3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd
[2018] VCC 674
•7 June 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Unrestricted Suitable for publication |
Case No. CI-18-00695
| 3D Flow Solutions Pty Ltd | Plaintiff |
| v | |
| LTP Armstrong Creek Pty Ltd | Defendant |
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JUDGE: | His Honour Judge Woodward | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 May 2018 | |
DATE OF JUDGMENT: | 7 June 2018 | |
CASE MAY BE CITED AS: | 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 674 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Building contract - payment claim under the Building and Construction Industry Security of Payment Act 2002 (Vic) – whether the test for summary judgment applies – liability under construction contract – service of payment claims and payment schedules –– possible application of Evidence Act 2008 (Vic) to proceedings under Building and Construction Industry Security of Payment Act 2002 (Vic) – nature and scope of construction contract – who “may be liable” within the meaning of s14(1) of the Act – requirements for service of payment claims met
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic); Civil Procedure Act (2010) (Vic) ss4, 9, 14-16, 47 and 67; County Court General Civil Procedure Rules (2008) (Vic); Evidence Act 2008 (Vic) s140(2)
Cases Cited:Baron Forge Contractors Pty Ltd v Vaughan Constructions Pty Ltd [2015] VCC 1424; Façade Engineering Pty Ltd v (in liq) v Brookfield Multiplex Construction Pty Ltd (2016) 337 ALR 452; Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385; Fulconstructions v ABP Consultants Pty Ltd [2016] VCC 1732; Grave v Blazevic Holdings[2010] NSWCA 324; Hickory Developments Pty Ltd v Schiavello (Vic) & Anor (2009) 26 VR 112; Multiplex Constructions Pty Ltd v Luikens [2003] NSWSC 1140; Seabreeze Manly Pty Ltd v Toposu [2014] NSWSC 1097
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | K Weston-Scheuber | Macpherson Kelley Lawyers |
| For the Defendant | LJ Connolly | Perry Thomas Lawyers |
HIS HONOUR:
1 The plaintiff (“3D”) is a building contractor, that specialises in drainage work. Its claim in this proceeding is to be paid for construction work performed by it in connection with the development of a 120 bed aged care facility with associated services at 15-29 Reserve Road, Grovedale, Victoria (“Project”). The defendant (“LTP”) is the owner of the land on which the Project was being constructed. Elaine O’Connor has deposed that in or about early 2016, LTP engaged a related entity, MOC Development Pty Ltd (“MOC”) to undertake the role of construction manager of the Project.[1]
[1]E O’Connor affidavit at [7]
2 3D seeks judgment by originating motion for $105,556.72 against the LTP as a debt due under a construction contract pursuant to s16(2)(a)(i) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (“SOP Act”). This proceeding has a number of what might be described as threshold questions, but as each affects the other to some extent, it is difficult to know where to start. In the end, my decision about the answers to those questions has dictated the order in which I consider they should be analysed. In particular, I am satisfied applying what I consider to be the correct test that the relevant construction contract is the contract for ad hoc construction. It follows that the only questions left for determination are whether LTP is a person liable under that contract and whether LTP has served any payment schedules.
3 Thus the issues in the proceeding can be dealt with under four headings as follows:
· Does the summary judgment test apply?
· What is the “construction contract” for the purposes of 3D’s claim?
· Is LTP a person who is or may be liable under that construction contract?
· Did LTP issue timely payment schedules in respect of each of Payment Claim 2 and 3?
4 The effect of my answers to each of those question is that 3D succeeds on its claims and I will order that LTP pay to 3D the sum of $105,556.72 (inc GST) as a debt due to 3D pursuant to s16(2)(a)(i) of the SOP Act, plus interest pursuant to s12(2)(a) of that Act and costs. My tentative view is that those costs should be on the standard basis in default of agreement, unless the parties are able to bring to my attention any matters that might justify a departure from the usual order on costs. I will hear further from the parties on the final form of the orders, including the calculation of the interest figure and on costs.
Background
5 The factual background to the claim and defence is set out in affidavits filed on behalf of the parties as follows:
(a) affidavit of the managing director of 3D, Alex Tountzis, dated 21 February 2018 (“first Tountzis affidavit”);
(b) affidavit of the sole director of LTP, Elaine O’Connor, dated 15 March 2018 (“E O’Connor affidavit”);
(c) affidavit of the sole director of MOC, Matt O’Connor, dated 16 March 2018 (“first M O’Connor affidavit”);
(d) further affidavit of Alex Tountzis dated 20 March 2018 (“second Tzountzis affidavit”); and
(e) further Affidavit of Matt O’Connor dated 26 April 2018 (“second M O’Connor affidavit”).
6 By a “Contractor Agreement” dated 19 October 2016, MOC engaged 3D to carry out defined “Works” in relation to the Project (“Original Contract”). Relevantly for present purposes:
· the identification of the parties at the commencement of the Original Contract describes MOC as “MOC DEVELOPMENTS PTY LTD…in its capacity as agent for the Owner [being LTP]”; and
· clause 22.5 provides in effect that “Payment Claims” rendered by 3D in respect of the “Works” will, if approved by MOC, be paid by MOC within 20 Business Days after the last to occur of various stated events (see clause 22.5).
7 Most of the “Works” required to be completed under the terms of the Original Contract involving the installation of storm water drainage and retention systems, was undertaken by 3D between late October and late November 2016. The part left uncompleted by the end of November 2016 comprised what is described in the materials as the supply and installation of agricultural or “aggi” pipes and fittings or “aggi works”. It is not in dispute that 3D was not responsible for the failure to undertake this work as part of the “Works” under the Original Contract. What is in dispute is what arrangements were put in place to account for the uncompleted works. Mr Tountzis deposed that:
“Prior to commencing the agricultural works, MOC Developments directed the Plaintiff to not proceed with the agricultural works due to MOC’s substantial redesign of the works under the Original Contract. As a consequence of the redesign, the agricultural works were removed from the work under the Original Contract and the Plaintiff was discharged from any obligation to undertake or complete the agricultural works under the Original Contract.”
8 For his part, Mr O’Connor deposed that:
“As the civil and drainage subcontractor, the Plaintiff was somewhat dependent on other contractors completing their respective works before it would be in a position to complete all of its works under the [Original Contract]. In particular, I note that the Project required a suspended slab and associated works, including core filled blocks walls to be completed by separate contractors. As a matter of construction sequencing, it was not possible for the Plaintiff to undertake the Aggi works it was required to perform…until the suspended slab and associated works were completed… As of December 2016 the Plaintiff had not carried out various sections of work under the [Original Contract] which included the installation of downpipe risers, aggi works, pit lids and trench gates.”
9 Neither party has produced any contemporaneous emails or other documents referring to or explaining what arrangements were made between them in relation to the aggi works. However, it is notable that 3D submitted two invoices for the work undertaken by it in October and November 2006 for sums totalling $388,368.12, which was the entire contract sum payable under the Original Contract, and that both these invoices were paid in full, notwithstanding the uncompleted aggi works. I note, in passing, that LTP cites these invoices in support of its submissions on the question of LTP’s liability for the payment claims. The two invoices were directed to MOC.
