Best Fab Pty Ltd v Australian High Bay Installations Pty Ltd
[2018] VCC 1053
•16 July 2018
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Building Cases List
Case No. CI-17-02934
| BEST FAB PTY LTD (ACN 105 906 876) | Plaintiff |
| v | |
| AUSTRALIAN HIGH BAY INSTALLATIONS PTY LTD (ACN 612 575 934) | Defendant |
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JUDGE: | HER HONOUR JUDGE MORRISH | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 27 and 28 July 2017 and 31 August 2017 | |
DATE OF JUDGMENT: | 16 July 2018 | |
CASE MAY BE CITED AS: | Best Fab Pty Ltd (ACN 105 906 876) v Australian High Bay Installations Pty Ltd (ACN 612 575 934) | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1053 | |
REASONS FOR JUDGMENT
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Subject:BUILDING CONTRACTS
Catchwords: Building contract – whether payment claim under Building and Construction Industry Security of Payment Act 2002 (Vic) (“the Act”) validly made – elements of proof to be established – observations about the test to be applied – whether entitlement to claim progress payments governed by contractual arrangement or by the default provisions set out in the Act – whether payment claim referable to stand-alone contract – whether reference date arose – whether entitlement to progress payments triggered by event or date – whether payment schedule under the Act validly made
Legislation Cited: County Court Civil Procedure Rules 2008 (Vic), r5.03(1), r.8.02, r22.03, r22.04, r22.05, r22.06, r22.07, r22.08, r22.10; Building and Construction Industry Security of Payment Act 2002 (Vic), s1, s2, s3, s4, s7, s9, s10, s11, s14, s15, s16, s18, s47; Building and Construction Industry Security of Payment (Amendment) Act 2006, s16; Building and Construction Industry Security of Payment Act 1999 (NSW); Civil Procedure Act 2010, Part 4.4, s61, s62 s63, s64, s65
Cases Cited: Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27; Pearl Hill Pty Ltd v Concorp Construction Group (Vic) Pty Ltd (2011) 32 VR 247; Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248; Fulconstruction v ABP Consultants Pty Ltd [2016] VCC 1732; 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674; Grocon Constructors v Planit Cocciardi Joint Venture (No 2) (2009) 26 VR 172; Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (2009) 26 VR 112; Milburn Lake Pty Ltd v Andritz Pty Ltd [2016] VSC 3; Masters v Cameron (1954) 91 CLR 353; Air Great Lakes Pty Ltd & Ors v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309; Agius v Sage [1999] VSC 100; Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (1978) 139 CLR 231; Sheehan v Zaszlos [1995] 2 Qd R 210; G R Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; Geebung Investments Pty Ltd v Varga Group Investments (No 8) Pty Ltd (1995) Aust Contract R 90-059; Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; Mackie Pty Ltd v Counahan [2013] VSC 694; Isis Projects v Clarence Street [2004] NSWSC 714; Clarence Street Pty Ltd v Isis Projects Pty Ltd (2005) 64 NSWLR 448; Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106; Seabay Properties Pty Ltd v Galvin Construction Pty Ltd & Anor [2011] VSC 183
Judgment: Application for summary judgment dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B Mason | HWL Ebsworth Lawyers |
| For the Defendant | Mr K J Naish | Frenkel Partners |
Table of Contents
Background........................................................................................................................................ 1
The application.................................................................................................................................. 3
Summary of findings......................................................................................................................... 4
Procedure and the test to be satisfied before summary judgment can be entered........ 5
The hearing....................................................................................................................................... 11
The evidence..................................................................................................................................... 11
Statutory framework and applicable principles.................................................................. 12
The claim for progress payment................................................................................................. 22
(1) Was there a “construction contract”?............................................................................ 24
(a) What were the terms of the arrangement?................................................................... 25
The Plaintiff’s evidence................................................................................................... 25
The Defendant’s evidence.............................................................................................. 32
The Plaintiff’s reply........................................................................................................... 42
The submissions............................................................................................................... 42
Analysis.............................................................................................................................. 49
(b) Did the arrangement make provision for progress payments?................................. 56
(c) What milestones triggered the right to claim a progress payment?......................... 58
(d) Were the relevant milestones achieved so as to justify making a progress claim? 60
(2) Has a valid reference date arisen under Section 9?...................................................... 60
(3) Was a valid payment claim made under Section 14? ........................................................ 61
(4) Was there a valid payment schedule under Section 15 in response to the payment claim?............................................................................................................................................................. 65
The Defendant’s first email....................................................................................................... 69
The Defendant’s payment schedule........................................................................................ 69
(a)Did the payment schedule identify the payment claim to which it related?.......... 69
(b)Did the payment schedule indicate the amount of the payment (if any) that the defendant proposed to make?........................................................................................................ 69
(c)Did the payment schedule indicate why the amount proposed was less than the payment claim and the reasons why payment was being withheld?..................................... 69
(5) Did the respondent fail to pay the amount claimed?....................................................... 70
(6) Did the payment claim include any excluded amount?..................................................... 70
Conclusion....................................................................................................................................... 70
Appendix
Chronology..................................................................................................................................... 72
HER HONOUR:
Background
1 The plaintiff, Best Fab Pty Ltd (ACN 105 906 876) (“Best Fab”), is a manufacturer and installer of general and structural steel. The defendant, Australian High Bay Installations Pty Ltd (ACN 612 575 934) (“AHBI”), was engaged by a third party, Dematic Pty Ltd, as the head contractor for the construction of two cold storage warehouse racking systems (Newcold 1 Project and Newcold 2 Project) (“the project”) at premises in Truganina (“the Truganina warehouse”).
2 It is not in dispute that the defendant, AHBI, engaged the plaintiff, Best Fab, to assist in the construction of a cold storage racking system as part of the project. The work to be performed by the plaintiff involved the installation of a prefabricated “high bay racking” system consisting of 608 “racking towers” in the Truganina warehouse. It was intended that the 608 racking towers would be installed in the warehouse building in three connected sections referred to as “Warehouse 1”, “Warehouse 2” and “Warehouse 3”.
3 It is common ground that a “racking tower” consists of industrial shelving comprising two main components: First, vertically arranged columns placed at regular intervals and, second, horizontal shelves placed along the length of the columns. The number of columns depends on the specified width of the of the racking tower, but it is not in dispute that racking towers may require between four to six columns to ensure their structural integrity.
4 The racking towers the subject of this dispute were to be aligned in a row. The ends of each of the racking towers were to be supported by a “bracing bay”, which is a self-supported structure. The purpose of the bracing bays was to provide stability and structural support for the completed racking towers.[1]
[1]Counsel for the plaintiff, Mr Mason, asserts that the bracing bays must be installed before the racking towers; Transcript 30-31
5 It is not in controversy that the plaintiff performed some work on the racking towers as agreed between the parties. However, a dispute subsequently arose and the plaintiff’s services were terminated before the final works were completed.
6 It is not in issue that the arrangement between Best Fab and AHBI was partly in writing and partly oral, although no formal contract was signed jointly by the parties. Nor is it suggested that the parties had reached agreement about every aspect of their arrangement. Significantly, there is a factual dispute about whether their arrangement provided for progress payments and, if so, what milestones triggered the right to make a claim for progress payments. If the right to claim progress payments by reference to milestones formed part of the arrangement, the parties are in dispute about whether those milestones were achieved.
7 Best Fab seeks relief in the form of summary judgment under the Building and Construction Industry Security of Payment Act 2002 (“the Act”). It asserts that on 6 March 2017, it made a claim for a progress payment in the amount of $330,000.00 under the Act. It contends that a relevant “reference date” as defined by the Act had arisen justifying the payment claim. It further asserts that no valid payment schedule in response to the payment claim was submitted by AHBI under the Act, and that AHBI has failed to pay the amount claimed. Accordingly, Best Fab submits that it is entitled to summary judgment under the Act.
8 On the other hand, AHBI denies that Best Fab has made a valid payment claim and it disputes that the reference dates asserted by Best Fab arose validly under the Act. Further, AHBI claims that it submitted a valid payment schedule in reply to Best Fab’s payment claim, and that the plaintiff’s claim for summary relief must be refused.
9 In any event, AHBI submits that an application for summary judgment is not the appropriate forum in the circumstances of this case to resolve the significant factual disputes that emerge from the untested evidence. Both parties have tendered evidence by way of affidavits conflicting with the other’s version of the critical terms of the arrangement. In this hearing, neither party chose to cross-examine the other’s deponents. AHBI submits that in all the circumstances, it could not be said that the defendant has no real chance of success, so I should dismiss the application.
The application
10 By Originating Motion filed 27 June 2017, the plaintiff seeks the following orders:
“1. That the requirements of rule 5.03(1) and rule 8.02 of the County Court Civil Procedure Rules2008 (Vic) be dispensed with.
2. That the Plaintiff be authorised to commence this proceeding by originating motion in Form 5C of the County Court Civil Procedure Rules2008.
3. That the Court hear and determine immediately the originating motion filed in this proceeding.
4. The Court grants judgment the (sic) Plaintiff against the Defendant under section 16(2) of the Building and Construction Industry Security of Payment Act2002 (Vic) and, or alternatively, pursuant to rule 22.03 of the County Court Civil Procedure Rules2008 (Vic) or section 63 of the Civil Procedure Act2010 (Vic), for:
(a)the sum of $330,000.00 (including GST) (Judgment Debt); and
(b)interest on the Judgment Debt pursuant to section 12(2)(a) of the Building and Construction Industry Security of Payment Act2002 (Vic), at the rate for the time being fixed under section 2 of the Penalty Interest Rates Act1983 (Vic)
5. Costs.
6. Such further or other order as the Court deems appropriate.”[2]
[2]Originating Motion filed 27 June 2017
11 Similar relief was sought by Summons on Originating Motion also filed 27 June 2017.
12 No other proceeding has been brought by Best Fab against AHBI in relation to the work performed under the arrangement the subject of this application.
13 In order to succeed in this application, the plaintiff must establish six elements:
(i)There was a “construction contract” within the meaning of s4 of the Act (it is not in issue that there was a “construction contract” as defined by the Act, but its terms, particularly regarding progress payments, are in issue); and
(ii)A valid reference date had arisen under s9 of the Act; and
(iii)A valid payment claim was made under s14 of the Act; and
(iv)No valid payment schedule under s15 of the Act was submitted in response to the payment claim;[3] and
(v)The respondent to the claim has failed to pay the amount claimed (not in issue); and
(vi)There is no excluded amount included in the payment claim under s16(4)(a)(ii) (not in issue).
[3]The plaintiff identified this as an element in respect of which it bears the burden of proof. To err on the side of caution for the purposes of this application, I have assumed that the defendant bears the burden of proving that it submitted a valid payment schedule in response to the payment claim.
