Cidec Pty Ltd v Citi-Con Pty Ltd
[2021] VCC 553
•10 May 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-20-03739
| Cidec Pty Ltd | Plaintiff |
| v | |
| Citi-Con (Vic) Pty Ltd | Defendant |
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JUDICIAL OFFICER: | Judicial Registrar Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | On the papers; plaintiff's confirmation that no further submissions would be filed dated 13 April 2021 | |
DATE OF JUDGMENT: | 10 May 2021 | |
CASE MAY BE CITED AS: | Cidec Pty Ltd v Citi-Con Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 553 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Building contract –– payment claim – whether payment claims had a reference date –– whether payment claims adequately identified the construction work –– whether defendant paid amounts claimed –– whether plaintiff performed the work –– whether payment claims incorporated excluded amounts –– severance of excluded amounts
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic) ss 4, 9, 10A, 10B, 12, 14(2), 15, 16(2) and 48; Civil Procedure Act 2010 (Vic) ss61 and 63
Cases Cited:3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674; SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805; Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340; All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289; MKA Bowen Pty Ltd v Carelli Constructions Pty Ltd [2019] VSC 436; Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd [2021] VSCA 44; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106; Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183; John Beever (Aust) Pty Ltd v Roads Corporation [2018] VSC 635.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I Hristovski | JHK Legal |
| For the Defendant | Ms C Jones | Eidelweisz Lawyers |
JUDICIAL REGISTRAR:
1 In this proceeding, the plaintiff (“Cidec”) applies for judgment against the defendant (“Citi-Con”) pursuant to s16(2) of the Building and Construction Industry Security of Payment Act 2002 (Vic) (“SOP Act”). Cidec makes the application by summons on originating motion dated 11 August 2020. The application arises out of electrical works that Cidec performed at the Waterfront – CS Boulevard, 02 The Crossing, Caroline Springs.
2 Cidec submits that it is entitled to judgment because Citi-Con failed to make payment in response to its payment claims. Citi-Con opposes judgment on five grounds, as follows:
(a) the payment claims lack a reference date;
(b) the payment claims failed to adequately identify the construction work;
(c) Citi-Con has made payment of the claimed amounts;
(d) Cidec has not completed the works; and
(e) the payment claims include excluded amounts.
3 In my view, the fifth ground at (e) is made out in relation to payment claim 12, in light of the findings in the recent decision of the Court of Appeal in Yuanda Vic Pty Ltd v Façade Designs International Pty Ltd[1] (“Yuanda”). However, the grounds in respect of the other payment claims fail.
[1][2021] VSCA 44 (“Yuanda”).
4 Accordingly, I will order that there is judgment for Cidec in the sum of $91,936.31 plus interest as claimed. I will also order that Citi-Con pay Cidec’s costs of and incidental to the proceeding on a standard basis, in default of agreement (unless either party has a basis for a different costs order). I invite the parties to prepare draft orders to give effect to these reasons. I will determine any issue concerning costs on the papers.
The facts
5 Cidec relies upon two affidavits of Peter Stacey, its sole director, sworn 14 August and 13 November 2020. In opposition, Citi-Con relies upon an affidavit of Brendon Smith, its director, sworn 22 October 2020. Unless otherwise stated, the facts of the proceeding are not materially in dispute.
6 On 7 August 2018, Cidec entered a written contract with Citi-Con to provide electrical works at the Waterfront – CS Boulevard, 02 The Crossing, Caroline Springs (“contract”). Pursuant to cl 12.2 of the contract:
(a) progress claims were to be submitted in accordance with sch 1 (on the “25th day of each month projected to end of month”);
(b) progress claims were to show the value, percentage and details of the work Cidec considered completed, including any variations and other adjustments to the contract sum;
(c) an early progress claim was deemed to have been made on the date for making the claim in sch 1;
(d) within 10 business days of receiving a progress claim, Citi-Con’s representatives were to assess it and issue a payment schedule; and
(e) within 45 days after the end of the month in which the claim was made, Citi-Con or the subcontractor was to make payment.