10 Mr Tzountzis deposed that he discussed with Mr Elliot of MOC whether 3D should provide a credit for the uncompleted agricultural works, but Mr Elliot said that, given the small sum involved, 3D could use the amount as a credit against any invoices it issued in respect of any further work. Mr O’Connor deposed that MOC arranged for the invoices to be paid “on the basis that [the] majority of the works under the [Original Contract] were complete and the remainder was an ‘up front’ payment to facilitate the Plaintiff completing its remaining works under the [Original Contract]”.
11 The only document produced by the parties that discusses this issue is an email dated 14 August 2017 sent by Mt Tountzis of 3D to Mr Elliot of MOC. Although not contemporaneous, this email appears to have been sent before there were any signs of a dispute developing between the parties. Mr O’Connor has deposed that it was not until early November 2017 that it became apparent to MOC “that the Plaintiff had not completed the Scope of Works in accordance with the plans and specifications provided under the [Original Contract]”.[2] Thus the 14 August email is unlikely to have been prepared with an eye to supporting a position now being advanced in this proceeding. The email relevantly stated as follows:
“I have reviewed the invoices currently in our system, as well as the works not invoiced that were put aside as a result of the credit from the Aggi drain contract. The results of this review were as follows. The majority of the early works done onsite and not invoiced were Aggi drain contract works. There was a small amount of plant hire and rock supply that was not related to the Aggi drains included in these costs, (that was put aside and included in the outstanding credit). The invoices that you currently have that remain unpaid are majority not related to Aggi drains. As discussed onsite, I carefully reviewed each invoice with Craig and removed any Aggi related works from the invoices. There were 2 invoices that we removed the Aggi related costs from. I then added the non-Aggi related costs that were not previously invoiced and sitting in the credit from the contract.
…
When we met onsite we discussed the fact that the Aggi works scope had changed as a result of the timing chosen by MOC to install them, we agreed that the job has become more difficult and costly as a result and that this was an area that needed to be addressed as a part of the review, at that point in time there were a lot of areas that needed review I guess, so we really did not finalise an approach to deal with this matter. Have you had a chance to consider how to deal with this?”
[2]First M O’Connor affidavit at [58]
12 It may be that the differences between the two versions advanced as to the arrangements in respect of the uncompleted aggi works are more a matter of form than substance. However, in my view, both the fact of payment in full for the works under the Original Contract and the absence of any written record of the arrangement and the 14 August email, both tend to support the version advanced by Mr Tountzis. In particular, MOC’s willingness to pay the total sum owing under the Original Contract despite the work being uncompleted, coupled with the references in the email to the “credit” and the informality of the arrangement reflected in the email, are both consistent with MOC considering the value of the remaining work to be relatively nominal.
13 Against this, Mr O’Connor has deposed[3] to the effect that the aggi works were “fundamental” to the Project as well as being extensive, involving (among other things) “700 lineal metres of Aggi Drains to be installed under the [Original Contract]”. He asserted, based on other tenders for that work as well as Rawlinson’s Guide to Estimation, that the value of the work was in the region of $40,000. I have no doubt that the work needed to be done in due course and, at least in that sense, was “fundamental” to the ultimate completion of the Project. But in my view it is inherently unlikely that MOC would have been content to pay the full contract sum owing under the Original Contract when work to the value of more than 10% of that contract sum was uncompleted, and to have done so without documenting in any way a commitment on the part of 3D to complete the remaining work. I also note that the 14 August email suggests that 3D had installed 500 of the 700 meters of aggi drain provided for under the Original Contract.
[3]Second M O’Connor affidavit at [20]-[24]
14 There is another factor that tells against any of the subsequent works being undertaken under the Original Contract (apart from work apparently not invoiced by 3D as referred to in the 14 August email). Until the payment claims the subject of this proceeding, all invoices for work undertaken by 3D during 2017 were paid in full. Notably, there is no evidence of any discussion, email or notation on an invoice or purchase order seeking any kind of reconciliation against what Mr O’Connor asserts was the $40,000 of work not done under the Original Contract. Further, as discussed below, none of the purchase orders, emails or invoices in relation to work undertaken by 3D during 2017 make any reference to the Original Contract. This is to be contrasted with the 2016 invoices, both of which are expressly identified as progress claims under the Original Contract.
15 It appears that 3D’s first involvement with the Project in 2017 occurred in about May – 3D’s earliest invoice for that year in evidence is invoice 303 dated 31 May 2017. A little earlier in May 2017, there had been an email exchange between Mr Elliot of MOC and Mr Tountzis which is relevant to the issue of whether LTP is a person liable under the construction contract. On Friday 26 May 2017, Mr Elliott sent a short email to Mr Tountzis stating: “I urgently require today 3D Flow Solutions Invoice number 204 Bill To: changed from MOC Developments to LTP Armstrong Creek Pty Ltd”. Invoice 204 was the second and final invoice under the Original Contract (in the sum of $311,368.12 inc GST). Emails had been sent earlier in May by Mr Elliott of MOC to Landforming to Perfection Mining and Civil Pty Ltd, a related entity of 3D, also requesting that invoices made out to MOC be reissued to LTP.
16 3D’s invoice number 303 dated 31 May 2017 was directed to LTP, consistently with the instruction from Mr Elliott concerning the earlier invoice number 204 referred to above. Mr O’Connor incorrectly identifies invoice 303 as having been submitted on 1 August 2017 and dated 11 July 2017.[4] This is the first of a total of seven invoices issued by 3D to LTP between May and July 2017 that Mr O’Connor describes as being for “various instances in which the Plaintiff was required to carry out additional works in connection with the Aggi Works at the direction of MOC Developments”. He then asserts that: “The Plaintiff subsequently submitted variation claims to MOC Developments for these works”.[5]
[4]First M O’Connor affidavit at [27(d)]
[5]First M O’Connor affidavit at [27]
17 However, Mr Tountzis denies that any of the work reflected in these invoices constituted “variation works”.[6] He deposes that between November 2016 and August 2017, Mr Elliott of MOC would contact Mr Tountzis and ask that 3D come to site and carry out various works that needed to be done on an ad hoc basis.[7] In support of this assertion, Mr Tountzis exhibits a series of purchase orders and invoices. For example, he exhibits purchase order #0253 (notably, on the letterhead of LTP) identifying work including “cored 2 holes thru block wall and reconnect to 150mm stormy”. Invoice 303 dated 31 May 2017 (discussed above) is identified as being for “PO #0253” and has (in substance) the same work description as the purchase order. In neither the purchase order nor the invoice is there any reference to the Original Contract or to the work being a “variation” under that contract or otherwise. Further, the description of the works is not obviously referable to the aggi works.
[6]Second Tountzis affidavit at [20]
[7]Second Tountzis affidavit at [34]
18 These features are also generally true of the other invoices (and associated purchase orders) issued at around this time, that Mr O’Connor asserts were for “variations” to the aggi works under the Original Contract. In particular:
· the purchase orders are all issued (and in most cases signed) in the name of LTP as “Customer” and on LTP letterhead and the invoices were directed to LTP;
· while some of the invoices contain descriptions that appear to relate to the aggi works, many do not (for example, there are references to “built ramps for access to inside areas” and “cart spoil into garden beds”); and
· the word “variation” does not appear in any of the purchase orders, invoices or any other contemporaneous documents in the evidence before me.
