Commercial Fitouts Australia Pty Ltd v Miracle Ceilings (Aust) Pty Ltd
[2020] SASC 11
•4 February 2020
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
COMMERCIAL FITOUTS AUSTRALIA PTY LTD v MIRACLE CEILINGS (AUST) PTY LTD & ORS
[2020] SASC 11
Judgment of The Honourable Justice Stanley
4 February 2020
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - REMUNERATION - STATUTORY REGULATION OF ENTITLEMENT TO AND RECOVERY OF PROGRESS PAYMENTS - ADJUDICATION OF PAYMENT CLAIMS
The plaintiff seeks declarations that a payment claim served by the first defendant was void for the purpose of the Building and Construction Industry Security of Payment Act 2009 (SA) (the Act) and that the adjudicator lacked jurisdiction such that the subsequent adjudication of the payment claim was void. The plaintiff also seeks an order that the adjudication decision and any certificate issued upon the adjudication be quashed and that the judgment entered upon the certificate be set aside.
At issue is whether the payment claim was void by reason that it was not served within the period of six months after the construction work to which the claim relates was last carried out as required by s 13(4) of the Act.
Held:
1. The plaintiff is entitled to the declarations and orders it has sought. The plaintiff is to bring into Court minutes of order that reflect these reasons.
Building and Construction Industry Security of Payment Act 2009 (SA) s 13, referred to.
APX Projects Pty Ltd v The Owners – Strata Plan No. 64025 [2015] NSWSC 1250, applied.
Air Services Australia v Ferrier (1995-1996) 185 CLR 483, discussed.
Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd (2018) 264 CLR 1; Maxcon Constructions Pty Ltd v Vadasz (2018) 264 CLR 46; Southern Han Breakfast Point Pty Ltd (In Liq) v Lewence Construction Pty Ltd & Ors (2016) 260 CLR 340; Tagara Builders Pty Ltd v AP & L Services Pty Ltd (2015) 112 SASR 29; Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd [2018] ACTSC 282; Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd [2019] ACTCA 15; Estate Property Holdings Pty Ltd v Barclay Mowlem Construction Ltd (2004) 61 NSWLR 515; Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248; Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140; Leighton Contractors Pty Ltd v Campbelltown Catholic Club Ltd [2003] NSWSC 1103; Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd [2007] QSC 333; Gantley Pty Ltd & Ors v Phoenix International Group Pty Ltd & Anor [2010] VSC 106, considered.
COMMERCIAL FITOUTS AUSTRALIA PTY LTD v MIRACLE CEILINGS (AUST) PTY LTD & ORS
[2020] SASC 11Civil
STANLEY J:
Introduction
The plaintiff seeks declarations that the payment claim served by the first defendant on 22 March 2019 was void for the purpose of the Building and Construction Industry Security of Payment Act 2009 (SA) (the Act) and that the adjudicator lacked jurisdiction such that the subsequent adjudication of the payment claim was void. The plaintiff also seeks an order that the adjudication decision and any certificate issued upon the adjudication be quashed and that the judgment entered upon the certificate be set aside.
At issue is whether the payment claim was void by reason that it was not served within the period of six months after the construction work to which the claim relates was last carried out as required by s 13(4) of the Act.
Findings of fact
The relevant facts are not in issue. They are set out in the affidavit of Joshua James Davies affirmed 11 July 2019.
There is no dispute that the first defendant performed construction work pursuant to a construction contract with the plaintiff.
The first defendant purported to serve on the plaintiff a payment claim dated 22 March 2019 for payment of $43,113.90.
The third defendant found he had jurisdiction to determine the adjudication application and decided that the plaintiff is to pay the first defendant the claimed amount of $43,113.90.
The payment claim made reference to invoices numbered 67-79 inclusive. It is common ground that only invoice 79 related to construction work that was performed within the six-month period prior to 22 March 2019 prescribed by s 13(4)(b) of the Act.
The plaintiff contends that the payment claim for the sum of $43,113.90 relates to construction work that was the subject of invoice 67 in the sum of $19,322.05, invoice 70 in the sum of $10,169.15, invoice 72 in the sum of $5,297.60 and invoice 74 in the sum of $8,325.10. The first defendant contends that the parties operated a running account such that the effect was that invoice 79 had not been paid.
In order to understand the basis of the dispute I set out the table that formed part of the payment claim and described the basis of the calculation for the claimed amount of $43,113.90.