7 Cidec served the following payment claims on Citi-Con:
(a) payment claim 10 for $30,760.52 dated on 24 November 2019;
(b) payment claim 11 for $61,175.79 dated on 18 December 2019; and
(c) payment claim 12 for $44,547.65 dated on 24 January 2020.
8 Citi-Con did not issue a payment schedule or make any payments in respect of payment claims 10 and 11. In relation to payment claim 12, Citi-Con purported to make a payment of $25,999.89
9 On 24 January 2020, Cidec issued progress claim 12 in the sum of $44,547.65. On or about 20 April 2020, Citi-Con made a purported part-payment of the payment claim in the sum of $25,999.89. The balance remains outstanding.
10 The parties dispute whether the works were completed, and whether the defendant had already paid the amounts claimed. This will be developed below.
11 Cidec now claims the sum of $110,484.07 under s16(2) of the SOP Act.
The legal context
12 The SOP Act seeks to ensure that people who undertake to carry out construction work can recover progress payments for the performance of that work.[2] Section 4 defines construction contract as 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”. The SOP Act applies to any construction contract whether written or oral, or partly written and partly oral.[3] “Construction work” is defined by s5. There is no dispute that the works the subject of this proceeding is “construction work” within the meaning of s5.
[2]s3.
[3]s7.
13 Section 16(2)(a) of the SOP Act provides that a claimant may recover from a respondent any unpaid portion of an amount claimed in a payment claim where the respondent fails to submit a payment schedule within time (or at all) in response to the payment claim.
14 Section 14 of the SOP Act concerns the form and content of payment claims. Sections 14(2) and (3) relevantly provide that a payment claim:
(a) must be in the prescribed form (if any) and contain the prescribed information (if any) – neither is prescribed;
(b) must identify the construction work or related goods and services to which it relates;
(c) must indicate the amount of progress payment that the claimant claims to be due;
(d) must state that it is made under the SOP Act; and
(e) must not include any “excluded amounts” (being amounts referable to particular categories of variations).
15 Section 14(4) of the SOP Act addresses when a payment claim can be served, where it is not a payment claim in respect of a final, single or one-off progress payment. It provides that such a payment claim may only be served within:
(a) the period determined in accordance with 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 s9(2) that relates to the progress payment”.
16 Sections 14(5), (6) and (7) of the SOP Act concern payment claims claimed in respect of a final, single or one-off progress payment and are not relevant for present purposes. Section 14(8) provides that a claimant “cannot serve more than one payment claim in respect of each reference date under the construction contract”. Section 14(9) provides that this limitation does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous payment claim if the amount has not yet been paid.
17 Another important provision informing the formal requirements for payment claims under the Act is s9. Section 9(1) provides that “on and from each reference date under a construction contract” a claimant is “entitled to a progress payment under this Act calculated by reference to that date”.
18 Section 9(2)(a) provides that a reference date is a date determined by or in accordance with the construction contract as:
(a) a date on which a claim for a progress payment may be made; or
(b) 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. The rest of s9 concerns situations where the contract makes no express provision for reference dates.
19 It is now well established in Victoria that unless a payment claim answering the description in s14(1) of the SOP Act is served, there can be no application to a court under s16(2)(a)(i).[4] On the other hand, the available defences to a payment claim are very limited.
[4]Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340 [44] (“Southern Han”).
20 Generally speaking, the available defences concern either the nature of the underlying contract or the form and service of the purported payment claim, and thus whether the payment claim is effective to trigger the procedures established by Pt 3 of the SOP Act.[5] More particularly, the defences to a payment claim enlivened by the formal requirements of the SOP Act are, in substance, that the payment claim:
[5]Southern Han [62].
(a) does not relate to a “construction contract” (including because it does not involve carrying out “construction work”), or it relates to a construction contract excluded from the operation of the Act under s7 (for example, a construction contract that forms part of a loan agreement, or one that is a domestic building contract under the Domestic Building Contracts Act 1995 (Vic));
(b) fails to satisfy the formal requirements of s14(2) (for example, by failing to identify the construction work or failing to state that it is made under the SOP Act);
(c) was made when no valid reference date existed,[6] including where it is served before an applicable reference date or relies on a reference date that has already been used up by an earlier payment claim;[7]
(d) includes variations that are “excluded amounts” under s10B; and
(e) was not validly served on the respondent under either the terms of the contract or under s50.