19 Turning to the particular payment claims the subject of this proceeding, Mr Tountzis has deposed that these were ad hoc construction works performed on an “as needed” basis, based on agreed hourly rates for labour associated with the works.[8] He said that 3D was engaged to do the work by an email exchange and telephone call from Mr Elliott, all on 28 August 2017.[9] The first email in the exchange was relevantly as follows:
[8]First Tountzis affidavit at [6]
[9]First Tountzis affidavit at [5]
“From: Ben Elliot (MOC Developments)
To: Alex (Landforming)
Project: SI-013: Down pipe changes
Hi Alex
As discussed on site there have been extensive changes to the locations of downpipes. 3D Flow Solutions are instructed to relocate the in-ground risers into positions as per the new design. In line with the roofers pops Zone 1 and 2 are currently ready for these works to be conducted, ensure works are started on Tuesday 29th Aug”
Mr Tountzis replied giving details of 3D’s rates for labour, equipment hire and parts, and asking Mr Elliott to confirm that the rates were accepted. Mr Tountzis’s evidence was to the effect that he later received a telephone call from Mr Elliott confirming that 3D was to commence the works, thus indicating MOC’s acceptance of the rates offered by 3D.[10] Mr O’Connor does not dispute that this acceptance was communicated by Mr Elliott to Mr Tzountzis.
[10]First Tountzis affidavit at [5]
20 Mr Tountzis deposed that the ad hoc work was performed in the period from about 29 August to 6 December 2017 and was then invoiced by invoice number 206 dated 1 November 2017 for $54,318.04 (inc GST) (“Payment Claim 206”), invoice number 245 dated 30 November 2017 for $43,134.62 (inc GST) (“Payment Claim 245”) and invoice number 257 dated 22 December 2017 for $8,104.06 (inc GST) (“Payment Claim 257”) (together “Payment Claims”). Consistently with the numerous earlier invoices from May 2017, each of the invoices comprising the Payment Claims was addressed to LTP. Each of the Payment Claims included a detailed listing of the labour, equipment hire and parts, and had attached to it a bundle of “day dockets” for the works done. These day dockets had the “Customer Name” as “MOC Developments”. Mr Tountzis deposed that this was because the day dockets were filled out by 3D’s labourers on site, “and MOC Developments was referred to as the customer because they were project managing the site”.[11]
[11]Second Tountzis affidavit at [27]
21 The day dockets also identified the “site instruction” to which the work related. The site instruction on the day dockets for Payment Claim 206 were either SI-013 or SI-033. The site instruction on the day dockets for the latter two invoices were all SI-033. It was common ground that SI-013 was the email of 28 August 2017 extracted above (as confirmed by the subject line in the email). It also appears not to be in dispute that site instruction SI-033 was constituted by a further email from Mr Elliott to Mr Tountzis dated 28 October 2017 with the subject line “SI-033”, as follows:
“Hi Alex
As discussed at today’s meeting, proceed with repair of the stormwater system on an hourly rate in conjunction with the down pipe works. Please ensure the damage is well documented with photos and MOC site managers are notified daily on where the works are being conducted and the work required to repair each item. Provide day dockets each day to be signed by MOC site manager. Provide as much information as possible including Zone, Elevation, Area and who is suspected of creating the damage.
For example
-Crushed pipe caused by construction traffic. Zone 4B Heavy constriction traffic
-Pipe had been repaired incorrectly or back filled incorrectly. Zone 1A Repaired by ABC Contracting
-Pipe had been cut away for construction access and had not been replaced. Zone 3C MOC had pipe removed for construction access
-Pipe had been cut away unknown Zone 2D
-Pipe damaged during an excavation nominate possible contractor
-Pipe damaged due to a design fault or change”.
22 Mr O’Connor has deposed that these site instructions were issued to 3D, “in order to direct it to carry out variation works or to carry out…defect rectification works”.[12] In relation to site instruction SI-013, Mr O’Connor’s evidence was that:
“Once the external walls and roof had been installed by third-party contractors, it became apparent that the Plaintiff had installed downpipe risers according to Civil Drawings as opposed to Architectural Drawings. The Civil Drawings specifically noted that the set out of risers was to be in accordance with the Architect drawings. MOC Developments took a series of photographs demonstrating that the works had been set out incorrectly… On 28 August 2018, a site Instruction #SI-013 was issued by MOC Developments to the Plaintiff… as an instruction to the Plaintiff to relocate the incorrectly installed in-ground risers it had installed under the [Original Contract]. Therefore the work required under Site Instruction #SI-013 was work that the Plaintiff was required to perform under the [Original Contract].”[13]
[12]First M O'Connor affidavit at [29]
[13]First M O'Connor affidavit at [32]-[36]; second M O'Connor affidavit at [37]-[40]
23 In respect of site instruction SI-033, Mr O’Connor deposed that this also related to defect rectification:
“Site instruction #SI-033 required the Plaintiff to proceed with repair of the storm water system and document the damage encountered together with as much information as possible as to the cause of the damage… For the reasons set out in [subsequent paragraphs] of this Affidavit, it became apparent that the cause of damage was that the storm water system installed by the Plaintiff was defective and not in accordance with the plans and specifications contained in the [Original Contract].”[14]
I note that Mr O’Connor in the passage above uses the phrase “it became apparent”. Further, the reasons he refers to all concerned events occurring in and after December 2017. Thus he does not appear to be asserting that the cause of the damage being allegedly attributable to 3D was something that was known to MOC at the time the site instruction was issued. This is consistent with the wording of the site instruction email itself, as discussed below.
[14]First M O'Connor affidavit at [40]-[43]; second M O'Connor affidavit at [46]-[49]
24 Mr Tountzis denies that the works referred to in site instructions SI-013 and SI-033 were for defect rectification and notes that “an hourly rate was agreed to be paid to the Plaintiff for these works, which would not have been the case if this was rectification work”. He said that some of the work “did relate to rectification of damage caused by other contractors, for example damage to pipes caused by moving heavy vehicles and earthworks equipment over the top of stormwater drainage”.
25 In my view, Mr Tountzis’s explanation of the two site instructions leading to the Payment Claims is to be preferred, essentially because it is consistent with the emails comprising the site instructions. In contrast, the emails directly contradict Mr O’Connor’s purported characterisation of them. The SI-013 email of 28 August states expressly that “there have been extensive changes to the locations of downpipes” and that 3D is instructed to “relocate the in-ground risers into positions as per the new design” (emphasis added). There is no suggestion that 3D was in any way responsible for the changes to the location of the downpipes.
26 Nor is there any suggestion in the email that the need for the work has resulted from 3D’s use of incorrect drawings or other defective work on the part of 3D, as suggested by Mr O’Connor. On the contrary, the email expressly identifies the “new design” as prompting the need to relocate the in-ground risers. Against that background, Mr O’Connor’s reliance on a photo showing that the downpipes do not meet the in-ground risers as evidence of 3D’s defective work,[15] is disingenuous. The email unequivocally attributes the “incorrect locations of the downpipe risers” to other causes (namely, the new design and the changes to the location of downpipes).
[15]First M O'Connor affidavit at [32]
27 Similarly, the SI-033 email makes no reference to any defective work by 3D, and in fact identifies numerous alternative potential causes for the damage, including construction traffic, pipes being cut for construction access and so on. It may be that subsequent investigations have led MOC to conclude that 3D was responsible for all or part of this damage, but that is not to the point (except possibly in relation to the payment schedules issue, discussed below). I am satisfied that at the time SI-033 was issued, there was no suggestion that it was an instruction to 3D to rectify defective work undertaken by it under the Original Contract. This is reinforced by the fact that both site instructions included terms for payment. I agree with Mr Tountzis that there would have been no offer or agreement to pay hourly rates and other expenses, if site instructions were in truth directions to rectify faulty workmanship by 3D under the Original Contract.
