Bway v Pasiopoulos
[2019] VCC 691
•22 May 2019
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
Case No. CI-19-00655
| BWAY GROUP PTY LTD (ACN 116 229 586) | Plaintiff |
| v | |
| CHRIS PASIOPOULOS | Defendant |
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JUDGE: | HER HONOUR JUDGE MARKS | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 24 April 2019, further affidavit filed on 30 April 2019 | |
DATE OF RULING: | 22 May 2019 | |
CASE MAY BE CITED AS: | BWAY v PASIOPOULOS | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 691 | |
REASONS FOR RULING
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BUILDING AND CONSTRUCTION – Application for summary judgment under section 16(2) Building and Construction Industry Security of Payment Act 2002 (Vic) – Defendant not ‘in the business of building residences’ at relevant time – Act does not apply – Application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff | Mr N Phillpott | Ward & Co. Legal Consultants |
| For the defendant | Mr A Morrison | Brixton Legal |
Table of Contents
Introduction
The application
Was the defendant in the business of building residences?
The law
When must the defendant be in the business of building residences?
Findings
Was contract entered in the course of, or in connection with, that business?
Was the relevant stage reached?
Conclusion
HER HONOUR:
Introduction
The plaintiff seeks judgment against the defendant for $183,400 plus interest, pursuant to section 16(2) of the Building and Construction Industry Security of Payment Act2002 (the Act). It brought its claim by originating motion and summons.
The Act sets out a regime which applies to some building contracts to enable people carrying out building or construction work to promptly recover progress payments in certain circumstances. That regime is helpfully detailed in 3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 at [32]-[35].
When the regime applies, if a valid payment claim is served by a builder under s14 of the Act and no payment schedule is received under s15, s16(2) operates to give the builder a right to recover the unpaid portion of the payment claim as a debt due.
The only defences the Court should consider before giving judgment on the debt are those that undermine the statutory pre-requisites set out in s14 and s15 of the Act: see SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 at [28], [29].
The parties agree that on 8 March 2017 they entered into a ‘construction contract’ within the meaning of section 4 of the Act. They also agree that the contract was in relation to building domestic buildings: three double storey townhouses on a property in Grey Street, Ringwood East.
The issues are:
1) Was the defendant ‘in the business of building residences’ at the relevant time?
2) If he was in that business, was this contract entered into pursuant to that business?
3) Had a relevant payment stage been reached so that the plaintiff was entitled to serve a payment claim under the Act?
If the answer to any of these questions is no, the Act does not apply.
I am not satisfied that the defendant was in the business of building residences at the relevant time.
I will dismiss the plaintiff’s application.
The application
The plaintiff relied at the hearing on 24 April 2019 on affidavits of Dragan Ivkovic sworn 15 February, 14 March and 2 April 2019, and of Samar Chowdhery sworn 3 April 2019. Subsequently, the plaintiff was given leave to file further evidence. It then filed a fourth affidavit of Ivkovic sworn on 29 April and filed on 30 April 2019.
The defendant relied on affidavits of Chris Pasiopoulos sworn 14, 17, and 18 March and 16 April 2019. He also relied on the affidavits of Sotirios Loizou sworn 15 March and 17 April 2019.
Neither party sought to cross-examine on the affidavits.
At the close of the hearing, I made orders permitting the plaintiff to file and serve an affidavit with further evidence relevant to the third issue in dispute – whether a relevant payment stage had been reached. I made orders allowing the defendant to file reply evidence, and both parties to file submissions.
The only additional material filed subsequently was Ivkovic’s 29 April 2019 affidavit.
The parties agreed at the hearing that I should proceed to make my ruling based on the written and oral submissions already made, and the affidavits filed, without a further hearing.
Was the defendant in the business of building residences?
The law
Section 7(2)(b) of the Act states that the Act does not apply to:
… a construction contract which is a domestic building contract within the meaning of the Domestic Building Contracts Act 1995 between a builder and a building owner (within the meaning of that Act), for the carrying out of domestic building work (within the meaning of that Act), other than a contract where the building owner is in the business of building residences and the contract is entered into in the course of, or in connection with, that business…
…
In Director of Housing v Structx Pty Ltd T/as Bizibuilders and Anor [2011] VSC 410, in concluding that the Director of Housing was not in the business of building residences, Vickery J held (at [28]) that the expression ‘in the business of building residences’:
connotes the construction of dwelling houses as a commercial enterprise on the basis of a going concern, that is, an enterprise engaged in for the purpose of profit on a continuous and repetitive basis.
His Honour said at [37] it:
speaks in terms of the actual business which the building owner undertakes, not whether a party in the position of the building owner has the power to undertake the activity.
Golets v Southbourne Homes & Anor [2017] VSC 705 involved the construction of two three-storey townhouses for the owner, Dr Golets. Vickery J said (at [34]) the indicia his Honour had set out in Structx should be seen as:
an aid or guide to the application of the statutory exception, rather than be seen as a prescriptive, comprehensive and exclusive test superimposed on the statutory definition of the exception.
