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Venture Management Essay Example Pdf

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Walton Construction (Qld) Pty Ltd v Venture Management Resources International Pty Ltd

Walton Construction Pty Ltd (Walton) entered into a building contract with Venture Management Resources International Pty Ltd (VMR) for completion of works. Walton provided VMR with an unconditional bank guarantee as security to cover its financial commitment under the contract. Walton submitted a progress payment claim toVMR and in response, the Superintendent from VMR issued a progress certificate certifying that payment was to be madeto Walton as per the existing contract. The contract required the Superintendent to allow in a payment certificate "amounts otherwise due from the Contractor to the Principal arising out of or in connection with the Contract." The Superintendent disputed the amount of the payment claim from Walton and calculated a variation to the payment of claim. The adjusted claim amount reflected the cost of resolving allegedly defective work as well as an amount of liquidated damages for late completion. In respect of calculating deductions for defective works, clause 35.3 of the Contract permitted the Superintendent to issue directions to the Contractor to correct material or work. If the Contractor failed to comply with the direction within the required notice period, then the Superintendent was entitled to request an amount due from the Contractor to the Principal for correcting the defective works based on the lowest of three quotes received from independent contractors. The Contract further provided that if the Contractor failed to make payment pursuant to the payment certificate within a stipulated time, then the Principal may have access to the security. The Contract further provided that if the Contractor failed to make payment pursuant to the payment certificate within a stipulated time, then the Principal may have access to the agreed bank guarantee security provided in the contract. Walton applied for an injunction restraining the principal from accessing the security because the superintendent failed to comply with the certification process under the contract and the superintendent was unlicensed and therefore the certification was invalid and had nil effect.[1] The court’s reasoning for granting the injunction for Walton stemmed from the superintendent failing to comply with the strict certification requirements under the payment provisions stipulated. Walton argued that the superintendent didn’t comply with a clause within the contract and therefore the payment certificate was invalid. Walton, as the contractor invoked the process of dispute against the superintendent’s certification. This was expressed through seeking an expert review of the certification, which had not yet reached completion at the time of litigation. Walton argued that the obvious commercial purpose or common sense of business was to prevent recourse to security where the contractor was in the process of disputing the Principal’s rights. The court found that the superintendent was not licensed under section 42 of the Queensland Building Services Authority Act 1992, this also contributed the court’s decision to grant an injunction and evidenced the deficiency of the certificate. The fact that Walton would suffer irreparable harm regarding the reputation of the building industry expresses the court’s reasoning for granting the injunction. It should be noted that the injunction is not a permanent resolution and awaits a full hearing in order to determine the necessity of this.[2] This is consistent with Vos Construction and Joinery Qld Pty Ltd v Sanctuary Properties Pty Ltd 2007 whereby both cases claimed loss of industry reputation and irreparable harm regarding this reputation. The cases are somewhat different as Vos Construction’s application was dismissed where Walton’s application was held. It is agreed that the findings of the court in this case are compliant with the legislative provisions relevant to the inquisition. Therefore it is also agreed that the injunction was appropriately granted in regard to Walton. The finding of this case raise implications for future precedent regarding the administration of construction contracts as well as the necessity to follow contractual processes in order for an entitlement to payment before a call upon a guarantee is made or foreshadowed. [3]

Vos Construction & Joinery Qld Pty Ltd v Sanctuary Properties Pty Ltd & Anor [2007] QSC 332