[6]Southern Han [61]-[62]; Vanguard Developments v Promax [2018] VSC 386 [121] (Kennedy J).
[7]SOP Act s14(8).
21 Under s47, nothing in Pt 3 of the SOP Act precludes bringing or continuing proceedings under the construction contract, including where those proceedings deal with the same issues in dispute in the proceeding relying on Pt 3. Thus, a judgment under ss16 and 17 is a provisional judgment in what it grants and what it refuses.[8] The statutory context both contemplates and permits inconsistent judgments.[9] This section is, in effect, the statutory manifestation of the “pay now, argue later” description often given to the policy behind the SOP Act and its counterparts in other states.[10]
[8]Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (2009) 26 VR 112 [2] and [43]-[46] (Vickery J), cited with approval in Pearl Hill Pty Ltd v Concorp Construction Group (Vic)Pty Ltd [2011] VSCA 99 [11].
[9]Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385 [22] (Handley JA, with whom Santow JA and Pearlman AJA agreed).
[10]Hickory Developments Pty Ltd v Schiavello (Vic) Pty Ltd & Anor (2009) 26 VR 112 [2] and [43]-[46].
22 Further, in considering any purported defences to a payment claim, it is important to be mindful of s48 of the SOP Act. This section provides that the provisions of the SOP Act have effect despite any contractual provision to the contrary. It further provides that any provision in any contract purporting to exclude, restrict or modify the operation of the SOP Act or that may reasonably be construed as an attempt to deter a person from taking action under the Act, is void.
23 This Court has endorsed the hearing of applications under the SOP Act on a summary basis by summons on originating motion with affidavit evidence.[11] Such claims are properly assessed on the balance of probabilities,[12] with the quality of the evidence weighed having regard to the fact that the legislation seeks to facilitate a swift but temporary remedy.[13] The present proceeding was commenced by summons on originating motion, so questions of the application of the test under Civil Procedure Act 2010 (Vic) ss61 and 63 do not arise.
Reference dates
[11]3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 [39]-[54]. See also SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 [26].
[12]Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449, 449-450 (Mason CJ, Brennan, Deane and Gaudron JJ).
[13]3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 [51]-[54].
24 The first ground on which Citi-Con resists judgment is that progress claims 10-12 lack a reference date, because they were served prematurely. Cidec responds that payment claims 10-12 have reference dates.
25 The starting point for an analysis of reference dates is s9 of the Act. Section 9(1) stipulates that on or from a reference date, the claimant is entitled to a progress payment calculated by reference to that date. Section 9(2)(a)(i) provides that the reference date is a date on which a claim for a progress payment may be made in relation to a specific item of construction work or related goods and services and which is determined by or in accordance with the terms of the contract.
26 In this case, the contract determined the reference date. Part A of sch 1 stipulated that progress claims were to be submitted on the “25th day of each month projected to the end of month”. Accordingly, the reference dates for payment claims 10 and 12 were 25 November and 25 January.
27 Pursuant to cl 13(a)(ii), if the reference date was between 24 December and 14 January, it was deemed to be 15 January. Accordingly, the reference date for payment claim 11 (18 December 2019) was 15 January.
28 Progress claims 10-12 were issued on 24 November 2019, 18 December 2019, and 24 January 2020. This was before their reference dates. The authorities indicate that a payment claim must be submitted on or after a reference date.
29 In Southern Han, the High Court held that a reference date is a “precondition” to a valid payment claim.[14]
[14](2016) 260 CLR 340 [61]-[62].
30 In All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd,[15] the majority applied Southern Han and held that:
“[A] statutory payment claim served before the relevant reference date is not served ‘on or from’ that reference date for the purpose of the NSW SOP Act, the effect being that the phrase ‘on or from’ when properly construed, is to be understood as meaning ‘on or after’ the relevant reference date.”[16]
[15][2017] NSWCA 289.
[16]Ibid [14].
