Emery t/as Yarra Valley Commercial v J. Hutchinson Pty Ltd
[2021] VCC 1019
•28 July 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
BUILDING CASES LIST
Case No. CI-21-01861
| SCOTT EMERY t/as YARRA VALLEY COMMERCIAL | Plaintiff |
| v | |
| J. HUTCHINSON PTY LTD (ACN 22 664 963 894) | Defendant |
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JUDGE: | Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 July 2021 | |
DATE OF JUDGMENT: | 28 July 2021 | |
CASE MAY BE CITED AS: | Emery t/as Yarra Valley Commercial v J. Hutchinson Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 1019 | |
REASONS FOR JUDGMENT
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Subject: CONTRACTS
Catchwords: Building contract – payment claim – where the defendant failed to make payment in accordance with payment schedules – whether invalid payment claim – service – service by document exchange platform – amended payment schedule
Legislation Cited: Building and Construction Industry Security of Payment Act 2002 (Vic) ss 4, 9, 10A, 10B, 12, 14(2), 15, 17(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; Zulform Pty Ltd v Donmar Construction Pty Ltd [2020] VCC 562; Downer EDI Works Pty Ltd v Parsons Brinckerloff Australia Pty Ltd [2011] NSWCA 78; Rise Constructions v El-Hajj [2019] VSC 818; Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd & Ors [2010] VSC 199; CS Infrastructure Support Pty Ltd v Jones Lang Lasalle (NSW) Pty Ltd [2020] VSC 739 (CS Infrastructure Support); Conveyor & General Engineering Pty Ltdv Basetec Services Pty Ltd & Anor [2015] 1 Qd R 265; Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd (No 2) [2015] VSC 500; Valeo Construction v Pentas [2018] VSC 243; Brefni Pty Ltd v Specific Industries Pty Ltd [2018] BSWSC 578; Citi-Con v Punton’s Shoes [2020] VCC 804; Neumann Contractors Ply Ltd v Traspunt No 5 Pty Ltd [2010] QCA 119; Aalborg Csp AIS v Otto way Engineering Pty Ltd [20I7] SASCFC 158; Bitannia Pty Ltd & Anor v Parkline (2006) 67 NSWLR 9
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Gray | Just Law |
| For the Defendant | Mr T Cogley | Carter Newell Lawyers |
HER HONOUR:
1 In this proceeding, the plaintiff (“YVC”) applies for judgment against the defendant (“J. Hutchinson”) pursuant to s 17(2) of the Building and Construction Industry Security of Payment Act2002 (Vic) (“SOP Act”). YVC makes the application by summons on originating motion dated 5 May 2021, amended on 23 July 2021. The application arises out of joinery works that YVC performed at 81-109 Moray Street, South Melbourne.
2 YVC submits that it is entitled to judgment because J. Hutchinson failed to make payment in accordance with its schedule amounts certified by it as owing to YVC on its payment schedules.
3 J. Hutchinson filed a notice of conditional appearance on 25 May 2021 in the proceeding and by email dated 26 May 2021, J. Hutchinson requested a short adjournment, to enable it to instruct its solicitors. J. Hutchinson stated that the relevant documents were not received by it until 19 May 2021. By consent of both parties an adjournment was granted to 4 June 2021.
4 The Court granted a further adjournment to 23 June 2021 pursuant to the parties’ consent. This followed notice of J Hutchinson’s intention to adduce evidence relating to a potential defence arising out of payments made to a third party connected to the plaintiff’s claims.[1] The defendant notified the Court of the plaintiff’s belief that the evidence was immaterial to its claim.
[1]Notice provided by email to the court dated 2 June 2021, received at 2.32pm.
5 By Order of Judge Woodward dated 2 June 2021 and as extended by me on 19 July 2021, a timetable was set down for the provision of evidence and submissions upon which the parties intended to rely.
6 The amount sought under the originating motion and summons was amended to $215,727.28.
7 J. Hutchinson relies on four grounds in opposition to YVC’s claim, being:
(a) that Payment Claim 4 is invalid;
(b) there was invalid service;
(c) it had amended its payment schedule in reply to Payment Claim 4; and
(d) it has possible defences of misleading and deceptive conduct and equitable set off.
8 In my view, YVC has satisfied the preconditions to an award of judgment under s 17(2) of the Act and grounds (a) to (d) above are not made out.