28 The three Payment Claims and day dockets were sent by 3D to Darryl Walsh, Contracts Administrator for MOC, by email to the email address [email protected], on the day the respective payment claims were dated (namely, 1 November, 30 November and 22 December 2017). Mr Tountzis has deposed that sending payment claims to this email address “has been the method of service used in the past since June 2017 by the Plaintiff for the service of its payment claims on the Defendant for the Ad Hoc Construction works”.[16] On this issue, Mr O’Connor deposed as follows:[17]
“I note that the Defendant is a related entity to MOC Developments. [Mr Thompson’s uncontradicted evidence was that the sole director of LTP, Elaine O’Connor, is Matt O’Connor’s mother[18]]. In order to facilitate payments being made to the Plaintiff for the works it performed under the [Original Contract], MOC Developments requested that the Plaintiff…make out its invoices to the Defendant, which it did. This was due to a specific arrangement between the Defendant and MOC Developments whereby the Defendant had agreed to make payments to various subcontractors on its behalf. However, under the [Original Contract], it was always MOC Developments that was liable to make payment for all works performed by the Plaintiff.”
[16]First Thompson affidavit at [6]
[17]First M O'Connor affidavit at [16]
[18]First Thompson affidavit at [44]
29 On 4 December 2017, Mr O’Connor sent an email to 3D raising concerns about aspects of 3D’s workmanship. The email relevantly includes the following sentence:
“Given the serious nature of the concerns expressed above and in discussions over the last week we have withheld payment of 3D’s most recent progress claim until such time as the Civil engineers (sic) statement has been receipted and 3D Flow is able to provide all information requested such as images of open trenches as installed and certainty to MOC that 3D Flow is willing, ready and able to return to site without delay and complete rectification works and contract works before the end of December 2017.”
30 On 12 December 2017, Mr O’Connor sent a further email to 3D asserting that 3D had not installed the stormwater drain system in accordance with the plans and specifications in the Original Contract. Both these emails were sent within 10 business days of 3D’s Payment Claim 245. On 3 January 2018, Mr O’Connor sent a lengthy corrective action report to 3D, setting out that 3D had not installed the stormwater drain system in accordance with the plans and specifications in the Original Contract. This corrective action report was sent within 10 business days of Payment Claim 257. LTP relies on these documents as constituting payment schedules within the meaning of s15(2) of the SOP Act, in respect of Payment Claims (respectively) 245 (the two emails) and 257 (the corrective action report). It is not alleged that a payment schedule was issued by LTP or MOC in respect of Payment Claim 206.
Legislative framework
31 The object of the SOP Act is to ensure that anyone who undertakes to carry out construction work, or to supply goods and services under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the performance of that work and the supply of those goods and services (SOP Act s3). A construction contract is defined by s4 of the SOP Act to mean a “contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services for another party”. Subject to s7 of the SOP Act, the Act applies to any construction contract, whether written or oral, or partly written and partly oral, and applies even if the contract is expressed to be governed by the law of a jurisdiction other than Victoria. There was no dispute that the work, the subject of the proceeding, fell within the definition of “construction work” in s5 of the SOP Act.
32 This proceeding did not involve an adjudication (dealt with in Part 3, Division 2 of the SOP Act), so the rights of the parties are governed by Part 3, Division 1, “Payment claims and payment schedules”, comprising ss14 to 17 of the SOP Act. These provisions relevantly provide as follows:
14 Payment claims
(1)A person…who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the construction contract concerned, is or may be liable to make the payment.
(2) A payment claim—
…
(c)must identify the construction work or related goods and services to which the progress payment relates; and
(d)must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and
(e) must state that it is made under this Act.
(3)The claimed amount—
…
(b)must not include any excluded amount.
(4)A payment claim in respect of a progress payment (other than a payment claim in respect of a progress payment that is a final, single or one-off payment) may be served only within—
(a)the period determined by or in accordance with the terms of the construction contract in respect of the carrying out of the item of construction work or the supply of the item of related goods and services to which the claim relates; or
(b)the period of 3 months after the reference date referred to in section 9(2) that relates to that progress payment—
whichever is the later.
…
(8)A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract.
15 Payment Schedules
(1)A person on whom a payment claim is served (the respondent) may reply to the claim by providing a payment schedule to the claimant.
(2)A payment schedule—
(a)must identify the payment claim to which it relates; and
(b)must indicate the amount of the payment (if any) that the respondent proposed to make (the scheduled amount); and
(c)must identify any amount of the claim that the respondent alleges is an excluded amount; and
…
(3)If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent's reasons for withholding payment.
(4)If—
(a)a claimant serves a payment claim on a respondent; and
(b)the respondent does not provide a payment schedule to the claimant—
(i)within the time required by the relevant construction contract; or
(ii)within 10 business days after the payment claim is served;
whichever time expires earlier—
the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.
16Consequences of not paying claimant where no payment schedule
(1) this section applies if the respondent —
(a)becomes liable to pay the claimed amount to the claimant under section 15(4) as a consequence of having failed to provide a payment schedule to the claimant within the time allowed by that section; and
(b)fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment to which the payment claim relates.
(2) In those circumstances, the claimant—
(a) may—
(i)recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction; or
…
(4)If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt—
(a)judgment in favour of the claimant is not to be given unless the court is satisfied—
(i)of the existence of the circumstances referred to in subsection (1); and
(ii)that the claimed amount does not include any excluded amount; and
(b)the respondent is not, in those proceedings, entitled—
(i)to bring any cross-claim against the claimant; or
(ii)to raise any defence in relation to matters arising under the construction contract.
33 Reference should also be made to s47 in Part 3 of the SOP Act. Section 47(1) provides in effect that nothing in the provisions of the SOP Act concerning the procedure for recovering payments under a construction contract in Part 2 (including the recovery provisions at ss14 to 16, set out above):
“…affects any right that a party to a construction contract:
(a) may have under the contract; or
(b) may have under Part 2 [rights to progress payments]; or
(c)may have apart from this Act is respect of anything done or omitted to be done under the contract.
34 Subsections (2) to (4) of s47 preserve rights in any proceedings arising under a construction contract and provide that in any such proceedings, the court or tribunal must make allowances (and, where appropriate, restitution) for any amount paid to a party to the construction contract under the recovery provisions of the SOP Act. The place of s47 in the scheme of the SOP Act has been said to be “to reinforce the interim nature” of determinations under Part 2 of the SOP Act:[19]
“The legislature intended the process of dealing with progress claims to be speedy. In many human activities, speed and error are natural companions. Section 32 [the NSW equivalent of s47 under the SOP Act] is the legislative recognition of the potential application of that truism to the scheme of adjudication of disputes.”[20]
[19]John Holland Pty Ltd v Roads & Traffic Authority (NSW) (2006) 66 NSWLR 624, per McDougall J at [33]
[20]Ibid at [37]
35 Thus a judgment entered under s16 of the SOP Act is, by reason of s47, effectively a provisional judgment, both in what it grants and what it refuses. The specific statutory context is one in which inconsistent judgments are contemplated and allowed.[21]
[21]Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385, per Handley JA (with whom Santow JA and Pearlman AJA agreed) at [22]
36 In summarising the effect of the SOP Act and the above provisions in particular, Vickery J in Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor[22] held (citation omitted):
[22](2009) 26 VR 112 at [2] and [43]-[46]
The Act has had a substantial effect in shifting the power balance between principals and subcontractors in construction contracts in Victoria and in other States and Territories where legislation in similar terms and with the same objects has been enacted. Subcontractors are now in a position to promptly secure payments of progress claims with the aid of a statutory mechanism which compliments the provisions of the construction contract. Outstanding claims of the principal under the contract, arising for example from poor workmanship or delay, are preserved as future enforceable claims, but cannot stand in the way of prompt payment of a progress claim found to be due under the expeditious process provided for in the Act.