31 In MKA Bowen Pty Ltd v Carelli Constructions Pty Ltd (“MKA Bowen”),[17] Digby J held that:
“In my view … it is sufficiently clear in light of Southern Han and All Seasons that s 9 and s 14 of the SoP Act (Vic) do not operate so as to permit the valid service of a payment claim prior to the relevant reference date which itself establishes a valid foundation for that payment claim to be made under the SoP Act (Vic) ….”
[17][2019] VSC 436.
32 Cidec seeks to escape the consequences of the authorities by reference to cl 12.2 of the contract. Clause 12.2 provides: “An early progress claim shall be deemed to have been made on the date for making the claim as stated in Schedule 1”. Thus, Citi-Con submits: “any progress claim issued prior to the reference date is deemed received on the next applicable reference day”.
33 It follows, says Cidec, that payment claims 10-12 had reference dates (25 November 2019, 15 January 2020 and 25 January 2020).
34 That submission cannot be accepted. In MKA Bowen, Digby J held that provisions deeming an early payment claim as submitted on the reference date are inimical to the purpose of the Act.[18] This is because the Act seeks to establish a strict and time critical regime for the submission of, response to, and adjudication of payment claims.[19]
[18]Ibid [74].
[19]Ibid.
35 Such contractual provisions are also contrary to s48 of the Act, which stipulates that the parties cannot contract out of the Act: “The provisions of this Act have effect despite any provision to the contrary in any contract.” Any provision that purports to exclude, modify or restrict the operation of the Act, or has that effect, is void. Clause 12.2 modifies the operation of s9 of the Act insofar as it concerns the timing of payment claims. Therefore, cl 12.2 is void.
36 In the alternative, Cidec submits that it can rely upon the reference date in a previous month if that date has not been used. It refers to Cool Logic v Citi-Con (“Cool Logic”), where the Court awarded judgment on premature payment claims in similar circumstances.[20]
[20][2020] VCC 1261.
37 Cidec references the evidence of Citi-Con that the payment claim immediately before the November invoice was on 25 September 2019.
38 Accordingly, Cidec submits that:
(a) for the November invoice, the reference date of 25 October 2019 was available;
(b) for the December Invoice, the reference date of 25 November 2019 was available; and
(c) for the January Invoice, the reference date of 25 December 2019 was available.
39 I agree and adopt the Court’s analysis in Cool Logic. Accordingly, I reject ground 1.
Identification of construction work
40 The next ground in opposition of Citi-Con is that progress claims 10-12 fail to adequately identify the construction work.
41 Cidec submits that the payment claims adequately identify the construction work. It notes that each claim outlines the work undertaken, the value attributed to the work, dates for payment, and all relevant balances. It notes that Citi-Con responded to progress claim 12 with a payment schedule, which suggests it understood the work to which the claim related.
42 Whether a payment claim sufficiently identifies the construction work is an objective test.[21] The test is whether a reasonable person in the position of Citi-Con can comprehend the basis of the claim.[22] The test is not overly stringent; the Court cannot adopt an unduly technical approach.[23] The context of the payment claim is relevant, including industry conventions and earlier contractual dealings.[24] The background knowledge of the parties from their past dealings and prior exchanges of information (including correspondence) are also relevant.[25] Thus, the Court may transcend the face of the payment claim.
[21]John Beever (Aust) Pty Limited v Paper Australia Pty Ltd [2019] VSC 126 [83] (Lyons J).
[22]Ibid.
[23]Ibid; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 [51] (Vickery J).
[24]Clarence Street Pty Ltd v Isis Projects Pty Ltd [2005] NSWCA 391 [40].
[25]John Beever (Aust) Pty Limited v Paper Australia Pty Ltd [2019] VSC 126, Lyons J [83]; Gantley Pty Ltd v Phoenix International Group Pty Ltd [2010] VSC 106 [51] (Vickery J).
43 In my view, the payment claims adequately identify the construction work. Each claim provides a sufficiently detailed breakdown and description of the works; the value of works; the percentage completed; all relevant balances; dates for payment; and costs. A reasonable person in the position of Citi-Con would readily comprehend the work to which they relate. More detail was unnecessary – the test is not a pedantic or technical one.
44 The fact that Citi-Con issued a payment schedule for progress claim 12 (and did not object to the identification of the work), reinforces that it understood the work to which that claim related.[26] Accordingly, I reject ground 2.
