East End Projects Pty Ltd v GJ Building and Contracting Pty Ltd

[2020] NSWSC 819

Supreme Court

New South Wales

Medium Neutral Citation:

East End Projects Pty Ltd v GJ Building and Contracting Pty Ltd [2020] NSWSC 819

Hearing dates:

25 June 2020

Decision date:

29 June 2020

Jurisdiction:

Equity - Commercial List

Before:

Ball J

Decision:

Summons be dismissed with costs

Catchwords:

BUILDING AND CONSTRUCTION - Progress payments – Where right to present payment claim contingent on the provision of a draft payment claim on a certain date – Whether contingency void for unduly restricting the operation of the Building & Construction Security of Payment Act 1999 (NSW)

Legislation Cited:

Building & Construction Industry Security of Payment Act 1999 (NSW)

Building and Construction Industry Payments Act 2004 (Qld)

Cases Cited:

Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2016] 1 Qd R 30; [2014] QSC 293

Category:

Principal judgment

Parties:

East End Projects Pty Ltd (Plaintiff)
GJ Building and Contracting Pty Ltd (Defendant)

Representation:

Counsel:
S Robertson with A Langshaw (Plaintiff)
FP Hicks SC with J Nathan (Defendant)

Solicitors:
McCullough Robertson (Plaintiff)
Effective Legal Solutions (Defendant)

File Number(s):

2020/177020

Publication restriction:

None

Judgment

1. By a summons filed on 15 June 2020, the plaintiff, East End Projects Pty Ltd, seeks a declaration that a claim for payment dated 28 May 2020 and served by the defendant, GJ Building & Contracting Pty Ltd (GJBC), is void and of no effect for the purposes of the Building & Construction Industry Security of Payment Act 1999 (NSW) (the Act) and an order restraining GJBC from seeking a determination under the Act in respect of that claim. The answer to the question whether East End is entitled to the relief it seeks turns on whether a reference date had arisen in respect of the claim for payment at the time that it was served.

2. The claim for payment was served in respect of work done under a contract dated 1 June 2018 (the Contract) pursuant to which East End engaged GJBC to undertake certain construction works on a project located at East End, Newcastle, New South Wales.

3. At the time the contract was entered into, s 8 of the Act was relevantly in the following terms:

(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.

(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 the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract; or

(b)   if the contract makes no express provision with respect to the matter – the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month.

4. Section 34(2) of the Act provided (and continues to provide) that:

A provision of any agreement (whether in writing or not):

(a)   under which the operation of this Act is, or is purported to be, excluded, modified or restricted (or that has the effect of excluding, modifying or restricting the operation of this Act); or

(b)   that may reasonably be construed as an attempt to deter a person from taking action under this Act,

is void.

5. The right to make a progress claim is governed by clause 37 of the Contract. Under cl 37.1 and Item 33 of the Annexure to the Contract, GJBC was required to provide a draft progress claim in writing to the Superintendent appointed under the Contract on or before the 25^th day of each month “for WUC [work under contract] done to the last day of that month” (to quote from Item 33). Under cl 37.1(d), the draft claim was required to contain certain information including:

(i)   the Contractor's valuation of Work executed;

(ii)   the amount and particulars of any adjustments to the Contract Sum, whether in terms of the Contract or for breach of the Contract;

(iii)   the total amount previously certified pursuant to subclause 37.4;

(iv)   the total amount previously paid or in terms of the Contract deemed to have been paid to the Contractor;

(v)   the amount then claimed by the Contractor; and

(vi)   the Contractor's estimated cost to complete the Works.

6. Clause 37.1(e) provides:

If the Contractor fails, in respect of a draft progress claim, to comply strictly with the requirements of this subclause 37.1 (including, without limitation, the requirements of subclause 37.1(d)), the draft progress claim will be deemed not to be a draft progress claim under this subclause 37.1, and no further draft progress claim will be considered until all requirements referred to in this subclause 37.1 have been submitted to the Superintendent in respect of each draft progress claim.

7. Clause 37.2 requires the Superintendent within five business days after receiving a draft progress claim complying with the requirements of cl 37.1 to issue a preliminary assessment of the amount which, in the opinion of the Superintendent, is due in relation to the draft progress claim.

8. Clause 37.3 provides:

Progress Claim

(a)   No earlier than 7 Business Days after the date the draft progress claim under subclause 37.1(a) was provided to the Superintendent, the Contractor must provide to the Superintendent a progress claim in final form (Final Progress Claim) which must:

(i)   include all the items described in subclause 37.1(d);

(ii)   be accompanied by a supporting statement, required to accompany a progress claim under section 13(7) of the Security of Payment Act, which is completed by a duly authorised representative of the Contractor who is in a position to know the facts declared; and

(iii)   a warranty in the form attached as Annexure Part H.