The Victorian Act also preserves a claimant’s right to commence proceedings under the relevant construction contract, including proceedings in a court, and any arbitration proceedings or other dispute resolution proceedings: s48 [sic - s47]. Further, in any proceedings before a court or tribunal in relation to any matter arising under a construction contract, the court or tribunal is required to make allowance for any sum paid pursuant to the Act in any order which is made: s 48(3) [sic – s47(3)].
The principle that the respondent to a payment claim for a progress payment “should pay now and argue later” is given full effect under the Act. This regime promotes the object of the Act, being to facilitate timely payments between the parties to a construction contract and to provide for the rapid resolution of disputes arising in respect of progress claims under construction contracts.
From this analysis, I readily accept the observation made in a number of recent authorities that the Act places the claimant in a privileged position in the sense that it acquires rights that go beyond its contractual rights.
The Act also manifests another central aspiration, that of freedom from excessive legal formality. The provisions demonstrate a pragmatic concern to provide a dispute resolution process which is not bedevilled with unnecessary technicality. The Building and Construction Industry Security of Payment Act 1999 (NSW) has led to a spate of litigation in its relatively short life. If the Victorian Act became prone to challenges founded on fine legal points, an important object of the Act would be defeated by the twin adversaries of cost and time.
37 This last passage was cited with approval by the Court of Appeal in Pearl Hill Pty Ltd v Concorp Construction Group (Vic) Pty Ltd.[23]
[23][2011] VSCA 99 at [11]
38 When the Victorian SOP Act was amended with effect from 30 March 2007, the Minster for Planning made clear in the Second Reading speech that:
The main purpose of this bill is to amend the Building and Construction Industry Security of Payment Act 2002 to make it more effective in enabling any person who carries out building or construction work to promptly recover progress payments.
…
Cash flow is the lifeblood of the construction industry. It is critical that industry participants obtain prompt interim payment, pending a final determination of the matters in dispute.”[24]
[24]Victoria, Parliamentary Debates, Legislative Assembly, 9 February 2006, 220 (Rob Hulls, Minister for Planning)
Does the summary judgment test apply?
39 LTP has submitted that: “An application under s16 of the SOP Act is often described as an application for summary judgment”, citing Façade Engineering Pty Ltd v (in liq) v Brookfield Multiplex Construction Pty Ltd (“Façade Engineering”)[25] and Fulconstructions v ABP Consultants Pty Ltd (“Fulconstructions”).[26] LTP then seeks to extrapolate from these observations the conclusion that a court hearing such an application should apply to such applications the test for summary judgment under the Civil Procedure Act (2010) (Vic) (“CPA”) or the County Court General Civil Procedure Rules (2008) (Vic) (“Rules”). Namely, whether the respondent to the application has a real as opposed to a fanciful prospect of success. LTP has further submitted that: “This is the test that is commonly applied in determining summary judgment applications under the SOP Act”, citing two earlier decisions of this court.[27]
[25]Façade Engineering Pty Ltd v (in liq) v Brookfield Multiplex Construction Pty Ltd (2016) 337 ALR 452 at [56], [59], [111],[112] and [138]
[26][2016] VCC 1732 at [3] to [11]
[27]Baron Forge Contractors Pty Ltd v Vaughan Constructions Pty Ltd [2015] VCC 1424 and AC Hall Airconditioning Pty Ltd v Victorian Education Foundation Limited [2010] VCC 1473
40 In my view, this argument is misconceived. There is no basis as a matter of logic, nor in the authorities, for treating a procedure that provides for a proceeding to be determined summarily, as synonymous with an application for summary judgment under the CPA or the Rules. And to do so would entirely defeat the clear purpose of the SOP Act discussed above. I respectfully agree with and adopt the observation of Anderson J in Fulconstructions:
“Occasionally, the process has been described as a “summary judgment” application… It is apparent, however, that this is not the standard summary judgment process governed by section 62 of Civil Procedure Act 2010 where the “real prospect of test” is applied. In those circumstances, if the affidavit material raised a defence which was not “fanciful”, the proceeding could not be determined summarily but must go to trial… Such an approach would appear to cut across the whole purpose of the legislation. Usually, the applications permit only limited defences to be raised under the Act.”[28]
[28]At [7] and [8]
41 His Honour then postulates options for the process to follow in bringing an application to recover a payment claim under s16 of the SOP Act, being as, first, an ordinary summary judgment application or, second, as any other proceeding commenced by originating motion seeking statutory relief. In relation to the former, His Honour suggests that the “real prospect of success test” would appear to be inappropriate unless the test was somehow applied as if it were a final hearing rather than a summary application, with the court being able to apply the purpose of the legislation to determine whether any defence should succeed. In relation to the originating motion option, His Honour suggests “the application might be able to be dealt with summarily, alternatively it may require directions for there to be a (hopefully speedy) trial of the proceeding because of likely contested evidence”.[29]
[29]Fulconstructions at [10]
42 His Honour then goes on to note two potential difficulties with the latter approach. First, he identifies that the courts have cautioned against using the originating motion process where there are likely to be contested facts. Against this, the Rules themselves draw a clear distinction between when an originating motion is required and when it is optional. In particular, r4.05 provides that: “A proceeding shall be commenced by originating motion… where by or under any Act an application is authorised to be made to the Court” (emphasis added). In contrast, r4.06 provides that: “A proceeding may be commenced by originating motion where… it is unlikely that there will be any substantial dispute of fact”. In my view, it is at least strongly arguable that a proceeding under s16(2) of the SOP Act to “recover the unpaid portion of the claimed amount from the respondent, as a debt due to the claimant, in any court of competent jurisdiction”, is an application authorised to be made to the court by or under an Act, and is thus required to brought by originating motion.
43 His Honour’s second difficulty was that the final decision on the application will, because of s47 of the SOP Act, be effectively an interim decision capable of being re-litigated at a later time:
“Therefore, the court making the decision under the Act may feel constrained in making findings on matters of credit, or at least expressing the basis for those findings where it may constrain a later tribunal which deals with the matter and makes a final determination of contractual rights.”[30]
[30]Ibid
44 His Honour concluded his observations on this question by noting that “these are issues for another day, and hopefully at some stage an authoritative decision”.[31] Counsel for the parties indicated that they had been unable to find any authoritative decision on this issue or, more generally, on the application of the summary judgment test to proceedings under the SOP Act or its equivalent in other jurisdictions. Nor have I.