Summary of findings
14 For the reasons that follow, I find:
(i)I am satisfied on the balance of probabilities that there was a construction contract;
(ii)I am not satisfied on the balance of probabilities that a valid reference date arose under s9 of the Act;
(iii)I am not satisfied on the balance of probabilities that the payment claim made under s14 of the Act was valid;
(iv)Even if the payment claim was valid, I am satisfied on the balance of probabilities that the defendant submitted a valid payment schedule in response to it;
(v)I am satisfied on the balance of probabilities that the defendant failed to pay the amount claimed; and
(vi)I am satisfied on the balance of probabilities that no excluded amount was included in the payment claim.
15 Accordingly, the plaintiff’s application must be dismissed.
Procedure and the test to be satisfied before summary judgment can be entered
16 I have set out the form of the various applications and note that Best Fab sought that “the court hear and determine immediately the Originating Motion filed in this proceeding”.[4] In the alternative to the claim that judgment be entered against the defendant under s16(2) of the Act, Best Fab seeks summary judgment under s63 of the Civil Procedure Act 2010 or under Rule 22.03 of the County Court Civil Procedure Rules 2008 (“the Rules”).
[4]Originating Motion, paragraph 3
17 Although there may be a difference in the procedure to be adopted in the determination of an application under the Act commenced by originating motion when no other process is on foot on the one hand, and the procedure that applies more generally to applications for summary judgment under s63 of the Civil Procedure Act 2010 or under Rule 22.03 of the Rules on the other hand, the parties conducted the hearing as if it were an application for summary judgment. I shall return to this later.
18 Part 4.4 of the Civil Procedure Act 2010 and Part 2 of the Rules govern the procedure for applications for summary judgment.
19 Sections 61, 63, 64 and 65 of the Civil Procedure Act 2010 provide:
“61 Plaintiff may apply for summary judgment in proceeding
A plaintiff in a civil proceeding[5] may apply to the court for summary judgment in the proceeding on the ground that a defendant's defence[6] or part of that defence has no real prospect of success.
[5]“civil proceeding means any proceeding in a court other than a criminal proceeding or quasi-criminal proceeding”, Civil Procedure Act 2010, s3
[6]Because there is no writ or statement of claim, no defence has been filed
…
63 Summary judgment if no real prospect of success
(1)Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.
(2)A court may give summary judgment in any civil proceeding under subsection (1)—
(a)on the application of a plaintiff in a civil proceeding;
(b)on the application of a defendant in a civil proceeding;
(c)on the court’s own motion, if satisfied that it is desirable to summarily dispose of the civil proceeding.
64 Court may allow a matter to proceed to trial
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a)it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
65 Interaction with rules of court
The powers of a court under this Part are in addition to, and do not derogate from, any powers a court has under rules of court in relation to summary disposal of any civil proceeding.”
20 Rules 22.03 to 22.08 and 22.10 provide:
“Part 2—Application by plaintiff for summary judgment
22.03 Application by plaintiff for judgment
An application under section 61 of the Civil Procedure Act 2010 by a plaintiff in a civil proceeding for summary judgment in the proceeding shall be made in accordance with this Part of this Order.
22.04 Summons and affidavit in support
(1)An application shall be made by summons supported by an affidavit—
(a)verifying the facts on which the claim or the part of the claim to which the application relates is based; and
(b)stating that in the belief of the deponent the defence to the claim or the defence to the relevant part of the claim—
(i)has no real prospect of success; or
(ii)has no real prospect of success except as to the amount of the claim or as to the amount of the relevant part of the claim.
…
22.05 Defendant to show cause
(1)The defendant may show cause against the application by affidavit or otherwise to the satisfaction of the Court.
(2)An affidavit under paragraph (1) may contain a statement of fact based on information and belief if the grounds are set out.
…
22.06 Affidavit in reply
(1)Where the defendant serves an affidavit under Rule 22.05, the Court may by order allow the plaintiff to rely upon an affidavit in reply.
(2)Paragraphs (2) and (3) of Rule 22.04 apply, with any necessary modifications, to an affidavit in reply made under this Rule.
22.07 Cross-examination on affidavit
(1) The Court may order any party or the maker of any affidavit—
(a)to attend and be examined and cross‑examined; or
(b)to produce any documents, or copies of or extracts from those documents.
…
22.08 Hearing of application
[Sets out the orders that the Court can make at the hearing of the application].
…
22.10 Judgment where debt amount unascertained
[Sets out how the Court deals with an application for summary judgment on a claim for a debt where the debt is not established to the satisfaction of the Court, and where, if the amount were established, the Court would give summary judgment on the claim under s63 of that Act].”
21 The applicant seeks to rely on s16(2) of the Act. I shall refer to this later.
22 The parties agree that summary judgment cannot be given if the respondent has a ‘real’, as opposed to a ‘fanciful’, prospect of success.[7] As Nettle JA (as his Honour then was) and Warren CJ put it in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd:[8]
[7]Plaintiff’s written submissions, exhibit C, paragraph 3; defendant’s written submissions, exhibit 3, paragraph 5. The parties rely on cases such as Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27 particularly at paragraph [35]; see also Pearl Hill Pty Ltd v Concorp Construction Group (Vic) Pty Ltd (2011) 32 VR 247 at paragraph [8] in support of this proposition.
[8](ibid)
“[29]… [T]he test under s 63 of the Civil Procedure Act should be construed as one of whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success; that the ‘real chance of success’ test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test; and that, as the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not ‘hopeless’ or ‘bound to fail’, it does not have a real prospect of succeeding.
…
[35] Upon the present state of authority:
(a)the test for summary judgment under s 63 of the Civil Procedure Act2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b)the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
(c)it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
(d)at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.”
23 When determining whether to grant the relief sought, I must also pay regard to the object and purpose of the Act, to which I shall soon refer. As Finkelstein J observed in Protectavale Pty Ltd v K2K Pty Ltd,[9] the payment claim regime established by the Act:
“… places the claimant in a privileged position in the sense that he acquires rights that go beyond his contractual rights … The premise that underlies the legislation is that cash flow is the lifeblood of the construction industry … and that the principal under a construction contract should pay now and argue later.”
[9][2008] FCA 1248 at paragraph [7] (footnotes omitted)
24 Although not argued in the present case, and I need not decide it, I am inclined to the view that the test that is ordinarily applied in an application for summary judgment is not relevant in a case such as this. I make no conclusive finding in this regard; however, the reasons why I am inclined to my view[10] are as follows:
[10]My view is consistent with that held by other judges of this Court. See for example the observations of Judge Anderson in Fulconstruction v ABP Consultants Pty Ltd [2016] VCC 1732 at paragraphs [3]-[11] and more recently, the observations of Judge Woodward in 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 at paragraphs [39]-[54] cf SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 at paragraphs [24]-[31]
(a) The object and purpose of the Act stress the importance of a streamlined process, a point emphasised in the cases to which I have referred in this Judgment;
(b) The Act does not state that at the hearing of such a matter, the applicant must establish that the respondent has no real prospect of success. The Act merely identifies what must be proved in order for the applicant to succeed;
(c) The authorities demonstrate that once the elements are satisfied, the plaintiff is entitled to immediate relief, in that the plaintiff will be entitled to recover the unpaid portion of the claimed amount from the respondent as a debt due. Provided the prerequisites prescribed in s16(4)(a) are satisfied, the respondent in those proceedings is not entitled to bring any cross claim or raise any defence;
(d) In a claim like the present one there are no formal pleadings such as writ, statement of claim, defence or counterclaim. Summary judgment is a form of relief available in cases usually, but not always, commenced by writ and statement of claim where the moving party can seek judgment because of the default of the other party in some way, for example by failing to file a relevant pleading or by pleading a matter unsustainable at law. In such a case, the threshold to resisting an application for summary judgment is relatively low, because the point made at that hearing can be agitated in full at the trial of the action once all the evidence is in. On the other hand, where a payment claim is made under the Act, the matter is ordinarily determined without any further interlocutory processes and there is no subsequent trial of the matter in relation to that claim. Put another way, if the plaintiff fails to establish the necessary points of proof identified in the Act, then it is “sudden-death” as far as the specific payment claim is concerned. That would not prevent the plaintiff from issuing proceedings for breach of contract or for making a claim in quantum meruit in the normal manner.[11] But that does not alter the fact that if the plaintiff cannot prove the elements required under the Act, there is no serious question left for determination at trial in respect of that claim made under the Act.
(e) In this case, there are six elements to be established by the plaintiff. Either the elements are satisfied or they are not. The parties may present evidence (usually on affidavit) and cross-examine witnesses. I acknowledge that this may mean that in some cases, the evidence could involve many witnesses and the examination of many documents requiring complicated rulings of law and findings of fact. But that does not mean the case is not being heard summarily. There is no reason why all relevant issues cannot be litigated at the hearing of the matter.
[11]Section 47 of the Act
25 On the other hand, it is this last point that also weighs against my view. Currently, applications such as the present are usually listed in the Duty List. As a matter of practical reality, lengthy cases cannot be heard in the Duty List. They would need to be booked in for full hearing at a later date. Protracted hearings can result in the lists being bogged down, in turn contributing to lengthy delays. That process could well undermine, if not defeat, the object of facilitating a speedy, streamlined process to recover progress payments.
26 A speedy process does not always best serve the interests of justice. If parties are forced to be selective about the evidence they present and the issues they raise, and evidence tendered cannot be properly or fully tested because of time constraints, injustice can result. For that reason, the interests of justice may be better served by requiring the plaintiff to prove that the defendant has no real prospect of success on the issues raised.
27 This interpretation may be preferred when one considers the consequence to a respondent once the payment claim can be recovered as a debt due. In that circumstance, as mentioned above, the respondent has no right to cross claim or mount any defence.
The hearing
28 The Summons on Originating Motion was listed for hearing before me on 27 July 2017. Mr B Mason appeared on behalf of the plaintiff, Best Fab. Mr K J Naish appeared on behalf of the defendant, AHBI. The hearing continued on 28 July 2017, and was completed on 31 August 2017.
The evidence
29 The plaintiff tendered the following exhibits:
Exhibit
Short Description of Exhibit
A
Affidavit of Mahmoud Semsem sworn 27 June 2017
B
Supplementary Affidavit of Mahmoud Semsem sworn 26 July 2017
C
Plaintiff’s Outline of Submissions dated 26 July 2017
D
Affidavit of Alan Chiang sworn 26 July 2017
E
Plaintiff’s submissions in relation to the “reference date”, dated 28 July 2017.
30 The defendant tendered the following exhibits:
Exhibit
Short Description of Exhibit
1
Affidavit of Theo Ostrozny affirmed 25 July 2017
2
Affidavit of Gino Imbrogno affirmed 24 July 2017
3
Submissions of the defendant dated 27 July 2017
4
Annexure B to exhibit “GI-1” to the affidavit of Gino Imbrogno (exhibit 2)
5
Calendar identifying calculations to fix potential reference dates
6
Best Fab’s tax invoice No 1318/2472 dated 29 March 2017 sent to the defendant.