In August 2005, the respondents, joint venturer’s Sanctuary Properties Pty Ltd and MIRVAC Developments Pty Ltd (Sanctuary), entered into a contract with Vos Construction & Joinery Qld Pty Ltd (Vos) for the completion of building work. The negotiated Contract price was $7,010,606 and as per the terms of the contract Vos provided security in the form of a bank guarantee as assurance of financial viability and its intention to complete. During the course of the project the architect extended the date for practical completion from 29th November 2005 to 17th January 2006. Despite the extension, on 13 February 2006, Sanctuary notified Vos of its intention to claim liquidated damages for failure to complete the project by the adjusted date for practical completion. The practical completion date was eventually achieved by Vos on 21st March 2006 and the architect issued the final certificate for the project on 8 June 2006. As a result on 12 June 2006, Vos disputed the final certificate by notifying the architect in accordance with Clause C8 of the contract. Clause C8 required the architect to assess the dispute and give a written decision to Sanctuary within 10 working days. Vos also notified Sanctuary of same. On 25 June 2006, the architect, rejected Vos’s submissions and concluded that the final certificate was valid and lawful. Sanctuary gave notice of its intention to draw on Vos’ bank guarantee in the sum of $173,800 (the sum certified by the architect) on the same day.[4] The court’s reasoning for dismissing the application was simply due to the fact that disputing the respondent’s rights under clause A8 was not enough to prevent the respondent from drawing on security. This is because the clause would lack purpose if the process could be stopped by any unsuccessful disputation of the certificate. In considering Vos’ application, the court addressed the financier’s obligation and the principle of autonomy. The Court acknowledged that the financier’s obligation in commercial instruments such as bank guarantees, is independent of the underlying contract. This means that a security provided under a construction contract mayprima faciebe called up unless there is a breach of a negative stipulation in the underlying contract which conditions the right to call it up. Rights to payment were also addressed, it was determined that they stand unless the payment certificate is negated. The court held that an unsuccessful dispute could not stall the debt recovery process because that would flout “business commonsense”. The right to payment is independent of obligation to follow dispute resolution procedures. Sanctuary’s right to draw down the security for a debt owed was independent of its obligation to resolve its dispute with Vos in accordance with the dispute resolution clauses under the Contract. The Court held that Sanctuary had the right to draw on the security even if the dispute between the parties had not proceeded to final resolution. Section 67J (2) of the Queensland Building Services Authority Act 1991, notice of a claim must be given within 28 days of a party becoming “aware, or ought reasonably to have become aware, of the contracting party’s right to obtain the amount owed”. The court determined that late application doesn’t prevent access to security because rights to such access did not accrue until the architect’s final certificate issued rejection of the dispute. This is because the respondents could not have been aware of right to obtain the amount under the contract until then. The court addressed Vos’ reputation and found that the present application turned on questions of construction and not disputed factual matters. It did not consider the argument of industry reputation as constituting a serious question to be tried. The court, for the above reasons, and in its discretion, found the balance of convenience to be in favour of not granting an interlocutory injunction.