(b)   For the avoidance of doubt, the date referred to in subclause 37.3(a) is the 'reference date' for the purposes of the Security of Payment Act.

9. In this case, GJBC did not follow the procedure set out in cl 37. Instead, it served what purported to be a payment claim for the purposes of the Act on 28 May 2020 without issuing any draft progress claim to the Superintendent. It claims that the mechanism for fixing a reference date under cl 37 is void under s 34 of the Act with the result that a reference date arose on the last day of each month under s 8(2)(b). The claim it served was served in respect of the reference date that was said to arise on 30 April 2020. On the other hand, East End claims that, in accordance with s 8(2)(a) of the Act, the reference date is to be determined by the Contract and no relevant reference date has arisen under it because no draft claim had been served.

10. GJBC’s contention that the provisions of the Contract providing for the payment of progress claims were invalid under s 34 of the Act rests heavily on the reasoning of Applegarth J in Lean Field Developments Pty Ltd v E & I Global Solutions (Aust) Pty Ltd [2016] 1 Qd R 30; [2014] QSC 293. The facts of that case were very similar to those of the present one. The provisions of the relevant construction contract (cls 33.7 and 33.8) required the claimant to serve a draft payment claim on a specified date in each month containing certain information set out in the contract in respect of work done “to that time”. The Superintendent was required to issue a preliminary assessment of that draft claim within 14 days of its receipt. No earlier than 14 days after serving the draft claim, the claimant was entitled to serve a final payment claim covering “all work carried out … to that time”.

11. Applegarth J held that cls 33.7 and 33.8 were rendered void by s 99 of the Building and Construction Industry Payments Act 2004 (Qld), the Queensland equivalent of s 34. In reaching that conclusion, his Honour said (at [88]):

Clauses 33.7 and 33.8 provide for the possibility of a reference date, not its actuality. Whether or not a reference date arises is contingent upon compliance on a particular day with a condition which has no significant utility in terms of facilitating the payment of a progress payment to which the first respondent would otherwise have a statutory entitlement. The condition thereby amounts to an unnecessary and impermissible constraint on the right to claim for payment under the Act. The requirement that the draft payment claim be delivered on a particular day may have some limited utility to the processing of an actual payment claim, however, that utility is not apparent in circumstances where the actual payment claim relates to different work undertaken during a different period. The requirement to deliver draft payment claim on a particular day may not seem very onerous, depending upon what is required in terms of its form and contents and the potential for dispute about its compliance with cl 33.7(a) and whether it is supported by the information referred to in that provision. However, even if the formal requirements of the draft payment claim are not onerous, the question remains about the point in terms of the Act of such a mandatory requirement in circumstances where a failure to comply with it extinguishes the statutory right to a progress payment.

His Honour expressed the view that “The position might be otherwise if the draft payment claim and the payment claim related to the same work and the same period, allowing the contractor to refine and correct its draft payment claim in the light of the preliminary assessment.” (at [41]). In that case, it might be possible to see the procedure requiring the service of a draft payment claim as a mechanism designed to facilitate the prompt payment of progress claims rather than a mechanism which had the effect of impeding a reference date from arising.

12. East End did not seek to challenge the correctness of the decision in Lean Field. Rather, it contended that that case was distinguishable from the present one and that the present one fell within the category of cases where the requirement to serve a draft payment claim first could be seen as facilitative of the processes and rights conferred by the Act rather than a fetter on them. The difficulty with the provisions considered in Lean Field was that there was no connection between the draft payment claim and the final one. The draft was served in respect of work done up until the time the draft was served. The final claim could not be served earlier than two weeks later and covered work up until the time it was served. As a result, the service of a draft and the Superintendent’s preliminary assessment of it did nothing to facilitate consideration of the final payment claim by the parties and the prompt resolution of any issues in relation to it. On the other hand, there is a much closer connection between the draft and final payment claims in this case. The draft must be served on or before the 25^th of each month. But it is required to cover work done up until the end of the month. The final payment claim cannot be served earlier than seven business days after service of the draft. Clause 37.3 does not specifically say that the final claim must cover the same period as the draft one, but that might be implied and, in any event, given the timing that is likely to be the practical effect. In any event, even if it is not, it is a result that could be achieved by serving the draft earlier than the 25^th day of a particular month.