31 As mentioned earlier, neither party sought to cross-examine the other’s deponents. Accordingly, as I understand it, the parties agree that I should take the defendant’s evidence at its highest for the purposes of this application.[12]
[12]T10, Lines 6-11; Transcript 69, Lines 11-14
Statutory framework and applicable principles
32 The Act provides an efficient, streamlined method of claiming, securing and enforcing progress payments for those persons engaged in the construction industry or those who supply related goods and services under construction contracts. The purpose and object of the Act are expressly stated in s1 and s3 respectively:
“1 Purpose
The main purpose of this Act is to provide for entitlements to progress payments for persons who carry out construction work or who supply related goods and services under construction contracts.
…
3 Object of Act
(1)The object of this Act is to ensure that any person who undertakes to carry out construction work or who undertakes to supply related goods and services under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.
(2)The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to that payment in accordance with this Act.
(3)The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves—
(a)the making of a payment claim by the person claiming payment; and
(b)the provision of a payment schedule by the person by whom the payment is payable; and
(c)the referral of any disputed claim to an adjudicator for determination; and
(d)the payment of the amount of the progress payment determined by the adjudicator; and
(e)the recovery of the progress payment in the event of a failure to pay.
(4) It is intended that this Act does not limit—
(a)any other entitlement that a claimant may have under a construction contract; or
(b)any other remedy that a claimant may have for recovering that other entitlement.”
33 Part 2 of the Act sets out the rights of a party to make a claim for progress payments.
34 “Progress payment” is defined in s4 to mean:
“… a payment to which a person is entitled under section 9, and includes (without affecting that entitlement)—
(a) the final payment for—
(i)construction work carried out under a construction contract; or
(ii) related goods and services supplied under the contract; or
(b) a single or one-off payment for—
(i)construction work carried out under a construction contract; or
(ii) related goods and services supplied under the contract; or
(c)a payment that is based on an event or date (known in the building and construction industry as a ‘milestone payment’);
Note
The amount of a progress payment is calculated in accordance with sections 10, 10A, 10B and 11.”
35 “Construction contract” is also defined in s4:
“construction contract means 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”.
36 “Construction work” is defined in s5. I shall not set out the definition here as it is common ground that the plaintiff performed construction work within the meaning of that term under the Act.
37 Subject to specified exceptions, the Act applies –
“… to any construction contract, whether written or oral, or partly written and partly oral, and so applies even if the contract is expressed to be governed by the law of a jurisdiction other than Victoria.”[13]
[13]Section 7(1)
38 Section 9 provides:
“9 Rights to progress payments
(1)On and from each reference date under a construction contract, a person—
(a)who has undertaken to carry out construction work under the contract; or
(b)who has undertaken to supply related goods and services under the contract—
is entitled to a progress payment under this Act, calculated by reference to that date.
(2)In this section, reference date, in relation to a construction contract, means—
(a)a date determined by or in accordance with the terms of the contract as—
(i)a date on which a claim for a progress payment may be made; or
(ii)a date by reference to which the amount of a progress payment is to be calculated—
in relation to a specific item of construction work carried out or to be carried out or a specific item of related goods and services supplied or to be supplied under the contract; or
(b)subject to paragraphs (c) and (d), if the contract makes no express provision with respect to the matter, the date occurring 20 business days after the previous reference date or (in the case of the first reference date) the date occurring 20 business days after—
(i)construction work was first carried out under the contract; or
(ii)related goods and services were first supplied under the contract; or
(c)in the case of a single or one-off payment, if the contract makes no express provision with respect to the matter, the date immediately following the day that—
(i)construction work was last carried out under the contract; or
(ii)related goods and services were last supplied under the contract; or
(d)in the case of a final payment, if the contract makes no express provision with respect to the matter, the date immediately following—
(i)the expiry of any period provided in the contract for the rectification of defects or omissions in the construction work carried out under the contract or in related goods and services supplied under the contract, unless subparagraph (ii) applies; or
(ii)the issue under the contract of a certificate specifying the final amount payable under the contract a final certificate; or
(iii)if neither subparagraph (i) nor subparagraph (ii) applies, the day that—
(A)construction work was last carried out under the contract; or
(B)related goods and services were last supplied under the contract.”
39 Section 10 provides:
“10 Amount of progress payment
(1)The amount of a progress payment to which a person is entitled in respect of a construction contract is to be—
(a)the amount calculated in accordance with the terms of the contract; or
(b)if the contract makes no express provision with respect to the matter, the amount calculated on the basis of the value of—
(i)construction work carried out or undertaken to be carried out by the person under the contract; or
(ii)related goods and services supplied or undertaken to be supplied by the person under the contract—
as the case requires.
(2)Despite subsection (1) and anything to the contrary in the construction contract, a claimable variation may be taken into account in calculating the amount of a progress payment to which a person is entitled in respect of that construction contract.
(3)Despite subsection (1) and anything to the contrary in the construction contract, an excluded amount must not be taken into account in calculating the amount of a progress payment to which a person is entitled in respect of that construction contract.”
40 An “excluded amount” is defined in s10B, but needs no further elaboration since both parties agree there is no relevant “excluded amount” in this case.
41 A progress payment becomes due and payable in accordance with s12:
“12 Due date for payment
(1)A progress payment under a construction contract becomes due and payable—
(a)on the date on which the payment becomes due and payable in accordance with the terms of the contract; or
(b)if the contract makes no express provision with respect to the matter, on the date occurring 10 business days after a payment claim is made under Part 3 in relation to the payment.”
42 Part 3 of the Act sets out the procedure for making a progress claim. Section 14 provides:
“14 Payment claims
(1)A person referred to in section 9(1) 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—
(a)must be in the relevant prescribed form (if any); and
(b)must contain the prescribed information (if any); and
(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—
(a)may include any amount that the respondent is liable to pay the claimant under section 29(4);
(b)must not include any excluded amount.
Note
Section 10(3) provides that a progress payment must not include an 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.
(5)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; or
(b)if no such period applies, within 3 months after the reference date referred to in section 9(2) that relates to that progress payment.
(6)Subject to subsection (7), once a payment claim for a claimed amount in respect of a final, single or one-off payment has been served under this Act, no further payment claim can be served under this Act in respect of the construction contract to which the payment claim relates.
(7)Nothing in subsection (6) prevents a payment claim for a claimed amount in respect of a final, single or one-off payment being served under this Act in respect of a construction contract if—
(a)a claim for the payment of that amount has been made in respect of that payment under the contract; and
(b)that amount was not paid by the due date under the contract for the payment to which the claim relates.
(8)A claimant cannot serve more than one payment claim in respect of each reference date under the construction contract.
(9)However, subsection (8) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim if the amount has not been paid.”
43 Once a claim for a progress payment has been made, the person to whom it is made may reply by providing a payment schedule in accordance with s15:
“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 proposes to make (the scheduled amount); and
(c)must identify any amount of the claim that the respondent alleges is an excluded amount; and
(d)must be in the relevant prescribed form (if any); and
(e)must contain the prescribed information (if any).
(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.”
44 If the respondent fails to submit a valid payment schedule, the whole amount of the progress claim is payable under s16:
“16 Consequences 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
(ii)make an adjudication application under section 18(1)(b) in relation to the payment claim; and
(b)may serve notice on the respondent of the claimant's intention—
(i)to suspend carrying out construction work under the construction contract; or
(ii) to suspend supplying related goods and services under the construction contract.
(3)A notice referred to in subsection (2)(b) must state that it is made under this Act.
(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.”
45 If the respondent[14] fails to make payment in accordance with a payment schedule, the breach may be dealt under s17.
[14]Defined in s4 as “a person on whom a payment claim is served under section 14”
46 If a valid payment schedule is provided in response to a claim for progress payment, any dispute arising therefrom may be referred for adjudication under s18 and in accordance with Part 3, Division 2 of the Act. No adjudication claim has been made.
47 The Act provides a simplified and streamlined process for claims for progress payment.
48 In Grocon Constructors v Planit Cocciardi Joint Venture (No 2),[15] Vickery J observed:
“The Building and Construction Industry Security of Payment Act 2002 was introduced in Victoria to allow for the rapid determination of progress claims under construction contracts or sub-contracts, and contracts for the supply of goods or services in the building industry. The process was designed to ensure cash flow to businesses in the building industry, without parties get tied up in lengthy and expensive litigation or arbitration. It was intended to establish a process for the fast recovery of progress payments payable under a construction contract. This was to be achieved by a novel procedure which provided for the rapid adjudication of payment disputes at a low cost to the parties. The amendments introduced into the Act which operate from 31 March 2007 reinforce the scheme by creating, inter alia, a fast track system for enforcing payment in the courts through an expedited process for the entry of judgment founded on a certificate evidencing the adjudication determination and an affidavit of non-payment.”[16] - 13
[15](2009) 26 VR 172 at paragraph [33]
[16]At paragraph [33]
49 In Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor,[17] Vickery J observed:
“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.”
[17](2009) 26 VR 112 at paragraph [2] (footnotes omitted)
50 In Milburn Lake Pty Ltd (t/as Irwin Stockfeeds) v Andritz Pty Ltd,[18] Forrest J observed:
[18][2016] VSC 3 at paragraphs [5] and [6]
“[5] It is important in considering this application to understand the purpose of the Act. Section 3 sets out the objects of the Act, as follows:
The object of this Act is to ensure that any person who undertakes to carry out construction work or who undertakes to supply related goods and services under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services.
[6] It can be seen that the Act is based on a philosophy preserving the cash flow of contractors in the construction industry. It provides a mechanism for contractors … to obtain progress payments and to use the terminology employed in Hickory Developments to ‘pay now and argue later’.”
The claim for progress payment
51 On 6 March 2017, an employee of the plaintiff who worked in the accounts division, namely Annette O’Connor, sent an email to the defendant’s email address, a copy of which was also sent to Mr Ostrozny, the defendant’s project manager. Attached to that email was the plaintiff’s invoice number 1318/2461, which is said to constitute a payment claim under the Act. The email was in the following terms:
“From: Annette O’connor [xxxx][19]
Sent: Monday, 6 March 2017 12:38 PM
To: admin@[yyyy][20]
Cc: Theo@ [yyyy];[21] Gino@ [yyyy][22]
Subject: Invoice 1318/2461
Attachments: 20170306124027074.pdf
Good Afternoon Accounts
Please find attached, our Invoice 1318/2461.
Kind regards,
[19]Details deleted in this Judgment for privacy reasons. The details are not relevant to this application.
[20]Details deleted in this Judgment for privacy reasons. The details are not relevant to this application.
[21]Details deleted in this Judgment for privacy reasons. The details are not relevant to this application.