His Honour went on, at [36]:
Ultimately, the only ‘test’ to be applied to determine whether or not the exception applies is that prescribed by the Act. Application of the exception is to be adjudged by reference to its own language, when applied to the facts of each case. The facts relevant to this issue will vary from case to case. These relevant facts may be referred to as the ‘salient features’.
At [54], his Honour held that the following features were salient in that case in reaching a conclusion that Dr Golets did not undertake the construction of the project in the business of building residences:
· The owner was a medical practitioner by occupation and his wife was a pharmacist.
· There was no evidence that the purpose of the project was to make a ‘profit’ in the commonly accepted sense of the concept. The intended sale of one of the units was intended only to help pay off the debt which had been generated.
· There was no evidence of any enterprise on a continuous and repetitive basis.
· There was no vehicle established to structure the construction of dwellings at the property which had as its purpose a commercial enterprise to generate profit for those engaged in it or who had an interest in it.
· The primary purpose of the project was to secure a dwelling house to be occupied by the owner and his family. The sale of the one unit was part of his financial plan to achieve this end.
In Promax Building Developments Pty Ltd v. PCarol & Co Pty Ltd [2017] VCC 495, Anderson J held at [27] that the determination of the question of whether someone is in the business of building residences:
does not depend on the scale of the business, the success of the business, the number of projects undertaken either in the past or at any one time, or as contemplated for the future.
The owner in Promax was the corporate trustee of a discretionary investment trust. It had an ABN, and was registered for GST. His Honour held that in circumstances where the sole activity of the trust had been to purchase and develop two properties for profit, the owner was ‘in the business of building residences’ and entered into the contract in the course of that business.
In Ian Street Developer Pty Ltd v Arrow International Pty Ltd [2018] VSC 14, Riordan J held at [102] that the land owner in that case was in the business of building residences. Among the grounds cited, his Honour considered it relevant that the owner was incorporated as a special purpose vehicle with the sole purpose of completing the construction of the project, for the purpose of the units in the project being resold by a related corporation for a profit.
When must the defendant be in the business of building residences?
The parties disagreed as to the relevant time to consider this question.
I am satisfied that in order for the Act to apply to the contract, the defendant must have been in the business of building residences when he entered it on 18 March 2017. That is because section 7(2)(b) specifically sets out that the Act does not apply to domestic building contracts:
other than a contract where the building owner is in the business of building residences and the contract is entered into in the course of, or in connection with, that business …
It requires that the contract be entered into in the course of, or in connection with, the building owner’s business of building residences.
I do not accept the plaintiff’s submission that it is possible that someone could not be in business at the time of entering a relevant contract, but subsequently be in that business, and then have the Act apply.
To determine if the defendant was in the business of building residences when he entered this contract, I need to consider the evidence in relation to that as at 18 March 2017.
Evidence of the matters that occurred later may be considered to see if it sheds light about whether he was in that business on 18 March 2017.
Findings
The evidence does not establish that at the time of entering the Grey Street contract on 18 March 2017 the defendant was in the business of building residences.
The plaintiff says that salient factors to be considered here relate to the three properties which the defendant owns and one owned in part by at company of which he is a director.
However, on 18 March 2017 (the time of the Grey Street contract) the defendant had never entered a contract to construct a residence.
The only things the defendant had actually done as at 18 March 2017 – relevant to whether he was in the business of constructing residences at that time – were to:
· Buy the Grey Street property in 2009, and take out a loan on 9 December 2016 to construct three units on it;
· Buy the Patterson Street property in 2014;
· Be a director of a company which purchased land in Mornington in 2019.
Grey Street
This is the land which is the subject of this payment claim.
The defendant purchased Grey Street in 2009, some seven or eight years before the construction contract at the centre of this dispute was entered into. He bought it as a negatively geared investment, with the intention of renting out the existing weatherboard dwelling. He took out a Westpac Rocket Investment Loan for that (not a business loan).
The defendant deposes that his plans for Grey Street changed in 2015, when he decided to demolish the existing dwelling on Grey Street and build three townhouses for his children. His son had announced he was to marry his long-term girlfriend. He said his intentions were, and are, either to give a townhouse to each child (with some assistance from them in financing), or to sell one unit to cover costs, live in one unit with his wife, and give the remaining unit to his three children in equal shares.
He holds Grey Street in his personal capacity, and not on behalf of any trust.
He has no ABN registered for any property business.
He has not been claiming input tax credits in relation to the building project.
Ivkovic deposes that in February 2017 the defendant told him that on completion of this project, he planned to sell the townhouses to fund further developments. The defendant denies saying this, and says it was never his plan.
Patterson Street
Three years before the Grey Street contract, in 2014, the defendant and two of his children bought land at Patterson Street, Richmond, as tenants in common. He says that they had at that time the intention of building six townhouses: three of which were to be sold to cover expenses and three of which were to be occupied by his children. However, the project never proceeded.