CONTRACT WORK INVOICE
AMOUNT INCL GST
PAID INCL GST
67
* $19,322.05
$0.00
68
$10,595.20
$10,595.20
69
$16,365.80
$16,365.80
70
* $20,362.65
$10,193.50
71
$9,081.60
$9,081.60
72
* $14,710.30
$9,412.70
73
$18,115.90
$18,115.90
74
* $13,764.30
$5,439.20
75
$12,108.80
$12,108.80
76
$5,203.00
$5,203.00
77
$5,628.70
$5,628.70
78
$7,260.55
$7,260.55
79
$3,784.00
$3,784.00
TOTAL VALUE OF CONTRACT WORK
$156,302.85
$113,188.95
CLAIMED AMOUNT
$43,113.90
The evidence establishes that invoice 79 was rendered by the first defendant to the plaintiff on 25 September 2018. The evidence also establishes that the plaintiff made various payments to the first defendant. Those payments included a payment of $3,784 on 27 September 2018.
The submissions of the parties
The plaintiff submits that the first defendant’s payment claim related to work performed that was the subject of the invoices numbered 67, 70, 72 and 74. It submits that is apparent from the terms of the payment claim. The evidence is that all that work was performed more than six months before the date of the payment claim, namely, 22 March 2019. Accordingly, the payment claim was not brought within the prescribed period for the purposes of s 13(4)(b) of the Act. The bringing of the payment claim within the six-month period prescribed by that provision is a jurisdictional fact. As the claim was not brought within time, there was a want of jurisdiction for the adjudication of the payment claim.
The first defendant submits that central to the plaintiff’s challenge to jurisdiction is the contention that the payment claim is for the unpaid balance of invoices 67, 70, 72 and 74. It contends that this is not a correct characterisation of the nature of the commercial relationship between the plaintiff and the first defendant. The first defendant contends that the nature of the commercial arrangement agreed between the parties was that of a running account.
The first defendant says it is apparent from the terms of the payment claim that it included a claim in respect of the work performed relating to invoice 79. That is apparent on the face of the payment claim. If the 13 invoices are treated as a running account then there is no reason to characterise the payment claim as limited to work done in respect of invoices 67, 70, 72 and 74. This is consistent with evidence of some payment in lump sums. Even if the adjudicator was in error in considering that invoice 79 formed part of the payment claim, that error is a non-jurisdictional error.
Section 13 of the Act
Section 13 of the Act provides:
13—Payment claims
(1) A person referred to in section 8 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 contract concerned, is or may be liable to make the payment.
(2) A payment claim—
(a) must identify the construction work (or related goods and services) to which the progress payment relates; and
(b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and
(c) must state that it is made under this Act.
(3) The claimed amount may include an amount—
(a) that the respondent is liable to pay the claimant under section 28(3); or
(b) that is held under the construction contract by the respondent and that the claimant claims is due for release.
(4) A payment claim may be served only within—
(a) the period determined by or in accordance with the terms of the construction contract; or
(b) the period of 6 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied),
whichever is the later.
(5) A claimant cannot serve more than 1 payment claim in respect of each reference date under the construction contract.
(6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.
Relevant legal principles
Judicial review of an adjudicator’s determination under the Act is confined to review for jurisdictional error. It does not extend to review for non-jurisdictional error of law on the face of the record, let alone any other error of fact or law that an adjudicator might have made when acting within jurisdiction.[1] The existence of a valid payment claim is an essential precondition to the exercise of the adjudication function under the Act. Unless a payment claim answering that description is served there can be no adjudication application and no adjudication within the jurisdiction conferred by the Act.[2] It is for the Court rather than the adjudicator to determine whether jurisdiction has been validly invoked.[3]
[1] Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 (2018) 264 CLR 1; Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5 at [5], (2018) 264 CLR 46 at 52.
[2] Southern Han Breakfast Point Pty Ltd (In Liq) v Lewence Construction Pty Ltd & Ors [2016] HCA 52 at [44], (2016) 260 CLR 340 at 356.
[3] Tagara Builders Pty Ltd v AP & L Services Pty Ltd [2015] SASC 30 at [20], (2015) 122 SASR 29 at 35; Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd [2018] ACTSC 282 at [94], and on appeal Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd [2019] ACTCA 15 at [19]-[21].
As long as some construction work, for which payment is claimed by the service of the payment claim, was carried out within the prescribed period of six months then the whole of the payment claim is within time.[4]
[4] Estate Property Holdings Pty Ltd v Barclay Mowlem Construction Ltd (2004) 61 NSWLR 515 at [11], [17]-[19] and [21].
Nature of a payment claim
The test of whether a payment claim satisfies the requirements of s 13 is decided objectively. It must be clear from the terms of the document that it contains the required information[5] but the terms must be read in context. 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. Those matters are part of the context.[6] The manner in which compliance with s 13 is tested is not overly demanding.[7] The requirements for a payment claim should not be approached in an unduly technical manner but rather applied in a common sense practical manner. Given that a payment claim must be produced quickly, much that is contained within it will be in an abbreviated form which will be meaningless to the uniformed reader but will be readily understood by the parties themselves.[8] Nonetheless, a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he or she will not be able to provide a meaningful payment schedule. Accordingly, a payment claim must put the principal in a position where he or she is able to decide whether to accept or reject the claim and, if the principal opts for the latter, to respond appropriately in a payment schedule.[9]
[5] Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248 at [10].