[31]Fulconstuctions at [11]
45 While I agree that the risk of inconsistent findings of fact (particularly involving issues of credit) is best avoided where possible, the legislature must have had this prospect in mind when expressly providing for a statutory regime involving an interim or provisional judgment. As noted above, the NSW Court of Appeal has held that this regime is one in which inconsistent judgments are expressly contemplated and allowed:
“The common law does not permit inconsistent judgments, but this may be sanctioned by statute and this is not the only example of such a statute in this jurisdiction. Compare Toubia v Schwenke(2002) 54 NSWLR 46, 50. The power under s32(3)(b) [SOP Act s47(3)(b)] to make such other orders as it considers appropriate would probably allow the court to set aside or vary any judgment entered under s25 [judgment on an adjudication certificate]. It is clear that the Act confers statutory rights on a builder to receive an interim or progress payment and enables that right to be determined informally, summarily and quickly, and then summarily enforced without prejudice to the common law rights of both parties which can be determined in the normal manner.”[32]
[32]Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385, per Handley JA (with whom Santow JA and Pearlman AJA agreed) at [22]
46 In those circumstances, I confess that I do not share Anderson J’s reticence in expressing the firm view that the appropriate option in proceedings seeking summary determination under the SOP Act, is to make application by originating motion supported by affidavit relying on r4.05(1)(b) of the Rules. To the extent that there are issues that may survive the application (or where the application is unsuccessful), the parties can avoid the expense of commencing a fresh proceeding, by seeking orders under r4.07 that all or part of the originating motion proceed as if commenced by writ and, if appropriate, that affidavits stand as pleadings.
47 However, in most cases (consistently with the object of the SOP Act), a successful application should bring such a proceeding to a summary and early conclusion, at least as far as the claimant/applicant is concerned. Matters that the respondent may have sought to raise in defence to the claim (including issues such as defects and delay) can be raised in a separate proceeding brought by the respondent as contemplated by s47 of the SOP Act. As discussed above, that proceeding may include an application by the respondent for restitution pursuant to s47(3) of the SOP Act, of any amount paid as a result of the earlier summary proceeding.
48 In so far as LTP relies on decisions of this court that have applied a summary judgment test to an application relying on the procedures for summary determination under the SOP Act, this too does not withstand scrutiny. As counsel for 3D noted in oral submissions, these were cases where the applicant had proceeded not by originating motion but by writ and summary judgment application. That is, the claimant had chosen the first of the two options postulated by His Honour Judge Anderson in Fulconstructions discussed above.
49 There can be no doubt that seeking relief under the SOP Act by means of a summary judgment application adds an additional layer of complexity to determining the appropriate test to be applied. Conformably with Anderson J, my preliminary view is that even where this mechanism is selected by an applicant, the “no real prospects of success” test under s63 of the CPA should not be permitted to trump the clear purpose of the SOP Act. However, as this proceeding was brought by originating motion, that more difficult issue does not presently arise for determination.
50 I would venture one final observation concerning the approach to applications under the SOP Act, which in part responds to His Honour Judge Anderson’s concerns about conflicting findings of fact, particularly on credit. It seems to me that s140(2) of the Evidence Act 2008 (Vic) (“EA”) has a role to play in how a court should approach the strength of the evidence necessary to establish a claim under the SOP Act, but not in the way that section is usually applied. Section 140 provides:
“(1)In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2)Without limiting the matters that the court may take into account in deciding whether it is satisfied, it must take into account—
(a)the nature of the cause of action or defence; and
(b)the nature of the subject-matter of the proceeding; and
(c)the gravity of the matters alleged.”
51 The principle reflected in s140(2) is almost invariably applied in cases where a court is being asked to make findings in respect of serious allegations or allegations carrying grave consequences, and is generally understood as the statutory manifestation of the principle in Briginshaw v Briginshaw.[33] However, it is important to bear steadily in mind that the principle (however applied) does not impinge on the fundamental requirement of satisfaction on the balance of probabilities:
“The ordinary standard of proof required of a party who bears the onus in civil litigation in this country is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary "where so serious a matter as fraud is to be found". Statements to that effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct. As Dixon J. commented in Briginshaw v. Briginshaw:
‘The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved ...’
There are, however, circumstances in which generalisations about the need for clear and cogent evidence to prove matters of the gravity of fraud or crime are, even when understood as not directed to the standard of proof, likely to be unhelpful and even misleading.”[34]
[33](1938) 60 CLR 336, per Dixon J at 361-2
[34]Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 per Mason CJ, Brennan, Deane and Gaudron JJ at 449-450
52 Subject to the note of warning in above the passage, to my mind there is no obvious reason why s140(2) of the EA cannot be applied in a way so that the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary in both directions. The “nature of a cause of action or defence”[35] in a proceeding under s16 of the SOP Act is one:
[35]EA s140(2)(a)
· that is brought under legislation plainly intended to enable a right to payment to be determined informally, summarily and quickly;
· where the right to defend the cause of action is expressly constrained by that legislation; and
· where the consequences flowing from a finding are not grave and are, indeed, temporary.
53 Thus, if there were a scale for the strength of the evidence necessary to establish facts on the balance of probabilities, an allegation of fraud or criminal conduct would sit at the high end of that scale, whereas proof of facts to establish a claim under s16(2) of the SOP Act would be at the low end. For example, a court might ordinarily be more comfortable reaching a conclusion on a contested fact by allowing cross-examination of a deponent who gives evidence about that fact. However, if the contemporaneous documents tend to support the deponent’s version, a court might reach a sufficient level of satisfaction for the purposes of a finding in a claim under s16(2) of the SOP Act, without the need to have the deponent’s version tested by cross-examination. That is not to say, of course, that cross-examination of deponents should not occur if the circumstances of the case demand it. In the case before me, neither party sought to cross-examine on any of the affidavits filed.
54 I should acknowledge that I have found no authority endorsing this approach to the application of s140(2) of the EA to proceedings under the SOP Act. Indeed, I have been unable to find any authority suggesting that the section may be applied in any circumstances to permit a lighter touch by a court in assessing the strength of evidence in a proceeding. The cases applying the principle reflected in s140(2) of the EA appear to be concerned only with allegations at the more serious end of the scale, where inexact proofs, indefinite testimony or indirect inferences are considered insufficient to support a finding. Accordingly, it is important for the purposes of this proceeding to emphasise that I do not regard the proofs adduced by 3D as inexact or based on indefinite testimony or indirect inferences. I am satisfied that it has established on the balance of probabilities the pre-requisites to a claim for a debt due under s16(2) of the SOP Act.
What is the construction contract?
55 LTP has submitted that there is detailed evidence supported by contemporaneous site records that the work the subject of the Payment Claims was performed by 3D under the Original Contract and that 3D is unable to establish (on any standard of proof) that the work was performed pursuant to ad hoc requests. I do not agree. For the reasons above, I am satisfied that at least at the time they were given in (respectively) August and October 2017, site instructions SI-013 and SI-033 were understood by both parties to be requests for ad hoc work, continuing a pattern of similar requests commencing in about May of that year. That finding is supported by my findings of fact above and (in particular):
· the payment to 3D of the full contract price owing under the Original Contract, and thus the absence of any withholding of funds to secure completion of the aggi works;
· the absence of any written record of any arrangement for 3D to undertake further aggi works, notwithstanding payment of the full contract price; and
· the language of site instructions SI-013 and SI-033 themselves, including the reference to the work being necessitated by the “new design” and the absence of any reference to the Original Contract or any defect in the work performed by 3D thereunder.
