Interpreting milestone approval preconditions: ASD Corporation Australia Pty Ltd v Babicka

The Victorian Court of Appeal (Beach, Richards and Donaghue JJA) has refused leave to appeal in ASD Corporation Australia Pty Ltd v Babicka [2026] VSCA 27 (ASD Corporation), upholding Garde J's decision to quash three adjudication determinations made under the Building and Construction Industry Security of Payment Act 2002 (Vic) (Security of Payment Act).

This decision is particularly instructive as it highlights that parties to a construction contract are free to impose milestone approval preconditions that go beyond the mandatory inspection requirements imposed by the Building Act 1993 (Vic) (Building Act). In such cases, the builder bears the commercial responsibility for procuring the relevant approvals (and, if necessary, for arranging and paying for them). A failure to do so will leave the builder without a reference date under the Security of Payment Act, and any adjudicated determination will be vulnerable to judicial review.

The decision is also notable as the first judgment delivered by Donaghue JA, the former Commonwealth Solicitor‑General, since his appointment to the Court of Appeal.

Factual background

On 22 October 2022, the applicant builder ASD Corporation (the Builder) entered into three substantially identical contracts with the owners of separate allotments at Coburg North, Victoria, for the construction of warehouses (together, the Contracts).[1]

Each contract contained special condition 4 (SC‑4), which entitled the Builder to claim staged milestone payments.[2] The ‘Structure stage’ was defined as ‘the stage when a building's structural steel frame and concrete panel works has been completed and approved by a building surveyor’.[3]

On 31 August 2022, a private building surveyor, Mr Shafto, issued building permits for the construction of the warehouses. Consistent with reg 171 of the Building Regulations 2018 (Vic) (Regulations), the permits required mandatory inspections at specified ‘mandatory notification stages’ of construction, including inspection of the framework prior to lining.[4]

Under s 34 of the Building Act, the relevant building surveyor ‘must cause the building work to be inspected in person’.[5] Sections 35B and 238 expressly permit the surveyor to delegate that inspection to a registered building inspector.[6] Mr Shafto relied on that authority to engage Mr Muj, a registered building inspector, to conduct the framework inspections on his behalf.[7]

Mr Muj inspected the structural steel frames on 10 August and 17 October 2023 and issued certificates of compliance.[8] His evidence was that he did not inspect or approve the precast concrete panels at all.[9] The trial judge found expressly that no inspection of the concrete panel works had taken place, whether by a building inspector or by a building surveyor.[10]

On 8 August 2023, the Builder issued invoices for progress payments at the Structure stage to two of the owners. Those invoices were paid.[11] Subsequently, the Builder issued three payment claims to each of the owners for the Structure stage milestone.[12] The three progress payment claims were disputed by all three owners.[13]

The Builder responded by invoking the adjudication mechanism under the Security of Payment Act.[14] In November 2023, the adjudicator determined that each of the disputed claims was payable,[15] and in December 2023 the trial judge (Garde J) quashed the foregoing determinations of the adjudicator on the basis that:[16]

‘…the builder was not entitled to receive progress payments with respect to the ‘Structure’ stage because that entitlement was conditional upon a building’s ‘structural steel frame and concrete panel work [having] been completed and approved by a building surveyor’, and no such approval had been given.’

Key issues before the Court

The Builder advanced a single ground of appeal: that the trial judge had misconstrued the approval requirement in SC‑4 and therefore erred in determining that the Structure stage milestone for progress payment had not been met.[17] That ground raised three related questions for the Court:

1. On the proper construction of SC‑4, did the reference to ‘approval by a building surveyor’ operate as commercial shorthand for satisfactory completion of the mandatory framework inspection under the Building Act and the building permits? Or did it impose a discrete, contractual approval requirement separate from (and in the case of the concrete panels, additional to) the statutory inspection regime?
2. If an inspection-based approval was what SC‑4 required, could that approval be given by a registered building inspector to whom the building surveyor had delegated the inspection under ss 35B and 238 of the Building Act? Or did SC‑4 require approval personally by a registered building surveyor?
3. Even if the Builder succeeded on construction, had the contractual precondition been satisfied? That is, had the relevant works been inspected and approved at all?