9 Accordingly, I order that there is judgment for YVC in the sum of $215,727.28, together with interest. I order that J. Hutchinson pay YVC’s costs of and incidental to the proceeding on the 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
10 YVC relies primarily upon two affidavits of Antonio Mandaliti (“Mr Mandaliti”), the finance and administration manager of YVC, affirmed 23 April 2021 and 18 June 2021, the affidavit of Dean Walpole (“Mr Walpole”) sworn on 16 July 2021, the affidavit of Michelle Beveridge (“Ms Beveridge”) sworn on 20 July 2020 and its summons dated 5 May 2021 and originally returnable on 28 May 2021.
11 In turn, J. Hutchinson relies on the affidavits of Marc Salvatore Pennisi (“Mr Pennisi”), the defendant’s contract manager and that of Benjamin Paul Clarke (“Mr Clarke”), the defendant’s information technology manager, both sworn 8 July 2021.
12 The parties entered into a written standard form contract. By a written contract dated 4 June 2020, J. Hutchinson engaged YVC to supply and install joinery works at 81-109 Moray Street, South Melbourne, an apartment complex.
13 Pursuant to the contract:
(a) YVC was to issue payment claims by the last business day of each month;
(b) J. Hutchinson was to make payment by the end of the following month.
14 In May 2020, YVC served a purported payment claim 1 on J. Hutchinson in the sum of $58,739.54. On 25 June 2020, J. Hutchinson paid $58,152.15.
15 On 3 July 2020, YVC served a purported payment claim 2 on J. Hutchinson in the sum of $503,562.62. On 16 October 2020, J. Hutchinson paid $431,454.57 to YVC. Retention was deducted by the defendant from this claim.
16 On 7 August 2020, YVC served a purported payment claim 3 on J. Hutchinson in the sum of $518,813.40. On 10 August 2020, J. Hutchinson paid $518,813.40.
17 On 13 October 2020, YVC served a purported payment claim 4 on J. Hutchinson in the sum of $529,751.63. On 19 October 2020, J. Hutchinson issued a payment scheduling an amount of $529,033.12. On 26 October 2020, J. Hutchinson part-paid the claim in the sum of $313,303.84. It was noted at paragraph 6(d) of Mr Mandaliti’s affidavit that the payment claim 4 sum was listed as $529,033.12 but at paragraph 19 is expressed as $523,752.47 based on the MYOB invoice at exhibit AM-4. During oral submissions counsel for YVC clarified that the payment claim relied on by the plaintiff was found at pages 291-293 of Mr Pennisi’s exhibits, which provided for the sum of $529,751.63 (incl GST). Accordingly, the court proceeds on the payment claim contained in Mr Pennisi’s affidavit and the sum of $529,751.63 amount for the purposes of this decision.
18 A “final payment claim” was said to have been sent to J. Hutchinson in the sum of $1,376.69 in November 2020. J. Hutchinson did not pay any of the amount claimed. YVC did not press its claim in relation to the “final payment claim” at final hearing.
19 The plaintiff deposed that the purported costs of the works completed by YVC totalled $1,477,451.77 + GST being the sum of $1,625,196.95, of which it was paid $1,362,282.41 incl GST with a retention of $40,594.31 payable in November 2021.
20 This claim arises from an unfortunate incident involving fraudulent activity by a third party resulting in J. Hutchinson paying the sum of $431,454.57 to a bank account controlled by a third party or another person, in circumstances where the defendant intended to pay that amount to YVC. The current proceeding concerns what the status quo should be, pending any action arising from the cyber security breach.
21 Mr Mandaliti deposed that on 31 July 2020, J. Hutchinson told YVC that at some time in July 2020, J. Hutchinson received a fraudulent email from a party falsely claiming to be YVC, and requested J. Hutchinson change the banking payment account details of YVC’s payment claim 2.
22 According to Mr Mandaliti, J. Hutchinson said it conformed with the request, altered the bank details, and wrongfully paid YVC’s payment claim 2 to a third party.
