Executive summary

The recent Queensland Court of Appeal decision in Pacific Diamond 88 Pty Ltd (Principal) v Tomkins Commercial & Industrial Builders Pty Ltd (Contractor) [2025] QCA 50 has confirmed the decision of the primary judge, which had regard to deletions to the standard form of AS4902:2000 and antecedent negotiations between the parties to resolve contractual ambiguity.

What happened?

In the March 2025 edition of the Critical Path, HWLE discussed the first instance decision of Treston J in Tomkins Commercial & Industrial Builders Pty Ltd v Pacific Diamond 88 Pty Ltd as trustee for the Pacific Diamond 88 Unit Trust [2024] QSC 32, which considered whether the Principal was entitled to set off $2.6 million certified as liquidated damages from $694,343.00 certified for payment to the Contractor, in circumstances where the contract was ambiguous in respect of its entitlement to set off.

The contract was based on an amended AS4902:2000 general conditions for design and construct. One of the amendments, was the deletion of clause 37.2(b), which pertained to the requirement for the Superintendent to issue a second payment certificate certifying money owed by the Contractor to the Principal.

While 37.2(b) was deleted, references to that provision were retained which created ambiguity as to whether amounts could be set off pursuant to clause 37.2(a). Treston J held that clause 37.2 did not have a clear meaning and a reasonable businessperson would not have understood what the clause meant, having regard to the language used, surrounding circumstances and commercial purpose of contract. Her Honour resolved the contractual ambiguity by considering the deleted terms of the standard form contract and email correspondence between the parties during negotiations, in which the Contractor informed the Principal that it did not agree with the Principal being able to deduct liquidated damages from certified payments or security.

Before the Court of Appeal, the Principal contended that her Honour erred in the construction of the Contract and by having regard to inadmissible evidence. The Principal also contended that despite the deletion of clause 37.2(b), the set off mechanism was not affected by that deletion.

The unanimous finding of the Court of Appeal was that:

• as clause 37 of the contract was ambiguous, it was open to the Court to take into account the words that had been deleted from the standard form contract as an aid to its proper construction, despite the deleted clauses not being patent on the face of the contract as executed;
• deletions do not evidence a prior intent, but rather identify a matter which, on the face of the document, was rejected by both parties;
• a reasonable businessperson would have thought the parties’ refusal to include the deleted provisions in their contract negatived any alleged presumption that the contract was intended to operate in the same way despite the deletions;
• the case fell within the limited category of case referred to by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, being the category where the parties have refused to include in their contract, a provision which would give effect to something which is subsequently suggested to be the presumed intention of the parties. In such cases, evidence of that refusal is admissible with a view to negativing the alleged presumed intention. Here, the email in which the Contractor advised the Principal that it “did not agree with the Principal being able to recover liquidated damages on demand or deducted from certified payments and security”, negatived the alleged presumed intention contended by the Principal; and
• the appeal should be dismissed with costs.

What do you need to do and how is it important?

The Court of Appeal’s decision confirms that contracts must be drafted with clear intention and careful consideration. Where there is ambiguity, the court may consider extrinsic material including prior negotiations, written communication and deleted standard form contract clauses to ascertain meaning from the perspective of a reasonable businessperson. Contracting parties need to communicate clearly to ensure deletions are consistent with their intentions and the balance of the agreement.

How can HWLE help you?

HWLE can assist in ensuring that your intention is clearly drafted within contractual agreements, to avoid unintended or costly consequences. Particularly, HWLE can assist in liaising and communicating with parties to ensure a clear agreement is made and set the tone for a successful project. If you require assistance drafting contractual agreements, or resolving a contractual dispute, contact HWLE for commercially oriented advice and a clear way forward.

This article was written by Colin Harris, Partner and Alyce Walker, Solicitor.