[6] Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140 at [76].
[7] Leighton Contractors Pty Ltd v Campbelltown Catholic Club Ltd [2003] NSWSC 1103 at [54].
[8] Minimax Fire Fighting Systems Pty Ltd v Bremore Engineering (WA) Pty Ltd [2007] QSC 333 at [20].
[9] Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248 at [12].
Running account
The nature of a running account was explained in the joint reasons of Dawson, Gaudron and McHugh JJ in Air Services Australia v Ferrier.[10]They said:[11]
[T]he significance of a running account lies in the inferences that can be drawn from the facts that answer the description of a "running account" rather than the label itself. A running account between traders is merely another name for an active account running from day to day, as opposed to an account where further debits are not contemplated. The essential feature of a running account is that it predicates a continuing relationship of debtor and creditor with an expectation that further debits and credits will be recorded. Ordinarily, a payment, although often matching an earlier debit, is credited against the balance owing in the account. Thus, a running account is contrasted with an account where the expectation is that the next entry will be a credit entry that will close the account by recording the payment of the debt or by transferring the debt to the Bad or Doubtful Debt A/c.
If the record of the dealings of the parties fits the description of a "running account", that record will usually provide a solid ground for concluding that they conducted their dealings on the basis that they had a continuing business relationship and that goods or services would be provided and paid for on the credit terms ordinarily applicable in the creditor's business.
[10] (1995-1996) 185 CLR 483.
[11] (1995-1996) 185 CLR 483 at 504-505.
However their Honours qualified that explanation of a running account as follows:[12]
Commonly, … the relationship between a debtor and creditor will involve more than a single transaction. It will often involve a number of dealings in which goods or services are supplied at regular intervals but the payments for those goods or services neither are made regularly nor, when made, are appropriated to a specific or even the most recent delivery of the goods or services.
[12] (1995-1996) 185 CLR 483 at 503.
At issue is whether specific payments were made by the plaintiff to the first defendant in payment of a specific invoice. That gives rise to consideration of whether there has been appropriation of payments. I will come back to this question.
Consideration
For jurisdictional purposes the critical question in this matter is not whether the plaintiff was dealing with the first defendant on a running account basis but rather whether progress payments were made in respect of specific invoices which related to specific work pursuant to the construction contract between the parties. This requires identification of the relevant jurisdictional fact, namely, whether the payment claim served on 22 March 2019 related in any way to construction work which was last carried out in the preceding six months. The only construction work that answered that description was the work that related to invoice 79. That invoice was dated 25 September 2018. It was an invoice in the amount of $3,784. That amount was paid on 27 September 2018. The terms of the payment claim itself issued by the first defendant identified the payment claim as relating to the unpaid invoice 67 and the part-paid invoices 70, 72 and 74. It is the case that the payment claim identifies 13 separate invoices, nine of which are indicated as having been fully paid, but those nine invoices cannot reflect a claim for a progress payment in respect of the construction work to which those invoices relate because of the fact that they have been paid. Reference to those invoices in the payment claim cannot make the work to which those invoices relate, and in particular, the work done in respect of invoice 79, a claim for payment for the particular construction work to which these nine invoices relate.
This conclusion is founded on two propositions. First, pursuant to s 13(2) the payment claim must identify with reasonable specificity the work which is the subject of the payment claim 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 to define the issues in dispute between the parties which the adjudicator is to resolve, and to enable an adjudicator, if appointed, to determine the adjudication application.[13] Second, the circumstances of the payments made in this case implies an appropriation of payments made by the plaintiff to the first defendant. The circumstances of the payments imply that the payments have been made by the plaintiff in respect of specific invoices. Most importantly, the circumstances by which the plaintiff paid the sum of $3,784 on 27 September 2018 implies that this payment was made in respect of invoice 79.
[13] Gantley Pty Ltd & Ors v Phoenix International Group Pty Ltd & Anor [2010] VSC 106 at [41].
In APX Projects Pty Ltd v The Owners – Strata Plan No. 64025[14] Slattery J explained the principles for ascertaining to which debt a payment will be appropriated as follows:[15]
[14] [2015] NSWSC 1250.
[15] [2015] NSWSC 1250 at [30]-[35].
The principles for ascertaining to which debt a payment will be appropriated work in the following stages. Firstly, a debtor has the right, in the first instance, to declare in respect of which debt he pays money: Mills v Fowkes. However as noted by the authors in E Tyler, P Young and C Croft, Fisher & Lightwood's Law of Mortgage (3rd ed 2013, LexisNexis) at 32.52, the debtor’s direction must be in clear terms: Colonial Bank of Australasia v Kerr; Healey v Commonwealth Bank of Australia. For example, entries made by the debtor in his or her own books are not sufficient evidence of a particular appropriation of money paid on a general account: Wrout v Dawes.