23 Mr Mandaliti comments that:
(a) YVC did not request its bank account details be altered;
(b) YVC’s documentation and correspondence including contracts and invoices accurately contain its banking account information;
(c) J. Hutchinson advised YVC that the information received by the third party regarding the claim details must have been obtained through a compromise in YVC’s email system and therefore, J. Hutchinson held YVC partially to blame for the fraudulent payment;
(d) Mr Owen Valmadre (“Mr Valmadre”), the finance director of J. Hutchinson, advised that J. Hutchinson would be withholding 50% of its June claim, totalling $215,727.28, because of the fraudulent payment;
(e) he in turn believed the fraudulent payment occurred because of a lack of security, processes and system checks within J. Hutchinson’s business;
(f) payment claim 3 was paid on 10 August 2020 whilst claim 2 remained outstanding.
24 Mr Mandaliti deposed that on 25 August 2020, he phoned Ms Claire Hays (“Ms Hays”) of J. Hutchinson requesting an update on purported payment claim 2. According to Mr Mandaliti, Ms Hays responded that payment of the claim was to be discussed with Mr Valmadre and that she was not authorised to comment. Mr Mandaliti then called Mr Valmadre’s office and left a message, but Mr Valmadre did not return the call.
25 Mr Mandaliti further deposed that on 3 October 2020, he phoned Ms Jo Nicolls (“Ms Nicolls”), the contracts and administration manager of J. Hutchinson, requesting an update on payment claim 2. According to Mr Mandaliti, she advised she would forward the payment request on to Mr Valmadre. Mr Mandaliti deposes he did not hear from Mr Valmadre.
26 On 7 October 2020, Mr Mandaliti caused to be emailed, a detailed scope of works to J. Hutchinson which formed a schedule of the works completed by YVC and showing that in August and September 2020, YVC had completed $481,592.39 (excluding GST) worth of works. Mr Mandaliti says this was usual practice and allowed the parties to finalise and agree on the scope and value of works performed before YVC issued a tax invoice and formal payment claim.
27 Mr Mandaliti deposed that over the next two weeks, he phoned and emailed Mr Valmadre several times, with no response.
28 On 21 October 2020, Ms Mandie Quinn (“Ms Quinn”) from accounts payable at J. Hutchinson sent Mr Mandaliti an email containing a credit note, backdated to 3 July 2020 for 50% of payment claim 2 and fraudulent payment totalling $215,727.23. The credit note stated that all enquiries regarding the credit note should be directed to Mr Valmadre. Mr Mandaliti deposed that on 30 October 2020, he phoned and emailed Ms Quinn rejecting the credit note.
29 YVC now claims the sum of $284,270.72 under s17(2) of the SOP Act, amended to $215,727.28 by leave of the Court.
The legal context
30 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]Building and Construction Industry Security of Payment Act 2002 (Vic) (“SOP Act”) s3.
[3]Ibid s7.
31 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. Section 17(2)(a) provides that where a respondent provides a payment schedule within time, a claimant may recover from the respondent any unpaid portion of the amount which the payment schedule states the respondent proposes to pay to the claimant.
32 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).
33 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”.
34 Section 14(5), (6) and (7) of the SOP Act concern payment claims 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.
35 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”.
36 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.
37 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. Although dealing with the alternative option of an adjudication application referred to in the New South Wales equivalent of s16(2)(a)(ii), this follows inexorably from the decision of the High Court in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd[4] (“Southern Han”). On the other hand, the available defences to a payment claim are very limited.
[4](2016) 260 CLR 340 at [44].
38 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 Part 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]Ibid at [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);
(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]
[6]Southern Han at [61]-[62]; Vanguard Developments v Promax [2018] VSC 386 at [121] (Kennedy J).
[7]SOP Act s14(8).
(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.
39 Under section 47, nothing in Part 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 Part 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 at [2] and at [43]-[46] (Vickery J), cited with approval in Pearl Hill Pty Ltd v Concorp Construction Group (Vic)Pty Ltd [2011] VSCA 99 at [11].
[9]Falgat Constructions Pty Ltd v Equity Australia Corp Pty Ltd (2005) 62 NSWLR 385 at [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 at [2] and at [43]-[46].
40 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.
41 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]
Are the requirements of the SOP Act satisfied?
Ground (a) Invalid Payment Claim
[11]3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 at [39]-[54]. See also SJ Higgins v The Bays Healthcare Group Inc [2018] VCC 805 at [26].
[12]Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at [449-450] (Mason CJ, Brennan, Deane and Gaudron JJ).