56 Thus in my view, the construction contract for the purpose of the application of the provisions of the SOP Act in this case, comprises the emails constituting site instructions SI-013 and SI-033 as described above. LTP does not submit that these communications are not capable of constituting a construction contract within the meaning of the SOP Act. Similarly, the construction work within the meaning of the SOP Act is the ad hoc work undertaken by 3D as set out in the Payment Claims. As noted above, there is no dispute that this is construction work within the meaning of the SOP Act. I also note that LTP does not contend that the Payment Claims fail to satisfy the requirements of s14(2) of the SOP Act.
57 My finding on this issue dispenses with the need for me to consider LTP’s defences that rely on the Original Agreement being the “construction contract” for the purposes of the Payment Claims. These are described in its written submissions as Reason Two, Reason Three and Reason Four. Similarly, it is unnecessary for me to make findings in relation to 3D’s argument that its application should be granted even if the construction contract for the purposes of the Payment Claims is the Original Agreement.
Is LTP a person liable under that construction contract?
58 LTP’s Reason One for rejecting 3D’s claim is that “the proceeding has been commenced against the wrong entity, being an entity that is not a party to the [Original Contract]”. However, unlike LTP’s Reasons Two to Four, my finding concerning the construction contract above does not entirely dispose of this issue. There remains a real question whether LTP is the person who, “under the construction contract concerned, is or may be liable to make the payment” for the purposes of s14(1) of the SOP Act. I will treat LTP’s submission as relating to what I have found is the “construction contract concerned” (namely, the contract comprising the site instructions), notwithstanding that they are primarily directed to the Original Contract.
59 In that regard, LTP relies primarily on the NSW Court of Appeal decision in Grave v Blazevic Holdings (“Grave”),[36] as discussed in the decision of Cosgrave J of this court in Baron Forge Contractors Pty Ltd v Vaughan Constructions Pty Ltd.[37] As Cosgrave J noted, the leading judgment in Grave was delivered by McDougall J, a recognised expert in the field of building and construction law. McDougall J held that the primary judge did not pay attention to the words “under the construction contract concerned” in the NSW equivalent of s14(1). He held that:
“Section 8 [SOP Act s9] is the source of the statutory right to receive progress payments. It says who is entitled to be paid. That is a party to the construction contract — the person who undertakes to carry out construction work. It does not say in terms who is liable to make the payment, but I think it is implicit at least that the liability is one that is created against the other party to the construction contract.”[38]
[36]Grave v Blazevic Holdings [2010] NSWCA 324
[37][2015] VCC 1424
[38]Grave at [24]
60 McDougall J nevertheless recognised that, while the construction contract is the source for determining who “is or may be liable” for the purposes of s14(1), the language encompasses both a party to, or other person liable under, the construction contract:
“The person on whom the progress claim may be served is someone who, under the construction contract concerned, is or may be liable to make the payment. The words “is or may be liable” may be capable of referring, for example, to primary or secondary liability (the latter, for example, as guarantor)…However, whatever is the nature and amount of the liability sought to be enforced, it must be a liability “under the construction contract concerned”. If the proposed recipient of the payment claim is not a party to or liable under the construction contract, then it falls outside that statutory description (emphasis added).”[39]
[39]Grave at [26]
61 Similarly, Macfarlan JA (who agreed with McDougall J) held that:
Section 13(1) [SOP Act s14(1)] in my view requires the claimant to be a person of the character described in s8(1) [SOP Act s9(1)], and not simply arguably so. The position is different in relation to liability under the contract, once it is accepted that a relevant contract exists. In that case, it is sufficient, as s13(1) [SOP Act s14(1)] says, that the person on whom a claim is made “may be liable” to make the payment, that is, is arguably liable to do so.”[40]
[40]Grave at [42]
62 Allsop P (who also agreed with McDougall J) approached the issue from a different direction; confirming that the purpose of the legislation “does not extend to making strangers to construction contracts liable for progress payments”.[41]
[41]Grave at [44]
63 In my view, the decision in Grave should not be taken as authority for the proposition that a claimant can engage the provisions of the SOP Act only by serving a payment claim on the person who is, in the strict or formal sense, the “other party” to the construction contract. The passages above clearly recognise that the person may be either a party to or liable under the contract. McDougall J gave the example of a guarantor being a person who may be liable under the construction contract. If the guarantor executed a separate instrument (as often occurs under a performance guarantee), they would not be a party to the construction contract in the strict sense, but would still be a person who “may be liable” under the construction contract.
64 In the case of an agent executing a construction contract for a named principal, the position is to my mind even clearer. Thus, as long as the person on whom the payment claim was served can be shown to be a party to or otherwise arguably liable under the construction contract concerned, the provisions of the SOP Act will be engaged. The gravamen of Grave (as Allsop P made clear) is that the person on whom the payment claim is served must be someone who is not a stranger to the construction contract.
65 The importance of eschewing formality in applying these provisions of the SOP Act was recognised in a more recent decision of McDougall J in Seabreeze Manly Pty Ltd v Toposu (“Seabreeze”)[42]. This case dealt primarily with the definition of “construction contract” in s4 of the SOP Act. But, for the reasons discussed in Grave, the nature and scope of the “construction contract” necessarily informs the potential scope of liability under s14(1) of the SOP Act. The facts of the case were not unlike the present, in that there was a dispute about whether it was the developer (Seabreeze) or its project manager/builder (Castle Projects) who was liable to the claimant (Toposu), under the construction contract.
[42][2014] NSWSC 1097
66 McDougall J cited extensively from two of his earlier decisions in which he had considered the expression “contract or other arrangement” (emphasis added) as it appears in the definition of “construction contract” in s4 of the SOP Act. In particular, in Machkevitch v Andrew Building Construction,[43] His Honour had held:
“It seems to me, as a simple matter of reading the legislative words, that the concept of ‘other arrangement’ is something which goes beyond the concept of ‘contract’. No doubt, the legislature had in mind that, from time to time, work would be done pursuant to arrangements which might not be susceptible to classification as contracts, formal or informal. Clearly, it did not intend that the entitlement to payment should depend on the degree of formality in the arrangements pursuant to which work should be done.”
[43][2012] NSWSC 546 at [18]-[19]
67 His Honour endorsed the decision of Nicholas J in Okaroo Pty Ltd v Vos Construction and Joinery Pty Ltd,[44] that the word “arrangement” in the Act encompassed transactions or relationships which were not legally enforceable.[45]
[44][2005] NSWSC 45 at [41]
[45]Machkevitch v Andrew Building Construction [2012] NSWSC 546 at [24]
68 Returning to the facts in Seabreeze, McDougall J held:
“It is clear that, for the purposes of the definition of ‘construction contract’, an ‘arrangement’ (and, for that matter, a contract) may be multilateral. That follows necessarily from the words ‘another party’.
It is equally clear that the existence of a construction contract between A and B for B to carry out particular work for A will not necessarily negate the parallel existence of an arrangement between A and C, or between A, B and C, for C to carry out for A part only of that construction work. That is so a fortiori in the present case, where it is apparent that the true nature of the contract between Seabreeze and Castle Projects made the latter in effect, among other things, a conduit or medium between Seabreeze and the various subcontractors who did the actual work of building the project.
