Agreed Payments vs Payments ‘On Account’ Only?
For many years, the building and construction industry has understood that parties to construction contracts are entitled to reassess and revisit previously made claims and certifications. This was on the basis that many claims and payments made under a building contract are made ‘on account’ only. Against this, can it be said if claims are made, assessed and paid, that such conduct amounts to an ‘agreement’ between the parties, and that this agreement overrides the terms of the contract that provide that payment is ‘on account’ only? This issue is important as many construction contracts, including Australian Standards based contracts, include provisions that payment is made as on ‘account only’.
The recent case of Calibre Construction Group Pty Ltd v Kaloriziko Pty Ltd atf Ryde Combined Unit Trust; Kaloriziko Pty Ltd atf Ryde Combined Unit Trust v Calibre Construction Group Pty Ltd (No 2) [2025] NSWSC 593 considered the issue of variations claimed and payments made on account under a construction contract.
Background
The dispute concerned the terms of a design and construct contract – an amended AS 4902 2000 (Contract) entered into by Calibre Construction Group Pty Ltd (the Builder) and Kaloriziko Pty Ltd as trustee for the Ryde Combined Unit Trust (the Developer), for the development of a mixed use apartment complex in Ryde, Sydney, NSW. The Builder claimed approximately $270,000 for variations, which were appropriately assessed and approved under the relevant clause, being clause 36 of the Contract.
The Developer denied liability for the variation amount on the basis that the pricing of the variations was incorrect and on account, and therefore, such pricing / valuation was not binding on the parties. The Developer referenced clause 37.2 of the Contract, that addressed progress payments, and stated that payment (other than final payment) shall be payment on account only. The Developer sought to recover the amount paid to the Builder for the variations and claimed damages for delay and defective work.
The Builder issued proceeding in the NSW Supreme Court – Trial Division claiming damages for underpayments and for unpaid variation work by the Developer.
The Developer argued that the damages sought by the Builder should be offset against payments that it said were not true variations, liquidated damages for delay, and the benefit the Builder received under a deed of settlement resolving the Builder’s claims against unrelated parties. The Developer sought to amend and resile from the previously approved variations.
Decision at first instance
On 19 June 2025, the Supreme Court, the primary judge awarded the Builder $2.1m against the Developer.
The Developer’s arguments were rejected by Stevenson J. His Honour ultimately held that clause 37.2 was only in respect of payment of progress claims, and it did not allow the Developer a right to treat the variations approved as being ‘on account’ and not binding on the Developer. His Honour held that ‘all of the disputed variations were approved by the Developer’ and many of the variations were ‘not only approved, but paid.’[1]
His Honour formed the view that parties to a contract would not agree to terms in a Contract that allow one party to direct variations, price them, but then subsequently allow that same party to reassess and/or revisit those earlier approved variations at a later point in time.
Decision on appeal
The Developer appealed the decision.
In line with the decision of Stevenson J, the Builder argued that the consequence of the Developer approving the variations was that the Builder was entitled to retain the amount of that variation, even if it were not actually a variation.
The Court of Appeal agreed with the primary judge to the extent that the alleged variations were not, in fact, variations, as the works were within the scope of the Contract.[2]
The Court of Appeal went on to say that based on the cases of Al-Atabi[3]and Wormald[4], the Developer’s ‘approval’ and payment of the amounts claimed did not override the express contractual provisions that clearly stated that all payments, except the final payment, were payments ‘on account’.[5] On this basis, the Court of Appeal found that the primary judge erred in his decision.
The Builder has a right to payment in addition to the original contract price that is agreed at contract formation, for any works that expand the scope of works from what was originally contemplated and agreed upon by the parties (i.e. for genuine variations). Usually, a variation is procured to reflect any changes to the scope of works, and any additional consideration that is to be paid for those additional works. But, when the conditions for that to occur have not been fulfilled, that is, no further works have been requested or carried out, no such right to extra payment accrues. If payment is made or, as in this case, allowance for payment is made by an increase in the contract sum for no additional works, the Developer is to be credited that extra amount, in accordance with the Contract. Adamson JA held that the fact that any alleged ‘variation’ had been approved by the Developer ‘cannot transform a non-variation into a variation’ and could not vary the works under contract under the Contract.[6]
On this basis, on 5 December 2025, the Court of Appeal found that the Developer was entitled to a credit of the amount of the overpayment that was made to the Builder, for the approved value of the variation, that was in hindsight, incorrectly approved.
Implications
This case confirms that where a contract makes clear that all payments which are provisional or on account only will not be subsequently binding on the parties. Any ‘agreement’ or consensus about such matters which may have been struck during the course of the works can be reopened and claimed again at a later point in time despite such ‘agreement’ or despite payment(s) having been made.
The effect of payment ‘on account’ or provisional payment terms are that, even though a payment may have been certified or approved, these certifications and assessments can be subsequently revisited or assessed. This can happen from time to time during the course of the works or at the conclusion of the works when the principal or developer often requires the contractor to submit a final claim for any and all matters. Construction contracts will then often provide that any matters or claims not detailed in the contractor’s final claim are released and cannot be pressed by the contractor against the principal. It is for this reason that contractors should closely consider previous ‘agreed’ or certified claims for variations and other claims (e.g. for extensions of time or latent conditions) and consider whether to press such claims on different terms in or prior to submitting their final claim.
Assistance
Please contact the authors, or any member of our Building & Construction team, should you have any questions about this article, or if wish to discuss how we may be able to assist your business and/or projects.
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.
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[1] Calibre Construction Group Pty Ltd v Kaloriziko Pty Ltd atf Ryde Combined Unit Trust; Kaloriziko Pty Ltd atf Ryde Combined Unit Trust v Calibre Construction Group Pty Ltd (No 2) [2025] NSWSC 593, Stevenson J at paragraph 111.
[2] Kaloriziko Pty Ltd as trustee for Ryde Combined Unit Trust v Calibre Construction Group Pty Ltd (No 2) [2025] NSWCA 259 per Adamson JA at para 107.
[3] Al-Atabi v Zaidi [2009] NSWCA 433.
[4] Wormald Engineering Pty Ltd v Resources Conservations Co. International (1992) 8 BCL 158.
[5] Kaloriziko Pty Ltd as trustee for Ryde Combined Unit Trust v Calibre Construction Group Pty Ltd (No 2) [2025] NSWCA 259 per Adamson JA at para 107.
[6] Kaloriziko Pty Ltd as trustee for Ryde Combined Unit Trust v Calibre Construction Group Pty Ltd (No 2) [2025] NSWCA 259 per Adamson JA at para 118.