[13]3D Flow Solutions Pty Ltd v LTP Armstrong Creek Pty Ltd [2018] VCC 674 at [51]-[54].
42 In summary YVC seeks judgment in circumstances where:
(a) it issued valid payment claims and served those payment claims on the defendant;
(b) the defendant issued a payment schedule to payment claim 4 certifying scheduled amounts owing to YVC in response to YVC’s payment claims;
(c) the defendant has failed to make payment in full of the scheduled amount by their due dates or at all; and
(d) the requirements of the Act in relation to obtaining judgment for a debt pursuant to s 17 are satisfied.
43 The defendant submitted that Payment Claim 4 is not a payment claim served on the Defendant within the meaning of section 17(1)(a) of Act where:
(a) The document at “exhibit AM4” of the First Mandaliti Affidavit (AM4) does not satisfy the basic and essential requirements of a payment claim under the Act because:
(i) it does not adequately identify the construction work or related goods and services to which it relates with the degree of specificity required by section 14(2)(c), because it states only that it is in respect of “Progress Invoice. Unclaimed to end September 20.”
(ii) it does not indicate the amount of the progress payment that the plaintiff claims as due, as is required by section 14(2)(d), because it provides a “Balance Due” of $523,752.47 and an “Amount Due” of $210,446.63.
44 This first ground was dealt with once it was clarified in oral submissions that the payment claim is the document set out in Mr Pennisi’s affidavit at pages 291-293. That document contained a schedule which sets out the detailed scope of works completed by YVC for the purposes of the payment claim. Therefore, it does adequately identify the construction work or related goods and services to which it relates with the degree of specificity required by section 14(2)(c) of the Act. It also states that the amount due is $529,751.63.
45 Ground (a) is rejected.
Ground (b) Service
46 J. Hutchinson then submitted that it was not served with Payment Claim 4.
47 The subcontract provided that deemed service occur under clause 7.3(b) if a notice is:
sent by email transmission (and having regard to the sending party’s electronic equipment report as to the time and date of the email transmission):
(i) before 5.00pm on any business day, in which case it is deemed to be given at the time and on the date it was delivered …
48 In the present case, on 13 October 2020, J. Hutchinson accessed a link provided in an email sent through by YVC’s accounting software (MYOB), whereupon J. Hutchinson downloaded the document exhibited at pages 292 to 293 of exhibit MSP-1 of the Pennisi Affidavit.
49 J Hutchinson claims that the subcontract between the parties does not provide for service via a cloud-based document exchange platform or equivalent. Previous claims issued by YVC to J. Hutchinson were made via email attaching the relevant claim document.
50 Section 50 of the Act describes how notices or documents under the Act may be served. Pursuant to s 50, a notice or document that by or under the Act is authorised or required to be given to or served on a person may be given to or served on the person, amongst other things, ‘by delivering it to the person personally’, or ‘by lodging it during normal office hours at the person’s ordinary place of business’, or ‘in any other manner specified in the relevant construction contract’.
51 A payment claim is to be regarded as a notice for the purpose of s 50 of the Act.[14] The provisions of s 50 of the Act are not exhaustive in relation to service.[15] As Vickery J observed in Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd & Ors:[16]
Section 50 of the Act is facultative, it is not mandatory. It will be noted that the opening words used in section (1) are “may be given or served”. Section 50 is not a code. The section does not operate so that if there is no service under any of its limbs there is no service at all. The service provisions under s.50 of the Act are in addition to and do not limit or exclude the common law or the provisions of any other applicable legislation with respect of the service of notices, for example s.109 X of the Corporations Act 2001. Further, under s 50(1)(e) of the Act, service may be effected “in any manner specified in the relevant construction contract”.
[14]Zulform Pty Ltd v Donmar Construction Pty Ltd [2020] VCC 562 at [32]; Downer EDI Works Pty Ltd v Parsons Brinckerloff Australia Pty Ltd [2011] NSWCA 78 at [6].
[15]Rise Constructions v El-Hajj [2019] VSC 818 at [65].
[16][2010] VSC 199 at [162].