[22]Details deleted in this Judgment for privacy reasons. The details are not relevant to this application.
Annette O’Connor
Best Fab Pty Ltd
…
[address and phone number included in email].”[23]
[23]Exhibit A, “MS-9”. Details deleted in this Judgment for privacy reasons. The details are not relevant to this application.
52 Attached to the email was a tax invoice number 1318/2461 dated 6 March 2017. It was addressed to the defendant and contained banking details for direct payment. The invoice recorded the project manager as Theo Ostrozny, the project name as Newcold 1 and Newcold 2, payment terms as 30 days and due date as 5 April 2017. The invoice[24] contained a four-column table as follows:
[24]Exhibit A, “MS-9”
QUANTITY
DESCRIPTION
UNIT PRICE
LINE TOTAL
1.00
Claim No: 1
Installation of Bracing Bay in Warehouse 1 and 3
As per details attached
$300,000.00
$300,000.00
SUBTOTAL
$300,000.00
GST
$ 30,000.00
TOTAL
$330,000.00
53 The tax invoice stated “Payment Claim made under The Building and Construction Industry Security of Payment Act 2002”.[25]
[25]Exhibit A, “MS-9”
54 Attached to the tax invoice was a further document:
55 According to the plaintiff, work on the racking towers did not commence until approximately 6 March 2017. However, Mr Semsem, engineer and estimator employed by the plaintiff, acknowledged that by mid-February 2017:
“… Best Fab was close to completing the installation of the bracing bay for Warehouse 3, and the bracing bay for Warehouse 1 was also underway. Best Fab’s labourers completed installing the bracing bays in both Warehouse 1 and Warehouse 3 on about 3 March 2017.”[26]
[26]Exhibit A, paragraph 26
56 On 15 March 2017, Mr Ostrozny responded to Ms O’Connor’s email. In it, Mr Ostrozny wrote:
“Hi Semsem,
Please be advised due to the security payment act noted on the following invoice, the current status of this invoice needs to be place[d] on Hold until further discuss[ions] occur between Ihab and Gino.
Which I believe will occur this week some time.
Kind Regards,
Theo Ostrozny
… .”[27]
[27]Exhibit A, “MS-10”
57 On 17 March 2017, Mr Ostrozny wrote a further email to the plaintiff in response to a second payment claim in which he addressed both payment claims:
“Hi Annette,
Semsem has been advised on this already.
Please refer to the attached email and your contract terms and percentages.
Best Fab Pty ltd Claims 1 & 2 will are not in line with the T&C’s of our contract.
Feel free to call me if required.”[28]
(sic).
[28]Exhibit 1 “TO-3”
58 As can be seen, the payment claim stated that it was made under the Act and purported to –
(i) identify the construction work to which the progress payment related; and
(ii) indicate the amount of the progress payment that the plaintiff claimed to be due.
59 As can also be seen, the defendant sent two responses to the payment claim. The defendant submits that the second email constitutes a payment claim, particularly when read in conjunction with the first email.
60 I shall now turn to the six elements that must be satisfied before the plaintiff can succeed.
(1) Was there a “construction contract”?
61 The parties agree that there was, at the very least, an arrangement pursuant to which Best Fab undertook to carry out construction work or to supply related services (labourers). Accordingly, the arrangement qualifies as a “construction contract” as defined in s4.
62 However, the parties disagree about the terms of the arrangement. Significantly, they disagree about whether the arrangement provided for progress payments, and, if it did, what prerequisites (milestones) needed to be satisfied before a progress payment could be made, and whether those milestones were in fact achieved.
(a) What were the terms of the arrangement?
The Plaintiff’s evidence
Mahmoud Semsem’s first affidavit
63 In his first affidavit, sworn 27 June 2017,[29] Mr Semsem, engineer and estimator employed by Best Fab, set out the background to the arrangement between the parties in respect of the project.
[29]Exhibit A
64 As to the formation of a contract, according to Mr Semsem, in approximately early December 2016, there were preliminary discussions between duly authorised members of each party. Mr Semsem was authorised to speak on behalf of Best Fab. Messrs Theo Ostrozny and Gino Imbrogno were authorised to speak on behalf of the defendant. During these conversations, some terms of the contract works were discussed, but the details were not finalised.
65 According to Mr Semsem, he and Mr Ostrozny discussed the supply of certain steel products, such as steel trestles which were to be used in the project. Mr Semsem states that Best Fab manufactured and supplied eight such steel trestles to AHBI for the project in early December 2016. Best Fab issued invoices for that work and was paid for it in full.[30]
[30]Exhibit A, paragraph 7
66 On or about 7 December 2016, both Mr Ostrozny and Mr Imbrogno attended a meeting at Best Fab’s offices in Sunshine North. The purpose of the meeting was to discuss further work that Best Fab might undertake for the project.[31] According to Mr Semsem, Mr Ostrozny said that AHBI wanted to engage a subcontractor to assist with the construction of the cold storage racking system in the Truganina warehouse as part of the project. The work would involve the “… installation of a prefabricated ‘high bay racking’ system consisting of 608 ‘racking towers’” in the Truganina warehouse.[32]
[31]Exhibit A, paragraph 8
[32]Exhibit A, paragraph 9
67 According to Mr Semsem, Mr Ostrozny provided a “Scope of Work” document in the meeting that described the work Best Fab was to undertake. Mr Semsem states that the scope of work “only concerned the installation of racking towers. It did not concern the installation of bracing bays.”[33] Mr Semsem further states “I recall Mr Ostrozny saying on a number of occasions in that meeting that Best Fab’s scope of work would be the installation of 608 towers only”.[34]
[33]Exhibit A, paragraph 11
[34]Exhibit A, paragraph 11
68 According to Mr Semsem:
“During that meeting Mr Ostrozny made notes regarding Best Fab’s scope of work in a handwritten document titled ‘Scope of Work’. In the top right-hand corner he wrote ‘608 TOWERS’, with the towers being 18 or 19 shelves high. This was rounded up to give 11,600 shelves in total. Mr Ostrozny also set out in that document the labour and materials Best Fab was to supply when installing the racking towers. He also set out the equipment AHBI was to supply for Best Fab to install the racking towers, the rate for liquidated damages, the defects liability period, the milestones and the construction period. In the bottom right-hand corner Mr Ostrozny set out the milestones under AHBI’s contract for the Project, but that Best Fab was only required to erect the ‘608 towers’ … .”[35]
[35]Exhibit A, paragraph 12
69 There is no dispute that the ‘scope of works’ document referred to by Mr Semsem is the handwritten document marked exhibit “MS-2” to Mr Semsem’s affidavit. The Scope of Works, as best I can decipher it, is in the following terms:
“ 608 TOWERS
18/19 SHELFS (H)
11 600
LABOUR 2 CREWS X 4 plus Forklift
1 x Drilling (setout)
CRANE x 2
DIESEL + WELDING TO CRANE RAIL.ACCESS SUPPLIED + FORKLIFTS. + CORE DRILLER.
LD’S $10K. capped (10%)
Defect Lib 12 mth
Milestone 1 BRACING BAY EAS[T]
33 WKS BUILD [Milestone] 2 Rack Install Bay 3[Milestone] 3 Rack Install Bay 6
[Milestone] 4 Rack Install Bay 15
[Milestone] 5 Rack Install Bay 21
[Milestone] 6 Rack Install bay 30[Milestone] 7 Rack Install Bay 41[?7]
[Milestone] 8 BRACING BAY WEST 100%.”[36]
[36]Exhibit A, “MS-2”
70 After handing Mr Semsem the scope of work, Mr Ostrozny asked Mr Semsem to provide AHBI with a quotation “… for the cost to install 608 racking towers at the Truganina site”.[37]
[37]Exhibit A, paragraph 13
71 On 9 December 2016, Mr Ostrozny sent an email to Mr Semsem in which he asked for Best Fab’s quotation. The email stated:
“Hello Semsem,
Please advise when you will have your quotation submitted to us.
As Gino & I need to make a decision by COB Monday the 12th December 2016.
Please advise.
Kind regards,
Theo Ostrozny.”[38]
[38]Exhibit A, “MS-3”
72 On 12 December 2016, Mr Semsem sent an email to AHBI entitled “newcold 2 – shelving installation”.[39] The email stated:
[39]Exhibit A, paragraph 15
“Hi Theo,
I have worked out the price based on below of $2,481,270 plus GST
Including
10 men,
33 weeks
Supply of cranes x2
diesel for plant (crane, forklift and boom lifts)
supply of rattle guns
hand tools
608 Towers
Excluding
Assembly of shelves (to be pre-assembled)
Assembly of intermediate columns (to be pre-assembled)
Nuts and bolts (hardware)
Hire of Booms and forklift
Any QA
General Conditions
LD’s $10,000 per day capped at 10%
Any Downtime to be on AHBI (dockets to be signed)
Any issues for wrong deliveries to be by AHBI
… .”[40]
[40]Exhibit A, “MS-4”
73 According to Mr Semsem, the quote to install the 608 racking towers of $2,481,270.00 (exclusive of GST) was based on a calculation he had prepared:
“… which did not include any setting out work, or work to assemble or install bracing bays. That amount also did not include work to assemble the shelves or the intermediate columns. The work addressed by the quote was to be performed by 10 men over a 33 week period, and it only concerned the 608 racking towers. … .”[41]
[41]Exhibit A, paragraph 15
74 Mr Semsem states that in or around December 2016, Mr Ostrozny attended Best Fab’s office to provide drawings relevant to the works. He gave Mr Semsem a USB stick which contained the relevant drawings. Mr Semsem copied the drawings from the USB stick onto his computer and returned the USB stick to Mr Ostrozny. The drawings contained a diagram of the warehouse comprising part of the Project showing the racking towers installed in rows and connected to the bracing bays marked by an “X”.[42] The diagram, which is annexed to Mr Semsem’s affidavit,[43] depicts the 608 towers highlighted in pink, the bracing bays highlighted in yellow, and each warehouse highlighted in green.
[42]Exhibit A, “MS-5”
[43]Exhibit A, “MS-5”
75 On 13 December 2016, Mr Semsem attended the Truganina warehouse with Mohammad Sharief, an administrator at Best Fab. During the visit the two of them inspected a warehouse adjacent to that in which Best Fab was to perform its work. According to Mr Semsem, Mr Imbrogno told them that the racking system that was being installed by another subcontractor in that particular warehouse represented the same work to be performed by Best Fab. Mr Imbrogno showed them the work being performed as a demonstration so that Best Fab could better understand what it had to do. Mr Semsem and Mr Sharief were also shown the preassembled steel columns and shelves that Best Fab was to use when carrying out its work. Mr Sharief took a photograph of one of the columns.[44] During the visit Mr Semsem spoke with both Mr Ostrozny and Mr Imbrogno about the work that Best Fab was to perform for the Project. According to Mr Semsem:
“… They both said that the work was to install 608 racking towers. They also explained the process by which each racking tower would be installed in place. They made no mention of Best Fab assembling or installing the bracing bays which involves a different assembly process. The only reference made in these conversations to the bracing bays was their function of supporting the ends of the racking towers.”[45]
[44]Exhibit A, paragraph 17, “MS-6”
[45]Exhibit A, paragraph 18
76 Mr Semsem states that on 13 December 2016, he received an email from Mr Ostrozny. In that email, Mr Ostrozny asked Best Fab to organise labourers to help unload materials at the Truganina warehouse. The email was in the following terms:
“Hey Semsem,
Can you please get me 1 guy on site tomorrow & Thursday to help unload some steel trainers.
