payment claim for the sum of $7,698,951 on the 17th of May 2001 and on the 20th July 2001 the Superintendent issued a Final Certificate stating that the contractor was to pay the Principal $1,880,570. The Contractor contended that the Final Certificate was late and therefore ineffectual resulting in the Principal becoming liable to pay the full amount claimed. The Contractor made an application for summary judgement in the Supreme Court of Victoria.

The Decision

The court determined that the process of issuing final certificates was subject to the conditions stated in Clause 42.1 of the contract. The court said that Clause 42.1 was directed to all payment claims, not just progress payments, and that the final payment claim was simply the last of them. Notably paragraph four of this clause stated that if no payment certificate has been issued then the Principal shall pay the amount of the Contractors claim. As the Superintendent did not issue a payment certificate (in the form of the Final Certificate) within the time allotted in Clause 42.1 the Court found that, on the 14th of June 2001, the Principal became obliged to pay the Contractor the full sum claimed.

The court then considered what was the effect of the late Final Certificate. The court thought that there were two possibilities to resolve the difficulties encountered. The first is to accept that the contract does not deal with this event: the functions of the Final Certificate must forever remain unexercised and the final adjustment of the amount due under the contract must pass to the dispute resolution process; the second is to fill the gap by permitting the Superintendent to issue an effective late Final Certificate. The consequences of the former are so unsatisfactory that the parties could not have intended that to be the result. So the Court implied a term that the parties would permit the Superintendent to issue a late Final Certificate.

The outcome was that on the 3rd August 2001 the liability of the Principal to pay the $7,698,951 which had arisen on the 14th of June 2001 was replaced by a liability of the Contractor to pay the sum of $1,880,570 to the Principal.

Conclusion

The decision the Court made considered the interim nature of progress payments as opposed to the contract closure brought by the Final Certificate. As progress payments are on account any error or oversight one month can easily be corrected in the next month hence limiting the severity of the consequences. However as the Final certificate is a statement of the final position, notwithstanding disputes, then the potential consequences of it being ineffective are untenable. This decision was a pragmatic way to deal with a complex situation. The upshot is that Superintendents may consider taking more time to decide on significant issues prior to issuing a Final Certificate.

[1] Southern Region Pty Ltd v State of Victoria (No 3) [2001] VSC 436

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