52 J. Hutchinson submits that the authorities dealing with service by electronic means other than email or direct attachment to email (including Dropbox and other cloud-based services) are generally on the question of the time at which service by such means is effected. In the absence of agreement between the parties, service of a document may be deemed effective at the time of receipt, rather than upon a document being made capable of being retrievable.[17]
[17]CS Infrastructure Support Pty Ltd v Jones Lang Lasalle (NSW) Pty Ltd [2020] VSC 739 (CS Infrastructure Support), at [119] to [148]. See also Conveyor & General Engineering Pty Ltd v Basetec Services Pty Ltd & Anor [2015] 1 Qd R 265.
53 Justice Stynes in CS Infrastructure Support[18] (at [119]) found that the requirement that the Payment Claim be served was not satisfied by the Payment Claim being uploaded to “Corrigo” ( cloud based facilities management platform that amongst other things facilitates the issuing of work orders and the service of invoice) even though it may have been available for the defendant to retrieve from that date. The question for service is when the Payment Claim was received. The Payment Claim is served on the date when it came to the attention of the defendant.[19]
[18]CS Infrastructure Support at [119].
[19]Ibid at [148].
54 The evidence of Mr Pennisi is that:
On 13 October 2020, the AP Address received an email from an address controlled by MYOB, the Plaintiff’s accounting software which included a link to a downloadable file. On 13 October 2020, the Defendant accessed the file and downloaded an invoice claiming the sum of $529,751.63 incl. GST (INV-2268).
55 I therefore find that Payment Claim 4 was served on J. Hutchinson when it became aware of it on 13 October 2020.
56 Ground (b) is not made out.
Ground (c) Amended Payment Schedule
57 J. Hutchinson then claims that if it is accepted that YVC is able to rely on the MYOB Claim as Payment Claim 4, it is submitted that for the purposes of section 17(1)(d) of the Act, J. Hutchinson proposed to pay the amount of $313,305.84 in response to the Payment Claim by amending its original Payment Schedule.
58 It was common ground between the parties that J. Hutchinson initially responded to Payment Claim 4 by issuing a document that proposed to pay the amount of $529,033.12 (“19 October Payment Schedule”). J. Hutchinson conceded that the 19 October Payment Schedule, taken in isolation, would qualify as a “payment schedule” in response to Payment Claim 4 under the Act.[20]
[20]Pennisi Affidavit sworn 8 July 2021, pp. 295 – 298.
59 However, J. Hutchinson says that the 19 October Payment Schedule should be read together with the document subsequently issued by it to YVC on 21 October 2021 (“Request for Credit”), which it contended modified or amended the 19 October Document.[21]
[21]Ibid, pp. 299 – 301.
60 J. Hutchinson claims that the Request for Credit satisfied the requirements under s15 of the Act as it:
(a) self-identified as a “payment schedule”;
(b) was issued in time, being sent to the YVC by email on 21 October 2020 which is within 6 days of the Defendant receiving Payment Claim 4 on 13 October 2020;
(c) applied a deduction of $215,727.28;
(d) provided a reason for that deduction, being on account of a repayment of a previous invoice due to a “hacking incident”; and
(e) identified that it related to Payment Claim 4, by its covering email stating: “This /these RFC/’s will be deducted from your next payment”.
61 YVC argues that the “Request for Credit” does not satisfy the mandatory requirements under s15 of the Act as it:
(a) identifies invoice number 2222, which refers to Claim 2, as this was the invoice in respect of which the 50% deduction was purportedly being made, and not Payment Claim 4, being invoice 2236. This did not comply with s15(2)(a) which requires that the payment schedule must identify the payment claim to which it relates; and
(b) did not indicate the amount of payment (if any) that the respondent proposed to make (being the scheduled amount). The Request for Credit only referred to a deduction of $215,727.28 and did not indicate a sum proposed to be made by J. Hutchinson (if any).
62 YVC submits that the Request for Credit was in a different form to all previous payment schedules, including the 19 October Payment Schedule, and contained a header of “Payment Schedule Suppliers - Request for Credit”. The covering email of 21 October 2020 also stated “Attention” Credit Manager Please find attached an RFC for your reference”. This is to be contrasted with the 19 October Payment Schedule which contained the header of “Sub-Contractor Progress Payment Advice (Original) Payment Schedule” and the covering email attached addressed to “The Finance Officer Please find attached a copy of our Progress Payment Advice in relation to invoice: 00002268.” As such, there is no clear communication that the Request for Credit was to substitute or revise the 19 October Payment Schedule.