Kell & Rigby Holdings Pty Ltd v Lindsay Bennelong Developments Pty Ltd

Lindsay Bennelong Developments Pty Ltd negotiated and entered into a contract with Kell and Rigby Holdings Pty Ltd for the construction of a mixed residential and commercial development. The principal was also appointed to act as superintendent under the contract. It was agreed that the works would be completed in three stages. When the dispute arose only stage 1 had been completed with stages 2 and 3 still under construction. Two years into the project, the parties entered into an advance payment agreement, in which the principal agreed to advance the contractor a portion of the balance of the original contract sum to the value of $2 million. The deed of agreement provided for two advance payment bonds in the form of an unconditional bank guarantee of $1 million each. The contract also provided that, if the advance payments had not been repaid on or before the date of practical completion for stage 3, they would immediately become a debt due and payable by the contractor to the principal. In May 2010, stages 2 and 3 of the project sill had significant incomplete works that needed to be finished to a standard at which the sales to purchasers could be transacted. In June 2010, the principal, acting in its capacity as superintendent, issued both:
  • a notice of variation to works, which deleted the remaining stage 2 works and the remainder of the incomplete stage 3 works from the scope (the variation instruction); and
  • A certificate of practical completion in respect of the stage 3 works.
The principal also served a demand on the bank for the full payment of the guarantees. This was supported by the issue of the certificate of practical completion, and the requirements of the contract which noted that the balance of the advance payments outstanding on the date of the issue of the certificate of practical completion immediately became a debt due and payable. In response the contractor disputed the right of the principal to call on the guarantees on the basis that the principal was not permitted to do so as the variation instruction and resulting issue of the certificate of practical completion were not valid and therefore unenforceable. The court established that the superintendent did not act reasonably in issuing the variation Instruction or the certificate of practical completion on the following grounds: The superintendent did not display adequate consideration to the contractor's interests The superintendent did not act with objectivity or with the degree of impartiality that is required In regards to the stage 2 works, by bringing about practical completion, in lieu of terminating the works, the superintendent maintained the defects liability obligations which in turn disadvantaged the contractor The exclusion of the works through a variation instruction was motivated by improper considerations. Therefore it was found that the variation instruction was a way by which the principal could take control of the project rather than a means to bring about suitable variations to the works The superintendent did not confer or negotiate with the contractor regarding the variation prior to it being issued. The superintendent noted that the current progress of the works was a risk to the principal and as such issued the variation instruction, not in its capacity as superintendent, but in its role as principal which could be regarded as a conflict of interest. There was no proof that the superintendent took account of the probable disadvantage of the contractor in the issuing of the certificate of practical completion. As a result, the court found that the superintendent did not act reasonably and the certificate of practical completion was deemed to be impaired as a result. Having now concluded that the superintendent did not act fairly, it was no longer deemed necessary for the court to consider if it acted unconscionably in issuing the notice of practical completion. In summary it can be established that superintendent did not act fairly and reasonably. Therefore it is suggested that appointing an external and impartial superintendent to scrutinise and monitor the allocation of risk throughout the course of the contract is advisable as it should provide a superior degree of both real and perceived independence.

References

Alden, S. and Eather, A. (2010). Superintendents Wearing Two Hats Risk Abuse Of Power. [online] Available at: http://www.mondaq.com/australia/x/109850/Property+Litigation/Superintendents+Wearing+Two+Hats+Risk+Abuse+Of+Power [Accessed 7 Oct. 2014]. Herbertgeer, (n.d.). Jumping through hoops: How not to call on a bank guarantee. [online] Available at: http://herbertgeer.e-newsletter.com.au/link/id/zzzz4dcb1c9dceab5234/page.html?extra=zzzz4dca0b87bf72d290 [Accessed 7 Oct. 2014]. Kell & Rigby Holdings Pty Ltd v Lindsay Bennelong Developments Pty Ltd [2014] (NSWSC). King & Wood Mallesons, (2010). Unconditional bank guarantees: not always a done deal. [online] Available at: http://www.mallesons.com/publications/marketAlerts/2010/ConstructionInsights/Pages/Unconditional-bank-guarantees-not-always-a-done-deal.aspx [Accessed 7 Oct. 2014]. Vos Construction & Joinery Qld Pty Ltd v Sanctuary Properties Pty Ltd [2007] (QSC). Walton Construction (Qld) Pty Ltd v Venture Management Resources International Pty Ltd [2010] (QSC). Wilson, J. (2010). Cashing Bank Guarantees: Not Always An Easy Process. [online] Available at: http://www.mondaq.com/australia/x/106120/Building+Construction/Cashing+Bank+Guarantees+Not+Always+An+Easy+Process [Accessed 7 Oct. 2014]. Yap, B. (2014). Vos Construction & Joinery Qld Pty Ltd v Sanctuary Properties. [online] Mallesons.com. Available at: http://www.mallesons.com/publications/marketAlerts/2008/Documents/9357337w.htm [Accessed 7 Oct. 2014].
[1] http://herbertgeer.e-newsletter.com.au/link/id/zzzz4dcb0f4dde222275/page.html [2] [3] [4] http://www.mallesons.com/publications/marketAlerts/2008/Documents/9357337w.htm
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