Just need someone will (sic) half a brain who has all his tickets for a forklift etc.
Should you have any queries with the above, feel free to call me anytime.
Kind Regards,
Theo Ostrozny.”[46]
[46]Exhibit A, “MS-7”
77 It is common ground that Mr Semsem called Mr Ostrozny the same day and arranged for labourers to attend the worksite at the Truganina warehouse on 16 December 2016.
78 From 16 December 2016, Mr Ostrozny and Mr Semsem were in regular contact regarding the ongoing need for the plaintiff to supply AHBI with labourers to work on the project. These conversations were conducted over the phone or in person when Mr Semsem attended the Truganina warehouse. According to Mr Semsem:
“… The practice was for Mr Ostrozny to tell me how many of Best Fab’s labourers AHBI would require the following day, or over the following few days, and details of any specific tasks those labourers were to perform. The other approach was for Mr Ostrozny to give that information to one of Best Fab’s employees on site, and that employee would then pass that information on to me.”[47]
[47]Exhibit A, paragraph 21
79 In the period during which the parties remained in contact with each other prior to the commencement of the construction of the racking towers, the plaintiff supplied a number of labourers to assist with preparatory works for the construction of the racking towers. When on site, Mr Ostrozny directed Best Fab’s workers to perform duties at his discretion.[48]
[48]Exhibit A, paragraphs 21 and 22
80 In addition to the supply of labourers to perform preparatory works for the racking towers, the plaintiff also supplied labourers to perform other jobs associated with the project.
81 According to Mr Semsem, on or around 9 January 2017, Mr Ostrozny told Mr Semsem that certain works had to be carried out before Best Fab could start installing the racking towers. Mr Ostrozny said that he was coordinating surveyors with Dematic and asked if Mr Evans, one of Best Fab’s labourers, could start “marking out and drilling” the ground in the areas where the bracing bays were to be installed. This work was performed over the following one to two weeks by Mr Evans and other labourers. Mr Semsem spent most days working at the Truganina warehouse from 9 January 2017.[49]
[49]Exhibit A, paragraph 24
82 On or about 11 January 2017, Mr Ostrozny asked Mr Semsem to arrange for Best Fab to mobilise a crane to the Truganina warehouse once certain areas had been marked out and drilled. Best Fab mobilised a crane on 18 January 2017, following which Mr Ostrozny directed its crew to start assembling and installing the bracing bay in the eastern part of the warehouse known as Warehouse 3. The installed bracing bays were bolted into place using the drilled holes previously made in the concrete slab by Best Fab’s labourers.[50]
[50]Exhibit A, paragraph 25
83 On 9 February 2017, Best Fab mobilised a second crane at the Truganina warehouse which was to be used when installing the bracing bay at Warehouse 1.[51]
[51]Exhibit A, paragraph 26
84 According to Mr Semsem, by mid-February 2017, Best Fab was close to completing the installation of the bracing bay for Warehouse 3. Also, the bracing bay for Warehouse 1 was underway. Mr Semsem states that Best Fab’s labourers completed installing the bracing bays in both Warehouse 1 and Warehouse 3 on or about 3 March 2017.[52]
[52]Exhibit A, paragraph 26
85 Significantly, according to Mr Semsem, none of the work performed by Best Fab’s labourers before 6 March 2017 at the Truganina warehouse involved the installation of any racking towers:
“… That work could not commence until the bracing bays had been installed. It commenced on around 6 March 2017.”[53]
[53]Exhibit A, paragraph 27
86 Thus, it is Best Fab’s position that all preparatory works and other duties performed by the labourers supplied by the plaintiff were completed before 6 March 2017. The work performed up until this date did not involve installation of the racking towers.[54]
[54]Exhibit A, paragraph 27
87 Although not provided to the defendant, the plaintiff kept records of the time spent by its labourers for work performed on behalf of the defendant between the period December 2016 and March 2017. These records were compiled from timesheets completed by the labourers, showing the dates and times they spent working at the Truganina warehouse. The information was then transferred to accounting software maintained by the plaintiff.[55]
[55]Exhibit A, paragraph [28] and “MS-8”
88 Mr Semsem’s first affidavit makes no mention of any agreement regarding progress payments or relevant milestones to be achieved that might trigger any such entitlements.
89 I shall refer to Mr Semsem’s second affidavit later.
The Defendant’s evidence
Theo Ostrozny’s affidavit
90 In his affidavit, affirmed on 25 July 2017,[56] Mr Ostrozny agreed that he first attended a meeting at the plaintiff’s premises, although he thought it occurred in either late November or early December 2016.[57] According to Mr Ostrozny, at the meeting, he discussed with Mr Semsem the work that AHBI wanted Best Fab to perform on the project at the Truganina warehouse. The work concerned three warehouses at the Newcold 2 project, being the installation of bracing bays and storage racks. According to Mr Ostrozny, he asked Mr Semsem to provide a quotation for those works on the following basis:
[56]Exhibit 1
[57]Exhibit 1, paragraph 4
“a. constructing a number of towers across the 3 warehouses (608);
b. a 33 week build duration;
c. a liquidated damages rate ($10,000 per day) if Best Fab’s works ran late;
d. a 12 month defect liability period; and
e. milestones that would trigger an entitlement to Best Fab to progress payments, both in respect of bracing bays and racking bays.”[58]
[58]Exhibit 1, paragraph 5
91 Mr Ostrozny deposed that the milestones for payment were:
“a. completion of the bracing bay (East side);
b. installation of racks up to Bay 3;
c. installation of racks up to Bay 6;
d. installation of racks up to Bay 15;
e. installation of racks up to Bay 21;
f. installation of racks up to Bay 30;
g. installation of racks up to Bay 41; and
h. completion of the bracing bay (West side).”[59]
[59]Exhibit 1, paragraph 6
92 Mr Ostrozny confirms that around this time, he provided Mr Semsem with a USB device containing drawings upon which the quotation was to be based.[60]
[60]Exhibit 1, paragraph 7
93 Mr Ostrozny disagrees with Mr Semsem’s assertion, as deposed in exhibit A, that the scope of works discussed at the meeting “did not concern the installation of bracing bays”.[61] Mr Ostrozny made notes during the initial meeting outlining the scope of works and the milestone payments. He provided those notes to Best Fab. He agrees that this document is the one referred to in Mr Semsem’s first affidavit,[62] a copy of which is marked exhibit “MS-2” to that affidavit. Mr Ostrozny refers to the lower right-hand corner of that document, and states that the milestones referred to included the installation of the bracing bays in the percentages as set out.
[61]Exhibit 1, paragraph 8, cf. exhibit A, paragraph 11
[62]Exhibit A, paragraph 12
94 Mr Ostrozny believes that if he followed his usual practice in this meeting, he would have discussed percentage payments referable to the relevant milestones.[63]
[63]Exhibit 1, paragraph 10
95 Mr Ostrozny agrees that he sent the email requesting a quote for Best Fab’s work and that he received the email containing the quotation referred to above.[64] Mr Ostrozny also agrees that he attended Best Fab’s offices and provided the diagram depicting the bracing bays and racks to be installed for Warehouses 1, 2 and 3.[65]
[64]Exhibit A, paragraphs 14 and 15
[65]Exhibit 1, paragraph 12
96 Mr Ostrozny agrees that on 13 December 2016, Mr Semsem attended the Truganina warehouse with Mohammad Sharief, an administrator of Best Fab. Mr Ostrozny observed both Mr Semsem and Mr Sharief watching other subcontractors working at the Newcold 1 site. He noticed Mr Semsem and Mr Sharief paying particular attention to the method of installation. However, Mr Ostrozny disagrees with Mr Semsem’s assertion that there was no mention of the bracing bay works. To the contrary:
“… Mr Semsem and Mr Sharief said at this site visit words to the effect that they (that is, Best Fab) would do the bracing bay preparation works off site.
Either Mr Semsem or Mr Sharief (I do not recall which) said that because Best Fab has an enterprise bargaining agreement with their staff who work off site which is cheaper than the CMFEU (sic) rates that apply to their staff that were to work on construction sites, it would be more cost effective.”[66]
[66]Exhibit 1, paragraphs 14 and 15
97 Prior to Best Fab starting the installation work (which work commenced in early January 2016), Mr Ostrozny had a discussion with Mr Semsem, the effect of which was that AHBI wanted the works to Warehouses 1 and 3 to be completed before the works to Warehouse 2 commenced.[67]
[67]Exhibit 1, paragraphs 16 and 17
98 On 21 January 2017, Mr Ostrozny sent an email to Mr Semsem, which was copied to Mr Imbrogno. Mr Ostrozny attached a copy of a draft subcontract “to cover Best Fab’s works”.[68] Mr Ostrozny describes this as “the draft contract” in his affidavit.[69] A copy of the draft contract and covering email are exhibited as “TO-1” to Mr Ostrozny’s affidavit. The email is in the following terms:
[68]Exhibit 1, paragraph 18
[69]Exhibit 1, paragraph 18
“Subject: FW: New Cold 2 – Contract Drafts.
Attachments: BEST FAB Subcontractor Agreement NEW COLD 2 - DRAFT.DOCX
From: Theo Ostrozny
Sent: Saturday, 21 January 2017 4:54 PM
To: ‘Mahmoud Semsem (xxxx@xxxx)’[70]
Cc: Gino Imbrogno
Subject: New Cold 2 - Contract Drafts.[70]Details deleted in this Judgment for privacy reasons. The details are not relevant to this application.
Hi Semsem,
Draft contract attached..
Gino [Imbrogno] you need to sort out the milestones.Should you have any queries with the above, feel free to call me anytime.
Kind Regards,
Theo Ostrozny
Project Manager.”
99 As can be seen from the email, Mr Ostrozny made clear that Mr Imbrogno needed to sort out the milestones, and it would appear that the email was sent a number of weeks after the handwritten scope of works had been provided to Mr Semsem.
100 The terms and conditions of the draft contract attached to the email identified the relevant parties, the name of the principal (Dematic Pty Ltd), the project, the date of commencement of works, the date for substantial completion of works and liquidated damages. Significantly, the schedule provided for progress claims in accordance with “Annexure B”, which annexure also contained special conditions. The works were described in “Annexure A”.