[26]Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183 [146].
45 The Court notes that an increasing number of respondents to payment claim disputes have sought to impugn the identification of the construction work as a catch-all submission. The Court will not entertain such submissions lightly. The parties to construction disputes are discouraged from adopting an overly particular approach to the identification requirement, and to the Act more broadly. The identification requirement is a flexible and lenient one.
Performance of the work
46 The next ground on which Citi-Con resists judgment is that Cidec did not perform the works for progress claims 10-12. In relation to progress claim 10, Mr Smith denies that Cidec performed the works. He does not believe Cidec could have performed the works as he says it was not attending the site regularly in November. He says Cidec only attended site on a couple of occasions and only had one or two workers on site.
47 Mr Smith refers to emails Cidec sent Citi-Con regarding Cidec’s lack of attendance. One email, dated 18 November 2019, was in the following terms:
“Dear Peter
Please note site attendance last week was pathetic.
1 x subcontractor for 3 days ……… Monday the 11th to Saturday the 16th.
Tim Bunnett”
48 As for progress claim 11, Mr Smith does not believe Cidec completed the fit off works, as at that stage he alleges there were no apartments that had been fitted off.
49 In relation to progress claim 12, Mr Smith does not believe Cidec completed works other than those it paid for, as he says Cidec only attended the site on 10 days in January 2020, with only a few workers on site.
50 In substance, Mr Stacey deposes that the works were complete: “From August 2019, and in accordance with the Construction Contract, Cidec provided the Works to Citi-Con…”.
51 Cidec submits that the evidence of Mr Stacey is mere assertion, uncorroborated by the contemporaneous evidence. It refers to:
(a) the time sheets of Cidec showing that staff attended the site on each of the days between 12 November 2019 and 20 December 2019, 30 December 2019 to 3 January 2020; 13 January 2020 to 24 January 2020; and 3 February 2020 to 7 February 2020; and
(b) the fact that the payment schedule for progress claim 12 did not allege that the work was not performed, or that workers were not on site.
52 In my view, the evidence of Mr Smith cannot establish that the works were incomplete. Beyond a bare denial, it establishes no more than that Cidec was at times absent from the site. It does not establish that specific works were incomplete.
53 Further, there is no evidence to corroborate that the works were incomplete. Rather, the contemporaneous evidence is consistent with the works being complete. The time sheets show that workers were on site for most of the days of the works. The payment schedule for payment claim 12 fails to complain of incomplete works, or workers not being on site.
54 Finally, in my view, this is not a ground for disputing a payment claim. The effect of s16(4)(b) of the Act, is that, by failing to serve a payment schedule, Citi-con has in effect lost the right to raise arguments as to the merits of the payment claim.
55 Accordingly, I reject ground 3.
Payment for the works
56 Next, Citi-Con submits that it had already paid for the works in progress claims 10 and 12, to the extent they were completed.
57 In relation to progress claim 10, Mr Smith deposes that: “I believe that in its November Invoice, Cidec was not entitled to further payment for rough in works based on the percentage of those works it had completed for which it had already been paid…”.
58 In respect of progress claim 12, Mr Smith deposes that:
“At paragraph 20 of the Stacey Affidavit, Mr Stacey deposes that the amounts owing to Cidec on the November Invoice, the December Invoice and the January Invoice total $110,484.08 (GST inclusive), being $100,440.07 (GST exclusive). I believe that even on Cidec’s calculations, it is not entitled to payment in that amount because they have ignored the value of the works completed under the Contract as certified by Citi-Con. On the January Invoice, Cidec claimed to have completed total works valued at $610,780.31 (GST exclusive), comprised of $542,171.80 for contract works and $68,608.51, for variation works completed to date. In response to the January Invoice, Citi-Con issued a payment schedule valuing the total completed works at $543,156.33 (GST exclusive), comprised of $483,992.60 for contract works and $59,163.73 for variation works. On those calculations, Cidec would only be entitled to $67,623.98 (GST exclusive), being $74,386.38 (GST inclusive)”.
59 Cidec submits that Citi-Con has not adduced any evidence that it has paid the full amount of any payment claim. It references the evidence of Mr Stacey concerning the outstanding debt.