Ivkovic deposes that at a February 2017 meeting the defendant told him that he was constructing five townhouses on Patterson Street. The defendant denies that conversation.
Six months after the Grey Street contract was entered into, on 6 September 2017, preliminary plans were drafted for six houses on the Patterson Street property.
Amended drawings were provided on 20 February 2018. A quote for development of six townhouses was also provided.
No structural drawings or building permit has been sought for Patterson Street. No building contract has been entered into.
The defendant says he obtained the plans because he wanted an idea of what it would cost if he decided to build units on Patterson Street, but that in mid-2018 he decided to shelve that idea.
He deposes that he no longer intends to develop it, or proceed with the construction of town houses at Patterson Street in any form.
On 11 January 2019 the planning permit was extended until February 2021. The defendant says this was done because having current plans will add to the value of the property when he sells it.
Moorhead Avenue
The defendant is the sole director and shareholder of Majec. Majec owns land in Moorhead Avenue, Mornington as tenant in common with the defendant’s two sons.
Moorhead Avenue was bought as an investment with a family friend of the defendant in 2009 (eight years before the Grey Street contract). It was renovated and leased out, and remains tenanted. In 2013 the defendant’s sons bought out the family friend’s share of the property.
It is in a beach area, and the defendant says that he and his sons ‘dreamed’ of constructing three holiday houses for their families on the property.
Thirteen months after the Grey Street contract – in June 2018 – Majec made an application to amend the title to Moorhead Avenue, by removing a restrictive covenant on it to enable them to construct their holiday houses.
Beauford Rise
The defendant lives in a house at Beauford Rise, Warrandyte. The plaintiff says the defendant told him that he had also been involved in building that house.
The defendant says his father is a carpenter and built that property; and that the defendant had very little to do with it. It is his primary residence in any event, and is not relevant to the question of whether he is in the business of building residences.
Intentions
The plaintiff relies on various statements either made by the defendant, or which it says were made by the defendant, as to the defendant’s intentions held at different times in relation to these properties.
However, intentions which do not result in actions are irrelevant. As the old saying goes, ‘The road to hell is paved with good intentions’. Intentions can change, and the defendant has deposed that his intentions have changed over time.
To the extent that the defendant denies having said certain things about his intentions which Ivkovic has deposed to, I note that this cannot be fully determined on an application of this nature, particularly where there has been no cross-examination on the affidavits. However, even if they were said, they do not alter the objective indicia in evidence, about the situation as at 18 March 2017, in deciding if the defendant was then in the business of building residences.
Was contract entered in the course of, or in connection with, that business?
Even if I was wrong about that and the defendant was ‘in the business of building residences’ at the time he entered the Grey Street contract, I would not be satisfied that that contract was entered into pursuant to any such business. The defendant proposed to develop the land with three units for the use of him and his family, if necessary selling one unit to repay part of the mortgage and construction cost. This does not equate to entering that contract pursuant to a business of building residences.
Was the relevant stage reached?
I do not need to decide the further issue of whether, if the Act applied, the relevant payment stage had been reached at the time the payment claim was made.
Since some time was spent on it, and further evidence was filed after the hearing, I indicate that I would have been satisfied the relevant payment stage was reached. This question turned on whether the frame stage of the building had been reached.
I consider that the matters deposed to in Ivkovic’s affidavit sworn 29 April 2019 establish that the relevant building surveyor, Mr Krneta, certified that the frame stage had been reached. I accept the evidence filed for the plaintiff that the deck and pergola could not be added until a later time in the building process, but well after the frame otherwise was constructed. The fact that the decking and pergola are shown in the plans for the frame is not determinative given that practical issue.
The failure to add to the deck and pergola at frame stage was a failure borne of impracticality. In Cardona v Brown [2012] VSCA 174 at [74] Tate JA (Bongiorno and Osborn JJA agreeing) stated that trivial failures or failures borne of impracticalities do not preclude effective or satisfactory completion:
It is necessary for there to be ‘effective and satisfactory completion of the required stage … [as] a condition of any instalment payment’ and while trivial failures, or failures borne of impracticalities, do not preclude effective and satisfactory completion, it is noteworthy that the dispute in relation to the trusses was not resolved until the first day of the hearing before VCAT. That resolution involved work being done on the tresses to strengthen them in accordance with the recommendations of a consultant engineer. The ‘final approval’ was not given until Mr Kidd undertook a personal inspection on 13 March 2007. [citation omitted] )
Conclusion
I direct the parties to consider the costs orders that should be made as a result of these reasons and provide to me consent orders by 4pm on 25 May 2019. If the parties cannot agree, a costs hearing will be listed.
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Certificate
I certify that these 11 pages are a true copy of the reasons for ruling of her Honour Judge Marks, delivered on 22 May 2019.
Dated: 22 May 2019
Samantha Marinic
Associate to Her Honour Judge Marks
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