International Construction Law Review
THE CONSTRUCTION TRUST—AN EMPTY REMEDY?
ROGER QUICK
Partner, Gadens Lawyers, Brisbane
AND
RICHARD DAVIS
Consultant, Masons, London *
1. INTRODUCTION
If a trust is used as the means of payment to subcontractors, can its use be frustrated before completion of the works by the employer and contractor agreeing to modify provisions of the head contract by which it was set up? Can the subcontractor’s vested property rights in the trust fund be extinguished by the exercise of the contractor’s contractual right to vary the head contract? Is it a relevant factor that the contractor obtained a personal benefit from the employer by agreeing to the variation?
These issues and others arose for consideration by the Queensland Court of Appeal in the case of Stork Electrical Pty Ltd
v. Leighton Contractors Pty Ltd.
1
2. BACKGROUND FACTS
In February 1993 the State of Queensland (“the state”) awarded Leighton Contractors Pty Ltd (“Leighton”) a contract (“Managing Contractor Contract”) for the management of the design and construction of the Brisbane Convention and Exhibition Centre (“BCEC”).
By clauses 16.1, 16.2 and in particular 16.4 of the Managing Contractor Contract,2
the state promised to pay certified progress payments due to
* The authors would like to acknowledge the help of Helen Conomos, Articled Clerk, in the compilation of this article.
1 [2001] ACL Rep 430 Qld 2; [2000] QCA 517.
2 Cl. 16.1 provided:
“16.1
The Principal shall pay the Manager as follows:
- (a) the Construction Costs progressively in monthly instalments having regard to the Contract value of the Construction Work that has been carried out and incorporated in the Works;
- (b) the Design costs in monthly instalments having regard to the Contract value of the Design Work that has been carried out;
- (c) the Preliminaries Fee progressively in the monthly instalments set out in Annexure One; and
- (d) the Management Fee progressively in the monthly instalments set out in Annexure One.”
“Construction Costs” were defined relevantly (by cl. 1.1) as including “the amounts properly and actually incurred and payable by the Manager to the Sub-Contractors …”.
Each of the design costs, preliminaries fee and management fee was a lump sum.
Cl. 16.2 then provided for progressive certification of the amounts due to Leighton, and for payment of the amounts due to subcontractors into the trust account:
“16.2
The Manager shall submit to the Principal’s Representative a detailed statement every month on the date stated in Annexure One and within twenty-eight (28) days after the Date of Practical Completion, in a form satisfactory to the Principal’s Representative, which shows:
- (a) the amount payable to the Manager for the Construction Costs, Design Costs, Preliminaries Fee and the Management Fee in accordance with sub-cl. 16.1; and
- (b) the Guaranteed Maximum Price at the date of the statement.
Within fourteen (14) days after the receipt by the Principal’s Representative of such a statement or, if the Manager fails to submit any such statement, at such time as the Principal’s Representative thinks fit, the Principal’s Representative shall determine the amount payable to the Manager and (subject to sub-cl. 16.5) issue a progress certificate showing the amount payable to the manager including (without limitation), the amounts payable to the Consultants and the Sub-Contractors.
The payment of moneys due under a progress certificate shall be made by the Principal within twenty one (21) days after the issue of that progress certificate as follows:
- (c) the Principal shall pay the amounts payable to the Consultants into the bank account set up by the Manager pursuant to the Trust Deed; and
- (d) the Principal shall pay the Manager the balance of the amount specified by that progress certificate …”
Cl. 16.4 required execution of the annexed draft trust deed which envisaged the establishment of the trust bank account into which the state would pay amounts due to subcontractors and stated:
“The execution of the Trust Deed by the Manager within this time period is a fundamental obligation of the Manager under this Contract. If the Manager fails to comply with this obligation this shall be deemed to constitute a fundamental breach going to the root of the Contract. All amounts which are payable by the Manager to the Consultants and the Sub-Contractors are to be paid by the Principal into the bank account which is set up by the Manager pursuant to the Trust Deed and shall be held by the Manager on trust for the Consultants and the Sub-Contractors in accordance with the terms of the Trust Deed.”
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The Construction Trust—An Empty Remedy?
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