13. I accept that this is an important distinction between the facts of Lean Field and those of the present case. If that were the only issue then I do not think that there could be any objection to the relevant clauses. In substance, the draft and final versions of the payment claims will or are likely to cover the same period. Although the draft is required to contain certain information, that is information that would normally be expected in a payment claim and does not place a significant fetter on GJBC’s ability to serve a payment claim. Consequently, there are reasons for thinking that the requirement to serve a draft in advance of the final claim is facilitative of the processes of the Act and the prompt payment of progress claims.

14. GJBC suggested that the regime was contrary to the provisions of the Act because it would give East End advance notice of the issues that would likely be raised by the payment claim and therefore more time to prepare its payment schedule than the 10 business days allowed by s 14(4) of the Act. But I do not think that means the contractual provisions have the effect of excluding, modifying or restricting the operation of the Act. The requirement in s 14(4) places a time limit on the service of a payment schedule which is served in response to a payment claim. The purpose of the time limit is to ensure that once the processes of the Act commence with the service of a payment claim, they occur promptly. It is not the purpose of the Act to prevent the parties from introducing other mechanisms in their contract to ensure that they are not caught by surprise.

15. In my opinion, however, there is another problem with the mechanism by which a reference date is fixed under the Contract which is fatal to that mechanism. That problem arises from the fact that the Contract requires the draft payment claim to be served on the 25^th day of a month or before. The result is that GJBC will not be entitled to serve a payment claim at all in respect of a particular month if it fails to serve a draft of that payment claim on or before the 25^th day of that month. The effect of that requirement is to restrict the operation of the Act. That is because s 8 states that “[o]n and from each reference date … a person … who has undertaken to carry out construction work under the contract … is entitled to a progress payment” and s 13 states that such a person, or a person who claims to be such a person, may serve a payment claim, with the result that under the Act a person may serve a payment claim any time after a reference date arises.

16. Of course, there is not a logical contradiction between the Contract and the Act. The requirement of service on or before a specified date only relates to the draft payment claim. The actual payment claim may still be served at any time after the expiration of seven working days from the date the draft was served. It is that later date which is the reference date under the contract. The payment claim can be served any time after that date. But if the draft is not served within time no reference date arises at all. The result is that the occurrence of a reference date is contingent on the service of a draft payment claim by a specific date.

17. Two things may be said about that. First, although the requirement to serve on or before a specific date only relates to the draft payment claim, the effect of that requirement is to restrict the operation of the Act because it limits the circumstances in which GJBC can make a progress claim by reference to that requirement. An alternative way of looking at the issue is that the occurrence of a date for making a claim for a progress payment is contingent, with the result that the Contract does not satisfy the requirements of s 8(2)(a) because it does not provide a date on which a progress claim may be made.

18. East End takes issue with the conclusions of the previous paragraph. It submits that there is nothing in the Act which prevents a reference date from being contingent. The existence of a reference date can, for example, be contingent on the claimant meeting specific milestones. In the present case, the occurrence of the relevant contingency – the making of a draft claim by a certain date and containing certain information – was entirely within GJBC’s control and was not onerous. But the difficulty with that response is the nature of the contingency. It is plain that in this case the right to a progress payment under the Contract is a right to make a claim in respect of work done in a particular month. In order to exercise that right, GJBC must serve a draft claim covering work to the end of that month by a particular date. If it does not, it loses the right to make a claim for a progress payment in that month altogether. That is a serious restriction on the right to make a progress claim and therefore a serious restriction on the operation of s 8 of the Act. There is no apparent purpose behind that restriction other than to create a restriction on the rights conferred by the Act.

19. East End submitted that, even accepting the conclusion of the previous paragraph, that did not render void the whole of cls 31.1 to 31.3 of the Contract. It would still be possible to interpret those provisions as imposing a requirement to serve a draft progress claim but not at any particular time. Since GJBC has not served a draft progress claim, no relevant reference date has yet arisen. I do not accept that submission. If the submission is correct, it would mean that GJBC could serve a draft progress claim at any time and a final progress claim at any time seven days after that. That would involve a fundamental and impermissible rewriting of the Contract.

20. GJBC has not filed a cross-summons seeking a declaration that certain provisions of the Contract are void. However, it follows from what I have said that the Contract does not identify a date on which a claim for a progress payment may be made in relation to work carried out under the Contract. Consequently, a reference date arose under the Contract under s 8(2) of the Act. Accordingly, the Summons must be dismissed with costs.

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Decision last updated: 29 June 2020