Did you know, if you are a building contractor who is owed money, you may be entitled to be paid penalty interest on top of the amount that’s owing to you?

Axia Litigation Lawyers recently obtained judgement against CGU Insurance Ltd (CGU) in the Court of Appeal, securing an award of more than $240,000 in penalty interest for our client.


Australian Building Insurance Services (ABIS) purchased a business. The outgoing business owner had a contract with CGU to perform insurance repair work. That contract was novated to ABIS at the time it purchased the business. CGU consented to the novation.

At the time ABIS took ownership of the insurance repair business that it had purchased, there were many jobs in varying degrees of completion. Upon completion of the work, ABIS issued invoices to CGU for work done both pre-novation and post-novation. That is, ABIS issued invoices for work that the outgoing business owner had commenced, but which ABIS had completed.

Due to a glitch in CGU’s system, CGU paid the invoiced amount to the outgoing business owner. The outgoing business owner retained the funds and claimed to be entitled to them. In separate proceedings against the outgoing business owner, the court determined that CGU should have made payment to ABIS. Upon being notified of the decision, CGU promptly paid ABIS the amount that it had mistakenly paid to the outgoing business owner, however it refused to pay penalty interest on that sum.

ABIS commenced proceedings against CGU in the District Court, seeking to recover penalty interest pursuant to section 67P of the Queensland Building and Construction Commission Act 1991 (Qld) (the QBCC Act). That section provides for penalty interest to be paid on unpaid sums, at the rate of:

  • 10% plus the rate comprising the annual rate as published from time to time by the Reserve Bank of Australia for 90 day bills (currently 0.095%); or
  • if the building contract provides for a higher rate, then the higher rate.

CGU argued that ABIS was not entitled to receive penalty interest because ABIS was not the “contracted party” with respect to the building work that was performed. CGU argued that they had contracted with the outgoing business owner (prior to the contract being novated) and not ABIS.

Whilst CGU was successful at first instance, the Court of Appeal rejected CGU’s argument and found that ABIS was the “contracted party” by virtue of the novation, which CGU had consented to. As a result, ABIS was awarded penalty interest in excess of $240,000 plus costs!!

Take Aways

A building contractor can recover penalty interest pursuant to section 67P of the QBCC Act if:

  • A party to a building contract is required to pay an amount (the progress amount) to a contractor;
  • The progress amount is due and payable (whether in whole or in part);
  • The time for payment has passed and the amount owing has not been paid.

The decision serves as a timely reminder that building contractors may be entitled to recover penalty interest if their invoices are not paid on time.

If you require assistance with recovering money that is owed to you, contact the team at Axia for assistance. Because at Axia Litigation Lawyers – Every Move Matters!