101 According to “Annexure B” of the draft contract, progress claims and payments were set out in clause 32. That clause provides as follows:
“32 PROGRESS CLAIMS AND PAYMENT
(a) At the intervals and/or dates stated in the Schedule the Subcontractor may submit to the Contractor progress claims showing:
(i)his valuation of the work executed (including variations);
(ii)his valuation of any unfixed materials intended for and delivered to the site, included in the claim;
(iii)the amount which the Contractor is entitled to deduct pursuant to cl 33 of this Subcontract;
(iv)the amount previously paid pursuant to the Subcontract;
(v)the amount claimed by the Subcontractor;
(vi)a statement signed by the Subcontractor that all wages due to his employees engaged on the Works have been paid;
(b) With each claim the Subcontractor shall provide the Contractor with particulars of all adjustments to the Subcontract sum which have been made pursuant to the Subcontract to the date on which the particular claim is submitted, but since submission by the Subcontractor of any immediately proceeding progress claim;
(c) Before progress claims will be considered the Subcontractor shall:
(i)where applicable have submitted his rated bill of quantities;
(ii)have returned to the builder a signed copy of the Subcontract;
(iii)have provided evidence of current insurances required pursuant to cl 36.
(d) The amount of each progress payment paid by the Contractor will be the Contractor’s assessment of the total gross value of the Works as determined pursuant to sub-cl 32(a) of this clause, less:
(i)any retention moneys as provided in cl 33 and the Schedule;
(ii)the progress payments already made in respect of the Works; and
(iii)any other amount properly withheld;
and shall be paid within the period specified in the Schedule.
(e) No payment of moneys by the Contractor pursuant to this clause shall be deemed evidence that any work materials and/or goods in relation to which such payment relates are in accordance with this Subcontract.
(f) Within twenty eight (28) days after the issue of a final certificate the Contractor shall pay to the Subcontractor all amounts payable, including, subject to cl 34(f), any retention moneys then held by the Contractor and subject to cl 34(f) return to the Subcontractor such security, or part thereof as the Contractor is then holding.”[71]
[71]Exhibit 2
102 I am unable to say one way or the other whether “Annexure B” was included under cover of the email sent on 21 January 2017. In any event, “Annexure B” provided for milestones largely consistent with the handwritten scope of works, although assigning percentages for the completion date of each milestone. Clause 1.1 of “Annexure B” states:
“1.1 SPECIAL CONDITIONS
Contract Sum Inclusions
Inclusive of Site Allowances Costs
Commencement Date
To be confirmed
Milestone 1 Completion Date
Completion of Bracing Bay East (4.44%)
Milestone 2 Completion Date
Rack Install Bay 3 (cumulative 11.10%)
Milestone 3 Completion Date
Rack Install Bay 6 (cumulative 17.7%)
Milestone 4 Completion Date
Rack Install Bay 10 (cumulative 26.6%)
Milestone 5 Completion Date
Rack Install Bay 15 (cumulative 37.76%)
Milestone 6 Completion Date
Rack Install Bay 21 (cumulative 51.09%)
Milestone 7 Completion Date
Rack Install Bay 30 (cumulative 73.31%)
Milestone 8 Completion Date
Rack Install Bay 41 (cumulative 97.75%)
Milestone 9 Completion Date
Completion of Bracing Bay West (100%)
Date for Practical Completion
Rack installation portion
33 weeks after start date confirmed
Note: Schedule Dates and Milestone Dates
Final schedule and milestones to be agreed between AHBI and the Subcontractor following confirmation of dates with the Principal and generally in the timescales as previously discussed with the Subcontractor
...
...
Payment Term
Milestones 1 and 2 = 21 days, milestones
3 – 9 = 32 days. All payments from date of invoiceTime for Final Payment
If nothing stated the last day of the month in which AHBI achieves practical completion under the Head Contract.”
103 According to Mr Ostrozny, the draft contract included the terms that had been discussed between Mr Semsem, Mr Imbrogno and Mr Ostrozny at the meeting in late November or early December 2016. Mr Ostrozny states:
“19.… At page 25, the Draft Contract identified the milestones and the associated percentages. The milestone payment identified that 4.44% of the contract price was payable for the installation of the bracing bays (east side) for the warehouses.
20.In my covering email, I referred to ‘Gino sorting out the milestones’. This was a reference to the fact that the Warehouse 2 installation works were going to be performed after the completion of the installation works for Warehouse 1 and Warehouse 3, and so the milestone payments for each milestone needed to be allocated between Warehouses. The allocation of the stated percentages for each milestone needed to be allocated to Warehouses 1 and 3 and to Warehouse 2.
2.1 I note that the Draft Contract also includes terms requiring that:
a. variations be paid in accordance with clause 31, including any day work as set out in clause 31(h);
b. progress claims to be the form stated in clause 32(a), including a statement of the work executed, variations, unfixed material at site, amounts previously paid, amounts claimed, and a signed statement that all employees had been paid (clause 32(a)); and
c. evidence of insurance and a bill of quantities be provided before progress claims would be considered (clause 32 (c)).”[72]
[72]Exhibit 1, paragraphs 19, 20 and 21
104 Mr Ostrozny states that Best Fab continued to work on Newcold 2 after the draft contract had been sent. Mr Ostrozny further states that the pace of Best Fab’s work was very slow and that this was a matter of concern to AHBI. AHBI also had concerns about the quality of Best Fab’s work and its method of installation.[73]
[73]Exhibit 1, paragraph 22
105 According to Mr Ostrozny, it was not until 9 March 2017, some three days after Best Fab rendered the invoice the subject of these proceedings, when he received a written response to the draft contract that he had sent to Mr Semsem on 21 January 2017. The response, dated 9 March 2017, was sent by email to Mr Imbrogno (copied to Mr Ostrozny). The email was in the following terms:
“Hi Gino,
Please see the attached pdf for the comments on the contract copy supplied to Bestfab
Regards,
Mahmoud Semsem.”[74]
[74]Exhibit 1, “TO-2”
106 According to Mr Ostrozny, the email included a copy of the draft contract with some handwritten changes. One of those changes was to correct AHBI’s telephone number on the schedule. Another handwritten note appeared next to the first milestone (4.44 per cent) stating “20% based on time”.[75]
[118](2016) 260 CLR 340
[119]Building and Construction Industry Security of Payment Act 1999 (NSW)
[120]At paragraph [61]
179 The success of the plaintiff’s case in this regard depends on there being a stand-alone contract, as discussed earlier. I am not satisfied on the balance of probabilities that there was such a stand-alone contract. The stand-alone contract argument seems to be based on a fiction created to overcome the problems that the plaintiff has encountered in satisfying the legal prerequisites that must be established before it can make a valid claim for progress payment.
180 The matter is further complicated by the dispute between the parties as to whether the entitlement to progress payments was preferable to an event or to a date.
181 The plaintiff would have it that its entitlement to the progress payment was triggered by date, namely twenty business days after the construction was first carried out, because, on its interpretation, no provision was made in the contract to cover progress payments. If that is so, s9(2)(b) of the Act is engaged.
182 On the other hand, the defendant submits that it was a term of the agreement reached between the parties that progress payments were only payable and reference dates under the agreement only arose on the completion of the milestone events referred to in that agreement. Accordingly, the reference date is determined by s 9(2)(a)(ii) of the Act.
183 I cannot exclude on the balance of probabilities that the parties had reached agreement that the plaintiff’s entitlement to progress payments was linked to identified milestone events, not to a date. The defendant’s evidence is that the milestones included:
“a.progress payment of 4.44% of any fixed price on completion of bracing bay east;
b.cumulative total progress payment of 11.10% (ie an additional 6.66%) of any fixed price at completion of rack install as far as bay 3.”[121]
[121]Exhibit 2, paragraph 8
184 The plaintiff has failed to establish that the relevant reference date arose so as to justify the claim for progress payment. The plaintiff has also failed to disprove on the balance of probabilities that the relevant milestones are those as contended by the defendant. Accordingly, no reference date has arisen under the Act.
(3) Was a valid payment claim made under Section 14?
185 I have found that the plaintiff has failed to establish that a valid reference date arose. Accordingly, no valid payment claim was made under the Act. In case I am wrong, I shall consider whether the payment claim was otherwise valid.
186 As has been pointed out in a number of cases, when determining whether a valid payment claim has been made, it should be borne in mind that payment claims are given and received by people experienced in the building industry and familiar with the particular contract, the history of construction work on the project and the broad issues underlying the dispute.[122]
[122]See for example Isis Projects v Clarence Street [2004] NSWSC 714 at paragraph [36] per McDougall J, citing with approval the observations made by Palmer J in Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140 at paragraphs [72]-[78]
187 In Mackie Pty Ltd v Counahan,[123] Vickery J observed:
[123][2013] VSC 694
“[44]The Act places the claimant of a payment claim in a privileged position in the sense that it confers rights that go beyond the claimant’s contractual rights.[124] The Act provides a procedure for recovering progress payments. Commencing with s 9(1), an entitlement to a progress payment under the Act is created. Section 14 then provides for the mechanism by which a payment claim may be validly made under the Act.
[124]See Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (supra) at paragraph [163], and Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 at paragraph [30]
[45]In Protectavale Pty Ltd v K2K Pty Ltd.[125] Finkelstein J considered the application of the Act’s predecessor provision, s 14(3)(a),[126] which was materially in the same terms as s 14(2)(c) of the present Act, requiring as it did that ‘a payment claim – must identify the construction work or related goods and services to which the progress payment relates’. His Honour made a number of observations as to the requirements of s 14 of the Act.[127]
[125]ProtectavalePty Ltd v K2K Pty Ltd (supra) at paragraphs [10]-[15] (“Protectavale”).
[126]Section 14 was amended to its present form by s16 of the Building and Construction Industry Security of Payment (Amendment) Act 2006, No. 42/2006 and applies to contracts made on or after 30 March 2007
[127]Protectavale (supra) at paragraphs[10]-[15]
[46]Drawing upon Protectavale and subsequent case-law, the requirements of s 14(2) of the Act as to the making of a statutory payment claim may be summarised as follows:
(a) The payment claim is the pivotal document in the procedure established under the Act for recovering progress payments and the other payments contemplated by the Act, being a ‘final, single or one-off payment’.[128] It provides a basis for the respondent to the payment claim to reply to the payment claim by providing a payment schedule to the claimant: via s 15; and, if the scheduled amount indicated by a payment schedule is less than the claimed amount indicated in the payment claim, the claimant may initiate the adjudication process provided under the Act: Division 2 of the Act.[129]
[128]See for example s14(4), (5), (6) and (7) of the Act
[129]Gantley Pty Ltd v Phoenix International Group Pty Ltd (supra) at paragraph [39]
(b) Because at this time no form has been prescribed under s 14(2)(a) and no information has been prescribed under s 14(2)(b), ss 14(2)(c)-(e) prescribe only three formal requirements for a valid payment claim made under the Act. 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 the Act.