63 J. Hutchinson says that the 19 October Document and the Request for Credit when read together with the ‘tutored eye’ one can calculate that the scheduled amount that the defendant proposed to pay in respect to the MYOB Claim was $313,305.84, being $529,033.12 less $215,727.28. This amount, being ‘the more recent version of the defendant’s position’ was ultimately paid in full to YVC on or about 25 October 2020.
64 Therefore, J. Hutchinson submits that the deduction could only be made in response to Payment Claim 4 where the scheduled amount in respect of Claim 2 had been paid in full on 16 October 2020, prior to the issuance of the Request for Credit.
65 J. Hutchinson contends that it was open for the defendant to seek to revise or replace the 19 October Payment Schedule. It relied on the cases of Amasya Enterprises Pty Ltd v Asta Developments (Aust) Pty Ltd (No 2)[22] and Valeo Construction v Pentas[23] in which Digby J noted:
The parties however acknowledge that if adequately communicated a payment claim can be withdrawn or abandoned and a new or resubmitted payment claim can then be served in respect of the relevant reference date.
[22][2015] VSC 500 at [89].
[23][2018] VSC 243 at [51].
66 J. Hutchinson placed great weight on the decision of McDougall J in Brefni Pty Ltd v Specific Industries Pty Ltd[24] at [11]-[12]:
[24][2018] NSWSC 578.
To the untutored eye, the second payment schedule may not state a scheduled amount. However, the tutored eye of the adjudicator was able to discern this. …
Brefni's evidence is that it is submitted a revised payment schedule which was intended to supersede the earlier payment schedule. I simply do not understand how it can be said that the adjudicator erred in considering the more recent version of the statement of Brefni's position. As he said, the later document was "clearly intended to replace the earlier document". He noted that the parties had agreed to this being done. There is no evidence that they did not do so.”
67 These authorities can be distinguished on the basis that the withdrawal or abandonment of payment claims and payment schedules are with adequate communication, agreement of the parties or by consent.[25] There is no agreement or consent in the present matter. I further find that the email of 21 October 2020 was not a clear communication by J. Hutchinson that the 19 October Document had been withdrawn or replaced.
[25]Citi-Con v Punton’s Shoes [2020] VCC 804.
68 J. Hutchinson submits that the reply email dated 30 October 2020 from Mr Mandaliti to Ms Mandie Quint in response to the Request for Credit indicates that “to the tutored eye” YVC understood the Request for Credit to be an amended payment schedule. Reading the email in context, in my view, Mr Mandaliti was responding to a request for credit and not an amended payment schedule. He replied:
We advise that we reject the request for credit.
This credit is invalid and should not have been deducted from our sub-contract payment no.4 As such we request payment of the balance of our sub-contract payment no.4 being $215,727.28
69 It follows that J. Hutchinson is liable for the full amounts scheduled by it on its payment schedules as owing to YVC in circumstances where:
(a) payment claims 4 is valid;
(b) YVC served payment claim 4 on J. Hutchinson; and
(c) J Hutchinson failed to pay amounts it scheduled as owing to YVC on its 19 October payment schedule.
70 Ground (c) is not accepted.
Ground (d) Possible Defences
71 J. Hutchinson finally contends that the matters deposed to in the Pennisi and Clarke Affidavits disclose possible defences including:
(a) a defence arising out of a misleading or deceptive representation by YVC that its email security protocols were sufficiently robust to withstand infiltration, with such representation being made by YVC through its conduct in agreeing to and adopting a practice of regularly submitting claims for payment by email; or
(b) a defence of equitable set off arising out of the loss incurred by J. Hutchinson in paying the third party the sum of $431,454.57 due to YVC breaching a duty to J. Hutchinson to ensure that its email protocols were sufficiently robust so as to withstand infiltration. Such a defence would “go to the root” of a failure to pay any scheduled amount in respect of the MYOB Claim, in light of J. Hutchinson’s setting off of Payment Claim 4 on account of the “hacking incident” referred to in the Request for Credit.
72 There have been a small number of cases in which claims of misleading and deceptive conduct under the Australian Consumer Law (ACL) have been found not to be precluded by the Act (or its interstate equivalents).[26]
[26]See Aalborg Csp AIS v Otto way Engineering Pty Ltd [2017] SASCFC 158; Bitannia Pty Ltd & Anor v Parkline (2006) 67 NSWLR 9.