60 I accept the submissions of Cidec. Beyond mere assertion, Citi-Con has failed to adduce any evidence that Cidec had been paid.
61 Further, in my view, s16(4)(b)(ii) bars Citi-Con from running a defence as to the proper valuation of a claim.
62 I reject ground 4.
Excluded amounts
63 Finally, Citi-Con submits that Cidec has failed to establish that progress claims 10-11 do not contain excluded amounts. Citi-Con submits that progress claim 12 contains excluded amounts; namely:
(a) an unapproved variation (temporary supply of builder’s pole) in the sum of $3,214.85; and
(b) an unapproved variation (rytek wall changes power installation for January 2020) in the sum of $11,019.76.
64 Citi-Con references the assertions of Mr Smith to that effect.
65 In its submissions in chief, Cidec says that the works were claimable variations. In reply, Cidec contends that the temporary supply of builder’s pole fell within the scope of works under the contract: “the provision of all temporaries for all construction areas as required” (Schedule 2, line 41). The correct phrasing of that excerpt is:
“Provision for Electrical temporaries and supplies for all construction areas as required including temporary power boards (including 3 Phase where required), lighting and connection of all site sheds and covered ways including temporary phone lines as required, data points, stairwells, corridors, equipment, etc. and dismantle/removal at completion of project.” (exhibit PS-01 at p 48 of Mr Stacey’s affidavit – line 41 of the schedule)
66 In relation to the rytek walls, Cidec contends that:
(a) Citi-Con has not adduced any persuasive evidence that Cidec not perform the works;
(b) Cidec has produced time sheets which show the number of staff attending the site on each of the days;
(c) the December payment schedule and covering email dated 16 April 2020 did not allege that the work was not performed or that no staff were on site;
(d) Citi-Con had previously certified and accepted 80% of the variations during the contract. Therefore, it made admissions that the variation was a first class or a second-class variation.
67 Cidec concludes that if the payment claims contain excluded amounts, the Court should only award judgment on the valid part of the claim.[27]
[27]AC Hall Airconditioning Pty Ltd v Schiavello (Vic) Pty Ltd [2008] VCC 1490 [37].
68 On 15 March 2021, the Court invited the parties to file and serve further written submissions concerning the application of the recent Court of Appeal decision in Yuanda.[28]
[28]Yuanda (n 1).
69 Citi-Con submitted that:
(a) In determining whether a payment claim does not contain excluded amounts, the Court must only examine “the face of the payment claim”.
(b) Here, the payment claims do not contain sufficient information, supporting documents, or reference to those documents.
(c) In particular, the face of the item “Temporary supply from Builders Pole Changeover – Materials & Labour” (in the January invoice) does not show:
1. that the parties agreed that the doing of the work or the supply of the goods and services constitutes a variation to the contract, as required for first class claimable variations (s10A(2)(c)); or
2. that Citi-Con requested or directed the carrying out of the work or the supply of the goods and services, as required for second class claimable variations (s10A(3)(b)); or
3. that the work has been carried out or goods and services have been supplied as required for second class claimable variations (s10A(2)(a)), or any agreement to that effect as required for first class claimable variations (s10A(3)(a)).
(d) The Court should not conduct a full investigation into the facts, circumstances, and extrinsic evidence of the payment claims (eg: the affidavit evidence of when the plaintiff says it was on site, or timesheets).
(e) Accordingly, the Court cannot be satisfied that the payment claims do not contain excluded amounts.
(f) If a payment claim contains excluded amounts, the impugned portion cannot be severed, and judgment cannot be awarded.
(g) The appropriate forum for excluded amounts disputes is adjudication.[29]
(h) Accordingly, the Court cannot award judgment on the January payment claim.
[29]Ibid [21] (McLeish and Niall JJA).
70 The plaintiff did not file further submissions in relation to the application of Yuanda.
71 The plaintiff bears the onus, under s16 of the Act, of establishing the absence of excluded amounts.[30] Before the decision in Yuanda, there was some dispute as to whether the Court:
a) must only consider the “face of the payment claim,” or whether it can consider extrinsic evidence of the claim item; and
b) whether the impugned portion of a payment claim can be severed.