Here, in my view, the evidence demonstrates an arrangement under which Toposu undertook to perform construction work for Seabreeze's project and, thus, for the benefit of Seabreeze. The evidence demonstrates, further, that Toposu did this on the express and accepted basis that Seabreeze undertook to pay it, and was liable to pay it, directly for the work done.”[46]
[46]Seabreeze at [35]-[37]
69 In this case, in my view, the fact that the Original Contract contained an express term (in clause 22.5) that that “Payment Claims rendered by the Contractor…will…be paid by MOC”, does not negate the parallel existence of an arrangement between 3D and LTP that it too may be liable for the Payment Claims. In the case of the Original Contract, that parallel arrangement may have arisen simply by virtue of MOC acting as LTP’s agent, or because of MOC’s express instruction to 3D to invoice LTP direct, or both. The position in relation to the contract for ad hoc works is even clearer. By this time, 3D had been invoicing LTP directly for several months, numerous purchase orders had been issued by LTP as “customer” in the period leading up to the issue of site instructions SI-013 and SI-033 and it was far from clear whether MOC continued to have any parallel liability to pay for the works.
70 As mentioned above, Mr O’Connor described the direction that 3D make out its invoices to LTP as being due to a specific arrangement between the LTP and MOC whereby LTP “had agreed to make payments to various subcontractors on its behalf”. However, he added, under the Original Contract it was always MOC Developments that was liable to make payment for all works performed by 3D. Thus it is clear that MOC was authorised by LTP to give the direction to invoice LTP. And as I have said, simply because MOC was liable, does not exclude the possibility that LTP was also at least arguably a “person who…may be liable” for the purposes of s14(1), even under the Original Contract. In relation to the contract for the ad hoc works, I consider that:
(a) the “construction contract” for the purposes of s4 of the SOP Act was a multi-lateral arrangement under which 3D was performing work as directed by MOC for the benefit of LTP, where (to use Mr O’Connor’s words) LTP “had agreed to make payments to various subcontractors”, including 3D;
(b) accordingly, the better view is that LTP was a party to the construction contract, but even if it was not a party in the formal sense, it was nevertheless a person who, under the construction contract, was at least arguably liable to make the payments under the Payment Claims, and thus a person who “may be liable” within the meaning of s14(1) of the SOP Act; and
(c) it was part of the arrangement that 3D’s invoices would be sent to an MOC email address, and this does not detract from the conclusions I have reached in (a) and (b) above.
Did LTP issue timely payment schedules?
71 The requirements for a payment schedule under s15(2) and (3) of the SOP Act are set out above. LTP has submitted that the issue of what constitutes a valid payment schedule was considered in detail in Façade Treatment Engineering Pty Ltd (in liq) v Brookfield Multiplex Constructions Pty Ltd[47] (“Façade Engineering”) and that, by reference to those principles:
(a)its email dated 4 December 2017 constitutes a valid payment schedule in response to Payment Claim 245;
(b)its corrective action report dated 3 January 2018 constitutes a valid payment schedule in response to Payment Claim 247.
[47](2016) 337 ALR 452 at [234] to [263]
72 In reply, 3D has submitted that the email and corrective action report do not meet the requirements for a payment schedule as they:
· do not identify the payment claim to which they relate (other than a reference in the text of the 4 December 2017 email to “3D’s most recent payment claim”);
· do not indicate the amount of the payment it is proposed to make (the 4 December 2017 email simply indicates that payment is being “withheld” until certain events take place); and
· do not set out the reasons for withholding payment.
73 Applying the principles in Façade Engineering, (notably at [255]), I would accept that it is evident from the 4 December 2017 email as a whole that it related to Payment Claim 245 and that LTP did not intend to pay 3D anything in respect of that payment claim. Thus (in the words of Façade Engineering), the email “was sufficient to ‘indicate’…that no payment was forthcoming”.[48] However, I would respectfully also adopt what the Court of Appeal said on the question of the provision of reasons under s15(3) of the SOP Act. In this regard the Court cited with approval the decision of Palmer J in Multiplex Constructions Pty Ltd v Luikens,[49] where His Honour held as follows:
“For a respondent merely to state in its payment schedule that a claim is rejected is no more informative than to say merely that payment of the claim is ‘withheld’: the result is stated but not the reason for arriving at the result. Section 14(3) requires that reasons for withholding payment of a claim be indicated in the payment schedule with sufficient particularity to enable the claimant to understand, at least in broad outline, what is the issue between it and the respondent. This understanding is necessary so that the claimant may decide whether to pursue the claim and may know what is the nature of the respondent’s case which it will have to meet if it decides to pursue the claim by referring it to adjudication.”[50]
[48]Façade Engineering at [255]
[49][2003] NSWSC 1140
[50][2003] NSWSC 1140 at [60]
74 The Court of Appeal’s finding that the email in contention before it was insufficient to meet the test set by Palmer J, can be applied almost verbatim to the 4 December 2017 email in this case. That finding was relevantly as follows (omitting citations):
“Next, it is necessary to consider whether the 5 October 2012 email satisfied the requirement in s 15(3) that it indicate Multiplex’s reasons for withholding payment from Façade. We adopt the observations of Palmer J in Luikens that s 15(3) requires reasons to be indicated ‘with sufficient particularity to enable the claimant to understand, at least in broad outline, what is the issue between it and the respondent’. Absolute precision is not required, and cannot be expected given the reasonably short period within which a respondent is required to prepare a payment schedule (being at most 10 days). Previous dealings between the parties form part of the context relevant to deciding whether the reasons have been indicated with sufficient particularity. The concern is to ensure that the claimant has sufficient information to make a decision whether or not to pursue the claim.
…
The 5 October 2012 email, Façade argues, is merely a ‘holding position’. This is evident from the conclusion of the email, which states that upon Façade remedying the defects identified in the email, Multiplex ‘will be in a position to issue [Façade] with a payment schedule’.
It is important to note that reasons for withholding payment do not need to be ultimately vindicated to constitute adequate reasons for the purposes of a payment schedule…Nevertheless, the reasons do need to give the claimant an indication of the objections taken to the claims made in the payment claim. In this case, the 5 October 2012 email raised two complaints relating to the general conduct of the Subcontract by Façade, but neither went to any of the particular items claimed in Payment Claim 19.’[51]
[51]Façade Engineering at [256]-[259]
75 Similarly in this case, the 4 December 2017 email also articulates no more than a “holding position” pending the provision of further information and “certainty to MOC that 3D Flow is willing, ready and able to return to site without delay and complete rectification works”. There is nothing in the email that goes to any of the particular items claimed in Payment Claim 245 or that would otherwise enable 3D to make a decision whether or not to pursue the claim by referring it to adjudication.
76 In contrast, the corrective action report dated 3 January 2018 relied on by LTP in respect of Payment Claim 247 probably has sufficient detail to satisfy the test under s15(3) of the Act. However, it wholly fails to identify both the payment claim to which it relates and the amount of the payment it is proposed to make as required by (respectively) ss15(2)(a) and (b). Accordingly, in my view, neither the email dated 4 December 2017 nor the corrective action report dated 3 January 2018 constitutes a valid payment schedule for the purposes of s15(1) of the SOP Act.
77 There is no dispute that LTP has not paid the amounts claimed under the Payment Claims by the due date, nor is there any other matter that stands in the way of 3D recovering the Payment Claims as a debt due under s16(2) of the Act. I will therefore make orders on 3D’s motion as referred to above.
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Certificate
I certify that these 36 pages are a true copy of the judgment of His Honour Judge Woodward delivered on 7 June 2018.
Dated: 7 June 2018
Simone Karmis
Associate to His Honour Judge Woodward
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