(c) The operative requirements of s 14(2) are expressed in mandatory terms. Indeed, the requirements of ss 14(2)(c)-(e) comprise some of the basic and essential requirements of the Act. A payment claim will be invalid if it fails to comply with these requirements.[130]
[130]Gantley Pty Ltd v Phoenix International Group Pty Ltd (supra) at paragraph [45]
This is not an unreasonable burden for an applicant who is seeking to obtain the benefits of the statute in aid of payment of contractual entitlements.
(d) The test to be applied as to whether the operative requirements of s 14(2) have been satisfied is an objective one, in the sense that it must be clear from the contents of the document that it contains the required information, when those contents are properly considered in their context (namely a context in which payment claims are usually given and received by parties experienced in the building industry who are familiar with the particular construction contract, the history of the project and any issues which may have arisen between them regarding payment).[131]
(e) The approach to considering compliance with s 14(2) should not be unduly technical or critical and the requirements should be applied in a commonsense practical manner.[132] It is to be tempered by what is reasonably necessary to be comprehensible to the recipient party when considered objectively, that is from the perspective of a reasonable party who is in the position of the recipient. In evaluating the sufficiency of the information provided in the payment claim, it is appropriate to take into account the background knowledge of the parties derived from their past dealings and exchanges of information.[133]
(f) Nevertheless, reasonable specificity in the payment claim is required for two principal purposes:
(i)to enable a respondent to a payment claim to consider and respond to it, either by accepting the claim in full or in part, or rejecting the claim totally; and
(ii)to define the issues in dispute between the parties which the adjudicator is to resolve, and to assist an adjudicator, if appointed, to determine the adjudication application.[134]
A payment claim must be sufficiently detailed to fulfill these basic functions.”[135]
[131]Protectavale (supra) at paragraph [10] and the cases cited therein
[132]Protectavale (supra) at paragraph [11] and the cases cited therein
[133] Gantley Pty Ltd v Phoenix International Group Pty Ltd (supra) at paragraph [51]
[134]Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd and Anor (supra) at paragraph [56]; Gantley Pty Ltd v Phoenix International Group Pty Ltd (supra) at paragraph [41]
[135] Protectavale (supra) at paragraph [12] and the cases cited therein. At paragraphs [44]-[46]. See also Seabay Properties Pty Ltd (ABN 43 105 314 074) v Galvin Construction Pty Ltd (ABN 82 054 156 339) & John McMullen [2011] VSC 183; Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (supra); Isis Projects v Clarence Street (supra) at paragraph [37] per McDougall J
188 I have already referred to the form and content of the payment claim. Although it purported to be made under the Act, the claim lacked sufficient detail to enable the defendant to understand the basis of the claim and to provide a considered response to it. As the defendant has pointed out, correctly in my view, if the amount claimed is by reference to the works done in a stand-alone agreement or otherwise (rather than by reference to the terms of the agreement), the plaintiff failed to quantify the value of the works, whether by a reference to a quantum meruit claim, the cost of construction, a schedule of rates, a bill of quantities or any other basis.[136]
[136]Defendant’s submissions, exhibit 3, paragraphs 30-39
189 Moreover, as I have pointed out, the time sheets upon which the claim is apparently based, do not mention “Bracing Bays”. They are simply divided by month, then subdivided into “Office work” and “Site work”. The sheets are headed “Time by Job Detail” with a sub-heading “Australian High Bay Installations: 1318 – New Cold – Racking Inst’n”. If the plaintiff is correct in its contention that the work the subject of the claim was a stand-alone contract, then the time sheets do not disclose which, if any part of the work was referable solely to that contract. The time sheets simply list all of the dates, times and details of the workers without identifying the tasks performed.
190 The claim appears to be a rounded, global figure and there is no explanation in either the claim or the attached invoice to inform whether it is based on applying an hourly rate to the workers, the total number of hours worked or the date that the work commenced. Nor is there any line drawn on the time sheets to indicate when time commenced to run on the so-called stand-alone contract or to indicate when it stopped.
191 There is merit in the defendant’s point that the information to supply that missing detail did not come until Mr Semsem swore his first affidavit.[137] Even then, there is still no explanation as to how the plaintiff arrived at the claimed amount of $300,000.00 plus GST. Similarly, a letter of demand dated 1 June 2017 sent to the defendant by the plaintiff’s solicitors lacked the detail which might otherwise have informed the defendant about the basis upon which the payment claim was made,[138] although that might not have saved it.
[137]Exhibit A, particularly at paragraphs [18] and [24]-[26]
[138]Exhibit A, “MS-11”
192 In a letter dated 7 June 2017 responding to the letter of demand sent by the plaintiff’s solicitors, the defendant’s solicitors set out in comprehensive terms why the payment claim was invalid and that, in any event, the defendant had submitted a payment schedule. In support of the defendant’s position, the letter set out the applicable sections of the Act and cited passages of authority to justify the author’s position. The plaintiff could not have been in any doubt about the basis upon which the payment claim was challenged and why the payment schedule was said to be valid.[139]
[139]Exhibit A, “MS-12”
193 Although the payment claim had the appearance of validity, in that it asserted that it was made under the Act, and it purported to both identify the construction work to which the progress payment related and indicate the amount of the progress payment that the plaintiff claimed to be due, it lacked sufficient detail to explain how the plaintiff had arrived at the sum claimed and on what basis the claim was justified.
(4)Was there a valid payment schedule under Section 15 in response to the payment claim?
194 The parties assumed that the burden of proving this element rested with the plaintiff, so that the plaintiff would have to establish that the defendant did not submit a valid payment schedule. However, erring on the side of caution, and without making any such determination, for the purposes of this case, I am prepared to assume that the defendant carries the burden of proving that it submitted a valid payment schedule in response to the plaintiff’s payment claim. If there was a valid payment claim, and I have found that there was not, I would be satisfied on the balance of probabilities that the defendant has established that it submitted a valid payment schedule in response to the plaintiff’s payment claim.
195 The defendant relied on two documents as comprising a payment schedule. The first was an email sent on 15 March 2017, which the defendant submitted informed the payment schedule contained the second email sent on 17 March 2017.[140]
[140]Exhibit 3, paragraph 42
196 It must be noted that as with payment claims, payment schedules must be interpreted in the context in which they are made. The observations made by the Court of Appeal in New South Wales in Clarence Street Pty Ltd v Isis Projects Pty Ltd[141] about payment claims are equally apposite here:
“[40]The payment claims are to be read in context, including the context of industry conventions and the usage adopted by the parties in their earlier contractual dealings. Construction work for which a claim is made may be identified by reference to earlier documents such as variation claims and other documents capable of being identified by reference to the contract or the earlier dealings of the parties. This list is not intended to be exhaustive.
[41]‘[T]he mere fact that parsing and analysis in the artificial atmosphere of the courtroom can lead to the identification of a number of latent ambiguities will not invalidate what, as a matter of common sense, is reasonably clear’ (Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266 at [83], per Nicholas J, citing Pyneboard Pty Ltd v Trade Practices Commission (1982) 57 FLR 368 at 375).”
[141](2005) 64 NSWLR 448
197 The document said to constitute the payment schedule must itself be assessed to determine whether it complies with the requirements of s15 of the Act. In terms of this case, the question is, having regard to the surrounding circumstances, whether the payment schedule:
(a) Identified the payment claim to which it relates;[142]
[142]Section 15(2)(a)
(b) Indicated the amount of payment (if any) that the defendant proposed to make;[143] and
(c) Indicated why the scheduled amount was less than the claimed amount, and the defendant’s reasons for withholding payment.[144]
[143]Section 15(2)(b)
[144]Section 15(3)
198 The defendant had ten business days to respond to the plaintiff’s payment claim. The plaintiff sent the payment claim on 6 March 2017. Therefore, the defendant was required to respond with its payment schedule on or before 21 March 2017.[145]
[145]Section 4 defines a “business day” as a day that is not a Saturday or Sunday or a day that is wholly or partly observed as a public holiday throughout Victoria. 13 March 2017 was a public holiday.
199 To place the timing of the payment claim into context of the surrounding events, the plaintiff, through Ms O’Connor, sent its payment claim, described as “Claim No: 1”, to the defendant on 6 March 2017. It returned the draft contract to the defendant three days later. It will be remembered that there were only two handwritten amendments proposed to the contract, one of which appears next to the first milestone (4.44 per cent) stating “20% based on time”.
200 Prior to this, the plaintiff had not informed the defendant that it proposed to calculate the progress claim by reference to time spent on the project.
201 The day after receiving the returned draft contract, namely on 10 March 2017, according to Mr Imbrogno, he met with Mr Semsem and the parties agreed to vary the milestones for Warehouses 1 and 3 by adjusting them relative to the amount of work involved in Warehouse 2.
202 The defendant responded to the payment claim in both writing and in person.
203 On 15 March 2017, Mr Ostrozny, on behalf of the defendant, responded by email to Ms O’Connor’s email. This is said to inform the payment schedule submitted on 17 March 2017. As mentioned earlier, Mr Ostrozny’s email of 15 March 2017 was in these terms:
“Hi Semsem
Please be advised due to the security payment act noted on the following invoice, the current status of this invoice needs to be place[d] on Hold until further discuss occur between Ihab [general manager Best Fab] and Gino [Imbrogno].
Which I believe will occur this week some time.”[146]
(sic).
[146]Exhibit 1, “TO-3”
204 The email chain responded directly to the email sent by Ms O’Connor which attached invoice 1318/2461.
205 On 17 March 2017, Ms O’Connor sent a further email to the defendant attaching a second invoice claiming to be for other work conducted on the project, invoice 1318/2463 “Claim No: 2”. The same day, Mr Ostrozny responded to that email but he referred to both invoices:
“Hi Annette,
Semsem has been advised on this already.
Please refer to the attached email and your contract terms and percentages.
Best Fab Pty ltd Claims 1 & 2 will are not in line with the T&C’s of our contract.
Feel free to call me if required.”[147]
(sic).
[147]Exhibit 1, “TO-3”
206 The defendant contends that this email constitutes the payment schedule.
The Defendant’s first email
207 The first email was sent within time, on 15 March 2017. It referred to the invoice sent on behalf of the plaintiff and to the Act.
208 By stating that “the current status of this invoice needs to be place[d] on Hold until … .” the defendant was indicating that the amount of payment that the defendant proposed to make was nil until such time as matters were sorted out between the parties.