73 Those cases have claimed misleading and deceptive conduct only in relation to the manner in which the plaintiffs perform their obligations under the Act (or its interstate equivalents), such as how they have served payment claims on the defendants, not in relation to performance or failure to perform under the construction contract. For example, the Bitannia case involved a Payment Claim that indicated that it had been copied to the architect when it had not in fact been sent to the architect. As a consequence, Bitannia failed to respond with a Payment Schedule within the time allowed by the Act. Parkline then proceeded to seek judgment for the amount claimed.
74 Hodgson JA held at paragraph [8] and [9] that:
... it would not be in accordance that a corporation should be permitted to obtain a judgment against a defendant on a cause of action one essential element of which has been created by that corporation’s misleading conduct against that defendant...
75 In this way those permissible ACL defences do not arise ‘under the construction contract’ and thus are not precluded by ss 16(4) or 17(4) of the Act.
76 The distinction - and the very narrow manner in which ACL claims can be used by a defendant in a SOP Act case - was helpfully expressed by the Queensland Court of Appeal in Neumann Contractors Ply Ltd v Traspunt No 5 Pty Ltd.[27] In considering the Queensland equivalent to section 16(4) SOP Act, Muir JA (with whom Holmes and Chesterman JJA agreed) stated:
[27][2010] QCA 119 at [47]-[48].
In my view, s 19(4)(b)(ii) prohibits the raising of a defence only if it can fairly be described as one which relates to matters arising under the relevant construction contract ... I do not consider that a defence that the payment claim relied on by the claimant is virtually identical in all relevant respects to a previous one made by the claimant meets the description in s 19( 4 )(b )(ii), at least, where, as is the case here, the merits of the defence stand to be determined essentially by the comparison of one document with another.
Had the provision been intended to catch all defences having a connection with the construction contract, however remote, all words in s 19( 4 )(b )(ii) after "to raise any defence" would have been otiose: all payment claims are necessarily concerned with "matters arising under the construction contract". The aim of the provision would appear to be to prevent respondents to claims relying on allegations that the moneys claimed are not owing for reasons referable to the terms of the construction contract and/or to the parties' performance or failure to perform thereunder. If such matters are to be relied on as a defence to a payment claim, they must be included in a payment schedule.
77 In my view, the alleged damage arising from any possible claim of misleading and deceptive conduct or equitable set off, arising out of the loss incurred by J. Hutchinson in paying the third party the sum of $431,454.57 due to YVC, ought to have been the subject of the payment schedules given by J. Hutchinson to YVC.
78 Given the statutory requirements under the special “pay now, argue later” regime have been satisfied, by force of s 17(4)(b) of the Act, J. Hutchinson as a respondent to a proceeding under s 17(2)(a)(i), is prohibited from bringing a cross claim or raising any defence in relation to the matters arising under the construction contract. The ability to serve a payment claim by email is provided for in the construction contract at clauses 7.2, 7.3, 7.5 and Annexure A item 21. In my view, any issues about the security features arising under the use of email for submitting and responding to claims for payment arise under the terms of the subcontract or are in relation to a matter arising under the contract. This is not a case of misleading and deceptive conduct in relation to the manner in which YVC has performed its obligations under the Act.
79 Accordingly, J. Hutchinson cannot now raise any claims or defences in this proceeding. It can, pursuant to s 47 of the Act, litigate any such matters in separate proceedings.
80 It would be inconsistent with the nature of the ‘pay now, argue later’ purpose of the Act, if J. Hutchinson were allowed to raise a defence in the current proceeding in relation to the cyber security issue.
81 J. Hutchinson served a payment schedule to Payment Claim 4 for the amount of $529,033.12. It became liable to pay that amount as a consequence of it having scheduled that amount as payable and having failed to make full payment in respect of same before the due date for payment. As a consequence, YVC is entitled, pursuant to s 17(2)(a)(i) of the Act, to recover the balance outstanding in the sum of $215,727.28 as a debt due in this Court.
82 Ground (d) is refused.
Conclusion
83 For the foregoing reasons, there is judgment for YVC in the sum of $215,727.28, together with interest and costs.
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Certificate
I certify that these 18 pages are a true copy of the judgment of her Honour Judge Burchell delivered on 28 July 2021.
Dated: 28 July 2021
Simon Bobko
Associate to her Honour Judge Burchell
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