Equally, it is possible that in circumstances where a debtor fails expressly to communicate to the creditor the appropriation of a debt, the circumstances of payment may be such that the proper appropriation of the debt is implied. This may be the case, for example, where two debts of different amounts are owing and the amount paid equates to one of them.
Secondly, where the debtor does not appropriate his or her payment to a particular debt, the creditor enjoys the right of choosing the debt to which the payment is appropriated. As Lord McNaughten in Cory Brothers & Company v Owners of Turkish Steamship ‘Mecca’:
“When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor.”
Thirdly, where neither the debtor nor the creditor acts upon their successive entitlements to choose how the debt will be appropriated, the default position is that the payment will be applied to the oldest debts first: Devaynes v Noble (‘Clayton’s Case’); Sibbles v Highfern Pty Ltd. In Re Walsh; Ex parte DCT, Lockhart J explained the application of these three rules governing the appropriation of payments in the following way:
“A debtor who owes two debts to a creditor is entitled to appropriate a payment which he makes to his creditor to one debt rather than to the other. If he omits to do so, the creditor may make the appropriation. If neither makes any appropriation, the law appropriates the payment to the earlier debt. If there is specific appropriation by the debtor cadit quaestio. In the absence of a specific appropriation it is a question of fact whether there was any appropriation by the debtor. To constitute an appropriation there must be more than an intention to appropriate by the debtor. I respectfully adopt the following passage from the judgment of Greene LJ in I:
‘When, however, he does not notify the creditor of his intention, and when the circumstances are such that the creditor receives the payment merely in satisfaction of the debts and the payment is not more appropriate to the payment of the one debt than to that of the other the creditor is entitled to make the appropriation. When it is said that there need not be an express appropriation of a payment, but that the appropriation can be inferred, that does not mean that appropriation of a payment can be inferred from some undisclosed intention in the mind of the debtor. It is to be inferred from the circumstances of the case as known to both parties. Any other view might lead to injustice, as the creditor's right to appropriate a payment would be defeated. When the matter is examined upon principle it will be found that an undisclosed intention in the mind of the debtor is not sufficient to support an appropriation. If authority is needed for that proposition it can be found in the judgment of Lush J in Parker v Guinness where he said: ‘What is to be considered is this. Is the true inference to be drawn from all the circumstances of the case that the debtor paid the moneys generally on account, leaving the creditor to apply them as he thought fit, or is the true inference that he paid them on account of special portions of the debt for the purpose and with a view to wipe these out of the account? His undisclosed intention so to do would, of course, not benefit him. It is what he did in fact, and not what he meant to do that is to be regarded.’ A debtor's undisclosed intention to appropriate a payment to one of two debts owed by him to a creditor cannot benefit him.’”
As noted in Caltabiano v Electoral Commission Of Queensland (‘Caltabiano’), the above quotation from Parker v Guiness regarding when an appropriation of a payment to a particular debt will be inferred continues, as follows:
“It is what he did in fact, and not what he meant to do that is to be regarded. But if the inference to be drawn from the circumstances is that the payment was in fact appropriated by the debtor at the time of payment, the fact that he made no express statement at the time is immaterial. Now an appropriation by the debtor may be inferred from a variety of circumstances. Each case must, in my opinion, be considered on its own peculiar facts.”
Muir JA in Caltabiano held that the inference as to appropriation to be drawn from the circumstances “is the inference which would have been drawn by a reasonable person who had regard to those circumstances. The circumstances include ‘the purpose and object’ of the application.”
[Citations omitted].
This implication is reinforced not just by the circumstances in which the payments were made, and in particular the payment of invoice 79 was made, but by the requirements of s 13(2) of the Act which I have explained above. I do not accept the first defendant’s submission based on a running account. While it is apparent that payments were made from time to time by the plaintiff that represented part payment of certain invoices, namely, a payment of $18,720.90 on 16 August 2018 representing payment of invoice 73 and part payment of invoice 67, and a payment of $17,548.30 on 31 August 2018 representing payment of invoice 75 and part payment of invoice 74, that does not detract from the fact that invoice 79 had been specifically paid by the plaintiff on 27 September 2018. Neither does it detract from the fact that the payment claim on its face relates to a claim for payment for invoice 67 and part payment of invoices 70, 72 and 74. Accordingly, it follows that the construction work to which invoice 79 relates was not the subject of the payment claim served on 22 March 2019. As a result, the payment claim was not made within the six months prescribed by s 13(4)(b). That conclusion dictates that the adjudication decision was made in want of jurisdiction.
Conclusion
The plaintiff is entitled to the declarations and orders it has sought. I direct that the plaintiff is to bring into Court minutes of order that reflect these reasons.