Decision

The Court refused leave to appeal.[18]  

The Court's reasoning

Donaghue JA (with whom Beach and Richards JJA agreed)[19] held that the Builder's entitlement to a ‘Structure stage’ progress payment arose only when both the structural steel frame and the concrete panel works had been ‘completed and approved by a building surveyor’.[20]  

1. Construing the Contracts in their statutory context

In reaching this finding, His Honour considered the proposition that construction contracts are to be read against the background of the regulatory regime in which they operate,[21] and, having carefully mapped relevant provisions of the Building Act and the Building Regulations, it was determined that there existed:

• an obligation on the Builder to notify completion of each mandatory notification stage (s 33(1))[22]
• a corresponding obligation on the relevant building surveyor to ‘cause the building work to be inspected in person’ (s 34),[23] and
• an express statutory authorisation that the inspection may be carried out by a registered building inspector on the building surveyor's behalf (ss 35B, 238).[24]

The Court noted that the Building Act does not require a building surveyor to ‘approve’ particular building work following the mandatory notification and inspection procedure.[25] All that is required is an inspection in person at which point the building surveyor can direct work to stop or to be fixed.[26] There is no requirement for work to be approved.[27] On this basis, the Builder contended that the words ’approved by a building surveyor’ in SC-4 should be interpreted as meaning ’not disapproved by a building surveyor’ following a mandatory inspection.[28]

2. The obiter point on steel frame inspections

Had SC‑4 required only approval of the structural steel frame, Donaghue JA considered there would have been ‘considerable force’ in the Builder's argument.[29] That is, satisfactory completion of a mandatory inspection carried out by an authorised building inspector would likely have sufficed to enliven the milestone payment.[30] Reading the Contracts against the Building Act and Building Regulations, a reasonable businessperson would not readily have intended a duplicate inspection, one by a building surveyor under the contract, and a second by a building inspector under the statute, where the essential purpose of both inspections is the same.[31] This observation indicates courts will generally prefer a construction that coheres with, rather than duplicates, the applicable statutory regime.

3. Why the Builder nonetheless lost

The Builder's difficulty was that SC‑4 did not refer to the steel frame alone but required approval of both the structural steel frame and the concrete panel works.[32] His Honour made the following three points in rejecting the Builder's attempt to read that second limb out of the clause:[33]

• first, the requirement to approve the concrete panel works at least required consideration of whether the concrete panel works specified by the Contract had been completed.[34]  Further, the Building Act leaves the content of any inspection and determination of what (if any) action is left to the professional judgment of the building surveyor, hence a requirement for the approval of non‑mandatory works was considered no more indeterminate than the statutory inspection itself[35]
• second, there was no reason to assume that a building surveyor would refuse to carry out (or cause to be carried out) an additional inspection beyond the statutory minimum, if asked and appropriately remunerated,[36] therefore the Builder's inability to compel a surveyor to do so did not render the clause absurd,[37] and
• third, the fact that other provisions of the Contracts contemplated certification by a superintendent did not bear on the specific language of SC‑4, which required approval by a building surveyor as a precondition to the Builder’s entitlement to the Structure milestone payment.[38]

Donaghue JA concluded that SC‑4 operated as a contractual supplementation of the statutory regime.[39] It was open to the parties to agree that milestone payments would arise only on satisfaction of preconditions additional to those imposed by the building regime and SC‑4 did precisely that.[40]

4. The dispositive factual finding

Even if the Builder's construction of SC‑4 had been accepted, it faced an insurmountable factual obstacle.[41] The trial judge had found, on an evidentiary contest that was not challenged on appeal, that no inspection of the concrete panel works ever took place, whether by a building inspector or a building surveyor.[42] On that finding, the precondition to the Structure milestone payment was not satisfied, and it was held that Garde J was correct to quash the determinations.[43]

Key Implications for builders

This case is a reminder that parties to a construction contract remain free to impose milestone preconditions that go beyond the mandatory inspection and approval requirements imposed by the Building Act and Building Regulations, and where they do so the contract will be given effect according to its terms.

[1] Ibid at [5].

[2] Ibid at [6].

[3] Ibid.

[4] Ibid at [8].

[5] Ibid at [35(c)].

[6] Ibid at [35]

[7] Ibid at [9].

[8] Ibid at [10].

[9] Ibid.

[10] Ibid at [24].

[11] Ibid at [11].

[12] Ibid at [12].

[13] Ibid.

[14] Ibid at [13].

[15] Ibid at [16].

[16] Ibid at [18]–[19].

[17] Ibid at [4], [28].

[18] Ibid at [50].

[19] Ibid at [1]–[2]

[20] Ibid at [38]–[39].

[21] Ibid at [34].

[22] Ibid at [35(b)].

[23] Ibid at [35(c)].

[24] Ibid at [35(d)].

[25] Ibid at [36].

[26] Ibid.

[27] Ibid.

[28] Ibid.

[29] Ibid at [38].

[30] Ibid.

[31] Ibid at [37].

[32] Ibid at [39].

[33] Ibid at [40].

[34] Ibid at [42].

[35] Ibid at [43].

[36] Ibid at [44].

[37] Ibid at [45].

[38] Ibid at [46].

[39] Ibid at [40].

[40] See ibid at [47].

[41] Ibid at [48].

[42] Ibid.

[43] Ibid at [49].