[30]SOP Act s16(4)(a)(ii); John Beever [44], [131] and [132].
72 In Yuanda, McLeish and Niall JA held that the Court must only examine the “face of the payment claim”.[31] Their honours reasoned that:
“…the interpretation which best accords with the policy of the Act should be preferred. In our opinion, that is the more limited construction on which the primary judge relied. The enforcement process is not intended to be an inquiry into the merits of the claim. That is obvious from the prohibition on the respondent advancing a cross-claim or raising a defence. It is also apparent more generally from the ‘pay now, argue later’ scheme of the Act as a whole and, within that scheme, the provision for adjudication (and adjudication review) in respect of disputed excluded amounts. An interpretation which gives the Court a limited role is to be encouraged as consistent with the Act’s preference for adjudication to resolve disputes about the contents of a payment claim.”[32] [44]
[31]Yuanda (n 1).
[32]Ibid [44].
73 Sifris JA agreed, holding that that the contrary interpretation is antithetical to the purpose of the Act (the timely resolution of payment disputes).[33] His Honour reasoned that:
“The structure, intent and purpose of the Act and the procedure for payment and objections to payment in relation to excluded amounts are predicated on a relatively quick summary procedure for allocation of risk pending any final determination. A full investigation of alleged excluded amount or the suggested digging exercise are entirely contrary to the intended purpose. Rather, it is up to the respondent to identify, in the manner provided for, the excluded amount and set in train the adjudication process. If the respondent fails to do so, it is not open to the respondent to later contest and request a full investigation or digging exercise (a suggested lesser review) in relation to an alleged excluded amount that it should have raised earlier, particularly in circumstances where the enquiry is not directed to a final determination of the rights of the parties, but rather what interim accommodation is appropriate and indeed required based on a face of the claim consideration.” [120]
[33]Ibid [120] (Sifris JA).
74 Accordingly, I must consider whether, “on the face of the payment claim”, the plaintiff has established the absence of excluded amounts.
75 In my view, on the face of the payment claim, the temporary supply of a builder’s pole falls within the scope of the contract. It constitutes the “Provision for Electrical temporaries and supplies for all construction areas as required”, because a builder’s pole is used for electrical works. Therefore, it is not a variation (SOP Act s4).
76 Whereas, on the face of the payment claim, the rytek wall constitutes a change in the scope of the works. Therefore, it is a variation. However, it was not a claimable variation. On the one hand, the evidence does not establish that the rytek works were incomplete.
77 However, Cidec has not adduced any evidence regarding the “face of the payment claim”, beyond mere assertion, that the works were approved. It asserts: “Citi-Con had previously certified and accepted 80% of the variations works during the contract and therefore made admissions that the variation is either a first class or a second class variation”, without any reference to the face of the payment claim (including the supporting documents, or references to those documents). As noted above, the plaintiff bears the onus, under s16, of establishing a lack of excluded amounts.
78 Payment claim 12 does not include any statement and or reference to supporting documents that expressly or inferentially show that (a) the parties agreed that the doing of the work constitutes a variation to the contract; or (b) Citi-Con requested or directed the carrying out of the work; or (c) the work has been carried out. In the circumstances, on the face of the payment claim, the Court cannot be satisfied that the amounts claimed in relation to the rytek walls as variations satisfy the requirements of either a first class or a second class claimable variation. As such, I cannot be satisfied on a balance of probabilities that the claimed amount in payment claim 12 does not include any excluded amounts.
79 Accordingly, I uphold ground 5 insofar as it relates to the rytek walls. In those circumstances, Cidec invites me to sever the impugned portion of the claim.
80 Previous authorities suggested that an impugned amount is severable if it can be “blue-pencilled” or “cleanly excised” from the balance of the claim.[34] However, Yuanda has altered that position.
[34]Seabay Properties Pty Ltd v Galvin Construction Pty Ltd [2011] VSC 183 [65] – [74] (Vickery J).
