Queensland Court of Appeal Clarifies Interim Set-Off Rights: Pacific Diamond 88 v Tomkins Builders [2025] QCA 50

Queensland Court of Appeal Rules on Interim Set-Off of Liquidated Damages under Amended Construction Contract

On 11 April 2025, the Queensland Court of Appeal handed down its decision in Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2025] QCA 50, dismissing an appeal brought by a Principal who sought to recover certified liquidated damages by way of interim set-off against the Contractor’s progress payment entitlement.

The decision provides important guidance for principals, contractors, contract administrators, quantity surveyors, and legal practitioners dealing with amended standard form construction contracts and interim payment rights.

 

 

Background

Pacific Diamond 88 Pty Ltd (the Principal) engaged Tomkins Commercial & Industrial Builders Pty Ltd (the Contractor) to design and construct a residential apartment building in Buddina, Queensland, under a contract dated 22 December 2021. The contract was based on the AS4902-2000 standard form but included significant amendments, most notably the deletion of Clause 37.2(b), which would otherwise have permitted the Principal to set off amounts certified by the Superintendent against progress claims.

In September 2024, the Superintendent issued:

• A Payment Certificate certifying $694,343 as payable to the Contractor; and
• A Liquidated Damages Certificate certifying $2.6 million for delay.

The Principal attempted to set off the liquidated damages against the certified progress payment, contending that the Contractor owed a net amount of $1.9 million, and issued a notice of intention to call on the Contractor’s security.

The Contractor challenged the Principal’s actions and obtained declaratory relief from Treston J in the Supreme Court of Queensland. The Principal subsequently appealed.

 

Issues on Appeal

The Principal contended that:

• The primary judge had misconstrued the contract;
• The deletion of Clause 37.2(b) did not remove its entitlement to set off certified liquidated damages against progress claims;
• Certification under Clause 34.7 created an immediately enforceable debt permitting set-off.

The appeal raised important issues of contract construction, certification, and the admissibility of pre-contractual communications.

 

Decision

The Court of Appeal unanimously dismissed the appeal.

Bond JA (with whom Mullins P and Crow J agreed) held:

1. Deletion of Clause 37.2(b) Precluded Interim Set-Off Rights

The deliberate deletion of Clause 37.2(b) removed the contractual machinery that would have permitted interim set-off during project delivery. Without that mechanism, interim set-off was not permitted, and reconciliation of amounts — including certified liquidated damages — could only occur through the final certificate under Clause 37.4.

2. Certification Did Not Create Immediate Debt

Certification of liquidated damages under Clause 34.7 did not itself create a debt due and payable.
The Superintendent’s certification was an administrative act expressing an opinion, not a contractual obligation requiring immediate payment. Financial consequences would crystallise only upon the issue of the final certificate.

3. Admissibility of Deleted Clauses and Negotiation Context

The Court confirmed that:

• Deleted clauses from a standard form contract are admissible where ambiguity arises;
• Limited aspects of pre-contractual negotiations may also be admissible where they show a mutual intention to reject certain rights.

The Court applied principles from Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544, and Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640.

4. Rejection of Equitable Set-Off and Other Arguments

The Court rejected the Principal’s attempt to rely on equitable set-off, finding no present obligation to pay. It also distinguished the Principal’s reliance on RCR O’Donnell Griffin Pty Ltd v Forge Group Power Pty Ltd (Receivers and Managers Appointed) (in liq) [2016] QCA 214 based on material differences in contractual structure.

 

Significance

This case reinforces several critical principles for construction contract interpretation:

• Amendments to Standard Forms Matter:
Deleting certification and payment clauses can substantially alter interim rights and remedies.
• Certification ≠ Immediate Debt:
A Superintendent’s certification does not automatically create a payable debt absent clear contractual language.
• Deleted Provisions May Aid Construction:
Courts will consider deleted clauses and limited negotiation context where ambiguity arises.
• Clear Drafting is Essential:
Parties must expressly preserve interim enforcement rights — they will not be implied.

 

Practical Insights

This decision serves as a strong reminder that the legal and commercial consequences of amending standard form contracts must not be underestimated. It reinforces the principle that silence or deletion will generally be construed against the existence of interim enforcement rights, including set-off and recourse to security.

From a professional perspective, this case underscores the necessity for precision in contract drafting and amendment. Rights to withhold, set off, recover liquidated damages, or enforce interim entitlements must be expressly preserved and stated; otherwise, they will not be implied.

Enforcement pathways — including rights to set-off, recourse to security, recovery of liquidated damages, and interim payment adjustments — must be expressly considered, clearly articulated, and contractually recorded at the outset of the contractual relationship.
Parties must ensure that their rights and obligations during the life of the project, as well as at completion, are properly preserved by clear drafting, as courts will not imply rights where the contract is silent or deliberately amended.

 

 

 

Cited Authorities

The following cases and legislation were cited by the Queensland Court of Appeal in Pacific Diamond 88 Pty Ltd v Tomkins Commercial & Industrial Builders Pty Ltd [2025] QCA 50:

Cases:

• Tomkins Commercial & Industrial Builders Pty Ltd v Pacific Diamond 88 Pty Ltd as trustee for the Pacific Diamond 88 Unit Trust [2024] QSC 321
• Adcon v Icon [2020] VSC 165
• Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; 261 CLR 544
• Walker Group Constructions Pty Ltd v Tzaneros Investments Pty Ltd [2017] NSWCA 27; 94 NSWLR 108
• RCR O’Donnell Griffin Pty Ltd v Forge Group Power Pty Ltd (Receivers and Managers Appointed) (in liq) [2016] QCA 214
• Gee Dee Nominees Pty Ltd v Ecosse Property Holdings Pty Ltd [2016] VSCA 23; (2016) V Conv R ¶54–879
• Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; 251 CLR 640
• Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; 76 NSWLR 603
• Kimberley Securities Ltd v Esber [2008] NSWCA 301; 14 BPR 26121
• Centrepoint Custodians Pty Ltd v Lidgerwood Investments Pty Ltd [1990] VR 411; (1989) V Conv R ¶54–350
• Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; 149 CLR 337

Legislation:

• Queensland Building and Construction Commission Act 1991 (Qld), s 67J