209 The email indicated that payment was being placed “on hold” pending further discussions between the parties.
The Defendant’s payment schedule
210 The second email, sent by the defendant on 17 March 2017, was within time. That email responded to both a second invoice sent on behalf of the plaintiff and to the first invoice. The response was in the same email chain and specifically responded to both payment claims.
(a)Did the payment schedule identify the payment claim to which it related?
211 Yes. Although the plaintiff disputed that this email referred to the first payment claim, I am satisfied on the balance of probabilities that it did. The words in the email “Best Fab Pty ltd Claims 1 & 2 ...” are a clear reference to the payment claim the subject of these proceedings, namely “Payment Claim No: 1.”
(b)Did the payment schedule indicate the amount of the payment (if any) that the defendant proposed to make?
212 Yes. By informing the plaintiff that the defendant considered the payment claim to be contrary to the terms of the contract, the defendant was indicating that it considered the claim to be invalid and unjustified. The clear implication is that if the payment claim is unjustified, it will not be paid.
(c)Did the payment schedule indicate why the amount proposed was less than the payment claim and the reasons why payment was being withheld?
213 Yes. The email indicated that the matter had already been discussed with Mr Semsem and that the payment claim was outside the terms of the contract:
“Semsem has been advised on this already.
Please refer to the attached email and your contract terms and percentages.
Best Fab Pty ltd Claims 1 & 2 will are not in line with the T&C’s of our contract.”
214 Either of the emails to which I have just referred would have qualified as a payment schedule in accordance with the Act. The context in which the email of 17 March 2017 was sent cannot be ignored. I agree with the defendant that when read in combination with the email of 15 March 2017, the payment schedule of 17 March 2017 satisfied the prerequisite elements to hold that it constitutes a payment schedule in accordance with the Act.
(5) Did the respondent fail to pay the amount claimed?
215 That is not in issue. The answer is “yes.”
(6) Did the payment claim include any excluded amount?
216 This element is not in issue.
Conclusion
217 In this application, although the parties agreed that the test that is ordinarily applied in applications for summary judgment applies here, to err on the side of caution, I have proceeded as if the test most favourable to the plaintiff applied. I have asked myself whether the plaintiff has established on the balance of probabilities the facts and/or circumstances necessary to satisfy the elements in respect of which it carries the burden of proof. Similarly, I have assumed but not determined that the defendant carries the burden of satisfying the Court on the balance of probabilities that the payment schedule complied with the Act.
218 For the reasons stated above, I find:
(i)I am satisfied on the balance of probabilities that there was a construction contract;
(ii)I am not satisfied on the balance of probabilities that a valid reference date arose under s9 of the Act;
(iii)I am not satisfied on the balance of probabilities that the payment claim made under s14 of the Act was valid;
(iv)Even if the payment claim was valid, I am satisfied on the balance of probabilities that the defendant submitted a valid payment schedule in response to it;
(v)I am satisfied on the balance of probabilities that the defendant failed to pay the amount claimed; and
(vi)I am satisfied on the balance of probabilities that no excluded amount was included in the payment claim.
219 Accordingly, the plaintiff’s application must be dismissed.
- - -
Chronology
Date Event Reference 30 November 2016 Bundle of email exchanges between the plaintiff and defendant and others regarding works, actions, plans etc. Predates the agreement the subject of the proceedings, but shows the nature of the relationship between the parties. Exhibit A, MS-7 Late November - early December 2016 Mr Semsem of the plaintiff and Mr Ostrozny and Mr Imbrogno of the defendant first meet to discuss works to be conducted by the plaintiff on behalf of the defendant. Some terms of the contract are discussed but the details are not finalised. 7 December 2016 Mr Ostrozny and Mr Imbrogno meet at the plaintiff’s office to discuss further work that the plaintiff might undertake for the project. The work would involve the installation of a prefabricated high bay racking system consisting of 608 racking towers in the Truganina warehouse. A scope of work document is provided by the defendant to the plaintiff. Mr Ostrozny makes notes at the meeting. The notes contain reference to milestones although no figures or method of calculation are included for the milestones.
There is a clash between the evidence of Mr Semsem on the one hand and Mr Ostrozny and Mr Imbrogno on the other regarding whether the installation of bracing bays was discussed at the meeting. Mr Ostrozny refers to his handwritten notes taken at the meeting which contain a clear reference to bracing bays, which constituted milestones for progress payments. Mr Ostrozny believes that if he followed his usual practice there would also have been discussions about percentage payments referrable to the relevant milestones.
Exhibit A, MS-2
Exhibit 1, paragraph 10, Exhibit 2 paragraphs 6-9
? December 2016 Mr Ostrozny attends the plaintiff’s premises and provides drawings relevant to the works contained on a USB stick. Exhibit A, MS-5 9 December 2016 Mr Ostrozny sends an email to Mr Semsem asking when the quotation will be supplied for the racking tower job as a decision needs to be made by close of business on 12 December 2016. Exhibit A, MS-3 12 December 2016 Mr Semsem sends an email to the defendant attaching quotation for the works proposed to construct and install the 608 racking towers. Exhibit A, MS-4 13 December 2016 Mr Semsem attends the Truganina warehouse with Mr Sharief to examine similar works being conducted by other contractors.
Mr Semsem states there was no discussion of bracing bays at the meeting. Mr Ostrozny states that not only was there discussion of bracing bays, but that the plaintiff proposed to do the preparatory works for the bracing bays offsite at their own premises since that would be a more cost-effective option.
Mr Ostrozny sends an email to the plaintiff asking for labourers to be provided.
Exhibit A, MS-7
Exhibit 1, paragraphs 14 and 15
Exhibit 2, paragraphs 11-12
16 December 2016 and following Mr Ostrozny and Mr Semsem are in regular contact about the ongoing need for the plaintiff to supply the defendant with labourers to work on the project. ? January 2017 Before the works commence, Mr Ostrozny tells Mr Semsem that the defendant wants the works to Warehouses 1 and 3 to be completed before the works to Warehouse 2 are commenced. Exhibit 1, paragraphs 16-17 9 January 2017 Mr Ostrozny tells Mr Semsem that other work needs to be carried out before the racking towers can be installed. This work is performed over the next two weeks. Mr Semsem spends most days working at the Truganina warehouse from this date. 11 January 2017 Mr Ostrozny asks Mr Semsem to organise a crane at the Truganina warehouse. Mr Ostrozny directs the crew to start assembling and installing a bracing bay in the eastern part of Warehouse 3. 21 January 2017 Mr Ostrozny sends an email to the plaintiff attaching a draft contract. It contains details for progress payments and their respective milestones, with a comment addressed to Mr Imbrogno to “sort out the milestones”. Mr Ostrozny states the terms of the draft contract are in accord with the oral discussions of December 2016.
Mr Imbrogno states the reference to sorting out the milestones in the email was to reflect the fact that the order of the works had changed and this would require adjustment of the milestones for progress payments.
The plaintiff continues to work on the project for approximately another six-and-a-half weeks without raising any concerns about the terms of the draft contract.
Exhibit 1, paragraphs 18-21, TO-1
Exhibit 2, paragraph 15
9 February 2017 The plaintiff mobilises a second crane at the Truganina warehouse used to install the bracing bay at Warehouse 1. Exhibit A, paragraph 26 3 March 2017 approximately The plaintiff’s labourers complete installing the bracing bays in Warehouse 1 and Warehouse 3. Mr Semsem deposes that no work has been done at the warehouse to install any racking towers. Exhibit A, paragraphs 26-27 6 March 2017 Claim for progress payment under cover of email sent by Annette O’Connor for invoice 1318/2461:
“Claim No: 1
Installation of Bracing Bay in Warehouse 1 and 3
As per details attached.”
[Attached table showing no previous completion of the job, this job 100 per cent complete, claim $300,000.00 exclusive of GST]
Exhibit A, MS-9 9 March 2017 The plaintiff returns the draft contract to the defendant under cover of email: “Please see the attached pdf for the comments on the contract copy supplied to Bestfab.”
There are only two handwritten amendments proposed to the contract, one of which appears next to the first milestone (4.44 per cent) stating “20% based on time”.
Prior to this there has been no indication that the plaintiff proposed to invoice for 20 per cent of the contract price for the first milestone or to base the progress payment on a calculation of time spent on the project.
Mr Ostrozny states that the amount included in the claim for progress payment is not consistent the email received from the plaintiff.
Exhibit 1, paragraphs 26-27, TO-2
Exhibit 4
10 March 2017 approximately Within approximately 24 hours after receiving the returned draft contract with the plaintiff’s handwritten proposed amendments, Mr Imbrogno discusses the milestones with Mr Semsem and reaches agreement about progress payments:
“Warehouse 1, 35% of the milestone percentage, for Warehouse 2, 35% of the milestone percentage and for Warehouse 3, 30% of the milestone percentage.”
Exhibit 2, paragraph 17 15 March 2017 Mr Ostrozny responds to Ms O’Connor’s email attaching claim for progress payment:
“Hi Semsem
Please be advised due to the security payment act noted on the following invoice, the current status of this invoice needs to be place on Hold until further discuss occur between Ihab [general manager Best Fab] and Gino [Imbrogno].
Which I believe will occur this week some time.”
The email chain responds directly to the email sent by Ms O’Connor attaching invoice 1318/2461.
Exhibit A, MS-10
Exhibit 1, TO-3
17 March 2017 Ms O’Connor sends email at 1.33 pm to the defendant attaching invoice 1318/2463 (Claim No 2), not the subject of the current claim. The subject title of the email is “Invoice 1318/2463”.
At 3.36pm. Mr Ostrozny responds to this email, referring to both claims for payment:
“Subject: Re: Invoice 1318/2463
Attachments: Re: Invoice 1318/2461”
The email states:
“Hi Annette,
Semsem has been advised on this already.
Please refer to the attached email and your contract terms and percentages.
Best Fab Pty ltd Claims 1 & 2 will are not in line with the T&C’s of our contract.
Feel free to call me if required.”
Exhibit A, MS 13
Exhibit 1, TO-3
29 March 2017 Invoice 1318/2472 “Claim No: 3” from plaintiff to defendant “Labour and cranes for the installation of Racking system for Warehouse 1 and 3”. Exhibit 6 1 June 2017 The plaintiff’s solicitors write letter of demand to the defendant regarding the claim for progress payment. Exhibit A, MS-11 7 June 2017 The defendant’s solicitors respond to the plaintiff’s letter of demand outlining why the progress payment claim is invalid, and in the alternative noting that a payment schedule has been made within time. Exhibit A, MS-12 27 June 2017 Mr Semsem’s first affidavit Exhibit A 24 July 2017 Mr Imbrogno’s affidavit Exhibit 2 25 July 2017 Mr Ostrozny’s affidavit Exhibit 1 26 July 2017 Mr Semsem’s second affidavit.
Mr Chiang’s affidavit (plaintiff’s solicitor).
Exhibit B
Exhibit D.
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