81 Yuanda concerned a payment claim which allegedly contained excluded amounts. Before the Court of Appeal, the respondent submitted that any excluded amounts were severable from the payment claim. McLeish and Niall JJA rejected that contention.[35] In so doing, their Honours adopted a pragmatic approach to the doctrine of severance:
“[The doctrine of severance] applies where part of an instrument is invalid and, in limited circumstances, the remainder may be preserved by severing that part. The respondent does not identify an instrument to which the doctrine might apply. It cannot be the Act itself, because no question of its validity arises. Nor can it be the payment claim. That is not simply because treating the claimed amount as something less than that which is indicated in the payment claim would fly in the face of the construction of ‘claimed amount’ which has been identified above. It is also because a payment claim which contains an excluded amount within the claimed amount is still a valid payment claim. That is evident from the requirement that the respondent’s payment schedule identify alleged excluded amounts, and the obligations on the Court and an adjudicator in respect of excluded amounts. If the payment claim were simply invalid, these provisions would have no foundation upon which to operate. Since no question of validity of the payment claim arises, severance is not an issue.”[36]
[35]Yuanda (n 1) [30] (McLeish and Niall JJA).
[36]Ibid [31].
82 Their Honours held that three authorities commonly relied upon in support of severance do not apply to excluded amounts. The first was Gantley Pty Ltd v Phoenix International Group Pty Ltd.[37] In Gantley, Vickery J held that the Act does not exclude the common law doctrine of severance.[38] The issue in that case was whether the payment claim sufficiently identified the construction work.
[37][2010] VSC 106.
[38]Ibid [115].
83 Their Honours distinguished Gantley on two bases. First, the Act differed when Gantley was determined. Before the 2006 amendments, the Act lacked the excluded amounts provisions. Secondly, unlike Gantley, Yuanda did not concern the validity of a payment claim.[39]
[39]Yuanda (n 1) [33].
84 The next authority was Seabay Properties Pty Ltd v Galvin Construction Pty Ltd.[40] In Seabay, Vickery J held that while the Act permits a respondent to identify excluded amounts, that respondent cannot avoid paying the entire claim.[41] Their Honours held that Seabay was irrelevant in circumstances where:
[40][2011] VSC 183.
[41]Ibid [71].
(a) the dicta did not discuss the availability of severance, or the construction of s16(4)(a)(ii) (which is only one means of recovering the claimed amount);
(b) Seabay involved an adjudication. Section 23(2B) stipulates that an adjudicator’s determination is void to the extent that it considers an excluded amount (which constitutes a “statutory scheme of severance” in that context)[42]; and
(c) Vickery J referred to the comments about severance in Gantley, yet held that the Act did not invalidate a payment claim containing an excluded amount.[43]
[42]Ibid [63] – [64].
[43]Ibid [65] – [69]; Yuanda (n 1) [34].
85 The final authority was John Beever (Aust) Pty Ltd v Roads Corporation.[44] In John Beever, Digby J held that s16(4)(a)(ii) “precludes the Court from giving judgment for the claimant in respect of’ any excluded amount”.[45] Their Honours held that John Beever did not assist because:
[44][2018] VSC 635.
[45]Ibid [44].
(a) the excerpt merely paraphrased s16(4)(a)(ii);
(b) latter excerpts of the judgment evince that an excluded amount invalidates a claim;
(c) Digby J did not purport to determine the question of severance; and
(d) it was unnecessary for Digby J to determine the issue of severance because the claim was for summary judgment (at [35]).
86 Their Honours concluded that none of the authorities supported the doctrine of severance (at [36]). Sifris JA held that it was unnecessary to determine the issue of severance but agreed that the doctrine of severance did not apply, for the reasons of McLeish and Niall JJ (at [143]).
87 Accordingly, if a payment claim contains an excluded amount, the amount cannot be severed. The Court cannot award judgment on the payment claim. The appropriate forum for excluded amounts disputes is adjudication. Therefore, I cannot award judgment on payment claim 12.
Conclusion
88 For the foregoing reasons, there is judgment for Cidec in the sum of $91,936.31 (the total sum of the payment claims, less the balance owing on payment claim 12), together with interest and costs.
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Certificate
I certify that these 21 pages are a true copy of the judgment of Judicial Registrar Burchell delivered on 10 May 2021.
Dated: 10 May 2021
Julia Despard
Associate to Judicial Registrar Burchell
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