In Digga Excavations Tas Pty Ltd v Linear Capital Pty Ltd [2023] TASSC 22, the Tasmanian Supreme Court confirmed that parties can rely on a contractual right to refuse payment of a progress claim, even though the right was not raised at the time payment was refused.

In August 2016, the parties agreed to suspend works so Linear Capital could source alternative funding for the project. At the time, Linear Capital had paid three of six progress claims submitted by Digga Excavations. Two months later, the three remaining progress claims remained unpaid, and Digga Excavations purported to terminate the contract.

Before the Court, Linear Capital relied on a clause (in the AS 4000-1997) permitting it to withhold payment if a progress claim was not accompanied by evidence demonstrating that subcontractors and employees had been paid. It had not relied upon this right in refusing payment in August 2016.

On this point, Justice Brett:

  • held Linear Capital was entitled to refuse payment under the clause, even though it had not previously raised this argument. Linear Capital did not make a positive election not to rely on the clause, and no estoppel arose because it did not make any representation about its reliance (or non-reliance) on the clause. Rather, the parties had simply not turned their minds to the requirements of the clause before; and
  • applied the rule from Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 that if a party gives a wrong reason for refusal, this does not deprive that party of a justification which existed, but it was not aware of. Here, the primary consideration was whether the non-payment can be justified under the contract (not what was considered at the time of refusal).